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20 Nov, 2008 15:26

Time for Russia to diversify

Russia needs to come out of the financial crisis stronger – using its own resources. That's according to Prime Minister Vladimir Putin – addressing the 10th congress of the United Russia party on Thursday. He's repeated the message

Putin promised support for sectors such as construction, agriculture, and machine building.  The Russian government is set to cut corporate profit tax starting next year to help companies get through the crisis according to Finance Minister Aleksey Kudrin.

“From the 1st of January we are ready to cut corporate profit tax by 4 per cent. If, as in normal years, economic growth was 6 to 7 per cent, as we had anticipated, that would have represented a cut of 500 Billion Roubles. Now we think it will be lower – about 400 Billion, which the companies really will recoup and be able to use.”

Evgeny Gavrilenkov, Chief Economist, at Troika Dialog says the falling price of oil is a powerful incentive for the government.

“I don't think that all those measures and regulations will be efficient until we fix the macro environment because high inflation means higher borrowing costs for the companies that can do this sort of diversification and investment on their own. So bringing inflation down is what the government has to do to help the economy diversity itself.”

While the State continues to promote diversification of the economy, it's likely to be an uphill struggle in the near future, given the shortage of capital for investment and the collapse of demand in export markets.