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Putin vows to protect slumping Russian economy from sanctions’ hit

Russia Calling
Russian President Vladimir Putin attempted to calm investors’ fears about the future of the Russian economy at a Moscow forum Thursday when he said neither currency controls nor reversal of privatization were being contemplated to counter the effects of Western sanctions.
(Andrey Rudakov / Bloomberg)

Russian President Vladimir Putin brushed off Western sanctions as “foolishness” that will hurt the United States and Europe more than Russia and vowed to protect national industries from the punitive measures.

In a speech and question-and-answer exchange with global investors, the Kremlin leader struck a defiant pose, dismissing the sanctions imposed to punish Russian aggression against Ukraine as unjust but unlikely to damage the national economy.

But at the Russia Calling investment forum in Moscow, Putin and other officials disclosed the painful blows U.S. and European Union sanctions have inflicted on the Russian economy. Inflation this year has already reached 8%, the ruble slid to a 15-year low against the dollar Wednesday and investors are on track to pull $100 billion out of Russian ventures by the end of this year, the officials conceded.

In spite of those setbacks, Putin said, the government has no plans to impose restrictions on the movement of hard currency out of the country, nor does it envision re-nationalizing key industries and assets that have been sold off to private shareholders in the post-Soviet era.

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“There will be no total revision of results of privatization. At the same time, one case may differ from another,” Putin said, alluding to the possibility that law enforcement bodies could decide to take action against those accused of fraud or corruption in their acquisition of former state property.

Russian prosecutors last month ordered the detention of a prominent oligarch, Vladimir Yevtushenkov, and announced that his acquisition of the Bashneft oil conglomerate was under investigation. The billionaire has been under house arrest since Sept. 16 in a move that has spooked foreign investors and Russian magnates with its echo of the Kremlin’s campaign a decade ago to dispossess another oil industry tycoon, Mikhail Khodorkovsky.

Khodorkovsky was released late last year after a decade in prison on corruption charges that he says were trumped up to silence his criticism of Putin and to make his Yukos oil empire assets available for plunder by Kremlin-allied competitors.

Yevtushenkov’s Bashneft enterprise, his sole oil industry holding, is known to be coveted by Igor Sechin, the head of Rosneft, Russia’s state oil company. Sechin, a close associate of Putin, has encouraged the president’s move to reassert government control over the vast country’s most lucrative natural resources.

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Putin spokesman Dmitry Peskov denied there was any political or economic incentive behind Yevtushenkov’s detention but Russian markets have nonetheless retreated and capital flight has intensified.

Peskov also has repeatedly denied that Putin has any role in the Ukraine crisis, which led to the Western sanctions. More than 3,500 people have been killed in six months of fighting between government troops and Russian-backed separatists.

“We should not be fixed on it,” Putin said of the punitive measures, the TASS news agency reported from the investment forum. “The state is ready to support sectors of the economy and companies which were hit by sanctions, and offer its assistance to increase the capital of the Russian banks.”

One means of raising capital being pondered is the sale of shares in Russian energy companies, Putin said, according to the RIA Novosti agency. He emphasized, though, that the government would retain controlling shares in the companies.

The latest round of sanctions from Washington and Brussels targets energy industries by banning the sale of high-tech equipment and Western partners’ expertise -- measures that have forced companies such as ExxonMobil to at least temporarily pull out of joint ventures. The sanctions also have shut off Russian companies from international financing, forcing their trade with the West to be domestically financed or paid for in cash or goods.

Denominating more of Russia’s foreign trade in “local currencies” was another proposal put forward by Putin at the investment forum. He said China is now Russia’s leading trade partner and, like other major countries outside of the United States and Europe, is open to what is effectively barter trade to bypass the international finance institutions no longer available to Russia.

Some Kremlin economic advisors have been speaking of severing the Russian economy from the dollar altogether. 

“Two to three years is enough” to convert Russia’s system of international payments from dollars to rubles, Andrei Kostin, chief executive of Russia’s second-largest bank VTB, said in an interview with the Izvestia newspaper this week.

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