Changes in the Russian Cabinet

"Inflation hurts the poor most of all," says Christian Moutier, the former head of the EU funded project on fighting poverty in Russia. "In Russia, poor people are mostly low-paid workers with fixed incomes and large families. While entrepreneurs and highly qualified professionals can find other sources of income, the poor have nothing to substitute for losses caused by inflation."

This puts Putin's main project - decreasing the number of poor people in Russia - at great risk. In a country of 144 million people, the number of poor, which shrank somewhat during the eight years of Putin's presidency, may start growing again, reaching the pre-2000 level of 30 million people.

To address this problem, Putin suggested increasing the level of the minimum wage. Legislation, which will raise the monthly minimum wage from 2,300 rubles to 4,330, is to be introduced this spring.

For the last 18 years, one could have a job in Russia without earning enough money to eat.

"When market reforms were introduced in the early 1990s, it became clear that a lot of people's work was not needed; their jobs were irrelevant," explains Lilya Ovcharova, an expert at the Moscow-based Independent Institute for Social Policy.

"In Poland or the Czech Republic, people were just laid off. In Russia, the solution was to leave them at their workplaces without increasing their wages amid rampant inflation. The amount of minimum wage was made so low that one could in fact stop paying an unneeded worker without firing him or her," adds Ovcharova.

As a result, Russia created a whole class of "new working poor," which made up the bulk of the nation's approximately 30 million poor people.

"Most of the people coming to us asking for help are not unemployed or pensioners, they are poorly paid working women with kids," explains Irina Kosheleva, Chairman of the Committee on Social Protection in Tula, a city of approximately 500,000 people located to the south of Moscow. "Some of them are professionals who just do not want to leave their jobs. They would rather work for close to nothing than remain idle."

Since 1991, every Russian prime minister has spoken about the need to increase the minimum wage, bringing it in line with the "survival minimum." But every government postponed this noble move until better times, for fear of fueling inflation.

"The poor have a tendency to spend the new income on the spot, without saving or investing," the EU's Christian Moutier said. "This usually fuels inflation."

Putin will have to find a balance, raising the minimum wage and discouraging inflation at the same time. In his speech before the State Duma, he promised to keep inflation in single digits next year, down from this year's 11.9 percent.

Experts eagerly await the results of this plan: as head of the government, Putin will no longer be able to "pass the buck" to his subordinates. -

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