Regions

Putin freezes prices in state companies to revive economy, may earn ire from allies

November 25
2:13 PM 2013

Russian President Vladimir Putin decided to put a freeze in companies that the state has control in or own starting next year, Bloomberg reported. Companies such as OAO Gazprom and OAO Russian Railways will be affected by the new economic policy, which will be in effect next year. Putin reasoned that the move was meant to create a chain reaction, of which will lead to more stable costs for firms, an increase in efficiency and a tame inflation rate.

The decision was made after a series of national setbacks Russia had experienced. In one August morning, Putin flew over Khabarovsk, which is near the Chinese border, to survey the damage caused by the floods that had wiped out homes of tens of thousands of people. The survey was followed by an economic briefing with senior advisors, of which two officials said the energy-export model that was supposed to revive the economy had not done anything.

Putin's decision will reportedly incite ire from some his closest allies. Officials who were present during the decision-making process said Putin pondered for a while, and then had shrugged off concerns about reactions of his allies regarding his new policy. The officials asked to remain anonymous as the talks on August 29 were not made for the public.

Bloomberg said the price freeze had signaled Putin's move against increasing costs and bloated investment programs in the largest monopolies in Russia. The move, added a senior official who had briefed Putin, will force the said companies to act like businesses, and may result to layoffs, cost-cutting measures and scaling back of businesses in order to become a smaller share in the state economy.

Putin's spokesman Dmitry Peskov said over the phone on November 15, "It was a tough decision for all. Executives always make convincing arguments, but once a decision is made, Putin can't be pressured."

According to projections made by the state's Economy Ministry. the three largest monopolies could stand to lose RUB878 billion or USD27 billion in expected revenue in the next three years.

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