Analysis-Surprise pick as Russia’s defence minister is tough-talking economist and Putin ally

Nominee for Russian defence minister Belousov visits Federation Council

By Guy Faulconbridge, Darya Korsunskaya and Andrew Osborn

MOSCOW/LONDON (Reuters) -With zero military experience, Andrei Belousov, a wiry white-haired economist and Orthodox churchgoer who enjoys rock climbing, seems an odd pick to be Russia's new defence minister at a time when Moscow is waging war against Ukraine.

But six sources, some of whom have worked with Belousov, described a tough-talking and professional government insider who once led a campaign to wring more money out of big business for the state, proving he had sharp enough elbows to navigate the system.

In wartime, Russia's defence minister must oversee vast financial flows and economic and industrial planning while leaving the day-to-day battlefield management to others. Belousov's ability to get things done - having raised around 300 billion roubles ($3 billion) with a tax on corporate windfall profits - is likely to have impressed President Vladimir Putin.

And his appointment suggests to many that Putin is reshaping Russia for a long war in Ukraine.

"(Belausov) is very organised, systematic, tough. He likes to control everything," said one government source who has worked with Belousov, who declined to be named because of the matter's sensitivity.

Yet some criticised the 65-year-old former first deputy prime minister for strongly statist views that they say have sometimes disadvantaged private enterprise.

"Belousov is a half Soviet, a very Soviet person," said a senior Russian source with knowledge of the situation.

"Belousov believes in the state - that the state is supreme and that the state should decide how money is spent," the source added. "Belousov has a very tough job - some of the generals will probably not like the fact that he is there."

He will need to find ways around Western sanctions, contend with persistent inflation, and work in a sector where some will resent his lack of military experience and be keen to protect long-established contracts and ways of working.

Some war bloggers said his skills would help to root out the endemic corruption between the military and the defence industry, but others would have liked a military man.

In his first public comments as nominee, Belousov on Monday conspicuously courted the military, saying soldiers needed better housing, hospitals and welfare benefits.

ALIGNING ECONOMY AND UKRAINE WAR

The appointment suggests that Putin wants not only to boost the military-industrial complex in a technological arms race against Ukraine and the West, but also to harness the wider economy more closely to that goal.

"Putin's priority is war," Alexandra Prokopenko, a former Russian central bank adviser, said on X.

"War of attrition is won by economics. Belousov is in favour of stimulating demand from the budget, which means that military spending will at least not decrease but rather increase."

Belousov has helped to establish a national drone development programme and in 2017, according to Russian media outlet RBC, was among those who convinced Putin that the digital economy and blockchains were crucial to the future.

His skillset indicates he is unlikely to be heavily involved in battlefield decisions, which will remain the preserve of General Valery Gerasimov, chief of the General Staff, who has kept his job as Russian forces try to advance in Ukraine, and ultimately Putin.

Sergei Shoigu, the outgoing defence minister and a longstanding Putin ally, will become secretary of the Security Council, a senior job that will keep him close to Putin but arguably wields less influence.

Dmitry Peskov, Putin's spokesman, explained the rationale of picking Belousov in a late-night Sunday briefing, saying that defence and related spending had gone from 3% of gross domestic product to 6.7% because of the war and was heading for 7.4%, a figure he said evoked the Soviet Union in the mid-1980s.

"It's extremely important, and it requires special handling," said Peskov.

Belousov will control that budget with a brief to boost output and synergies and reduce corruption, while ensuring defence spending is sensibly integrated into the wider economy and nimble enough to embrace technological change on the battlefield.

Ensuring the civil economy is not neglected and living standards remain broadly acceptable is also likely to be part of the brief.

Putin in February said Moscow would not repeat the error of the Soviet Union by pursuing an arms race that ate up too much of its budget, but should develop its defence industry in a way that boosted Russia's overall scientific and industrial potential.

RUSSIA'S PROBLEM WITH MILITARY CORRUPTION

As a former economics adviser to Putin, economy minister, first deputy prime minister and, briefly, acting prime minister, Andrei Removich Belousov - called "Remych" for short by those who know him - is seen by some as having become one of the most powerful players in modern Russia.

"Remych is someone highly trusted by Vladimir Putin," said another government source. "If the system remains as it is, he has not only been promoted, but he has risen to the same level as the prime minister, if not higher."

At a time when Russia is locked in what Putin calls an existential struggle with the West and needs more control of state funds than ever, Sergei Markov, a former Kremlin adviser, said one of Belousov's tasks would be an anti-corruption purge.

Last month, Timur Ivanov, a deputy defence minister and ally of Shoigu, was arrested and accused of taking kickbacks worth nearly $11 million in exchange for awarding lucrative defence contracts. He denies wrongdoing.

"Money now, in the era of the Special Military Operation (in Ukraine), has come to the Ministry of Defence in huge amounts. And the situation with Timur Ivanov showed that the situation with corruption goes beyond all normal limits," said Markov.

Belousov is not tainted by a whiff of corruption that has attached itself to some insiders, the government source who once worked with Belousov added.

"He has no record of major sins (corruption). He has always viewed business more as crooks and is in favour of the state being able to redistribute more," the source said.

Rybar, a war blogger believed to be close to the defence ministry, said he too expected Belousov to clean house at the ministry and to do away with what he euphemistically called "contrived beauty" - a reference to what critics say are exaggerated claims of Russia's technical and battlefield success.

"Belousov's appointment as defence minister means the start of a major audit and restructuring of all financial models within the defence establishment," said Rybar.

($1 = 91.5750 roubles)

(Reporting by Darya Korsunskaya and Andrew Osborn; Additional reporting by Elena Fabrichnaya and Anastasia Lyrchikova in Moscow; Writing by Andrew Osborn; Editing by Kevin Liffey)