President Vladimir Putin has warned Russians of hard times ahead and urged self-reliance, in his annual state-of-the nation address to parliament.
Russia has been hit hard by falling oil prices and by Western sanctions imposed in response to its interventions in the crisis in neighbouring Ukraine.
The rouble, once a symbol of stability under Mr Putin, suffered its biggest one-day decline since 1998 on Monday.
The government has warned that Russia will fall into recession next year.
Speaking to both chambers in the Kremlin, Mr Putin also accused Western governments of seeking to raise a new “iron curtain” around Russia.
He expressed no regrets for annexing Ukraine’s Crimea peninsula, saying the territory had a “sacred meaning” for Russia.
He insisted the “tragedy” in Ukraine’s south-east had proved that Russian policy had been right but said Russia would respect its neighbour as a brotherly country.
Speaking in Basel in Switzerland later, US Secretary of State John Kerry said the West did not seek confrontation with Russia.
“No-one gains from this confrontation… It is not our design or desire that we see a Russia isolated through its own actions,” Mr Kerry said.
Russia could rebuild trust, he said, by withdrawing support for separatists in eastern Ukraine.
Analysis: BBC’s Sarah Rainsford in Moscow
The final draft of Vladimir Putin’s annual speech is written by the president himself. It is his view of the state of the Russian nation and outlines his priorities for the year ahead.
So it’s telling that Mr Putin chose to stress his unwavering hard line on the crisis in Ukraine: what happened in Kiev was an “illegal coup” and Crimea, which Russia annexed, is like “holy land” for Russia and will always be treated that way.
Vladimir Putin again accused the West of meddling in Russia’s internal affairs and using sanctions to “contain” the country as it grew stronger and more independent. His response was a rallying-cry to Russians to pull together for the good of their country.
That included a remarkable call for a one-off amnesty on the return of Russian capital stashed offshore. But people here are starting to feel the economic consequences of their president’s defiance, through sanctions. For those who are worried, this speech probably offered little reassurance.
Mr Putin’s speech came amid continued volatility in the value of the rouble.
The currency slid almost 9% against the dollar on Monday, before rallying after a suspected central bank intervention.
But on Thursday it weakened again as Mr Putin’s speech failed to impress investors. At 14:30 GMT it was 1.6% lower on the day against the dollar.
“Not seeing any new big ideas in this speech which are going to help the Russian economy, or ease market pressure on Russian assets,” Standard Bank analyst Tim Ash said in a note. “This is old school, Cold War stuff.”
Over the past year, the rouble has lost around 40% of its value against the dollar and inflation is expected to reach 10% early next year.
Russians are believed to have taken more than $100bn (£64bn; €81bn) out of the country this year and Mr Putin promised an amnesty for anyone choosing to bring their money back.
He said that they would face no questions over how they had earned it.
Other economic measures Mr Putin outlined included:
- A four-year freeze on tax rates to help businesses
- A drive by the central bank and government to combat “speculators”
- Lending by the National Welfare Fund on favourable terms to major banks.
Falling oil prices have affected Russia because of the country’s reliance on energy exports. Russia’s estimate of the cost of sanctions and falling oil prices is $140bn a year.
Mr Putin foresaw budget cuts of at least 5% over the next three years but hoped to see a return to above-average economic growth within “three to four years”.
Stressing that Russia remained “open for the world”, Mr Putin suggested Western sanctions should be seen as a stimulus.
“We have a huge internal market and resources… capable, intelligent people,” he said. “Our people have demonstrated national strength, patriotism – and the difficulties we are facing create new opportunities”.
Condemning the “pure cynicism” of the West, he suggested that even if Crimea had not been annexed, the West would have come up with a different pretext to impose sanctions to contain Russia’s resurgence.
Russia, he said, would not enter an “expensive arms race” but would provide its own security.
Mr Putin said: “There is no doubt they would have loved to see the Yugoslavia scenario of collapse and dismemberment for us – with all the tragic consequences it would have for the peoples of Russia. This has not happened. We did not allow it.”
President Putin remains popular, the BBC’s Steve Rosenberg reports. One opinion poll this week suggested that 72% of Russians still approved of the way he was running the country.
… popular or else– much like North Korea. If you’re friends with a global dictator– you are automatically evil.