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Russia's top banker calls for political reform

* Head of biggest bank calls for sweeping political reform

* Calls for more political competition

* Says crisis provides opportunity for reforms

MOSCOW, June 1 (Reuters) - Russia must carry out sweeping political reforms to safeguard future economic growth, the architect of economic policy during Vladimir Putin’s eight-year presidency said on Tuesday.

German Gref, now chief executive of Russia's biggest bank, state-controlled Sberbank SBER03.MM, said the first stage of economic reform, which had required a tightly held political system to push through change, was nearing an end.

“Do we still have the room to move forward on the first stage of reforms? I think we do but we obviously need to prepare political institutions for a gradual shift towards the second stage,” Gref, Putin’s former economy minister, told reporters.

The second stage of Russia’s economic reform required “totally different political institutions,” he said.

“(Such as) freedom of speech, which directly affects economic growth rates, privatisation, competition, including political competition, which reduces a risk of mistakes when choosing a course of reforms,” he said.

Putin’s chosen successor, President Dmitry Medvedev, has called since being sworn in as president in May 2008 for a more liberal political system and a better environment for small businesses and foreign investors.

Two years into his four-year term, Medvedev still sits atop the tightly controlled political system crafted by Putin, who is Medvedev’s powerful prime minister and leads the biggest party in parliament.

But Medvedev has managed to spark a debate in Russia about how to reduce reliance on natural resources after the economy was derailed by the crisis, registering its worst annual economic decline in 15 years last year.

Russia’s most outspoken rock musician, Yuri Shevchuk, confronted Putin last week saying the security forces were strangling freedom. Two days later police detained over 150 people at opposition demonstrations in Moscow and St Petersburg.

POLITICAL REFORM?

As president from 2000-2008, Putin brought order to Russia’s fragmented fiscal system, created a rainy day fund for oil revenues and opened the country to foreign investment by lifting restrictions on capital flows.

His opponents say the economic reforms and spectacular boom he oversaw came alongside the suppression of political freedoms.

Putin abolished elections for regional governors, curbed the powers of wealthy businessmen, established state control over key media outlets and centralised power in the Kremlin.

Gref said the influence of reformers in the government had been reduced by the fall in the prices of oil, gas and metals, which drove budget revenues before the crisis hammered the Russian economy in the second half of 2008.

“I think that now we have a good chance to demand a new round of reform which is extremely necessary for our country,” Gref said.

Public discussion about political reform by such senior members of the establishment is extremely rare, and Gref faces a powerful group of conservatives.

They argue that poorly planned political reform has in the past led to chaos, citing the examples of the 1917 Bolshevik revolution and the 1991 fall of the Soviet Union. (Writing by Gleb Bryanski, editing by Tim Pearce)

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