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Putin Reviews Stimulus as Government Said to Fight Over Cash

June 10 (Bloomberg) -- Russian President Vladimir Putin urged the government to resolve differences over stimulus measures to accelerate economic growth as the Finance Ministry fights to hold down spending.

Putin, serving his third-term in the Kremlin, ordered the Cabinet to return to the contentious issue of funding state investment projects, while supporting calls to limit the growth of regulated utilities prices, according to a transcript of the meeting published today on Kremlin’s website. Tariff proposals will be ready in July, according to a copy of the government plan obtained by Bloomberg.

“The Russian economy must grow faster than the global economy if we want to narrow the gap with economic leaders,” Putin said, according to the transcript.

Russia’s slowing economic growth, at 1.6 percent in the first-quarter, is a trajectory that “amounts to failure,” Deputy Economy Minister Andrei Klepach said May 16.

Putin, 60, faces the weakest economic expansion since a 2009 contraction as demand wanes for Russian commodity exports, while inflation kept the central bank from cutting borrowing costs for a ninth month today. Consumer prices accelerated for a second month in May to 7.4 percent, the fastest pace in 21 months, and remained at that level as of June 3, according to the central bank.

Oil Wealth

The government has remained deadlocked over how to finance state investment projects, with the Finance Ministry insisting the funds be repaid with interest to protect the budget, according to the plan. Expanding the central bank’s role to oversee the economy was also open for debate.

The Finance Ministry objected to the Economy Ministry’s recommendation on increasing capital at Vnesheconombank, the state development bank known as VEB, to boost financing for government projects and seeks to cap the use of the country’s oil wealth funds, according to the document.

The Finance Ministry is battling to balance the budget after Putin pledged to boost social spending in the run-up to his 2012 election for a third term in office.

Putin told the government to create transparent criteria for selecting projects, avoiding any that are “unprofitable or unviable,” according to the transcript.

Economic Acceleration

The Economy Ministry is seeking to create a list of “systemically important” state projects to underpin the “acceleration” of economic growth, while the proposals submitted to Putin didn’t provide details.

The government’s plan “is a managed liberalization, which preserves the foundations of the system,” Yevgeny Minchenko, an independent political analyst, said by phone, drawing a parallel between the measures to accelerate expansion and the program of glasnost-perestroika-uskorenie, or openness-restructuring-acceleration, followed in the 1980s by the last leader of the Soviet Union, Mikhail Gorbachev. “They’re only partial reforms.”

The Finance Ministry also opposes a proposed 500 billion rubles ($15.5 billion) in state guarantees for the Export Insurance Agency of Russia, a unit of VEB, for 2014 through 2016, according to the plan.

To contact the reporter on this story: Evgenia Pismennaya in Moscow at epismennaya@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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