Russian President Vladimir Putin threw his support behind efforts by allied lawmakers to repatriate as much as $1 trillion in capital held by companies and high ranking officials abroad.
Russia should proceed with anti-corruption legislation that would put limits on bureaucrats and politicians owning foreign bank deposits and securities, Putin said today in Moscow in his first state-of-the-nation address since returning to the presidency in May. The curbs should include all top policy makers including the president, prime minister and their families, he said.
Clawing back assets amassed by Russians in low-tax foreign jurisdictions is central to Putin’s plan to reignite and diversify the sagging economy through investment. The government this week cut its growth forecast for next year to 3.6 percent, less than the “minimum” 5 percent to 6 percent Russia needs over the next decade, Putin said.
“How can you trust an official or politician who makes bold statements about the wellbeing of Russia, but then tries to move his funds, his cash, abroad?” Putin said. “Property abroad should be declared regardless, and officials should report its value and also the source of the income that allowed them to make that transaction.”
Putin has embarked on the most far-reaching campaign against corruption of his 12-year rule since reclaiming the Kremlin this year, ousting Defense Minister Anatoly Serdyukov because of graft allegations against his subordinates. Russia kept its ranking as the world’s most corrupt major economy, according to Transparency International’s 2012 Corruption Perceptions Index published Dec. 5, placing it alongside Honduras and below Uganda and Nicaragua.
Russia could win back as much as $1 trillion in cash held abroad by offering an amnesty, Vyacheslav Lysakov, a State Duma deputy and member of the People’s Front movement that backs Putin, said in an interview before the speech today. Under the proposal, the returning funds would still be taxed, he said.
“It’s a replenishment for the state budget and also the investments we so sorely need,” Lysakov said. “This is money that’s supporting the Western economy, the Western banking system, Western companies. That’s not right.”
The government must also move to improve Russian courts and legislation to stop what Putin said was a “flight” from the country’s jurisdiction. He ordered the government to draft proposals to bring about the “de-offshorization” of the economy, including using local exchanges for state asset sales.
“Our entrepreneurs are often criticized for being unpatriotic,” he said. “Nine out of 10 significant deals done by large Russian companies, including companies partly owned by the state, are not subject to Russian law.”
Alexei Kudrin, who served as Putin’s finance minister for 11 years, said exiting offshores “really must be done through making the Russian jurisdiction more attractive, not through compulsion,” according to a post on his Twitter Inc. account.
The Micex Index of 30 stocks has advanced 3.3 percent this year through yesterday, lagging behind a 12.9 percent advance in the MSCI Emerging Markets Index. The ruble-denominated benchmark was 1.4 percent higher at 1,468.52 as of 5:20 p.m. in Moscow, heading for the highest close since Oct. 22.
Russians spent $12 billion on foreign property last year, compared with $5.5 billion a year in 2007 and 2008, central bank Chairman Sergei Ignatiev said April 5. Net capital outflows may reach $75 billion this year after doubling to $80.5 billion in 2011, according to the Economy Ministry.
Putin is trying to boost investment to at least 27 percent of economic output by the end of his term in 2018, from 21 percent last year. The Economy Ministry cut its growth forecast for next year this week and has urged the government to spend more of its oil revenue on roads and other infrastructure.
Hours after taking the oath of office in May, Putin signed more than a dozen orders laying out plans for the economy, foreign and social policy. In addition to boosting investment, Putin ordered the government to improve Russia’s standing in the World Bank’s Doing Business rating to 20th by 2018 and creating 25 million high-quality jobs by 2020.
The government is also trying to cut its dependence on oil and gas, which account for half of the federal budget’s revenue. Without those resources, the budget would be in a deficit of about 10.5 percent of GDP this year, Finance Minister Anton Siluanov said Dec. 9.
In his speech today, Putin said the central bank and government should do more to safeguard jobs and growth, noting that other monetary regulators including the U.S. Federal Reserve had an explicit mandate to ensure growth.
“We need long and cheap money to lend to the economy, further reductions in inflation and competitive bank rates,” Putin said, adding that he wasn’t calling for changes to Bank Rossii’s mandate. “I’m asking the government and central bank to think about ways to achieve those goals.”