Russia unveils 'anti-crisis' plan to cut spending, boost banks

28th January 2015, Comments 0 comments

Russia on Wednesday unveiled an anti-crisis plan for an economy battered by low oil prices and sanctions, promising some spending cuts but also boosts for retirees and billions of dollars worth of support for top banks.

The plan, published on the government's website on Wednesday morning, foresees 10 percent reduction in "most categories of budget spending" but, increases on welfare, which was the cornerstone of Putin's election campaign in 2012.

The measures will help the economy "adapt to new conditions" in a situation when Western sanctions over Ukraine and tumbling oil prices have already cost it $200 billion, Finance Minister Anton Siluanov told Russian senators while presenting the plan.

"The effect of external shocks on the credit balance is about $200 billion," he said, adding that most analysts "believe that this situation will continue long-term."

The plan lists various measures without spelling out the total required sum. Last week authorities presented a draft plan worth 1.375 trillion rubles ($20 billion, 18 billion euros), which comes on top of a 1 trillion ruble ($15 billion, 13 billion euros) bailout package for struggling banks announced in December.

The government is prepared to funnel the trillion ruble fund to Russia's top 27 banks, requiring them to expand their crediting of the real economy by one percent every month, Siluanov said.

Under the crisis plan, pensions will be increased by 11.4 percent next month at the cost of 188 billion rubles ($2.8 billion) -- more than expected -- to help out the poorest Russians.

Defence spending is also not subject to any austerity measures, according to the plan, and defence industries will get extra money to replace sanctioned imports, it said.

The agriculture sector will also get an additional 50 billion rubles ($740 million in a bid to boost local production to make up for shortages caused by Moscow's embargoes of Western products over the Ukraine crisis.

But Siluanov underlined that Russia's oil reserves are not limitless so many investment projects would have to be cut, particularly in construction.

"All new construction projects will have to be delayed," he said, noting the exception of particularly important ones in Crimea, the Black Sea peninsula Russia annexed last March which is struggling without a bridge linking it to mainland Russia.

High energy prices let Russia amass a sizeable pile of cash divided between two oil funds. Siluanov said 5.6 trillion rubles ($83.5 billion) are in Russia's reserve fund and another 4.9 trillion rubles ($73 billion) in its national welfare fund.

"The most important thing is not to squander the reserves in one year," he said.

© 2015 AFP

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