Putin seeks to calm nerves after finance chief\'s exit

Putin appointed powerful First Deputy Prime Minister Igor Shuvalov and a little-known finance ministry official to replace Kudrin, widely credited for guaranteeing the stability of the Russian economy over the last decade.

Kudrin was forced out the day earlier in an extraordinary confrontation with President Dmitry Medvedev after he objected to the plan that would make Medvedev prime minister after Vladimir Putin returns to the Kremlin in 2012 elections.

Putin named low profile Deputy Finance Minister Anton Siluanov as acting finance chief, describing the new minister as a "good, strong specialist". Kudrin had occupied the post of finance minister since 2000.

But crucially, Kudrin\'s duties as deputy prime minister in charge of the economy and finance are to be taken by Shuvalov, one of the most visible members of the government and a key figure in its successful bid to win the 2018 World Cup.

Kudrin\'s dissent exposed unexpected cracks over the scheme for the 2012 polls and Putin sternly warned his cabinet that such insubordination would not be tolerated.

"I call on you all to worthily fulfil your duties until the new (post-election) government is formed and to increase discipline and responsibility," Putin told his cabinet.

Siluanov initially appeared overwhelmed by the appointment, keeping his head firmly bowed down as Putin announced his name.

"Both these (decisions) have naturally been agreed with President Dmitry Medvedev. It is our joint decision," added Putin. "I hope there is going to be no kind of trouble in the work."

Western investors had long been reassured by Kudrin\'s adamantine resistance to the extravagant spending demands by Russian ministers and his canny saving of the proceeds from Russia\'s oil exports.

Kudrin outraged Medvedev by saying at the weekend that he would not serve under him as prime minister in 2012 due to fundamental disagreements on economic policy -- in particular a ramping up of military spending.

Medvedev did not let the issue rest on Tuesday, saying after watching war games in western Siberia that the country must have strong military spending as "this is not a banana republic but the Russian Federation -- a very great country."

He warned: "However unpleasant it is for the budget there is always going to be high spending on defence.... And whoever does not agree with this can go work somewhere else."

Sources quoted in the Russian press said that personal ambition had also fuelled Kudrin\'s outburst as he was furious that Putin had not opted to choose him for prime minister after allegedly making such a promise earlier this year.

However, the deposed minister issued a statement Tuesday describing the idea he wanted to be prime minister as "imaginary", adding he had long been worried by the budget and had discussed resigning with Putin back in February.

The drama -- coming at a time when a new global financial crisis is raising fears over Russia\'s dependence on oil exports -- raised immediate concerns among economists.

"This local event is a strong negative signal for Russia\'s investment case," Russia\'s leading private bank Alfa Bank wrote in a note to clients.

"We believe that his abrupt resignation creates a risk of substantial deterioration in Russian budget discipline, which is particularly dangerous in the event of a crisis."

Renaissance Capital said any benefits of political stability from Putin\'s presidential bid have now been outweighed by the exit of Kudrin, who it described as "the market\'s talisman" for over a decade.

"Capital outflows rather than inflows are the short-term danger," it said.

However economists predicted Kudrin\'s departure would not have a short-term effect on the Russian markets, which closely follow US trends, and both of Moscow\'s main bourses finished up strongly.

Putin, Russia\'s president from 2000-2008, is almost certain to win the March elections and could serve two more terms to 2024, thereby overtaking Leonid Brezhnev as the longest serving Moscow leader since Joseph Stalin.

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