Putin dominates new Russian government

MOSCOW (Reuters) - Russian President Vladimir Putin unveiled a government dominated by loyalists on Monday, tightening his grip on the economy and limiting Prime Minister Dmitry Medvedev's ability to pursue his reform agenda.

Igor Shuvalov, a powerful Putin ally, kept his post as first deputy prime minister in overall charge of economic policy and Anton Siluanov, a career bureaucrat, remained finance minister.

Putin also consolidated his power over the security structures, with Anatoly Serdyukov staying on as defense minister, and kept faith with long-serving Foreign Minister Sergei Lavrov.

"Work will be difficult, given the concrete situation in the world economy ... there are very many uncertain factors," Putin told a meeting of the new cabinet team in the Kremlin, where he sat at the head of the table with Medvedev on his right.

Medvedev, 46, named premier after Putin returned to the Kremlin on May 7, has pledged to launch pro-growth policies and a privatization drive to wean Russia's $1.7 trillion economy off its dependence on oil.

Even though the partners in Russia's ruling 'tandem' announced they would switch jobs as long ago as last September, the lengthy and secretive process of forming a government has raised concerns that it will be riven by factional conflict.

Putin's return to the Kremlin has been accompanied by the biggest protests of his 12-year rule against alleged fraud in the national elections, led by an emerging opposition that says its views - and those of millions of Russians who want political change - are being ignored by the country's leaders.

The government line-up brought in some new faces from the team of young market liberals that served in the Kremlin during Medvedev's four-year term as president.

Arkady Dvorkovich was named one of the six deputy premiers. Media reports said he would have responsibility for energy and industry policy, areas over which he had limited influence while serving as Medvedev's economic adviser.

The energy minister's job went to Alexander Novak, a former deputy finance minister, indicating that Putin's energy 'tsar' Igor Sechin would maintain control over Russia's strategic oil and gas sector despite leaving the government.

WHO'S IN CHARGE?

Putin, 59, extended his influence over economic policy by ensuring that the finance and economy portfolios were taken by placemen who identify with his credo of state-led economic development.

A pro-Putin economist, Andrei Belousov, was promoted to economy minister in a sign that Putin wants to take direct control of economic policy, traditionally the preserve of the prime minister.

The country's top banker German Gref, a former economy minister, said however that Putin was ready to heed the views of Russians and act to put the economy on a sustainable footing.

"The election campaign has shown that Putin is ready for a serious transformation - I know there is a lot of skepticism about that," Gref, who is chief executive of Sberbank, said before the government announcement.

Although latest figures show Russia's economy grew at a 4.9 percent rate in the first quarter, that has been pumped up by lavish pre-election spending that has driven up the oil price at which Russia's budget will balance in the future.

"The oil curse will get us sooner or later," added Gref. "The government has no option but to create a favorable climate for investment and growth."

PROXY BATTLEFIELD

Gref's bank is at the top of a list of state assets slated for privatization, but the sale of a 7.6 percent stake planned for last September has been repeatedly delayed.

Shuvalov recently vetoed a near-term sale due to poor market conditions, that have since deteriorated further, reducing the value of the stake to $4.3 billion.

Shuvalov stays despite media reports over his wife's lucrative financial dealings with Russia's billionaire oligarchs. He has admitted the deals but denied any impropriety.

The English-speaking lawyer is seen as one of the few officials who can mediate in the battles for power and influence between the market liberals and another faction of men with a background, like former KGB spy Putin, in the security services.

Sechin, the informal head of the siloviki - or men of power - leaves his post as deputy prime minister but is expected to keep broad control over the oil industry in the world's largest crude producer.

In his last act as prime minister, Putin nominated Sechin to the board of Russia's main state energy holding company, a position that would allow Sechin to wield huge influence even if he loses his government post.

Since Putin's election victory on March 4, Sechin has brokered three major offshore exploration deals involving state oil major Rosneft, sought to block the privatization of state oil pipeline monopoly Transneft and acted to reassert state control over the power sector.

(Writing by Douglas Busvine; Additional reporting by Melissa Akin; Editing by Timothy Heritage)

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