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Tuesday, May 26, 2009

Medvedev warns Russian economy's 2009 decline to exceed earlier estimates

Medvedev05-25-2009 - (AP by Natalia Vasilieva) - MOSCOW — President Dmitry Medvedev warned Monday that Russia's economy will perform worse than expected this year and the country will have to squeeze spending for the first time in years. Outlining Russia's budget strategy for the coming years, Medvedev told a Kremlin meeting with government officials and top lawmakers that financial constraints will require strict economizing and tight controls over spending at all levels of government. "In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said. "The global economic crisis is far from nearing the end." Government figures Friday showed that the economy shrank at an annual rate of 9.5 percent in the first quarter. A quarter-on-quarter 23.2 percent drop includes eleven daylong New Year holidays, making it somewhat less revealing. Officials had forecast that Russia's GDP would decline by 2.2 percent this year, but that estimate has to be radically revised after the first quarter data were released. The International Monetary Fund has said Russia's GDP could drop as much as 6 percent this year — the most pessimistic outlook so far. Medvedev did not give a new estimate for the GDP decline this year. The Finance Ministry plans to present it soon. Russia has experienced a sharp reversal of an eight-year economic boom fueled by high oil prices, during which growth averaged about 7 percent. The economy started to nosedive last fall after the price of oil, Russia's key export, collapsed, investors pulled billions of dollars out of the country and industrial output slowed. Medvedev said the budget deficit will be at least 7 percent of GDP — "and that's an optimistic forecast." Finance Minister Alexei Kudrin told reporters after the meeting that Russia plans to cut spending in all areas, for the first time in years. "We will have to cut spending — including the key areas," Kudrin said without elaboration. Kudrin said the budget for the next three years would be based on a world oil price of $53, which he described as a conservative estimate. Officials have already predicted a budget deficit of between 7 percent and 8 percent. Russia plans to shore up the budget with the help of the Reserve Fund, which has accumulated windfall oil revenues of the past years. Kudrin predicted the Reserve Fund would probably be used up next year if Russia runs a 5 percent budget deficit. However, oil prices of more than $50 and low budget deficits would see the rainy day fund replenishing itself again as early as in 2011, he said. Kudrin said Russia will not turn to the International Monetary Fund for help — as it did in the years following the 1991 collapse of the Soviet Union. But said it would consider borrowing more than $7 billion abroad next year and an additional $10 billion in the years to come. Medvedev pointed to social spending as number one goal for Russia's 2010 budget. The announcement came as Deputy Prime Minister Alexander Zhukov said unemployment in Russia is 10.5 percent, or 7.7 million people — the highest level in years, according to Russian news agencies. Prime Minister Vladimir Putin urged the Cabinet to use state funds efficiently and "provide the full account of every ruble spent," according to a transcript of the meeting on the government Web-site. Putin also proposed to move the deadline for submitting next year's budget to the parliament from late August to October 1 so it could reflect the latest economic developments.

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