Intellinews, 5/13/24

Russian President Vladimir Putin fired his long-standing friend Sergei Shoigu as head of the Defence Minister and replaced him with economist Andrei Belousov as part of a government reshuffle following his inauguration last week.

Speculation about Shoigu’s imminent departure has been swirling for several weeks after his deputy Timur Ivanov was recently arrested for massive and conspicuous corruption.

Shoigu, who has served in government since 1991, is not popular with the military so the change is seen as Putin shoring up his control over the military and the appointment of Belousov will place more emphasis on running Russia’s increasingly militarised economy.

Belousov is close to Putin but a rival of the technocratic Prime Minister Mikhail Mishustin, who kept his job in the new government. He also has no experience of running a ministry, nor does he have any military experience.

He has largely played an advisory role to Putin for most of his career. In 2000, Belousov became an adviser to the Russian prime minister and then in 2006 the deputy minister economy ministry. From 2008 to 2012, he was director of the department for economics and finance in the years when Putin was prime minister. Belousov was Russia’s economy minister in 2012-2013, an aide to Putin in 2013-2020, and first deputy prime minister in 2020-2024. Belousov is very religious and favours Keynesianism economics of state-backed stimulus to promote growth.

In the previous government he was appointed First Deputy Prime Minister to supervise national projects, finance, foreign trade and counteraction to sanctions. He will also be responsible for the institutes of development, such as VEB.RF.

Belousov was the author of investments planned for the 12 national projects that have come back to prominence recently, and Mishustin was hired to implement them. Belousov was also behind the decision to hike VAT by 20% at the start of 2019. Belousov graduated from Moscow State University’s Faculty of Economics in 1981 with distinction and like Putin is a practitioner of martial arts, sambo and karate. He was exempted from the national service all Russian men have to perform.

Belousov is best known for proposing a super tax on the oligarchs in 2018 to pay for Putin’s May Decrees spending that increased wages in the regions among other things.

Bring Belousov in as the Defence Ministry suggests that the war spending on militarising the economy will now be dovetailed with the increased spending on the National Projects 2.0 that Putin recently announced.

As bne IntelliNews has reported, the National Projects and the military spending has become a boon for the Russian economy after the basic strategy of Putinomics changed and the Kremlin has started spending freely. Russia’s poorest regions have been the biggest winners as the military Keynesianism has boosted incomes in the far-flung regions that have largely been ignored for most of the last three decades.

“It’s very important to put the security economy in line with the economy of the country so that it meets the dynamics of the current moment,” presidential spokesman Dmitry Peskov said.

Shoigu assumed leadership of the defence ministry in 2012 after his tenure as the emergency services minister. Shoigu was previously one Russia’s most popular ministers after the illegal annexation of Crimea in 2014, which he was credited with orchestrating, but has been criticised for his poor handling of the military campaign in Ukraine. Under intense pressure after the invasion of Ukraine in 2022, Shoigu disappeared from view for two weeks, rumoured to have suffered from a massive heart attack.

Putin moved Shoigu sideways, appointing him to the powerful post of secretary of Russia’s security council, Putin’s spokesman Dmitry Peskov said. Shoigu replaces another long-time Putin ally, former FSB boss Nikolai Patrushev, who has been the council’s secretary since 2008.

Patrushev’s eldest son, who has been Agricultural Minister, was rumoured to be a possible replacement for Shoigu at the Defence Ministry, but instead has been promoted to deputy prime minister, the most powerful of the “golden youth” of the children of oligarchs and ministers in power.

Shoigu has faced criticism from Russia’s military for mishandling the war effort in Ukraine. Specifically, when Wagner leader Yevgeny Prigozhin mutinied earlier this year, he called for Shoigu and Valery Gerasimov to be removed from office. Shoigu was in the process of taking the control of Wagner under the direct control of the Defence Ministry at the time, a process that has now been completed.

Gerasimov continues to head the army and lead the war effort in Ukraine, but it is not clear if he will retain his job as Russia’s top general. Peskov said that a decision has not been made “yet.” It is also not clear what job, if any, Patrushev senior will be given.

Some analysts believe that Belousov is a temporary appointment and that either he will be replaced, or at least more serious military figures will be appointed around him to placate any criticism from the military bloc. Belousov is known as a supporter of boosting military spending and increasingly mobilising Russia’s economy for the war effort.

Belousov’s job is “to integrate the military-industrial complex into the country’s economy,” Peskov said in comments on May 12, adding a civilian was appointed to head the defence minister as ” the ministry should be open to innovation and progressive ideas.” Veteran Russian Foreign Minister Sergey Lavrov has also kept his job so far, although it is known that he has wanted to retire for some time.

Cabinet:

Andrey Belousov – Minister of Defence

Sergei Lavrov – Minister of Foreign Affairs

Konstantin Chuychenko – head of the Ministry of Justice

Vladimir Kolokoltsev – head of the Ministry of Internal Affairs

Alexander Kurenkov – head of the Ministry of Emergency Situations

Alexander Bortnikov – Director of the FSB

Sergei Naryshkin – head of the SVR

Viktor Zolotov – head of the Russian National Guard

Dmitry Kochnev – head of the Federal Protective Service (including presidents security service)

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More information on the new Defense Minister Belousov from The Bell:

Who is Andrei Belousov? 

Belousov is often dubbed Putin’s closest economic advisor. There is some truth in that. He has worked directly with Putin in various roles since 2008. “A statesman surrounded by enemies,” was how one government source described him to The Bell in 2018. Since being appointed first deputy prime minister in 2020, Belousov has lived up to that description, actively sniffing out and seizing excess profits from commodities companies to bankroll his notion of a high-spending powerful central government.

• Andrei Belousov was born in 1959. He graduated from the prestigious Moscow School of Physics and Mathematics No. 2 and the economics faculty at Moscow State University. He followed in the professional footsteps of his father, a famous Soviet economist who worked on preparing the Kosygin economic reforms in 1965. After the fall of the Soviet Union, Belousov worked at the Institute of National Economic Forecasting at the Russian Academy of Sciences, then set up his own Center for Macroeconomic Analysis and Short-term Forecasting. In 2006, German Gref made him his deputy at the economy ministry and in 2008, when Putin began his four-year term as Dmitry Medvedev’s prime minister, Belousov became director of the government’s department of economics and finance. By then he had become renowned as a competent economic forecaster, his reputation burnished by successfully predicting the 2008 economic crisis in a report published three years earlier.
• Inside government, Belousov became known as Putin’s man. In 2013 he was appointed to a key role as economic aide to the presidential administration. All papers and economic proposals intended for Putin came through Belousov, a federal official told The Bell. In 2020, Belousov became first deputy prime minister with responsibility for economic policy in a major government reshuffle that saw Mishustin replace Medvedev.
• Belousov has his own vision of how Russia’s economy should operate and works hard to bring his ideas into reality, another official said. Crucially, Putin listens to him. Belousov is an uncompromising believer in the state and sees a “circle of enemies” surrounding Russia, another source told The Bell. “In 2014 he was the only one of Putin’s economic circle to support the annexation of Crimea,” they said.
• Belousov has always urged for increased government spending. Back in the mid-2000s, as Gref’s deputy, he argued with then Finance Minister Alexei Kudrin that the oil windfalls kept in the Stabilization Fund should be spent on infrastructure projects rather than saved.
• To build up the government’s bankroll for spending, Belousov constantly tried to find new sources of revenue. In 2018 he proposed seizing 500 billion rubles ($5.5 billion) of “extra profits” from leading commodities companies and using the money to pay for Putin’s proposed May decrees, a vast plan for state investment. At that time, the oligarchs combined forces to fight back, prompting Belousov, who doesn’t mince his words, to call them “idiots and fools.” Belousov later managed to force through a highly controversial hike in sales tax from 18% to 20%, which brought the budget even more money.
• After the invasion of Ukraine, business found it harder to fight off government demands. In 2023, Belousov secured a one-time budget contribution of 300 billion rubles ($3.2 billion) through a windfall tax. The government is currently preparing an “adjustment” to the tax system, the key elements of which could be an increase in income tax to 20% and corporate tax to 25%, which could generate up to two trillion rubles ($22 billion) a year.
• Belousov has also seen success in developing Russia’s military-industrial complex, which the government does not officially regulate. One of his biggest successes has been a national project overseeing drone production, for which the government distributed preferential loans and passed special regulations.

Why has he been appointed now? 

Belousov’s appointment as defense minister was so unexpected that, at first, many observers found it hard to believe.

• There’s nothing unique in itself about having a defense minister without a military background. In fact, none of Putin’s appointments in the role have: Sergei Ivanov (2001-07) came from foreign intelligence; Anatoly Serdykov (2007-2012) was a tax officer; Shoigu worked in construction, as a party official and head of the emergency situations ministry. Nonetheless, Belousov is the most overtly civilian defense minister, having never served in law enforcement or even completed national service. Instead, he’s mostly worked as an economist in academia and then in government roles focused on the domestic economy.
• A late-night Sunday briefing by Putin’s spokesman Peskov made it clear that the Kremlin wants Belousov to monitor and improve how the country’s rapidly growing military budget is being spent. Spending by the defense ministry and the security services has more than doubled to 6.7% of GDP — approaching “the mid-80s situation, when security spending was 7.4% of the economy,” Peskov said. Belousov’s tasks are “to fit the security budget into the national economy so they match the dynamics of the current time” and to make the defense ministry “absolutely open to innovation, to the introduction of all advanced ideas and to create the conditions for economic competitiveness.”
• It’s not hard to believe Peskov’s explanation is genuine. He even slightly underplayed the extent to which the economy has been militarized. Spending on defense and national security is set to exceed 8% of GDP this year. The rapid growth of the military-industrial complex has pushed the economy into overdrive. Therefore it makes sense to put a trusted economist in charge of overseeing a third of the government’s entire expenditure. But there could still be another motive behind the ministerial switch. As Ukraine’s arsenals are depleted and Western aid is delayed, Russia is making military progress after months of stagnation on the front lines. If Putin believes victory is getting closer, it makes sense to replace the PR-hungry Shoigu with an office-based economist less concerned with promoting his own role.

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From Russia Matters, 5/13/24

Vladimir Putin’s post-inaugural decision to replace former emergency situations tsar Sergei Shoigu with career economist Andrei Belousov as Russia’s defense minister suggests that the Russian autocrat is doubling down on his war-of-attrition strategy, according to The Economist. Putin believes he can outproduce Ukraine and its Western backers, and Belousov would be instrumental in doing so, this British newspaper argued. Both The Economist’s sources and ISW’s analysts interpreted Belousov’s appointment as a signal that Putin expects the war to be protracted. Belousov’s appointment also “shows that Putin has serious concerns over corruption levels and misuse of funds within the Russian military, conflicts between the military and the Russian DIB and the perceived inefficacy of the Russian MoD as a whole,” ISW wrote in its assessment of Putin’s May 12 government reshuffle. Belousov’s appointment indicates Putin wants closer control over Russia’s defense spending—and a pliant official to do it, two people who know both men told FT. “He’s absolutely not corrupted … He’s a workaholic. He’s a technocrat,” one of the two people said in reference to Belousov.