February 18, 2016 / 4:20 PM / 4 years ago

Putin removes head of VEB state development bank as crisis bites

MOSCOW (Reuters) - President Vladimir Putin has removed the head of Russia’s ailing state development bank VEB after its bailout needs rose to $16 billion, two sources told Reuters, a sign that in times of crisis Putin puts fiscal discipline before loyalty to allies.

Russia's President Vladimir Putin chairs a meeting with government members at the Kremlin in Moscow, Russia, February 10, 2016. REUTERS/Alexei Nikolsky/Sputnik/Kremlin

The dismissal of Vladimir Dmitriev, if confirmed, is the latest evidence that fealty to Putin is not the get-out-of-jail card it used to be. He may have a reputation in the West for being a tough leader, but at home he is known for his reluctance to sack people he deems devoted to him, even if they mess up.

Indications are growing however that his country’s economic crisis - fueled by low oil prices, a weak rouble and Western sanctions - is changing the Russian leader’s calculus.

“Putin doesn’t really like to fire people, even for big failures,” one senior government official told Reuters. “But the crisis has changed this mindset - there is no money any more.”

Dmitriev did not respond to questions for this article on Thursday. Putin’s spokesman, the Finance Ministry and VEB declined to comment when asked about the dismissal.

The senior government official said corporate failure, covered up with cash in good times, just cannot be tolerated now that money is tight.

Vnesheconombank, or VEB head Dmitriev, is the third high-ranking insider to lose his post in six months. Previous heads to roll have included Vladimir Yakunin, the head of the state railways company, and Evgeny Dod, the boss of state-owned RusHydro, Russia’s biggest hydropower producer.

The removal of Yakunin in particular, a long-standing ally and friend who once bought a dacha or country house on the same compound as Putin outside St Petersburg, raised eyebrows.


The nation’s straitened finances appear to be driving the policy change. With analysts warning that Russia’s Reserve Fund, used to cover the budget deficit, is only deep enough to last for another two years because of dwindling oil and gas revenues, the Kremlin needs its managers to be more thrifty.

And VEB, a non-commercial state corporation the Kremlin uses to develop the economy and manage state debts, has given it a big headache in the form of colossal debts and liabilities at a time when the Russian state can least afford to bail it out.

When oil prices were high, VEB lent huge sums to politically-expedient but financially questionable initiatives such as infrastructure projects for the 2014 Winter Sochi Olympics.

Now, when oil prices are on the floor, the size of the help it needs to meet its liabilities - the government was at one point at the end of last year discussing giving it treasury bonds worth over 1.5 trillion rubles ($19.90 billion)- has raised serious questions about its running.

Dmitriev, 62, a former diplomat, has run VEB and its predecessor since 2004. Putin told Dmitriev he could stay as recently as January, but the Finance Ministry later persuaded the president to change his mind, said two senior officials.

Two sources close to VEB told Reuters on Thursday that Putin had now sacked him. Dmitriev himself summoned the bank’s staff on Thursday morning to say goodbye, one of the sources said.

Putin himself met Dmitriev on Wednesday, the same source said, when the two men held “very cordial talks”.

That may mean that Dmitriev, who is expected to be replaced by Sergei Gorkov, a vice-president at state-controlled Sberbank, will be given some kind of a consolation prize.

The government has been considering how it can help VEB for the last six months and has already given it some limited aid.

According to the latest estimates, the overall aid needed between now and 2020 could be as much as 1.2 trillion rubles ($15.92 billion). This year, sources have told Reuters it could get 100-200 billion rubles (up to $2.65 billion).

“Even this sum (150 billion rubles) is too much, we haven’t got such money now”, one senior official told Reuters.

Writing by Andrew Osborn; Editing by Janet McBride

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