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Prime Minister Vladimir Putin takes part in the investment forum Russia Calling [includes transcript]

Vladimir PutinPrime Minister Vladimir Putin takes part in the investment forum Russia Calling
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According to Vladimir Putin, the Russian government is planning to achieve a deficit-free budget by 2015. "I hope that healthy economic growth will be the main tool for eliminating a budget deficit," said the prime minister. He pointed out that Russian authorities were expanding the system of tax incentives for investments into the modernization of the economy: Some new tax initiatives have already been submitted to the Parliament. Mr Putin also promised that the low profit tax rate and flat income tax scale will be preserved. He emphasized that direct foreign investments into Russia had already reached $25 billion since the beginning of 2010.

Hundreds of used shoes are piled high in the central hall, whose walls are lined with cardboard boxes full of toys and hygiene products.

Vladimir Putin also noted that Russian authorities appreciated that more and more investors were choosing the Russian economy and its stock exchanges for the application of their forces and capital. He stressed that the Russian economy did not need any more anti-crisis cushions: "We are able to efficiently react to any force majeure using ordinary budget regulations." The prime minister added that the budget for next year does not provide for a special anti-crisis fund, however, this does not mean that the funding of anti-crisis projects would be cut off altogether. "Many of them will certainly remain in the budget," specified Mr Putin.

Vladimir Putin's address to the forum:

Ladies and gentlemen, guests,

It is indeed gratifying to welcome you all to this investment forum, organised on the initiative of VTB Bank. This is the second time it has been held, and I hope it will become something of a tradition.

I believe that VTB Bank has managed to create an interesting and relevant forum where the current problems faced by the Russian, and global, economies and financial systems can be considered, where investment processes are analysed and which draws the participation of truly authoritative, experienced specialists.

There is a wide range of issues we need to discuss. They involve, first of all, leading countries' macroeconomic climates and development strategies under the somewhat problematic circumstances of our post-crisis world, when we are forced to seek out new growth opportunities in a context of limited resources and still weak investment and consumer demand.

As we know, during the downturn, the governments of many countries both in Europe and on the American continent significantly increased budget expenditure, thus generating massive deficits. In the end, new debts were added to the old, pre-crisis ones.

According to the well-known Maastricht criteria, government debt must not exceed 60% of GDP. Today the economies of almost all leading countries of the world have breeched this threshold, this security threshold. And now both the governments and financial institutions are trying to accomplish the rather difficult feat of gradually withdrawing the anti-crisis measures, cutting these multi-billion programmes to stimulate demand, while at the same time not undermining their prospects for restoring economic growth. I am confident that all of our partners will manage this, eventually.

Russia, for its part, must implement its optimal strategy for lifting its anti-crisis measures. And if we look at the situation impartially, we can see that we have greater opportunities to succeed at this than our partners. Russia's government debt will total only some 11% of GDP at the end of 2010. Russia is likely to increase its presence on the capital market in the very near future, and the country's debt will not exceed 20% of GPD in any case. Compared to the global picture, these minimal figures are rather good indicators.

The government introduced the draft federal budget for 2011-2013 to the State Duma on September 30. I would like to draw your attention to one notable absence: it does not include the special anti-crisis fund that we formed in 2009 and 2010 in order to target its multi-billion resources towards finding efficient solutions to the problems that arose. I believe that we will not need emergency mechanisms and so-called stashes of cash in the budget and that we would be able to respond effectively to any force-majeure situation that might arise while keeping within usual budget parameters.

Nevertheless, the absence of this special fund does not mean that the programmes financing the anti-crisis projects will cease altogether in 2011. Many of them will remain in the budget: the car trade-in programme for one.

I would like to mention a very important peculiarity of the anti-crisis programme that was implemented in Russia. It primarily comprised projects that were just as needed during the downturn as during a more normal period of sustainable development. We addressed urgent issues both for our citizens and for the country's economy as a whole, the issues that we had to deal with sooner or later. And in that sense the Russian programmes aimed at stimulating demand were thoroughly natural and organic. For instance, we had to upgrade our municipal transport infrastructure regardless of the economic situation because we needed to get those old rust-buckets of vehicles off our roads. And that is exactly what we did.

At the same time we needed to improve our mechanical engineering industry and create efficient jobs in this sector, which is why we supported the car manufacturers' plans for upgrading their current production facilities, as we saw with AvtoVAZ, or to open new factories to manufacture modern cars and components. Many of those present here may know that construction started on these factories during the downturn and that some have already been completed and are operating as we speak.

The same approach to development has been applied in other sectors of our economy. For example, the government was the construction sector's main customer in 2009 and 2010. About a half of all the flats in the newly commissioned buildings were purchased using public funds. They were designated as housing for war veterans, serving military officers and other categories of citizens to whom the government is committed to provide housing under the law.

We are currently witnessing a revival in consumer demand. People are prepared to invest in the housing market, so it is time the government shifted its emphasis on stimulating housing demand, support the housing market. VEB is currently investing pension funds worth billions of roubles in further developing mortgage lending and commercial banks are gradually cutting their interest rates on mortgages. The total volume of mortgages issued doubled from 82 billion roubles in the period January-July 2009 to 192 billion in the same period of 2010.

The government set aside a large proportion of the budget towards housing provision for those entitled to it under law.

We will continue to support housing demand. At the same time, we will see that there is sufficient available housing on the market to ensure we prevent price spikes or market bubbles. We will allocate land for residential development schemes, reduce administrative barriers in the construction sector and support affordable housing projects. Our plan is to nearly double construction volumes by 2016, from the current figure of 55-60 million square metres per annum to 100 million square metres a year.

The planned expansion in road construction will give national construction industry a powerful impetus. Special road funds will be established from next year; petrol and diesel fuel excise tax will provide a welcome boost for these funds.

I believe that Russia's economy will be able to avoid the negative scenario experienced by many European markets, of stagnation following the government's closure of its stimulus programmes.

We have the resources to continue to support the national economy so long as the economy needs government support.

We are currently in a position to afford this policy primarily due to the fact that we have a stable macroeconomic policy upon which we can rely.

From 2000 to 2008 the Russian government was able to close the budget year healthily in the black. We also saved the surplus income generated by oil and gas exports and set up two sovereign funds, the Reserve Fund and the National Welfare Fund.

The Reserve Fund has been used to cover the budget deficit during the recession and will have been entirely spent in 2011.

As for the 2.7 trillion rouble (about $87 billion) National Welfare Fund, we have been using its reserves very sparingly despite all the difficulties that beset us.

Mr Ulyukayev gave a speech here, and he surely must have mentioned the Central Bank's (Bank of Russia's) growing reserves. As far as I know, these reserves have reached $476 or $490 billion, and are approaching $500 billion. This means that Russia is well insured and can feel confident even in the worst-case scenario for the global economy, including any potential decline on the international commodity markets. However, many analysts predict a rise on these markets in the medium term. Urals oil is currently priced at about $82 per barrel or slightly higher on international markets.

The 2011 budget was drawn up with a deficit equal to 3.6% of GDP. We plan to cut it to below 3% in 2012 and return to a balanced, deficit-free, budget in 2015. I have just mentioned oil prices, which are growing, with gas prices following close behind. These are our key commodities, what we export to generate income. However, as I said at a similar forum in Sochi, our state revenue estimates are based on an oil price of $75 per barrel, and our expenditure estimates are based on a price of $70. We are very cautious with these estimates. As for cutting the deficit, I believe we will be in a position to meet the deadlines.

I expect healthy economic growth to compensate for the bulk of the deficit. Russia's GDP is expected to rise 4% this year and to continue to grow at that pace for several years. We will also continue our cost-cutting policy and set very tight requirements for the effective spending of each and every rouble that comes from public funds; we will reduce or close programmes that are low priorities at this stage. However, the Russian government does have the ability to launch new priority projects.

Many of those present are aware that we have indexed retirement pensions at 46% this year. As a result, all Russian senior citizens now have incomes above the subsistence level.

In 2011, we will launch a truly landmark project - national healthcare reform. The plan is to overhaul and reequip all medical centres across Russia's regions and to develop an effective system of compulsory health insurance. Our goal is to make it patient-centred, that is to put the patient's needs before those of the medical institution.

As you know, the government decided to raise the insurance premiums that companies pay from payroll as well as the excise tax on petroleum products. I have already mentioned these plans. This policy was prompted by the need to pay sufficient retirement benefits, to improve standards at hospitals and out-patient health services, and to build roads.

As for the other taxes, the government will not deviate from its principles of tax reform, it will continue to reap the positive results it has generated through, for example, keeping the profit tax low and the income tax rate flat. Not only are we not reducing the system of tax incentives for investment in economic modernisation, we are in fact expanding it. Some new tax initiatives have been brought before parliament, including tax privileges for companies installing energy efficient equipment and reduced insurance premiums for resident companies in special economic zones that introduce technical innovations as well as for small innovation companies and the mass media.

I repeat that we will soon submit the draft law to the State Duma which will exempt investors from profit tax on the sale of any securities that the investor has owned for five years or more and which are not floated on the stock market. This policy is essential for the development of venture business and attracting long-term investment.

Ladies and gentlemen,

We place great store on the fact that ever-increasing numbers of investors are choosing Russia's economy and stock exchanges as an investment destination for both their capital and their effort. This is obvious from the upward trends of Russian stock market indices and foreign capital inflow into Russia. All Russia's stock market indices have nearly trebled since their low of October 2008 when the global meltdown hit. The inflow of foreign direct investment in Russia has totalled $25 billion since the beginning of this year.

Our immediate goal is to complete the legal framework for a modern securities market in a prompt and efficient manner, which will then ensure that its rules and technologies meet the very highest international standards.

A law has been adopted to prevent the abuse of insider information and price manipulation.

We will soon complete our work on regulatory acts governing the financial market's infrastructure, including rules of securities issue, exchange trading, clearing, and the central securities depository (CSD).

All the above are necessary and important steps towards establishing Moscow as an international financial centre.

In conclusion I would like to stress that the global economic downturn was a serious test for Russia. But the lessons learnt from it vindicated the path we chose, while our pre-emptive accumulation of reserves, our macroeconomic policy and our successful anti-crisis programme helped to cushion the impact of the economic downturn for our people and the business community alike, and helped us relatively rapidly return to growth.

The country's GDP is growing at a moderate pace but it has not yet regained its pre-crisis level. It is thought that will take a little while longer. However, today Russia has a new agenda, one that incorporates sustainable development and the modernisation of key economic sectors. I believe we stand a good chance of seeing these plans materialise.

Thank you very much, I wish you success in your work. Many thanks.

Vladimir Putin's answers to questions from the audience:

Question: Good afternoon, Mr Putin. I have a question for you as chairman of the Government Commission on Foreign Investments. It concerns transactions whereby Russian companies with a foreign subsidiary purchase assets that are of strategic importance under the law on strategic investments.

Last year we faced a paradoxical situation: the Federal Antimonopoly Service and the government commission, on the one hand, are operating on the understanding that such companies do not need (because they are Russian) to have such transactions approved, but on the other hand we see a number of rulings according to which such transaction are deemed post factum null and void, because they had not been approved.

This situation (the second approach that I mentioned) means that some major transactions will be invalidated, for example the acquisition of a controlling stake in Sever-Energiya by Gazprom, the purchase of controlling share in Yamal-LNG by NOVATEK, the mandatory offer with respect to OGK-2 and so on. Naturally, none of these companies asked the government's permission because it should not be required.

So, here is my question. Should we expect, first, that the government commission will release an official opinion on this issue? And, second, are we going to formulate a unified position of the state, including that of the supreme judicial authorities, on this issue in order to remove the uncertainty and risks for investors, both for institutional and portfolio investors, both for Russian state-run companies and private companies? Thank you.

Vladimir Putin: Of course, we cannot interfere with the courts, but the judicial system now has to follow a bad rule, which, I must admit, was developed by us. We have discussed several related issues and arrived at the conclusion that we need to make some adjustments and put an end to some controversial judicial and administrative practices. As a rule, and your examples are not quite the case, disputes arise with respect to assets that have little to do with strategic reserves. As for an explanation of our position, it will be formulated to help the parties to those proceedings find a way out of their critical situations.

It is certainly good that you have drawn attention to the problem. It exists, we have seen it ourselves. The government commission dealing with the issues of strategic assets and investment in them considered one of the cases quite recently, which clearly cannot be referred to as strategic. We will fix this.

Remark: With your permission, a question for Madame Lagarde (Christine Lagarde - French Minister of Economy, Industry and Employment) and Mr Tigipko (Sergei Tigipko - Ukrainian Deputy Prime Minister). Bearing in mind the interests of your companies, do you have any information regarding their involvement in those areas, are there any complaints?

Vladimir Putin: Excuse me, I would like to add that, in general, it seems to me that the system works and is stable enough. There are slight malfunctions, but, I repeat, we will fix these.

Christine Lagarde (as translated): I have said already that French companies are cooperating with the Russian ones very well; there is a good climate, a satisfactory investment climate. I am talking about companies like L'Oreal, Peugeot, LaForge and Total. These are major French companies, which were welcomed in Russia, and their operations are splendidly organized in terms of infrastructure, plants etc. It will be done quickly enough.

Sergei Tigipko: As for Ukrainian companies, I can say that our markets are so closely bound, and, thank God, we do not experience any special trading problems now, so it doesn't make sense for Ukrainian companies to invest in the Russian market.

We can work quietly at home, with proper infrastructure and proper relations, and sell goods and services on your market. There aren't any special problems. We had problems five years ago, which were caused by politics, I think primarily by Ukrainian policy, and I can say that many Ukrainian companies suffered because of that, seriously suffered. Now that relations have been normalised, these are not longer issues.

Vladimir Putin: I would like to say that in the past five years it was Russian companies that suffered primarily. That's my first response. And second, I beg to differ with my colleague and good friend.

It seems to me that it makes sense for our Ukrainian partners and investors to invest in the Russian economy. And we can see that there is interest in this. And not only in oil and gas (there is always interest in investing in the energy sector), but in other industries - in the mechanical engineering industry and some others.

As you know, we are discussing with our Ukrainian partners the possibility of consolidation in shipbuilding, aircraft building and nuclear power engineering; that's where mutual investments may be required too. It seems that these areas are very promising and interesting for us to join forces, both intellectual and investment.

Please think this over and look where Ukrainian investors could work, in the construction sector, for example.

Sergei Tigipko: Mr Putin, we still hope that there will be more Russians coming to Ukraine.

Vladimir Putin: You know, during the crisis in the construction industry we have continued to implement large-scale programmes. Never before have we invested so much money in housing for members of our armed forces. I am talking about tens of billions of roubles - 50, 60, 80 billion. If you had been on our market, if you had been an investor, you would have received those orders... Yes, it's not funny at all. In fact, it would have been a great help during the crisis!

Sergei Tigipko: I agree with that.

Vladimir Putin: Oh, thank God! Thank you very much. It used to be so difficult to reach an agreement with our Ukrainian partners. Thank you, Sergei.

Question (as translated): I would like to ask you about privatisation. Would you please explain how you intend to do this? How will the company enter the market? How will you do it? What part will minority stockholders play, and will state control continue the next five years? Thank you.

Vladimir Putin: As you know, privatisation began in Russia long ago, and opinions on it, and on its results, vary. To be sure, we are very accurate and reserved about it now. However, we regard it as one of the major resources of structural economic change to enhance the market orientation of the entire economy. Now, for what the colleague who spoke after me said: we think that the state should leave some sectors where its presence is not so important from the point of strategic interests. In this sense, we consider it possible to sell a part of the shares of our corporate mammoths. Guarantees of minority holders' interests will certainly be one of the essential fields of our work. I think the organiser of this forum will easily explain how it will be done. Please, Mr Kostin (VTB Bank CEO Andrei Kostin). VTB Bank is entirely government property, and we intend to sell some of its shares. We are thinking it over. Mr Kostin will have no difficulty explaining how we intend to do it.

Andrei Kostin: Mr Prime Minister, I had a discussion with foreign bankers one day. They complained how hard it was to work with stockholders. I told them they could never imagine my situation because the state was my primary holder who settled all important questions, particularly CEO appointments and dismissals. Stock prices are determined by minority holders who work and live, say, in Boston or London, while in Russia there are 150,000 citizens who hold tiny parcels but always stay abreast of banking operations and demand transparency, reporting, etc.

This situation is not simple, to be sure. It is not quite typical of Western companies, whose property structure is simpler, as a rule. This is the first thing I want to say: Russia has, I think, highly advanced laws on the protection of minority holders' rights - perhaps they are among the most modern and the best in terms of quality. There is another matter: [Saltykov-]Shchedrin's remark that the severity of Russian laws is compensated for by their selective enforcement. As I see it, however, the present-day development of corporate culture and financial reporting (for instance, we are presently registered both on the Russian and London stock exchanges) - all accounts, all conference calls with holders, the entire responsibility we assume - it all closely corresponds to current world standards. So, I repeat, we realise that the government is presently the main VTB holder but we have to pay the utmost attention to our overseas holders because you set the market prices of our bank's shares. Our main duty today is to boost capitalisation.

Vladimir Putin: How will privatisation proceed in the future?

Andrei Kostin: Mr Putin, it will proceed as you say because you are our principal shareholder ...

Vladimir Putin: You've botched it all up!

Andrei Kostin: As for VTB Bank, we are really looking for potential investors. We think they should regard investment in VTB as strategic. For that matter, we have suggested that these investors should be represented, say, by an Observation Council member, and you have approved this in principle. Then, such investors would be able to directly influence banking strategies and obtain information. So, I think, if the state sells a part of its stock and reduces its participation, minority holders will be more involved in key decision-making, be better informed, etc.

Vladimir Putin: Let's turn now to the last part of your question, which I consider of great importance. Is it possible that the state will become a minority holder of such assets or leave them altogether? It is possible. It takes time and demands corresponding economic and social changes, so great is the value of these assets to us. But, on the whole, this is quite possible.

Question: Thank you for answering our questions. I am a VTB holder. We are certainly minority holders and we see that, say, Gazprom will receive maximum profits this year, and Russia takes pride in this. Gazprom profits have grown threefold since 2005 while its capitalisation has declined by 30%. I want to ask what the government thinks about this. Will Gazprom change its policy?

Vladimir Putin: The government has a controlling stake in Gazprom, as well. However, we make it a point not to interfere in the daily operations of this joint-stock company. As for its policy, dividend payments and other such matters, they are up to its board. We don't interfere, as you know. But Gazprom's capitalisation is evidently influenced by problems bred by the global financial crisis and major reductions in prices and sales in the energy sector.

I don't doubt for a second that we will soon see the capitalisation of companies such as Gazprom returning to its previous level. We are seeing an increase even now. And I think minority holders will regain what they lost with the downturn soon enough.

As you know, natural gas prices follow oil prices now with an approximate six month lag. Oil prices are going up and gas prices will grow too, so company capitalisation will also increase.

But this is not the main thing. What matters most is that Gazprom has an ambitious plan for development - I'd call that impressive. This concerns the Shtokman deposit and the Yamal Peninsula deposit, whose proven reserves amount to trillions of cubic metres of gas. Yes, trillions!

That's not all. I think that what the state is planning and doing in Russia is also of importance. We want to achieve so-called equal profit domestic prices. All the same, gas prices in Russia will be much smaller than our main clients' because we produce gas and do not need to pay for its transportation. However, this is an entirely positive process for the company. If we take all these factors into account, it is evident that investment, regaining world market positions, our consistent work within the country and many other factors will necessarily increase company capitalisation.

As for how the company and you will settle the dividend problem, I think you stockholders will make the right decision to obtain enough dividends for holders to be economically interested and, at the same time, for the company to always have sufficient investment resources to implement its plans.

Andrei Kostin: Mr Putin, can I add a few words? I want to add something to what Mr Putin has said. Not all investors and holders have the right idea regarding relations between the state as primary shareholder and a company in which the state has a controlling stake. We sometimes hear: this is up to the state... Some have an impression that we receive daily instructions on our commercial activities. This is not the case. The state as our primary shareholder certainly determines our strategy and sets some of our basic indices but commercial activities of a government company or one with state participation are arranged as in any other joint-stock business. In this sense, there is no great difference between the state and any other majority shareholder. I think I should stress this point because some people are afraid that, as a state-run company, we might receive another assignment tomorrow and totally rearrange our work. Such things never happen, however. A company proceeds solely from the logic of the market and the market situation, and we do not get daily political instructions. Thank you.

Question (as translated): Mr Prime Minister, I know that you are eager to make the Russian investment climate really attractive. So am I. I am a portfolio manager and I also want to attract investors. My bonuses depend on whether I do. However, a majority of investors - in fact, all investors at any meeting I attend and tell about companies with state participation are uneasy. Take the latest instance, with the Novorossiisk seaport. When Transneft, with major state participation, comes, shares plummet. We have no idea what the state wants. This is bad. How can you change this opinion and what can be done for minority holders to feel safe and be sure that the state will not come and take their stock? Yukos, for one, was closed rather long ago but the reverberations from it are felt still: believe me, there are no meetings at which there aren't questions about Yukos. Thank you.

Vladimir Putin: As for the Novorossiisk port, we did not intend to acquire its stock, as you know, while private investors were anxious to sell it.

Question (Yelena Teplitskaya): I'm the head of Russian-British Mineral Resources. I would agree with you about the fact that state participation is not necessarily negative, and very often has a positive effect on foreign investors' perception of the project profitability. In particular, in London and in the United States people often say, "But if the project is so interesting, why doesn't the Russian government invest in it through some of its holdings?" And there is a great tendency for entities with direct government support, such as VTB, Sberbank, which is gaining momentum, and VEB... Do you and the Government plan to strengthen this activity because it could greatly contribute to attracting investment?

Well, as for image. I was honoured to work with you on attracting investment some 20 years ago, back when you were in St Petersburg. And your personal participation always has a very positive effect on investors. Russia needs a road-show, because if you choose to participate in it, I think, there will be a significant increase in investment. Thank you.

Vladimir Putin: Thank you very much for your kind words. I am already so indebted to you that I would have to take part in any project that you suggest...

As for the participation of our various entities, be they public sector or quasi-governmental institutions, including financial ones, you know, we are, after all, trying to direct their efforts towards sectors that are difficult for private investors. Just now a colleague from the State Duma asked a question about infrastructure projects. The reason why the construction of the road from Moscow to St Petersburg, done with the participation of major French construction company Vinci, will pay for itself is that there is a massive volume of traffic along it. That's how all the Chinese and European goods reach us, via the Finnish ports. The highway is so busy that it will pay for itself. But for now that is not the case in that many other places.

Or, say, Pulkovo Airport. Yes, Fraport is there, and will work on it. They calculated the volume, the prospects for the development of the transport hub in north-west Europe. And let's say we're now building a new airport in Vladivostok, but doing it 'for growth', figuratively speaking. The return on investment for now, to put it mildly, is very average. And so we have to direct the efforts of our public institutions to such projects, but at the same time we will create an environment that would interest and benefit private investors - this remains a strategic task. And when we have a profitable, interesting and promising project, where fast returns on investment are likely, no state money is needed. All that is needed from the state are guarantees of stability and private property, safeguards over invested resources, the guarantees of stability in legislation and administrative practice, and a campaign against corruption - here is where we will focus our efforts.

Remark: Thank you very much. I was actually referring to the large investment projects. These are major investment projects, sometimes in natural resources, where there is a risk when it is difficult to develop a field ... Perhaps, co-investment is possible for such projects?

Vladimir Putin: I agree. Thank you.

Question: Andrei Rostovtsev, the company Imperia. My question is for Alexei Kudrin, and you, Mr Putin. After Sergei Tigipko's speech, I got the impression that Ukraine has now implemented a new and ambitious programme of economic modernisation. In comparison with Alexei Kudrin's speech, with all due respect, I had a feeling that we are starting to fall behind our Ukrainian colleagues in terms of the pace of modernisation. Is there no interest in getting them involved in some way? Let's just say, use their experience, perhaps?

Vladimir Putin: Mr Tigipko already said that the Russian and Ukrainian economies are so closely linked that there is not even any need to invest. Therefore, their intense engagement in modernisation has an objective impact on the Russian economy's modernisation. So Mr Kudrin may be right, but ...

Yes, he now wants to give you an answer himself. But I can say that the key challenge - on which all our efforts are concentrated - is the modernisation of the economy. Now Alexei will get up and clarify some of the figures. But I can say that we plan to decrease revenue from the oil and gas sector, and in the short, medium and long term, to increase that from the manufacturing industry and the high-tech sector. That is what we are all working towards.

Yes, of course, in the crisis, we were forced to redirect some of our resources to anti-crisis measures. But even then, in that instance, we tried to act so as to ensure these resources contributed to the very modernisation that we are talking about.

As for the Ukrainian economy, you know that in some sectors about 30%-50% of our businesses are interconnected and cannot continue to operate without the mutual exchange of components and technologies. This is indeed the case. Therefore, should one segment of a large company undertake some form of modernisation, it inevitably prompts other sections to follow suit.

I think that Mr Tigipko will agree with me here, after all, the pace of development in Ukraine has significantly slowed in recent years. This was connected, of course, primarily with problems of a political nature. There was a great deal of confusion and noise. Given these circumstances, the government found it difficult to decide on any serious steps towards modernisation. So, for now, there is a lot of catching up to do. If now they are able to act fast to solve this problem, we will only be pleased for them. Mr Kudrin, please go ahead.

Alexei Kudrin: I have great respect for the modernisation and reform programme currently being implemented in Ukraine. I have just returned from Ukraine, where the prime minister and his deputies told me a great deal about how the reforms are being carried out. But I want to say that the tax law, the budget law, the corporate law and the financial sector currently in place in Russia are still a little more advanced that those in Ukraine.

I've been a witness to consultations on the IMF programme, which is now being implemented in Ukraine involving cross-sectoral reforms. We have already moved on from that stage of working with the IMF. That was 10 years ago. Today, Ukraine is taking the same arduous path, but it is well set on it, safely, I would say. I am impressed by their plans to improve the legislation. But, I repeat, we have gone a little farther. And now our financial institutions are helping Ukraine's financial sector rise. For example, Vneshtorgbank has a portfolio of loans to enterprises in Ukraine worth about $3.5 billion, with another $2 billion loan to the Ukrainian government. Russia's government has helped over gas prices to achieve the hitherto unsettled balance of payments and payments for gas. And therefore, we see how easily it all goes.

What made such an impression today? These are the plans for tax cuts that were announced for 2014, if I'm not mistaken, up to 16% on profits and up to 17% on VAT. But this path still remains to be travelled. So far, the balance of spending on infrastructure, social support and earnings is only just being explored. And if all these plans are implemented ... Yes, I think, they probably will be... However, in this case, I want to wish everyone involved success. We are currently still proceeding from the fact that after Russia raised insurance payments to social funds they cannot be reduced for the time being. Over the next three to four years, conditions conducive to drastic tax cuts will not arise.

But this is something we went for in relation to innovative business. For one, profit tax was removed altogether in Skolkovo. Insurance payments for IT companies have been cut to 14%. Insurance premiums for innovative companies based at universities are set at 14% and there are substantial reductions to income tax on profits payable by concerns involved in this process. There is a 30% amortisation benefit on investments in equipment and thereby this directly reduces the taxable profits, the taxable income. I must say that, as far as I know, this is not something they have yet in Ukraine. All this is what supports modernisation. Therefore, we will be happy to keep track of new developments there and are ready to give advice based on the legislation we already have in place. And we will study Ukraine's recent experience. Thank you.

Vladimir Putin: Let me conclude the previous topic. Ukraine is the IMF's largest borrower, and we are putting money into it. So here, another 10 billion was given. Therefore, under these conditions, with the country a recipient of IMF funds, reducing tax revenues becomes problematic. But it is certainly possible. And we, for our part, have always supported Ukraine within the IMF and have every intention of doing so in the future. Especially where we see such truly ambitious, bold plans for economic modernisation.

As for Russia, I am in a position to say yes, indeed, the entire world is faced with unprecedented economic challenges. This collapse of the global economy was the biggest since the Second World War - 0.6%. And it was the most developed economies that were hardest hit. These are, in increasing order, the United States and the Euro zone (a decline of 4.1%) and Japan (where the decline was 5% plus), and this decline was even steeper for us.

But it was a fairly short-lived period of decline and we are experiencing a more rapid recovery than in other parts of the world. And we see that Russia has indeed achieved a trend of sustainable economic recovery and economic growth. This year, I hope our growth rate will be about 4%, and the figure will remain at this level in the years to come, while inflation falls. We had inflation in double digits for 15 years.

Last year it was 8.8%, I think. This year, I hope it will be less than 8%, in any case I very much count on it. We will continue to keep inflation down and this is one of our macroeconomic policy priorities.

And I repeat once again that given our modernisation work, and taking into account our plans to decrease revenue reliance on the oil and gas sector and to increase revenue from the processing industry, this all gives me every reason to be optimistic about the prospects of the Russian economy, and the recovery of the global economy as a whole. We can see and understand all these problems and are in a position to evaluate them. But I still think that, in the medium term, slow though it may be, an improvement in the global economic climate is underway, and that these figures will continue to rise, albeit this time preceded by a "plus" rather than a "minus". There have always been crises throughout the entire history of the market economy, and they have always passed. And this too shall pass, and it will pass faster in Russia than anywhere else.

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