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The Russian government unveiled Wednesday a $21 billion anti-crisis plan to tackle the country's stalled economy, as President Vladimir Putin defiantly called for greater economic "sovereignty" due to Western sanctions, AFP reports.
The Russian government unveiled Wednesday a $21 billion anti-crisis plan to tackle the country's stalled economy, as President Vladimir Putin defiantly called for greater economic "sovereignty" due to Western sanctions, AFP reports.
In a meeting with Putin, Deputy Prime Minister Igor Shuvalov said the government needs 1.375 trillion rubles ($21 billion, 18 billion euros) to finance the new plan put together to rescue the economy.
He said the money would come from the budget as well as the national welfare fund -- a massive pile of cash from energy exports accumulated over recent years when oil prices were high.
Russia is set to plunge into a deep recession in 2015 as its economy has been dealt a double blow by tumbling prices for oil -- Russia's main export commodity -- and sanctions by the West, which accuses Moscow of involvement in the conflict in eastern Ukraine.
Putin said as he chaired the meeting that Moscow had expected "international economic rules" to be stable, but has now learnt its lesson.
"Despite exterior stability of international economic rules, they are in fact subject to erosion by political factors," Putin said.
"We were actually rather naive, thinking that these are fundamentals of the global economy which are unshakeable," he said. "That is actually rather a lesson."
Putin defiant
But a defiant Putin said the sanctions would only push Russia to "increase its sovereignty in the economic sphere."
However he vowed to protect the poorest Russians.
"Whatever plans we make, we have to carry out our social obligations," Putin said, referring to the promises made upon his reelection into a third historic term in 2012 to raise pensions and wages paid to state workers.
To meet these demands and avoid budget cuts, Russia will be digging into its reserves in 2015 "for fiscal stability," said Arkady Dvorkovich, another deputy prime minister, while at the Davos economic forum.
He added that volatility of the oil market and the current base interest rate of 17 percent in Russia has made it "impossible to do business in the economy," and expressed hope for the price of crude oil to rise to between $60 and $80.
Russia last year prepared a 2015 budget factoring in the price of crude at nearly $100 a barrel, but the price has tumbled below $50 and may drop even further.
If oil and the Russian ruble remain at the current levels, "the original spending projections would result in a hole in the budget of over five percent GDP," and financing it from oil reserves would only be feasible as a short-term solution, said Liza Ermolenko, an emerging markets economist at Capital Economics.
Social and defence spending, which make up half of total spending, would continue to be protected from fiscal cuts according to the plan.
"It looks like political considerations... will continue to dictate the priorities," she added.
Food prices skyrocket
The anti-crisis plan has been discussed for days, and Kommersant daily reported that it contains more than 100 clauses aimed at supporting growth, diversifying the economy and keeping small and medium-sized business from closing.
Considerable help will be provided to the Russian banking system, up to 50 billion rubles will be allocated to supporting the agriculture sector, 20 billion to industry, and 16 billion to the health ministry for buying medicine, Shuvalov said.
The government is especially worried at creeping consumer prices which could lead to public discontent. Economy minister Alexei Ulyukayev said that inflation in January will hit 13 percent after reaching 11.4 percent for 2014.
Russian law enforcement agencies have been tasked with making sure consumer prices stay low, but the results have not been encouraging, with some products more than doubling in price.
"The results of ongoing work show growth of prices all over the country" by up to 150 percent on meat, fish, eggs, grain, dairy and produce, the prosecutor general's office said in a statement Wednesday.
To counter this there will be "checks" of large supermarket chains to find out how they calculate their sale prices and prevent instances of "price collusion," the statement said.
The government last year introduced countermeasures to Western sanctions, namely an embargo on a wide array of food imports from countries who have adhered to sanctions measures, which many analysts blame for further driving the food prices up.
