Russia is steering clear of extreme measures for now in response to economic turbulence, President Vladimir Putin said, trying to deliver a message of reassurance after a steep depreciation underscored his country’s vulnerability to financial shocks from the war in Ukraine.
(Bloomberg) — Russia is steering clear of extreme measures for now in response to economic turbulence, President Vladimir Putin said, trying to deliver a message of reassurance after a steep depreciation underscored his country’s vulnerability to financial shocks from the war in Ukraine.
Speaking at an investment forum on Tuesday ahead of his summit with North Korean leader Kim Jong Un, Putin said Russia can cope without resorting to tighter capital controls or seizing private assets. As Putin spoke, the ruble pared an advance against the dollar but is still on track for its third straight day of gains.
Why Putin Is Worried About Russia’s Volatile Ruble: QuickTake
Despite a brief crash in the ruble last month and volatility that followed, the currency’s swings are “manageable,” Putin said at the keynote session of the annual economic forum in the Pacific Russian port city of Vladivostok. At the same time, exporters have been “restrained” in bringing back their revenues from abroad, he said, putting a squeeze on the supply of foreign exchange.
When asked if the state could wrest control of private assets, Putin ruled out “de-privatization,” while cautioning that prosecutors are “actively working in certain areas, with certain companies” in what he said doesn’t amount to nationalization.
Russia has seized local operations of several international holdings this year, including France’s Danone SA and Denmark’s Carlsberg A/S. Russian prosecutors last month also targeted billionaire Andrey Melnichenko, one of Russia’s richest men, with a lawsuit linked to the sale of an energy asset five years ago.
The economy’s resilience to international sanctions over the invasion is masking a build-up of pressures stemming from record labor shortages, deterioration in trade and volatility in the exchange rate.
The Kremlin’s drive to expand military recruitment has meanwhile been threatening to get in the way of the economic turnaround by thinning the workforce.
Speaking on Tuesday, Putin didn’t directly say if another call-up is possible but praised those he called “real men” that are volunteering to join the fight. Russia has enlisted an extra 270,000 people over the past six to seven months, he said, in addition to the 300,000 mobilized earlier.
“People consciously enroll in military service in today’s conditions, realizing that they will ultimately end up at the front,” he said. The arrival of Western weapons such as F-16 fighter jets in Ukraine would only prolong the conflict without changing the balance on the battlefield, he said.
Despite Russia’s growing reliance on trade with Asia, the event in Vladivostok has come to reflect Russia’s isolation, featuring the vice president of Laos as the most prominent guest to appear this year during a plenary session with Putin. Chinese Vice Premier Zhang Guoqing is also attending the forum and met Putin on Tuesday.
Putin said Russia’s cooperation with China has reached “unprecedentedly high levels” and expects bilateral trade to total $200 billion this year.
A shift toward settling trade in currencies other than the dollar and the euro has also cut into the flow of hard currency into Russia just as the value of revenues from energy exports slumped during a recovery in imports.
Russia has been split on the issue of capital controls but is under less pressure to resort to curbs on the movement of money as the ruble shows signs of stabilizing after what’s been the third-biggest depreciation in emerging markets this year.
“We need to somehow come to an agreement with business — they have understand and proceed from the fact that it is safer to work here,” Putin said. “Nothing drastic needs to be done.”
Putin’s conciliatory tone on the economy extended to other issues, as he pledged not to raise taxes on business and said those who fled Russia are welcome back and should fear no punishment.
Addressing the anti-war comments made by businessmen like Yandex founder Arkady Volozh, Putin said the condemnations were little more than an attempt to safeguard their assets abroad. Putin called Volozh, who recently denounced Russia’s invasion as barbaric, a “gifted” entrepreneur and wished him good health.
Drawing the Line
At the same time, Putin made clear his courting of business has limits, warning agencies such as the prosecutor’s office and the top investigative body “will continue to closely monitor what is happening, including in the economic sphere, to ensure everyone’s abiding by Russian laws.”
“No one will be harassed, but everyone must comply with the laws of Russia,” he said.
Putin previously demanded steps to control the outflow of capital from Russia and to reduce volatility in financial markets, warning of the threat from rising prices following the slump in the ruble.
When the ruble came under intense selling pressure in August, the central bank announced it would refrain from foreign-currency purchases for the rest of this year and then sharply raised interest rates at an emergency meeting.
Putin said the central bank “was forced” to enact the steep rate hike in the face of risks to inflation. “I think it did the right thing, in a timely manner,” he said.
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