By Steve Gutterman and Douglas Busvine
MOSCOW (Reuters) - President Vladimir Putin will likely name allies to key economic posts when he unveils his new cabinet on Monday, asserting control over the government in a move that could hamstring reforms backed by his more liberal premier.
At stake is the future of Russia's privatisation programme and the drive to diversify a $1.7 trillion Russian economy still heavily dependent on oil and gas exports, which yield half of all state revenues.
"It will be Putin's cabinet," said Lilia Shevtsova, a senior associate at the Carnegie Moscow Center think-tank who is an author and expert on Putin.
The appointments will set the tone for the start of Putin's six-year term in a country beset by economic tests - curbing corruption, attracting investment and reducing reliance on energy - and changed by unprecedented public opposition to his rule.
Anti-Putin protests began over allegations of fraud in a parliamentary election won by his ruling United Russia party on December 4, and were fuelled by dismay at his plan to return to the presidency.
They grew smaller after his election but have persisted, and police detained hundreds protests over his May 7 inauguration.
As president, Putin has direct authority over the "power ministries" of defence, the interior and foreign affairs, where any new appointees will be as close or closer to the 59-year-old leader than those in the outgoing cabinet.
But Putin is also expected to exert powerful sway over the economic team, which Prime Minister Dmitry Medvedev, who agreed to swap the Kremlin for the government White House under a pact with his political mentor, would traditionally control.
Investors, above all, say they want to know whether Russia will carry out key reforms like privatisation, that would curtail the role of the state in the economy, and reduce its dependency on oil.
First Deputy Prime Minister Igor Shuvalov, a linchpin of Putin's government during his four-year premiership, is seeking to remain in his post after riding out negative publicity over his wife's financial dealings.
Putin may view Shuvalov, an urbane, English-speaking lawyer, as invaluable for his role as a balance between factions in the Kremlin's orbit - the 'siloviki' linked to the security services and more liberal reformers.
Finance Minister Anton Siluanov, a career bureaucrat who replaced fellow fiscal hawk Alexei Kudrin when the long-time Putin ally was driven out in a spat with Medvedev last autumn, may also keep his post.
If Shuvalov and Siluanov stay on, it "implies that Putin will also maintain control over all financial decisions," said Natalia Orlova, chief economist at Alfa Bank in Moscow.
Allies of Medvedev, 46, are vying for top posts as well, and the future of other prominent figures seems less clear.
Investors are watching the Economy Ministry, where sources say Andrei Belousov, 53, who heads the government's economic staff and has generated some of Putin's main policy ideas, is a strong candidate.
FACTIONAL FEUDS
Belousov's presumed rival for the economy post is Medvedev's Twitter-savvy economic adviser, Arkady Dvorkovich, a prominent member of the fresh-faced Kremlin team that raised hopes for change during his four-year presidency but fell short.
Sources say Dvorkovich, 40, still harbours ambitions for the finance portfolio but he was more likely to be given a less powerful post because of strong opposition to his appointment from more conservative members of Putin's circle.
Another Medvedev ally, studiedly scruffy billionaire former power industry executive Mikhail Abyzov, was angling for a senior job in charge of energy policy but was also facing stiff opposition, the sources said.
Energy has for years been the realm of Igor Sechin, a close Putin ally and leader of the "siloviki" faction - the former KGB and security apparatchiks who were raised to power by Putin in his 2000-2008 presidency and oppose Medvedev's liberal camp.
Sechin, a deputy prime minister, may leave the government but keep a strong hand in energy policy after Putin, on his last day as premier, signed an order nominating him to the board of the main state energy holding company.
Continued clout for Sechin, who could be given a powerful role outside the cabinet, would cloud Medvedev's chances of success in a privatisation drive he wants to press ahead with upon assuming office.
"ACID TEST"
Since Putin's election on March 4, Sechin has sought to assert his control by masterminding three major upstream deals involving state oil firm Rosneft, tried to block the sell-off of pipeline monopoly Transneft and pushed back 2007 reforms to liberalise the power sector.
"Privatisation will be 'the acid test' for the early months of Medvedev's government," said Christopher Granville of Trusted Sources, a London-based emerging markets research firm.
A cabinet divided by personal allegiances and policy differences could be a barrier to reform at a time when Putin faces persistent discontent reflected in a wave of street protests by Russians who fear his continued rule will bring economic stagnation and stifle political activity.
Putin made clear he had the last word, with supporters saying he had taken the unusual decision to avoid this weekend's G8 summit outside Washington - sending Medvedev in his place - because he needed to finalise the government.
Steered into the Kremlin in 2008 by Putin, who faced a constitutional bar on a third straight term, Medvedev was seen as the junior partner in the ruling duo during his presidency, which featured much reformist talk but little tangible success.
Medvedev's longevity as prime minister has already been called into question. A government source and Russian media said some prominent prospective nominees had turned down offers of cabinet posts, suggesting they feared they would hold little real power or were wary of risking their political careers.
Shevtsova said Putin could use Medvedev as a tool to solve squabbles between clans, to distance himself from unpopular decisions and as a potential scapegoat for problems.
"At the same time, it's not in Putin's interest to annihilate Medvedev completely, because loyalty - and the reciprocation of loyalty - is the key principle that glues Putin's team together," she said.
(Additional reporting by Gleb Bryanski; Editing by Jon Boyle)
