Putin Modernisation Splurge Has Soviet Flavour

Russian President Vladimir Putin announced hundreds of billions of dollars in spending plans.

Launching a modernisation drive that invited comparison with the heyday of Soviet central planning.

Putin, addressing lawmakers for the last time before voters elect his successor next March, promised a "second, large-scale electrification of the country". The first was launched by Soviet revolutionary Vladimir Lenin in 1920.

"By 2020 we must boost power generation in Russia by two thirds," Putin said to applause in the Kremlin's Marble Hall. "To achieve that the state and private-sector firms will invest 12 trillion roubles ($467 billion)."

Russia will build 26 nuclear power plants over the next 12 years. Hydro-power, roads, rail, ports and airports will all get money, as will a new system of canals to link the Volga and Don rivers, thus facilitating exports from Caspian Sea states.

Canal building was a particula obsession of Josef Stalin and claimed the lives of thousands of forced labourers, but this time around Putin said he wanted business to do the work, with state cash serving as a "catalyst".

And, in a nod to Nikita Khrushchev's 1950s drive to build the apartment blocks that still dot Russian cities, Putin vowed to speed housing construction to 100-130 million sq. metres per year from the 80 million now planned.

"It would be great to build no less than one square metre of housing for each citizen of Russia," Putin said. The population of Russia, the world's largest country by area, is 142 million.

Ambitious talk, although some of the plans were not new, said analysts. "A lot of emphasis was placed on progress in rebuilding Russia as a great power," said Tim Ash, emerging markets economist at Bear Stearns.

START-UP COSTS

Extra costs to this year's budget will be 650 billion roubles ($25 billion), with most of that channelled towards capitalising development institutions, Putin's economic adviser Arkady Dvorkovich said.

Of that, 300 billion roubles ($11.7 billion) will be drawn down from Russia's $108 billion rainy-day oil fund.

Putin also pledged to spend oil money on encouraging retirement saving, saying the state would make top-up payments to match every 1,000 roubles Russians contribute voluntarily to the national pension scheme.

Dvorkovich said that only around 40 billion roubles ($1.56 billion) of the extra budget cash would actually be spent immediately, meaning there would be no inflationary impact.

But Finance Minister Alexei Kudrin, the government's leading fiscal hawk, sounded a warning. He told a cabinet meeting that excessive growth in the money supply already threatened Russia's bid to curb inflation to 8 percent this year.

"I wouldn't say there is a guarantee we will meet the inflation target," Kudrin told ministers. "The problem of money supply and its sterilisation remains serious."

Data released earlier on Thursday by the central bank showed that the M2 money supply grew by 52.7 percent in the 12 months to April 1. Sergei Ignatyev, the head of the central bank, forecast that M2 growth would fall to 32-34 percent by year end.