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Traditional mechanisms of economic stimulation running dry — Putin

Ever greater stratification in society is observed, the Russian president noted

MOSCOW, January 27. /TASS/. Traditional mechanisms of economic stimulation through lending buildup have reached their limits and led to ever greater stratification in society, Russian President Vladimir Putin said in his online speech at the Davos Agenda Week.

"The post-crisis recovery [of the economy] is challenging. While the problem could be solved 20-30 years ago through stimulating macroeconomic policy, <…> to date such mechanisms have actually reached their limits and do not work; their resource has been exhausted," Putin said.

Economic stimulation by traditional methods through greater private lending becomes "essentially impossible, while the quantitative easing only inflates the bubble of the financial assets value and leads to further stratification of the society," the head of state said.

On the outcomes of the previous development phase of the global economy, the greatest portion of revenues went to 1% of the population, while the situation has not improved for others, Putin noted. In particular, revenues of more than a half of citizens stagnated in real terms in certain developed economies over the last 30 years, while the cost of education and healthcare services grew threefold. "That is, millions of people even in rich countries no longer see prospects for increasing their incomes, on top of which they face the problem of how to maintain good health and how to provide high quality education. There has been an ever greater number of people for whom there is no demand," the Russian leader added.

Strengthening global institutions

Global institutions do not always measure up to new challenges, but it doesn’t mean they should be abandoned without proposing anything instead, the president went on.

"We need to strengthen and develop universal institutions that bear special responsibility for maintaining stability and security in the world as well as for producing rules of behavior in the global economy and trade. I have repeatedly noted that many of these organizations are going through a rough patch, we constantly say this at different summits. These institutions were created at a different epoch and it may be difficult for them to respond to current challenges for objective reasons. However, I’d like to underscore that it is not the reason to abandon them without proposing anything instead," he noted.

The president emphasized that these organizations have unique experience of working "with big and largely untapped potential," which should be adapted to modern reality.

According to Putin, it is vital to make use of new and additional formats of cooperation. "I am talking here about the phenomenon of multilateralism. It can be understood differently, either as pushing through one’s interests and instilling a sense of legitimacy into one’s unilateral actions when others have nothing but to just nod in approval or rather as true unification of efforts of sovereign states to address specific problems for greater good," he continued.

Global contradictions growing

The Russian president predicts that global contradictions may grow practically in all spheres. "There are all grounds to think that risks of a further escalation of contradictions exist." According to Vladimir Putin, "such trends may appear practically in all spheres."

"Of course, there are no direct historical parallels but some experts - and I respect their opinion - compare the current situation with the thirties of last century," the Russian president noted. In his opinion, "one may agree with this or not but by many parameters, by the scale and the comprehensive, systemic nature of challenges, of potential threats, certain analogies suggest themselves."

"We see a crisis of old models and instruments of economic development and the intensification of social stratification both globally and in separate countries," the Russian leader said. According to him, "this, in turn, today causes a sharp polarization of views and provokes the rise of populism, of left and right radicalism and other extremes."

"Aggravation and toughening of internal political processes, including in the leading countries, inevitably impacts the nature of international relations, which does not facilitate their stability or predictability. A weakening of international institutions is underway; regional conflicts multiply while the system of global security is also decaying," the Russian president stated.