TRANSCRIPT: Prime Minister Vladimir Putin takes part in the VTB Capital "Russia Calling!" Investment Forum
Vladimir Putin's address at the forum:
I enjoyed the address by our American friend and colleague, but it worried me slightly. I'm serious. A major American businessman said that the United States is still, for the time being, the world's largest economy, but that China will most certainly take over the lead. Are we supposed to keep our foreign-exchange reserves in the yuan while the Chinese keep theirs in US dollars? This is an interesting situation, like a matryoshka doll. It's a tricky situation.
Allow me now... Please, excuse me for commenting on your presentation. Really, I want to thank you because this allows me to begin by saying what I wanted to say. Getting back to what you said about Einstein: we are familiar with this story, but our version has a different ending. When he was asked a difficult question, Dmitry (Einstein's assistant) replied in Russian. And when Einstein asked him how he managed to get through it, he said that he had made an evasive reply. "What was that?" Einstein asked. "I told him to get lost," he said. But we will not be giving evasive responses. I want to emphasise that we will try to be as specific as possible in our answers. We are following the situation closely in this country and in the world. We are doing our best to be on guard for any surprises, and recent events have taught us a lot. This is what I would like to talk about.
I want to talk about our priorities and Russia's strategic plans so that investors, and the business community at large, can understand the rationale and the motives behind our actions, particularly during this difficult period. Naturally, especially during this period, we need the trust of our partners and we attach great importance to it, while you and we understand this need us to be predictable and transparent.
Let me first of all say a few words regarding the current situation. Much has been said already about it, so please forgive me in advance if I repeat something. Anyway, several things need to be said, since this is the official position of the Russian government. We must admit that the consequences of the global crisis have not yet been overcome we understand that clearly. Uncertainty persists in financial markets following the sharp decline in indices this August. Most alarming is that the government debt of the euro zone countries exceeds 80% of their GDP. My colleague has just mentioned this. What is the most alarming aspect? It is not that the debt is so big according to forecasts, the average debt to GDP ratio in developed economies is expected to exceed 87% in 2011. Yet this is not the worst part. The worst part is that it keeps growing. It was 85% in 2010 and it is 87% now. In the G7 countries it was 112 last year and will be 118 this year. It was 79 for the EU and will most likely be 82 this year.
No positive change! The policy has not been reviewed, which is bad.
We in Russia know very well that risks are growing not only for the eurozone, but also for all other global economies. What we must do now is not deliver speeches to calm the markets, but rather take clear and thoroughly considered measures to stop the negative developments that many experts are describing as a second wave of the crisis. We don't agree with these experts and warn against fanning tensions. I agree with those who think that we are emerging from the crisis. I agree that this stage will likely last long, but it is nevertheless the beginning of a recovery.
However, there is still some uncertainty regarding the global economic outlook, and investors are nervous. We can also feel this in Russia, above all on our stock exchanges. I can assure you that Russia is prepared to deal with any scenario better than in 2008, when we said that we were better prepared than in 1998. But now we have the experience of the 2008 crisis and a degree of assurance, as well as instruments for resisting negative economic events. The government and the Central Bank of Russia have at their disposal a set of instruments for responding to a crisis situation. For example, we acted promptly to support the banking system's liquidity in August. The fundamental factor is the consistent implementation of a responsible macroeconomic policy. I'd like to stress that our priorities have always been a strict budgetary discipline, efficient spending and efforts to limit the growth of the sovereign debt.
This year, Russia's budget will be executed without a deficit. We have knowingly approved budget expenses that are slightly larger than the revenues for the next three years to achieve our economic development and social goals. We proceed from a very conservative forecast of energy prices in 2012 and 2013. However, we plan to have a deficit-free budget again by 2015. It could be deficit-free next year if the global market situation permits, but I repeat that we are proceeding from a highly conservative assessment of the global markets in particular the commodities market which is why we expect to have a minor deficit. This is normal, and we have included this possibility in our plans.
I'd like to point out that all of our plans will be fully funded by state allocations. In case of emergency, we can draw from the Reserve Fund, which has been growing. We expected it to run out completely late last year, yet we have not only preserved but also increased it. The Reserve Fund is expected to grow to over 1.5 trillion roubles, and the National Wealth Fund is growing as well and should reach 2.6 trillion roubles.
The Central Bank's gold and foreign currency reserves have reached $500 billion, the third largest in the world. These reserves are sufficient for controlling the situation on the currency market.
It should also be said that we have reduced inflation to the lowest level in the country's recent history. It will be about 7% this year, which is very important for investors and all Russian citizens. We will keep working to further reduce it. These figures have been reported by the media, yet I would like to remind you that the accrued inflation since the beginning of the year stands at a record-low of 4.7%.
Unlike many other global economies, the state and corporate sectors in Russia are not burdened with excessive debt. The sovereign debt to GDP ratio in Russia does not exceed 10%, with foreign borrowings amounting to less than 3%. I would like to say in this respect that yesterday we adopted a decision on additional incomes. We will not borrow on foreign or domestic markets and will therefore save approximately 350 billion roubles. We have decided not to borrow the planned sums on the domestic market, leaving the money at businesses' disposal. Our companies have almost no risky short-term debts.
Yes, we know there are problems and we can see them. We discuss the situation with our colleagues both from the Central Bank and the government's economy section on a regular basis. We see that some companies get really close to margin call. We can see it. We will lend leverage, if required, we will lend a hand, but only to those who can operate efficiently and do not experiment too much with their economic and corporate policies.
On the whole, the situation is indeed substantially different from the one in 2008 for the better. I should note the high level of trust that the people have to the bank system. In the past three years the value of individuals' deposits has grown by nearly 80%. I clearly remember the time when people were heavily withdrawing money from their accounts during the crisis in late 2008 and early 2009. It was then that we decided that we must let them withdraw as much as they needed. Literally truckloads and wagonloads of money were delivered to banks. As the craze calmed down, the money began coming back because people realised that they were not going to get cheated. As of September 1, 2008, people deposited nearly six trillion roubles. As of September 1, 2011, it was 10.072 trillion.
Colleagues, we do understand that our position is strong, but still vulnerable. Russia remains significantly dependent on fluctuations in energy prices. We do understand this perfectly well. We will have to maintain economic growth in rather inconvenient conditions, against the background of wild fluctuations in the global market. Additionally, I have been talking about this year's extra government revenue. Yesterday, we realised that two-thirds of the extra revenue were received from other sectors of economy than the oil and gas industry. What this means is that the attempts to make the economy more diversified bring results, and even if they are still rather modest (we are assessing the situation objectively), this is still something that we need.
Of course, we must be guided by domestic factors such as the improvement of the business climate, support for small- and medium-sized businesses, and increasing revenues from state investments. Speaking of which, our expectation is that we will have a growth of 4.1% this year, and 4.6% in 2014. However, as I said at the United Russia conference, this is insufficient. We are aware of this and we will do whatever we can to reach a higher level of economic growth of 6-7%. We must be guided by the internal factors I have just mentioned more than by anything else.
Our strategic goal is to diversify the economy. However, to change its structure, we must open the way for thousands of new projects and business ideas, and we understand this. First of all, what we need is state-of-the-art manufacturing and modernised, quality jobs, new technology, and a dramatic increase in performance. Moreover, we intend to carry out large projects in bio- and nanotechnology, communications, energy-saving, and space exploration. We are going to establish a network of powerful hi-tech companies. Of course, this requires investing money, both direct and portfolio investments. They must become the key asset behind Russia's new industrialisation. We expect the level of gross fixed capital formation to reach 25% of the GDP.
It is very important for us that new, highly localised manufacturing is established in Russia and the flow of investment is followed by modern technology. Clearly, there are good examples of such collaboration with our partners. Just a few days ago, the US Ford and Russian Sollers launched a joint venture with $2.4 billion in investments. Car manufacturing is only one of their projects. The others are engine production, and research and design centres, which are very important.
It is absolutely obvious that if we want to make our country attractive for investors, we must minimise the risks in terms of finances and administrative procedures. Political stability and predictable political decisions are as important as macroeconomic stability.
Our society, obviously, is open (we have just heard the opinion of our colleague about the political situation in the United States, but I'm not going to comment on it), and our people are free to say what they think about politics, and there is a lot of constructive criticism, but nevertheless, you know, we should be cautious about this.
Certainly, changes are needed, and they will happen, but it will be a process of evolution. We don't need great upheavals. We need a great Russia.
We will proceed carefully, strengthening the fundamentals of our political system and refining it. We will not tread water, and we will make sure that the Russian people and our partners our economic partners above all, but also our political partners see the continuity of our course and understand that they are dealing with a stable and solid country, which is safe for investment and can be a reliable partner.
We believe that the state should not substitute for businesses in the economy; the space for private entrepreneurship should be consistently expanded. As I mentioned earlier, the mission of the state is to lend support to entrepreneurs when needed and remove barriers that stand in their way.
We have already reduced the number of causes for conducting on-site inspections, liberalised the procedure for bringing in foreign experts to Russia and are in the process of improving technical regulations within the Customs Union. We have created a mechanism to assess regulatory acts' impact on the business environment, and the Russian business community directly participates in such assessments on a regular basis.
Let me emphasise that all draft laws that affect business interests will be discussed with entrepreneurs and their leading associations. This is an established practice, which will certainly be continued. Friends and colleagues, please note that beginning this autumn, businesses can not only have their say during the preparation of draft laws, they can also help amend existing regulations, if they feel that they interfere in any way with their business operations.
We are also expanding access for foreign businesses to strategic industries, such as the medical industry and banking sector. In general, the investment process is becoming less complicated. For example, today a foreign investor can buy a 25% stake in an enterprise engaged in the use of subsoil resources without the authorisation of the Federal Antimonopoly Service or the Government Commission for Foreign Investment. Previously, they could buy only 10% without the necessary permit.
Please note that the government submitted corresponding legislative amendments to the State Duma yesterday. We will support major projects by foreign and Russian businesses using development institutions. We already have positive examples of investors cooperating with Vnesheconombank (I am sure they mentioned it many times here today); the Russian Direct Investment Fund has begun operating, and we expect that its capital will reach at least $10 billion in five years.
Again, our strategy aims to gradually reduce the state's direct involvement in the economy. Therefore, we will gradually (please note the word "gradually") withdraw from the capital of state corporations. I have said it many times before, and I'll say it again: we don't seek to create state capitalism. Even if we participate in state corporations, even if we have established them, we have done so only to concentrate resources in strategic areas that couldn't be concentrated other than with the support and direct participation of the state on markets dominated by major international companies. If the Russian state had failed to enter these areas of business, such as shipbuilding, aircraft building or rocket building, there would have been no chance for us to maintain our presence on these markets. However, it doesn't mean that the state will sit there forever. We are now building their organisational structures, and will subsequently increase their capitalisation, retrofit them and gradually put them back on the market. We will privatise state-owned shares in these companies and introduce independent professionals on the boards of directors of the companies with state interest.
Next. The establishment of a reliable financial sector in Russia is among our priorities. Two major Russian exchanges MICEX and RTS will merge before the end of the year. The enactment of the bill on a central depositary will allow the united exchange to become a major trading and settlement centre. Eventually, it should join the ranks of major global securities exchanges in terms of major performance indicators. I believe it will easily be on the list of top ten exchanges. The approximate annual trading volume of the united exchange will exceed 200 trillion roubles, or almost 7 trillion dollars. That will place Russia among top ten global exchanges initially. This is a crucial step towards the creation of an international financial centre in Russia. Under this programme, we intend to develop domestic investment instruments in Russia, so as to able to effectively convert domestic savings into development capital. So far, these funds have not been used much in Russia.
Infrastructure should become a determining factor in Russia's investment attractiveness. We will keep building roads, upgrading airports and expanding railway transport. We intend to significantly increase the capacity of the Russian power engineering industry. This year, we will commission an unprecedented amount of generated power, 6.7 GW, which is almost as much as the amount generated over the past three years. And we plan to generate even more next year.
Finally, I would like to single out one more key area of our policy. If we want to see changes in Russia, more than financial capital we need human capital. People should be the main driving force behind Russia's modernisation. We have already managed to overcome extremely dangerous demographic trends in Russia. I heard speakers mention the demographic situation as a critical issue in Russia. We are well aware of it; that is exactly why we drafted a demographic development programme some five or seven years ago. By the way, demography is an issue in all post-industrial nations. Look at Europe. Same thing. We have increased life expectancy in Russia by more than three years over the past five years. Almost one-third of the Russian regions show population growth, which seemed impossible just a few years back.
We will continue to do our best in order to improve our nation's human capital. During the next three years we will, in addition to current financing, release an additional 580 billion roubles, or over $18 billion, for improving health care and education. Please note that the operative word here is "additional," because this is just part of the money. This is the largest investment in this sphere in the history of the new Russia.
Colleagues, creating the conditions for comfortable and unobstructed business activities, our focus on entrepreneurial initiative, and predictable and responsible economic policy this is our choice and it represents the unified position of the Russian government. We seek to work together with everyone who wants to do creative work and achieve success in our country. I am confident that together with our colleagues and friends from foreign countries we will achieve success. In today's world you can't make it on your own sitting around your national apartment, so to speak. Everyone needs success. And I am confident that we will be successful. Thank you very much for your time.
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Andrei Kostin (VTB Bank Chairman): Mr Putin, you just mentioned this and we've already done it. On Monday we will start accepting deposits in the Chinese yuans. So, for all those who'd like to open accounts not only in roubles, dollars and euros, but also in yuans, please come to Bank VTB24. We don't place reserves, unfortunately, so we have limited abilities here.
Vladimir Putin: I'd like to add that we are beginning settlements with our Chinese friends both in roubles and yuans. We have just about started to do this in trade.
Vladimir Putin's answers to questions posed by participants in the forum:
Question: Could you please tell us more about Russia's fiscal policy? How will you balance the budget and what will you do with the strategic reserves?
Vladimir Putin: As I have already said, we are planning for a small deficit of 1.6% next year. I think it will later drop to 1.5% and then to 0.7%. In 2014 we intend to have a deficit-free budget. We have managed successfully so far. As for how we plan on balancing the budget, we will reduce inefficient government spending while fulfilling all of our social commitments. I'd like to emphasise that we will strive to reduce all kinds of unnecessary construction projects and the like, where corruption is rampant. We will also try to stay away from low-priority, grandiose construction projects, but we will complete what we have already started in the past.
Unfortunately, this is no easy task. We have just passed through another stage the budget drafting process, and ministries, departments and other government agencies have been making new proposals on increasing state investment. It's true that this investment is growing, but we will still proceed based on the potentialities of the budget, its revenues. We will make substantial increases in our military expenditures. We are not going to militarize the country, but we have to replace our obsolescent major combat systems. We have set aside the money to do this until 2020. This is an open figure: 20 trillion roubles. Tomorrow I'm going to discuss issues pertaining to the re-equipment of the military-industrial complex. We must have modern technology in order to produce modern weapons, and this will cost an additional three trillion roubles. Tomorrow we will discuss what we will do, how we will do it, and when.
At the same time and I'd like to emphasise this again we have made meticulous calculations and believe that we will have enough funds to meet our social commitments and cope with major comprehensive issues in education, healthcare and defence in order to balance the budget under the parameters that I mentioned earlier.
Now I'd like to say a few words about strategic reserves. This year we will receive additional budget revenue as a result of the favourable foreign economic situation. As in previous years, we will proceed very cautiously in spending these funds. We will channel a considerable portion into replenishing our reserve funds, of which we have two. The first is the Government Reserve Fund, which is designed for prompt responses to risks and crises that pop up in the economy. Let me repeat that it will grow we are allocating some serious money about 600 billion or perhaps even 700 billion to this fund drawn from additional revenue. It will instantly grow to reach 1.6 trillion. Part of this money we will spend on social commitments housing for veterans of the Great Patriotic War and we will replenish the fund for capital repairs and relocation of people from dilapidated housing. We want our people to feel that the favourable foreign economic conditions are reflected in their better living conditions. We cannot allow our people to live a life separate from the processes underway in our country. They must feel the beneficial impact of favourable foreign economic situation on their everyday life, even if these processes are incomprehensible to them.
The second fund is the National Wealth Fund. We have preserved this fund, which amounts to 2.6 trillion roubles today and is practically not decreasing. We use this money to support the pension system that unfortunately has been running a deficit recently. This is a problem. Both the Pension Fund and the Social Fund, which we draw from to spend on temporary disability allowances, still have a deficit, and we have a lot to do in order to make them self-sufficient. But until then, we will spend this money our proceeds from the oil-and-gas sector also go to replenish this fund primarily to support the pension system. According to our calculations, these resources will sustain us until we can eliminate the deficit in these social funds. This is what we are planning to do.
Question: Russia is set to host two major sporting events the Football World Cup and the Olympic Games. Could you please tell us how you are going about developing the infrastructure for these events and how your actions will affect the infrastructure of the Russian economy in general?
Vladimir Putin: When we put in our bid for these major international sporting events, we primarily proceeded from the premise that they would attract the attention of our citizens, first of all, and that they would promote a healthy lifestyle and the development of sports en masse. However, we also hoped that preparing for and holding these events would simply compel all government bodies to develop this infrastructure.
As for the 2014 Olympic Games in Sochi, we will spend 80% of all appropriations on infrastructure. Embarassing as it may be, I have to admit that had it not been for the Olympic Games, the Sochi area would never have been developed as much as it has been not for a hundred years. We are building roads, bridges and tunnels there. I'm ashamed to say this, but this city of half a million people did not even have adequate sewage facilities. We are just about completing the construction of water supply and disposal systems; we have built a gas pipeline running along the bottom of the Black Sea, and are building another one in the mountains to ensure the steady supply of electricity to the region. We are also building an electric power plant and eight substations there. In summary, we are developing the infrastructure in the south of the country in a big way.
I'm hopeful that Russian citizens, as well as guests from all over the world, will come here and use these facilities for decades to come. I'm pleased to note that we have invited the best specialists from several different countries to take part in this work. They came from Europe, the United States and Canada. This work is being done by entirely international teams. This represents more for us than just major construction projects it is helping us upgrade the professional and technological skills of our specialists. This is taking place right before my eyes I visit Sochi often and see it for myself. Russia is integrating itself into this environment, and this is yet another absolutely clearly positive factor in our preparations for this event.
As for the World Football Cup... By the way, we are closely following Britain's preparations for the 2012 Olympic Games, which has been a pleasant experience. I'd like to thank our British colleagues for being so open and generous in sharing their experience with us and keeping us informed about their Olympic preparations. In terms of scale, the World Cup in football is on par with the Winter Olympics, primarily because it will be held in 10 cities simultaneously, or perhaps even 12 or 13.
We need to build stadiums and hotels in many cities, and we need to develop railways and airports. But ultimately, all these facilities will remain in the country and people will use them, in particular to develop business.
I don't need to tell the people in this audience (mostly business people) about this. If you can't fly or travel to a city by other means, as a rule, there is no potential for projects to be carried out. I have close relations with many foreign partners and I know how this works. If you can't fly there, what business can you possibly launch there? There aren't even places where you can spend a night! We are going to build everything. But in addition to everything else, I still maintain the hope that the 10 stadiums will become our major facilities for developing modern football by "modern" I mean not just in terms of sports and equipment, but also economically.
Question: You have spoken very clearly about how you plan to overcome crises, and about Russia's long-term prospects. But now Russia is preparing for elections and the government is likely to change. Could you please talk about the priorities of the next government? Thank you.
Vladimir Putin: President Dmitry Medvedev and I spoke about our strategic priorities at the recent United Russia conference, and I have mentioned them today as well. I can only repeat that in determining our priorities we will proceed in strict conformity with financial discipline, and in observance of macro economic indicators. For all our desire to be a kind government (and every government wants to be like a kind and rich uncle), we believe that if we want to be honest and consistent in our relationship with our citizens, we need foremost to guarantee the basic conditions for economic advancement, and to resolve social tasks on this basis. This will be our top priority. I have talked about other aspects in my speech and there is no need to repeat this. I mentioned modernisation, innovations and our key task: to diversify our economy and eliminate its dependence on oil and gas. In addition to oil and gas, we also have metals and chemistry regrettably, this is a rather small package. We have four, five or six successful areas, when we need to have dozens of them. We will be working towards this end.
Question: Mr Putin, I'm sorry that this question is a bit general, but it's important for us.
My name is Vladimir Postolovsky, and I work for the UBS O'Connor Ltd. My question is as follows. A month ago, The Economist carried an article that presented the findings of a survey in which Russian respondents were asked if they would like to emigrate. A quite high percentage about 22%, if memory serves answered that they would. It's not so much the figure that I find striking after all, the grass is always greener on the other side as the trend... This survey comes with a rather long history, and the percentage (of the respondents willing to emigrate) is a record high over the last two decades. What is indeed striking to me is that current oil prices are ten times higher than they were ten years ago and the per capita income has since increased dramatically, yet this trend exists. As a politician, you cannot help but be worried. So my question is: How do you think this trend can be reversed? Thank you.
Vladimir Putin: This question is not so difficult to answer. There's a Russian saying that goes, "Man seeks a better fate like fish seek deeper water." You've mentioned oil and natural gas. It's true they continue to grow in value. This is precisely why I mentioned earlier the importance for the general public to feel that they are also benefiting from the favourable situation on the world markets. This is why we plan to support various social programmes, including ones to relocate tenants who live in dilapidated apartment buildings, and to renovate public housing that is in need of major repairs. Resolving social issues is without doubt a major part of any government's mission.
As for these surveys, we should compare the number of people emigrating away from Russia with corresponding statistics for other countries. I recently spoke with top Russian and European border control officials. According to them, Russian immigrants are not causing any trouble in Europe, and their numbers are still quite low. Ask Mr Pronichev (head of the Federal Security Service's Border Control Agency) about the figure cited by his EU counterpart. It is less than 1%.
With that said, it's clear that by expressing their wish to emigrate away from this country, people are sending us a signal that there is something here they are unhappy about, which is understandable. Indeed, there are quite a few things [in Russia] that may be the source of discontent. You spoke about higher incomes, for instance. Wages are still not high enough. This year, from January to August, the real incomes of the Russian population rose somewhat, by 2%. That is the growth rate for real incomes. Yet many people saw their wages shrink during the economic crisis. Real incomes grew slightly while wages shrank considerably. Now they are on the rise once again and may soon return to the pre-crisis level. But they aren't there yet.
We also had a rather high unemployment rate. Now, unemployment has finally dropped back to the pre-crisis mark and even lower, indicating that at present, more people have jobs than before the crisis. This means we need to make further efforts to stabilise the economy, to ensure that it is steady and reliable, thereby demonstrating to the public that there are realistic prospects for everyone to improve their standard of living for themselves and their families.
This is a task that we should all tackle together above all the government, but also the public, the business community and the media. We need to make a strong effort to combat corruption. And the business community, as well as other members of our society, needs to behave in a socially responsible manner.
Criticising the media is a common tendency these days. Some people do so simply because it's in vogue. But there is some truth to all this criticism. If we consider our television shows, for instance, judging from them the situation would seem to be apocalyptic! This is a misrepresentation of reality.
So this is a task that we all share. I'm not trying to shift responsibility off the government's shoulders, not at all. I agree that the authorities the president, the prime minister and the government must take the larger share of the burden upon themselves, but we do need others to give us a hand.
We all need to gear ourselves up for positive work. We have everything it takes to be successful, including a competent, well-educated workforce and resources such that no other country can boast. I have no doubt that we will be able to make Russia a better place to live in and that at that time, public opinion polls will paint a very different picture.
But do you really think that these surveys are all that reliable? I often give them a look, but I never trust them entirely. And then, there's one other factor at play here that of political nervousness and uncertainty. I know when those surveys were conducted. In general, though, I think that the current president, Dmitry Medvedev, and myself, have sent a clear message to the nation: We have no intention of destroying anything. We are seeking to further develop our political system by strengthening its foundation.
There are a great deal of brazen politicians out there who try to climb to the top by smashing everything along the way. Russia has been through this already more than once. (Quoting lyrics from the Bolshevik anthem, the "Internationale") "We will destroy this world of violence / Down to the foundations, and then..." What then? "We will build our new world. / He who was nothing will become everything!" We have known these lines since childhood. And what came of it ultimately? It all wound up with a collapse in the 1990s.
So we should simply break from that Bolshevik style of doing things. We should carefully map out our journey and then set out toward our destination, trying to stay the course throughout. I'm sure that if we act in this manner, public sentiment is bound to change. This is no easy task, but we are up to it. We can do it!
Remark: Mr Putin, my name is Arutyunyan. There are 8.5 hours remaining until your birthday. But premature birthday wishes are said to bring bad luck.
Vladimir Putin: Please speak up. That's an important point you're making.
Remark: Premature birthday wishes are bad luck, they say. But there are only 8.5 hours remaining until your birthday. Thanks to Andrei Kostin and his VTB bank, who have set up this venue, we could continue our meeting comfortably into the night. And when the clock strikes midnight, we can all wish you a happy birthday.
Vladimir Putin: You're saying we should hang around here for a while longer? I sense from your accent that you come from the Caucasus, is that right?
Remark: Yes.
Vladimir Putin: As I thought. Well, let's discuss your suggestion later on.
Remark: I would also like to thank Mr Kostin for arranging this new conference venue.
Vladimir Putin: Thank you for bringing attention to this. Indeed, thank you very much.
Remark: My name is Johann Wermuth, from the company Wermuth Asset Management. A happy birthday from me, as well, and best wishes!
Vladimir Putin: It seems we've already called it a day.
Johann Wermuth: I don't think so. While I was being interviewed for the Voice of Russia radio station, I said I was convinced that Mr Putin is aware of the problems this country is facing and that he is determined to resolve them. Foreign investors as well as some Russian citizens ridicule me for this, I'm sorry to say. So let me ask you in all seriousness: Where do you stand? I just don't want people to consider me naïve for believing in you as a committed leader.
What signal could you give in order to address the issues raised by Mr Bonderman (David Bonderman, TPG investment fund): "Out of 170 countries, Russia ranks 155th in terms of the level of corruption."
Vladimir Putin: What place?
Johann Wermuth: 155th.
Vladimir Putin: What indicator?
Johann Wermuth: The World Bank, Russia's corruption index.
Vladimir Putin: Ah, I see.
Johann Wermuth: 155th is a dreadful place to be in. You had a chance to act during your 12 years in government, but no one has dealt with corruption over these 12 years, unfortunately. As a German... Certainly, we have corruption as well. It was even legal to bribe people, and we could even write bribes off on our tax returns before 1999. In other words, we know how to do corruption. But are you really going to fight it? What are your ideas about keeping the people who you need in Russia? I also read the statistics. It used to be 7%, but now 22% of Russians want to leave Russia. You need to hold on to people who you need in order to carry through on modernisation. What are your ideas? For example, take Denmark's spot at the top of the World Bank index? Or join the WTO, NATO, or the European Union? There's a need for obligations, regulations and rule of law in Russia. What do you think about Russia joining the European Union, NATO or WTO? What signal do you need to send so that smart Russians stay in this coun
try and smart investors come to Russia? I would appreciate an answer. I don't like being laughed at. Thank you. Happy birthday!
Vladimir Putin: You suggest that we join the EU? Sort out your debt troubles before making such suggestions. I just don't get how Russia can join the EU. We are well aware of the standard of living and the quality of life in Europe and in Russia, of European stability and social safety nets. You know, everything is relative. If you look at what Russia was back in the mid-1990s to early 2000s and compare it with today's Russia, I believe you will see certain differences, and they are substantial. The standard of living has doubled. The economy is quite different. By the way, its structure is also changing. Certainly, we are aware of the problems facing us, including corruption. Of course, we will keep fighting it. However, and you know this, this problem is not only Russian; it's a global problem typical of countries with transitional economies.
Many legal issues haven't been properly regulated, and much depends on the material welfare of law enforcement officers. These things are also changing in Russia. Next year we will significantly increase salaries in law enforcement. We expect that this will curb corruption, primarily among law enforcement officers, and people will begin to value their jobs. Others, the general public, will exercise better control over their activities.
They often criticise us for a lack of freedom of speech and so on. However, when problems arise in the Western countries very sensitive issues for them they quickly pull a veil over such issues. I remember well the period of hostilities in Georgia, when Georgia attacked South Ossetia. Two Ossetian ladies, a young girl and her aunt, spoke on the television, and they began shooing them and finally stopped the broadcast. So, please don't say that many problems are typical of Russia alone, every country has them.
Perhaps, there are more problems in Russia than in other countries. They will gradually disappear with advances in the economy and the social sphere; I have no doubt about it. But we need time to get there.
Are we going to join NATO or EU? No, we aren't. We believe we are in a position to defend ourselves. As for the EU, we will continue to expand our relations with the European Union. I can't picture the future of European culture in the broad sense of the word or the future of the European continent... They used to say that Europe stretches "to the Urals", but this is a geographic notion, whereas European culture, and Europe in this sense goes much further to the Pacific Ocean, because this territory is populated mostly by Russian people and people of other ethnicities, but they are still people steeped in European culture. Even if they have different faiths, they are still people of European culture. This is all a single space. I just don't see how people living in this cultural space will preserve themselves as a respectable hub of international policy and power without joining forces for the benefit of future generations. Either we join forces or gradually leave the international arena and make room for others. I am not sure whether it's good or bad, but things will definitely change. In order to preserve ourselves, we need to join forces. There's nothing wrong with that, either. So, we will go ahead and establish a free trade zone with the European Union during the initial phase, and keep on promoting these integration processes. However, our primary goal is not to join alliances or achieve other political or administrative goals. Russia's main goal is to improve its citizens' standard of living. We will focus on achieving this goal. And I'm confident that if we act consistently, we... The number of poor people living below the poverty line decreased in Russia over the past few years. Do you know the numbers? Substantial numbers, substantial. We will stay the course. However, we realise that if we want to drastically raise the standard of living in Russia, we will need to secure high levels of economic growth. I have already mentioned what we intend to do to get there.
Question: My question is about the WTO. What do you think about WTO membership? Will Russia be able to join in the next three to six months? How will this affect the Russian economy and business?
Vladimir Putin: You know, there is an ongoing discussion in the Russian business community about the need to join the WTO. Is it on the verge of dying, since its members can't agree on key agenda items? These rounds go on and on, they last for years on end without any actual results. Developed economies abuse their status as developed nations and don't want to play by the democratic rules that they try to impose in the political and other spheres in other regions, particularly in certain regions of the world. They insist on their monopoly status as developed nations and just give handouts to developing countries in the form of all kinds of aid instead of making changes, drastic changes, to fundamental rules and providing real opportunities for the development to emerging economies. I don't want to start this discussion, but I still want to say that we see pluses and minuses to possibly joining the WTO. Clearly, entire Russian industries cannot compete with their potential competitors. Our potential competitors are more efficient and offer products of better quality at lower prices. Notably, increases in personal income levels in Russia are instantly followed by greater amounts of imported goods. This is the best evidence of the validity of my arguments. In fact, we are well aware of it. Many businessmen, many major leading Russian companies tell us, the government, including me, that Russia doesn't need to join the WTO, because we will have to open our markets, let in our competitors who will squeeze us out of our own markets. We understand what stands behind these apprehensions; therefore we are trying to agree with our foreign partners in general that Russia's accession to the WTO should be based on standard terms, if we can speak about any standard terms at all. It looks like they treat each country individually, but still there are some general rules.
We have reached general agreements on key issues, including agriculture (we believe we have struck a balance here) and car assembly plants. As for agriculture, recent disputes revolved around amounts of imported red meat... I am not going to dump this on you now. I have the impression that I can remember the numbers and terms that I've never heard before the minute I wake up in the morning. We have achieved trade-off solutions that are acceptable for all parties. Then we ran into the car assembly issue. I have quoted an example of our joint plans with Ford. We promised that Ford and some other major global companies will operate on certain terms until 2020. However, our partners, mostly Europeans (we had major disputes over meat with the Americans, but our car disputes were with the Europeans) were unwilling to recognise our right to develop our own automobile industry. Ultimately we reached a compromise. The Russian government committed itself to protecting the interests of existing and prospective investors in this sphere. We held consultations with them, and they agreed with us. We will even cover a portion of their expenses in order to protect their interests, the interests of our investors. We are even prepared to subsidise part of their activities on the Russian market provided they keep up their part of the deal that I mentioned, as well, including the number of cars manufactured in Russia, establishing engineering centres, and so on.
Now, what do we hear from our partners? Now they tell us: "Go and talk to Georgia." Our partners from Georgia set the same requirements that they had set right from the start, then withdrew them, and now they come back with the same requirements again, meaning that they hardened their position again. Certainly, I have a legitimate question in this connection: Do our key partners in Europe and the USA really want Russia to be part of the WTO? Why hide behind the Georgian issue? If they really want us to be part of the WTO, they can make things happen overnight, all the more so since we have reached compromises on major issues. If they don't, then the Georgian problem is certainly a pretext, and there may be many others, too.
To finish my answer to your question, whether this is good or bad for Russia, I will say it's fifty-fifty, but overall there are probably more pluses than minuses for Russia. We are not abandoning this goal, and we are ready to join the WTO in full, but we will do so only if they don't set unacceptable terms for Russia.
Question: My name is Alexei Kuznetsov, from the foundation Dashevsky and Co.
Mr Putin, I'm probably one of the youngest participants in this forum. I spoke yesterday at a session of our foundation's investment panel, and I suggested that we buy a stake in some privatised Russian assets. This must have been a very immature suggestion on my part because a senior executive rejected it flat out, explaining that there had been too many cases in Russia of majority shareholders refusing to make stake offers to minority investors. One recent example is VTB bank, which has ensured that minority investors don't get their hands on a stake in the Bank of Moscow. How do you feel about the protection of minority shareholders' rights in Russia? And how will this problem be addressed in the near future? Thank you.
Vladimir Putin: You've raised a very important issue. And judging by the applause, there are a lot of people in the audience who are with you on this question. I won't go into detail now, but as you know, we have already made several decisions concerning the protection of minority shareholders' rights. I think that if we're talking about the need to improve the business climate, among our priorities should be the protection of minority shareholders so that these investors can feel secure despite the minor role that they have in corporate management. This is one of the most important aspects of the business climate, and we are determined to improve it.
Andrei Kostin: In my opinion, the question that this young investor posed is indeed somewhat immature.
Vladimir Putin: What makes you think so? No, this question is absolutely mature. And I understand what he is saying. I remember the situation with the Bank of Moscow well. You became involved with this bank and now you're desperately trying to wash your hands of its dirty dealings.
Andrei Kostin: We'll succeed eventually.
Vladimir Putin: You made a mistake and now you expect the government to help you...
Andrei Kostin: We truly appreciate the government's help. But we aren't just sitting around, either. We are working day and night without rest.
Vladimir Putin: Take a break for my birthday tomorrow.
Question: I represent the company DTEK. You spoke extensively today about state-owned corporations changing their ways in order to become more modern and competitive. Will foreign companies (Ukrainian companies, for example) be given access to Russian pipelines if they come over to invest in Russian gas production? Thank you.
Vladimir Putin: They will be given access to the Russian pipeline network, yes. But they will not be allowed to use export routes, since Gazprom currently holds the exclusive rights for Russia's gas exports. They will be given access to production assets and to pipelines within the country. In the future, we may liberalise exports as well. But at this time we won't go that far, so as not to provoke a market collapse. This is crucial. We can sell a commodity, such as natural gas, in greater quantities, but at a lower price. This is what liberalisation will lead to in the long run. But we aren't ruling this option out for some point in the future. Anything is possible. I have the impression that our European friends and partners are currently trying to push us towards making this decision, as they make one attempt after another for Gazprom offices in Europe.
Question: My name is Katie Osvath, Artio Global Management. In your speech, you said that your ambition is to increase investment in Russia and to raise the GDP up to 25%. When do you expect to achieve these targets? And what specific steps is the government taking [for the GDP] to hit the 25% mark?
Vladimir Putin: It's difficult to put a timeframe on this now that markets and economies have become so volatile. We would like to make this happen as soon as possible, say, within 5 to 10 years' time. And I've already mentioned the tools we are going to use to accomplish this. We'd like for companies operating here, in Russia, to feel secure, to feel that they work in a stable environment, not in some high-risk zone, and that they can always rely on the federal government and the regional authorities for support.
I've cited numerous examples of Russian regions, such as Kaluga, which have already outstripped Moscow in terms of their investment in local products. We have regions with no oil or gas operations, which nonetheless benefit from new car assembly facilities, pharmaceutical lines and so forth that are being set up on their soil. We'd like for all of our regions to become attractive to investors. What do we need to do in order to make that happen? We should consolidate legislation, curb corruption, and reduce administrative barriers, in an attempt to make the macroeconomic conditions in this country as favourable as possible. There are many different areas of activity here, and I have already identified them. As for the timeframe, this will depend on how effectively we manage to carry out the tasks that I just mentioned.
Question: Mr Putin, I'm from France, and when I speak with my Russian friends, I get the impression that there is a powerful trend toward perfectionism these days, in the West as well as here. (Here, at the forum,) we've touched on Russia's relationship with Europe. But we should also turn our sights to Asia, because our relations with China and other emerging Asian economies will play a key role in the future. I wonder how Russian politics approaches these two zones, Europe and Asia, with regard to the country's own economic development.
Vladimir Putin: I've expounded on this issue repeatedly, in one form or another. As a nation, the culture of Russia is European. In this sense, we are undoubtedly a part of Europe. I can hardly imagine Europe without Goethe or Georges Sand. And you'd probably find it difficult to imagine Europe without Dostoyevsky and Tolstoy do you understand what I'm saying? without German music, Russian literature, French culture and so forth.
Having said that, Russia remains the largest country in the world, and the majority of its territory lies in Asia. China and Japan are our neighbours. Pragmatically, most high-tech opportunities these days are found in Europe. On the other hand, though, the countries of the European Union rely on Russia for their energy needs. And they are interested in the Russian market for selling their cars. More cars were sold in Russia than in India last year, which is incredible. The population of India is almost 1.5 billion, while ours is just one-tenth of that, yet our car sales exceed theirs. This speaks to the fact that living standards (in Russia) are rising. And, in all honesty, the measures that the federal government has taken to support the car industry have proved to be quite effective.
So technology is concentrated in Europe, while for investment opportunities and markets one should look to Asia to China, Japan, (South) Korea and India. The modern world is indeed highly globalised. There are negative aspects of this as well as positive, but this has become a fact of life. And we're determined to pursue a well-balanced policy, with cooperation with both the West and the East.
We share a huge border with China. We've lived side by side for thousands of years. Today, our interstate relations are at perhaps their highest level ever (comparable only to a brief period during the Soviet era, after WWII). We enjoy good, friendly, mature relations with China today. And China is highly interested in developing its relations with Russia further.
Our technology is in demand in China in sectors such as the nuclear energy industry. We are building the Tianwang power plant there, employing the most advanced technology, and our Chinese partners are pleased about that, as it benefits their economy both in terms of energy production and a technological upgrade.
We are interested in the inflow of smart European investments in high-tech sectors. We are seeking to penetrate into Chinese and Indian markets, and we're also thinking of expanding our presence in South Korean markets. So I don't think we should be reasoning in terms of which markets will be more profitable. We will be better off if we try to maintain a properly balanced policy.
More to be posted soon...
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