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Ought Six
12-04-2008, 08:28 PM
Putin Pledges Increased Aid as Russian Slump Deepens (http://www.bloomberg.com/apps/news?pid=20601085&sid=aTjJuqTVj7_E&refer=europe)


By Henry Meyer and Torrey Clark
Bloomberg
Dec. 4, 2008


Russian Prime Minister Vladimir Putin pledged increased state aid and direct government investment in troubled companies as an economic slump deepens.

Seeking to reassure Russians in a three-hour television call-in show, Putin, who served as president from 2000 until May this year, said: “We have every chance of living through this difficult period with minimum costs for the economy and our citizens.”

Putin, 56, who remains at the center of power in Russia, faces the risk of seeing his popularity fade as an oil-driven boom gives way to mounting job losses, a slowdown in growth and a weakening ruble. As prime minister, Putin bears direct responsibility for the economy. His chosen successor, President Dmitry Medvedev, 43, was out of the country on a three-day visit to India.

“Within a year from now, nothing will be left of Putin’s reputation,” said Stanislav Belkovsky, a former Kremlin adviser who now heads the Moscow-based Council for National Strategy.

The call-in show added to speculation that the former president may be considering a return to the Kremlin. Putin dismissed a reporter’s question about his intentions, saying there was no need to “make a fuss” about the presidential election, which is not scheduled until 2012.

While Russians may welcome Putin’s assurances that they weren’t facing an economic collapse similar to the 1998 debt default and devaluation, investors were more concerned about the over-centralized political system and state interference in the economy, said James Beadle, chief investment strategist at Pilgrim Asset Management in Moscow.

‘Pinch of Salt’

“Putin tried to demonstrate that this is part of the business cycle and different to the 1998 default,” Beadle said. “Investors take it with a pinch of salt. They are more worried about the political issues which are of less direct concern to ordinary Russians.”

Russia in August 1998 defaulted on $40 billion of debt and devalued the ruble, wiping out the life savings of millions of people overnight and pushing the government to the edge of bankruptcy.

Russian companies that fail to get funds through the banking system may be able to turn to the government for “a large scale” capital injection, Putin said. The government also plans further tax cuts from Jan. 1 for oil companies to help reduce domestic gasoline prices.

State Aid

The government has already pledged more than $200 billion in loans, tax cuts, delayed tax payments and other measures to boost liquidity in the financial system in the credit crunch.

The Russian economy, which has expanded at 7 percent a year since 1999, may grow by 1 or 2 percent in 2009, according to Gary Dugan, Merrill Lynch & Co.’s chief investment officer, who predicts an average oil price of $42 a barrel in the first half of next year. The World Bank foresees growth of 3 percent.

Putin promised to avoid “sharp jumps” in the value of the ruble as it fell to the lowest level in almost three years against the dollar. Russia’s international reserves, the world’s third largest, have fallen 24 percent since reaching a peak of $598.1 billion in August as the central bank sold foreign currencies to prop up the national currency, down 16 percent against the U.S. dollar since Aug. 1.

Ukraine Warned

Demonstrating his influence on foreign policy as prime minister, Putin adopted a tough stance in a dispute with Ukraine over debts for Russian gas deliveries. He said he’d order a cutoff in supplies if the Western-backed former Soviet nation siphoned off gas destined for the European Union. He also vowed to protect two breakaway regions in Georgia -- Abkhazia and South Ossetia -- that Russia recognized as independent after an August war with its U.S.-allied southern neighbor.

Putin welcomed what he called “positive signals” from U.S. President-elect Barack Obama on NATO enlargement and missile-defense, two issues that have strained ties between Russia and the U.S.

Mostly though, he was responding to bread-and-butter concerns such as unemployment, inflation, housing and pensions and utility prices. Russians who submitted more than 2 million questions by phone, Internet, and SMS as well as through televised link-ups with regions across the country revealed anxiety about the threat to their livelihoods.

Unemployment Concerns

“How will you deal with the problem of mass unemployment?” asked a woman in the southern city of Rostov-on- Don who said she feared being laid off from her job at an electronics factory.

Putin reaffirmed plans to increase unemployment benefits next year to 4,900 rubles ($175) a month and pledged funding for government programs to retrain the jobless so they can take advantage “of the next economic upswing.”

Unemployment will rise to 10 percent to 11 percent in Russia next year, from 6.1 percent currently, according to a report by VTB Capital.

As the U.S., Europe and Japan slip into recession, the price of oil has fallen to around $45 a barrel in New York from a July high of almost $150, hurting Russia, the world’s largest energy exporter, which relies on oil and gas for two-thirds of its export earnings.

Putin may try to persuade Medvedev to step down to allow him to assume full control and avoid taking blame for the crisis as prime minister, say analysts including Olga Kryshtanovskaya, a political analyst at the Russian Academy of Sciences, and Leonid Sedov, an analyst from the Levada Center research group in Moscow.

This would trigger snap elections that might allow Putin to return as president for up to 12 years, if a constitutional amendment extending the presidential term to six years from four becomes law as expected later this month. Heads of state in Russia are limited to two consecutive terms and can return only after a period out of office.
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To contact the reporters on this story: Henry Meyer in Moscow at [email protected]; Torrey Clark in Moscow at [email protected]