Bloomberg News

Putin Says Russia to Cut State’s Role in Economy, Keep Stability

October 06, 2011

Oct. 6 (Bloomberg) -- Prime Minister Vladimir Putin, who is seeking to return to the presidency next year, pledged to pursue plans to reduce the state’s role in the economy without undermining political stability.

“Our strategic goal is that the state should, over time, reduce its direct presence in the economy, so we will gradually exit the capital of state corporations,” Putin said today at VTB Capital’s annual investment forum in Moscow. “Changes, of course, are needed and they will happen, but we have to act carefully. We don’t need huge upheavals, we need a great Russia.”

The prime minister, who has been in power since 2000 and may serve as president for another 12 years, pledged to work closely with business to cut red tape and combat graft. The state’s “mission is to offer a shoulder to business and remove barriers that hinder it,” he said.

Putin, 58, said Sept. 24 he’ll seek to return to the presidency in March elections, pushing aside his protégé, Dmitry Medvedev, who replaced him in the Kremlin for four years because of a constitutional ban on three consecutive terms. Medvedev, a 46-year-old former corporate lawyer, has promised to fight corruption and attract foreign investment to cut Russia’s dependence on energy exports.

‘Liberal Experiments’

Putin would take the country’s top job again just as the global slowdown threatens to throttle demand for oil, the mainstay of the Russian economy. The risk is that Putin, an officer in the Soviet-era KGB who says policy makers must avoid “liberal experiments,” will struggle to combat challenges that threaten the country’s long-term growth prospects, former Economy Minister Yevgeny Yasin said in a Sept. 25 interview.

Foreign investors could pull out of Russia after Putin’s return as president, Jochen Wermuth, who helps manage about $350 million as chief investment officer at his Russia-focused Wermuth Asset Management GmBH, said earlier this year.

Concern over the global economy and Europe’s sovereign-debt crisis has roiled markets in Russia, which saw its economy contract 7.8 percent in 2009, its worst recession on record. Russia is vulnerable to swings in oil prices and will have to cut spending, including pensions, to bring its budget into line and its dependency on commodity exports, the International Monetary Fund said on Sept. 21.

Outflows of capital reached an estimated $18.7 billion in the third quarter, bringing this year’s total to $49.3 billion, the central bank said Oct. 4.

Better Prepared

Putin said Russia, whose $516.8 billion of international reserves are the world’s third-largest, is better prepared than it was in 2008 to withstand global economic turbulence.

The country, which has a debt of below 10 percent of gross domestic product, may run a balanced budget this year and in 2012 after two years of deficits, Putin said. The government won’t borrow on the domestic or international markets for the rest of the year, which will keep it from withdrawing about 350 billion rubles ($10.8 billion) from the economy, he said.

Financial discipline is a “keystone” of the Russian government, said Putin. Russia aims to raise a total of about 1 trillion rubles from state asset sales between 2012 and 2014.

--With assistance from Anton Doroshev in Moscow. Editors: Paul Abelsky, Alan Crosby

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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