January 30, 2012 / 12:22 PM / 8 years ago

Putin puts state capitalism first for Russia

MOSCOW (Reuters) - Prime Minister Vladimir Putin, seeking to renew his hold on power after unprecedented street protests, set out an economic agenda on Monday that puts state capitalism at the heart of a bid to boost Russia’s global competitiveness.

Russian Prime Minister Vladimir Putin speaks during a meeting with officials from the Federal Migration Service in Moscow January 26, 2012. REUTERS/Yana Lapikova/RIA Novosti/Pool

In a 5,000-word newspaper article, the third in a series he has written ahead of a March 4 presidential election, Putin defended his record while acknowledging Russia needed to adapt in a period of “cardinal change” in the global economy.

“We are seeing how countries, whose position seemed invulnerable only yesterday, are yielding to those that not long ago were regarded with haughty disdain,” he wrote in the Vedomosti financial daily.

“In such conditions it is important to secure the stable and gradual development of our economy, and as far as possible to protect our citizens from blows delivered by crises, while resolutely and quickly renewing all aspects of economic life.”

Readers of Vedomosti’s online edition were critical of Putin, who has run Russia for the past 12 years as two-term president and then premier.

“Dear Pu, we’ve had enough of your slogans. Twelve years of absolute power should be enough to show some results,” wrote a person who signed in as AVTor, getting 109 ‘likes’ from readers.

Putin said his government had been right to reassert control over the energy sector, an indirect reference to the breakup of Russia’s largest oil firm, Yukos, whose assets were largely bought up by state-controlled Rosneft and whose owner, Mikhail Khodorkovsky, was jailed for tax evasion and fraud.

The article, Putin’s broadest discourse on how he would run the economy should he be elected for a six-year term, also identifies continuing dependency on natural resources and de-industrialization as Russia’s greatest economic weaknesses.

But the steps he proposes to modernize the $1.5 trillion economy lack detail, are in part contradictory and make only a vague commitment to deliver on past privatization pledges.

Putin is the clear front-runner to win the presidential election, but the popular mood has shifted in Russia after tens of thousands of protesters turned out to protest alleged ballot fraud in a December parliamentary election.

Critics, who have branded Putin’s ruling party a band of “crooks and thieves,” plan to turn out again in force on February 4 to demand wide-ranging electoral reforms aimed at breaking the 59-year-old premier’s de facto monopoly on power.


In the 20 years since the collapse of the Soviet Union, Russia has become “an organic part of the world economy,” but is still exposed to commodity-price swings, reliant on imports of consumer goods and plagued by capital flight, Putin wrote.

Russia, as a member of the World Trade Organization, should open up to global competition and become a leader in sectors like pharmaceuticals, composite materials, aerospace and communications technology.

But Putin also defended his support for an active industrial policy, saying: “Private capital will not voluntarily enter new sectors as it does not want to bear elevated risks.”

Bulking up state corporations active in high technology, infrastructure and nuclear power would presage their conversion into public firms that can be floated on stock markets.

“I consider it possible for the state, by 2016, to reduce its stakes in some resource companies and to complete its exit from large non-resource companies that are not tied to natural monopolies and the defense sector,” Putin wrote.

The article said little about restructuring state-controlled gas export monopoly Gazprom, criticized by investors for high costs and inefficiency, beyond saying it should divest non-core assets such as its media holdings.

Economists say Putin will need to deliver on his promises to spur economic growth, which has slowed to a range of 4-5 percent since the 2008-09 global crisis from prior rates of 6-7 percent.

“As always, implementation will be key,” said Ivan Tchakarov, chief economist at Renaissance Capital, who warned that, without reform, Russia could slide into ‘twin’ trade and budget deficits.


Putin’s article mentioned corruption explicitly only once and said efforts by outgoing President Dmitry Medvedev had failed to eliminate pressure from officials on entrepreneurs.

“The main problem is insufficient transparency and accountability on the part of state officials,” Putin wrote. “To call it by name, we are talking about systemic corruption.”

“Clearing the way for business that is ready to win in fair competition is a fundamental, systemic task ... We need to change the state itself - executive and judicial power.”

Putin said Russia, ranked 120th in a World Bank investment climate survey, should seek to catch up with neighboring Kazakhstan, which is in 47th spot.

He called for business cases to be moved from criminal to commercial courts to break a cycle of collusion between police, investigators and judges that all too often ends in convictions.

Putin said he would seek to shift the overall tax burden towards wealthy property owners and consumption of luxury goods but offered no specific concessions for small businesses.

Reporting by Douglas Busvine, Editing by Timothy Heritage/Ruth Pitchford

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