:: Russia - Prime Minister Vladimir Putin spoke at the 8th International Investment Forum in Sochi

I am happy to welcome all of the international investment forum participants here in Sochi.

We met here last September, shortly before the global financial and economic crisis broke out - just before the lightning struck, if you will. Alarming signs continued to grow in the global economy. Finally we experienced a dramatic and unprecedented global meltdown.
Separate problems facing different nations grew into global financial turmoil right before our eyes, emerging as a full fledged financial and economic downturn. Many analysts now say that the world has never seen anything like it before, and it is difficult to disagree with them. As we can see, globalisation is not all for the good - there can be an alarming side to it too.

Politicians and business leaders now have a feeling that the downward trends are gradually being reversed. Despite lingering uncertainty, there is increasing reason for such moderate optimism. The leading economies' contraction has slowed or stopped in some cases, while in the euro zone, some larger economies are already showing growth.

This also holds true for Russia, where industrial growth and growth in GDP have resumed after an eight-month recession. Starting in June 2009, the Russian economy has been gaining 0.5% per month on average. As I said, this minor growth began in June and continued through July, August and into September - therefore, it can be called a stable trend at this point.

Even our cautious and probably excessively conservative forecasts suggest that upward trends will continue to prevail in the national economy.

At the same time it would be a serious mistake to believe that the worst is over. It would be even more unwise to just move along relying too much on a fair wind from the global economy.

It is extremely important now to continue working on the systemic issues which generated the crisis. We need to draw important lessons from it.

Russia has thoroughly experienced what happens during a recession when an economy is poorly diversified, with a weak financial system, poorly developed infrastructure, low labour productivity, inefficient use of resources and ineffective corporate governance.

Therefore, along with further implementation of tried and true anti-crisis policies along with a few new methods we have planned, at least new for Russia, although maybe successfully tested by other countries, the Government will begin working on a major exit strategy - a set of policies to modernise the economy and ensure post-crisis development.

So I would like to draw your attention today to one of the key problems, stimulating investment in development.

Russia's economy still has a deficiency of investment. Whole sectors require an overhaul of their infrastructure and technology.

To remain competitive, Russia's industries need to dramatically increase energy efficiency and labour productivity, cut costs and introduce more innovation.

On the other hand, it is obvious that the times of cheap and easy loans are over. We are in for strong competition for development resources. A country which offers investors better terms and conditions and growth prospects will benefit in the end. We in Russia will try to create an investor-friendly environment.

Government investment can and must play an important role as well. Despite falling budget revenues, we continued to finance development projects through 2009. Federal allocations for the transport infrastructure will reach 560 billion roubles this year, including 312 billion for road repairs. Another 500 billion roubles have been spent to stimulate the construction industry and to deal with housing problems.

Our natural monopolies have also continued implementing their investment programmes with a total budget of 2 trillion roubles, also with government support. In some cases we directly channel federal resources into these companies' equity capital.

The Government will certainly continue supporting large investment projects on a national scale. Still, I would like to emphasize that government investment is an important bailout policy, but certainly not the only one available.

It is important to use businesses' own potential and initiative. Many administrative barriers have been removed over the past few months, and redundant supervision and control procedures and functions have been cancelled. We have also tightened anti-monopoly regulation and increased the guarantees for private competition. We will certainly continue pursuing these policies.

We are meeting in Sochi which will host the Winter Olympics in 2014. The construction boom the city is experiencing these days has vividly illustrated how far behind some of our economic sectors were. For example, the majority of standards used in previous construction projects have been used since Soviet times.

Yesterday my colleagues and I were discussing the cost of some of the construction projects. It turns out that they are surprisingly more expensive than similar projects, say, in Western Europe. But we have been doing everything in accordance with the law. So - why? Because our projects are regulated by obsolete norms, standards and rules, and there is no one to blame. We will certainly intensify our work on removing the barriers which still remain and hamper investment projects.

Apart from removing administrative barriers, we have cut taxes significantly. As you must know, Russia has the lowest income tax rate today, 13%, and also the lowest corporate tax rate in both the G8 and BRIC - 20%.

The crisis has also shown that the problem of insufficient investment cannot be resolved without a well-developed domestic financial market.

Therefore, we are planning measures aimed at improving the banking sector's and stock market's operation, including the introduction of flexible but better-protected savings instruments. These policies are important to make the so-called "long money" available in this country.

Next, we are open to foreign investment. Last year we adopted a law regulating the procedure allowing foreign capital to gain control of companies in strategic sectors.

Ladies and gentlemen, that law was adopted largely as a result of consultations with our foreign partners, who said openly that we must tell them clearly where they can work, under what conditions and where they could expect limitations. We have done so.

Apart from these strategic sectors related, for example, to strategic mineral resources, there are no other limitations on foreign participation. There is no ban on operating in the strategic sectors either; we have introduced simple and clear procedures for all investors.

Of special importance to us are the investment projects that stipulate the transfer of modern technology to Russia. In other words, money may be secondary - even though money is important, too - to the knowledge and experience of leading global producers.

In this light I would like to draw tour attention to a number of key sectors where, we believe, investment is crucial.

First, I am thinking in terms of sectors involving the development of the transport and energy infrastructures, telecommunications, and digital television.

Preparations for the Winter Games in Sochi alone give interested investors vast possibilities in all of these areas.

In addition, we have several large and very important projects in other regions, such as the modernisation of Vladivostok for the upcoming APEC summit, preparation of Kazan for the World Student Games, and several other projects.

Next, the Russian Government is drafting a state energy efficiency programme. We have drafted a new Energy Strategy for a period until 2030.

In fact, we would like to develop a fundamentally new energy system that will be more reliable, effective and environmentally friendly.

By the way, it has been said more than once that the crisis should encourage a transition to new technology. In fact, we see this happening in the economy, with and without state assistance. I have seen this during my regular meetings with businessmen. Those who have considered retooling have made the first steps; many are spending on modernisation despite the crisis.

I recently visited the Tula Region and was pleased to see how well some companies are managed there, for example in the chemical sector. I may have forgotten the details, but I remember the general parameters. They have cut thermal energy consumption by 54%, electricity consumption by 37% and gas consumption by 24% and the industrial use of water by 90%.

Of course, it is the crisis that has prompted such saving technologies. The state has always helped, and will continue to help to implement such projects. You want to know how? By providing subsidies on loans, lowering import customs duties on technology, and so on.

Large joint projects in hydrocarbon production and transportation can also be regarded as a means of creating a common European energy space.

Of course, they can be implemented only with respect for each other's interests. Russian companies investing in energy projects abroad should have the same parameters as foreign investors in Russia.

In addition, we hope that the development of new deposits and the creation of new transport corridors will be accompanied by a gradual increase in the purchase of Russian-made industrial equipment, the quality of which should be gradually improved to keep pace with international standards.

We are also trying to promote cooperation with our foreign partners in those areas where Russia has traditionally led. I am referring to space exploration and nuclear power engineering. In particular, we are ready to implement joint projects with other countries.

I would like to use this occasion to mention some positive examples of our cooperation. You know that Canada's Magna and Russia's leading bank Sberbank have bought a controlling stake in Opel. I know that the new shareholders are aware of their social responsibilities and are prepared to contribute to preserving one of Europe's largest automakers, thereby giving a positive example of mutually beneficial cooperation in this important sector.

It should also be said that leading auto manufacturers have established several assembly plants in Russia. It's time to take the next step - to build auto component plants here. There are economic prerequisites for doing this.

Of course, our proposals on cooperation and mutually beneficial interaction concern not only the industries I have mentioned. Ultimately, it is for business to decide where investment would be more effective.

I am confident that Russia may become a leading global destination for investment. The crisis must not increase but rather cut the distance toward that objective.

The events of the past few months have shown that those who lose heart lose the battle. On the contrary, it is critically important to be able to take substantiated decisions and then to energetically implement them in searching for new avenues of development.

Counties and businesses are both facing this challenge. To be able to respond to it properly, we should join hands and work hard.

We appreciate that direct foreign investment in Russia grew in the first half of this year, which was a difficult time for us. The capital influx has not stopped; it amounted to $17 billion in the first half of the year.

The fact that you have come here, to Sochi, to discuss your business plans for the future shows that you are confident of the bright future of your projects and your companies and of the prospects of working in Russia. You have the will to work, you believe in Russia and its huge potential.

Rair Simonian: We have already started talking about challenges facing Russia, the status of the global and Russian economies, and what should be done to receive new quality growth. I would like to tell you two news items - one is good and the other is so-so.

Rair Simonian: Here's the good news. Foreign guests were the first to speak at the forum. They represent different segments of the financial market, which was the hardest hit by the crisis. Strangely enough, they all sounded very optimistic, much better than I expected. Then German Gref took the floor.

Vladimir Putin: I have heard him many times. I was quite right when I asked you to leave it to yourself.

Rair Simonian: He said that although financiers were looking to the future with optimism, there are some hard-to-resolve real structural problems in the global economy. If they persist, the world economy will remain unstable regardless of what growth it registers and how fast. This means that development of both individual markets and economies may be contrary to what is expected.

I think this is an interesting point. I'd like our optimists to comment on it. Mr Gref described the real situation - there are unprecedented budget deficits in all countries, enormous national debts, and global shortages of balances of payment and trade. These are systemic problems. Therefore, I have a problem to foreign participants. How will the countries you represent, although for the most part you are from the United States, and the global economy cope with these structural problems? What will your countries be like if these problems are overcome, what will change in the structure of the economy as such? This is one question.

The second question is also prompted by Gref but we discussed it at the previous forum, at the energy meeting. We are, of course, lucky that prices on energy resources are not as low as they could have been. What is the problem then? At that meeting, heads of major oil companies and leading experts said with regret, that it is practically impossible to predict what will have with oil prices tomorrow or after tomorrow because prices on raw materials and energy resources have become divorced from fundamental factors.

Therefore, they can go up or down anytime at an amazing speed, all the more so that the markets abound in speculative capital. I would ask you to answer this question very briefly (the more laconic the better). How much are prices on energy resources and raw materials separated from fundamental factors? Will they be closer linked with these factors in conditions of the economic growth, and how can this affect the price? I would like you to give me two brief answers to these two questions. Whom should be start with?

Jeff Immelt heads the world's biggest industrial company, General Electric. His company works in different industries and countries and he knows what I am talking about.

Jeffry Immelt (as translated): I would say the following on the first question: the crisis should be regarded globally. We know there will be a reset, in financial services as elsewhere. This sphere will be restructured the most. New demands will appear, and globalization will increase. The process is underway already, and it will go on.

Two more questions arise: what will be the increase in the developed countries-the United States, Japan, Europe? Will their pace drop because of the deficit and unemployment? This might happen-I am no economist by education to judge. These markets might drop pace in the future. Something else is interesting, crisis-wise. There is a certain division of consumption and, in the final analysis, the economy is success. I have recently visited Brazil. It has a dynamic economy. The situation stays good in Southeast Asia, the Middle East and Africa. I really think the mainstays of the developed market might provide an opportunity for further growth. This growth will send raw material prices up-even if they grow slower than before, if we are to believe that those countries can develop in the developed world. I do not know how high those prices will rise. Anyway, resource prices will stay high so long as India and China possess resources for development. I am not a good businessman, but I should go on investing in the resource markets and emergent markets.

Rair Simonyan: So Mr Gref has not shattered your optimism? Do you have anything to add, John? Do you stay an optimist, and do you think that structural problems will not affect global economic growth rates in particular countries but will be overcome?

John Mack, Board Chairman of the Morgan Stanley Investment Bank (as translated): On the whole, I have rather an optimistic view of the situation. We should recollect what happened a year ago, when there were great apprehensions of the capital market closing. It was impossible to increase capital, cash and liquidity, and sell bonds. Fear seized people. With the exception of the real estate market, other markets were still open, be it the IPO market in China or the increase of billions of capital by certain companies in America. If we refer to bond deals, the market is returning and gaining momentum. As I have said, there is invested capital, and there are savings in the world market. If we look back at what happened a year ago, the financial market used an insufficient lever for crediting. It lacked foresight, and was on the brink of collapse. So we should be careful. Moderators should make a system of risk management. But if we turn back to the crisis and see how the governments of the whole world pooled their efforts and prevented global depression, it allows me to look at the future with optimism. We are grateful to investors in Brazil, China, Russia, Africa and Southeast Asia.

There will be capital decumulation, I am sure. Money should be channeled from the developed countries to provide an opportunity for the growth of GDP. It is small now-it was 2%, but has reached 9% in some countries already. We must give other countries the chance to develop their potential to escape absolute recession. I am an optimist-but we should take market risks into consideration as we move forward.

David Bonderman, President of the Texas Pacific Group (as translated): I should not regard the situation that way. As I see it, what happened and is happening to companies was made worse by a number of processes. I mean traditional recession. There were certain mishaps, and they were not traditional. For instance, there was growth of the BRIC countries, new countries, capital decumulation, and changes during a sectoral drop of growth rates in the United States and sectoral growth in the BRIC countries-in particular, China. The post-war American GDP made 50% of growth. It dropped to 21-22%, and the drop is going on. The combination of rather tough cyclic depressions and the division of the directions of capital flows testifies to a financial market situation approaching chaos, putting it mildly. As for our investment company, we are enthusiastic about lasting growth trends in the BRIC countries and other developing economies with the use of common zones, the euro region and America. Growth rates will increase as before. Here, we should acknowledge the situation from the point of process regulation, and make relevant decisions.

Rair Simonyan: Thank you. So you see, Mr Gref, you are no success in jolting Western businessmen. However, I agree rather with you than with them that the situation will be far less stable and predictable than before the crisis.

I dare join the discussion, and start with the following. As I see it, global problems have arisen for several reasons-many reasons, in fact: the traditional, classical tokens of excess production in certain sectors-in the automotive industry, let say, which has desperate overstock in all countries of the world. However, there are other reasons hitherto unknown as crisis triggers. The first is global currency-the dollar. As we all know, the problem lies in a global contradiction between what the Federal Reserve System has been doing, and the demands of the American economy and the world economy, for which the FRS is the only centre producing money stock. The discrepancy between monetary stock in the United States itself and the global economy is a factor we do not know how to remove. If the emission centre is in Washington, and is printing money for the entire world-for the global economy, and no one controls it, that is a problem in itself. I think there is only one way out-to have a general understanding on common rules of conduct or to have several global reserve currencies. I do not think that will be bad to the American economy. On the contrary, it stands to gain, in the final analysis, because it will be the road to the stability you have mentioned. So much for the first point.

Second, so-called flexibility tools in the financial, stock and raw material markets have certainly grown to resemble legalisation of speculating transactions. All those tools have drifted far from the real economy. Futures resemble what should happen to energy prices only slightly, while derivatives of derivatives do not reflect anything at all. All this also increases ambiguity. Then, if we speak about enhancing the state's role, it lies not in saturating the economy with money, though we cannot do without it occasionally, but in bringing tools into order.

If we manage to do so within the framework of G8 or G20, or let it be G30-it does not matter, if the world community comes to an agreement on common rules of the game, we can expect elements of stability to reappear.

Now, for problems obsessing nations-budget deficit, national debt, and imbalance of payments. They are mainly blamed on the United States, as we know, but I should not engage in fault-finding because all countries have their problems. Russia, for one, has high inflation with which we have not coped yet to the necessary extent. It is also our weak point in the light of our approach to the crisis.

We had huge capital inflow in the preceding years-the net inflow of private foreign capital in 2007 made $81 billion plus petrodollars and so on. Whatever respect I have for the Central Bank, I have to acknowledge that it has not coped fully with removing redundant money from the market. Second, I also acknowledge that the Government could not withstand the temptation of bloated state expenditures. That was hard to do under the pressure of political reasons. We had much money but even more problems to settle in infrastructural development and social welfare.

Everything was urgent. "Give us money!" appeals came from all sides. So we were giving out money, and so sent inflation up. High inflation implies high Central Bank refinancing rates. Credit interest was unaffordable, so the base for development vanished as everyone rushed to Western markets to borrow.

That was downright bad because when the crisis came and Western financial sources shut to our financial agencies, the vital inflow to the manufacturing sector also vanished. The situation required Government intervention.

There were some good things, too-our vast reserves. It was the gold and currency reserve, and the Government reserves. At any rate, all countries have something in common, and share problems we cannot shrug off.

Last but not least, I want to say a few words about our prospects. As I have said, overstock is one of the worst current problems of the global economy. That is easy to check-there are objective studies. A huge commodity stock lies idle in depots. These commodities cannot find their consumer. It takes time to sell them.

The entire stock will surely sell off with time, though it is hard to say how long the sale will take. Then, a strong incentive will appear for further development. That will be so.

No doubt, the world economy will develop. That is certain though future development rates are vague, just as the time when development will resume. The same is true of raw material prices, including those for vital present-day Russian exports-hydrocarbons, oil and gas, petrochemical products, chemical goods and metals.

It is hard to predict what prices will be established and when. Some people think an improvement will never come. They are wrong-just look at reports on world price fluctuations over a long time. Such fluctuations have been monitored for many decades, and the information is perfectly explicit though it might be hard to check current factors against trends in the world raw material markets. The picture is extremely vague.

However, it is among the duties of the Russian Government, just as of other governments, to make such forecasts, so we are making them. Our forecasts are conservative but we are sure things will be really much better than what we predict.

Another theme mentioned here, which you have discussed in your address, is how to make Russia attractive to domestic and foreign investors. As you know, speakers are rather optimistic on this score. First, the world has sizeable liquidity standing idle while the markets are closed. As Mr Mack has said, $5 trillion is in piggy banks in the United States alone. Other countries also have money. Where will this money go? Participants of this meeting think Russia possesses unique opportunities to become a centre of attraction for investment because it combines vast mineral resources with a high engineering and scientific potential, educated population and other factors.

It was very interesting to listen to Mr Immelt in this respect. He spoke about the sectors you also mentioned-nuclear energy and clean energy-saving technologies. That is what General Electric is eager to invest in Russia and bring its own technologies here.

There is another interesting thing. Mr Michael Calvey, who is among the participants, is Managing Partner of Baring Vostok Capital Partners. It is rather a small fund, which has been investing in minor companies for 16 years. These companies are not resource-oriented but engage in new technologies. There is good experience of overseas money not only helping to borrow foreign technologies but also supporting the development of high-tech companies in Russia. There are good prospects in this field. The whole matter lies only in readiness to accept investment.

Much has been done to improve the investment climate, as you have said. Mr Dennis Nally, who is also among the participants, is Chairman of PricewaterhouseCoopers, which has been working in Russia since the early 1990s. The quality of corporate management and accounting transparency was changing before the very eyes of his personnel. Now, I want to ask him a question.

Mr Nally, will you say a few words on what, to your mind, has cardinally changed in Russian companies?

Dennis Nally: PricewaterhouseCoopers has been a notable presence in Russia for more than 20 years. I think Russian business has really changed greatly within the time. When I look back, I pay attention mainly to 200 leading Russian companies. The number of comparatively small companies in that list has grown spectacularly-approximately tenfold. Corporate development is an essential factor.

Second, the transparency of companies working in Russia has increased. More than a half of the leading 400 companies use international financial accounting standards in compliance with the global system. Progress in this field is going on. Companies have become much more open. More explicit information about their achievements is available. That is also a vital growth factor.

Last but not least, I want to mention mergers and acquisitions of the last years-in particular, by Russian companies. They have become major figures in business. The acquisition of Opel has been mentioned here. A part of it-namely, transnational activities-makes such companies highly promising.

So when I look at recent changes, I can say they are essential for the reputation of companies working in Russia. We of PricewaterhouseCoopers think the trends will persist. Thank you.

Rair Simonyan: I want to ask participants of this meeting a question in the context of what Mr Nally has said about Russian companies developing into global dealers.

When we mention investment, we mean investment in the Russian economy. To what an extent, do you think, can the acquisition of overseas companies become a new lever of Russian economic development? That is what Ms Elvira Nabiullina and Mr Vladimir Putin have said: Russia needs a new quality of development-it needs modernisation. To what an extent might such occasional acquisitions abroad promote qualitative changes of the Russian economy? Mr Mack, what do you think?

John Mack: If we look at the costs of American and European companies, I think the crisis has diminished their capitalisation-by 80% in some companies. This really offers investment opportunities but nationalism sometimes comes to the fore. When a group of countries starts buying up classic companies in the United States and Europe, I would expect a response. Much depends on how acquisitions are made. The investor should be a partner in a joint venture, in which skills and habits are acquired. Technological companies can come to Russia and to the developing markets. It all depends on the way it is done. Mr Immelt mentioned successful instances in the Middle East, when companies were established to make investments and train the personnel in financial services. So much depends on the practical way particular companies do it in a particular country.

To my mind, Russia and other countries should think how to use their redundant money-in particular, by acquiring companies in the developed world-not only to transfer technologies to Russia but also for Russian companies and managers to work abroad in such companies.

Rair Simonyan: Please add something more. (To Jeffry Immelt) You have ample experience of using the engineering personnel and the Russian scientific and technological potential. What benefits can this intellectual potential create for Russia in the future?

Jeffry Immelt: We have worked for many years in Moscow aviation business with about a thousand engineers-excellent intelligent people, highly competitive and productive.

I should say such companies as General Electric have two options of investment in Russia. For instance, Russian health services have no major manufacturers of leading-edge medical equipment that would improve health care. So there are ample opportunities here.

We also think it expedient to establish partnerships in the Russian strategic sectors-energy, transport, aviation-and work with leading companies, national champions. Such a company as General Electric might be great success in this field.

The Russian Prime Minister has called to establish a new Russian economy that would not rest entirely on resources. It means the world can join the process. General Electric does not need to start from scratch. On the contrary, it should work in partnership with established manufacturers and global companies.

Rair Simonyan: Thank you. Mr Calvey, your company invests in cutting-edge technologies. What comparative benefits of Russian companies do you see?

Michael Calvey, Managing Partner of Baring Vostok Capital Partners: First, we think that Russian personnel and human resources are among the best in the world provided they have the right motivations and management.

Second, I think Russia possesses a vast potential. We should not forget that services and consumer-oriented industries began developing in Russia mere 10 years ago. Though 2009 is a hard year, we are sure these sectors will develop much more rapidly than in other countries in 5, 10 or 20 years.

Mr Gref, you possess such a large stock of many companies that, I think, you know the problems and prospects of technical re-equipment of Russian companies inside out. One of the principal questions you have posed is about changing the Russian economic paradigm. I think it is a crucial matter. Will you say proceeding from your experience what we can expect? What can foreign investors do?

German Gref: I do not think Russia has any alternative because it is too early to speak of an innovation stage of its economic development. We can speak about the modernisation stage because the Russian economy has a vast potential of efficacy. It will be success if it implements the latest technologies developed transnational companies possess. Borrowed technologies would help Russia to make a giant stride forward in its economic development. Mr Calvey's short address touched me to the bottom of my heart. I fully agree with him.

We have excellent human resources. They can do fine when they have the right motivations and good management. There is not a single world to add. That is correct. We should borrow the best managerial know-how to correctly appoint incentives to companies for the best possible performance. That will allow us a stride in productivity.

Russia lacks strong competition environment. The innovation era can start only after the modernisation period is over and a mighty competition environment emerges. Only after that will we offer the market new products it does not have yet.

We are not modernised enough now. I think it is Russia's benefit to attract investments. We are trading in our market. How well can we trade in it?

America and Europe do not have such a vast sale potential. General Electric has every opportunity to see it now. It has no chance for such a giant stride in consumerisation as Russia, China or India has. When they come to Russia, they increase their chance for a stride spectacularly.

If they set smaller prices than the United States for their produce, they acquire a market due to Russian localisation. In fact, such a global corporation can seize the entire market. The question is how we should attract investors to place all their production factors here, and barter the latest technologies, personnel training and cutting-edge managerial know-how for our market opportunities.

Have our companies embarked on this road? Two days ago, I met with the world's leading car manufacturers. One of them asked me: "Do you happen to know such-and-such a businessman in Russia?" I said yes. Then our client asked me to arrange him a meeting with that man because his company could not reach an understanding with him, however hard it would try. I know the man-he has no bearing on the automotive industry at all, so I said: "What do you have to do with him?" to which he replied: "He owns one of the three largest accumulator battery production companies. We are offering a lucrative deal but the company would not agree though we could become technological leaders together." The company in question bases in the United States.

I had never thought a Russian could have such a prosperous innovative business in America. The process should be reciprocal, and deserves promotion. Such investments in and from Russia are crucially important today.

Rair Simonyan: Mr Gref, I want to ask you more questions in the light of what you had said before Mr Putin came to the meeting, and in the context of statistics. Russia had one of the world's highest growth rates in the preceding years. Its companies had practically unlimited access to finance in the country, and even greater access to debt instruments and joint stock abroad.

Now, many financial sources have been locked-we do not know whether for a time or forever. To what an extent can it tell on the prospects of the Russian economy getting out of the crisis and on its growth rates? What part can direct investments play in connection with the limited financing of development? If I am mot mistaken, the relative role of direct investments as sources has become much more prominent. Am I right?

German Gref: Thank you for your question. It is the right thing to ask because long-term and cheap money is the key problem. Such money mainly comes from pension funds and insurance companies' available assets.

Here, again, we turn to the problem of overseas financial sources. We can only regret that it is a small source in Russia yet. However, it increases approximately by $1.5 billion a year through pension accumulations. Now, the Government has launched new instruments of voluntary pension insurance. I have read a report by the Pension Fund head with the utmost attention. He is very optimistic because many people are engaged in such insurance. This is very important-in particular, as a source of long-term domestic investment money.

Domestic money matters so much because it does not imply currency risks. Just recollect the drama of the Russian finance sector and many manufacturing companies with the great recession of last autumn! Businesspeople were in panic with huge currency risks. That is what makes risk hedging s important, and why it is essential to have domestic capital sources in the currency of investment.

There is another major source of long-term money: direct investment by major investors-in particular, those who are here now. This is also crucially important for stability, even during an economic crisis.

I am an optimist in this sense. True, we will have a shortage of direct long-term investments next year or two-but if we do well these two next years, I think Russia will have sufficient investment sources. I am ready to prove that we need to change cardinally and modernise our economic and financial patterns so as to replace foreign investments with domestic ones and so avoid cross-currency risks and other countries' macroeconomic hazards which our investors assume.

Vladimir Putin: Allow me to make an addition please. I agree with what Mr Gref has said. He has mentioned two sources of long-term money-insurance and pension funds. There is another one, however. I think it is the principal source. I mean private bank deposits.

To make these deposits a sustainable reserve, Russia needs low inflation and complete economic stability supported by growing reserves in banking and in the state-the Government and the Central Bank. When we have all that and something more, we will really have sources of domestic funding of our economic progress.

By the way, the drastic cut of overseas financing was due not to Russian economic problems but to the shortage of liquidity in the Western economy. Now that many Western economies are coping with the crisis and foreign markets have re-opened to Russian borrowers, Mr Gref and other leaders of our financial agencies should clearly see that they are working in global competition, and they should offer competitive goods for competitive prices.

As long as they do not do so, their clients will pay their debts as soon as possible and go to other financiers, who offer better terms on smaller interest. The Government intends to reduce our banking interest rates to 6% or so in the years to come. At any rate, I do really want it.

Now, I would like to say a few words about our cooperation with foreign partners. Mr John Mack has said that when Russian companies acquire assets abroad, so-called nationalism occasionally comes into the foreground. I should call it national economic egotism and even an economic policy.

Our investors do really face such problems from time to time. I am sure this is the aftermath of the Cold War. Neither we nor our partners in Europe and the United States would eliminate it entirely. But that will pass with time. The more we work together and make reciprocal investments the sooner it will vanish.

I pin great hopes on our American guests, representatives of Big Business, doing all they can to bring the end of this dire heritage closer not to impede the development of cooperation.

We all remember the notorious COCOM lists, which limited the transfer of technologies to the Soviet Union. Though these lists have been formally abolished, a major part of them survives in the decisions of the Department of State, impeding Russian partnerships-mainly with the United States. It is detrimental to American business, too, because it impedes contacts with Russia, thwarts the most effective production, and renders American business less competitive in the world markets.

However, the latest decision of President Barack Obama, which buries plans for a third countermissile defence deployment area in Europe, makes us hopeful. This is a brave and correct decision. I expect other decisions to follow-in particular, complete abrogation of limitations on cooperation with Russia and transfer of high technologies to Russia. I also expect stepped-up activities to expand the membership of the World Trade Organisation with Russia, Belarus and Kazakhstan.

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