Russian Credit Collapse getting worse ??

Putin Promises Russians to Prevent Another Financial Collapse

By H Meyer L Pronina

(Bloomberg) -- Russian Prime Minister Vladimir Putin vowed tax cuts, defense of the ruble and ``everything'' needed to prevent the kind of financial crises that shook the country after the collapse of the Soviet Union.

Among the measures unveiled by Putin today to counter the effects of the global economic crunch are corporate tax cuts, higher welfare payments and increased government spending.

``We'll do everything we can to prevent a repeat in our country of the problems of past years, the collapse of past years,'' Putin told the annual congress in Moscow of the ruling United Russia party which he heads, broadcast live on state television. ``We have amassed sizable financial reserves which will give us the freedom to maneuver, allow us to maintain macroeconomic stability.''

Putin, 56, is bolstering his public role in response to a global slowdown that has punctured Russia's 10-year oil-fueled boom, sparking growing speculation that he may seek to return to the Kremlin as president next year.

Putin remains at the center of power after handing the presidency in May to his chosen successor, 43-year-old Dmitry Medvedev. He may persuade Medvedev to step down, triggering snap elections that would enable Putin to reclaim the No. 1 post for up to 12 years under a new six-year presidential term, analysts say.

``Medvedev can announce that he isn't coping and it's better if an experienced political leader takes the reins again,'' said Leonid Sedov, a political analyst at the Levada Center research group in Moscow.

Oil, Gas Exports

As the U.S., Europe and Japan slip into recession, the price of oil has fallen to almost $50 a barrel in New York from a July high of almost $150, hurting Russia, the world's largest energy exporter which relies on oil and gas for two-thirds of its export earnings.

Russia's economic growth will slow to 3 percent next year after average expansion of 7 percent a year since 1999, the year after the 1998 financial default, the World Bank estimates. The economy grew 8.1 percent in 2007.

Russia in August 1998 defaulted on $40 billion of debt and devalued the ruble, wiping out the life savings of millions of people overnight and pushing the government to the edge of bankruptcy.

Russia ``won't allow a spike in inflation or sharp changes in the ruble's exchange rate,'' Putin said. Bank deposits are safe in Russia since 98.5 percent of all retail deposits are fully covered by a state guarantee, he said.

Tax Cuts

Putin announced that the government will cut the corporate profit tax rate by 4 percentage points in January, reduce taxes for small businesses and speed refunds of value-added tax. Unemployment benefits will rise next year to 4,900 rubles ($177.79) a month as ``structural'' labor market changes loom, he said.

Plans to inject funds into the health and education sectors and social spending under a long-term strategy until 2020 will not be abandoned, Putin promised.

With Urals crude already $20 below the $70 average required to balance Russia's budget next year, the government is depleting its reserves, the world's third-largest.

Already Russia has spent 24 percent or $144.6 billion of its central bank stockpile since early August, mostly on a failed attempt to defend the ruble, which has lost more than 17 percent of its value against the dollar during that period.

The tax cuts announced today amount to 550 billion rubles, including 400 billion rubles in profit tax relief, Finance Minister Alexei Kudrin said. Putin also pledged 50 billion rubles for the defense industry and 83 billion rubles for new housing.

Boosting Liquidity

The government has already pledged more than $200 billion in loans, tax cuts, delayed tax payments and other measures to boost liquidity in the financial system during the credit crunch.

Putin accused certain politicians of complacency inherited from the years of high prices, which he criticized as ``absolutely unacceptable'' in today's crisis. He didn't name any of the politicians he attacked.

``This will inevitably lead to mistakes that will cost us the trust of the Russian people,'' he said in his speech. ``In difficult circumstances, the real capabilities of public institutions become clear.''

Putin next month will once again take center stage by holding a live call-in show on national television.

Putin Call-in Show

Putin has held a nationwide call-in show every year since 2001, broadcast live and lasting several hours, with questions on a wide range of issues submitted by TV link-up, phone and Internet. The event dominated TV news coverage on the days it aired.

Russia's lower house of parliament on Nov. 14 and Nov. 19 approved in two of the three required readings a constitutional amendment that would extend the president's term to six years from four.

The measure is expected to secure final legislative approval by mid-December. It would allow Putin, who stepped down as president in May after serving two consecutive terms, the constitutional limit, to serve at least another 12 years should he again become president.