Putin blocks Russia relaxing budget policy for Crimea -report

Russian President Vladimir Putin has ordered the government not to relax its budget policy in order to finance the newly-annexed territory of Crimea amid fears of a new economic crisis in the country, a report said Thursday.

Russia's government is split between senior figures arguing for a more relaxed policy to release funds for Crimea and fiscal hawks arguing strongly for prudence at a time of slumping growth and the risk of recession.

The Vedomosti business daily, citing a government source, said that a closed door meeting chaired by Putin on Wednesday had decided against changing Russia's fiscal rule which limits the budget deficit at 1 percent of GDP and links annual spending to the medium-term oil price.

It said that the money for huge infrastructure projects in Crimea, which Russia annexed last month from Ukraine in a swoop not recognised by the international community, could now come from the rainy-day National Wellbeing Fund.

It said that those arguing for a relaxing of budget rules were led by First Deputy Prime Minister Igor Shuvalov, who said Crimea would need 200-250 billion rubles ($5.6-7.0 billion) a year.

The idea was opposed by the finance ministry and former finance minister Alexei Kudrin, who despite resigning in 2011 is known to retain Putin's trust and attended the meeting on Wednesday.

"Lyosha (Alexei Kudrin) has constantly been going to Putin and said that the government understands nothing and should not increase spending," a government source told the paper.

Vedomosti said that Putin concluded at the meeting that there was not yet a sufficient basis for changing the budget rule.

Russia is currently grappling with the toughest economic conditions since its 2009 financial crisis, with the country risking recession in the first half of this year and suffering from capital flight as nervous investors move money out.