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UPDATE 2-"Our historic duty": Putin plans steps to boost Russia's birth rate

* Putin sets out moves to increase birth rate

* Demographic situation “very difficult”, he says

* Steps expected to cost at least $6.5 million in 2020 (Adds details, quotes, background)

MOSCOW, Jan 15 (Reuters) - President Vladimir Putin announced measures on Wednesday to boost Russia’s birth rate, describing them as vital to the country’s future though they are projected to cost at least $6.5 billion this year alone.

Saying the demographic situation was “very difficult”, Putin proposed payments for low-income families with small children, allowances for first-time mothers, higher payments for families with more children and the creation of more places in nurseries.

“Our historic duty is to respond to this challenge,” Putin said in a televised state-of-the nation address to Russia’s political elite.

“Russia’s fate and its historic prospects depend on how many of us there are... it depends on how many children are born in Russian families in one year, five, 10 years, on what they will grow up to be,” he said.

Russia’s population fell dramatically in the 1990s in the tough economic and social climate after the collapse of the Soviet Union, and Putin has faced demographic problems for much of the time since he became president in 2000.

Previous attempts to improve the situation have been unsuccessful, causing concern among economists about what the impact of having a smaller workforce will be on the economy.

In 2018 the population of 147 million - a figure that includes Crimea although it is not internationally recognised as part of Russia - contracted by 86,000.

The finance ministry estimates that the new social pledges made by Putin will cost 400 billion roubles to 450 billion roubles ($6.50 billion-$7.31 billion) this year, and the cost of the policies will increase in coming years.

The economy ministry sees total additional costs rising to over 600 billion roubles a year from 2022, but it and the finance ministry do not expect an impact on inflation.

The new spending will be on top of 25.7 trillion roubles that Putin ordered in 2018 to be spent on 13 policy areas, known as National Projects”, that included the demographic situation.

Russian central bank estimates foresee inflation of 3.5-4% this year. Falling inflation has allowed the central bank to cut its main rate five times in 2019.

The finance ministry is projecting a budget surplus of 0.8% of gross domestic product this year, compared with a 1.7% surplus planned for 2019.

($1 = 61.5724 roubles)

Reporting by Vladimir Soldatkin, Andrey Kuzmin, Darya Korsunskaya, Andrey Ostroukh, Alex Marrow and Elena Fabrichnaya; Writing by Katya Golubkova and Tom Balmforth; Editing by Timothy Heritage