By Stephen Adler and Timothy Heritage
MOSCOW (Reuters) - Russia must boost the flow of credit to businesses to promote an investment-led recovery but will not throw fiscal caution to the wind to overcome the drag on the economy from weak exports, Prime Minister Dmitry Medvedev said.
In an interview with Reuters, the former president said he saw no contradiction between fiscal consolidation and economic development, and said the government would press on with privatization at the right price.
The priority, he said, was boosting growth which he said was too low at an expected level of less than 2 percent this year after averaging around 7 percent for much of the decade before the global crisis of 2008-09.
"What are we planning to do? A series of measures of course, but there is no magic formula to boost growth. In any case, if there is, we do not know what it is," Medvedev said in an interview late on Thursday.
"Our Chinese partners probably know it, but we don't," he added, reflecting on China's stronger economic growth of the last several years.
Medvedev, 48, said a vital first step to steer the $2 trillion economy away from recession was to ensure affordable credit flows into the economy.
This position sits uneasily with that of new central bank chief Elvira Nabiullina, who has said that cheaper credit might not help the economy and could be counter-productive.
The central bank has held its main interest rate of 5.5 percent steady for more than a year despite pressure to reduce it but the costs of borrowing, even for large companies, is usually around 9 or 10 percent.
Russia's government has approved steps to make credit more accessible, easing regulations on securitization to make loans available to small business, and improving financing for the small business lending programs of state development bank VEB.
"A series of decisions have been taken and I hope that in the near future they will be implemented to improve credit conditions for Russian business," he said.
"It is very important now that Russian companies, Russian business, receive normal credits at a normal rate - that is the first thing that must be done."
The central bank has started medium-term refinancing operations, loans to banks for up to a year at a narrow spread to the central bank rate. This is designed to make it easier for banks to lend money on to support investment projects at more affordable rates.
Medvedev, whose four-year presidency until 2012 was squeezed between his ally Vladimir Putin's second and third terms, underlined that broader reforms were also needed to reduce Russia's heavy dependence on oil and gas exports.
The premier, who often carries an iPad and is a lover of modern gadgets, said he wanted to encourage innovation in Russian industry two decades after the Soviet Union broke up.
"This is a very ambitious task and at the same time a very difficult one," he said after attending Moscow's annual International Forum on Innovative Development, calling for more investment in innovative projects.
This applied to large and small companies alike in Russia, a country of more than 140 million dominated by vast state enterprises, particularly those developing natural resources.
Other problems dragging down Russia's economy, the world's eighth largest, include a poor investment climate caused by issues such as a weak rule of law, corruption, capital flight and concerns in some Western countries about what they see as attempts by Putin to stifle the opposition.
Investors are also worried by a lack of credibility on inflation - forecast by the government to be 6 percent this year - which means cheaper credit alone may not be sufficient to get the economy moving.
Medvedev made clear that Russia would not, however, follow the example of many Western countries by trying to boost the economy through an injection of cash, or fiscal stimulus.
"I think there is no dilemma here: without fiscal consolidation and maintaining the conditions for macroeconomic stability, there is no long-term development," he said.
"You can, of course, fire away for a short time but fully fledged sustainable development is possible only with fiscal consolidation ... a stable financial environment: control of inflation, control of unemployment, control of the size of the domestic and external debt."
He underlined that Russia must live within its means and not allow a large budget deficit, a pledge in line with promises made by the Group of 20 developed and developing countries, which has been led by Russia this year.
SELL AT GOOD PRICE
Medvedev dismissed concerns over the slow pace of the government's much-delayed privatization program, which was supposed to raise $13 billion but will fall far short of that.
"This (privatization) is an important theme for our country, given its (Soviet) past," he said, adding it was needed to bring money into state coffers.
"Therefore we must sell at a good price ... but this does not mean we must wait for five, 10 or 15 years for some fantastic sale conditions. No, we have to choose the optimal moment. So we are continuing this policy."
Medvedev became prime minister in a job swap with his ally Putin in May 2012. There has been speculation that he could eventually be made a scapegoat for Russia's economic problems but did not address this in the interview.
He did, however, see progress in dealing with corruption - long the scourge of Russia's economy and a deterrent for foreign investors and Russian businessmen who showed their concern by sending a net $54.1 billion abroad in 2012. Foreign direct investment in 2012 was just $18.6 billion.
Medvedev said Russia was making progress in reducing bureaucratic barriers to business, citing a World Bank survey this week that praised the country for cutting red tape in matters such as construction permits, registering property and access to electricity.
"I think there is movement (on corruption) but it is probably too soon to talk about some kind of strong, radical successes," he said.
(Writing by Timothy Heritage, editing by Jason Bush and Elizabeth Piper)