December 18, 2014 / 9:58 AM / 3 years ago

Putin says Russia economy will be cured, offers no remedy

MOSCOW (Reuters) - President Vladimir Putin assured Russians on Thursday that the economy would rebound after the ruble's dramatic slide this year but offered no remedy for a deepening financial crisis.

Defiant and confident at a three-hour news conference, Putin blamed the economic problems on external factors and said the crisis over Ukraine was caused by the West, which he accused of building a "virtual" Berlin Wall to contain Russia.

At times sneering, at others cracking jokes, he ignored pressure to say how he will fix an economy facing what his economy minister calls a "perfect storm" of low oil prices, Western sanctions over Ukraine and global financial problems.

The rouble has fallen about 45 percent against the dollar this year, and suffered particularly steep falls on Monday and Tuesday, but Putin refused to call it a crisis and said it would eventually rise again.

"If the situation develops unfavorably, we will have to amend our plans. Beyond doubt, we will have to cut some (spending). But a positive turn and emergence from the current situation are inevitable," Putin said in comments to a packed conference center that were broadcast live to the nation.

Although he said the recovery might take two years, much will depend on how long the West maintains sanctions on Russia over its role in the Ukraine crisis.

European Union diplomats said the 28-nation bloc would ban investment in Crimea from Saturday over Russia's annexation of the Black Sea peninsula and President Barack Obama is set to sign legislation authorizing new U.S. sanctions.

But Putin showed no sign of heeding a call by EU foreign policy chief Federica Mogherini for "a radical change in attitude toward the rest of the world and to switch to a cooperative mode".

Sitting at a big desk in front of two large screens showing close-ups of his face, a white mug with a presidential crest on beside him, Putin appeared mainly intent on showing Russians he is in command and will not kow-tow to the West.

DIVERSIFICATION PLEDGE

The former KGB spy said Russia must diversify its economy to reduce dependence on oil, its major export and a key source of state income, but he gave no details and has said many times during 15 years in power that he will do this.

Russian President Vladimir Putin speaks during his annual end-of-year news conference in Moscow, December 18, 2014.Maxim Zmeyev

The rouble slipped as he spoke, and was about 2 percent weaker against the dollar on the day. The central bank increased its key lending rate by 6.5 percentage points to 17 percent on Tuesday, and has spent more than $80 billion trying to shore up the rouble this year, but to little avail.

Although Putin said the central bank and government had acted "adequately", he chided the bank for not halting foreign exchange interventions sooner, suggesting more decisive action might have made this week's big rate rise unnecessary.

"All this implies pretty big divisions within the administration as to how to react to the crisis and pressure on the rouble," said Timothy Ash, head of emerging market research at Standard Bank in London, adding that heads could roll.

Neil Shearing, chief emerging markets economist at Capital Economics in London, said Putin signaled no change of policy and capital controls remained "a measure of last resort".

Russia's former Prime Minister and opposition leader Mikhail Kasyanov speaks during an interview with Reuters at his office in Moscow, December 17, 2014.Grigory Dukor

"Whatever happens, a deep recession now looms," he said.

Putin's popularity has soared over the annexation of Crimea but the ruble's decline could erode faith in his ability to provide financial stability, an important source of his support.

An opponent, former Prime Minister Mikhail Kasyanov, said problems would mount as prices are expected to surge next year and Putin would need "an exit strategy" to leave power.

But Putin said he felt the "support of the Russian people", though he had not decided yet whether to seek a new six-year term in an election due in 2018.

Asked about Ukraine, where Russia has irked the West by backing pro-Russian separatists fighting in two eastern regions, Putin said Moscow wanted a political resolution to a conflict that has killed 4,700 people.

He also called for "political unity", suggesting he does not intend to annex the regions that have rebelled, and avoided calling them "New Russia", a phrase he has used in the past.

But he blamed NATO for the worst relations between Moscow and the West in decades.

"Didn't they tell us after the collapse of the Berlin Wall that NATO would not expand eastwards? But it happened immediately. Two waves of expansion. Is that not a wall? ... It's a virtual wall," he said.

Additional reporting by Moscow newsroom; Editing by Giles Elgood

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