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Moscow's assertive moves can't ease financial fears

The Kremlin devises a series of populist projects to reassure citizens. 'It isn't that bad,' Putin insists.

October 21, 2008|Megan K. Stack | Stack is a Times staff writer.

MOSCOW — Fuel subsidies for farmers, cash for small businesses, housing upgrades for residents of dilapidated homes -- all courtesy of the government, and plenty more where that came from.

Facing down the most perilous Russian financial crisis in a decade, the Kremlin hasn't flinched. The nation's leaders are downplaying the severity of this oil-rich land's economic troubles as they unveil a string of populist projects, taking pains to show ordinary people they won't be left behind.

"In actual fact, it isn't that bad," Prime Minister Vladimir Putin said Monday, summing up the message being proclaimed by state news services and from lecterns in Moscow.

Behind the optimistic statements, uncertainty is deep in Moscow. The stock markets have plummeted. There are fears that oil prices will stay relatively low, that the federal budget will have to be redrawn and that the ruble is ripe for further devaluation. Economists and businesspeople are asking themselves how long Russia's massive cash reserves, padded by previously high oil income, will hold up.

Many analysts regard the possibility of prolonged economic troubles as the most serious challenge Putin has faced in eight years of virtually unquestioned authority. First as president, and now as prime minister, the former KGB agent became increasingly popular as Russians watched their salaries and pensions climb.

This has been the unwritten social contract that rules Putin's Russia: The public enjoys improvements in living standards and, in exchange, stays out of the way of an increasingly autocratic Kremlin. Falling oil revenue could threaten the balance.

"The Russian government has been spoiled by this bonanza, by basically unlimited resources and the ability to pour money onto social problems," said Masha Lipman, an analyst at the Moscow Carnegie Center. "I think the country is moving toward a situation in which there may not be resources for everyone, and that's a huge change."

Middle-class workers who bustled along the boulevards of Moscow said that, despite reassurances, they were deeply worried about the economy.

"The only thing we want is for our salaries to keep going up," said Pyotr Zapalov, a 53-year-old stonemason. "We listened to what they promised before the elections. If they don't deliver it, then our respect for them will decrease."

Yelena Bocharova, a 49-year-old technical school director, shuffled along with a sack full of fresh-baked pastries.

"Everybody is seriously worried," she said with a sigh. "A lot depends now on how the government will treat the ordinary people. We see that they're doing something, but we don't understand yet whether or not these measures are enough."

In March, when Russians elected Putin's handpicked successor, Dmitry Medvedev, they enthused about the economic stability their families were finally enjoying. The candidate, meanwhile, pledged to devote his presidency to the lingering economic and social travails of ordinary citizens.

Putin, who moved to the prime minister's office when his time in the presidency was up, has taken the lead in proposing populist measures.

This month, as stock markets flailed, Putin pledged a pension hike of 37% in 2009. And in the last week, he has promised billions of dollars in new housing for military personnel, new homes for tenants of rundown apartment blocks and fuel subsidies for farmers.

Putin has talked up the importance of paying attention to the parts of the economy that are "of direct relevance to resolving social issues," and lashed out at his government for failing to bring credit relief quickly enough to consumers.

Medvedev too has taken up the cause of ordinary citizens. When he ordered the repair of thousands of schools, he pointedly added: "It is easy to find this money, even in this period of financial difficulties."

Oil companies' failure to lower domestic fuel costs? "Simply disgusting," snapped Medvedev, the man who this time last year reigned as head of Gazprom, Russia's gas and oil giant.

Soon thereafter, the government began an investigation into whether oil companies had colluded to keep prices at the pump artificially high.

As the price of crude oil continues to slump and global finances remain dim, the Russian government is spending heavily to keep the economy moving. Usually, economists say, it's the other way around.

"The lower the oil prices, the more pragmatic the policies in the country are," said Yevgeny Gavrilenkov, chief economist of the Troika Dialog investment company. "People will start counting money, both in the private sector and in the government itself."

Instead, the Kremlin is struggling to tamp down panic and boost confidence while using cash to soothe early signs of economic discontent.

It may not have a choice.

"While Russian people are generally indifferent to constraints of political freedoms or civil liberties, they are absolutely not indifferent to encroachment on their economic interests," Lipman said. "If people feel in their wallets that living standards are going down instead of up, there's bound to be discontent."

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megan.stack@latimes.com

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