Putin seeks investments to spur growth

Russian President Vladimir Putin called Thursday for a broad foreign and domestic investment programme to boost slowing growth in the next three years. Putin told a government meeting devoted to drafting budget frameworks through 2016 that Russia's social security system depended on economic expansion. The Kremlin chief had this week conceded that growth would fall short of the year's five-percent target and reach only 2.4 percent in 2013. This tailspin has left Putin in a bind because it leaves the government short of the revenues needed to fulfil the vast promises he dashed out during his 2012 presidential election run. "All our objectives, including social ones, can only be met based on high rates of economic growth," Putin said in televised remarks. Putin said this growth can be achieved by attracting investment through favourable tax policies that made projects more lucrative than off shore bank accounts. "We must create conditions that make it more attractive to invest money in Russia than to hide it on some islands or spend it on luxury goods," he stressed. Putin also proposed improving "budget transparency" and streamling the tax system. But one of his biggest concessions came with an admission that the 23-trillion-ruble ($715-billion) military spending drive -- an ambitious plan that envisions 400 new ballistic missiles and 600 extra warplanes -- may have to be delayed. Russia's highly-regarded former finance minister Alexei Kudrin was ousted in 2011 after more than a decade in government for arguing that the Kremlin's military spending plans were too rich for the country's budget. Military spending was heavily promoted during Putin's election campaign as a prestige project showcasing Moscow's might in the face of Washington's dominant role in foreign affairs. Putin suggested on Thursday that some of the more bloated state enterprises were simply not prepared to boost production of modern weapons even if they were awarded massive new contracts at this stage. Officials have been scrambling for months to devise a growth strategy that could function in a climate of gradually falling prices for Russia's exports of natural gas and oil. Investment has been hurt by Russia's image as a corrupt country with a court system that panders to the state and a preferred list of companies operated by several individuals close to Putin. The US-based Global Financial Integrity research and advocacy organisation has estimated that Russia haemorrhaged $211.5 billion in illicit financial outflows between 1994 and 2011. The Eurasia Group for its part called Russia a country "where opportunities are diminishing on pretty much every front but strategic resource development." Russia's growth quandary has been compounded by high inflation rates that have kept the central bank from lowering the main interest rate from its currently high figure of 8.25 percent. Some analysts believe that even a cut in the main interest rate may have little impact on the economy because Russia is primarily suffering from structural problems. "It's not clear that another surge in credit growth will necessarily pull Russia's economy out of its current rut," the London-based Capital Economics consultancy observed. Most attending the government meeting conceded that times for Russia at present were tough. Finance Minister Anton Siluanov warned "that the budget for the next three years will be formed amid a reduction of the main parameters of social and economic development." Siluanov cautioned that Russia's budget revenues would drop while expenditures remain the same -- circumstances that made life difficult for the government. The finance minister proposed removing unnecessary tax loopholes and improving revenue collection. Economic Development Minister Andrei Belousov stressed that Russia's new strict budget rules meant that "spending cannot grow in terms of its share of gross domestic production." Russia has adopted a new budget rule that limits spending increases to the average global price of oil over a span of a few years.