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Putin's campaign promises pose economic challenges

By Nataliya Vasilyeva

Associated Press

Published: Sunday, March 18 2012 9:20 a.m. MDT

Russian Prime Minister Vladimir Putin speaks during a cabinet meeting in Moscow, Russia, on Thursday, March 15, 2012. A Russian court has sentenced an opposition leader to a 10-day jail term for disobeying police during an anti-Kremlin rally earlier this month. Sergei Udaltsov, 35, played a key role in organizing a series of opposition protests in Moscow that drew tens of thousands to protest Vladimir Putin's rule.

RIA Novosti, Yana Lapikova, Government Press Service, Associated Press

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MOSCOW — Vladimir Putin's lavish promises of higher wages and benefits for soldiers, doctors and teachers were a key element in winning a new term in the Kremlin. But the price tag, estimated at $160 billion or more over his six-year term, worries economists.

They say Putin will have to make serious efforts at reform and tackle endemic corruption, or else fulfilling the promises could undermine the economy.

On the other hand, if Putin fails to deliver on his promises, the political risks could be high.

"People are not going to be ready to wait," said Sergei Guriev, rector of the New Economic School in Moscow. "If the discontent of Putin's traditional voters combines with the willingness of the urban middle class to protest, then Putin's presidency may be over well before 2018."

Moscow and St. Petersburg saw the largest street protests in Russia's post-Soviet history this winter, when tens of thousands came out to demand fair elections as well as a bigger say in how their country is governed. This emergence of a vocal middle class puts new pressure on Putin to follow through on promised political reform.

But Putin faces even greater pressure from his traditional supporters, including all those dependent on the state, to fulfill his promises of higher salaries and benefits.

"He's fairly well locked into having to deliver on this," said Chris Weafer, chief strategist at the Troika Dialog investment bank. "Putin is now coming back with a lot more at stake and a more difficult situation than he had in 2000. There's no question about that. There's now a much larger group of people that are waiting for this government to fail."

Putin's most tangible and costly promises were made in a lengthy article published about three weeks ahead of the March 4 election.

He vowed to increase teachers' pay to the equivalent of the average salary for their respective regions by the end of this year. College professors and doctors were told that their salaries would reach double the regional average by 2018, which alone would cost the budget an extra 3.5 trillion rubles ($119 billion) over the next six years. He also promised considerable hikes in monthly benefits to families with more than two children and in stipends for students at state universities.

These extra payments come on top of significant raises given to military and police officers in January, and steadily rising pensions.

The Fitch ratings agency estimated Putin's pledges will cost about $160 billion over six years, while state-owned Sberbank put the figure even higher at 5.1 trillion rubles, or $173 billion.

Shortly after his election Putin insisted that he "had not promised anything that would be impossible to implement." He estimated that the additional social spending would be about 1.5 percent of Russia's gross domestic product and gave assurances that the money could be found by cutting costs and inefficient spending.

Economists disagree.

"Russia needs a different economic model if it's going to achieve the level of growth that's required to sustain stability, both economic and political," Weafer said.

Guriev, a prominent economist, believes the government could run out of cash to cover these expenses unless Russia's economy delivers at least 6 percent growth, which he said is possible only if Putin pursues economic reforms and gets serious about eradicating corruption.

The economy, highly dependent on exports of oil and gas, is expected to grow less than 4 percent in 2012, down from 4.3 percent in 2011.

"With the current structure of the economy, 6 percent is feasible only if oil prices grow 20 percent every year," Guriev said.

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