Putin dismisses entire government

The big news coming out of Russia today is President Putin’s surprise dismissal of the entire Russian government, just three weeks before the Presidential elections of 14th March.

Putin announced the decision in a televised announcement to the nation (transcipt here), setting out his justifications…

It has been dictated by a desire to once again set out my stance on the issue of what the course for the country’s development will be after 14 March 2004 [the date of the presidential election].

I think Russia’s citizens have the right to and should know the proposals for the composition of the supreme executive body of the state if I am elected president of Russia.

Putin appointed Viktor B. Khristenko, formerly a deputy Prime Minister as acting Prime Minister, and confirmed that he would use the opportunity to restructue the federal government…

Within a week of being appointed, the chairman of the government will have to present me with proposals for a new structure of the federal bodies of executive authority.

The true target of this dismissal was Prime Minister Mikhail Kasyanov, who is widely thought to have strong sympathies for the oligarchs. However the Russian Constitution does not allow the President to dismiss individual Prime Ministers, only the government as a whole. Putin and Kasyanov had a strained relationship, to say the least, and Putin reinforced the impression that Russian policy will not change significantly by commenting positively on the overall performance of the government…

This decision is not related to an assessment of the results of the activities of the former composition of the government, which on the whole I consider to be satisfactory.

And here lies the puzzle behind todays announcement. The major issue here is not so much that the government was dismissed, but the timing of the dismissal. Elections are only three weeks away and, following those, the government is automatically disbanded and reformed (much like the US government after a Presidential election). If Putin’s sole aim was to remove Kasyanov from his post as Prime Minister, he could comfortably have waited until after the Presidential election. Kasyanov would have been forced to resign, and he could be replaced with little fuss. Today’s announcement, however, has created waves throughout the world, and made traders on the world markets nervous. Bloomberg reports that…

The Moscow Interbank Currency Exchange Index fell as much as 2.3 percent, and was down 1 percent at 570.57 as of 5:36 p.m. Moscow time.

I think that the reasoning behind Putin’s decision was a desire to reinforce strongly the message that he is now in charge of the Russian government, a message he first sent with the arrest in October 2003 of Mikhail Khodorkovsky, Russia’s richest man and owner of Yukos. Throughout his Presidency, Putin has been dogged by rumours that he is too heavily indebted to the Yeltsin era oligarchs who thrust him into power in 2000. If he is to dispel those rumours he must be seen to be acting decisively and to be confronting the oligarchs. By removing Prime Minister Kasyanov, he is removing one of the oligarchs’ last powerful supporters in government, making it far easier for him to pass legislation that would restrict their influence and, if necessary, to prosecute some of them.

The nervousness that this announcement has created in the markets is, ironically, helpful to Putin. It shows that he is following a slightly risky path, and creates the impression of a man who is determined to wrest control of the Russian political system from the oligarchs whatever the cost. It allows Putin to be seen as not only a strong leader, but a man of principle. In reality, however, the risks are relatively small. While there were major fluctuations in the markets after Mikhail Khodorkovsky’s arrest in October, the markets bounced back relatively quickly. This was when Putin took his big gamble. If the markets had not recovered so well, Putin would have not been able to make today’s announcement. By dismissing Kasyanov he is just emphasising his new control in one of the most dramatic ways possible.

Putin will, of course, also use this opportunity to stock the government with his supporters, making his power base more secure for the next four year Presidential term, and also for any potential extension of his Presidency beyond 2008.

UPDATE: More analysis can be found at The Financial Times, The Economist and Interfax.