NOVO OGARYOVO, Russia, Oct 25 (Reuters) - President Vladimir Putin flatly rejected on Thursday Western criticism of the imprisonment of the Pussy Riot punk protest band, saying its three female members deserved their fate because they threatened the moral foundations of Russia.
During a two-hour dinner conversation with a group of foreign Russia experts, Putin spent most of his time carefully explaining how his country was trying to improve the business climate and diversify the economy away from its heavy dependence on oil and gas by promoting high-tech industries.
The Kremlin chief said he had ``mixed feelings'' about a $55 billion state-sponsored takeover of the country's number three private oil producer TNK-BP last week because it increased state-controlled Rosneft's domination of the energy sector.
But Putin said he acted to help BP and put an end to ``fistfights'' between the British oil major and its four Soviet-born oligarch partners. ``We tried not to get involved, but when BP managers came to me and the government and said we want to cooperate with Rosneft, we could not say no,'' said Putin. Rosneft is run by a longtime close Putin ally, Igor Sechin, and the deal will give BP a stake of nearly 20 percent.
Putin said he was implementing new laws and reforming the courts to reach a target of moving Russia up from its 112th place in the annual World Bank rankings for ease of doing business - below Pakistan - to a top 20 place by 2018.
But the president, now in his 13th year running Russia, became animated only when asked about Pussy Riot during the seven-course meal with the Valdai Club of foreign journalists and academics at his Stalin-era residence in a wooded compound outside Moscow.
The Valdai members were kept waiting in a separate room for an hour and a half for the meeting, while Putin met a group of factory workers and teachers from the Volga region to discuss religious cults.
Two young women from Pussy Riot received two-year prison sentences for ``hooliganism motivated by religious hatred'' after performing a crude anti-Putin protest song in Moscow's main cathedral. A third band member was released on a suspended sentence.
At Thursday's dinner Putin raised his voice, looked straight at the questioner and asked why Westerners who criticised Russia for sending two of the young women to labour camps far from Moscow had not come out in support of a jailed American who made an anti-Muslim hate film.
``Do you want to support people with such views? If you do, then why do you not support the guy who is sitting in prison for the film about the Muslims?'' the president shot back.
This was an apparent reference to ``The Innocence of Muslims'', a crude hate video that triggered violent protests across the Islamic world when it was aired on the Internet.
An actress in the film has identified an Egyptian-born Californian, Mark Basseley Youssef, as its author. Youssef is currently detained on suspicion of violating his probation terms for a bank fraud conviction.
``We have red lines beyond which starts the destruction of the moral foundations of our society,'' Putin went on. ``If people cross this line they should be made responsible in line with the law.'' He described Pussy Riot's protest as ``an act of group sex aimed at hurting religious feelings''.
CLAMPDOWN ON DISSENT
Putin's comments came amid a wider clampdown on dissent in Russia, which has included arrests of opposition leaders on criminal charges and tighter controls on media.
This has led to fears that the political system, which is highly centralised under the Kremlin, is becoming increasingly ossified and intolerant.
Putin deflected a question about the possible stagnation of the system by saying Russia was re-introducing direct elections for state governors, making it easier for political parties to register and allowing citizens to petition the state Duma (parliament) directly with proposals.
Many of the same faces who worked with Putin when he was deputy mayor of St Petersburg in the early 1990s are still in senior positions in Moscow in the government and in state companies.
But Putin said around two-thirds of the members of the government had been changed when he returned to the Kremlin earlier this year, swapping places with his protege Dmitry Medvedev, who is now prime minister.
``I prefer to choose qualified, experienced people who have proved they can do well,'' the president explained. He rejected suggestions that there were any disputes inside the government in the wake of the departure just over a year ago of long-time Finance Minister Alexei Kudrin.
Putin insisted that Russia would continue to give a high priority to growing its trade with its top business partner China, aiming to boost bilateral business to $100 billion a year from current levels of $83.5 billion.
Beijing and Moscow were also keen to do as much trade as possible in their national currencies, he said, noting that the rouble was fully convertible and that it was a ``matter of time'' until the yuan was, too.
By contrast, he berated the European Union for its ``ridiculous'' slowness in agreeing a visa-free regime for Russia and attacked Brussels for not taking him up on an offer of cooperation on a new satellite navigation system between the European Galileo system and Russia's GLONASS project.
``The EU has a visa-free regime with certain Latin American countries, and I don't think their crime levels are any less than ours,'' he said. ``I don't understand this approach.''
Putin also had a ready answer for a questioner who enquired how he would stop an exodus of talented, qualified young people to the West. It was entirely normal, he said, for young people to study and work in other countries where there was more money or a good education on offer.
And what would the president want historians to highlight as the greatest achievement of his third term in the Kremlin?
``You know, I am never guided by a possible assessment of my work,'' Putin said, before highlighting how the economy had doubled in size under his stewardship, average incomes had soared, gold reserves were the world's fourth biggest, the birth rate had increased - all what he termed ``modest, positive changes ... but not enough''.
``We need to create a democratic, effective system of governance so that people feel they are participating,'' he said. ``We need to create an effective economy which is looking forward and to guarantee the country's security. I am sure we are capable of solving all these problems.''