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Medvedev: Russia to spend despite crisis

(Agencies)
Updated: 2008-12-24 23:19

MOSCOW -- President Dmitry Medvedev vowed Wednesday to push ahead with plans to improve housing, education and health care despite the economic crisis and new warnings that the government will face a budget deficit next year for the first time in a decade.

Russia's President Dmitry Medvedev (C) talks during a reception after an award ceremony in Kremlin December 23, 2008. Medvedev vowed Wednesday to push ahead with plans to improve housing, education and health care despite the economic crisis. [Agencies]

Ministers responsible for implementing the spending plans said at a Kremlin meeting Wednesday that at least 280 billion rubles (about $10 billion) are to be spent in 2009 in those three areas, a significant increase from the last two years.

"The global crisis, I underline once more ... cannot be a basis for curtailing social (spending) programs," Medvedev told the ministers.

The president's pledge came as his top economic adviser, Arkady Dvorkovich, warned of a budget deficit next year as oil prices collapse and Russia's economy slows.

Dvorkovich, speaking to Russian reporters in the Kremlin on Wednesday, said the size of the deficit was not yet clear but it would be covered by the reserve fund, money put away for a rainy day when oil prices were soaring.

The business newspaper Vedomosti reported Wednesday that next year's budget deficit could be 5 percent or more of gross domestic product. The report cited unidentified officials in the Finance Ministry and other government agencies.

The 2009 budget was based on an average oil price of $95 per barrel. A revised macroeconomic prognosis completed last week brought the expected oil price down to $50, but oil is currently trading below $40.

Russia's budget has been in the black for the last 10 years on the back of high oil prices, an achievement the Kremlin has pointed to with pride.

But with social discontent rising as the economic crisis spreads, the Kremlin may be more focused on preventing political instability.

First Deputy Interior Minister Mikhail Sukhodolsky warned Wednesday that authorities were expecting greater social unrest in the form of street protests among those "who do not have the means to exist" due to the crisis.

Among emerging markets, Russia has been one of the hardest hit by the global financial crisis and plunging oil prices, the mainstay of the Russian economy. These factors have put the national currency under intense strain and triggered huge stock market losses and capital outflows.

The ruble fell further Wednesday as the Central Bank again eased its support for the currency, which dropped to its lowest level ever against the euro. In late afternoon, the ruble was trading at 40.2 against the euro and 28.7 to the dollar.

The depreciation was the second this week and the 10th since Nov. 11 when the Central Bank began backing off its support. The ruble has fallen about 11 percent in the past six weeks.

Russia, which grew at over 8 percent last year, is facing a severe slowdown in growth. Last week's official prognosis put growth for next year at 2.4 percent, but some analysts predict the economy could even face a contraction.