* Ministers say they can protect Russian economy
* Capital flight could push growth forecasts down
* Economy vulnerable to any oil price weakness
By Darya Korsunskaya and Oksana Kobzeva
MOSCOW, March 27 Russian officials have
dramatically reduced growth forecasts for this year and
acknowledged the annexation of Crimea will spur capital outflows
and hurt investment, but they have not ripped up the old script
At an investment conference on Thursday, Russia's central
bank head and finance and economy ministers were sanguine,
boasting they had ways to protect the economy against the
fallout from the worst East-West standoff since the Cold War.
Most would not have to be used, they said, and the crisis
over Crimea could eventually help the economy become more
self-sufficient, a message which chimes with President Vladimir
Putin's longstanding drive to bring money home from abroad.
But while sticking to a protocol agreed last week with Putin
for all public comments to refer to economic and financial
stability, Russia's three leading financial officials were
clearly making preparations for the worst.
Having already stopped referring to the official growth
forecast for 2.5 percent this year, Economy Minister Alexei
Ulyukayev said it could instead slow to 0.6-0.7 percent if
capital flight reached $100 billion this year.
The Economy Ministry has estimated capital outflows of up to
$70 billion in the first quarter alone.
"(With) an outflow of $150 billion, growth becomes
negative," he said, suggesting Russia could tumble into
recession for the first time since the aftermath of the global
financial crisis in 2008-09.
In the first estimate by a leading international body, the
World Bank said on Wednesday Russia's economy could contract
markedly this year and see record capital outflows of $150
billion if the crisis over Crimea deepens.
It said Russia's gross domestic product could shrink by 1.8
percent, hurt by uncertainty over future measures the West may
take to punish Russia for annexing Crimea - a move criticised by
Ukraine, the United States and the European Union as illegal.
Economists have also said Russia's economy would suffer
badly if the price of oil, its main export item, were to fall.
A Reuters poll of analysts on Thursday showed that
increasing supplies from North America and OPEC nations coupled
with sluggish global demand will push oil prices lower in 2014,
with further falls expected in 2015 and 2016.
FEARS FOR FUTURE
Russia's former finance minister, Alexei Kudrin, agreed,
saying it was not the sanctions themselves that were damaging
the economy but the expectation of more, possibly targeting
trade or finance, and also how Moscow would retaliate.
"All this affects the amount of capital outflows and
investments. The general atmosphere of uncertainty about Russian
policy in these circumstances is also a deterrent," he said.
"My forecast for economic growth is about zero, plus or
minus 0.5 percent," he said, pegging outflows at $150-160
He said this was what it cost to pursue an independent
foreign policy and society was so far prepared to agree to such
"We are paying hundreds of billions of dollars for this,
hundreds of billions, and we will see lower GDP growth,
investment and revenues," Kudrin said.
For now, most officials are at least publicly backing
Putin's decision to pursue his strident foreign policy, forcing
their financial colleagues to come up with ways to plug the gap.
Ulyukayev urged a loosening in budget funds to help spur
investment, possibly from oil revenues.
Finance Minister Anton Siluanov said he was ready to offer
companies the same emergency measures adopted during the
2008-2009 financial crisis when the government spent billions of
dollars, or about 8 percent of GDP, bailing out Russia's major
banks and companies.
He suggested using funds from the National Wealth Fund, a
sovereign fund financed from oil taxes designed to support the
pension system, which as of March 1 stood at $87.3 billion.
Central Bank Governor Elvira Nabiullina also promoted a plan
to ease borrowing at home, pointing to three-year refinancing
for banks secured by state-backed investment projects as a way
of reducing reliance on Western finance.
But for the time being, the overall message was relatively
"We expect that one of the consequences of these recent
events could be an increase in demand for credits inside the
country, if access to lending abroad is reduced for companies
and banks," Nabiullina said.
(Writing by Elizabeth Piper; Editing by Giles Elgood)