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Russia Moves Quickly to Make Putin’s New Vision a Reality

Andrey Biryukov and Stepan Kravchenko

(Bloomberg) -- Vladimir Putin’s new prime minister pledged to work with business and overhaul the cabinet after a surprise shakeup that may enable the president to extend his 20-year rule.

Mikhail Mishustin won a confirmation vote in the lower house of parliament Thursday with 383 of the State Duma’s 450 lawmakers voting in favor. Putin had moved quickly to nominate the former tax chief after the departure of his long-serving prime minister on Wednesday.

“To ensure further growth of GDP, first of all we must stimulate investment, that’s very important,” Mishustin said in the Duma ahead of the vote. The government should “restore the trust lost between the authorities and business and talk seriously about reducing costs and excess pressure.”

Surprise Shakeup

Putin’s proposed constitutional amendments include granting more powers to the parliament and another body called the State Council, while the presidency would see its sweeping authority reduced somewhat. The changes could allow the Russian leader, who faces a constitutional ban on running again when his current term ends in 2024, to retain power in another role.

Dmitry Medvedev, one Putin’s longest-serving lieutenants, tendered the resignation of his government after the speech, saying that the president needed a new team to implement his vision. Removing Medvedev, widely blamed for lackluster economic performance and stagnant living standards in recent years, could help the Kremlin boost public support. An increase in government spending set for this year is expected to accelerate sputtering growth.

“Our hope and expectation of the new government is that it will more effectively implement the National Projects and work more actively on economic issues,” Vyacheslav Volodin, State Duma speaker, told reporters. “Without achieving growth rates above the global average we can’t resolve social issues.”

Mishustin, 53, told legislators he’d focus on implementing Putin’s National Projects infrastructure-spending program as a top priority. Implementation of those initiatives had stalled in the bureaucracy last year, slowing economic growth and drawing public criticism of the government from Putin. Mishustin also vowed to stick with the current tight-money policies that have helped bring down inflation.

“The replacement of the government has for many increased hopes that the new team will be able to do more” on reforms, Alexei Kudrin, former finance minister and now head of the Audit Chamber, a government watchdog, told a conference Thursday. Mishustin “has a better feel for the situation in business and knows how to balance the interests of business and the state,” he said.

Cabinet Picks

It’s the first time since 1996 that a nominee for prime minister received no votes against his candidacy from lawmakers, Volodin said. Mishustin told reporters after the vote that he’ll present his proposed new government to Putin soon.

Investors are watching closely the fate of Anton Siluanov, who as first deputy prime minister and finance minister in the last government won a reputation as a steward of tight budget policies that made Russia a favorite for foreign bond-buyers. Russian bond yields recovered Thursday after jumping the most in two months on the news of the cabinet shakeup Wednesday.

“Without knowing the names of the new ministers and their views, policy continuity is not certain,” Morgan Stanley economist Alina Slyusarchuk wrote in a note. “We could see more expansionary fiscal policy, or more structural reforms, or the changes could be purely political with economic policy unchanged.”

Mishustin said there would be changes in the cabinet and the appointments would be announced soon, according to Alexander Khinshtein, a ruling-party legislator who attended the meeting. A Communist lawmaker said Mishustin had pledged to make major changes in the government but didn’t give specifics, RIA Novosti reported.

A PhD economist who ran an investment business, Mishustin has a reputation as an efficient technocrat with a low political profile. Named to head the tax service in 2010, he tamed legendary Russian evasion by installing a nationwide computerized reporting system that works in real time, making the agency one of the government’s most technologically sophisticated.

Yandex Boost

Shares in Yandex NV, Russia’s leading Internet company, jumped as much as 7% after a legislator said in an online post that Mishustin had promised to support the company.

“Without a doubt, the government should be a digital platform that’s created for people. That’s what we tried to do with the tax system,” Mishustin told legislators Thursday, according to a video posted by a parliamentary official. “The most important thing is to remove limits for business.”

Prior to the tax authority, Mishustin led reforms at several other state agencies, including the federal land registry. He also has a background in private business and served as president of UFG Asset Management, part of one of Russia’s biggest investment houses, from 2008 to 2010.

As Mishustin was addressing legislators, Putin led a meeting of the new panel of dignitaries -- including legislators, officials, as well as prominent musicians and athletes -- set up to draft the constitutional changes, Interfax reported. A national vote on the proposals could come before May 1, Tass quoted a senior legislator from the upper house as saying.

(Updates with Mishustin winning parliamentary vote)

--With assistance from Jake Rudnitsky, Ilya Arkhipov and Anna Baraulina.

To contact the reporters on this story: Andrey Biryukov in Moscow at abiryukov5@bloomberg.net;Stepan Kravchenko in Moscow at skravchenko@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Tony Halpin, Natasha Doff

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