By John Helmer in Moscow
Russia’s new Prime Minister Victor Zubkov has moved from obscurity to presidential status in half a day, showing character not seen in Moscow for 25 years.
The man, whose name in Russian means “tooth”, shows he has mettle and bite – confidence in himself, pride in what he has done, and toughness toward what he must do, characteristics last on display in Moscow when Yuri Andropov took charge. That was in November 1982, when the Soviet Union was still going strong, and Andropov, head of the KGB, took over the country two days after the death of Leonid Brezhnev.
In Asia, the most likely reactions to Zubkov are a sigh of relief in Beijing and renewed frustration in Tokyo. If the Andropov model forecasts anything, applied to Russia’s future as energy, minerals and metals supplier to the factories of northern Asia, it means more certainty for China, less for Japan.
Both for President Vladimir Putin, who appointed Zubkov in a surprise move on Wednesday, and for Sergei Ivanov, the deputy prime minister expected, until now, to be Putin’s successor in presidential elections next March, Andropov was a personal model and career godfather, when they commenced their intelligence-agency service in the mid-1970s.
Andropov was 68 in 1982 when he took over as general secretary of the Soviet Communist Party and de facto head of government. Zubkov is 66, a decade older than Putin and Ivanov, and the same age as the two ex-KGB officers ranking highest on Putin’s staff, Victor Sechin and Victor Ivanov. But Zubkov is not a KGB man.
Zubkov’s background is that of a farm manager, with agronomy training to start and an early career running collective farms in the Leningrad region. From there he rose to deputy chairman of the Leningrad region Communist Party. After the collapse of the Soviet Union in 1991, he moved on to the senior staff of St Petersburg mayor Anatoly Sobchak. It was there that Zubkov began working with Putin. From 1994 to 1999 he was the chief tax inspector of St Petersburg, the man who knew where all the skeletons, and the treasure, were buried in what was the most criminalized of all Russian cities.
When Putin became prime minister, and then president in 2000, Zubkov was brought to Moscow as overseer of tax evasion and money-laundering. From 2004 until now he headed the Federal Financial Monitoring Service of the Finance Ministry. At the same time, his son-in-law, Anatoly Serdyukov, was head of the Federal Tax Service. In February, Putin appointed Serdyukov defense minister, replacing Sergei Ivanov, who moved up to deputy prime minister, and president-in-waiting.
In retrospect, that appointment appears to have been the first sign of Putin’s confidence in Zubkov. Unnoticed until now, it was Zubkov and Serdyukov, acting as Putin’s overseers of the cash flow of the country, who assisted in Putin’s most decisive political and economic move – the arrest in 2003 of oligarch Mikhail Khodorkovsky, and the subsequent breakup of the Yukos oil company group.
That campaign, attributed by political analysts to Putin’s chief aide Sechin, continues to dismantle the great oil, metal and mining fortunes amassed during the years of the late president Boris Yeltsin by a dozen men known as the oligarchs. To combat the power of their money, Putin turned to his old network of KGB colleagues, creating a faction in government known as the siloviki (“the power men”).
Just as the US government once brought down Chicago gangster Al Capone with an indictment for tax evasion, Putin’s choice of Zubkov means that the future Russian government, and its economy, will be run by people who intend to threaten the oligarchs, and control them in the same fashion. Zubkov is backed by the siloviki. His appointment is also a clear signal that the US-favored candidate for president, St Petersburg lawyer Dmitry Medvedev – also deputy prime minister until now, and Ivanov’s rival – will not be promoted to govern the country.
The new Russia is beginning to look very much like the old one. But with oil at US$80 per barrel, it is a magnitude more potent than the economy Andropov took charge of in his brief 15 months in office, before his death in 1984.
Commenting on Zubkov, one of the sharpest of Kremlin observers said Putin “has a level of trust in this man that he does not in others. There are power centers around the others, and Putin decided to pull the rug from under their feet. Putin owes nothing to the present cabinet and coterie, and the stability of the past eight years has run its course. He has been constructing a new team all this while, and bringing a man from finance and tax is very significant in terms of what could come next.”
Gleb Pavlovsky, a well-known political public relations man in Moscow, with a penchant for spotting, and staying, on the winning side, announced after Zubkov’s nomination as prime minister: “Doubtless, the new prime minister will be this candidate [for president], but one should take into account one important nuance.” According to Pavlovsky, if parliamentary elections scheduled for December do not go the way the Kremlin wants, and there is an eruption of unplanned protest from voters, Zubkov could become Putin’s scapegoat, and he may be dropped from the succession plan.
“The government structure is not very effective, so changes are imminent,” Zubkov told the press after he went to the State Duma [parliament] to meet parliamentary factions. “If I get something done here, in this post of prime minister, then I do not exclude that,” he added, referring to the presidency.
In his first public appearances, Zubkov, who is a short man (like Putin), demonstrated unsmiling stature. He speaks without the stumbling, hesitation or grammatical error of his immediate predecessor, Mikhail Fradkov, or Yeltsin’s longest-serving prime minister, Victor Chernomyrdin. Zubkov displays none of the nervousness or jokes for approval that characterized other, weaker predecessors such as Yegor Gaidar (the US favorite), Sergei Kirienko and Sergei Stepashin.
Until this week, the consensus among political observers in Moscow was that Putin had already chosen Ivanov as the next president. On trips to India and, most recently, to the Asia-Pacific Economic Cooperation summit in Australia, Ivanov has conveyed an assurance that those who have talked with him have interpreted as confirmation of the succession.
The alternative scenario was that Putin would select an unknown, possibly an aging figure, whom he could count on to retire within a year or two, thus allowing Putin to return for a fresh term as president. The Russian constitution limits the president to two consecutive terms. The break-a-leg presidential plan allowed Putin to step down, as required by the law, and then step back.
Ivanov has had a titanium knee replacement, and sometimes can be seen to walk stiffly. But he’s too young to become Putin’s fall-guy. Zubkov is older, but not less vigorous.
“No one is going to install someone as president with a disability,” suggested a Kremlin-connected businessman. “Of all the agreements and understandings, this would not be one. No, Putin will not risk being so blatant with the next president. Let’s not forget, Putin sees things for what they are, as he fancies himself as a new avatar of Andropov. And behind all this cold-war rhetoric, which is good for grabbing votes, he knows the corruption and financial ills. He chose someone who has no affiliations to any oligarch.”
Moscow’s investment bankers have most at stake in the future of the corporations still controlled by oligarchs such as Oleg Deripaska and Victor Vekselberg. These two now face a more uncertain market response to their attempt to sell shares in United Company Rusal, their aluminum giant, which has been planning a $30 billion initial public offering (IPO) in London this year.
Bankers advising Rusal have revealed that they had been negotiating with the Fradkov government for a letter of assurance to new shareholders that there would be no re-nationalization of Rusal after the IPO. Zubkov’s appointment, and the ministerial reshuffle he has started, will now oblige Rusal’s bankers to start from scratch. As a September 2004 report by the Tax Ministry revealed, Deripaska’s Rusal has paid less tax than any other Russian metals producer.
Roland Nash, strategist for Renaissance Capital, an influential Western-owned investment bank in Moscow, reports the wishful thinking that has swept the money markets. “Our first reaction to this particular premier is that, while he is now among the front-runners, we do not see him as the likely successor. More likely, we see him as another means of cementing some stability during the period of power transfer, a prime minister who will serve under both the current and the next president.”
Nash concedes that the future has suddenly darkened for oligarchs such as Deripaska, Vekselberg and the two men who control Russia’s most important mining companies, world leaders Norilsk Nickel and Polyus Gold, Vladimir Potanin and Mikhail Prokhorov. According to Nash, “Within the financial-monitoring service, and during the clash with the oligarchs, [Zubkov] will have had access to a great deal of information against many of the vested interests within the Russian power elite.”
The bankers are also hoping that Zubkov’s rise to the presidency may be tripped up by the December election results. “The experience of Yeltsin, Brezhnev, [Konstantin] Chernenko and Andropov,” said Nash, “has left Russians wary of an older president. Moreover, having garnered only 8% in the election race for the governorship of Leningrad oblast [in 1999], Zubkov does not have the track record of a winner.”
Alfa Bank, controlled by oligarch Mikhail Fridman, issued a similar piece of wishful thinking. A report issued by Alfa Bank analysts says: “A new government was expected; Zubkov wasn’t. While Zubkov has a reputation of being personally close to President Putin, at this point we think it unlikely that he will emerge as the eventual nominee of Putin’s support party, United Russia. His purpose is more likely to put the government in safe hands while the eventual candidate is fully vetted and placed in position.”
Alfa strategist Ronald Smith said, “If Zubkov proves to be anything more than a placeholder, the most likely policy change, given his background, would be an intensified campaign on corruption and/or tax evasion. While such an outcome could prove beneficial for the economy over time, in the near term the most obvious outcomes would be quite negative for specific companies and businessmen who might fall afoul of new policies, particularly in the natural-resource extraction industries” (oil and gas, gold, etc).
For the world’s biggest mining companies, and for business people and politicians in Asia who have begun to think of the oligarchs as co-investors and friends, this is advice to look behind the smile – Zubkov’s teeth are sharp.