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Will Putin’s reforms restore rouble?

Thursday, December 04, 2014 - 02:28

The Russian rouble strengthened after President Vladimir Putin promised several economic reforms. As Sonia Legg reports, it included an amnesty on capital returning to Russia and a freeze on taxes.

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It wasn't exactly a new dawn - but President Putin was offering new policies. In his state of the union address, he said he had no regrets over Ukraine and accused the west of supporting a "coup" in Kiev. He vowed to keep Russia open for foreign investment but still adopted some aggressive overtones. (SOUNDBITE) (Russian) RUSSIAN PRESIDENT, VLADIMIR PUTIN, SAYING: "We will never pursue the path of self-isolation, xenophobia, suspicion and search of enemies. All this is manifestation of weakness, while we are strong and self-confident." But the rouble isn't strong - partly thanks to the impact of Western sanctions over Ukraine. Russia's central bank has again coughed up reserves to prop it up. And a key gas pipeline to Europe has been scrapped. But Putin insists that doesn't mean Russia and the West need to be enemies. (SOUNDBITE) (Russian) RUSSIAN PRESIDENT, VLADIMIR PUTIN, SAYING: "(OVER WIDE OF PUTIN SPEAKING) Under no circumstances are we going to curb our relations with Europe, with America. At the same time we will reconstruct and widen traditional ties with South America, and continue co-operation with Africa and the Middle East." But it will take time to make new friends. And Russia's economy needs a prop now - particularly its banks, shut out of external funding. To solve that one, Putin's offering cash from one of two "rainy day" funds. VTB bank shares immediately shot up 10%. There were other measures too - a freeze on higher taxes, an easing of regulations for small businesses and an amnesty on capital returning to Russia. (SOUNDBITE) (Russian) RUSSIAN PRESIDENT, VLADIMIR PUTIN, SAYING: "If a person legalises his finances and property in Russia, he will not (CLOSE OF PUTIN) be dragged off by different officials, including law enforcement, he will not be asked about the sources and means of acquiring his capital. He will not face criminal or administrative charges and there will be no questions asked by tax authorities and law enforcement." But none of this resolves the conflict in Ukraine - after a brief revival the rouble was back in negative territory by the end of the speech. Andrei Movchan, from Third Rome Investment Company, says it doesn't have much further to fall (SOUNDBITE) (Russian) MEMBER OF 'THIRD ROME' INVESTMENT COMPANY, ANDREI MOVCHAN, SAYING: "The oil price has reached 70, and even if it decreases another 10 percent, it will not change much." But there is another worry - inflation may rise due to a lack of imports. And that won't help the overall economy - which the government admits is heading for recession.

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Will Putin’s reforms restore rouble?

Thursday, December 04, 2014 - 02:28