Russia's Shuvalov survives despite whiff of scandal

MOSCOW (Reuters) - Igor Shuvalov's political acumen and knowledge of the Kremlin's Byzantine ways helped him cling to one of the most influential roles in Russia's government on Monday, despite questions over his family's financial dealings.

Shuvalov, 45, kept his job as first deputy prime minister in the cabinet unveiled by President Vladimir Putin, with a broad economic remit ranging from privatization to trade talks.

Colleagues describe Shuvalov as a natural mediator in the machinations of Russian politics, where in-fighting is hidden from public view as factions vie for control of huge cash flows generated by the world's largest energy producer.

A loyal Putin ally and interlocutor for the West, he played a leading role in completing Russia's 18-year talks on joining the World Trade Organization last year and has been an important point of contact for businesses coming to Russia.

"As an 'ombudsman' he has been of enormous help to foreign investors," said Karl Johansson, head of Ernst & Young in Russia and coordinator of the Foreign Investment Advisory Council, a consultative forum.

A proponent of privatization, Shuvalov also has the respect of Russia's financial community, which values his support for the market economy and ability to get things done.

"He is one of the best executors in the government," said investment banker Ruben Vardanian, founder of Moscow brokerage Troika Dialog, which was taken over by state-controlled Sberbank last year.

But Shuvalov had looked to be on his way out of politics after media reports of investments through which his wife, Olga, made millions of dollars with the help of some of Russia's richest 'oligarchs'.

A 2004 loan of $50 million to metals and mining tycoon Alisher Usmanov, who invested the money in British steel firm Corus, delivered a payout of $119 million after its terms were amended to capture profits from the stake.

In a second deal, the Shuvalovs profited from investments through a company owned by billionaire Suleiman Kerimov in Gazprom before a bar was lifted in 2005 on foreign ownership of stock in the state-controlled gas export monopoly.

With Shuvalov in no position to deny the reports, which were based on detailed documentation, he went on the offensive, acknowledging the deals took place but denying any impropriety.

"You can be sure that in all my years of government service I have not allowed a conflict of interests to arise," he said in a May 14 newspaper interview that signaled his likely return to government.

Although the U.S. government criticized the conduct of Russia's parliamentary and presidential elections, and denounced the police's treatment of opposition protesters, it avoided commenting on the Shuvalovs' financial dealings.

INDEPENDENTLY WEALTHY

Aides to Shuvalov, an English-speaking lawyer, say he was independently wealthy before entering government in 1997, when he became an official at the State Property Fund.

In his first spell as president, Putin named Shuvalov his 'sherpa' to the Group of Eight nations in 2005. When Putin became premier in 2008, he made Shuvalov his most senior deputy - the job to which Shuvalov was reappointed on Monday.

Shuvalov has gone out of his way to deny harboring any ambitions for higher office, reinforcing his reputation for unswerving loyalty to his political patrons.

"I am not positioning myself as a politician," Shuvalov told Reuters in an interview last year, adding that he had no political base.

While Shuvalov has supported reforms such as privatization, he has in practice been more pragmatic than doctrinaire. He recently put on hold a planned sale of a 7.6 percent stake in Sberbank, citing poor market conditions.

Even now, those conditions will be vital to the policies Shuvalov will oversee.

"Shuvalov ... has been a proponent of privatization in the past. Whether it goes ahead and at what speed, a lot depends on the oil price," said Peter Westin at Moscow brokerage Aton.

He is also likely to stick closely to the signals he gets from Putin. Shuvalov has adhered to the state-driven approach to economic policy espoused of late by the president, who ramped up spending before his election in March and plans increased defense and welfare spending during his six-year term.

(Writing by Douglas Busvine, Additional reporting by Megan Davies, Editing by Timothy Heritage)

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