Russia entering "full-fledged economic crisis", says ex-minister Kudrin

Russia entering "full-fledged economic crisis", says ex-minister Kudrin
Russia's former Finance Minister Alexei Kudrin attends the Reuters Russia Investment Summit in Moscow in this September 22, 2014 file photo.

MOSCOW - Russia's government has pushed the country into an economic crisis by not tackling its financial problems fast enough, former finance minister Alexei Kudrin said on Monday, warning the full effects would be felt next year.

Kudrin - a darling of investors who is credited with building Russia's $170 billion worth of sovereign wealth funds - added that sanctions over Ukraine, not falling oil prices, were primarily behind the collapse of the rouble and warned that Russia risked seeing its debt downgraded to junk status in 2015.

"Today, I can say that we have entered or are entering a real, full-fledged economic crisis. Next year we will feel it clearly," the former minister told a news conference. "The government has not been quick enough to address the situation ... I am yet to hear ... its clear assessment of the current situation." Kudrin, one of few to criticise President Vladimir Putin, quit in 2011 in protest at proposals to increase defence spending.

He has since criticised Putin's response to Western sanctions imposed following Russia's annexation of Ukraine's Crimea region and its subsequent support for loyalist fighters. But the two men are still believed to be close.

Russia has been hit by what Economy Minister Alexei Ulyukayev called a "perfect storm" of plummeting oil prices, sanctions and a flight of investors' capital, made worse by a lack of structural reforms that means the economy is overwhelmingly dependent on oil revenues..

Government officials have tried to minimise the impact of sanctions on the country and its rouble currency - which plunged last week despite a hike in interest rates to 17 per cent. Putin has claimed "external factors" like oil were the key culprit behind the country's "tough times".

But on Monday Russia announced plans to impose a heavy tax on grain exports since rouble volatility and high global prices have caused exports to spike. Russian news agencies reported Prime Minister Dmitry Medvedev told a meeting with officials that the country needed to hang on to its stocks.

And though the country's top oil firm Rosneft said it had made a $7 billion debt repayment from its own cash reserves, easing some investors' worries, Russia's central bank said it would have to bail out mid-sized Trust Bank with 30 billion roubles (US$544.54 million) to stop it going bankrupt.

DEFAULTS

Kudrin said falling crude prices only partly accounted for the plunge in the rouble - which has fallen particularly steeply since autumn as concerns increased that the sanctions would prevent Russian companies from meeting debt obligations because they cannot access Western capital.

Kudrin forecast a series of defaults among medium and large enterprises, - though banks were more likely to be supported by the state - which is likely to result in rating agencies downgrading Russia's debt to "junk" status.

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