Moscow - 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 that he made on returning to the Kremlin last year.
Facing an audience of legislators, 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 grim diagnosis marked a shift away from blaming the woes besetting Russia’s $2 trillion (R21 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.
That ended abruptly with the global financial crash of 2008 and, with the government now relying on oil prices of over $100 a 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 $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 by purchasing power parity.
“Russia is among the top five global economies,” Putin said. “However, we lag developed countries by two-thirds to three-quarters on such a key indicator as labour productivity. We must act resolutely to overcome this gap.”
Former finance minister Alexei Kudrin, still viewed as Russia’s most competent economic policymaker, faulted Putin for failing to act sooner.
“It’s a shame that so little has been done,” Kudrin said on Twitter after the speech. “The president’s proposals for reactivating the economy are a tactical response to the problem. We need a strategic plan to get out of stagnation.”
Speaking earlier, Europe’s development bank said that Russia needed to restructure and sell the large state companies and banks that play a dominant role in business and finance. – Reuters