PUTIN MAKES MINIMAL CHANGES TO CABINET

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 004713

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/25/2017
TAGS: PGOV PINR ECON RS
SUBJECT: PUTIN MAKES MINIMAL CHANGES TO CABINET

Classified By: Charge d'affaires Daniel A. Russell: 1.4 (b,d).

Summary
--------------


1. (C) Late evening September 24, President Putin announced
the long-awaited cabinet re-shuffle requested by Prime
Minister Zubkov. There were few structural changes to the
new cabinet unveiled by Putin and much continuity, with
government veterans Elvira Nabiullina and Tatyana Golikova
replacing Economic Minister Gref and Health Minister Zurabov
respectively. Southern Region Polpred Dmitriy Kozak has been
returned to Moscow as successor to Regional Development
Minister Yakovlev. Aleksey Kudrin retained his Finance
Ministry portfolio and was tapped to become the GOR's fifth
Deputy Prime Minister. Putin also announced that Minister of
Defense Serdyukov would retain his job. (Serdyukov had
tendered his resignation when father-in-law Zubkov was picked
to be Prime Minister.) The reconfigured Cabinet kept
modernizers in key economic positions and, mirroring Zubkov's
own appointment, brought competent Putin loyalists to the
fore. End summary.

Zurabov Out, At Last
--------------


2. (C) The relatively minor changes announced by Putin
September 24 remove from the government ministers who had
become the target of frequent criticism by the media, the
public and, occasionally, Putin himself. Health Minister
Zurabov's ouster had been widely expected since the Duma
unanimously concluded that the Ministry's work was
unsatisfactory and proposed splitting it into separate
ministries last April. Over the past year, a major
corruption scandal, charges of financial mismanagement, and
major disruptions in the GOR's free prescription medicine
distribution program had dogged Zurabov, in addition to
further allegations of social insurance and pension fund
corruption. Zurabov is expected to return to the insurance
company --MAKS-- that he founded, or join his wife at the
firm Octopus, a major distributor of medical equipment.


3. (C) Although Zurabov's dismissal was no surprise, the
appointment of Deputy Finance Minister Tatyana Golikova to
replace him was. Golikova has been Deputy Finance Minister
since 1999, where she was considered a strong financial
controller and budget planning specialist. Golikova had
managed the annual budget negotiations with the Duma.
Previously, Golikova had held various positions in MinFin's
budget department. She married Minister of Industry and
Energy Khristenko in 2004.

Gref Replaced by
One of His Own
--------------


4. (C) The departure of German Gref was also not unexpected.
His skepticism about social spending reportedly irritated
Putin, and the President on a number of occasions aired his
unhappiness with Gref in public. Gref enthusiastically
welcomed his successor, Elvira Nabiullina, and indicated that
he planned to work in the private sector.


5. (C) The 44 year-old Nabiullina is well-known to Embassy
officials, who worked extensively with her when she headed
the Center for Strategic Studies and in her capacity as head
of the Experts Council for the G-8 Steering Committee during
Russia's 2006 G-8 Presidency. Most recently, Nabiullina had
headed the National Priority Projects' Experts Council that
reports directly to First Deputy Prime Minister Dmitriy
Medvedev.

Kozak Returns to
the Center
--------------


6. (C) The firing of Minister of Regional Development
Vladimir Yakovlev also had been long rumored. Yakovlev, like
Zurabov, had frequently been the target of attacks by Duma
deputies, regional elites, and ex-Prime Minister Fradkov,
especially over his administration of the GOR's housing
programs. Following his 1996 victory in the St. Petersburg
mayoral race over Putin patron Anatoliy Sobchak, Yakovlev had
worked briefly as Deputy Prime Minister and Polpred in the
Southern Regions before becoming Minister of Regional
Development in 2004.


7. (C) Dmitriy Kozak's return to Moscow has revived
speculation that he is being positioned as a potential
successor to Putin. Many observers suggested that Kozak's
new appointment rescued him from the prospect of presiding
over a continuing deterioration in the security of part of

MOSCOW 00004713 002 OF 002


the North Caucasus. On the same day that he named Kozak
Minister, Putin also signed a decree that expanded the
Regional Development Ministry, giving it authority for
coordinating the Fund for Realizing Housing Reform, and
allowing the Ministry to tap the GOR's investment fund for
state support of housing and other regional projects.


8. (C) In addition to retaining his Minister of Finance
portfolio, Aleksey Kudrin was selected to join Sergey Ivanov,
Medvedev, Naryshkin, and Zhukov as Deputy Prime Minister.
The financial community here has welcomed news of Kudrin's
elevation, seeing in it a sign that Putin remains committed
to macroeconomic stability as the elections approach. Kudrin
has an excellent working relationship with Zubkov.

Effect on WTO
--------------


9. (C) Nabiullina also is personally committed to WTO, and
according to the Ministry's Chief-of-Staff plans to replace
Gref as the leader of a Russian business delegation to
Washington next week. For now, it seems to be business as
usual at MEDT, with a WTO team en route to Geneva September
25 for scheduled WTO discussions on IPR.

Two New Committees
--------------


10. (C) In addition to expanding the responsibilities of the
Ministry of Regional Development, Putin announced September
24 the formation of two standing committees, on the fishing
industry and youth matters. Both had been repeatedly
created, then disbanded in the past, and their creation this
time around will likely make little difference.

Comment
--------------


11. (C) The shape of the new Cabinet stresses financial
control --Zubkov's watchword, and Putin's too-- as his term
comes to its end. Also foregrounded are family and clan
ties. In addition to the Serdyukov - Zubkov and Golikova -
Khristenko pairings, bringing Kozak back to Moscow adds to
the ever-expanding list of insiders who worked with Putin in
St. Petersburg. It also did not go unnoticed here that two
women now occupy key positions in the new Cabinet. Some
commentators have suggested that women are less likely then
men to be corrupt (Valentina Matvienko anyone?),and
Communist Party Deputy Ivan Melnikov saw in the appointments
of Nabiullina and Golikova a ploy that would lead to less
criticism of the government.


12. (C) The relatively minor scale of the September 24
shakeup has fostered rumors that more sweeping structural,
and possibly personnel, changes will follow the December Duma
elections, with some commentators here arguing that
Putin/Zubkov could not risk a more thoroughgoing reform in
the already dysfunctional Ministry of Health with voters on
their way to the polls.


13. (C) The changes announced by Putin September 24 were a
minimalist approach to rid the cabinet of its weakest, or
least palatable ministers as the election season begins. The
professionals chosen to replace the battle-weary Gref, the
discredited Zurabov, and the incompetent Yakovlev should give
Zubkov a better team in the waning days of Putin's presidency.
Russell