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. Last Updated: 07/27/2016

Cabinet Looks to Boost GDP

Top Cabinet ministers said Friday that the government must press forward with politically explosive moves like privatization of monopolies and cuts in social spending to fulfill the Kremlin's ambitious economic targets.

President Vladimir Putin slammed his Cabinet last week for failing to devise plans to close the gap between Russia and more developed states.

His senior economic lieutenants told a Cabinet meeting that the benefits derived from high world energy prices and the ruble devaluation that followed Russia's 1998 financial collapse already had been exhausted. Only an increase in consumer expenditure, they said, could produce fresh growth.

Finance Minister Alexei Kudrin said reforms to cut the tax burden for households and companies had dramatically improved tax collection rates and revenues. But further reform was needed now as were deep spending cuts.

"Further cuts in the tax burden should take place simultaneously with cutting government spending as compared to GDP. We must make the choice," Kudrin told the meeting.

"We must provide for gross domestic product growth, we must provide for spending, but there will be no rises in spending by 22 percent like last year. It will not be easy for us to pass through this stage of reforms," he said.

Kudrin was clearly aware that change came at a social price.

"It is clear that the issue is about the extent to which they [reforms] are politically acceptable and supported by society," Interfax quoted him as saying.

Prime Minister Mikhail Kasyanov agreed that economic targets should be revised in line with Putin's appeals. But neither he nor government officials offered any details.

"Targets for 2004 and 2005 may be raised," he told reporters. "I hope new calculations will be made taking into account new laws that will be passed this year."

According to the government's medium-term plan, GDP is to grow 3.5 percent to 4.5 percent annually until 2005 depending on the price of oil, the country's main export.

Putin's predecessor, Boris Yeltsin, made several attempts to cut social spending during eight years in office, but outbreaks of social unrest prompted ministers to shelve the measures.

In the two years since his election, Putin has several times increased the meager wages of public employees and the military, and has pushed up average monthly pensions to the equivalent of $50.

But his government is facing growing discontent. Television showed thousands of protesters in southern Russia on Thursday denouncing the removal of housing subsidies. The Communist Party has vowed mass protests in the coming weeks.

Russia posted record GDP growth of 9 percent in 2000, but that figure slowed last year to 5 percent. Growth stopped altogether between October and January and only started to pick up in the last two months.

The government has started long-term restructuring of two major monopolies, national power grid Unified Energy Systems and the railways. But it has yet to start drafting a plan to restructure Gazprom, the world's biggest natural gas producer.

Kremlin economic aide Andrei Illarionov, who says Russia should post 8 percent annual growth, said there was no alternative to further cuts in bureaucracy and the elimination of the economy's nonmarket sector.

The government is revising its economic growth forecast upward, Economic Development and Trade Minister German Gref told the Cabinet, Agence France Presse reported.

"We have reacted positively to the president's criticisms, and we think we have the necessary reserves to realize the changes," Gref said, adding that it is possible "to adopt a more radical approach to speed up socio-economic reforms."