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Russia must look after its own, Putin says

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MOSCOW — Having decided to snatch back his country’s reins, Vladimir Putin promised Thursday to invigorate Russian industry, suggesting that domestic production was a more important goal than membership in the free-market World Trade Organization.

Taking the stage several hours into an investors’ conference where most of the talk focused on the tough economic times Russia faces in the coming months, the prime minister spoke instead about his plans to modernize the military, health care, education, roads, airports and housing, while nurturing new diversified industrial sectors. The nation would pay for it all, he said, by cutting “unnecessary” construction and corruption.

His military overhaul alone carries a $600 billion price tag.

Putin — already the most powerful politician in Russia — announced two weeks ago that he will run for president next year in place of his protege, the incumbent Dmitry Medvedev. At the time, he discussed the bitter economic medicine that Russians must be ready to swallow — implying that only he had the where­withal to spoon out the doses.

But Thursday’s remarks devoted very little to the unpleasantness on the horizon.

He did mention that the well-regarded Alexei Kudrin, who had to resign as finance minister last week after a falling out with Medvedev, will stay “on the team.” Kudrin has been a strong advocate of prudence; he opposes, among other things, the expensive increase in defense spending that Putin boasted about Thursday. (In fact, it ignited his fight with Medvedev.)

As he has in the past, Putin portrayed himself as not especially keen to have Russia join the WTO, although Moscow has been trying to get in for 17 years and may be just months away from a deal. The rich countries depend on their monopolies, he complained, while dictating to the poorer ones. Recently, he said, Russia has been told by the organization that it must reach an agreement with Georgia, with which it fought a war in 2008.

“Do our partners in Europe and the United States want us in the WTO, or don’t they?” he asked. “Don’t let Georgia be an obstacle.”

But a more serious objection, from Moscow’s point of view, is the fear that under the WTO, the wealthy countries will squeeze Russian firms out of their own market. As Russia plans to move away from its dependence on oil revenue, Putin said, “we want to localize our manufacturing.” By this he meant cutting down on imported goods and creating a domestic production capability. As a consequence, he said, Russia will not agree to “unacceptable conditions” if they are attached to its WTO membership application.

Putin said he believes Russia can weather the financial storm now brewing in the euro zone and continue to post GDP growth. It may require that the government “lend a shoulder” to companies in stress, he said.

Specifically, if the price of oil settles at $80 a barrel next year, the Russian economy would probably expand by a little more than 2 percent, said Elvira Nabiullina, the minister for economic development. At $60, it would shrink by almost as much. In such a case, she said, Russia would still have the financial means to assist its banks in a crunch.

A liquidity crisis may strike sooner than that, said Alexei Ulyukayev, first deputy director of the Bank of Russia — perhaps by November. But he, too, said the government would be able to step in.

Capital flight, meanwhile, continues, along with a steep decline in the stock market, which is dominated by money from abroad. The country lost about $13 billion in capital in September. In times of global stress, international and domestic investors seek to lower their risks, taking money out of countries such as Russia where corruption and capricious policies are so pervasive, said David Bonderman, founding partner of a private equity firm called TPG Capital. And that, he said, is what’s happening now.

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