Kudrin Says Outlays Will Stay as Planned

The country should not slash its oil export duty to zero and will keep on track its 2009 spending plans drafted during years of economic boom, Finance Minister Alexei Kudrin said Saturday.

Kudrin said in an interview with Vesti-24 news channel that the country would run a budget deficit of between 1.5 trillion rubles and 2.5 trillion rubles ($52 billion to $86.5 billion), or up to 6 percent of gross domestic product.

Kudrin said the shortfall would be covered from the $132.6 billion Reserve Fund, which serves as a safety cushion for the budget, and he vowed that public sector workers' salaries as well as pensions would not be affected.

"Even if oil falls to $20 per barrel, we will not cut spending, at least at the federal level," Kudrin said. Russian oil currently trades at around $32 per barrel.

"We will reshuffle our spending plans but will not reduce them. ... Public sector workers, pensioners have nothing to fear," he added. The public sector employs about one-third of the work force.

The government is likely to slash 38 percent from its oil export duty in January, charging $16.2 per barrel, but oil industry leaders say the move is not enough to keep investment programs on track.

"It is too early to talk about it," Kudrin said, adding that a weaker currency would boost oil firms' returns. He said the proposal did not take into account a weakening ruble and new tax breaks for the oil industry.

The collapse of oil and other commodity prices coupled with the global economic slowdown and capital flight from emerging markets have hit the economy, which is now plunging into a recession.

The Economic Development Ministry forecasts 2009 nominal GDP at 42.1 trillion rubles ($1.453 trillion), compared with 42.5 billion in 2008, if the price for oil averages $50 per barrel during the year.

The ruble is down 17 percent against the dollar/euro basket, used by the Central Bank as an exchange rate policy guidance, since its peak in August, and Kudrin said it could weaken further if oil drops below $50 per barrel.

"The exchange rate will fall but not significantly," Kudrin said, ruling out the ruble weakening to 40-50 rubles against the dollar, as some have predicted. "Such number are not being forecast."

The current 2009 budget, passed by Federation Council in November, was calculated based on an oil price of $95 per barrel and projects nominal GDP at 51.5 trillion rubles.

The budget sees spending at 9 trillion rubles and a surplus of 1.9 trillion rubles. Russia plans to review the budget early next year to take into account a fall in prices for exports and the country's anti-crisis package of more than $200 billion.

Several officials earlier indicated the government would rather borrow from international financial organizations but keep on track plans to increase pensions and wages.

Kudrin said the review would not affect large-scale infrastructure projects, such as preparations for 2014 Winter Olympics.

"The Olympics we will be able to pull through," Kudrin said.