Vladimir Putin, Russia’s prime minister, was on the defensive on Thursday as he attempted to reassure increasingly sceptical investors that the country was pursuing a course of fiscal conservatism, while arguing that stable politics would boost investment.
Addressing investors for the first time since he announced he would return to the presidency next year, Mr Putin told an investment conference that Russia was better prepared to cope with external shocks emanating from the eurozone crisis.
“I will say straight away that Russia is certainly better prepared than it was in 2008,” he said. “We have built up serious experience in the economy and the financial sector.”
Investors, however, fearing the impact of a downturn in the oil price and slower global growth, have been fleeing the Russian market en masse. The central bank said this week it had spent $9.2bn defending the rouble since early September, with $1.15bn spent on Tuesday alone.
The economy ministry this week raised its forecast for capital flight this year to $50bn, up from $38bn, after the announcement that Mr Putin would return to the presidency failed to assuage investor fears.
Appearing to address criticism over his decision to retake the leadership, Mr Putin insisted stability in the political system would help boost the domestic and foreign investment needed for a new “industrialisation” of Russia.
“Change, of course, is necessary and it will happen. But this will be an evolutionary path. We don’t need great earthquakes. We need a great Russia,” he said. “The current president . . . and I gave a clear signal to the country: we don’t intend to destroy or break anything. We intend to develop our political system, but we want its foundations to strengthen.”
Seeking to calm investors still rattled by the sudden departure last week of Alexei Kudrin as finance minister, who was viewed by many as a guardian of fiscal stability, Mr Putin insisted the country would prioritise fiscal discipline, while Mr Kudrin would remain a key part of his team. He said that $500bn in hard currency reserves would provide Russia with the financial firepower to stave off any meltdown.
“It’s clear that every government wishes to behave like a kind and rich uncle,” he said. But “strict budget discipline, an increase in the efficiency of spending and limits on the increase of state debt have been and will remain our priority”.
But he also insisted Russia would increase social spending and forge ahead on a planned boost in military spending – something Mr Kudrin had vehemently opposed.
With the price of oil already lower than the $115 per barrel level that is necessary for the government’s budget to break even, many investors were unconvinced by Mr Putin’s insistence that the government was pursuing a course of fiscal discipline that would lead to a deficit-free budget by 2015.
“[Putin] is in la la land on the budget,” said one UK-based investor. “Today’s message was very clear that he doesn’t have a recipe for growth. He says they will grow but there is no way to get there.”
Jochen Wermuth, the head of Wermuth Asset Management, said: “Putin needs to understand that he is not bringing stability: when you only have one person who’s in charge it is high risk.
“I don’t know how they’re going to get strong growth in the economy unless they can improve rule of law, and Putin has less credibility than others to do that.”
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