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PRESS CONFERENCE WITH MINISTER OF ECONOMIC DEVELOPMENT AND TRADE GERMAN GREF, MINISTER OF FINANCE ALEXEI KUDRIN AND MINISTER OF HEALTH AND SOCIAL DEVELOPMENT MIKHAIL ZURABOV
[RIA NOVOSTI, 15:15, MARCH 22, 2004]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)

Moderator: Good day, colleagues. The topic of the press conference is "The Tasks of Financial, Economic and Social Development of the Country in the Medium Term." It is an honor to me to introduce our panelists, the Minister of Economic Development and Trade, German Gref, the Minister of Finance, Alexei Kudrin and the Minister of Health and Social Development Mikhail Zurabov. There will be no introductory remarks. Our panelists are ready to entertain your questions. Okay, Alexei Leonidovich.

Kudrin: Dear colleagues and friends. After the collegium of the Ministry of Finance and the Ministry of Economic Development we have decided to meet with you to answer your questions. The material, in terms of volume, the amount of detail, is in a professional genre of its own, but we would like to answer your questions and to explain the points of most interest to you.

I would say that the collegium discussed not only forecasts and the tasks of social and economic development, we introduced a number of new proposals connected with the system of taxation. About 10 draft laws will be a follow-up to the meeting of this collegium. That's only in the area of taxation. Then there will be a whole series of laws on the delimitation of powers of different levels of government, including the delimitation of the mandates or commitments of the state that will be implemented either by the federal budget or by the regions or the local governments. All of them will be supported by corresponding sources of revenue.

But, being aware that we are at a new stage of economic development, we are confident of our budget which has been balanced for many years, we can control our finances and our obligations, we live according to our means -- we intend to abandon many forms of assistance that existed before but that did not always reach the population. We would like to get rid of all sorts of exceptions, preferences and perks of various sorts.

I repeat, for various regions and various categories of the population the real value of these benefits varied a great deal. It was one in rural areas and it was different in large cities. We want to increase pensions so that for all the pensioners they should cover all these additional benefits. And this would make for a more transparent system of tariffs in the formation of the budgets of all the companies that provide services. In this way we will improve the competitive environment in this sphere, create prerequisites for private business to assume the duty of providing services which at present are often provided by government companies.

The provision of pensions which, as I told the collegium today, amount on average to 30 percent of the average wage -- certainly it is higher for some groups of the population than for others -- but that is not enough. And it is our task in the coming years to reach the level of 40 percent and if our tasks pertaining to the funded pension system are implemented, more than 50 percent. On average the size of a pension relative to average wage should be 57-60 percent.

We see this as our task in improving the welfare of our population, these measures should be in conjunction with the tax reform. So, these and a number of other tasks that we have discussed and that will lead to a whole package of documents that will shortly be discussed at our meetings, the translation of these ideas into new laws will happen very soon. Let me assure you that almost every week we will introduce new laws that will elaborate on the issues that we have discussed at the meeting of the collegium. Now we are ready to take your questions.

Moderator: Please, introduce yourselves and address your questions.

Q: -- (off mike) -- voluntarily deduce 4 percent of their wages. How detailed is that provision and are there any ceilings imposed because the lowest point is, as I understand, 2,000 rubles. That is, the state will contribute at least that amount. Will there be a cap on the benefit?

Kudrin: I would suggest that question be addressed to Mikhail Yuryevich Zurabov.

Zurabov: Dear colleagues, I would like to start with some additional clarifications. But I will try to make sure that my clarifications do not drown out the answer.

So, the proposals on reform of the single social tax that have been discussed over the past few months, when the discussions entered the finishing stretch, it became obvious that changing the deductions made by employers in favor of insured persons to the Pension Fund and putting them in their individual accounts is not practicable and impossible because it is directly linked with the size of the pension.

So, as you have noticed, the Finance Ministry and the Ministry of Economic Development propose to reduce the deductions to the federal budget to finance the base pension. If we follow this road, one has to bear in mind that the money potentially available to finance the base pension increases rather than decreases. And our task is not only to ensure a balanced pension system today, but to create prerequisites for a person to earn a decent pension in the future.

It is easy to see that given the deductions rate of 14 percent and given the parameters of the pension system under the current law, it is very difficult to achieve a decent pension. So, the question arose whether part of the burden of forming the future pension could be put on the citizen himself. The discussion on this was lively and even the President during the meeting of the collegium asked a point-blank question addressed to the colleagues gathered around the table whether the rate of income tax could be changed. And the answer was, no, at least not in the near future.

And that means that to shift the burden on the citizen on a mandatory basis and thus raise additional revenue for future pensions is impossible. However, not only in Russia, but in a number of other countries, citizens are prepared to contribute more to their future pensions than is envisaged under the laws on mandatory deductions.

It has to be said that the concept of the pension reform considered by the government twice, in 1998 and in the following years, envisaged, along with the state system, the gradual formation, with state support, of a voluntary pension system to which citizens may contribute additional money subsequently to be used to pay pensions.

So, how could this be done? First of all, without in any way encouraging, but such a system exists and we understand that citizens are not eager to go to that system because doubts arise as to reliability of the infrastructural elements that must manage those pension savings -- first and foremost the non-state pension fund, the managing companies. It is a task in its own right and I take it that the colleagues from the financial bloc, and the economic bloc will within the coming one and a half years make quite a resolute step in this direction that will enable the citizens to choose the managing company more intelligently and the system of controlling them will become better that it is now.

And the second question: can citizens be encouraged and do they need to be encouraged to make such savings either by tax deductions or by providing some direct subsidies or subvensions. This was the topic that was discussed. We took the following road. As a matter of principle we believe it possible to add one more element to the pension that will assume voluntary remittances by citizens for the molding of their future pensions.

This bloc will be based on saving principles and at the same time the state will be paying or registering, if you wish, the pension rights of citizens, the additional ones that will be arising in regard to the citizens if he joins such a system. By now we believe that such a payment may amount to 2 percent or 2,000 rubles, considering that we did such calculation for the average indicators and I will explain for which. And if the man joins the additional and voluntary pension insurance by remitting funds for molding his additional, saving component of the pension, in this case the state will send the 2,000 rubles to his individual account so that the amount will later be treated as part of future pension when the pension is appointed.

What will such a system make it possible to accomplish in the first place? If we take this road of 2,000 rubles, and I wish to stress that it is the proposal of the government which will be discussed and it will also be discussed beginning from tomorrow in the State Duma, we assume that tomorrow at 13 hours there will be the first meeting of the members of the Cabinet with the leadership and the active members of the United Russia faction where of course we count on delegates actively joining the discussion of these questions and thus it will be possible to hope that some positive and interesting ideas will be heard by us from them which will force us to adjust our proposals so that they are more perfect.

But if we take what we are now discussing as the basis, then of course the 2,000 rubles will in the first place stimulate the citizens with a not very high level of earnings to join that pension system. It is because if we assume that the man has a wage of 2,000 rubles and 4 percent of the amount has to be sent by him to his saving account which is 960 rubles during the year and he will get an extra payment from the state in the amount of 2,000 rubles then the summary percentage to be directed at molding that additional pension as percentage of his wage will amount to 8 percent which in addition to those amounts that the employer pays obligatorily, which is 14 percent, may with time make not a bad base for his future pension and thus people with low incomes, as time goes by, will be able to earn a pension which practically equals the wage.

So one of the tasks that the President sent before us is to combat poverty. And when we declare that we intend to do it the way whereby the basic pension will reach the minimum subsistence of the pensioner, is politically, I would say, is a very complicated question. The question is being discussed for quite a number of years and we do not see a clear movement in this direction. And the task has to be resolved now, without postponing it. And thus the reaction of such an additional motivation, over and above those measures that today will probably be discussed will enable us, within some time, to come close to a situation in which people with low earnings will be drawing a pension practically equal to the wage they get during their labor activity.

And the last circumstance. Of course it is impossible to earn a pension working for 10 or 15 years or even 20 years because in the whole world there is a simple question and as simple an answer: "If I want to get a pension amounting to 60-70 percent of my wage, how many years do I have to work?" And in all countries of the world they will most likely give you this answer: it is either up to 63 or up to 65 years. That is why in our model we do not assume -- at least not for now -- a decision-based change in the pensionable age. We want to establish a system in which the man will himself decide when he is to retire on a pension.

But we must provide within the system for such variants when a longer period of work will give the man a much higher pension, for instance 1.5-2 times compared to what he might get when retiring on a pension within the generally established age. This is the logic of the proposals that we have formulated. Thank you.

Kudrin: I will add briefly. When Mikhail Yuryevich says that with an average wage in a month when 4 percent is paid into the saving component, and when the payment by the state is 2 percent but not less than 2,000, the 2,000 -- I would like to have it clear -- means based on one year period. Then it is 2,000 as the wage by 12, and you get 24,000. And this additional payment of 2,000 amounts to 8 percent. I would also add as follows. Naturally we are calculating the extent to which this mechanism will generate the interest of the population.

I can tell you from the outset that there is a group of population who have serious incomes and who will accumulate their resources for the old age in the form of interest on shares and dividends. I have in mind the wealthy part of the population. They will doubtless participate to a lesser extent in this scheme. There will also be a group of population who will be interested. But as the obligatory saving component increases, the one that may beginning from this year be managed through private companies, as it accumulates, the citizen will be getting the incentive to increase this component. And this "education" by life in regard to the obligatory, saving component will take a few years and will be over and the citizen will feel that as is saving contribution is getting more and more substantial, it gets more tangible and it is administered each year and information about it is coming, the people will doubtless -- but not from the first year but rather later -- take a more active part.

Without a doubt this will be that part of the population which for some reasons like the lack of culture, the concern for one's future, for the old years, will not take part, and there will probably be those who have insufficient earnings to lay by for the future but rather will be trying to spend the money today. Without a doubt there will be such a stratum of population as well. That is why we think that such attitudes or such behavior of the population will spread all over these groups and of course we set the task -- within seven to ten years -- to have at least 25 percent of citizens switching over to this scheme, meaning 25 percent of citizens participating. But I repeat that this will already be a majority of those who cannot provide for their old years by other means and other types of incomes and other schemes offered by the insurance companies.

It is the non-state pension funds. And I think that the non- state pension funds, and managing companies will be our voluntary advertisers because they will be trying to reach out to every individual pensioner. Thank you.

Zurabov: I would like to draw your attention to the fact that we are not dismantling the existing pension system. It is practically preserved without any changes. And if the citizen believes that this system is ideal for him, that it is acceptable because it enables him to draw the pension that it suits him -- a man of 63 and the woman of 55, then in this case, of course, any additional steps we are now talking about are out of the question. That is why we are setting up a continuous project -- and I don't think it's the only one -- through which we will pursue this approach. In each case we will suggest additional options, we will suggest something additional -- perhaps, something similar - and I don't mean the idea itself: the approach itself will be suggested in implementing the modernization of health insurance. It is the overriding logic of the state. We will proceed in the direction of minimum social standards, while simultaneously creating preconditions for citizens to become involved in the formation of obligations that would exceed those that the state can offer the public today. We will encourage this.

I think that in this sense the step we are talking about is very valuable. For the first time ever we have tried, having agreed on the key principles and parameters, to come up with this proposal at the start of the four-year term, which allows us to hope that we will see the first results in the next few years. Thank you.

Q: The Financial Times. A question for Mr. Gref. Can you say anything about the reform of natural monopolies, especially what can be expected this year with regard to RAO UES? Can we still expect that the company as such will not be around by 2007? And what do you think will happen to Gazprom? When do you expect the restrictions on the purchase of Gazprom stock by Western investors to be lifted? Thank you.

Gref: We have three questions. If you have taken notice, in my remarks I identified 8 key problems in economic strategy that are to be resolved in the middle term in order to avoid constraints on the continued high economic growth rates that would bring us to an acceptable economic competitiveness level. That is, high growth rates are to be insured not through export, but through the use of domestic sources, primarily the diversified sector of the economy and manufacturing industry. I cited all the relevant figures in my report.

One of the key elements is further progress on the reform of our natural monopolies in order to fully provide for the access of our enterprises, our industry, to their services. We already have certain shortages of resources, both in industry and in the regions. These include the transportation capability, if we talk about the railways, in a number of sectors; shortage of gas supply for new industries, which has been frequently reported by the press: investors launched new industrial facilities in various regions, but where denied gas supply; and we are clearly beginning to see shortages of power supply across the regions.

The purpose of the reform to remove the existing infrastructure- related constraints, that is the first thing. Second, in those sectors which can be liberalized in order to create a competitive environment, the natural monopoly costs should be minimized. It is only through competitive pressure on their costs that we can make them absolutely transparent and eventually minimize the aggregate expenditures of the economy on the acquisition of these services.

The second part of the reform is the inclusion of the natural monopoly component into a separate state-controlled entity and strict control and regulation of two things: first, equal access of all parties to the natural monopolies and, second, pressure on their costs, efficiency of those costs, their minimization and transparency for all users and society as a whole.

These things will be continued and escalated. As for your specific questions about RAO UES, we are now discussing with both RAO UES and Viktor Khristenko, who is now responsible for this reform, the timeframe of our actions. I've already had a chance to say that we need to synchronize very effectively the timeframe for restructuring the natural monopolies and other reforms, in particular, the housing and utilities reform. This is a key condition. All this is now the responsibility of one minister, who has a clear understanding of this linkage, and we will together discuss all these things in the near future, and the RAO UES management has already been instructed to draw up a detailed timetable for all these reforms. We've had a meeting with the RAO UES chair of the board, and in the near future we will produce a synchronization outline and reform timetable.

As regards Gazprom, so far we have not revised the timeframe. As for the stock market, we have said that the deadline was one year, and I cannot give you more detail. As for the further reform of Gazprom, I would like to say two things. First, the model for Gazprom reform is on the June agenda of the government, but the Gazprom board of directors and management have already taken a number of steps to make the company more transparent. This year the board of directors approved regulations on the company's procurement. For the first time ever the company will buy all the works, services and goods exclusively on a competitive basis. This is a great potential sector for outsourcing and business development. Second, key principles for the company's borrowing strategy have been approved. It is a very serious document, and it shows that the company is going to substantially revise approaches to its borrowing and to radically change the company's financial situation. Third, as you know, decision has been taken on introducing segregated expenditure accounts already this year. This is a very serious step towards making the company transparent, and also making its costs affordable to users. Thank you.

Q: Strana.ru. I have a question for Alexei Leonidovich and German Oskarovich. Alexei Leonidovich, over 18 months ago the Finance Ministry received a draft bill on special economic zones for clearance. Recently the government devoted a meeting to this matter. Could you say when we should expect the bill to go to the State Duma, if there are no contradictions? Or will some other bill on special economic zones be drafted instead? Thank you.

Kudrin: You know, we have seriously updated the principles, and our positions at the government meeting that discussed the bill were far closer. Our goal is both to encourage the development of high technologies through special regimes and to avoid establishing new offshore zones. We are working on this, and according to the government's action plan, the government will return to this question and finally approve the bill in May.

Gref: I have nothing to add.

Q: Mayak radio. A question for German Gref. Another round of talks on WTO accession will take place in Brussels on Friday. What can be said on the matter now? Has there been any change in positions?

Gref: At this point I cannot say anything about any change in positions because I'll be going to the talks. As to what issues will be discussed, we are planning to discuss access to the services market, these are the outstanding problem issues left over from the previous meeting. And beginning from today experts have been conducting negotiations (for example, Mr. Medvedkov started negotiations this morning) and we will initiate a dialogue on the energy package.

And of course there is a body of issues connected with the expansion of the EU. So, three large groups of questions.

Q: Kommersant. Mikhail Yuryevich, did we get you right that by joining a voluntary contribution system a citizen is still entitled to the contribution that the employer pays in the shape of social tax, that is, 4 percent. And Alexei Leonidovich, could you speak about the new tariffs of the tax on oil production and customs duties on the export of oil?

Zurabov: If we are talking about the mandatory payments that the employer will make, these mandatory payments are included in the rate of 26 percent. If we are talking about an additional contribution of the citizen himself, let me repeat that this additional co-payment is a voluntary matter. The only thing the state does in that sense is to stimulate these additional payments by making its payment if it is matched by the citizen.

So, it is wrong to say that these two rates are to be added up because this is not a burden on the employer, but merely an additional payment by the citizen if the citizen thinks it is in his interest.

Kudrin: Speaking about the taxation of the oil sector, I can say that we, a number of ministries, have taken a serious look at the trends in determining the financial results in this sector, and the conditions in which different companies operate. As a result, while previously you have heard suggestions that even more can be charged in the shape of taxes on natural resources. But because we are preserving the flat rate and not to send the companies into the red, we think that today, given the price of 27 dollars per barrel, the price that was last year and will be this year, the budget may additionally get due to changes in the tax on the extraction of minerals and export duties on oil, about 2 billion dollars.

If prices are higher, that figure will be large and if the prices are lower, the figure will be smaller. For example, if the price is 24 dollars per barrel, it may be 900 million dollars. In terms of the main load it will be the export duty on oil. To elaborate a little on the oil export duty, given the dependence of the duty on the world oil price that we have established under a corresponding law on the oil export duty, in the interval between 20 and 25 dollars per barrel such a load on export duty will increase from 35 to 45 percent (exemption from the price) and given the price of above 25 dollars the export duty will grow from 45 to 65 percent.

We believe that this is acceptable. Such proposals have been agreed and will be introduced soon.

As regards taxation, let me add that on Saturday the Finance Ministry introduced the concept of tax reform to the government. On April 2 the Finance Ministry will submit all the draft laws, and not just the concept, on April 8 all the bills and the concept will be discussed by the government meeting. So, the pace set by the collegium is fairly high.

Gref: I would just like to add one more sentence. For almost a year we have worked together with the oilmen on the differentiation of the tax on the extraction of minerals and we have produced a considerable body of materials on this topic. Last week saw one of the most interesting events in recent times. According to our agreement between the Secretary of Commerce and Secretary of Energy of the United States and us, a high-powered group of American experts came to Moscow starting from scientists and ending with practical workers and they presented the American system of differentiation of taxation of minerals, the so-called royalties.

Taking part in the seminar was a large group of representatives of the Ministry of Finance, Ministry of Energy and Ministry of Natural Resources, Ministry of Economic Development and some interesting materials have emerged. But we have come to a common conclusion that as of today the system of administration which is still imperfect, prevents us from introducing such a complicated system without serious consequences in terms of loss of transparency.

So, we have agreed that over the next two years we will have to do some hard work on the system of administration both of the use of natural resources and tax administration, on combining commercial and tax reporting on the operation of oil wells so that this system could eventually be adopted. It is very necessary because the system should stimulate a more rational and broader use of low-yield oil wells. This is the area on which we will concentrate.

Q: A question for Mr. Gref and Mr. Kudrin. At his first press conference, the Prime Minister said that he was not in a position to speak about the schemes of taxation that flourished in the 1990s but have now been put into question. Nevertheless the government will soon begin work to optimize the taxation schemes used at the time. What is your point of view on these schemes and should they be present in the economy, and if so, to what extent?\

Kudrin: I'll be brief. There are some schemes that are patently criminal. This is material for the law-enforcement bodies. They sometimes are called "optimization" but apparently what you mean by optimization is that a number of formally legal operations add up to a scheme which is unassailable. Such schemes existed in ZATO (closed administrative territorial entities), such schemes existed on Baikonur and any number of smaller areas where there were big tax breaks. Undoubtedly all this money was taken away from the budgets of other subjects of the Federation and from the population. We have substantially restricted the possibilities for such schemes. Most recently, we have limited the granting of profit tax rebates to the subjects of the Federation. That is why in this year, based on the results of my meeting with the governor of the Krasnoyarsk Territory, he believes that after the abolition of such schemes, certain new schemes, Krasnoyarsk Territory will get 1.5 billion rubles which will go to the budget, to pay wages and increase wages and to solve other social issues. And the money will come from Mordovia where it was taken, from enterprises working in Krasnoyarsk Territory.

Talking about further plans of combating this I may say the US legislation contains about more than 30 such schemes approved and harmonized which I repeat, are formally illicit and the entire scheme is thought to be criminal. As a result, it is not ruled out that we need to go ahead but I repeat that should be done without damage to simplicity, transparency and the actual payment of taxes. Here I would say that we are pioneers compared to other countries. Our first step will be to fight with transfer prices through appropriate changes in the Tax Code. Such proposals are being currently drafted.

Gref: I can add little to what Alexei Leonidovich said. For the time being there will be loopholes and there will be those who will squeeze through those loopholes which is obvious. This is the logic of life. There is no getting away from this. The question is how many loopholes there are. The legislation that we have inherited was actually filled with such loopholes as a result, the budget was like a sieve.

Today the number of such loopholes has been substantially minimized. You can see that we agreed to a substantial reduction in the tax burden but still the budget revenues are not reducing but are even increasing.

Kudrin: I would add that by eliminating loopholes we establish a competitive environment. This is to say that the producers of the same produce who work in different regions or neighboring regions might have different taxation conditions and this created a non- competitive environment for them. Equalizing these conditions and establishing a single economic space all over Russia -- is a very serious, "health-restoring" fact which stimulates competition in our country. And perhaps as one of the major indicators of the work that we will report about late in the year will be as follows: if five years ago the average outflow, or rather net outflow of capital in Russia was 24 billion dollars, you know that it was reducing in recent years. Last year the net outflow was slightly less than 3 billion dollars.

In this year we shall come to a historical frontier -- we expect this year a net influx of capital into the Russian Federation. It is for the first time in all these years after 1990. This is also the result of reforms. It is a vector of reforms, the measures being taken create step by step, more favorable conditions for the influx of capital as well as the confidence that this capital per unit of capital will ensure the return which will be higher than in other regions of the world. This is our task. It seems to me that late in this year we will demonstrate that we have coped with the task.

Q: And what can be the amount of the influx?

Kudrin: The net influx of capital in this year will amount to 3- 4 billion dollars according to our forecasts.

Gref: I beg your pardon, I wish to complete what I intended to say. Alexei Leonidovich actually took it from my mouth. Concerning the equal conditions of competition it is a most important task. And the third thing I wished to say something about is that it is making the legislation heavier. On the one hand, it simplifies, but on the other it makes the pursuit of economic policy more difficult. It makes the instruments more crude. With our level of administration, with our level of nontransparency of the companies, of the state and of the state authorities we have no possibility of using the instruments that seem to work in other developed countries.

They frequently tell us, let us use the mechanism and let us differentiate the rates. I already gave examples of taxes on the extraction of minerals. Regrettably, with the current level of administration this leads to avoidance. They say, please raise duties on some particular products. But we know that regrettably, given the higher level of administration the raising of duties only increases the contraband flow and under the guise of some products, other products are being declared. Now we are experiencing such a period. We must equalize and try to do our best to equalize the conditions of competition, we must create simple mechanisms of payment and administration.

After that we will probably be able, after stabilizing the situation, already make the mechanisms more flexible in order to stimulate investments and use finer levers of the customs and tariffs policy and so on. But this stage still has to be groped for and found. We are not yet ready for this.

Q: Irna Agency. A question for Mr Gref. On the eve of the elections the Russian president promised to double the GDP, to fight poverty and to modernize the armed forces. Is it possible to carry out these major things within four years?

Gref: Yes, the president set such a task, including before us. Regarding the war on poverty, I wanted to tell you that indeed we the three colleagues present here have spent very much time to analyze the composition and the structure of poverty in Russia, the poverty of 30 million people.

What is the composition? How can one find approaches so as to try to reduce the level of poverty in the country? I will give you now a few figures. The analysis was made on the basis of 2002 figures because the 2003 figures were yet unavailable. In 2002, 35.8 million people lived below the poverty line -- it was 25.1 percent of the population. Of these 31.4 million people are poor families who have active citizens among them. These are active 19.6 million people, citizens in families with children -- 20 million people, citizens in families with the disabled -- 2.7 million people, and the registered unemployed -- 0.8 million people.

The second category is poor families consisting only of non- active citizens which means those who cannot earn a sufficient level of wellbeing -- they are 4.4 million people. And the third category, a special category, formally not poor by the level of incomes but suffering deprivations by virtue of social factors such as drug addiction, alcoholism, AIDS and other social ills -- numbering 1.4 million.

There are individual approaches to each of these groups with a view to overcoming poverty. The President told the collegium meeting to focus on this in greater detail. Indeed, the three of us met with the President and presented detailed approaches to this problem. I will not go into this in detail now, but I can say that the problem has been thoroughly researched, and it is only through joint efforts of business and government that this problem can be resolved and the standards of industrialized countries achieved.

But I repeat, since the largest group of the population includes poor families with employable family members, it should be a very tough and detailed program of cooperation between business and government. Otherwise we will never resolve this problem. There are many instruments available here, and we are ready to discuss all the other aspects of the problem in greater detail, although, perhaps, not within the framework of a short briefing. But in principle we do have well-developed approaches.

As for GDP growth, the doubling of GDP, as I have said on more than one occasion, can be accomplished, in my view, but under certain conditions. First, the economy has a certain momentum, and the measures we are taking today to reduce the tax burden and carry out structural reforms will pay back in several years. In case we maintain the pace of reform and are lucky with the foreign markets situation, we can accomplish this.

If any of these conditions worsens, there can be different scenarios.

As for the modernization of the armed forces, this is a separate and very serious issue. One of the social aspects of the army reform will be discussed at a meeting in the Defense Ministry tomorrow, where Alexei Leonidovich and I will present one of the more serious components of the problem. The discussion will most likely be more detailed there. Thank you.

Q: TVTs TV company. When meeting with the prime minister, the President said that poverty should be vanquished in three, not four years. What is the difference of principle between the calculations of the government and those of the President, and what specifically will serve as the indicator of poverty having been vanquished? Thank you.

Gref: The difference is clear: the pace of eradicating poverty in 3 years should be 25 percent higher than in 4 years. Of course, our program was based on achieving acceptable results by 2008. All our calculations were based on that. Of course, it was an ambitious goal that the President said, that of eradicating poverty by 2007. At this point I cannot say if the task can be accomplished by 2007. Naturally, we will work together and try to adjust the resource base and our calculations. But I don't like to jump to conclusions. First we need to do our arithmetic with regard to this problem, and then, perhaps, we will present our figures to you.

Q. Doe Jones. I have two questions, primarily for Minister Kudrin. Why the government has not yet approved a policy document on the development of the banking sector, and when will this be done? Second, will there be a general tax amnesty in four years?

Kudrin: First, the banking sector. I think that the document is all but ready. Simply, now this has to be done by the new government. I think that this is possible, and it will be done in the near future, I think, within the next few months. Simply, this will be a responsibility of the new government. There is a minor delay now due to the change of government. But the key goals and the approaches we presented a month ago have been retained.

As for the tax amnesty, it is important at a time when business is absolutely confident about the prospects and predictability of all the operating conditions on a given market. That is, when individuals decide to legalize their capital, they should (a) trust the country's law enforcement system and be sure that they will not be subject to future persecution because of that, and (b) that their capital will be used in the economy efficiently and with maximum benefit. These two factors should come together.

I think that as it happens, the possibility of announcing such an amnesty remains.

Q: Mikhail Yuryevich, do I understand you correctly that the funded part remains for all the categories of citizens determine earlier; and the voluntary part is for those born after 1967? And do I understand it correctly that the part that goes into the pensions of present-day pensioners is diminishing in the pension contributions?

Zurabov: Well, you understand some things correctly but not all things. But generally speaking, it's a situation when you have three cubes and we have three cubes, but you arrange them in a different sequence.

You began with the following. You asked a question that I understand to mean the following: will the next phase of reform, including the reform of the taxation of employers, proceed in a way that will worsen the position of pensioners because we all understand that it is not easy to simultaneously lower the tax burden and form a large reserve to finance pensions.

But what I find encouraging is that we have managed to agree with economic agencies -- and I think that they may come to additional agreement on this, but I still think that we will not depart from the basic agreements, namely that all the incomes that the Pension Fund loses as a result of the reform will be fully compensated to the Pension Fund out of the federal budget. So, there will be no slowdown in the pace of indexation of pensions and certainly no pension cuts and certainly no delays of the payment of pensions.

Moreover, you may have noticed -- and we here on the podium were wondering why you are not asking us questions about privileges -- that we have tried to put together a coherent package, that is, not only solve the problems of modernization of taxation, not only propose a new component and a new block for the pension system that will enable citizens to earn larger pensions, we have also reckoned that the time has come to fulfill the obligations the state has with regard to the persons entitled to various benefits and preferences. This is a fairly large group of people, more than 32 million. They include World War II invalids and people equated to them in status (we have more than 1.5 million of them).

And then there are 21 million people who have the Labor Veteran badge. They are all entitled to benefits. But I think you know from your own experience and that of your close ones how they are financed. They are seldom financed fully. I personally don't know of any instances when members of these groups get everything that they are entitled to under the law.

I think even the arrears that exist in compensation for telephone subscription rates and the charges for installing a telephone -- I think that even in that case that sum is not financed fully. In terms of the person who acquires a telephone, he does not experience any inconvenience. But all the same accounts payable are built up.

And so we have tried, I mean the government, the colleagues who are at the podium here, we have tried to solve several issues at once. First, to raise the standard of pension provision for those who are already on pension by converting these privileges into cash. That would be a substantial addition. And the sum of expenditure is impressive, it is more than 160 billion rubles.

Besides we have proposed a new element for the pension system without changing its substance and it has already been fixed in laws. Namely, 14 percent deduction from wages by the employers to the individual account of the citizen with the Pension Fund. But of course we asked ourselves how to balance all the reforms that we have planned for the coming years. This is not the only reform. In general, the reform of interbudgetary relations -- I think that in the next few weeks we will consider a range of issues closely connected with the reform of interbudgetary relations including a very major problem of wages and the reform of the housing and utilities sector. These are very challenging problems. They all require financial outlays.

And if we did not try to balance, even at the expense of a slight slow-down in the pace of transformation, so that we could turn a new leaf as it were beginning from 2005, we would hardly have coped with that task. So, a partial renunciation of the pace of forming the funded part of the pension has occurred. Is it a dramatic development? In our view, it is not. Why? Because as of today of the total number of citizens entitled to choosing a private managing company, it is a considerable figure, 700,000 people, but it is not so impressive, it does not signal that people are ready to choose managing companies so that we could slow down the pace of forming these assets that will subsequently be used for investment for half a year, a year or a year and a half.

I must tell you in passing that beginning from the 31st, the Pension Fund will meet all the obligations to transfer assets to managing companies. The income derived in the pension system during the period from the end of 2002 amounted to 40 percent. The total sum of assets that we will transfer to private managing companies is 1,611 million rubles. No problems there. The money has been accumulated and payments will start flowing very soon.

And from that moment on we would be able to say that an infrastructure of the financial market will start being formed, including the necessary indicators that will subsequently enable citizens to meaningfully choose a managing company.

Why am I dwelling on this at some length? Because we do witness a certain slowdown of the pace. And we have tentatively renounced these plans because these are just our proposals. We renounce the formation of the funded part of the pension retaining 14 percent for persons above the age of 64, sorry, persons born before 1967. As for younger citizens, we will form the funded part of their pensions in the amount of 4 percent gradually bringing it up to 6 percent. We will hit the level of 6 percent as my colleagues and I expect by 2008.

And let me repeat that in terms of the pension rights of citizens who will retire their pension rights will not be affected.

The final circumstance I would like to note is that in our present situation we will pay special attention to the development of the infrastructure of non-government pension funds. That is the subject of a separate conversation because the inclusion of non- government pension funds in the process of mandatory pension insurance is to begin from next year and the system of transferring assets there will be substantially modernized.

Gref: Just a brief comment for illustration. I will comment what I have written down here.

Three aspects of the transformation of the system of benefits - - social, economic and financial -- and perhaps my colleagues will add because we have discussed it many times and I will just articulate it. Let us look at each of these three aspects.

The social aspect. First, benefits are unevenly distributed among regions. The wealthier regions pay all the benefits in cash. In rural areas and poor regions benefits are not paid at all and people there cannot avail themselves of the additional perks. There are no telephones or public transport in villages.

Second, failure to pay more than 50 percent of the benefits to which people are entitled. That, too, is a social differentiation factor. And third, the beneficiaries, according to our analysis, are socially the most secure strata, the urban dwellers and well-off people who have the time and opportunity to claim their benefits, to get a telephone, etc.

Financial prerequisites. You cannot normally plan budgets, regional or federal, because everything depends on how many people file suits with courts, because not a single regional budget, with the exception of two or three, makes all the privileges available. So, during the year major sums are to be paid out of schedule and this puts a crippling burden on the budgets of weak regions in the Federation.

Economic problems means services imposed. We impose these services on invalids and pensioners, namely installing a fixed telephone, subsidized prices on an approved list of medicines. For example, we subsidize 50 percent aspirin or analgin or some simple drugs, but a person needs a very different range of drugs which are not on the list and so he cannot avail himself of that entitlement. There are services foisted on people everywhere -- in transport, housing and utilities sector, you name it. In all spheres we impose a service and this skews these structures in favor of a particular service.

Secondly, regional monopolies are practically in a permanent state of bankruptcy because regional budgets do not offer them privileges, and they resort to off-sets, by raising tariffs. Tariffs, of course used to be regulated. And where they are not regulated, they are just written off as losses of these enterprises and the financial status of these enterprises becomes a problem.

For example, a debt of 100 million has piled up. The regulating body says, we will write off half of the sum and the other half you will report as your losses for the following period. But this year we said that tariffs can only be raised once a year. And we put a ceiling on tariffs beyond which a region cannot go. And that creates a serious problem with the future financial state of these monopolies, underinvestment in the infrastructure. And there is no way that we can sidestep this problem.

Accordingly, the citizens are unable to influence the quality of the services rendered. And this is a road fork: either to abolish all the privileges in delimiting the powers and tell the subjects of the Federation to sort it out themselves, or to act as has been decided during the course of a number of meetings with the Prime Minister and the President -- to add up all the benefits and pay them in cash. But not as an imposed service, but as an addition to the pension.

This is an absolutely novel approach. For the first time the state is acting so consistently. But of the actual 40 billion rubles that previously were made available in kind, in the shape of services, now 164 billion will be paid out of the consolidated budget in addition to the pensions of the vulnerable strata.

Zurabov: But there is a serious social and political risk because if you transfer the money together with the obligation to the subjects of the Federation, nobody can be sure that they will pay these benefits or pay them partially or in full in cash. And after a while citizens will ask the question who is to bear the responsibility for the decision.

So, and there I agree with German Oskarovich, a more honest decision is the one we propose now: to assess the commitments financially, to differentiate it, to break it down by categories and to propose approaches and take this step although, of course, it won't be cheap.

Q: When is it going to take place?

Zurabov: Tentatively from January 1, 2005.

Q: Vladimir Solovyov, Moldavian new agency. I have a question to German Oskarovich. Could you describe the current state of trade and economic cooperation in the CIS? And what would you say is the main obstacle to closer economic integration?

Gref: We are going into global questions there. Let me be very brief. I would describe the current state as unsteady cooperation and one should pass on to steady cooperation through all the mechanisms that we have and this is what the so-called high-level group is doing, the creation of common economic space.

It is a very arduous process, involving synchronizing of all economic internal regimes, synchronizing the external trade regimes. And it is a process for several years. If we manage to resolve this task, then without a doubt, this condition will look like the situation of a lengthy and sustainable and mutually advantageous cooperation.

Moderator: Thank you. Your questions.

Q: The question is for Alexei Leonidovich and German Oskarovich. Why was the decision taken not to introduce the VAT accounts?

Kudrin: The fact is that having analyzed all these aspects of the decision, we understand that this "medicine" is a strong medicine and it is needed when other methods of dealing with the disease, the disease of VAT refunding on fictitious turnover or through one-day firms, we cannot resolve by different means.

That is why at the present time we decided to strengthen the administering of the VAT tax by establishing certain information technologies with the participation of banks of Russia who, without diverting funds to specialized accounts would nevertheless, on the whole, by analogy with the VAT accounts, enabled to monitor and identify such firms timely and in an online mode.

Secondly, during the meeting with representatives of business and at the Council on Entrepreneurship, entrepreneurs asked to move toward that system only if the law enforcement authorities proved unable to deal with criminal structures in the ordinary mode. This means that the proposal was made to strengthen the search through the ordinary channels of law enforcement authorities, looking for those criminal entities. I think that here we need serious methodological training in order to facilitate the quick uncovering because such entities as one-day firms have the property of disappearing very quickly and then one has to look for them for quite a long time and such a quest is not always crowned with success.

Nevertheless such new methodological approaches can be carried out and that is why today we speak about certain additional measures which we will verify, additional administration measures. I already said that in addition measures will be drafted to analyze and introduce invoices for analysis -- this is the electronic analysis that will refer to hundreds of millions and billions of payment documents. And there will be the search for places showing lack of correspondence and I said that in the online mode it will help identify the firms and that is why we have now decided only to confine ourselves to introducing new mechanisms, above all information technologies regarding the search and to abstain from strong medicines.

Nevertheless if the disease turns out to be much deeper and its metastasis are more profound then we imagine today, we may have to come back to this topic but I repeat that for the moment we have put it aside.

Q: Alexei Leonidovich, could you specify the new rates for export duties on oil? You said it so quickly, and when can one expect the introduction of such duties. And now the question to German Oskarovich: you said that the liberalization of the market of the Gazprom shares will be completed.

Kudrin: Today I am prepared to make a certain representation on the site of the Ministry of Finance to that I don't have to read out now some technical points. And I am prepared to confirm this.

Kudrin: I would also like to add as an information pretext that in regard to the Finance Ministry bloc today the manning of all the services and the agencies is being completed. As head of the service of insurance supervision we have the nomination of Ilya Lomakin- Rumyantsev who had worked with the Finance Ministry and today he is a member of the Federation Council and he is a recognized and authoritative specialist in insurance supervision in Russia. Thank you.

Moderator: Thank you all.