Crisis will not sink Russian economy: Putin

MOSCOW (Reuters) - Prime Minister Vladimir Putin assured Russians on Thursday he would guide them through the global financial crisis without the economic collapses of the past, but acknowledged there would be pain.

Putin unveiled a $20 billion economic stimulus package and help for people hurt in the slowdown as he set out a long-term response to a crisis that has cut more than 70 percent from the value of Russian markets since May and hammered the rouble.

The crisis has dented confidence in the Russian economy and raised the prospect that popular discontent could, for the first time, seriously undermine the ruling double act of Putin and his protege, President Dmitry Medvedev.

Putin, who stepped down as president in May and remains hugely influential, offered assurances there would be no repeat of the economic turmoil when the Soviet Union collapsed in 1992 and, 10 years ago, when the state defaulted on its debt.

"It (the crisis) will test the mettle of every country, their ability to defend the fortunes of their citizens, the economy and the national currency. That challenge stands today in front of Russia," he told the congress of his ruling United Russia party.

He told the congress, in an upscale shopping center near the Kremlin, that Russians were asking "a fair question: what is going to happen to us?"

"We will do everything, everything in our power ... so that the collapses of the past years should never be repeated in our country. We will do everything in our power to defend the deposits of our citizens in banks," he said.

BUDGET DEFICIT NEXT YEAR?

Finance Minister Alexei Kudrin said Russia could next year have its first budget deficit in a decade but the deficit would be covered by transferring cash from a rainy day fund, not from borrowing.

Putin said he believed Russia's large gold and foreign exchange reserves and the funds it had accumulated during years of high oil prices put it in good stead to weather the crisis.

"They allow us to preserve macroeconomic stability and therefore they will help us prevent a surge in inflation and a sharp change in the rouble rate," he said.

New figures showed gold and foreign exchange reserves had fallen by $21.9 billion in the past week to the lowest level in over a year. The central bank has dipped into them to support the rouble, under pressure from falling world oil prices.

Russia's MICEX stock exchange picked up slightly after Putin's speech but did not regain earlier losses and investors did not share Putin's optimism about the economy.

Putin addressed the congress after a short speech by Medvedev, who said on Tuesday the global financial crisis had spread to the real economy and the many sectors that needed state aid would receive it.

"The impact (of the crisis) is spreading all the way through the economy. It's beginning to impact jobs, and the population at all levels of society," said James Beadle, portfolio manager at Pilgrim Asset Management.

Putin made no references to fevered speculation that, prompted by the crisis, he could be planning to make a comeback to the Kremlin in an early election.

Kremlin critics have said a draft law now in parliament to extend the presidential term to six from four years may be part of a plan to trigger early elections, although officials have denied any such intention.

FALLING RESERVES

James Fenkner, managing director of Moscow-based investment fund Red Star Asset Management, said he believed Putin was unrealistic on protecting the rouble.

"They're bleeding reserves trying to support the currency," Fenkner told Reuters. "They have to move that exchange rate."

Underscoring his view that the crisis was caused by excessively financial liberal policies in the United States, Putin said Russian companies should aim to finance almost all their debt from domestic sources.

His proposed stimulus package included bringing forward tax breaks for companies, more flexibility for local government to reduce tax and an extra $1.8 billion in spending on the defense manufacturing sector.

He also there would be extra help available for the unemployed, for pensioners, and for home-buyers and increased spending on health and education.

Ronald Smith, chief strategist at Alfa Bank, said the spending was a reasonable response to an unprecedented global slowdown. "They had been very prudently saving for just such a rainy day, and boy, is it raining cats and dogs," he said.

(Additional reporting by Simon Shuster, Guy Faulconbridge and Tanya Mosolova; Writing by Christian Lowe; Editing by Timothy Heritage)