Russia will not print money to cover budget shortfalls: PM

By Darya Korsunskaya and Lidia Kelly

MOSCOW (Reuters) - Russia will not start printing money to support economic growth and will not allow populism to dictate the budget, Prime Minister Dmitry Medvedev wrote in an article published on Thursday.

In the government's first economic policy pointers since Sunday's parliamentary vote strengthened President Vladimir Putin's grip on power, Medvedev promised to keep a tight budget, but one addressing security and social needs.

"We cannot allow populism ... especially in the budget," Medvedev wrote in the state-run Rossiyskaya Gazeta daily.

An economic advisory group close to the Kremlin has called for the government to increase spending to help the economy out of recession.

Russia, suffering from Western sanctions over its actions in Ukraine and a significant drop in the price of oil, its biggest export, is forecast to see gross domestic product contract 0.5 percent this year.

In the weekend election, the United Russia of Medvedev and Putin won 76 percent of the seats in the Duma, the lower house of parliament, up from just over half in 2011.

"We will not start on a path of turning printing presses on and unbalancing the economy - measures that bring catastrophic consequences," Medvedev wrote.

"If there is no money in the budget, we will not print it to cover the missing revenue. Everyone understands that fiat money is just a production of paper that fuels inflation and devalues people's incomes, salaries and pensions."

Russia's Finance Ministry has proposed that government expenditures in 2017-2019 be frozen at their 2016 level, which would mean cutting spending once inflation is taken into account.

The 2016 budget deficit, initially forecast at 3.0 percent of GDP, is now expected to be around 3.2 percent. The ministry wants to cut it by one percentage point in coming years.

"There are no prospects for expectations that economic development problems can be solved mainly by state funds," Medvedev wrote.

"The government's priorities: security, investment in human capital, help to the most vulnerable segment of the population and infrastructure. The budget structure should reflect that."

He said that despite geopolitical conditions, the country would move toward economic openness. He called "unacceptable" calls from some to bring back a centrally planned economy.

"This rigidity of the Soviet model led to its collapse," he said.

(Additional reporting by Katya Golubkova and Maksim Radionov; Writing by Lidia Kelly; Editing by Andrew Roche)

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