Photographer: Alexander Utkin/AFP via Getty Images

Putin Confronting Ex-Aide Says Economic Moves Show ‘Heart’

Russian President Vladimir Putin slapped down his former finance minister during a nationally televised show, defending his handling of the economic crisis sparked by plunging oil prices and U.S.-led sanctions.

The face-off highlighted the limits facing Putin as Russia heads into its first recession in six years: the pain of liberalizing the economy to reduce its reliance on oil and gas exports risks forfeiting ordinary Russians’ support.

“Of course we will focus on guaranteeing high growth rates, but without putting too much weight on our citizens’ shoulders,” Putin said in response to Alexei Kudrin during a broadcast call-in show Thursday. “To build economic policy competently, a brain is definitely needed. But if we want people to trust us, a heart is needed, too.”

Kudrin said the only way to boost growth, which he said won’t exceed 1.5 percent on average from 2012 to 2018, is to move away from energy dependence. “The old model of growth is outdated already and we don’t have a new one yet,” said Kudrin, who ran the country’s finances from 2000 to 2011. “What are you ready to do to create a new model of growth?”

Cut Debt

The exchange with Kudrin set the stage for Putin to acknowledge the nation’s economic woes, while forecasting a recovery within two years. It came early in the annual event, which stretched almost 4 hours.

During Kudrin’s tenure under both Putin and Dmitry Medvedev, Russia cut debt to less than 10 percent of gross domestic product and posted budget surpluses from 2000 to 2008.

Kudrin, 54, was the longest-serving finance minister in the Group of Eight major economies until he was forced out by Medvedev after opposing military-spending increases. Russia has raised spending on social services and agriculture and has exempted defense outlays from reductions as part of a 2.3 trillion ($46 billion) stimulus program. Most other expenditures will be cut by 10 percent in 2015.

Kudrin, who sits on Putin’s economic-advisory body, said in December that Russia faces a “full-fledged” crisis if it doesn’t repair ties with the U.S. and Europe.

Putin rejected Kudrin’s call for deeper spending cuts amid the economic slump, while saying Russia may have to slow its rearmament program, and blamed the U.S. and European Union for the worst confrontation since the Cold War.

Allies, Vassals

“The U.S. doesn’t need allies, it needs vassals,” he said. “We are always open for cooperation.”

The Russian president accused Ukraine of holding up implementation of a February peace agreement aimed at ending the yearlong conflict and defended his decision to lift a ban on suppling S300 anti-aircraft missiles to Iran that has been criticized by the U.S. and Israel.

Against the new headwinds, Putin said he expects sanctions to remain in place for an extended period, dismissing as “pointless” efforts to put pressure on Russia.

While he welcomed the ruble’s rebound and banks’ stability, Putin said Russia will have to cope with “difficult economic conditions.” Even with a tenuous cease-fire in Ukraine and stabilizing oil prices, the central bank predicts that the economy will shrink as much as 4 percent this year.

“We have to use sanctions to move to a new level of development” by steps such as import substitution and promoting local industry, Putin said. “We shouldn’t expect an end to sanctions, because it is a political, strategic issue for some partners, containing Russia.”

Ruble Rebounds

The ruble strengthened below 50 against the dollar on Wednesday for the first time since November. It plunged to 80 last year. The currency weakened 0.6 percent to 49.9780 against the dollar by 4:01 p.m. in Moscow after three days of gains.

Top Russian officials including Finance Minister Anton Siluanov and Economy Minister Alexei Ulyukayev have already declared the worst of the crisis all but over.

Still, the Russian economy is forecast to contract 0.3 percent next year, the World Bank said April 1. Growth averaged about 7 percent during Putin’s first two terms as president in 2000-2008.

Putin’s call-in program, a telethon held almost every year since 2001 in which the Russian leader fields questions for hours, was flooded with “socio-economic” queries, about topics including wages, price growth, currency exchange rates and pensions, according to the president’s spokesman, Dmitry Peskov. More than 3 million questions were submitted, according to state television.

Homes, Fires

In a populist touch, Putin urged a military veteran to grant his wife’s wish for a dog and promised to rebuild homes destroyed by fires in the Siberian region of Khakassia after a tearful video appeal by a woman from the area.

The Russian leader said that the ruble’s strength shows that Russia has “passed the peak” of the economic problems sparked by sanctions and the collapse in oil prices last year, saying that wasn’t only happening because crude prices are recovering.

“Experts see that we have passed the peak of the problem,” he said. “Yes we have difficulties, inflation has gone up slightly, unemployment has risen a bit, but this is all helping to reinforce the national currency.”

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