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Russian PM Putin Says Creating State Capitalism 'Not Our Aim'

Vladimir PutinMoscow, 25 April: Apart from modernization of the economy, Russia also needs a financial "safety cushion", Russian Prime Minister Vladimir Putin has announced.

"In addition to developing the economy, diversification, innovation-driven development, modernization and so on, we, of course, also need traditional safety cushions in the shape of the Reserve Fund," Putin said when commenting on the statements at the meeting of the joint board of the Finance Ministry and the Economic Development Ministry.

The prime minister also commented on the thesis that outflow of investment capital from Russia is being observed.

"If there is an outflow, this of course indicates that there are problems with the investment climate, although there are many factors for the outflow of capital, including speculative ones," Putin said.

Speaking of the domination of state companies in Russia, Putin stressed that this was taking place "not because the life is very good". Their creation is linked to the fact that many sectors of the economy do not attract private capital due to the long-term nature of the investment.

"Creating state capitalism is not our aim, we were forced to do this in some industries," Putin said.

He also noted that the state is forced to regulate electricity rates: the real sector of the economy will simply not survive a sharp increase of prices in this sphere.

"Unfortunately, we cannot suddenly set them totally free, we would have people coming out to the streets tomorrow and businesses would go under," Putin said.

Also the prime minister touched upon a problem of fighting inflation in connection with the necessity of economic development of the country.

"Here, what is primary and what is secondary, where is the horse and where is the cart: it is the horse that will pull us out, it is the fight against inflation, of course," Putin said and stressed that also in this sphere one should act with precision.

(In a separate report the agency quoted Economic Development Minister Elvira Nabiullina as noting that "we will not manage to compensate for the shortcomings of the business climate with the high profitability of investment in individual sectors of the economy". "This was shown by our last forecast when despite the upgrading of oil price by 24 dollars a barrel (forecast for 2011 was increased from 81 to 105 dollars a barrel) we did not change the estimated growth of GDP," she said.

Nabiullina also said: "A large-scale privatization, in monetary terms, has been prepared. Until 2015 the expected revenue for the Treasury should exceed 30bn dollars".

Deputy Prime Minister and Finance Minister Aleksey Kudrin expected that the outflow of investment from Russia would stop this year. "I think that this year we stop this trend and stop the existing outflow of capital," RIA Novosti quoted Kudrin as saying.

He also noted that in 2011 Russia did not intend to use the Reserve Fund and the initial plans, which were based on more pessimistic expectations on oil prices and dynamics of budget revenues, had already changed.

"At the moment we are estimating that we will not need to make use of the Reserve Fund and not use the National Wealth Fund, to a significant extent we will cover our deficit using funds from the markets," Kudrin said and stressed that, in addition to this, revenue from oil and gas would be partially used. These would replace the funds which were earlier expected to be taken from the Reserve Fund (about R280bn).)

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