Putin's economic recovery plan 'smells of desperation'

MOSCOW - Russian President Vladimir Putin's recipe for riding out an economic storm has a whiff of the panic he is trying to quell.

The measures, announced on Thursday in a 70-minute Kremlin speech, ranged from a proposed tax and legal amnesty for those repatriating capital, to a four-year moratorium on tax increases. That is too little, too late, say analysts at banks including VTB Capital and Danske Bank.

Mr Putin is trying to steer an economy battered by a tailspin in oil prices, a plunging currency and sanctions imposed by the US and its allies over the conflict in Ukraine. With the country walled off from foreign funding and sapped by capital outflows, Mr Putin needs to harness the billions stashed away in low-tax offshore jurisdictions in the years following the Soviet break-up in 1991.

The amnesty 'pretty much smells of desperation', Lars Christensen, the chief emerging-markets economist at Danske Bank, said.

It was 'completely unlikely to have any impact'.

The market was not buying it either. The rouble retreated 2.3% to 54.41/$ in Moscow on Thursday. It earlier advanced as much as 2.3% after the central bank reduced the rate it charges lenders for dollars to ease a cash crunch worsened by the sanctions. Russian stocks erased their gains, and wagers for interest-rate increases rose to a six-year high.

To galvanise economic growth and push it above the global average in three to four years, Mr Putin called for a supervisory 'holiday' for small businesses, 'harsh' measures to punish speculators attacking the rouble, and money from the National Wellbeing Fund to be channelled to major banks to finance infrastructure projects. He also urged greater efficiency in government spending and state companies' costs.

'These proposals would have been taken positively in the 'normal' environment, but in the current environment of local economic stagnation and deteriorating global environment, they're not strong enough to overcome the scale of global risks,' Natalia Orlova, chief economist at Alfa Bank, said.

Billionaire Vladimir Evtushenkov's trouble with AFK Sistema is one reason economists may question Mr Putin's bid to lure back capital. Mr Evtushenkov has been under house arrest since September 16 on charges linked to the investment company's purchase of shares in oil producer Bashneft. A Moscow court has ruled in favour of nationalising the billionaire's stake.

Investors are making for the exits. Net capital outflows were set to surge to $125bn this year, more than the $100bn predicted earlier, said the economy ministry. That would be the highest annual total since 2008, when $133.6bn left the country.

Mr Putin, who returned to the Kremlin in 2012 for a third term, has championed the 'de-offshorisation' of the economy, backing efforts to repatriate as much as $1-trillion in capital held by companies and high-ranking officials abroad.

The central bank said on Thursday it had intervened to stem a plunge in the rouble on Monday, the first time since moving to a free float almost a month ago.