Investors exposed to Russia should mark 3-4 September in their calendars in red ink.
Dmitry Medvedev’s electioneering speech at the St Petersburg Economic Forum on Friday (17 June) – on which more below – drowned out a very important piece of information from Vladimir Putin. In an address the previous day to the Coordinating Committee of his new political vehicle, the “All Russia Popular Front”, Putin announced that the pre-election congress of the party that he leads – United Russia (UR) – will now take place on 3-4 September (previously the party leadership had indicated that this event would happen on 21-22 September).
I have always believed that the UR congress will be the moment when Putin finally dispels all or most of the uncertainty over how he and Medvedev will handle the forthcoming parliamentary and presidential elections. At the equivalent stage in the last political cycle (the UR congress in October 2007), Putin confirmed that he would leave the presidency (something which, up to that point, few commentators had believed would happen) and become prime minister (something which, to my knowledge, no one had predicted). Although in that election season, Putin did not reveal until after the State Duma election in December the other crucial bit of information about his choice of successor as president, this time round full political visibility will probably emerge from the UR congress – that is, including the news everyone has been waiting for about whether Medvedev or Putin will contest (and therefore win) the presidential election next March. This prospect was all but officially confirmed in May, when Dmitry Peskov, Putin’s official press spokesman, said that UR would adopt its presidential candidate at its congress ahead of the Duma election.
So there we have it: the timing of the political moment of truth has been brought forward. Putin’s obscure (i.e., smokescreen) rationale for this acceleration is to allow time for “detailed discussion of [election campaign] ideas and proposals from the regions”. In my view the real reason for this timing decision must be a compromise between two schools of thought: the first, publicly championed by Medvedev, favours an end to political uncertainty sooner rather than later while Putin’s stated view is that a “premature” unveiling of his and Medvedev’s plans could paralyze the bureaucracy for many months (and underlying this argument is Putin’s standard preference for keeping all options open until the last possible moment). Bringing forward the UR congress – and hence election-related announcements – to immediately after the summer holiday season should therefore be reckoned a minor victory for Medvedev.
Does this shift towards Medvedev over the matter of timing presage Putin’s big decision itself going Medvedev’s way (in the sense that he will be allowed continue in office for a second presidential term)? Regular readers of Trusted Sources Russia research will know that I have always expected this outcome. But at the same time I remain wary of spurious Kremlinology (that is, reading too much into any particular developments) and prefer to base my view on the fundamental dynamic of Russia’s present ruling establishment. In any case, the least that can be said about Putin’s announcement of the definitive date of the UR congress is that it does no harm to Medvedev’s cause.
Medvedev championed his own cause in impressive style in his St Petersburg speech. He opened his account of Russia’s new national project by saying that it would be implemented “regardless of who occupied one or another office of state”. But he then went on to present this programme very much as a personal manifesto. Each key element – which elaborated in some way the core rejection of state capitalism as a “dangerous threat to the country’s future” – was proclaimed as “my choice”. In the same breath, he repeated two warnings (initially made at his big press conference on 18 May) implying that Russia would be better off if he continued as president rather than having to make way for a renewed Putin presidency. First, he cautioned against stability degenerating into a neo-Brezhnevite stagnation and then he highlighted the danger of the country becoming ever more dependent on a single individual.
If Medvedev’s implicitly recommended antidote to this last danger was a second presidential term for himself, his publicly stated solution was a decentralization drive. That, along with the other main policy details of Medvedev’s manifesto, has been well reported. But one particular detail is worth mentioning here as it bears on the timing of the removal of political uncertainty. In calling for the privatization programme to be accelerated and radicalized (in the sense of reducing government stakes in major companies to below the controlling 50 per cent level), Medvedev set the government a deadline of 1 August to come up with a revised programme. If that deadline is met and the new programme envisages the outright privatization of Rosneft before 2015, this will bode well for the prospect of Medvedev’s second term being endorsed at the UR congress on 3 September.
That prospect, in turn, will halt if not reverse capital outflows – causing upward pressure on the ruble – and will likely produce at least one quarter of relative outperformance in the Russian equity market. And, unless global headwinds prove too strong, a period of strong absolute returns should follow as well.
With best regards,
Christopher Granville
Director of Russia & FSU Research, Trusted Sources
