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Putin Vows Show in Arm for Economy Growing at 4-Year Low

Photographer: Andrey Rudakov/Bloomberg

Russian president Vladimir Putin speaks during the St. Petersburg International Economic Forum 2013 on June 21, 2013. “The top task for us is to create conditions in Russia for sustainable economic growth,” he said. “Economic growth should rest on increased labor productivity, investment and innovation.” Close

Russian president Vladimir Putin speaks during the St. Petersburg International... Read More

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Photographer: Andrey Rudakov/Bloomberg

Russian president Vladimir Putin speaks during the St. Petersburg International Economic Forum 2013 on June 21, 2013. “The top task for us is to create conditions in Russia for sustainable economic growth,” he said. “Economic growth should rest on increased labor productivity, investment and innovation.”

President Vladimir Putin unveiled a plan to jolt Russia’s economy out of the worst growth in four years, promising to help the central bank cut inflation and pledging about $14 billion of savings to revamp roads and railways.

Rules governing energy exports will also be relaxed to help Russia feed demand for natural gas in Asia, while an amnesty may free thousands of entrepreneurs convicted or accused of economic crimes, Putin said today.

“The top task for us is to create conditions in Russia for sustainable economic growth,” he said at the St. Petersburg International Economic Forum. “Economic growth should rest on increased labor productivity, investment and innovation.”

Putin addressed delegates in his hometown at Russia’s flagship investor gathering at a time when the country’s economy is expanding at less than half the 5 percent expansion goal set by Prime Minister Dmitry Medvedev. While Economy Minister Andrei Belousov said yesterday that growth has picked up in the second quarter, the government’s full-year projection of 2.4 percent would represent the worst result since the 2009 recession.

Stocks Plunge

The dollar-denominated RTS index is down 18.3 percent in 2013, compared with a 14.9 percent decline for the MSCI Emerging Markets Index. It fell 20 percent from its January peak on June 5, entering a bear market on concern that falling oil prices may curb growth in the world’s biggest energy exporter. The ruble-denominated Micex has lost 12 percent this year.

Russia will seek to rein in price growth at state-run companies such as OAO Gazprom (GAZP) and OAO Russian Railways by limiting the scale of their annual tariff increases to the previous year’s inflation rate, Putin said. The cap will be in place for five years, starting in 2014.

“Our infrastructure monopolies have room to increase savings,” he said. “Each of these companies must approve a cost-cutting program and improve efficiency. Money needs to be spent intelligently.”

Tariff growth accounts for more than a third of Russian inflation, central bank First Deputy Chairman Alexei Ulyukayev said yesterday at the conference. The bank, which will be headed by Putin’s economic aide Elvira Nabiullina staring June 24, has said price growth is too quick to ease monetary policy even as the economy lost steam, keeping the main lending rate at 5.5 percent for nine months.

Infrastructure Plan

Russia will also allocate 450 billion rubles ($13.7 billion) from the National Wellbeing Fund for infrastructure projects, according to Putin, who said the first will be a high-speed train link between Moscow and Kazan, a soccer World Cup host city about 450 miles east of Moscow. As much as half of the $87 billion fund may eventually be allocated to such projects, he said.

Weakening investment has been a cause of Russia’s economic slowdown, according to Belousov, who’s led government calls for lower borrowing costs. Gross domestic product rose 1.6 percent from a year earlier in the first quarter as growth slowed for a fifth quarter.

Putin, who’s accused by imprisoned former Yukos Oil Co. billionaire Mikhail Khodorkovsky of being behind his two convictions for tax evasion and fraud, also used the speech to say he’d support an amnesty for some first-time offenders charged or convicted with economic crimes.

Thousands Released?

Boris Titov, the Kremlin ombudsmen for businessmen, has backed the amnesty, saying some entrepreneurs have been wrongly jailed. Thousands would be released under the proposal, he told reporters today in St. Petersburg.

Putin’s proposals follow up on a set of directives he issued to the government on May 7, 2012, hours after being inaugurated for a third term to the presidency. Those targets included increases in labor productivity, new jobs, and rising to 20th place from 112th in the World Bank’s Doing Business ranking.

While Russia needs faster growth, the government can’t improve expansion significantly by stimulating demand because there isn’t much slack in the economy, according to David Lipton, first managing director of the International Monetary Fund.

“A little bit of stimulus might bring some growth in the short run,” he said at a panel discussion before Putin’s speech. “But it would undermine the long-run investment climate by once again leading to inflation pressures and exchange-rate pressures.”

‘Competitiveness Problem’

Inflation accelerated for a second month in May to the fastest pace in 21 months, with consumer prices rising 7.4 percent from a year earlier after increasing 7.2 percent the previous month, the Federal Statistics Service in Moscow said June 4.

Putin’s proposals can’t revive Russia’s economy, according to billionaire Brooklyn Nets owner Mikhail Prokhorov, who said “the competitiveness problem will remain unresolved.”

Energy companies such as Gazprom oppose Putin’s proposals on tariffs, according to First Deputy Prime Minister Igor Shuvalov. Still, capping increases shouldn’t result in significant decreases to state companies’ investment programs, Belousov told reporters after the speech.

“This will provide clear rules, which will allow goods and service producers to plan for the long term,” Shuvalov said today in an interview in St. Petersburg. “It’s a good signal and stable rules of the game.”

To contact the reporters on this story: Olga Tanas in St. Petersburg at otanas@bloomberg.net; Ilya Arkhipov in St. Petersburg at iarkhipov@bloomberg.net; Scott Rose in St. Petersburg at rrose10@bloomberg.net

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

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