Putin strictly demands ruble strengthening should be stopped

President Putin set forth a serious requirement to Minister of Finance, Aleksei Kudrin, to restrict the ongoing strengthening of the Russian ruble. Putin believes that the continuing increase of imports exerts a negative influence on the Russian economy too. Aleksei Kudrin suggested the government should withdraw surplus earnings and restrict the expenditure of the state.

The minister had to claim full responsibility for the future macroeconomic stability in Russia. Experts believe, however, that it is nearly impossible to achieve low indexes of ruble strengthening, increasing imports and inflation rate. Kudrin will be able to execute Putin’s orders only if the economic conjuncture will worsen considerably for Russia or if political risks will increase dramatically in the country.

When Finance Minister Aleksei Kudrin was enthusiastically delivering a report to the president about budget figures and forecasts for 2007, Putin interrupted the minister with a strict statement:

“Statistics and the real state of affairs in the economy show that the strengthening of the ruble may become critical this year for the national economy. What do you think on the matter? What do you and the Central Bank plan to do at this point? Enterprises have a certain stability potential – my contacts with directors of large enterprises can testify to that. They are still prepared for an efficient development in the near perspective, but if the situation continues, you will create problems for them!” Putin said.

The president is concerned about the growing volume of imports too. Referring to his recent meeting with the chairman of the Federal Customs Service, Andrei Belyaminov, Putin said: “Belyaminov proudly reported to me that the import collections have been increasing steadily. They are doing a good job collecting the profit, of course. However, it means that import is growing. It is also one of the consequences of the strengthening ruble,” the president said.

Finance Minister Aleksei Kudrin looked somewhat confused and unprepared for such harsh and precise questions, the Kommersant newspaper wrote. The official had nothing to do but to promise the president that the ruble would be strengthening slowly and the import would be extending gradually. According to Kudrin, the strengthening of the Russian ruble will make up not more than 4.7% in 2007, whereas the inflation rate will reach 8%. Import will increase by only 27%, he added.

Experts say that the Russian authorities will have to cut budgetary spending to restrict the ruble strengthening. However, the government is not likely to do it one year before the elections. In addition, restricting the growth of the ruble rate against the background of the ongoing inflow of the foreign capital will inevitably change other economic forecasts, particularly about the growing money supply and gold reserves. The import growth rate made up 33.9 percent during the first six months of the current year in Russia. To put it in a nutshell, prices have to drop on world markets and Russia has to plunge into political instability to preserve the macroeconomic stability in the country.

Translated by Dmitry Sudakov

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Author`s name Dmitry Sudakov