February 12, 2009 / 8:54 AM / 11 years ago

UPDATE 4-Russia's Kudrin seen targeted in prosecutor's attack

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By Gleb Bryanski

MOSCOW, Feb 12 (Reuters) - A senior Russian prosecutor accused past and present deputy finance ministers on Thursday of large-scale theft of state funds in signs of renewed pressure by hardliners on liberal Finance Minister Alexei Kudrin. The allegations coincide with a sharp economic downturn that has revived a long-running turf war between rival groups in the government over how Russia’s diminishing cash reserves should be spent.

“It would not be an exaggeration to say that some of the best specialists in finance and economics, including a former and a current deputy finance minister, have been involved in organising large-scale theft of state funds in recent years,” Alexander Bastrykin, the head of the investigative committee of the Prosecutor-General’s office, was quoted as saying.

International investors are keeping a close eye on the power struggle, in which Kudrin is seen as an advocate of free-market policies such as a free float of the rouble and a diminished state role in the economy.

It took the investigative committee five hours to clarify that Bastrykin meant Deputy Finance Minister Sergei Storchak and ex-Deputy Finance Minister Vadim Volkov, while no other officials were involved.

Bastrykin said the case will be handed over to court.


Storchak is already awaiting trial on embezzlement charges that have been denied by both him and his boss. Storchak’s arrest in November 2007 was seen as an attempt to undermine Kudrin’s position.

“Now Kudrin’s opponents think there is another good opportunity to force him to resign because of conflicting views over Russia’s economic policy in an environment of acute shortage of money,” said political analyst Stanislav Belkovsky.

Belkovsky said there was a long standing turf war between a clan headed by Kudrin and a rival clan headed by Deputy Prime Minister Igor Sechin, who oversees the energy sector and chairs the board of state-controlled firm Rosneft.

President Dmitry Medvedev and powerful Prime minister Vladimir Putin have presented a united front on how to respond to the slowdown.

But economic liberals associate themselves with the president while those who favour more state intervention identify more with the prime minister.

Storchak still formally holds his post as Deputy Finance Minister but is on leave. Kudrin publicly backed his deputy and Storchak’s release was seen as Kudrin’s victory.

Kudrin is due to travel to the Group of Eight finance ministers’ meeting in Rome on Friday.

Russia made a radical U-turn in its anti-crisis policy earlier this month by shutting off a foreign debt refinancing lifeline to companies, a move that irritated many politically connected firms that were queuing up for help.

Kudrin and his supporters have long argued that firms should turn to commercial banks for refinancing. Only a handful of companies, including state-controlled oil major Rosneft, aluminium giant RUSAL and Alfa Group, received government cash.

Kudrin is also involved in negotiations over spending cuts in the 2009 budget, which may see a deficit of up to 10 percent. The cuts will be hard to reconcile with Putin’s pledges to keep social and defence spending on track.

Russia’s economy is expected to contract this year, while the central bank has spent a third of its reserves defending the rouble.

Kudrin argued his policies of saving oil revenues for a rainy day during the boom years proved right, but his opponents say he lacks the vision needed to take Russia out of the crisis.

Editing by Richard Balmforth

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