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Russia to Tap Reserve Funds for Infrastructure Projects Putin Puts Pensions at Risk in $43 Billion Bid to Jolt Economy
(about 5 hours later)
ST. PETERSBURG, Russia — Faced with meager economic growth worldwide and a worrisome ebbing of Russia’s own oil and gas revenues, President Vladimir V. Putin announced on Friday an ambitious and risky economic stimulus program that would spend up to $43.5 billion in reserve funds on three big infrastructure projects.ST. PETERSBURG, Russia — Faced with meager economic growth worldwide and a worrisome ebbing of Russia’s own oil and gas revenues, President Vladimir V. Putin announced on Friday an ambitious and risky economic stimulus program that would spend up to $43.5 billion in reserve funds on three big infrastructure projects.
Mr. Putin’s plan, which would lend money from the national pension reserves, has provoked fierce debate within the Russian government as well as warnings from international economic experts, who said that what the Russian financial system needed most was deep structural reform, to eliminate corruption and build investor confidence. Mr. Putin’s plan, which would lend money from the national pension reserves, has provoked fierce debate within the Russian government as well as warnings from international economic experts who said that what the Russian economy needs most is deep structural change, to diversify from oil and gas and to build investor confidence.
Mr. Putin, now in his 13th year as Russia’s pre-eminent political leader, made the stimulus plan the centerpiece of his speech at an annual economic forum here that serves as a gathering of the country’s top financial officials, business leaders and most important foreign investors. Slowing growth has been the obsessive topic this year. Mr. Putin, now in his 13th year as Russia’s pre-eminent political leader, made the stimulus plan the centerpiece of his speech at an annual economic forum here that serves as a gathering of the country’s top financial officials and business leaders and most-important foreign investors. Slowing growth has been the obsessive topic this year.
In his speech, Mr. Putin said Russia would use the reserves to modernize the storied Trans-Siberian Railway, which runs to Moscow from Vladivostok in the Russian Far East; to construct a 500-mile, high-speed rail line to Moscow from Kazan, the capital of the Tatarstan region; and to build a superhighway ringing Moscow. In his speech, Mr. Putin said Russia would use the reserves to modernize the storied Trans-Siberian Railroad, which runs between Moscow and Vladivostok in the Far East; to construct a 500-mile high-speed rail line between Moscow and Kazan, the capital of the Tatarstan region; and to build a superhighway ringing Moscow.
“Our key challenge in the coming years is to remove many infrastructure constraints that literally stifle our country, and prevent unlocking the potential of entire regions,” said Mr. Putin, wearing a dark suit and deep purple tie. “Investors are hugely interested in infrastructure projects, especially if the state is ready to provide guarantees, minimize the risks and act as a co-investor.” “Our key challenge in the coming years is to remove many infrastructure constraints that literally stifle our country and prevent unlocking the potential of entire regions,” Mr. Putin said. “Investors are hugely interested in infrastructure projects, especially if the state is ready to provide guarantees, minimize the risks and act as a co-investor.”
But while courting foreign investors is a major focus of the economic forum each year, and experts say Russia needs the influx of capital, endemic corruption often drives up the cost of infrastructure projects, making it difficult to recruit investors and hard to realize returns. Experts say money is often wasted or stolen. The Russian economy has been strong in recent years, functioning almost at full capacity, largely because of high energy prices, which helped build up the reserve funds. But in some ways this also makes it harder for Russia to deal with the projected slowdown. With nearly full employment, new government spending is more likely to cause wage inflation than to create new jobs, experts say. Rather, they add, Russia needs to review manufacturing and create new industries.
In a report just this week, an official from the International Monetary Fund warned against stimulus spending. “Fiscal stimulus at this time would likely be ineffective, and merely intensify inflation pressures” said Antonio Spilimbergo, who led an I.M.F. team on a two-week fact-finding mission in Russia this month. Aleksei L. Kudrin, the former Russian finance minister, who is largely credited with steering Russia through the global financial crisis and was the major force encouraging Mr. Putin to build up the reserve fund, said that the proposed projects represented only a fraction of the infrastructure investment needed in Russia. Still, he said, the plan would unnecessarily put pension funds at risk and, in the immediate term, would not create much growth.
In addition to the infrastructure program, Mr. Putin outlined steps to boost Russia’s economy, including a plan to rein in tariffs on utilities and to encourage lower interest rates on commercial loans. “On the whole I support the strengthened focus on infrastructure; of course, we need to strengthen the infrastructure far more than was announced,” Mr. Kudrin said at a news conference at the forum immediately after Mr. Putin’s speech. But he said the main benefits would not be felt until they were completed in 7 to 10 years.
The growth in tariffs has often outpaced the rise in inflation in recent years. “I would prefer that such infrastructure projects sold their bonds on the market, then we wouldn’t have to involve the Welfare Fund,” he said. “We are lowering our insurance just at the time when the pension fund needs it most.”
Mr. Putin also said Russia would continue and perhaps strengthen efforts to reduce inflation, efforts he described as successful in recent years. Economists have cited Russia’s low growth and high inflation as evidence of structural flaws in the economy. As for any economic jolt, he said it would be minimal. “These are big projects, but not gigantic,” he said. “We won’t have any economic growth for them.”
Igor I. Shuvalov, a first deputy prime minister, said the government was acting on expert advice. “Any advice we are receiving from international financial organizations or independent experts, they all say we need to invest in the infrastructure,” Mr. Shuvalov said in an interview. “Physical infrastructure is what is required for speeding up, for growth.”
In his speech, Mr. Putin outlined several other steps to spur Russia’s economy including a plan to limit increases in tariffs on electricity and other utilities, and to encourage lower interest rates on commercial loans.
In a step aimed at addressing concerns among business leaders about the judicial system, Mr. Putin said he would ask Parliament to combine the Supreme Court and the Supreme Arbitration Court. Perhaps the most unusual proposal was a call for amnesty for people in jail for economic crimes. He said those eligible would be nonviolent, first-time offenders whose crimes were in “the field of entrepreneurship” and who had paid compensation.
Mr. Putin also said Russia would continue efforts to curb inflation. Economists have cited Russia’s low growth and high inflation as evidence of structural flaws in the economy.
Mr. Putin was joined on stage on Friday by Angela Merkel, the German chancellor, who spoke about the strong economic ties between the two countries. “Germany wishes to support Russia in the process of opening its economy, diversifying its economy,” she said.Mr. Putin was joined on stage on Friday by Angela Merkel, the German chancellor, who spoke about the strong economic ties between the two countries. “Germany wishes to support Russia in the process of opening its economy, diversifying its economy,” she said.
But a series of recent tensions, the latest involving a long-simmering dispute over the spoils of World War II, belied the amicable appearance on stage. But the amicable appearance on stage belied a series of recent tensions, the latest involving a long-simmering dispute over the spoils of World War II.
Ms. Merkel had planned to attend the opening of an art exhibition at the Hermitage on the Bronze Age, featuring several treasures taken from German museums by retreating Soviet soldiers at the end of the war. Germany wants them back, citing international law, but Russia has refused. In a joint visit to the Hermitage State Museum, Ms. Merkel directly challenged Mr. Putin by reiterating Germany’s demand that Russia return a collection of artwork that was taken from German museums by retreating Soviet soldiers at the end of the war. The disputed art, including several gold bangles and objects known as the Eberswalde Treasure, is part of a new exhibit at the Hermitage on the Bronze Age.
According to Georg Streiter, a spokesman for Ms. Merkel, she had planned to underline the German demand for the return of the art, including several gold bangles and objects known as the Eberswalde Treasure, which will be on display in a special exhibition for the next few months. Earlier on Friday, officials said the museum visit had been called off, apparently as a result of the dispute. Ms. Merkel’s office said she canceled after Mr. Putin said he would not attend. But at a joint news conference at the economic forum, Ms. Merkel said they would go together after all.
Mr. Streiter told reporters in Berlin on Friday that after Mr. Putin informed the Germans that he would not be able to attend the event, the chancellor also decided not to attend. He insisted that the Germans “have no reason to doubt the motives” of Mr. Putin. Mr. Putin, at the news conference, said the focus should be on the exhibit, not on the dispute. “It’s a very sensitive issue,” he said. “We should look for solutions. I don’t think we should open a discussion now.”
The latest spat between Berlin and Moscow also comes only days after Germany publicly commemorated the 1953 uprising of hundreds of thousands of East Germans against the Communist government, which was controlled by the Soviets. President Joachim Gauck, who like Ms. Merkel is a former East German, called for the German revolt to be given a more prominent place in the country’s history. But once at the museum, Ms. Merkel insisted that Russia return the art. Mr. Putin refused.

Melissa Eddy contributed reporting from Berlin.

Andrew E. Kramer contributed reporting from St. Petersburg, and Melissa Eddy from Berlin.