On 29 September 2009, Russian Prime Minister Vladimir Putin addresses Investment Forum “Russia Calling” hosted by VTB Group investment arm.
Russian Prime Minister Vladimir Putin addresses Investment Forum “Russia Calling” hosted by VTB Group investment arm.
The text of Vladimir Putin’s address, as well as his answers to participants’ questions is available at:
I am very happy to greet this large and authoritative assembly. I would also like to thank the top executives of Russia's Vneshtorgbank for providing this format where businessmen, politicians and analysts from numerous countries can meet each other.
Naturally, the forum will continue to discuss global economic problems, concentrating on new development models and prospects for a post-crisis world and a post-crisis economy.
Surely, numerous uncertainties persist in the global economy. Unfortunately, we have not yet made significant headway in overhauling the global financial system. Still we hope very much that specific decisions, adopted at the recent G20 summit in Pittsburgh, will at least create a good base and favourable conditions for passing real decisions in this sphere.
The use of anti-crisis tactics in many countries can cause contradictory consequences. As far as Russia is concerned, it too faces problems and issues. I will discuss them later in my speech today. Excessive protectionism is also a cause for concern.
Economic authorities and the business community must continue to prioritise these risks. Nevertheless, we cannot help but notice the initial signs of a global economic recovery. Such optimistic trends are also manifested in Russia. There are enough statistics and arguments to prove this point.
I will not go over present-day conditions in great detail. All I want to say is that stabilisation measures are producing an increasingly greater positive effect. The Russian GDP stopped plunging in June 2009. Some sectors began to recover even earlier. All this gives reason for cautious optimism.
When the crisis began, we and our foreign colleagues and partners had to act quickly to start implementing an anti-crisis programme. In some cases, the Government had to assume responsibility for business risks, to make decisions and to supplant some rather ineffective management at specific enterprises or entire companies, to put it mildly.
At the same time, we realised the illusory nature of that blind faith in the state's omnipotence and in the hopes that all-out economic intervention could improve the entire situation and settle all issues.
Moreover, I'll tell you frankly that we also felt the pressure of our colleagues from the business community to borrow from state wealth. They began to forget about freedom and the market economy and became even greater advocates of a stronger government or state role in the economy than the state representatives themselves. This is also quite natural and understandable.
Anyway, you can see that Russia did not witness any large-scale nationalisation. Nor did it revert to all-out administrative regulation. We have retained free capital flows and a convertible rouble.
I am confident that all this served as a convincing sign for investors. I would like to stress once again that Russia will not revert to the past and will remain a liberal market economy.
Today, I want to repeat that we will consistently promote private enterprise, the country's integration into the global economy and will also do our best to create a favourable investment climate.
As the situation becomes stable and the crisis trends are overcome, it is our intention to purposefully and consistently reduce state economic intervention, to use traditional market tools, including privatisation instruments.
We regard some countries' proposals to curtail anti-crisis programmes as premature.
We believe that we still need to support those industries where a dramatic decrease in demand has created serious problems. As in many countries, these include the automotive industry, engineering as a whole, housing construction and other industries. Many enterprises in these sectors need to be overhauled.
Additionally, we need to focus our attention on single-industry cities and the need to create new businesses and jobs there. The Russian Government's anti-crisis measures for 2010 will highlight these areas.
However, we can now shift our attention, moving from "manual control" to systemic solutions capable of ensuring the sustainable development of the Russian economy in the post-crisis period.
At present, nearly all the leading countries are trying to determine their place in the post-crisis world. Russia is also facing this task. I believe that Russia can not only strengthen its traditional competitive advantages, for example, in energy, metallurgy, chemicals, transport, and now also in agriculture, but also greatly enhance the role of its high-tech innovation sector.
We are facing the crucial task of making Russia maximally comfortable for its people. This means that we should continue to modernise the education, healthcare and pension systems, resolve housing problems, and implement environmental programmes.
The plunge of Russia's GDP due to the crisis was substantial. According to tentative estimates, it will decrease by 8% in 2009. At the beginning of the year and in the summer, we thought it would fall by 8.5%. I don't think now that it will fall by more than 8% by the end of the year, and the figure could be even lower. But anyway, we must do our best to compensate these losses in the next few years.
I would like to say that we need not so much a quick, as a qualitative recovery. Our recovery should be based on fundamentally new precepts, with reliance on new growth parameters.
I mentioned before that the Russian Government is drafting a so-called "exit strategy." In fact, it is the reviewed agenda we are to start implementing in 2010.
We are not starting from scratch. Russia's main market institutions proved their sustainability and efficiency during this dramatic crisis. It is true that we have suffered numerous losses, but - and I think you will agree - our [market] institutions have not collapsed; they are still functioning and they are manageable. Russian business has proved its ability to adjust to changing conditions.
We have enough resources and opportunities to protect the country from new currency shocks, from shocks to the national currency and the financial system. Russia's gold and foreign currency reserves exceed $400 billion. By March 1, 2009, these international reserves fell to $384 billion, but they surged back to $413 billion by September 25. Again, we have enough resources to protect our financial system.
I would like to remind you that in 1998 the Russian Government took out loans from international financial organisations such as the IMF and the World Bank. Since then, we have developed constructive relations with them, and we are grateful to their management for this. I see some of these executives in this audience. I would like to express my sincere gratitude to them. Today Russia is contributing to the programmes of support for crisis-hit countries and regions, providing billions of dollars.
On the other hand, we need to improve many things in legislation and corporate governance, and to modernise the structure of the real and financial sectors. But we do not need to reinvent the wheel. Russia's development strategy until 2020 and the guidelines of the Government's operation until 2012 outline the main directions for development, the main projects that should ensure qualitative changes in the Russian economy, and the innovative vector of its modernisation.
Of course, these projects should be adjusted to modern realities, with due regard for the crisis in the global and Russian economies. But we will not put off their implementation or reconsider their targets.
We believe that the first and most important prerequisite for stable development is a highly responsible and conservative budget policy, and we are not planning to sacrifice the macroeconomic balance.
This year, the country's budget has been affected by dramatically shrinking revenues, mainly because of the falling prices of our traditional commodities. At the same time, we were forced to increase federal expenditures. The increase, although insignificant, was due to the need to deal with the challenges triggered by the global recession and to fulfil our social obligations to the Russian people.
Doing so eventually becomes an investment in human resources, while steady economic growth is only possible during social stability and support for domestic demand.
Moreover, Russia is the only country that proceeded with a large-scale pension reform during the recession. The basic portion of labour pensions will be increased again by 30% later this year - on December 1. Next year, pensions will grow by an average of 46%, an unprecedented rise in Russia. Now what economic implications will this have? This reform will produce internal demand for an additional 1 trillion roubles, or over $30 billion.
Allow me to draw your attention to the fact that retired Russians never buy expensive imported goods. This group usually opts for Russian products.
Also in line with the pension reform issues, we postponed an increase in corporate insurance premiums, so as not to worsen the fiscal burden on businesses during the recession. Admittedly, as a result - back to our macroeconomic problems - the 2009 federal budget will carry an 8% deficit for the first time in a decade.
We can see the threat but we do not see it as fatal. We view this as a threshold that helps us maintain macroeconomic sustainability. Let me add that we have reliable sources for covering this deficit - I am referring to our reserve funds, not necessarily the Central Bank's gold and foreign currency reserves, but the Reserve Fund and the National Wealth Fund managed by the Russian Government.
We will be gradually but steadily cutting the deficit starting next year, including the channelling of additional budget revenues for this purpose. I expect additional revenues as early as this year and the next to try and bring the budget deficit down to 3% of GDP by 2012. This, as you understand, is also in compliance with the Maastricht criteria on budget deficit.
As for the government debt, it is not higher than 10% of GDP, while only 3.6% is foreign debt. Economists will know that this level is extremely low for a G8 country; the lowest in fact.
Our programme of saving and effective use of budget funds will also play an important role in cutting the deficit.
We are also pursuing a tight anti-inflation policy. Our goal here is to reduce the current inflation level almost by half (from the estimated 12% this year). I believe - I know - that Central Bank officials agree with these proposals: 11% on average by the end of this year, or even lower, and no more than 5%-7% by 2012.
This is the most direct way to preserve people's savings, and to achieve affordable bank loan interest rates for non-financial sectors. Incidentally, the Central Bank today announced a cut in its refinance rate from 10.5% to 10%. It will take effect tomorrow.
I also believe that we have no other option but to form a full-fledged and stable financial market of our own, where national savings will be converted into development capital - a source for so-called "long money." And this is yet another of our key goals.
People's savings should lay the foundation for such a market, as is the case in any economy. People should also feel comfortable and confident about their savings.
The economy should be stable and reliable, which is not likely to be achieved through administrative decisions. This should be the result of market investors' hard work. The money should come from corporate balance accounts, pension funds and insurance companies.
Measures will soon be taken to improve the banking sector's and the stock market's operations. We will introduce more flexible but at the same time protected investment tools people can use for their savings and pensions.
In particular, I am referring to the development of a national securities market through the use of such innovative instruments as infrastructure and project bonds. They will be secured by reliable guarantees and therefore attractive for investors.
We will also create additional stimuli for mergers and consolidation of Russian financial institutions. This policy has been needed for a while, and we think we should be careful and cautious here, so as not to infringe on owner rights, but to give them more opportunities.
During the crisis, many countries have suffered from overproduction and excessive investment, including in the auto and housing industries. In Russia, however, the main problems lie in the general underinvestment and imbalance of the economy.
Hence, we need to focus on consistently modernising the economy and forming a more sustainable and diversified economic structure. There are multiple areas that we can focus on. Virtually all of them have an enormous potential for revival and import replacement. We believe that investments will have the greatest impact if they are followed by the use of modern technology in the Russian economy, and first in energy-saving and in productivity-enhancing technologies.
We are also interested in the creation of new businesses in advanced raw materials processing, machine-building, telecommunications, biotechnologies, and pharmaceutics. We are ready for expanded cooperation in space technology and nuclear energy.
Projects relating to maritime equipment, transportation, auto components, as well as oil and gas production equipment are also very promising.
Ambitious development programmes are currently under way in all of these spheres, which means that a stable and high demand is guaranteed for many years ahead.
We certainly call on businesses to more actively invest in Russia's regions. Do not stay in the same place, where there is often not enough "room" for everyone, but consider the regions that are not spoiled with overinvestment and where it is possible to take advantage of optimum business conditions.
There are, in fact, examples of large 100% foreign capital-based enterprises being created and successfully operating in many regions.
The Russian Government seeks to maintain constant contact with business, both domestic and foreign. In recent years we have done a lot to improve the investment and taxation climates, lift administrative barriers, and implement hundreds of successful projects.
We are open to continuing this mutually beneficial dialogue and cooperation. Furthermore, we would like to improve its effectiveness to fully use your experience, capabilities, initiative, and knowledge in implementing the modernisation agenda.
Let us discuss together what forms of our cooperation are best suited to the current conditions.
I would like to wish you success both in your work at the Forum and in your daily business activities. Thank you very much for your attention. “