Russia may change budget rules to cope with Crimea -deputy PM

by Reuters
Thursday, 10 April 2014 10:41 GMT

(Combines stories, adds quotes, background)

BERLIN, April 10 (Reuters) - Russia may change its budget rules to reflect the addition of Crimea and its population of about 2 million people, First Deputy Prime Minister Igor Shuvalov was quoted as saying on Thursday.

Shuvalov told German daily Die Welt that Crimea - the Ukrainian Black Sea territory annexed by Moscow last month - needed investment in infrastructure that could not be covered by existing funds.

Boosting the economy in Crimea is important to President Vladimir Putin's hopes of keeping the support of the local population.

"When a country gets 2 million new people ... which need big investments, this cannot be done by just diverting funds from existing state programmes," he was quoted as saying, adding that the roads and ports required "serious investments".

Russian budget rules limit government borrowing to no more than 1 percent of output and link spending to the long-term oil price.

"I think it's right for this rule to be changed for two million new Russian citizens in Crimea," Shuvalov told Die Welt.

"State debt is very low in Russia, among the lowest in Europe. I think under such conditions, we can raise it a little."

Russia has already approved an initial financial aid package to help Crimea's economy as it consolidates control of the region, which it said would be financed from the budget reserve.

The ultimate cost of its action in Crimea, which sparked the biggest crisis in East-West relations since the Cold War, is likely to be far higher, however, with forecasts for Russian economic growth having been slashed by analysts.

At a business conference in Berlin, Shuvalov said Russia is a reliable energy supplier to western countries but that it has other potential partners if they turn elsewhere for oil and gas in response to the Ukraine crisis.

Delivering a defiant message at a business event in Berlin, Shuvalov said that imposing sanctions on Russia would not change Putin's behaviour and that a ratcheting up of sanctions would only unite Russian society.

"The stricter the sanctions become, the more robustly Russian society will act," Shuvalov told a conference in Berlin.

Russia and the West are in a stand-off over Ukraine that is reminiscent of the Cold War. In the last few days, tensions have risen in the mainly Russian-speaking eastern part of Ukraine.

The United States and EU have imposed targeted visa bans and asset freezes against Russian and Ukrainian individuals in response to the annexation of Crimea. They have said they are willing, if necessary, to put into effect a further round of sanctions aimed at key sectors of the Russian economy such as energy, banking and mining.

As a result of the chill in relations, Europe is looking at ways to reduce its dependence on Russian oil and gas.

Germany is Europe's biggest gas user and Russia's most important customer, using over 80 bcm of gas a year and meeting around a third of its demand through imports from Gazprom , a share that has risen over the past 20 years.

"If they want to minimize their dependence, they will become dependent on others," said Shuvalov. He stressed that Russia had in the last few decades always delivered oil and gas on time. It was therefore impossible to accuse Russia of being unreliable.

"In my eyes, that is wrong, stupid and not true," he said. (Reporting by Madeline Chambers, Stephen Brown; Editing by Noah Barkin and Catherine Evans)

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