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. Last Updated: 07/27/2016

President Pushes Economic Diversity

ST. PETERSBURG -- President Vladimir Putin criticized what he said was excessive state involvement in the economy Tuesday, and said the country's economic development was unsatisfactory despite a flood of oil export revenues.

Putin also told participants at the St. Petersburg International Economic Forum that Russia needed to do more to diversify its economy into new sectors, such as technology.

"Today the countries that win -- and this is well-known -- are those that guarantee swift progress in the area of high technology," Putin said at the forum's opening ceremonies.

The forum, one of the largest and most influential in the former Soviet Union, brought together hundreds of economic officials and business leaders. Most of the speakers who addressed the opening ceremony Tuesday were officials from former Soviet bloc countries.

Economic Development and Trade Minister German Gref again pointed out that perceptions of Russia's business climate had suffered as a result of the criminal prosecution of billionaire Mikhail Khodorkovsky and the breakup of his Yukos oil empire. Khodorkovsky was sentenced last month to nine years in prison after being convicted of fraud and tax evasion.

"Such a major case as Yukos, of course, has a negative effect in terms of the investment climate," Gref said. "We need to move in the direction of providing economic freedoms, easing the tax burden and deregulation. This is the direction that virtually all participants agreed on."

Putin also warned that the country's growth was being hurt by too much government involvement.

"Excessive state involvement in the economy is hindering business initiative. We know it from our own experience," he said.

But, he said, "the state cannot dissociate itself" from the economy. "There exist certain economic spheres where its presence is quite justified and grounded, for instance, in the system of infrastructure monopolies and the defense industry," he said.

Record high oil prices have buoyed the Russian economy and filled the government's coffers. The new budget calls for spending to increase by some 12 percent.

Putin noted several economic indicators that underscored the strength of certain parts of the economy -- industrial growth rose by 4.2 percent in the first quarter of the year; real income grew by 5.6 percent and unemployment fell.

But he also noted that inflation hit 7.3 percent in the first five months of the year, putting annual inflation on track to rise far beyond the 8.5 percent rate forecast in the government's 2005 budget.

He said the 7.3 percent rate was "impermissibly" high.

The International Monetary Fund has warned that Russia would be hard-pressed to keep inflation under 11 percent.

Central Bank chief Sergei Ignatyev last week said that the higher than normal inflation rate was "worrying," but predicted that it would slow toward the end of the year.

Earlier in the day, Jean Lemierre, president of the European Bank for Reconstruction and Development, also said Russia needed to diversify its economy toward more innovative technologies.

"Russia is moving forward, but must move faster," Lemierre told participants.

"What do we need to do to secure a new level of development based on innovation?" he asked, speaking through a translator.

"You need long-term vision. You need to see into the future."