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 A strong advocate of liberal reforms, Kudrin has become almost the
only voice in the Russian elite to question economic policy since
the Ukraine crisis, counting on his long-term close ties to
President Vladimir Putin to protect him from censure.
Taking aim at the generous spending pledges Putin made when he
returned to the presidency in 2012, Kudrin said Moscow did not have
the funds to invest in an economy, which was flagging before the
West imposed sanctions over Russia's role in Ukraine.
"In a difficult moment like this, it would be useful to increase
government investments. This is exactly what the market needs now.
To cut government investment now and increase pay is inappropriate,"
he told a foreign business conference.
"The government's support is limited, bound by continued large
social spending," said Kudrin, who has long been a critic of Putin's
pledges to tackle the gap between Russia's rich and poor by
increasing wages.
Kudrin, often summoned by Putin to discuss economic matters against
more statist economists and a useful tool for the Russian president
to keep his government on its toes, said he expected the economy to
stagnate this year or weaken further, and that growth could be
negative in 2015, well below government forecasts for 0.5 percent in
2014 and 1 percent next year.
"The sanctions that have been imposed are going to have an impact
over one, or two years, because they have cut investment
opportunities," Kudrin say, warning that if more punitive measures
are imposed, the economy may fall by 3-4 percent.
While Russian officials criticize sanctions over Kremlin policy in
Ukraine for bringing back the Cold War, they argue measures to cut
off companies from Western markets, investment and technology will
spur Russia's homegrown industries and develop ties with partners in
the East.
"Turning to the East brings good prospects, especially for Russia's
far east," Deputy Prime Minister Arkady Dvorkovich told the same
conference. "When it comes to sanctions we consider them
meaningless, counterproductive ... measures that do not solve
political problems."
SUPPORT FOR CHAMPIONS
They are also banking on using 'rainy day' funds, including those
reserved for Russia's 40 million pensioners, to support what Putin
calls Russia's 'national champions', pillars of the economy in
sectors such as energy and defense.
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Kudrin said it was clear that some state companies under sanctions
needed support, but he counseled the government to consider what
kind of support they needed before channeling money to them,
especially in the case of state oil producer Rosneft which has asked
for $40 billion.
"I think that to provide Rosneft with a government loan or investing
in its bonds, shows explicitly that Rosneft cannot on its own
refinance its debt. This lowers the quality, the status of Rosneft
as a borrower – it significantly affects its capitalization, its
perspectives," he said.
"It is possible that Rosneft should divide its share in some
projects with others and as such lower the burden on the government.
Support is necessary, but it should be well thought-through."
Several state and private companies have suggested they would need
to turn to the government for funds to weather the sanctions. The
government is considering supporting whole sectors such as
agriculture by reducing tariffs.
But Kudrin said state support should be extended only to companies
that are under sanctions.
Asked whether his voice was heard by the authorities, Kudrin, who
first met Putin in St Petersburg while both worked for its liberal
mayor in the 1990s, said he believed he was.
But he underlined that with more than half Russia's population
willing to make sacrifices for Putin's patriotic push against
Ukraine, politics may trump economics for the time being. Putin
enjoys approval ratings of above 80 percent.
"We understand that today that the logic of taking decisions lies to
a large extent in the political sphere and the economic consequences
– well, they are the forced consequences of political decisions," he
said.
"Now, at this stage, the government, the president of Russia enjoy
substantial support of the population – this is not a trivial
factor."
(writing by Elizabeth Piper, editing by Anna Willard)
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