Financial crisis hits Russia hard

Russia had convinced itself -- and the outside world -- that its huge oil wealth and vast foreign exchange reserves made it much less vulnerable than others to the global financial crisis.

But after weeks of virtual silence by state media about the effects the crisis has had on Russia, President Dmitry Medvedev has suddenly acknowledged the extent of the damage.

"In all likelihood, the crisis is going to spread. Here we have to face reality," he said.

Top bankers and businessmen say Medvedev's words amounted to an official acknowledgement of what they have sensed in recent weeks -- a sudden, dramatic slowdown of the economy as credit dried up, sales slumped and factories laid off staff.

"We had thought that Russia would be far less badly hurt by the crisis than other major economies," said one leading Russian banker, speaking on condition of anonymity.

"Now it is clear that Russia will be much worse affected by the crisis than other major economies and will be affected for much longer."

The government is still officially predicting growth of 6.7 percent next year but the World Bank this week halved its growth forecast for Russia to 3 percent and many businessmen and bankers say privately growth will be at best zero.

Underlining the fresh sense of urgency felt in the government, Prime Minister Vladimir Putin on Thursday announced a $20-billion package of tax cuts and extra spending to help pensioners, companies and the unemployed. This was on top of $200 billion of financial aid already pledged by the Kremlin.

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