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Putin promises more social spending, focuses on infrastructure projects

President Vladimir Putin promised billions of dollars to spur on the ambitious social and infrastructure projects undertaken during his tenure, saying that Russia has fully recovered from its precipitous economic fall following the Soviet collapse.

A top Kremlin economic adviser said the new projects could ultimately cost nearly US$25 billion (EUR18 billion) over several years.

In his state-of-the-nation speech on Thursday, the Russian leader said more money had to be put into improving the lives of Russia's citizens, many of whom have been left behind during the crash in the 1990s and the recent oil-fueled economic recovery. Many find themselves with insufficient pensions and unable to afford to move out of deteriorating Soviet housing.

Average incomes had doubled since 2000, he said, and claimed that the country became the world's No. 1 oil producer in 2006.

"Now Russia has not only completely overcome the long fall in its production, but has become one of the 10 largest economies of the world," he told lawmakers and top government officials.

In the seven years of Putin's presidency, analysts estimate that Russia has earned US$750 billion (EUR550 billion) from sales of oil and gas, amid record world prices.

Despite pressure from some corners of the Cabinet the Finance Ministry has resisted the temptation to spend that bounty, instead channeling windfall oil profits into a stabilization fund to cushion any possible price drop as well as to avoid spiking inflation.

The country's currency reserves are today the world's third largest and the stabilization fund is at US$108 billion (EUR79 billion) - analysts say Russia is at no risk of a sudden return to the economic ignominy of its 1998 default. Many argue that more state revenues should be used to modernize the economy - large parts of which are still dilapidated or antiquated.

In Thursday's speech, Putin pledged a 250-billion ruble (US$10-billion; EUR7.5-billion) fund to repair housing and resettle residents, saying it was "inadmissible for a country with such reserves accumulated from its oil and gas revenues" to let millions live in "slums."

To large applause, he suggested that part of the bill could be footed from money raised in the bankruptcy auctions of the OAO Yukos oil company.

The company was brought to its knees in a state-led tax campaign critics said was aimed at silencing its jailed former owner Mikhail Khodorkovsky. For ordinary Russians that might seem just: Khodorkovsky was widely reviled in the 1990s as one of many tycoons who parlayed his close ties to power into vast wealth.

After the speech, Sergei Ivanov, first deputy prime minister and a leading contender to succeed Putin once he steps down next year, backed the idea.

"An enormous amount of money was stolen from the state. Now this money is returning, and that state has decided to spend it on the most destitute," Ivanov said.

Putin said that 100 billion rubles (US$3.9 billion; EUR2.9 billion) should go toward improving Russia's crumbling roads. That could see the country's gross domestic product boosted by 3 percent, he asserted.

Also well-received was Putin's call for a mechanism that would see the government match every 1,000 rubles (US$39, EUR29) put into citizens' private pension plans. Currently, nearly all retirees receive government pensions.

At a news conference later, top presidential economic aide Arkady Dvorkovich said that the US$25 billion needed to meet Putin's commitments would not stoke inflation since it would be spent over several years.

Lawmaker Gennady Seleznyov, a former Communist and former Parliament speaker, warned that Putin's vision was far from the reality and the promises of previous speeches had come to little.

"Economic inequality is growing - growing at a significant pace, from year to year," he said.

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