PUTIN'S LECTURES DUMA ON GOR'S ANTI-CRISIS MEASURES

UNCLAS SECTION 01 OF 02 MOSCOW 000880

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STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR TORGERSON AND WRIGHT
DOC FOR 4231/MAC/EUR/JBROUGHER
NSC FOR ELLISON

E.O. 12958: N/A
TAGS: ECON EFIN PGOV PINR RS
SUBJECT: PUTIN'S LECTURES DUMA ON GOR'S ANTI-CRISIS MEASURES

REF: A. MOSCOW 859

B. MOSCOW 621


1. (SBU) Summary: In an address widely believed to have
been postponed so as not to conflict with last week's G-20
London Summit and the meeting of Presidents Obama and
Medvedev, Prime Minister Putin presented his first annual
report to the Duma. Putin devoted much of his hour-long
speech, which included a numbing amount of statistics and
which was accompanied several times by tepid applause, to
itemizing all the social programs (including pension support)
that the government would finance, despite the strains on the
budget. He justified steps taken to date by the GOR to keep
banks and the corporate sector afloat, but cautioned that the
budget was intended to stimulate "business activity" and
encourage innovation, not simply keep inefficient enterprises
going. He again denied any blame for Russian current
economic woes and predicted that 2009 would be a difficult
year. While most of his speech contained no surprises, Putin
gave unequivocal notice to banks and corporations that they
would have to sink or swim on their own as social spending
would the state budget's priority. A "question time" in
which each of the four political parties represented in the
Duma were allowed to ask Putin three questions, was not
broadcast nationally, perhaps to show his continued
invulnerability. End Summary.

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Little Fanfare
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2. (SBU) On April 6, Putin gave his first annual report to
the Duma in his capacity as Prime Minister. The speech,
originally slated for April 2, was delayed, many believe, so
as not to steal the limelight from the G-20 conference and
the meeting between Presidents Obama and Medvedev. By most
accounts, the Putin speech was a lackluster performance, full
of mind-numbing economic statistics from 2008 and punctuated
by sporadic lukewarm applause from the Duma deputies.


3. (SBU) Putin outlined his "development budget", promising
to lower inflation from 13 percent to 8 percent in the next
three years and reduce the budget from 8 to 3 percent of GDP
by 2011. He took great pains to assure his audience that all
social obligations to Russian citizens would be met. He
vowed, for example that pensions would be increased (indexed
to inflation) while acknowledging the difficulties of raising
social taxes on business during a time of crisis. Likewise,
he promised that the crisis would not interfere with people's
long-term plans to get an education or purchase a home.

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Defending GOR's Anti-Crisis Measures
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4. (SBU) Putin insisted that all the decisions the GOR had
taken to date to address the economic downturn were correct.
He scolded Duma deputies for calling the corporate and
banking recipients of GOR support "fat cats" and implored
them to be more understanding. He emphasized that the
gradual, "managed" devaluation of the ruble had led to the
currency's stability and benefited ordinary citizens and
manufacturers. Putin further explained how the flat income
tax was better for the GOR's revenues (it kept taxpayers out
of the shadow economy) and why rail tariffs, among others,
could not be frozen (the reduced income would discourage
investment).

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No More Handouts
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5. (SBU) Putin emphasized that enterprises should not expect
any more handouts. The 2009 budget was a "budget of
development". As such, it was intended to stimulate new
business activity and innovation, but not perpetuate
inefficient enterprises. He warned that if businesses could
not restructure themselves and succeed commercially, then
they should be allowed to fail. At the same time, while he
reassured the Duma that that the government would protect the
employees of failed enterprises and provide job re-training,
this is the first time that the GOR has articulated the
notion that not every factory would be helped.


MOSCOW 00000880 002 OF 002


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Ending on a Positive Note
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6. (SBU) Although Putin reiterated the GOR mantra that
Russia was "victimized" by rapid capital outflows late last
year and the precipitous drop in foreign demand for Russia's
commodities, he refrained from placing the blame for Russia'
economic ills on the United States. He noted the progress
Russia had made in promoting the Southstream and Nordstream
pipelines, but commented wryly that "not everyone wants to
see the Russian Federation increase its exports". Putin
concluded that while the crisis was far from over, Russia
continued to export its commodities, and the nation's
reserves were gradually being replenished, thereby ensuring
that the country would remain one of the largest economies in
the world.

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"Question Time" Not Broadcast Nationally
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7. (SBU) Perhaps to protect Putin's omniscient image of
invulnerability, state-controlled television did not
broadcast the "question and answer" period pursuant to which
the four parties represented in the Duma asked questions they
had already submitted to the Office of the Prime Minister.
Most of the questions concerned cuts in social programs. The
KPRF's Aleksey Ponomarev asked Putin about U.S. culpability
for the current economic crisis, but Putin replied that the
situation was difficult throughout the world and then set
about repeating his proposals for restructuring the economy
and financial system. After Putin's presentation, KPRF
faction leader Gennadiy Zyuganov state that three current
government ministers -- Defense Minister Anatoliy Serdyukov,
Finance Minister Aleksey Kudrin, and Education Minister
Andrey Fursenko -- are not fit for their jobs.

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Comment
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8. (SBU) The upbeat conclusion of Putin's speech reflects
the sense that the economy has stabilized in recent weeks:
oil prices have edged up and the ruble is stable. Some of
Putin's advisors maintain that the economy has reached bottom
and a recovery is expected by the end of the year. On the
other hand, there are warnings, emanating from Finance
Minister Kudrin among others, that this may be a temporary
phenomenon with a second banking crisis looming on the
horizon. A prudent husbandry of GOR's limited reserves
appears to be the order of the day, with the GOR unable to
maintain social spending and simultaneously bail out Russian
companies facing major payment problems this year, including
potential defaults. In his speech, Putin sent out the word
unequivocally that the GOR no longer intends to bail out
private companies. End Comment.
BEYRLE