Europe Economy

Russia: State Ownership in Economy Inevitable

Associated Press

Russian President Dmitry Medvedev said Friday that an increase in state ownership was inevitable in some sectors of the economy hurt by the global downturn, but promised it would be short-lived.

Speaking at a packed investment forum in St. Petersburg, Medvedev sought to convince investors that the country's economy has stabilized and that Russia remains a good place for foreign investment.

He suggested that the global economic crisis that has hammered Russia has passed its most acute stage, but warned it was too early "to crack open the champagne."

"Nonetheless, I believe we have avoided the worst case scenario," he said.

The Russian government has long controlled sectors of the economy deemed to be strategic, such as oil, transport and car manufacturing.

Since the crisis broke last year, the Kremlin has bailed out some major conglomerates that were highly leveraged, accepting shares as collateral in exchange for loans. Several mid-sized banks were also rescued by the government last year.

Those moves have worried investors who fear the government ownership will lead to inefficiency and corruption.

"State ownership in most of the sectors of the economy should be viewed as an inevitable but a short-term solution," Medvedev said.

Russia's worst economic downturn in a decade has been driven by tumbling oil prices, a weakening ruble and a flight of capital to safer havens.

Medvedev conceded that Russia's dependency on energy for its economy was its "Achilles' heel" and said other weaknesses in the economy had contributed to the severe downturn.

Gross domestic product plunged by 9.5 percent in the first quarter -- reversing nearly a decade of robust economic growth.

"Russia could not avoid and has not avoided the crisis," Medvedev said. "But some trends were particularly acute here."

Noting Russia's dependence on energy exports, he said the state "did not have enough time" to tackle this.

When the crisis initially hit Russia last fall, the country's leadership was quick to blame the United States, where a collapse in the sub-prime mortgage market sent shockwaves through the global financial sector.

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