bne IntelliNews -
"Growth is inevitable and imminent," Putin promised Russians who tuned into the president's annual press conference. He predicted that the poor economic situation would last up to two years in the "worst case scenario" but recovery could start as soon as the first quarter of next year – it would depend on what happened to the price of oil.
Putin predicted that the global economy would inevitably return to growth and this would drive up the price of oil, lifting the value of the ruble with it.
The whole of the first half hour of the press conference was dedicated to the discussion of economics in unusual detail for this annual pre-Christmas jamboree. Putin struck an upbeat tone, stressing that Russia has plenty of reserves, that the fall in the oil prices was temporary and that things would be back to normal soon – depending on what happened with the "external factors."
While stressing that Russia has adequate government reserves of RUB8.4 trillion rubles ($142bn), Putin admitted that the collapse of the oil price was driving Russia's current woes – and that oil prices could fall further.
"We must not waste our reserves on the market but give loans to the market, via things like repos. These instruments can be issued for a month, a week or a day. And this money will be repaid, so it is a way to offer access to the reserves. It has been done correctly but maybe could be done faster," said Putin.
And he went out of his way to assure the millions of Russian tuning into the event that while there had to be budget cuts to take into account the new realities (without specifying what would be cut) social payments, pensions and state employee pay would not be cut.
The government said even before the December 15 plunge of the ruble by 10% that it will cut spending by 10% - the first nominal cut in budget spending since Putin took office in 2000. The obvious place to make these cuts is in defence spending, which has ballooned in the last two years and currently accounts for about a third of total budget spending. But given Putin's siege mentality that he has been showing during his confrontation with the west, it is likely that the president will find every way possible to avoid cutting the re-armament programme that he regards as a fundamental national security issue.
Putin added that another 25% of Russia's problems were the result of sanctions and painted a picture of East-West confrontation where Russia must stand up for its national security interests. He described Russia as a bear that "they" wanted to "sit quietly and eat honey" and chain up.
"If [the West] takes out the bear's fangs and claws it will not be able to do anything. It's just a stuffed animal. We are trying to maintain our security interests," said Putin earnestly.
Putin didn’t blame everything on oil and Nato's aggression, but conceded that his government has also failed to carry through on the obvious need to diversify the economy. Putin fended off a question blaming Russia's legendary bureaucracy for the economic problems.
"You think Russian bureaucracy is bad? You should see the bureaucracy in the EU. Compared to that Russian bureaucracy is not a problem," Putin said. "Our problem is that everyone wants to invest into energy as that is the most profitable. No-one is investing into high tech."
He suggested that this crisis might be the goad that Russia needs to finally put in the deep structural reforms that Russia needs in order to flourish. Prior to the press conference, Economic Minister Alexey Ulyukayev said in an interview that Russia could grow by 2%-3% a year if it made these reforms.
Putin returned to the theme of promoting the business environment as the way to diversify the economy.
"We need to provide a friendly business environment for entrepreneurs, we need more innovation, to diversify the economy, regional development, to stop using police/courts for business disputes," said Putin.
However, Putin has consistently failed to follow through with effective reforms. His line is belied by the recent renationalisation of privately-owned oil major Bashneft, which has seriously undermined confidence amongst both Russian and foreign investors.