Russian Prime Minister Vladimir Putin has promised $90 billion ($126 billion) in tax cuts and spending to pull the country out of its worst economic crisis in a decade, but has warned Russians to brace for a difficult year ahead.
Putin used an annual speech to lawmakers on Monday to deliver an upbeat message on the economy to an increasingly skeptical public.
Facing its first economic contraction since a 1998 financial collapse, Russia has suffered badly from the global credit freeze, a dropoff in international demand and sliding prices for oil, the country's main export. Big enterprises have scaled back production, laid off staff and cut wages. Unemployment stands at 8.5 per cent of the working population, its highest level in several years. The ruble has depreciated by a third against the dollar since the summer.
A senior government official said last week the country's $US1.7 trillion ($2.38 trillion) economy contracted by 7% in the first quarter - an astounding turnaround of the nearly decade-long economic boom that Putin oversaw as president. Russia is almost certain to enter a recession - widely viewed as two quarters of negative growth - this year.
Putin devoted much of the address to the government's achievements - including improvements in the social sector that include better housing and education.
"It would be irresponsible to try and fool ourselves with words of bravado and reckless optimism," Putin said during his address to the largely loyal State Duma, Russia's lower house. "But what should - and must - be said with all certainty is that Russia will overcome this crisis. At the same time, 2009 will be very hard for us."
Flashpoints of unrest have appeared in several cities, including the Russian capital, threatening the government's popularity. Commentators have warned that the government could face wider social upheaval if it does not act swifly to provide succour to vulnerable groups of the population - such as pensioners and the unemployed - or if it reacts too harshly to protests.
Analysts said Putin's speech was deliberately optimistic to address recent opinion polls, which point to declining public support for the government.
"This was a populistic speech," said Chris Weafer, chief strategist at Moscow-based Uralsib bank. "Given the numbers, there is no basis for this optimism. It's all based on a hope that things will get better."
The government will use 1.4 trillion rubles ($60 billion) from the revised federal budget to fight the crisis on several fronts, including strengthening the banking system and social welfare programs. But the cost, including tax relief, will total 3 trillion rubles ($128.5 billion), Putin said.
Putin called on companies to follow the example of those that have restructured or repaid some $US174 billion ($244 billion) of $US500 billion ($700 billion) of total foreign corporate debt without state help in recent months. He rejected calls to eradicate the 13% flat tax on income.
He also praised the government's role in averting a banking collapse last autumn, when domestic stock markets buckled and external credit markets seized up. Since then, the government has poured in hundreds of billions of dollars in emergency funding to shore up the sector.
"The threat of a collapse of the banking system has receded," Putin said. "But it was quite real, it was literally on the edge."
Recent changes to the constitution require the prime minister to report once a year to parliament and respond to deputies' questions.
Putin briefly touched a nerve when he attacked Soviet-era practices that had kept pensions low, and said the government could no longer "turn a blind eye", prompting outraged cries of protest from Communist Party lawmakers.
Lawmakers rarely criticise Putin, but the Communist faction often scrutinises his policies. Communist Party leader Gennady Zyuganov followed Putin's speech with an attack on Alexei Kudrin, Russia's finance minister, for irresponsible fiscal policies that he said was leading the country to ruin. Putin has stood by Kudrin, widely respected in the West.
Putin has repeatedly blamed the United States for Russia's economic problems, and again took the opportunity to deflect responsibility.
"The problems did not arise first with us, it was not our fault. But they affected everybody," he said.
But some economists and politicians disagree, noting Russia has been hit particularly hard because the Kremlin has done little to move Russia away from its dependency on energy exports. They have also criticised the government's handling of the crisis for being too slow and not broad enough in scope.
AP
