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Gref Urges Diversity to Preserve Growth

The country needs to urgently diversify its economy if it wants to maintain current rates of growth, Economic Development and Trade Minister German Gref told top lawmakers Monday.

Diversification is needed to counter the effects of a decline in extraction and exports of oil and gas, coupled with underdeveloped infrastructure and a demographic crisis, Gref said in a report at a meeting with senior State Duma deputies of the ruling United Russia party.

"Without decisive measures, without diversification, the economy's development trajectory will go along a path of inertia, and growth will slow to 5 percent in 2009 and lower after that," Gref said in the report, a copy of which was posted on his ministry's web site later on Monday afternoon.

Last month Gref said the economy, currently worth $770 billion annually, could grow 6.4 percent this year.

Gref told reporters after the meeting that he had secured the party's full support, and said that next year's budget would focus on infrastructure development. Flanked by Duma Speaker Boris Gryzlov, Gref said there was mutual agreement on all key issues.

Gryzlov indicated the party would back projects aimed at diversifying the economy, including special economic zones and a state venture fund.

Next year, the government plans to spend 182.9 billion rubles ($6.8 billion), a 53 percent increase on this year, to maintain and build roads, Gref's report said.

The economy remains highly dependent on natural resources, with hydrocarbons accounting for 80 percent of exports, Gref said in his report. But as those exports are expected to account for no more than 1 percent of gross domestic product over the medium term, the economy is in dire need of diversification, he said.

Last year, exports of machines and equipment stood at just 5.6 percent. Investments have so far been directed toward natural resources and pipeline infrastructure. By contrast, only 3 percent of all investment goes into machine-building industries, Gref said. However, the inflow of funds and the appreciating ruble are not hurting the country's processing industries, he said.

Spending on research and development by Russian state and private companies currently accounts for 1.17 percent of GDP, while that figure is 1.31 percent in China, 2.6 percent in the United States and nearly 4 percent in Sweden, Gref said.

Later Monday, Gref told President Vladimir Putin in a meeting that foreign direct investment reached $14.1 billion in the first half of the year ?€” more than for the whole of 2005, Interfax reported.

? Gref told reporters that the government had "every chance" of keeping inflation to 9 percent this year. Inflation in 2005 was 10.9 percent.

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