MOSCOW, May 7 (UPI) -- Russian President Dmitri Medvedev faces challenges from Georgia, health and human services issues and a fragmented economy as he takes office, observers say.

Medvedev, who has made social issues and stability the core of his public remarks, assumed the presidency Wednesday as Russia faces a sharp population decline, The New York Times (NYSE:NYT) reported. Statistics show poor public health and low birth rates combined to shrink Russia's population.

His appointment of Vladimir Putin as prime minister fueled reports the former president will exert power from the minister's office.

Stephen Sestanovich, a senior fellow at the Council on Foreign Relations in New York, said no matter what policy choices Medvedev makes, it isn't clear whether they're his vision or Putin's.

"Does he have any power?" he said. "Is he a decorative figure? Of course, we just don't know about any of that yet."

In addition, Medvedev faces rising inflation, a bloated bureaucracy, corruption and a weak judicial system, the newspaper said.

The Russian economy is diverse -- from agriculture to high-tech -- and underdeveloped, The Times said, and ruled by factions fighting among themselves.

Medvedev also faces tensions emanating from Georgia, a former Soviet satellite that has accused Russia of annexing the breakaway republic of Abkhazia.