Putin admits Russia’s economic problems are largely self-induced
Print Edition
President Vladimir Putin conceded for the first time yesterday that Russia’s economic problems were home-grown and vowed not to abandon the spending promises he made on returning to the Kremlin last year.
Facing an audience of lawmakers, officials and business leaders, Putin also said “nothing has been done” to implement an initiative he launched a year ago to stem capital flight that has sapped both investment and the Kremlin’s coffers.
The 61-year-old leader’s grim diagnosis marked a shift away from blaming the woes besetting Russia’s US$2 trillion economy on trouble abroad, especially the sovereign debt crisis in Europe — its biggest export market.
“We have to be clear: the main reasons for the economic slowdown are not external but internal,” Putin said in his annual address in the Kremlin.
During Putin’s first two terms as president, the economy clocked up annual growth rates of about 7 percent thanks to a boom in oil prices, while easy monetary conditions flooded emerging markets with cheap investment dollars.
Growth stalls
That ended abruptly with the global financial crash of 2008 and, with the government now relying on oil prices of over US$100 per barrel to balance its books, consumer spending is all that is keeping the economy ticking over.
The downturn, along with vast illegal outflows of cash estimated by a former central bank chief at US$50 billion a year, has caused the fragile recovery to stall. The government now expects the economy to grow by just 1.4 percent this year.
Long-term growth is likely to average 2.5 percent, lagging the world economy and other emerging markets. The government meanwhile risks exhausting its rainy-day savings in three years, officials warn.
Putin called for action to improve the business climate and said low labour productivity was a major drag on Russia’s economy, ranked by the World Bank as the fifth biggest in the world by purchasing power parity.
Putin’s landmark initiative to “de-offshore” Russian finance, announced in the same Kremlin hall a year ago, has had little impact beyond forcing some lawmakers to resign after they were found to have secretly owned property abroad.
He said companies whose ultimate owners were Russian would be barred from state contracts and refused credit by state development bank VEB if they failed to pay taxes in Russia.
“If you want to enjoy benefits, state support and earn a profit working in Russia, then register in a Russian jurisdiction,” said Putin.
“Since nothing has been done in this area over the past year, I have a proposal,” he said. “If you want to go offshore, you are welcome. But send your money here.”
Moral counterweight
Despite the weaker economy, Putin also said he would follow through on the so-called “May decrees” he promulgated on returning to office that include doubling pay for teachers and doctors by the end of his six-year term.
“The economic cycle can and is changing, but this is no reason to talk about revising our goals,” Putin said.
He said, however, that pay rises must be tied to improved public services.
“This means increasing the personal responsibility of every manager for achieving results,” he said.
Putin also portrayed Russia as a country of growing importance and as a moral counterweight to the US, despite the loss of its Cold War status as a superpower.
He used the occasion to reinforce his image as a champion of conservative values, intended to appeal to his traditional supporters in working-class areas outside big cities following protests against his rule led by young urban professionals.
“Nobody should have any illusion about the possibility of gaining military superiority over Russia,” Putin said.
“We will never allow this to happen. Russia will respond to all these challenges, political and military.”
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