Moscow fights job losses with $1bn aid plan

Published: March 31 2009 03:22 | Last updated: March 31 2009 03:22

Vladimir Putin announced more than $1bn in state support for Russia’s embattled car industry on Monday in an effort to stave off job losses and prevent social unrest.

Unemployment in Russia has shot up since the global financial crisis caught up with the country last August. On Monday, the World Bank forecast a jobless rate for the country in 2009 of 12 per cent – up from 8.5 per cent in February.
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Faced with mounting discontent in industrial towns across Russia, the Kremlin has been doing its best to convince business leaders not to make people redundant while, at the same time, being selective about the industries it bails out.

Mr Putin made the announcement of state aid in the city of Togliatti, home to Avtovaz, Russia’s largest carmaker. The prime minister heaped praise on the company for its restraint in regard to laying off workers.

“Unlike some other companies, Avtovaz has not fired workers en masse and that is an expensive feat,” he said, adding an unfavourable comparison with General Motors, the US car group, which, he said, had laid off 34,000 people.

Mr Putin ordered disbursement of Rbs25bn ($737m) in state funds to Avtovaz and asked state banks to lend another Rbs8bn, Reuters reported. He announced Rbs13.6bn in state loan guarantees to other carmakers. Avtovaz is 25 per cent owned by France’s Renault. Avtovaz shares rose 28 per cent on news of the bail-out.

The state aid comes as the World Bank issued a dire forecast of the crisis in Russia, saying it would be far worse than official government predictions. The bank said Russia’s gross domestic product would contract by 4.5 per cent this year, compared with the official forecast of a 2.2 per cent fall.

The bank said the state would need to increase social spending to help vulnerable people. It urged the government to spend up to 1 per cent of GDP to save 4m people from poverty and stave off social unrest.

“The social situation has worsened so rapidly and so unexpectedly that it is important to shift the focus of the anti-crisis policy to the population,” said Zeljko Bogetic, the bank’s chief economist on Russia.