After the chaotic asset sales of the 1990s under Boris Yeltsin created a class of super-rich oligarchs and a major public backlash, the government had lately preferred to increase rather than reduce its stakes in firms.

But the financial crisis has blown a major hole in the Russian budget, with the deficit predicted to be around 8.0 percent of Gross Domestic Product (GDP) in 2009.

Finance Minister Alexei Kudrin told the Vedomosti financial daily that with the income from privatization, Russia could reduce its use of reserve funds and cut the volume of planned bond issues needed to make up the budget shortfall.

‘In other words, the sum (from privatization) will go to reducing the deficit,’ he said.

But Vedomosti quoted government sources as saying that a new privatization drive would be also aimed as much at improving the image of Russia, which is still criticized by the West for having excessive state control of the economy.

‘It’s clear that for the most part we are not talking about additional budget income — now is not the best economic time for sales — but about image, to show the world the liberalism of the government,’ a source said.

First Deputy Prime Minister Igor Shuvalov, a key ally of Prime Minister Vladimir Putin, told Bloomberg TV in an interview that ‘now is the time that we can return’ to privatization.

He said the government had ‘good assets’ to offer, saying that stakes in 5,500 state-owned enterprises could be up for grabs.

The whirlwind privatizations of the 1990s masterminded by Anatoly Chubais become notorious for selling state assets at knockdown prices to a select group of insiders but also sought to jolt Russia towards a market economy.

‘Shuvalov has finally reached the moment when he can carry out a new privatization manoeuvre,’ another government source told Vedomosti. ‘We will see if Shuvalov becomes another Chubais.’

Russia’s last major asset sale was two-and-a-half years ago, the May 2007 privatization of 22.5 percent of its second largest bank, state-owned VTB, which raised eight billion dollars.

Russia in July 2006 sold 15 percent in state-owned oil giant Rosneft which raised 10.4 billion dollars for state coffers. Shuvalov said a further portion of the government’s stake could be sold off in the new privatization.

‘We understand that discussions on the matter (the sale of a further stake in Rosneft) are at a very preliminary stage,’ analysts at Renaissance Capital said in a note to clients.

‘We do not think that the government will agree to lose control over Rosneft but given the state currently holds 75 percent of the company, privatization of up to 25 percent may be discussed.’

Economists at UBS said the ‘main privatization activity is likely to start no earlier than in the second half of 2010.’

Officials have said the state either directly or indirectly has a 45-50 percent share of the Russian economy compared to a 30 percent average worldwide — a fact that still puts off Western investors.

The government Wednesday approved a draft budget for 2010, Kudrin said, adding that the envisaged budget deficit was only slightly less than in 2009 at 6.8 percent of GDP but then reduced to 4.0 percent in 2011 and 3.0 percent in 2012.

He said the government would take 1.8 trillion rubles (60 billion dollars) from its national reserve fund to cover the budget deficit in 2010 and 413.5 billion rubles (13.8 billion dollars) from the Fund of National Wellbeing.