Putin pledges fiscal rigor to preserve financial independence

[September 02, 2016]

MOSCOW/
VLADIVOSTOK, Russia (Reuters) - President Vladimir Putin said on Friday decisions on federal spending would be taken "very carefully" in order not to undermine Russia's financial independence.

The low global price of oil, Russia's main export, reduced investments due to Western sanctions and a broad global economic downturn have pushed the Russian economy into its second year of recession and have made a significant dent in state revenues.

Gross domestic product contraction this year will be slightly worse than earlier assumed, at between minus 0.5 percent and minus 0.6 percent, Economy Minister Alexei Ulyukayev said on Friday.

The Economy Ministry and some politicians have been calling for greater state spending to spur economic activity, but the Finance Ministry has opposed that, warning the budget deficit may spiral out of control.

Putin, in a broad ranging interview to Bloomberg, said that pragmatism would prevail when deciding how to spend budget revenues, the country's foreign exchange reserves as well as the windfall oil revenues stashed in two sovereign funds.

"We have been cutting spending on items that are not considered high priority and are not going to mindlessly spend our reserves and spend them according to some political whim," Putin said, according to a transcript of the interview published on the Kremlin website.

"We will be acting very carefully."

Calls for higher spending have increased recently during campaigning for Russia's parliamentary elections later this month.

Putin, who has always been wary of making Russia too dependent financially on external markets, said that despite the budget deficit of around 3 percent of GDP this year, there was no need for foreign borrowing.

Russian President Vladimir Putin looks on during an interview in Vladivostok, Russia, September 1, 2016. Picture taken September 1, 2016. Sputnik/Kremlin/Alexei Druzhinin/via REUTERS

"With the government's funds at around $100 billion it would be nonsensical to (borrow), bearing in mind the cost of borrowing," he said.

Finance Ministry, the Reserve Fund stood at $38.18 billion and the National Wealth Fund at $72.21 billion.

Putin also defended Russia's central bank, saying the regulator was acting independently and was managing well its responsibilities, including overseeing the rouble's rate.

"One way or another, with all the nuances, the central bank manages that," Putin said. "And they have managed to do that, after all, after the central bank moved to a floating exchange rate of the national currency."

The central bank let the rouble float in November 2014.

(Reporting by Lidia Kelly and Katya Golubkova in Moscow and Vladimir Soldatkin and Denis Pinchuk in Vladivostok; Editing by Gareth Jones)

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