Russia Finance Chief Faces Demotion, Fueling Spending Fears

(Bloomberg) — President Vladimir Putin is likely to demote the man seen as the architect of the tight-budget policies that have made Russian bonds an investor favorite, fueling fears the Kremlin is planning a spending spree.

Anton Siluanov is expected to lose his role of first deputy prime minister, but retain his post as finance minister in the cabinet shake-up, according to three people familiar with the matter. The first deputy prime minister job will probably go to Andrey Belousov, a Kremlin aide known for his advocacy of a greater state role in the economy, effectively making him Siluanov’s boss.

Siluanov has presided over a period of fiscal tightening that has helped reduce the exposure of Russia’s commodity-dependent economy to swings in global oil prices and U.S. sanctions. The policy has made Russia’s bond market highly attractive to foreign investors, spurring inflows of about $16 billion last year.

A weakening of Siluanov’s position in the new cabinet would be seen as a “negative signal” for debt investors, Emerginomics economist Tatiana Orlova wrote in a note last week.

The cabinet appointments are expected to be announced as early as Tuesday. Siluanov’s spokeswoman and a government spokesman declined to comment.

New Prime Minister Mikhail Mishustin has said that he wants to focus on accelerating progress on delivering Putin’s so-called National Projects, a $400 billion infrastructure spending program. One of the architects of the plans, Belousov proposed in 2018 that the government could increase taxes on metals, mining and chemical companies to raise funding. The plan was scrapped after Siluanov’s ministry ruled it would hurt the investment climate.

“A potential easing of fiscal rules remains a key question as it affects foreign currency interventions and state borrowing plans,” Dmitry Dolgin, an economist at ING Groep NV in Moscow, said in a research note published Tuesday.

In a speech in parliament last week, Mishustin vowed to stick with the current tight-money policies that have helped bring down inflation. The former tax chief is planning to install his own team at the government headquarters, known as the White House, and is expected to name Dmitry Grigorenko, a lieutenant from the State Tax Service, as his chief of staff, according to two people familiar with the plans.

New Spending

Spending on the National projects was meant to get underway last year but the plans were stalled after getting caught up in bureaucracy. As a result, inflation slowed well below a central bank’s target and economic growth has struggled to break above 2%.

Putin also announced proposals to spend about 4 trillion rubles ($65 billion) over four years, as much as 1% of gross domestic product, in new benefits for the poor and families. Russia’s stock market surged the most in almost three months last week on optimism over the jump in spending.

Yields on Russian local-currency bonds maturing in 10 years have climbed 4 basis points to 6.23% this week. The ruble dropped when news broke about the government overhaul last week, and was trading down 0.5% on Tuesday.

Siluanov, 56, began his career as a senior economist at the Finance Ministry in 1985. He remained at the ministry through Russia’s transition to capitalism and was appointed Finance Minister in 2011. He was given the additional role of first deputy prime minister in 2018.

–With assistance from Anya Andrianova and Andrey Biryukov.

To contact the reporters on this story: Evgenia Pismennaya in Moscow at epismennaya@bloomberg.net;Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha Doff

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