Putin solves Kremlin riddle

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MOSCOW, Oct 2 (Reuters) President Vladimir Putin appears to have solved a riddle that has puzzled Kremlin watchers and investors alike: how will Putin keep power without office? Putin's answer seems to be: stay in office -- but this time as the most influential member of parliament's biggest party, and even as prime minister.

He told a congress of the United Russia party yesterday that he could be a future prime minister and that he would head the party's list in December parliamentary elections.

Kremlin officials, ministers, deputies and members of United Russia roared with applause and gave a Putin a standing ovation.

Investors and politicians said Putin has unveiled a plan that suggested he would be the real power behind the Kremlin after 2008 while a new president would take a secondary role.

''Putin will be in effect the head of state, it will be just as prime minister,'' said Ian Hague, partner at New York-based Firebird Management, which has 3.5 billion dollarsinvested in emerging markets, including 1 billion dollars in Russia.

''The presidency would then be a lot less meaningful,'' Hague said. ''The market will like it -- the market likes whatever Putin does.'' Putin has brought political stability and presided over nearly eight years of economic growth, a contrast to the chaos which accompanied the 1991 collapse of the Soviet Union.

But some investors cautioned that concentrating power outside the Kremlin would be a major innovation -- and possible risk -- in a country accustomed to rule from inside the stronghold of tsars, communists and presidents.

Russian shares traded abroad, known as Global Depositary Receipts, rose overnight after Putin's comments. Russian sovereign Eurobonds were little changed.

''Continuity is likely to be ensured, with Putin playing a key role in post-2008 Russia,'' Deutsche Bank said in a note to clients.

''A more cynical view of the emerging succession scenario is that Putin is clinging on to power and wants to install a loyal political figure in order to return as Russia's president either in 2012 or even earlier,'' the bank said.

KREMLIN -- HOME TO PREMIER TOO? Elected for four-year terms as president in both 2000 and 2004, Putin has repeatedly promised to step down as president in 2008 in accordance with the constitution.

Russia's most popular politician, he has refused to rule out returning in 2012, which the constitution would allow.

Until Monday, Putin had been careful to send mixed signals about what he could do and whom he could choose as a successor to run in March presidential elections.

But talking about what he might do once he steps down, he told delegates yesterday.

''As far as heading the government is concerned, this is a quite realistic suggestion but it is still too early to think about it.'' ''Two conditions must be met first. United Russia must win the election and a decent, capable and modern person with whom I work as a team should be elected president,'' Putin said.

Putin, 54, told the congress that changing the constitution would be wrong and said fighting corruption and dealing with a social inequality should be the party's priorities.

''It looks to me a very elegant way to sidestep the constitutional limits of two terms,'' said James Fenkner, a managing partner at Red Star Asset Management in Moscow.

''For those people who believe stability overweighs everything it is good.'' Under Putin, Russia has become the darling of emerging market debt and equity investors, who have praised him for bringing political stability after the chaotic 1990s.

Opponents charge that Putin has expanded the state's control over the media, crafted a political system dangerously dependent on one man and failed to get to grips with endemic corruption.

''The prime minister will move to the Kremlin and every news programme will show what the national leader is doing, whatever his job is,'' Mikhail Kasyanov, a former prime minister who became an opposition leader after he was sacked by Putin in 2004, told Echo Moskvy radio station. ''Nothing will change.'' REUTERS SZ HT1300

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