Russian President Dmitry Medvedev on Monday called for "tough" measures to economise during the next three years as he warned of a worsening outlook for his heavily oil-dependent country. "We all understand what a difficult situation the country (and) the economy are in," Medvedev said as he opened a meeting with top officials to lay out budget policy through 2012.
In a speech that hinted he wanted to have more say in economic matters, Medvedev urged a "shift to a regime of tough economising of budget funds." Medvedev, who has mostly left day-to-day economic issues to Prime Minister Vladimir Putin, also took aim at corrupt officials who he said were "sucking" funds from the budget.
Warning of the need for belt-tightening, he noted the budget deficit this year would be at least seven percent of gross domestic product (GDP). The current year is the first time Russia's government has run a budget deficit after years of oil-fuelled boom.
"In 2009, we unfortunately expect a deeper decline of gross domestic product," Medvedev said, without stating the exact size of the decline. He told the government to gradually reduce the budget deficit and said the country's regions - long accustomed to bail-outs from Moscow - would have to get used to meeting more of their needs on their own.
After Medvedev's Kremlin meeting, Finance Minister Alexei Kudrin warned Russia could not expect a quick return of the high prices for Russia's crucial oil exports, which supported a boom in the Russian economy until last year. The budget for next year would be based on an oil price of 50 dollars a barrel, while the 2011 budget would assume an oil price of 52 dollars and the 2012 budget a price of 53 dollars, Kudrin said, adding this was a "conservative forecast".
By comparison, this year's budget is based on 41 dollars per barrel of crude. Kudrin also warned that as the country's reserve fund - a store of accumulated oil wealth - dries up, Russia would have to borrow more. He said Russia would borrow seven billion dollars next year and 10 billion dollars in the following years, although the reserve fund might start to be replenished starting in 2011 if oil was above 50 dollars a barrel.
Russia's economic development ministry has said it expects GDP to shrink by six percent this year after an alarming 9.5 percent contraction in the first quarter. The Russian economy, heavily driven by exports of oil and gas, has been battered by falling commodity prices, which has led the state to run its first deficit this year after nearly a decade of surpluses.
In his address, Medvedev did not set out any specific targets for budget cuts and his top economic aide Arkady Dvorkovich said the government would work out those in the next few months. The Kremlin has insisted that despite the crisis, social spending will remain a top priority for the government. However a document setting out budget policy in more detail posted on the Kremlin web site also said there was no longer room for "populist decisions."
Kudrin emphasised that message, saying efficiency was "the challenge of the day." Dvorkovich, Medvedev's top economic aide, said it was "critically important" for all government officials to close ranks and work together. In recent months top officials have often come forward with forecasts that contradicted each other, fuelling speculation of a rift between Medvedev and his powerful mentor Putin.
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