MOSCOW – Stung by international criticism of his democratic record and growing uncertainty among investors, President Putin used his annual state of the nation address yesterday to lay down a vision of Russia as “a free and democratic country” where tax officials no longer “terrorize business” and “arrogant” bureaucrats have been brought to heel.

But while it appeared that Mr. Putin had sounded all the right notes, critics noted that his speech was rife with caveats and that it remained to be seen if he turned his words into deeds.

“Some of it sounded good and liberal and progressive…. If you’re totally oblivious to what he has been doing in office, it didn’t sound so bad,” a political analyst with the Carnegie Moscow Center, Masha Lipman, said. “The problem is Putin’s credibility. He’s talked a lot about democracy and the need for change, but of course, the bad record he’s attacking is the result of his own policies.”

The nationally televised address – an annual ritual that sets out priorities for the year to come – was Mr. Putin’s sixth since becoming president and his second since he was overwhelmingly reelected to a second term last year.

He began the 45-minute speech by responding to foreign allegations that the Kremlin has been backtracking on democracy by abolishing elections for regional governors, jailing political opponents, and stifling the press.

“Our main political and ideological task is the development of Russia as a free and democratic country,” Mr. Putin said. “We are a free nation, and our place in the modern world will be defined only by how successful and strong we are.”

Mr. Putin stressed that strengthening democratic institutions, protecting human rights, and ensuring press freedom were essential to Russia’s development.

But at the same time, he described the 1991 collapse of the Soviet Union as “the biggest geopolitical catastrophe” of the 20th century – a sentiment Ms. Lipman said was offensive to victims of the communist regime.

Mr. Putin also said the “special feature” of Russia’s democratic development was that it could not come at the expense of order and stability.

“Russia … will decide for itself the pace, terms, and conditions of moving toward democracy,” he said.

In a clear reference to the street demonstrations that ousted pro-Moscow governments in the former Soviet republics of Ukraine, Georgia, and Kyrgyzstan, Mr. Putin also said that the state would react to “unlawful methods of struggle … with legal, but tough, means.”

Turning to the economy, Mr. Putin pledged to protect businesses from corrupt bureaucrats and overzealous tax inspectors. His promise seemed aimed at countering investor fears two days before a verdict is due in the fraud and tax evasion trial of the head of the Yukos oil firm, Mikhail Khodorkovsky. The prosecution of Mr. Khodorkovsky – which Mr. Putin’s critics say is politically motivated – and the effective renationalization of Yukos under the weight of a $28 billion back-tax bill spooked investors and sent a wave of money out of Russia. Those fears have been stoked in recent months by a new series of investigations launched by tax officials.

Mr. Putin said businesses need clear “rules of the game” rather than “riddles and charades.” He said that instead of chasing companies for years of back taxes, officials should focus on ensuring current tax bills are paid. The period for investigating past privatizations should be shortened from 10 years to three, he added.

“Tax authorities have no right to terrorize business,” he said, before condemning bureaucrats who see themselves as “a caste, closed and arrogant, perceiving state service as just another kind of business.”

A political analyst closely allied with the Kremlin, Gleb Pavlovsky, said the speech was a turning point and signaled a new willingness in Mr. Putin to take on the powerful bureaucracy. Kremlin supporters have long insisted that entrenched bureaucrats have stymied Mr. Putin’s efforts to promote liberal reform.

“Putin has issued a political challenge to the bureaucratic clan,” Mr. Pavlovsky said at a press conference.

Ms. Lipman was skeptical, pointing out that Mr. Putin recently reappointed Russia’s hard-line prosecutor general, Vladimir Ustinov, who led the charge against Yukos.

“One the one hand, he’s talking about officials terrorizing people. On the other, he’s reappointing the man most associated with the unlawful prosecution of Khodorkovsky and Yukos,” she said. “You can see why he has a credibility problem.”