Russia says economic crisis is past peak, but not yet over

Russian President Dmitry Medvedev said Friday that the world has escaped the worst of the global economic crisis but warned that Russia could face a second crisis if it fails to break free of its dependence on oil exports.
Speaking at a packed investment forum in St. Petersburg, Medvedev sought to reassure investors worried about the country's sharp slide into recession.
He said it was too early "to crack open the champagne" but that "nonetheless, I believe we have avoided the worst-case scenario." Finance Minister Alexei Kudrin gave a bleaker assessment, warning of further deterioration in the economic situation.
He said the rising number of unpaid loans would trigger a second wave of the crisis in Russia.
But he shrugged off more systemic problems, saying the crisis would be contained through further recapitalization of banks.
Meanwhile, Medvedev said there would be an inevitable increase in state involvement in some sectors of the economy that have been particularly hurt by the global economy, but promised it would be short-lived.
In recent years, the Russian government has moved to reassert control over areas of the economy deemed most strategic, most notably the energy sector.
Since the crisis began last year, however, the government has bailed out some major conglomerates that were highly leveraged, accepting shares as collateral in exchange for loans. Several mid-sized banks were also rescued by the government last year.
Those moves have worried investors who fear the government ownership will lead to inefficiency and corruption.
"State ownership in most of the sectors of the economy should be viewed as an inevitable but a short-term solution," Medvedev said.
Russia's worst economic downturn in a decade has been driven by tumbling oil prices, a weakening ruble and a flight of capital to safer havens.
Gross domestic product contracted by 9.5 percent in the first quarter after nearly a decade of robust economic growth.
Medvedev conceded the government failed to do enough to diversify the economy away from oil when times were good, and said it was necessary to ramp up efforts to reduce Russia's reliance on energy exports if it is to avoid a more serious crisis in the future.
But investors warned that Russia will find that harder to do when crude prices remain high.
"The more we will suffer from low oil and gas prices, the better we will move toward diversification of the economy," said Andrei Sharonov, managing director of Troika Dialog investment bank.
This "pain" is vital if Russia is "to switch to another kind of wealth," he said.
Oil executives said Friday that if there is not an increase in investment in the oil sector, prices could soar again.
Igor Sechin, Russian deputy prime minister, said oil prices could rise to $150 a barrel within two years in the absence of significant investment in the energy sector.
Nearly 30 percent of the audience polled at the forum said a fair price for oil was between $70 and $80 a barrel.
Medvedev's comments were a departure from previous government statements that the United States, where the sub-prime mortgage collapse sent shock waves through the global financial sector, is primarily at fault for bringing the Russian economy to its knees.
The tone appeared softer toward Washington than at the same forum last year, when Russia still appeared relatively untouched by the global crisis.
The president reiterated Russia's interest in seeing the ruble emerge as a reserve currency regionally and the emergence of Moscow as an international financial center - topics on which the president has touched repeatedly.
Chris Gibson-Smith, chairman of the London Stock Exchange, said Medvedev's speech demonstrated "a gentle assertion of Russia's potentially new position in the new world order."
But those ambitions seemed less attainable after a gradual but deep devaluation of the ruble early this year - the currency is strongly linked to oil prices - and the collapse of Russia's financial markets last autumn.
Ahead of the speech, analysts said they were looking for more concrete commitments by the government to wide-ranging reform even as a rising oil price gives the Kremlin a bit of breathing space.
Russia's stock markets experienced an impressive recovery this year after slumping by some 70 percent in 2008.
But volumes still remain thin compared to last year. The ruble has also recovered much of its losses, prompting some analysts to suggest that the currency is becoming too strong at a time the economy is still under considerable pressure.
"In Russia, we can see tremendous progress ... but that's just half of the truth," said Troika's Sharonov.