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Medvedev Unveils Economic Program As Crisis Continues To Bite

Russian President Dmitry Medvedev presents his budget priorities to government and legislative leaders at the Kremlin.
Russian President Dmitry Medvedev has broken with tradition and personally presented his budget priorities for 2010-12 to a session of the government and legislative leaders.

Medvedev refrained from open criticism of Prime Minister Vladimir Putin or the cabinet while highlighting some of his priority issues, including the need to combat corruption; continue the so-called national projects; and meet the government’s obligations to pensioners, the handicapped, and others.

He conceded the global economic crisis was hitting Russia harder than had been anticipated.

"In 2009, unfortunately, we expect greater decline in GDP than had been forecast," Medvedev said. "The sharp drop in government income caused by the global crisis has forced us to adjust the budget for the current year."

Medvedev did not give a specific figure for the decline, but the Economic Development Ministry is expected to revise the current forecast of minus 2.2 percent to as much as minus 8 percent for the current year. The economy contracted by 9.5 percent is the first quarter.

Rising Prices

The State Statistics Agency last week reported that unemployment now stands at 10.2 percent (about 7.7 million people), up from 8.5 percent in February.

The agency also reported a sharp rise in the cost of foodstuffs for the first quarter of the year. Prices rose 5.8 percent in Russia, compared to just 0.6 percent in the European Union.

Medvedev’s appearance in person before the government was unusual.
Medvedev’s appearance in person before the government was unusual. During Vladimir Putin’s eight years as president, the annual budget message was prepared by the Finance Ministry and was presented in writing to the Duma, and Medvedev followed this tradition last year.

This year, however, the message was drafted by presidential economics adviser Arkady Dvorkovich, and Medvedev presented it personally in order to emphasize the importance he attaches to it.

As might be expected, the May 25 message backed Dvorkovich in his developing dispute with Finance Minister Aleksei Kudrin over how best to cope with the crisis. Dvorkovich has advocated ambitious anticrisis spending in order to stimulate demand and economic innovation.

Kudrin, however, has warned that the reserves accumulated during the economic good times of the last decade are quickly running low.

The Russian government's reserve fund, which stood at $132 billion on April 1, shrank to $115 billion at the start of May. Kudrin says that at current spending rates, the fund will be exhausted by the end of 2010.

'Fundamentally Important'

He has advocated a conservative spending policy and a gradual return to a balanced budget.

But Medvedev on May 25 advocated continued use of the reserves and said the 2009 budget deficit will be about 7 percent of GDP.

"At the same time, accrued reserves will allow us to meet our social obligations and still spend large amounts on anticrisis measures. And this is unconditional and fundamentally important," he said.

Dvorkovich told Interfax on May 25 that the president’s budget is based on conservative economic forecasts and “a reasonable restraint in state expenditures.” He added, though, that the country can continue to run a “modest deficit” and that “there’s nothing terrible in that.”

Medvedev also ordered the government to study tax policy with an eye toward stimulating development through reduced taxes. He emphasized the use of tax incentives to boost small business and innovative technologies, particularly in the sphere of energy effectiveness. Last week, Medvedev created a presidential commission on economic innovation that he will chair personally.

In his presentation, the president laid out 10 short-term economic priorities. He said that all levels of government must be held increasingly accountable for state spending and the system of state purchases must be refined in order to reduce corruption and stimulate domestic production.

He emphasized that the state must continue to meet all its social-spending obligations and added that the pension system must be reformed to eliminate poverty among pensioners.