Turning point for Russia

Russia's Kudrin Eyes Exit, Citing Policy Differences

By IRA IOSEBASHVILI

WASHINGTON—Russian Finance Minister Alexei Kudrin, a darling of investors and one of the country's longest-serving officials, said Saturday he would decline a post in Russia's next government, just hours after Vladimir Putin announced he would stand for president in 2012 elections.

Mr. Kudrin cited differences with current President Dmitry Medvedev—who is expected to lead the next government as prime minister—on plans for ramped up military spending and other issues, saying Mr. Medvedev's policies carried "significant budget and macroeconomic risks" for the country.

Messrs. Putin and Medvedev on Saturday ended months of intense speculation over which of them would run for president in March, disclosing in back-to-back speeches at a congress of the ruling United Russia party that they had agreed to switch jobs.

"I don't see myself in the new government. Nobody has offered me a position, but I think that the disagreements I have will not allow me to be a part of the new government," Mr. Kudrin told journalists at a briefing on the sidelines of the International Monetary Fund and World Bank meetings here.

When asked if he would take a position if one were offered, Mr. Kudrin said: "I would definitely refuse."

The move is likely to be a major concern for investors, who have gotten used to Mr. Kudrin as a steady hand on Russia's finances over the past decade.

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Mr. Kudrin, the longest-serving finance minister in the Group of Eight leading economies, came to the job in 2000, shortly after Mr. Putin took over Russia's presidency. The two men have been seen as close allies, with both of them having served in the administration of former St Petersburg mayor Anatoly Sobchak.

His relationship with Mr. Putin led many investors and analysts to speculate that Mr. Kudrin was a likely candidate for prime minister, should Mr. Putin choose to stand for president.

Mr. Kudrin, 50 years old, oversaw a period of booming oil prices, which helped Russia's economy bounce back after the turbulent reforms of the post-Soviet 1990s. When oil prices plummeted in the wake of the 2008 financial crisis, Mr. Kudrin's decision to save the country's excess oil revenues in a rainy-day fund—for which he had been roundly criticized by many in the government—helped Russia avert economic catastrophe and possible social unrest.

A fiscal hawk who kept Russia's sovereign debt at below 10% amid growing borrowing in other countries, Mr. Kudrin often butted heads with those in the government pushing for growth through spending, including Mr. Medvedev. At an economic forum in St Petersburg earlier this year, Mr. Kudrin openly criticized Mr. Medvedev for urging Russia to live within its means on one hand while simultaneously raising defense spending.

Russia last week passed an amended budget where military spending triples to 3% of gross domestic product in 2014 from just over 1% this year.

"This is very significant growth," Mr. Kudrin said. "It won't allow us to cut the deficit during high oil prices, it will maintain our dependence on oil."

Russia—the world's largest oil producer—needs an ever-growing oil price in order to balance its budget, and cash from energy sales account for half of the country's federal budget revenues.

Mr. Kudrin said that Mr. Putin, as president, would be more active in carrying out reforms necessary to modernize Russia's economy and cut its dependency on oil and other commodities.

"Putin very seriously feels problems and reacts to them. Because of this, I hope he will feel that it is necessary to carry out reforms in order to raise Russia's economic potential, including structural reforms," Mr. Kudrin said.

He said that the makeup of Russia's current government could see "significant changes" under the new leadership. "I heard this morning there will be a team of young, effective managers," Mr. Kudrin said, laughing.