Europe flounders, Russia ready for new crisis: Putin

Reuters Business News
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Posted: Oct 06, 2011 10:28 AM
Europe flounders, Russia ready for new crisis: Putin

By Gleb Bryanski

MOSCOW (Reuters) - Russian Prime Minister Vladimir Putin, preparing for a return to the Kremlin, urged Europe on Thursday to deal resolutely with its sovereign debt crisis and said Moscow was better prepared to cope than it was before the global crash of 2008.

In his first speech to investors since announcing a comeback as president, Putin also said he would stick to a responsible fiscal course and seek foreign investment to drive Russia's "new industrialization."

Opening his speech, Putin said the greatest cause for concern was the euro-zone debt crisis, and the failure of European leaders to contain the rising debt burden that their countries face.

"Now is not the time to talk," he said. "It is the time to take clear, well thought-out measures to avert those negative processes that experts are starting to call the second wave of the crisis."

Exuding confidence, Putin said there would be no upheaval in Russia after the March 2012 presidential election. He is almost certain to win the vote after announcing on September 24 that he would swap roles with President Dmitry Medvedev.

"Changes are undoubtedly needed and they will happen. But it will be an evolutionary path. We do not need great upheaval -- we need a great Russia," he told the conference, organized by state-controlled bank VTB <VTBR.MM>.

BETTER THAN 2008

Putin, who turns 59 on Friday, said Russia was ready to handle any fallout resulting from the slowdown in global growth and sovereign debt problems faced by the developed economies of the West.

"I will say straight away that Russia is better prepared than it was in 2008," Putin said. "We have built up serious experience, a reserve of durability -- in the economy and in the financial sector."

Putin sought to reassure investors concerned by the ousting of Finance Minister Alexei Kudrin, a fiscal hawk who resigned after 11 years in office after saying the public finances were becoming overly dependent on high oil prices.

Kudrin's departure came as international financial turmoil drives capital flight from Russia, expected by officials to reach $50 billion this year, that has hammered Russian stocks, bonds and the rouble.

Stocks <.IRTS> bounced on Thursday by 2.7 percent after hitting their lowest levels since May 2010, while the rouble remains near its August 2009 lows despite dollar-selling intervention by the central bank to support the currency.

Putin said that Russia had sufficient funds to keep the exchange rate of the rouble under control.

"We have half a trillion dollars in reserves," Putin said. "Their volume is sufficient to control the situation in the foreign currency market." The reserves fell by $9 billion in the latest week to $517 billion, central bank figures showed.

He said the government was aware that some Russian companies were near margin calls on their debt and pledged help. "We are ready to provide support," Putin said. "But only to the effective ones."

Kudrin, who was removed from the speaker roster just before the conference, would remain on Putin's team even after he was ordered by Medvedev to resign in a clash on spending policy.

"He is one of the best specialists in Russia and the world," Putin said. "He is a personal friend of mine."

Putin barely mentioned Medvedev in his speech and question-and-answer session.

BALANCED BUDGET

Putin said maintaining fiscal discipline and low public debt would remain government priorities, and promised a balanced budget by 2015 -- a goal that officials have been backing away from of late.

He said the budget could yet post a surplus next year if oil prices turned out to be higher than the "conservative" estimates in the government's fiscal plans.

"Our strategic goal is diversification of the economy. And to change its structure we need to open the way for thousands of new projects and business ideas," Putin told the audience of Russian and foreign investors.

"For that we need investment, both direct and portfolio. This should become the main resource for the new industrialization of Russia."

Russia should, in the next few years, raise the share of capital investment in the economy to 25 percent of GDP, Putin said. Investment is now around 20 percent of GDP, less than half the level in faster-growing China.

WTO DEAL WITHIN REACH

Putin also said a deal for Russia to join the World Trade Organization was within in reach, but urged Europe and the United States to put pressure on Georgia, with which Russia fought a five-day war in 2008, to make Russia's entry happen.

"I have a question: do our main partners in Europe and the United States want Russia to become a member of the WTO or not?" Putin said in response to a question from the floor.

"You don't need to hide behind the issues of the Georgians. If they want, then they can accomplish this very fast, especially with the compromises we have already reached."

Russia's economy is by far the largest outside the 153-member WTO and Russia wants to complete its entry into the body this year after 18 years of negotiations.

(Reporting by Gleb Bryanski, Writing by Douglas Busvine, Editing by Timothy Heritage)