VLADIMIR PUTIN
ARCHIVE OF THE OFFICIAL SITE
OF THE 2008-2012 PRIME MINISTER
OF THE RUSSIAN FEDERATION
VLADIMIR PUTIN
ARCHIVE OF THE OFFICIAL SITE
OF THE 2008-2012 PRIME MINISTER
OF THE RUSSIAN FEDERATION
VLADIMIR PUTIN
Vladimir Putin's introductory remarks:
Good afternoon,
Welcome to the 22nd meeting of the Consultative Council on Foreign Investment in Russia.
This meeting is taking place at a time when the global financial system continues to experience major problems. It would be both unnatural and imprudent not to address this factor today.
The current financial crisis has been called the most serious crisis since the U.S. Great Depression in the 1930s. Events of this magnitude compel us to reassess the global financial system, to try and find the causes of the problem and to set more precise and well thought-out long-term goals.
The present-day crisis highlights the ineffectiveness of all the main elements of the system for regulating financial markets and institutions. The resulting problems caught everyone in U.S., European and British agencies by surprise, regardless of their different organisational and work patterns.
Rating agencies, the Basel Committee on Banking Supervision and the International Monetary Fund were not prepared for the crisis either. Private individuals and the business community are expecting clear, responsible and consistent steps from all national authorities.
Russia, a leading economic power, ranks among the top four countries influencing global GDP growth rates. Consequently, present-day global economic setbacks also affect Russia. The Russian government is looking for and finding the answers to such global challenges.
First of all, I would like to say that the crisis did not catch us unawares. We took into account potential risks and threats while formulating our long-term economic and financial policies. Sometimes, we were criticised for excessive conservatism, but still, I believe that such conservatism was justified.
In the last ten years, we have facilitated sustainable growth rates and created the required safety margin. Russian state reserves are among the largest in the world. We maintain a stable balance of payments. Russia's gross savings rates are among the highest in the world, which is why we can largely finance national economic development with domestic resources.
While accomplishing national objectives, Russia contributes to stabilising the global economic situation.
Russian monetary authorities were among the first to announce comprehensive anti-crisis measures. The relevant legislative packages and budgetary amendments have already been passed and have started working.
Now a few words about our opinion of the current global economic situation.
Emerging markets were at the epicentre of the 1997-1998 global crisis. The present-day crisis is centred in the United States. In the 1990s, the US's economic performance was so impressive that everyone started believing that cyclic recessions were history, and that modern economic-policy approaches made it possible to maintain sustained economic growth at any price.
It appears that the US Federal Reserve System was guided by such considerations when it decided to reduce the interest rate by an unprecedented margin in the early 21st century.
The lower-than-inflation interest rates sparked credit activity, above all in the real-estate market, which underestimated comprehensive risks and turned into a soap bubble. That bubble started gradually shrinking. Moreover, it became obvious that the US Administration could not keep its promise to cope with the double budget and balance-of-payments deficit.
US public debt reached critical levels, and the dollar hit its lowest value since 1973. All these factors indicate that the United States is facing an all-out recession.
In 2009, the US, West European and EU economies will post their lowest growth rates in the last 18 years. We estimate that US and Euro-zone countries' GDPs will not exceed 2008 levels next year. This means there will be no economic growth, and some countries will even experience a recession.
There is every reason to believe and to agree with some Russian, U.S. and EU analysts who say that global economic cycles have contributed to the present-day slump. In this situation, excessively energetic attempts by US financial authorities to contradict natural economic development trends are already resulting in negative consequences for the United States and the entire world, and may cost them dearly in the future.
At first, the United States decided to bail out financial institutions on a selective basis, subsequently implementing a large-scale bailout plan for the entire financial sector, and EU governments followed suit. I want to note that monetary authorities in major nations are still able to control liquidity shortages. Although we consider this to be a good and positive sign, the effectiveness of such measures is not absolutely clear.
The US financial crisis has infested the entire global financial system. Naturally, it has the potential to slow down the development of emerging economies. Liquidity shortages on the global capital market can reduce the influx of resources to emerging markets and increase loan costs.
This process would also affect Russia, probably causing an outflow of capital because many local companies borrowed loans from foreign banks.
Nevertheless, the BRIC Group, comprised of Brazil, Russia, India and China, will remain the global economy's main driving force in the next few years. The IMF estimates that China, India, Russia and Brazil will post 9.3%, 6.9%, 5.5% and 3.5% GDP growth rates next year.
Naturally, Russia is inextricably linked with the global economy. Unfortunately, the global financial crisis has caused the Russian stock market to come tumbling down and has also influenced the situation in the banking sector. Domestic securities cost less as a result.
The Russian market is also affected by global oil price fluctuations. I want to stress that our economy is sufficiently prepared for long-term negative external "shocks." First of all, the policy of saving part of the oil revenues means that the Government's Reserve Fund is able to fully compensate for plunging oil prices.
We will balance the 2009 budget even if average annual oil prices fall to $70 per barrel.
Despite falling energy prices, we expect a positive current operations account next year, which is also an important component of stability.
In my opinion, it is very important that we maintain sizeable currency reserves, an instrument for maintaining stable exchange rates. Moreover, our country has minimised its state external debts and repaid principal debts ahead of schedule.
However, we have certain weaknesses as well, problems that we failed to solve so far. As I have already said, we have a Reserve Fund and will balance the budget even if a barrel of oil costs $70. But the economy continues to rely heavily on oil and gas resources. We probably spent more petrodollars than were needed for balanced growth. This made the rouble stronger, increased imports and created problems for domestic producers, primarily export-oriented companies. This facilitated the influx of speculative capital, which was the first to flee the country.
At the same time, we have had no net private-capital outflow in the last nine months. We have a balanced capital influx and outflow today, equal to zero.
The stock market's value was obviously overestimated due to the influx of "hot money." High inflation and underdeveloped financial institutions have failed to create substantial domestic "long money" sources. This is an acute problem now that external sources have dried up. All our measures primarily aim to create so-called "long money."
In the last few years, the Russian economy posted record-breaking loan-increment rates that soared by 51.5% in 2007 and by 47% in January-October 2008, despite global financial problems. As you know, such rates total 8%, 9%, 10%, or 14% in other countries, in rare cases reaching 18-19%.
Naturally, in the next few years Russia will have lower loan-increment rates. But I want to tell you that loan volumes will continue to grow. The business community should proceed from this premise when formulating its plans.
Coping with all current problems is our common task. Russia will have to live through the current economic cycle, which is largely linked to the state of the global economy. Oil prices, a particularly sensitive issue for Russia, are determined by worldwide demand.
Instead of completely compensating reduced domestic and global demand (which is impossible, as you are well aware of), the Russian government should facilitate the work of institutions that help the economy to adapt to new realities.
The Government, which is supposed to fulfill all of its social commitments and prevent a decline in living standards, will soon take additional action to support the banking sector and the real economy.
Starting September 18, the Government implemented a number of measures. I will not repeat them or list the multi-billion-rouble amounts being spent on maintaining bank liquidity and refinancing companies that borrowed loans from foreign financial institutions. I repeat, everyone knows these statistics.
As I have already said, all these measures were aimed at maintaining banking-sector liquidity and capitalisation. Some of these measures have already been implemented, and most of them will take effect this week.
Today, the Bank of Russia is holding its first auction on uncommitted deposits. This move will help maintain liquidity, covering over 120 banks. Our efforts to support banks are motivated by the need to ensure the real economy's liquidity.
The banks are economic lifelines that facilitate the real economy's performance and make it possible to accumulate savings and long-term investment.
I want to emphasise the fact that the Government attaches priority to protecting the interests of Russian citizens and their bank deposits.
We have already guaranteed all bank deposits up to 700,000 roubles ($26,500). The Central Bank estimates that 98% of Russian-bank clients have approximately this amount. Naturally, we will keep this promise. If necessary, we will explore additional support measures.
We are aware of global economic processes. As before, the national economic policy will rely on current development levels, available reserves and resources, and will heed the interests of Russian citizens. Consequently, our subsequent measures will aim to strengthen state and private banks and to support the real economy.
Today, I have instructed the Finance Ministry and the Economic Development Ministry, together with the State Duma deputies, to draft a bill on expanding the functions of the Deposit Insurance Agency, with regard to additional capitalisation of banks to facilitate their stable performance. In connection with this, I am asking you to amend the 2008 budget and to allocate an additional 200 billion roubles ($7.6 billion) as property contribution to the Deposit Insurance Agency.
The sum total will come from reduced federal-budget spare cash volumes now totaling 600 billion roubles ($22.7 billion), as stipulated by the Budgetary Code in early 2008.
Moreover, we propose to start dispersing this year's additional incomes that are expected to reach 175 billion roubles by the end of the year and were earmarked in the second budget reading for supporting the financial market in 2009-2011, already this year. Apart from the financial sector, the sum will be used to support the real economy.
We intend to continue to modify tax legislation starting in 2010. Projected 30% depreciation bonuses will reduce taxation during production-modernisation programmes and the introduction of new technology.
There are also plans to introduce 10-year lay-away plans for paying tax arrears incurred by inspections and to simplify the use of zero interest during dividend taxation.
We are drafting amendments on specifying the taxation of financial-instrument operations. For instance, no taxes will be charged on income derived through the sale of securities and investment-fund stakes. Of course, the concerned parties must abide by specific terms, including investment deadlines.
All these measures reduce the overall tax burden by about 0.5% of the GDP. In addition, we are examining other measures, due to be approved prior to the new budgetary cycle.
Ladies and gentlemen,
In addition to dealing with current issues and efforts to ease the financial crisis, Russia as well as other countries need to concentrate on reorganising the financial system and learn these lessons in order to make strategic decisions for further economic development.
Any crisis can, in fact, mark the beginning of new economic growth. A country's financial system is little more than a tool for implementing new technology that can lead to higher living standards.
The Dow Jones index is calculated as a weighted average price of only 30 of the largest and most widely held public companies on the NYSE, while the US gross domestic product reflects the outcome of the whole economy's performance. Therefore, during longer periods, the Dow Jones always grows more slowly than GDP, which is the main reason for regular corrections of the index.
However, until recently, the Dow far outpaced GDP growth, which means a stock market meltdown should have been expected.
Our current objective is to see through the snowball effect and to find a new technologically based upsurge soon to be witnessed by the global economy, similar to the IT-driven surge of the early 1980s with its technological breakthroughs.
Previously obscure companies, not even included in stock market indices, then worked out a sufficient backup to bail out the global economy.
Similarly, there must be companies now working on solutions which will be in universal demand later, like Microsoft products in the past, giving a new impetus to global productivity.
This leads us to the need to build a relevant infrastructure and to upgrade the quality of education. Education should be one of the top priorities in Russia, along with healthcare and other social issues.
One can expect a broader use of alternative energy sources, which can also affect each company and the national and global economies. We estimate that the transition period will last about 20 years. This challenge is extremely important for Russia, we are aware of it and, as one of the leading energy producers, Russia needs to prepare itself for a new technological order.
All the government and public institutes and instruments should be focused on building an innovation-based economy. It will determine Russia's competitive position on the global stage and Russian citizens' living standards.
Colleagues!
I highly appreciate our cooperation. Thanks to this interaction, the Russian Government is able to promptly pick up signals coming from the business community - from investors about their problems, and to respond to them in a timely manner.
That is why I believe that the Consultative Council on Foreign Investment is an exceptionally effective and important cooperation instrument. I expect further productive cooperation, and would like to thank you all for your attention. I give the floor to Mr James Turley, the coordinator of foreign members of the Council.
Thank you.
Closing remarks by Prime Minister Vladimir Putin:
I would like to thank you all for your cooperation. It is very important for us to hear the opinions of business leaders working in the Russian market, to hear your assessments of the Government's economic and financial programmes, and of its industrial and investment policies.
Today we have deviated from the traditional agenda of the Council meetings, but that was only natural. I deemed it absolutely expedient to present to you a detailed account of the government's efforts amid the global financial crisis. I hope that you and the international business community will appreciate our proposals.
Strategic long-term investors representing non-financial sectors of the economy as well as the banking sector realize that the competitive advantages and potential of the Russian market are permanent and independent of the current situation. That situation is not so bad in fact.
I am happy to see that we devoted a substantial amount of our time today to current interaction issues rather than to international financial problems.
I would like to thank you for your remarks, your proposals and analysis, which will certainly help us improve our work and boost practical cooperation.
We appreciate that a large number of companies and members of the Consultative Council have confirmed their decisions to implement multi-million investment projects in Russia's commodity sector, manufacturing and agriculture. Among them are such large influential companies as Renault, Unilever, and Nestle. They are setting a good example for other investors.
The working group leaders who have spoken today made many competent and sensible proposals on how to improve the investment climate. They largely overlap with the priorities set by the Russian Government.
We plan to further improve the legal framework for the use of mineral resources. We have heard your concerns and, as I have already told you, we'll think how to eliminate them.
I would like to go back to Mr Van der Veer's statement about a Jack-pot: true, most people lose, but some also win. True, they lose much more often, but if we build a system that compensates for geological prospecting costs, but preserve your rights to develop these fields in the future, the situation will be quite different.
In that case, there wouldn't be much to lose, but you'll have much to win. We'll sit down together and think of how to improve our interaction in this respect.
The proposals on further cooperation have been summarised in our joint statement, which I would ask the meeting to approve unless you have other proposals.
I also think we should take the proposal that some participants made today about working groups operating more intensively and in closer contact with the Russian government agencies concerned. It is something we all are interested in - the Russian Government as well as our foreign partners.
I would like to thank all of you for your active and productive participation today. Thank you very much.
I am leaving for Siberia later in the day to see to the implementation of some of our agreements, so Deputy Prime Minister Igor Shuvalov will step in for me at the dinner reception tonight, to represent the Russian Government. Thanks again. Good-bye.
