From Volume 7, Issue 48 of EIR Online, Published Nov. 25, 2008
Russia and the CIS News Digest

Putin Lays Out Emergency Measures for Russian Economy

Nov. 20 (EIRNS)—Following President Dmitri Medvedev's attendance at the worse-than-sterile Nov. 15 Group of 20 nations summit in Washington, Russian leaders plunged into a whirlwind of policy sessions and political meetings, aimed chiefly at stabilization of the rapidly worsening economic situation inside Russia itself. Medvedev addressed a session of the State Council in Izhevsk on Nov. 18, the finance and economic ministers and Central Bank chief testified before the State Duma yesterday, and Deputy Finance Minister Dmitri Pankin laid out several measures in a press conference on Nov. 17. The keynote for the week was Prime Minister Vladimir Putin's address to today's conference of United Russia, the majority party in the Duma.

Urgency was the order of the day, as Putin demanded that major tax and related reforms be instituted by the first of next year, and some of them as early as the end of November. What he presented for the rescue of Russian industry included some promising concepts of government-mandated credit creation, earmarked for building infrastructure and high-technology industry. At the same time, what Putin enunciated as Russia's international posture was potentially fatally limited. Like Medvedev in Izhevsk, he placed a primary emphasis on cooperation within the Commonwealth of Independent States (CIS, the large part of the former Soviet Union), and with China and India.

Absent was any clear concept of an initiative addressed to the United States, or even the European Union, although Putin is clearly disgusted with the free-trade agenda of the World Trade Organization et al. Going into the G-20 meeting, Medvedev had said that a follow-on international summit on the global financial system would be required in the very near future, but the G-20 set only a late-April 2009 get-together in London. Neither Putin nor Medvedev pushed this agenda in their speeches during the week after the summit.

Putin alluded to the intractable disease of the current world financial system, but did not elaborate this idea. He compared the current global crisis with a natural disaster, saying, "Within the existing world financial system, nothing could have been done to prevent it, just like a natural disaster." He did not elaborate the implication, namely, the need to replace that system.

Addressing the State Duma Nov. 19, Economics Minister Elvira Nabiullina said flatly that the economic model Russia has relied upon hitherto, featuring high revenues from oil and natural gas exports, is a dead letter. Putin took up this point. As far as foreign currency reserves go, he said, Russia was well prepared for the crisis. But that is not enough. The raw-materials export dependency of Russia is a serious weakness, requiring immediate attention to economic diversification.

Reviewing education and health care, Putin promised that Russia would meet its budgeted obligations to the population, no matter how low the price of the oil it exports might fall.

Putin presented a program of credit-generation using Russia's own resources, even as the banking system remained nearly frozen and a non-payments crisis mounted. The prime minister said, "In previous years, many Russian companies borrowed money abroad. This is normal. But now the Western banks themselves have gotten into trouble. Today we need to solve the problem of credit for domestic companies and plants almost entirely using our own financial resources. We can do this. The national savings rate in Russia is fairly high. Our economy generates a high level of income. But, we need to transform this income into capital for development." While the government has directed 5 trillion rubles ($185 billion) into supporting Russian banks and companies, Putin said, strict measures are needed to ensure that "these resources reach the real economy, and are not wasted in financial speculation." A new 50 billion rubles ($1.8 billion) will go to save defense-sector companies from bankruptcy.

These are matters of life and death, Putin said, citing the recent murder of Central Bank deputy chairman Andrei Kozlov, who was investigating the criminal misappropriation of funds.

Putin called for the creation of "'long money' for long-term, capital-intensive projects." To accomplish this, he called for expansion of the program under which commercial banks can obtain preferential financing from the Central Bank, earmarked for the purchase of bonds issued by companies in the real sector of the economy. In parallel, he said, "there should be broader use of the potential of our development institutions, as well as banks that are partially state-owned." Government and state-owned banking support to the real sector should emphasize the improvement of infrastructure, he said.

Outlining a package of tax breaks and incentives for real production and high-technology investment, Putin demanded that they be put into effect as of Jan. 1. Cuts in the tax on corporate profit, for real-sector companies, should be implemented for the fourth quarter, with laws being adopted by Nov. 28. Adjustments in VAT collection, corporate profit tax, and so forth, are being designed to assist the defense sector and small and medium-sized businesses.

Speaking Nov. 18 in Izhevsk, President Medvedev noted that the G-20 participants had "signed on the dotted line" to avoid protectionism, but he said he fully expected nations to act to protect their own economies. Putin made clear that Russia will attempt to do so. He said, "We shall use customs and tariff protection for our domestic market, such as in agricultural goods." Spelling out a program of price preferences for domestic producers in designing state orders, Putin said, "I think that protectionism of this sort is a temporary measure, but it is entirely appropriate today."

Putin gave less lip service to globalization and free trade, than either Finance Minister Alexei Kudrin or Medvedev have done in their recent statements. "Of course we'll continue negotiating about WTO membership," said Putin, "but, at the same time, I consider it extremely important, and a priority, to exploit the advantages of cooperation within the post-Soviet area." He said his government would pursue consolidation of the Customs Union of Russia, Belarus, and Kazakstan.

As Pankin had announced on Nov. 17, Russia will give the International Monetary Fund $1 billion to help poor countries. Said Putin, "We are also allocating credits to China and India against their purchase of Russian equipment, thus securing jobs and profits for our companies." Russia is lending $2 billion to Belarus, which has been in anguish over the terms for obtaining a similar-sized credit from the IMF.

Putin outlined programs for instantaneous job-creation in medium-sized industries, "starting from scratch," as layoffs spread in the auto and steel sectors.

See also, Business Briefs in InDepth for, "Russia: Crisis in Real Economy as Wage Arrears Grow."

Russian Nuclear Power Delegation in India

Nov. 20 (EIRNS)—Rosatom director Sergei Kiriyenko is heading a delegation in India this week, to inspect progress at the Kudankulam plant, where Russian reactors are being installed. Two 1-GW reactors are being built, with a memorandum of understanding having been signed for four more. A hundred Russian engineers are working onsite. The visit is part of the lead-up to President Dmitri Medvedev's state visit to India in December.

LaRouche Webcasts Shown in Moscow

Nov. 24 (EIRNS)—On Nov. 13, excerpts from Lyndon LaRouche's July 22 and Oct. 1, 2008 webcasts were the centerpiece of a seminar held at the Moscow State Institute for International Relations (MGIMO). This famous university comes under the Foreign Ministry of the Russian Federation. The event was an open seminar, organized by the Financial Markets Department of MGIMO, on the topic "The International Financial Crisis and How To Overcome It." About 70 people attended, including students from the economics, diplomatic, and international journalism departments, and half a dozen professors. The LaRouche speech excerpts were presented with Russian voiceover.

The seminar was advertised for several days in the announcements section of the MGIMO website as a chance to learn the latest from the American economist Lyndon LaRouche, the person who correctly forecast every major event in world finance and the economy, from the 1971 break-up of the Bretton Woods system through the current crisis.

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