Putin's plan to keep power fraught with risks

MOSCOW (Reuters) - President Vladimir Putin's plan to hold on to power in Russia after his term ends has pleased investors and nations who want business as usual in the Kremlin, but the risks involved mean stability is not guaranteed.

Putin said on Monday that if his close ally Dmitry Medvedev -- hot favorite to win next year's presidential vote -- were elected, he would serve as Medvedev's prime minister.

Investors cheered the plan. They have made huge profits over the past eight years of Putin rule from an economic boom powered by high oil prices and they want more of the same.

"We are very pleased with the Kremlin moving fast to introduce maximum clarity about the transition to the next presidency," said Deutsche Bank in a research note. "The elimination of uncertainty should be an unambiguously bullish factor for investor sentiment in the months to come."

But political analysts said Putin's plan, which ushers in an unusual period of co-habitation between president and prime minister in Russia's strongly presidential system, was not a blueprint for stable government.

Under the constitution, Medvedev -- who has made virtually his whole career as a low-key Putin lieutenant -- would have his finger on Moscow's nuclear trigger and would represent Russia at big international events like the G8.

If he follows past practice, Putin will exchange the glamour of the Kremlin for the prime minister's office in Moscow's White House -- a dreary, Soviet building which Boris Yeltsin shelled with tanks during a 1993 lawmakers' rebellion.

Putin's new job, previously occupied by relatively low-profile officials fired at will by the president, involves supervising the cabinet and civilian ministries such as finance, education and health.

All the key "power ministries", including the Foreign Ministry, Defence Ministry, Interior Ministry and Russia's spy services, would report directly to Medvedev.

"I don't think this arrangement will last long," said Olga Kryshtanovskaya, a sociologist and expert on the Kremlin elite. "Maybe one and a half years...then we will need constitutional changes to move to a parliamentary republic."

DIFFERENT BACKGROUNDS

Other risks abound in a system of government which will depend almost entirely on two individuals.

Once elected, Medvedev could become his own man and break with Putin. Although chosen for his unswerving loyalty, Medvedev comes from a different generation and background to his mentor.

While Putin's outlook was shaped by his tough childhood in a poor family, followed by a long career in the Soviet KGB, Medvedev was born to middle-class intellectuals, trained as a lawyer and worked in the democratically elected mayor's administration in St Petersburg in the 1990s.

Putin himself was picked from obscurity by then-president Boris Yeltsin in 1999 as a supposedly reliable continuity candidate, only to chart a radically different course once installed in the Kremlin.

"Since there will be two people at the head of the state, there will always be a risk of conflict," said Boris Makarenko, of the Centre for Political Technologies in Moscow.

"But they understand that such a conflict is...ruinous for both of them and will try to avoid it."

There has so far been no visible reaction to Medvedev from the "siloviki" -- the powerful clan of Kremlin hardliners linked to the military and intelligence services.

Headed by Kremlin deputy chief of staff Igor Sechin, a shadowy figure who also chairs state oil giant Rosneft, the "siloviki" stand to lose most from Medvedev's election.

Many Kremlinologists interpreted Putin's choice of Medvedev as a heavy blow to the hardliners, whose influence within the government had been growing with the appointment of former Soviet collective farm boss Viktor Zubkov as prime minister.

TV commentator Nikolai Svanidze said in a newspaper article that Putin, "with his acute sense of balance, thought the siloviki were growing dangerously strong and decided to install a moderate liberal in the Kremlin".

Stanislav Belkovsky, an independent political commentator, agreed, saying Medvedev's nomination represented the "full bureaucratic defeat of Sechin's group". The hardliners had been preparing to install Zubkov as president, he told kommersant.ru.

European diplomats, who see Medvedev as the most pro-Western of the possible Kremlin presidential candidates, expressed relief at the choice but noted the "siloviki" had not yet spoken. "And when they do, we may be looking at a very different scenario," one envoy commented.

(Additional reporting by Anna Mintskovskaya; editing by Keith Weir)