Russian president warns against excessive state involvement in economy

President Vladimir Putin criticized what he said was excessive state involvement in the Russian economy Tuesday, and said the country's economic development was unsatisfactory despite a flood of oil export revenues.

The Russian leader also told participants at the St. Petersburg International Economic Forum that the nation needed to do more diversify its economy into new sectors, such as technology.

"Today the countries that win - and this is well known - are those that guarantee swift progress in the area of high-technology," Putin said in a speech during the forum's opening ceremonies.

The forum, which is one of the largest and most influential in the former Soviet Union, brought together hundreds of economic officials and business leaders. Most of the speakers who addressed the opening ceremony Tuesday were officials from former Soviet bloc countries.

Jean Lemierre, president of the European Bank for Reconstruction and Development, also said Russia needed to diversify its economy toward more innovative technologies.

"Russia is moving forward, but must move faster," Lemierre told participants.

"What do we need to do to secure a new level of development based on innovation?" he asked, speaking through a translator. "You need long-term vision. You need to see into the future."

Putin also warned the country's growth was being hurt by too much government involvement.

"Excessive state involvement in the economy is hindering business initiative. We know it from our own experience," he said .

But, he said, "the state cannot dissociate itself" from the economy.

"There exist certain economic spheres where its presence is quite justified and grounded, for instance, in the system of infrastructure monopolies and the defense industry," he said.

Record high oil prices have buoyed the Russian economy and filled the government's coffers. The new budget calls for spending to increase by some 12 percent.

In his speech, Putin noted several economic indicators that underscored the strength of certain parts of the Russian economy - industrial growth rose by 4.2 percent in the first quarter of the year; real income grew by 5.6 percent and unemployment fell.

But he also noted that inflation hit 7.3 percent in the first five months of the year, putting annual inflation on track to rise far beyond the 8.5 percent rate forecast in the government's 2005 budget.

He said the 7.3 percent rate was "impermissibly" high.

The International Monetary Fund has warned the country would be hard-pressed to keep inflation under 11 percent.

Central Bank Chairman Sergei Ignatyev last week that the higher than a normal inflation rate was "worrying," but predicted that it would slow toward the end of the year.

ALEX NICHOLSON, Associated Press Writer