Europe News

Putin: Russia will remain open economy

Catherine Boyle and Patrick Allen
Russia to become more transparent: Putin
Russia to become more transparent: Putin

Russian President Vladimir Putin pledged that the country would continue to develop as an open market, but fired a broadside at the U.S. by halting the use of the dollar for trade.

Putin's promise to keep free movement of capital was seen as a signal that Russia's relatively pro-market economic "liberal" faction has gained the upper hand in the struggle for control of the country's moribund economy.

His pledge to start using "national currencies" rather than U.S. dollars, the world's reserve currency, for trade, may be more significant in the long term. The dollar's current status has helped keep U.S. interest rates low and reinforce its status as the world's biggest economy. If Russia (and possibly China, with which it has just signed a $400 billion, 30-year gas deal) stops using dollars, this might have a broader effect on the U.S. economy.

Russia is open to foreign investors: Deputy fin min
Russia is open to foreign investors: Deputy fin min

"In the future we aim actively to use national currencies in energy resources trade to settle... international trade accounts, with China and other countries," Putin said.

After days of speculation that Russia may impose capital controls or make other anti-free market measures, Putin reaffirmed the government's commitment to develop as an "open market." He told an audience of business leaders in Moscow that the government would not impose controls on the flow of money in and out of the country, or on currency movements.

Putin also pledged to stick to the standards of the World Trade Organization - but could not resist the suggestion that other members (i.e. those Western companies which have imposed sanctions against Russia) are not. And he promised government help to the companies and industries targeted by sanctions.

A host of the country's most important banking chief executives and policymakers spoke of the need for more structural reform to the economy, instead of short-term monetary stimulus, in Moscow Thursday.

Russian President Vladimir Putin
Russian budget: Is Putin facing reality?

Since Russian economic growth began to falter this year, after investments were pulled from the country and economic sanctions enacted following its clashes with neighboring Ukraine, there has been widespread speculation that hardliners in the administration, led by President Vladimir Putin, may use short term stimulus measures to negate the effect of external factors.

Yet relatively liberal economic voices seemed to have the upper hand during a panel at the Russia Calling investment forum in Moscow.

Alexei Moiseyev, deputy finance minister of Russia, told CNBC: "We are continuing to open up the economy. There are no plans of any kind to close Russia to foreign investors."

Anton Siluanov, Russia's finance minister, its Economy Minister Alexey Ulyukaev, Bank of Russia Governor Elvira Nabiullina, and the chief executives of its two biggest banks, VTB and Sberbank, presented a united front on the issue.

Sanctions on Russia are 'illegal': Putin
Sanctions on Russia are 'illegal': Putin
Vladimir Putin, Russia's president, pauses during a global business leaders summit at the St. Petersburg International Economic Forum (SPIEF)
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They emphasized the importance of Russia getting its own house in order, rather than blaming external factors like sanctions.

"People know you cannot bend the rules of physics but think you can bend the rules of economics, you cannot do this," Herman Gref, chief executive of Sberbank, said at the panel.

"When winds are strong it is foolish to build a fence, you should build a windmill."

Some of the temporary "fences" could include imposing capital controls to halt the free movement of money in and out of Russia, further bolstering the ruble using government funds, and tapping the country's oil reserve fund to back up Russian industry.

Nabiulliana warned the economy "may not be ready" for economic stimulus without structural reforms.

"Workers get paid but output is quite low. Therefore the situation in the labor market cannot be impacted by monetary policy," she said.

"We need to focus on improving human capital."

Siluanov said: "There is no need to re-invent the wheel, other countries have tried spending and loose monetary policy and it only offered short term respite.

"We need structural reforms, those who have implemented structural reforms have been the winners."

- By CNBC's Catherine Boyle, and Patrick Allen in Moscow.