ARCHIVE OF THE OFFICIAL SITE OF THE 2008-2012 PRIME MINISTER OF THE RUSSIAN FEDERATION VLADIMIR PUTIN

Mr Speaker,

Esteemed deputies,

Today, we are going to discuss the problems of Russia's socio-economic development.

All of us understand the nature of the current situation. To put it mildly, the entire global economy, including the Russian economy, are going through difficult times. It would seem that this is not the best time and an unrewarding task to report to the Parliament on the Government's performance. However, I am truly happy to meet with you today because this is an opportunity to discuss national problems and national development issues in an absolutely open and business-like atmosphere, and because we are now creating a new tradition, namely, the Government's report to the Parliament. This is yet another step in the development of our political system. And I think it is very important.

I would like to say from the very beginning that the Government is interested in getting feedback from legislators and parliamentary parties representing the interests of an overwhelming majority of Russian citizens.

Esteemed colleagues, the incumbent Cabinet was established almost a year ago, in May 2008. I presented our programme in this very hall. The programme served as a basis for approving a concept of Russia's long-term development until 2020, the so-called Programme-2020, and the plan of the Government's work until 2012.

I would like to thank all of you who supported these documents.

While determining the logic of our steps, we proceeded from the continuity of our policy and the main provisions of the President's State of the Nation Address. At the same time, we strove to focus on accomplishing specific high priority objectives and to facilitate more dynamic transformations aiming to ensure Russia's leading positions in terms of key socio-economic development parameters and raising the living standards in the country.

Today, we have to act in an entirely different environment and in conditions of a global economic crisis. But we do not think, and I have repeatedly talked about this, that we must renounce our current strategy. Our choice is as follows: We must continue to steer towards reforms, create a new economy and support and consolidate all aspects constituting the base of its top-quality growth.

You often visit Russian regions. You can also see that I constantly travel all over the country. The people often ask whether Russia could have avoided the crisis and all of its negative consequences. Of course not. That was simply impossible. It is an illusion. The problems appeared elsewhere and not through our fault. Although nobody doubts this obvious fact, the problems have affected virtually everyone, including Russia.

Analysts predict that the global economy will post negative growth rates this year for the first time since World War II. In the 4th quarter of 2008, the annual GDPs in the United States, Japan and Germany fell by over 6%, 12% and 8.2%, respectively. Unemployment is climbing towards 8% all over the world; it has already exceeded 8% in the European Union and has reached 8.5% in the United States.

Virtually all sectors of the global economy are suffering from a deep recession. Although some sectors of the Russian economy are faring better or worse, the national economic situation does not differ greatly from global trends.

At the same time, the crisis has aggravated our well-known problems, namely, the dependence on the global markets, weak diversification and the lack of the so-called long money.

We had to parry two blows at once. First, we had to deal with the financial crisis which caused the outflow of capital because Western economies faced liquidity shortages and took away their assets. Speculative capital also started leaving our market. Foreign crediting sources dwindled, too.

Second, demand for our traditional export items and their prices plunged.

Imagine what could have happened if Russia entered the economic crisis with the problems plaguing it only a few years ago. I am talking about huge external debts with non-payment "blood clots", systematic and wage, pension and benefit arrears and stage-by-stage power cuts.

Today, too we cannot be wholly satisfied with the quality of our market and social institutions. But one thing is certain: The crisis has shown us that these institutions are functioning. They remain stable, displaying their ability to resist destructive trends.

Apart from confidence in our abilities, it is precisely this circumstance that allows us to expect success, even to a greater extent than the financial resources we have accumulated.

And now, a few words about the results of 2008. Despite slower growth in the fourth quarter of 2008, the national GDP, industry and agriculture grew by 5.6%, 2.1% and over 10%, respectively. Investment and labour productivity grew by 9.8% and 5%, respectively.

Last year, real wages increased by 10.3%. Minimal wages were raised by almost 100%. 64 million square metres of housing were built last year, hitting an all-time high in modern Russian history.

Our meetings in the regions show that the Housing/Municipal Utilities Reform Fund's programmes to resettle people from rundown and dilapidated housing and to repair residential buildings have won high acclaim. As a result of such programmes, over 120,000 people have either received new flats already or will receive them in the near future. Under these programmes, over seven million Russian citizens will improve their living conditions.

Expedited municipal utilities transformations are another equally important aspect. I would like to add that the Government continues to prioritise the work of the Housing/Municipal Utilities Reform Fund.

We have accomplished virtually all objectives in the sphere of the high priority National Project on Education. Modern education curricula are being introduced. At a meeting with State Duma deputies, it was proposed to make such work more transparent and to involve the public. I think this would be absolutely correct. That is exactly what we are going to do.

Tens of thousands of schools, technical schools, colleges and universities have had their material and technical base improved. The number of computers at schools has tripled. At present, our school students have just as many computers as their peers in many European countries.

On the whole, the Internet was widely introduced throughout Russia last year. One-third of the population, or 50 million Russians, has regular access to the Internet.

In 2008, which was proclaimed the Year of the Family, 1.717 million children were born in Russia. This is the highest number since the early 1990s. Average life expectancy has reached almost 68 years, increasing by three years over the past five years. This means that the quality of life is changing for the better, that we are using correct methods for accomplishing this objective, and that we are achieving our goals.

Naturally, investment in healthcare and physical fitness, in the accessibility of hi-tech medicine, nationwide preventive check-ups and vaccinations, the health of mothers and newborns, and the development of sports facilities has played its role. Sports have become a way of life for 22 million Russians. We must double their number, at least. All Russian school students must be able to regularly exercise free of charge.

Due to more effective first aid, road accident fatalities have decreased by 8% or by over 2,000 persons.

The state is investing more into the social sector and has created favourable conditions for the influx of private investment. For instance, we have exempted a considerable share of corporate healthcare, education, housing and pension expenses from taxes.

We hope that, despite the crisis, responsible businessmen will find an opportunity to preserve social programmes for their employees.

Last year, we also charged lower taxes on corporate R&D investment and production modernisation programmes. A fundamental research programme of the Russian Academy of Sciences and other state academies was adopted for the first time in modern Russian history. We continued to implement ambitious infrastructure and innovation programmes.

A total of 2,300 motor roads were built. We completed a key stage of the power-generating industry's reform. I would like to draw your attention to the fact that the industry was overhauled without a hitch. At the same time, Russian enterprises are becoming less energy-intensive, spending 5% less energy last year. This means that our economy is becoming less expensive and more competitive.

We have ensured the complete renewal of the raw-materials base in terms of virtually all strategic resources, namely, crude oil, natural gas, gold and metals. As you remember, we used to say several years ago that the scale of raw-materials production considerably exceeded the scale of prospecting operations. The situation has now changed. Prospecting programmes received eight roubles of private investment per every rouble of state allocations.

In 2008, commercial oil production got underway at deposits of the new east Siberian oil province, and the first section of the East Siberia - Pacific Ocean Pipeline was commissioned. Although the pipeline still operates in the reverse mode, the CEO of Transneft has just reported to me that it will reach the Chinese border within the next few days, and that its construction will continue all the way to the Pacific Ocean.Industrial production of oil at new fields began in 2008, as I have said before. We worked to develop new routes for the transportation of hydrocarbons such as Nord Stream, South Stream, the Caspian pipeline, and the Burgas-Alexandroupolis pipeline.

Of course, not everyone in the world wants these projects to materialise, increasing Russia's ability to export [hydrocarbons]. But we are convinced that these projects are economically substantiated, satisfy the strictest environmental standards, and will enhance the global energy security. We will continue to implement them.

In this connection, I want to say once again that attempts to exclude Russia from making decisions of worldwide importance, especially in the field of energy, and to ignore its legitimate interests are counterproductive.

As to foreign economic cooperation, we have nearly completed the drafting of the legal foundations for a Customs Union of Russia, Belarus and Kazakhstan. I believe the Customs Union will be able to start working in 2010, one year ahead of schedule; our partners support the idea of accelerating these efforts.

Ensuring the country's defences and the security of its citizens is a crucial constitutional duty of the Government.

This year, defence spending will grow by 15% compared to 2008. We plan to focus on large-scale rearmament and strengthening of the personnel potential in the sector.

I will now highlight social guarantees for servicemen and their families. Many of you probably remember that a year ago in Zhukovsky, a town near Moscow, at a meeting with AF pilots and graduates of pilot schools I spoke about the need to change the system of remuneration in the Armed Forces. This implies above all a rise in the salaries of those servicemen who make the largest contribution to national security, who serve in the key or hazardous spheres, such as Air Defence, the Strategic Missile Force, the Air Force, Space Command, the Navy, and permanent readiness units.

This mechanism of financial encouragement of the officers who show the best service results was put into operation in January 2009. As much as 100 billion roubles will be allocated for this purpose over three years. As many as 34,000 officers, from company commanders to commanders of nuclear submarines, who show the best service results are receiving such payments, which vary between 35,000 roubles to 150,000 roubles per month.

Of course, this is only the first step. I think that by 2012 all servicemen of the Armed Forces should be converted to the new system of payment. A company commander will receive approximately 50,000 roubles a month; some of them already do.

We will also continue working to solve the housing problems of servicemen. Last year, over 22,000 flats were built or bought for them. The plan for this year is 45,000 flats. From 22,000 last year to 45,000 this year - an increase of more than 100%.

This means that by the end of 2010 all servicemen of the Defence Ministry and citizens retiring from military service will have their own housing. You know how important this is and how we have been moving toward this goal. By 2012, we will have formed a fund of service flats in the Armed Forces. This goal will be achieved by other security related agencies in 2011-2013.

The President promised that all veterans of the Great Patriotic War would have [befitting] housing by May 1, 2010. I can assure you that we will definitely fulfil this task. By May 1, 2010, all veterans of the Great Patriotic War will have [befitting] housing. We will fulfil this task. Just to remind you: we have already fulfilled our obligations to provide them with cars or, at their choice, with monetary compensations.

Colleagues,

The biggest part of my speech will be devoted to the analysis of the current situation and our mid-term objectives.
I will begin with the Government's emergency measures adopted in the second half of 2008. They were designed to protect the people and the economy from the crisis, and to preserve the viability of our financial sector. You know that the insured amount of money deposited in bank accounts was increased to 700,000 roubles, that funds were allocated for the rehabilitation of ailing financial institutions and replenishment of bank capital through subordinated loans.

In addition, the Government supported the efforts of the Central Bank to restore the liquidity of lending organisations. We also needed to support banks- and probably above all - because we needed to preserve the people's savings in our banks and prevent the paralysis of settlements between enterprises. We attained both goals.

The threat of collapse of the banking system has retreated, and it was a real threat that was looming large. Moreover, the banks that received support managed to increase lending to the real sector by more than 15% over the five crisis months, and issued loans worth more than 1 trillion roubles. Other financial institutions, which did not receive such assistance from the Government, have also increased the volume of lending, but only by 7%. So the mean figure is 9%.

We should bear in mind that the volume of loans grew by a record figure, over 50% - I think it was 54% - in 2007 and by 34% in 2008.

I want to tell you that these figures were unprecedented in the global economy. Loans are growing at the fastest rate in China, by 19%, whereas the usual figure is 7%-9%, the level we have approached.

I would like to stress that the state has not given out presents to anyone: Private banks received loans from the Central Bank and the National Welfare Fund, which they will have to repay.

Next, we had to protect the national currency affected by the flight of capital and declining export revenues, to ward off the attacks against the rouble. We managed to prevent uncontrollable devaluation. As we promised, the decline in the rouble exchange rate, which was inevitable in the situation, was smooth; that allowed the economy and people to adjust to the new realities.

Moreover, the current exchange rate of the national currency is clearly boosting the competitiveness of Russian producers in the external and, most importantly, domestic markets. Many of you know this very well. During my visits to enterprises, where I talked with the workers and management, they told me openly that that exchange rate changed three days before and now they can sell their products in the external and domestic markets.

The growth rates of tariffs were curtailed in the interests of the economy.

The exchange rate is an exclusive prerogative of the Central Bank, in accordance with the law. The Government maintains routine contacts with the Bank of Russia, and will continue to consider the indexation of tariffs, which I have mentioned, with extreme care.

At the same time, freezing tariffs is a dramatic but not always effective solution.

Along the way, I am going to answer the questions I have received from the parties in writing while delivering this report. The answers are incorporated in it. One of these questions concerned the freezing of tariffs. I repeat that this solution may seem right, but could have serious negative consequences.

What would a total freeze on [the growth of] tariffs mean for, say, Russian Railways? It would mean a shortfall of profits and hence a reduced investment programme. In practice, this means that RZD will not buy more rails, mounted wheels, etc., that steel plants will have no contracts, and miners will not be required to provide coking coal. In short, the freeze will affect the entire chain.

Therefore, we should consider the matter very carefully and in a substantiated manner. We have slowed down the growth of tariffs as it is, but freezing it would be a mistake.

We see a different solution - in creating a competitive environment, introducing energy-saving technologies and modern logistic schemes. And, when we speak about tariffs, we should not forget about efforts to enhance the effectiveness of the natural monopolies, and their transparency to the state and society.

Another anti-crisis measure I'd like to mention is the reduction of quotas for foreign workers. It is a temporary, forced measure aimed at protecting our labour market.

In these new conditions we need rapid response mechanisms. That is why we set up the Commission on Sustained Development of the Russian Economy, working groups in the key federal ministries and departments, and anti-crisis headquarters in the regions.

We are monitoring the situation in the labour market and in the regions. We have compiled a list of backbone enterprises. In fact, we have two such lists, one for the civilian sectors and the other for the defence sector.

As a result, we have embracing information and can take the necessary decisions maximally quickly.

I agree that performance discipline is a problem. The Government routinely hears reports of the federal bodies of authority on the implementation of the anti-crisis measures. We will work to ensure that all the decisions are implemented on schedule and to the letter.

What is the main result of the emergency anti-crisis measures? We have managed to avoid the worst-case scenario. As far as this was possible, we cushioned the effects of the crisis; the economy has proven its viability and also its ability to develop in new, less favourable conditions. However, 2009 will be a difficult year for us.

The State Duma received a new wording of the budget and the government programme of anti-crisis measures was published several days ago. These documents reflect our stance, our vision of a responsible and purely realistic socio-economic policy.

What is the essence of such a policy? It is to ensure an optimal combination of anti-crisis measures and long-term projects, not only to ward off attacks but also to undertake offensives, to build a new, more effective economy. In other words, we must not simply preserve the key enterprises, but also accelerate the transition of the economy to knowledge-based development. We must not simply maintain the domestic demand, but also implement major projects to start creating an infrastructure for the future. We must not only prevent a GDP plunge, but also improve the most important market institutions. We must not only guarantee macroeconomic stability but also make our credit and financial system more competitive.

This is the ideology that underlies the new wording of the budget. I repeat - this is very important - that the budget remains a development budget.

Here are its main parameters: revenues of 6.7 trillion roubles and expenditure of 9.7 trillion roubles. So, we will have a budget deficit of 3 trillion roubles, or 7.4% of GDP. But in reality the deficit will be larger. Taking into account the so-called quasi-fiscal measures, mostly taken by the Central Bank, it will be 8%. I will tell you about this now.

We have stipulated the allocations of 1.4 trillion roubles for the implementation of anti-crisis policies. Taking into account the effect expected from the reduction of taxes, the reserves of the Central Bank, the National Welfare Fund and other sources, we will spend a mind-boggling sum, 3 trillion roubles, on anti-crisis relief and economic rehabilitation.

Our key priority is to implement our commitments to the people. I will speak in greater detail about this a bit later; I will begin with economic problems because ultimately the economy gives us the resources for an active social development policy.

The possibilities of the real sector have grown considerably in recent years, thanks to investment and introduction of innovations. Our objective is to preserve and develop the accrued industrial and technological potential, to help those enterprises that invested in new products and in enhancing their competitiveness, but now have difficulties with obtaining loans and temporary difficulties with marketing their products.

It should be said that federal budget spending on the national economy has been increased by 70% in 2009, to a record-high 1.733 trillion roubles (it was 1 trillion roubles in 2008).

As much as 500 billion roubles will be allocated for state guarantees on loans, additional capitalisation of companies, and support for exports. But state assistance should not replace the responsibility of business. The right to receive [state] support will be granted only to those who can independently attract resources, service debts, and implement restructuring programmes. We will not invest in obviously unpromising enterprises. That would amount to keeping the Russian economy in the past, and squandering the taxpayers' money.

Of course, all of us want to do something good, to be kind and even very kind, but such "kindness" may have extremely negative consequences. It runs contrary to the nation's interests.

This is why I must say that if curtailment or restructuring is inevitable, we should help not the enterprise in question and not its owners, especially if they failed to do something, or stinted money on restructuring their enterprise or retooling it. In this case we should provide direct assistance to the people concerned.

We must ensure strict respect for the rights of the people being laid off, help them to find new jobs as soon as possible, upgrade their skills or get retraining in new professions.

The state is ready to buy into authorised capitals to preserve crucial enterprises. The MiG Corporation, for example, has received 15 billion roubles, and the Khrunichev Centre 8 billion roubles. We may take similar decisions regarding other companies, above all those who are directly responsible to the state, primarily in the defence sector.

To begin with, 70 billion roubles have been allocated for industrial support, and the figure is 170 billion roubles with due account of guarantees on loans. We have greatly eased the fiscal burden on the economy as a whole and on its key sectors. You know that we have increased the depreciation bonus to 30% from 10%. Lowered the profit tax to 20% from 24%, and introduced a new, less taxing procedure of VAT payment (not before but upon delivery). Constituent entities have received the right to establish differentiated tax rates for small businesses ranging between 15% and 5%.

Cuts in export duties allowed oil companies to keep production profitable. We expect to see the basic effect from tax cuts already this year, in 2009. According to our calculations, 600 billion roubles more will remain in the economy. We know that the budget will not receive this money, yet we are doing this deliberately. The Government will continue to try to optimise tax burdens, yet decisions should be maximally balanced.

A few words about the possible transfer to a differentiated income tax rate. We are currently using a flat scale, 13% for individuals. I often receive such questions during my meetings with workers. I have recently met with the heads of grassroots trade union organisations, and they asked the question too. And parliamentary parties ask the same question. So let's consider it seriously, more closely.

At first glance, the situation does not seem fair: Those who receive a large salary pay 13% and those who have a small income also pay 13%. Is this social justice? It appears that this scheme should be changed. But we used a differentiated scale before, and what did we have then? Everyone paid from the minimal wage and received the rest "in envelopes," under the table.

After we introduced the flat tax, tax revenue increased by twelve times over eight years. Take note of that - twelve times. And today this budget income exceeds that raised in VAT. The results are absolutely clear.

What could happen if we return to a differential scale? I think that unfortunately, and perhaps it is shameful to talk about it because it would mean we are not managing as we should, but it is likely it would be the same. Again there would be no kind of social justice. In reality those who are paid less would continue like that, and would pay the minimum tax. But those who are today on high salaries would get part of their wages in brown envelopes. And there would be no fairness.
But that's not all. People would then not receive their pensions, because their pension rights would not be formulated.

I'm not saying that we will never do this. I am simply drawing your attention to the fact that this is not a clear-cut problem. It simply needs to be handled with care. But the whole world envies us, the whole world envies us, and they envy us, I am serious, I know what I am talking about.
So let us recall another well-known saying: "The road to hell is paved with good intentions". This does not mean that we will freeze it forever. I repeat, we will analyse this attentively, we will observe, and someday we will make a decision with you about this. But there's no rush.
Regarding the land tax for individual holdings, and dacha plots, we think that the issue should be resolved at the regional level, because it is their source of income. It is of course possible to deprive them of that source of income but then we need to think what to give them in exchange, so lets consider this with them, we shouldn't think for them.

The next priority is to boost internal demand. The government will do all it can to compensate squeezed markets, support national producers and at the same time create the infrastructure and technological capacity for future development. So, by comparison with 2008 the budget for transport infrastructure development will increase by more than 100 billion roubles. It will rise to 560 billion roubles including 312 billion to be spent on motorways, compared to the figure of 294 billion for 2008. As you see there's been growth here too.

A host of new programmes are beginning to be implemented. As an example I'll mention the project for the renewal of passenger and communications transport and also the fleet of cars of the defence and law enforcement agencies. To this end, taking into account the additional regional co-financing, 21.5 billion roubles will be assigned to this, and in my view this is mainly aimed at supporting our national producers. That, I remind you, 12.5 billion to the agencies: the Emergency Ministry, the Defence Ministry, and the Interior ministry, for the purchase of particular means of transport; 20 billion roubles from the Federal Budget to solve problems in the regions, and they have promised to add in another 10, so it works out as 42.5.

We ourselves understand that it will not be simple to keep up the same tempo of residential construction, but we think that this sector can become one of the engines that leads the whole economy.
In 2009 the unprecedented sum of 440 billion roubles will be spent through the federal and regional budgets, the housing agency funds, and the mortgage credit agency in order to stimulate construction and other housing programmes. In 2008 this figure stood at 249. Can you imagine what a difference that is? It is nearly double what it was last year. This money in equivalent worth equates to, I stress, the value of one third of the total housing market in the country.

But I know that the MPs asked the question, and we have had very heated discussions in government, while investigating the possibilities of finding additional resources for the housing sector.
I would like to report to you, that we have now virtually resolved the issue of one of the additional capitalisation of the Mortgage Credit Agency by 20 billion roubles, as well as offering them 40 billion roubles of credit from those resources set aside to support the banking system. That is 60 billion roubles, nearly 2 billion extra dollars, those are the sums of money we are talking about. Of course these resources, the total value of which is half a trillion roubles, does not only go to supporting construction, but also towards facilitating the resolution of people's housing problems.

I would like to focus separately on the prospects for future of the largest infrastructure project, the preparation for the winter Olympics. There are building works underway in Sochi that involve 7.5 thousand people, and that figure will increase imminently. The preparation for the Olympics ensures a bulk order for construction materials, machines, equipment, and engineering and design services.
The Asia Pacific Economic Cooperation's summit in Vladivostok and the international student summer Olympiad in Kazan will have similarly positive effects.

Regarding the budget, I would like to stress this and I am sure you also understand that it is impossible to completely solve the problem of low demand in the economy. That's why the essential emphasis in the anti-crisis policy should be made not merely on direct state orders, but on the recovery of business activity.

But how? Through partial subsidies, the growth of hire leasing, and support for consumer credit. It is mechanisms such as these that are already being used in agricultural technology markets, cars and aeroplane freight. As a result we should see a real, organic structure of internal demand developing, which will become an efficient basis for post crisis reconstruction and subsequent economic development.

The fourth priority is the stimulation of innovation and the restructuring of the manufacturing sector. Our industry should emerge from the crisis stronger and more modern. At the moment there are many who turn to the state asking for support, and of course, we accommodate them, but in exchange we are prepared to use the leverage gained in order to increase the company's competitiveness, and to turn the slogan "help - in exchange for efficiency" into reality. Every business that receives state resources should draw up a programme on a) improving labour productivity b) the use of energy saving technology and c) innovative development.

In the amended budget, expenditure on the development of such key sectors as aviation and shipbuilding, space, and the nuclear and electric industries, has been retained.
We have decided to free imported equipment from VAT, where we do not have a domestically made alternative. Together with the state guarantee for credit for these measures allow businesses to continue their programmes of technological renewal.

The fifth priority is the creation of favourable conditions for economic revival, above all in the development of the most important market institutes, removing unnecessary barriers to commercial activity. The clearly excessive powers that the ministry of the interior had over business activities have been removed. The list of goods and services that require certification will be reduced. A legal decision has already been taken to introduce, from the 1st of July this year, severe limits on a variety of inspections. I have indeed looked into why this is only from the 1st of July? It's not clear, obviously there is some sort of explanation, but we will see whether perhaps we can speed this up.
The establishment of notification requirements instead of permits in the broadest range of activities has broken new ground.

The government passed the competition development programme, and we introduced a draft law to the State Duma, to develop antimonopoly regulation. You know I think this is particularly important. We spent years preparing these alterations, we were opposed at every stage of its development, but antimonopoly regulation here is excessively liberal, and inefficient.
In many countries with developed economies, a breach of antimonopoly regulations will result in a criminal case being brought. In our proposal we have suggested significantly stricter sanctions. I ask you not to delay the passing of this law.

The fate of the trade law was also raised during this discussion of the renewal of anti-crisis measures. It goes without saying this is important. It is most important that our decision does not lead to superfluous administration, which we would then have to fight, and about which I have just spoken. We must make sure we do not prompt a decline in investment activity in the most vital sectors.
Lets think, and pay close attention. I know that we have been discussing this for a long time, but nonetheless, the decision should be adjustable.

In addition we need to develop alternative modes of trade, so that people have a choice: not only the main supermarket chain, but also weekend markets, local shops and so on.
Our next priority is the construction of a powerful financial system on which we can rely, as we develop the national economy. We have to move away from the extreme measures for saving the banking system to a planned, rational broadening of its resource base, and increasing the availability of credit for businesses and citizens alike.

The anti-crisis plan takes into account the possibility of allocating 225 billion roubles to support the banking sector, banking systems, and the offering of government support will be strictly linked to loans for the manufacturing sector.

Please colleagues, when you discuss the budget, do not to be too harsh on the bankers. Of course you can call them whatever you like, you can offend them: "fat cat" and so on. It is an important sector of the Russian economy. And we have serious tasks before us, especially in the second half of the year. There have been many instances of non-payment and loan default. We should all take this very seriously, without using slogans, relying instead on information and analysis.
Problem credit institutions should be cleared out of the banking system. The necessary legal basis for the bank merger and financial restructuring has been established and the real work in principle has already begun.

You often hear the suggestion that credit be made cheaper in exchange for a lower interest rate on refinancing from the central bank. True, it is one of the key orientation points for the definition of the amount of credit, but is a long way from being unique. Banks attract up to 90% of resources on the market. They're also not cheap. Of course the high inflation rate also has a significant influence.
In addition, banks have an economic function beyond credit; they also take care of savings held by Russian citizens. And this should not be forgotten, asking banks to act more riskily.
Also, and we can all see this, the rouble has stabilised. There is a basis for suggesting that inflation will fall. This means that in coming months we will be able to count also on the fall of the Central Bank rates.

But I stress that this decision is fully under control of the Central Bank. And in relation to this I would like to note that throughout the crisis the leadership of the Central Bank of Russia has been really rational, calm, and professional.

The seventh priority of our plan is ensuring macroeconomic stability, securing trust in our country's budget system among Russian and foreign investors.
I have already put the 2009 deficit at 3 trillion roubles, which is in the order of 7.4% of the GDP, as I said, but taking into account those quasi - fiscal resources, and above all, the same expenses from the central bank for the capitalisation of Sberbank, other expenses, it will be 8%. Such a sizeable deficit is a strong, effective medicine for the economy, but it should not be misused. That is why our plan envisages a strict programme to lower the deficit to 3% of the GDP by 2011. At the same time we suggest a war on inflation.

Now the Ministry of Economic Development has laid out its parameters, which give us three years to get this to about 8%. Its possible to try for this sooner, but it is also a significant factor in the fight against rising prices. But then we must have a responsible attitude to the budget expenditure of recent years. Everything is related here.

Colleagues,

The anti crisis plans demands the collective action on all levels of public authority. People should not worry who is carrying this out, whether it is federal, regional, or district authorities, what matters to them is how it affects their daily life.

Now a great deal depends on the efficiency of regional and local administrations. It was on this very level that most of the public sector workers were employed. It is here, after all, that many of the questions about education, healthcare, social security, and housing concerns, are delegated. In the regions there are anti-crisis programmes already being implemented, and serious alterations to the budget is underway in the search for increased efficiency.

The priorities here, as in regional politics in the regions of the Russian Federation should include: wage payment, the creation of new jobs, and fulfilling the social obligations to Russian citizens.
Serious work needs to be done to preserve and widen the tax base, and this is, above all, a question of helping small and medium sized businesses. We need to create the most favourable conditions possible for business. The possible support measures include: discounted rent, lower charges for connecting to communal services, and state purchase quotas for small and medium sized businesses.

I remind you that on the federal level we have already taken a series of measures to support small business, and here I have in mind the preferential rates for renting accommodation, lower charges for connecting the electricity, and increased subsidies for small businesses. I remind you also that we have set aside 10.5 billion to achieve this, in addition to the credit offered by Vneshekonombank of 30 billion roubles.

On their side, the Government is providing the necessary help to stabilise regional finances. The volume of Federal support for the regions in the revised budget has been increased by 36% compared with 2008. As many of you know we are working on the basis that the regional budgets are also facing problems, and we must help them. This help is accounted for in the new budget. In total we have set aside 1 trillion 200 billion roubles for this.

Dear colleagues,

Now I'd like to return directly to social policy. I'm convinced that we should continue national projects and other programs to improve living standards. Our task is to not allow the crisis to demoralize society and destroy the long-term plans of our compatriots. Those who were set to study or receive a new trade should have this opportunity. Those who invested in mortgage or housing construction have the right to hope for government support. Those who have lost their wages should receive a chance to find a new job or a temporary source of income, or start their own business.

All in all, we are allocating an additional 600 billion rubles for social needs. The bulk of these funds are designed for the pension and other off-budget funds.

In addition to that, the draft budget has a special reserve of 125 billion rubles. There are too many factors of uncertainty - we cannot 100% predict the details of the events, and we need an "airbag of security" in case we have to urgently interfere in the development of unfavorable trends. The budget offers such an "airbag."

We are planning to preserve the number of budget seats in the higher educational establishments. This year, they will number 197 for 10,000. Moreover, more students will be admitted to magistrate and post-graduate courses.

On the whole, we have transferred the students with the best results in studying or those who found themselves in a predicament from commercial departments to budget seats.

The job promotion program has been launched in conjuction with the regions. Almost one million jobs will be created. More than 170,000 people will have a chance to retrain for a new job in demand by the market. As I've already said, 57,000 people will receive government aid in opening their own business.

In the final result, these programs are aimed at preserving the economy's labor potential. We should not lose experienced specialists, while people should not drop out of active life, but on the contrary, should receive a chance to upgrade their social status.

I must tell you that businessmen understand this. It is easy to lose qualified experts but it will be very difficult to collect them together and retrain them.

We are already carrying out the restructuring of the mortgage debts of lenders who lost their jobs or faced reduction of incomes.

Allow me to recall that since the start of this year, it has been allowed to use maternity capital to pay off mortgage debts. More than 80,000 families can use this right.

We discussed the possibility of going further this year by giving people the right to use part of the maternity capital as they see fit, including on daily needs. I think that in this year's crisis conditions, this is possible. We offering people the chance to get an additional 12,000 rubles in a lump sum. This sum is about equal to the maternity capital's additional adjustment. However, the ideology of the maternity capital should remain the same: education for children, pension provision for mothers, and acquisition of housing. We must preserve all three goals.

We intend to seriously develop and upgrade access to modern medical aid. Four centers of high medical technologies will be commissioned, and construction of prenatal centers will be continued. The program for improving aid to cancer patients has been launched. A project to develop blood service was launched last year. However, I want to stress that not everything here boils to money. Much depends on people's attitudes toward this problem, and we are hoping for the participation of the whole of society, as well as the popularization of blood donations as a noble and humane mission.

The program of demographic development will be continued this year. A package of measures will be launched to promote healthy lifestyles and reduce the use of tobacco and alcohol, especially among young people.

Dear colleagues,

I would now like to touch on a very important and sensitive topic for all of whole society. I'm referring to the prosperity and dignified life of senior people, the senior generation to which Russia, and all of us, owe very much.

Last year, pensions grew by 18.5% in real terms. This year, the nominal increase in labor pensions will be over 24%. As we declared, the average social pension will reach the pensioners' subsistence level. With this aim in view, we will make a tangible pension adjustment - by more than 30% -- next December.

Nonetheless, I have to admit that our pension system is far from being effective. It has many distortions and breaches of justice. The worst thing is that it cannot truly guarantee a secure old age. We have been talking about this for a long time, and have made a principled decision - to switch to a new insurance model for the pension system - but yet do not dare carry it out. It is clear why -- because this requires huge budget spending. I'd like to emphasize that pension system reform is a major social option for any country, and its the effects are designed for decades ahead.

Can we take a step like this today, in conditions of the crisis? Our actions will be justified socially, but what about economically? The introduction of the new system will require additional big spending both from the budget and from business because, as I said, we will certainly have to increase taxes in the future. However, during the crisis we must lower any kind of fiscal pressure on the economy, be it taxes, fees, or duties. Only this logic seems correct during the crisis.

At the same time, I believe that even during the crisis it is inadmissible to resolve the problems of the budget and the economy at the expense of seniors, the least protected people in Russia.

It is no longer morally possible to concentrate development resources and at the same time accept the miserable pension provided to millions of people - we still have pensioners who receive less than 2,000 rubles, 1,950 rubles in some cases. True, this is still the legacy of the Soviet past, when workers in state farms received little money, but these people are living today and we should think about them.

For this reason, I believe it is impossible to delay the reform of the pension system and a tangible pension increase.

I believe that as we planned, starting January 1, 2010 the pension rights acquired before 2002 should be adjusted by an additional 10%, plus one percent of extra adjustment for every year of service during the Soviet period - until 1991. In this way, we will more justifiably appreciate the labor contributions of people during the Soviet time. We will introduce a single order of adjusting the basic and insurance parts of the pension.

In 2010, the average annual labor pension will grow nominally by an instant 45% in comparison to this year. We will also combat inflation. We'll see and probably increase pensions by even more. At any rate, we will deal with injustice inside the pension system. Pensions will increase by at least 30% in real terms.

Furthermore, if pensioners live in a region with a high cost of living and their pensions are below the subsistence level, they will receive special social payments.

As I said, the question arises as to whether or not we can resolve such an important social problem without raising the fiscal pressure on the economy during the crisis? I think that we will be able to do this as well.

During the discussion of the government's anti-crisis program with the Union of Industrialists and Entrepreneurs, employers asked to postpone the increase in this pressure for one year.

I deem it possible to meet the business community halfway, and to not raise the rate until January 1, 2011 despite a switch to insurance principles. To shape the pension rights in 2010, I suggest changing the scale of calculating insurance contributions from today's three-stage scale to the flat one, and collecting insurance contributions from the annual income ceiling of 450,000 rubles.

I consider a switch to this system to be fully justified, considering that in the last few years we have not adjusted this scale for inflation at all, and in this sense business owes us money.

I suggest covering the rising pension system deficit during the crisis - despite the suggested measure it will be higher in 2010 - at the expense of the federal budget and the National Prosperity Fund. This is, after all, why we established them.

I'd like to draw the deputies' attention to the fact that the adopted decisions are very responsible and not easy. To carry out our plans and prevent negative macro-economic consequences, we should display the utmost caution in approaching other items of the budget for 2010 and the subsequent years. We cannot allow ourselves unjustified spending - we'll have to save on something by all means. In effect, we must make the whole budget system more effective and suited to the present conditions. Those who seek to swell the budget or insist on its swelling are against higher pensions.

However, it is a switch to the new principles that will let us build a self-sufficient and stable pension system for the long-term, and to substantially increase pensions with reasonable taxes on the economy.

Dear Deputies,

I consider our discussion of the anti-crisis plan useful and productive. We have received more than 2,000 proposals and remarks, including 700 directly from citizens. A considerable part of them was taken into account. Others are being studied attentively, and I'd like to emphasize that we'll consider all constructive ideas, no matter who voiced them, regardless of party affiliation.

We are hoping for the support of political parties and our people. This is why we are going to continuously explain the gist of our actions through the media and experts.

The global crisis is far from being over. The situation in the world economy is still uncertain and fraught with significant dangers. We cannot resolve all problems in one go. We understand the complexity of the situation and that we will have to act in conditions of many restrictions and uncertainties, including low prices on our basic traditional exports. We know that we'll need to follow the budget's rigid parameters, to collect and build up reserves. We still have this opportunity. Only yesterday, the Central Bank's chairman told me that they recent purchased $5 billion. Gold and currency reserves are increasing -they have already reached $380 billion.

Nevertheless, it would be irresponsible to appease oneself with bravura words and relentless optimism. However, we can be confident that Russia will overcome the crisis.

It will certainly maintain its position as one of the world's biggest economies with a large reserve of development, powerful labor, and technological potential. To achieve this, we should all work in harmony, as a single team. We need discipline, consolidation and agreement on principled questions, but our actions should be without hassle - they should be quick, responsible, and balanced, and bring real effect both for people and the economy. Only in this way will we be able to preserve public trust and guarantee the attainment of our strategic targets.

Many thanks for your attention.

* * *

Prime Minister Vladimir Putin answers the questions of State Duma deputies.

Boris Gryzlov: Colleagues, we are passing on to questions and answers, as per our procedure.
The State Duma Council has determined that each parliamentary party will ask three questions.
We will start with the Communist Party in keeping with our tradition. Mr Alexei Ponomarev is the first on the list I have here.
Go ahead, please.

Alexei Ponomarev: Colleagues,
What do you want to ask Mr Putin?
What did the Government do last year to reduce Russia's foreign debt, which consists of corporate credits that exceeded, all told, $500 billion toward the year's end?
How did it influence Russia's economic and financial situation?
Does the Government intend to take part in paying off this year's corporate debt, which currently exceeds $150 billion, and how?

Vladimir Putin: The corporate debt is really large-$500 billion. Many of you realise that it is not a state debt. It is due to a severe shortage of long-term money in our economy, as I have said in my report, so our companies and industrial plants turn not only to the domestic financial market but also to the foreign.

Developed economies do not take long-term money out of gold and currency reserves-no one spends them on loans. Easy long-term money comes from collective investors and is very effective in the developed economies.

By collective investors, I mean investment funds and pension and insurance companies. Private deposits in such countries usually have a term of 5-10 years or longer, unlike our 2-3 years. That is where long-term money comes from in a developed economy.

These institutions work in Russia, too-but they have extremely limited opportunities and capitalisation, which makes developed market economies incomparable to the Russian.

That was why our companies were borrowing. That in itself was not bad. Many come down on the Government's economic block and the Central Bank, especially Left parties. In this instance, they are really to blame because they did not make sufficient limits of such loans.

Those loans were based on the world market demands. The world needed more metal, so Western companies were glad to offer loans to Russian steel companies. The market shrank later, after these companies had developed production and increased personnel. So it was a painful blow to them. The blow would have been less severe if it was not for their expansion-but then, they would have made no progress.

The corporate debt has reduced by a third as of today. Our companies have made sizeable debt payments in the preceding months, and rescheduled their debts to $174 billion without Government support.

The state has no obligations on corporate debts. I am glad to explain what we have been doing, and why, to help some Russian companies out of dire straits. We have allocated 50 billion to Vnesheconombank, or VEB, to reschedule certain corporate debts of companies that had mortgaged their assets in foreign banks to obtain loans. The economic crisis has largely devalued those assets. Their revenues did not suffice any longer to service previous loans, and Western bankers demanded, in compliance with credit contracts, either to increase the mortgages or repay the debts immediately, which our companies could not afford.

We have arranged remortgaging the assets of our strategic companies through VEB from Western banks in such a way that VEB will retain those essential assets. It is not a gift to Russian companies. I repeat: We have merely removed those strategic assets from Western mortgages to VEB.

If those companies and their proprietors cannot settle accounts with the state-the state bank, in this particular instance, their assets will be levied.

True, we have given 50 billion this year, but it is not necessary-we have used up mere 10 billion. No one wants the other 40 billion.

Boris Gryzlov: Thank you.
Mr Maxim Rokhmistrov of the Liberal Democratic Party has the floor.

Maxim Rokhmistrov: Mr Putin, good government decisions are all too often shelved for years or implemented so badly that it would have been better to shelve them.

The Finance Ministry, Central Bank and the Economic Development Ministry are the basic government regulators of economic, financial and credit relations. As practice shows, these agencies monitor and control their own work. The current situation insistently demands a new independent inspection body to monitor the activities of those basic regulators. Other countries have parliamentary committees for such purposes, or parliamentary and senatorial control. In Russia, on the contrary, the matter never came up as the Finance and Economic Development ministries discussed the budget with opposition parties and members of Parliament today.

I would like to ask in this connection: How has the Government monitored troubleshooting budget expenditures, and who will answer for misspending?

Vladimir Putin: No misspending has been tracked down so far, and spending is being properly monitored. As for parliamentary monitoring, we have the Audit Chamber for that. It goes for granted. All criminal transgressions should be dealt with by the financial monitoring system and the Prosecutor General's office. An interdepartmental ad hoc team has been established under that office. The FSB, financial monitoring agencies and Central Bank are represented in it.

We also monitor expenditures at the Government level. We will receive reports of government-supported banks quite soon. They will report on the time from they day they received such support to this day to inform us about the number and terms of loans they have granted.

As for parliamentary monitoring, I will be grateful if you improve it. The entire nation will benefit if expenditures become more effective in whatever form.

We must certainly maintain permanent contacts with the opposition parties. If there are none, we will give relevant orders to ministries and agencies.

Boris Gryzlov: Thank you.
Mr Valery Chereshnev of the Just Russia group has the floor.

Valery Chereshnev: Mr Putin, will the Government give up its strategic line on Russia's innovation development in these hard times? I mean the entire innovation-oriented part of the budget has been cut drastically. It concerns fundamental and applied research-both civil- and military-oriented, as well as such federal targeted programmes as Research Personnel and Housing for Young Families.

At the same time, a majority of developed countries-Europe, the United States, Japan, South Korea, China and Israel-are spectacularly increasing research allocations. Why have we chosen the opposite road?

Vladimir Putin: Mr Chereshnev, I don't think we are really cutting such allocations. Just look at expenditures earmarked by the 2009 budget. Do you see any cuts there? On the contrary, there is an increase in every field. We have preserved all innovation-related federal targeted programmes. More than that, when we took stock of expenditures to cut and switch to direct anti-crisis activities, we have preserved intact all that concerns innovation development-federal targeted programmes and everything else.

I have analysed the federal targeted programmes due to be cut, and marked all that concerns aircraft and shipbuilding, research and education personnel, etc., etc. with a big fat plus.

More than that, we have readjusted the entire fiscal system to cut R&D taxation, and abolish VAT for imports of technical equipment not made in Russia. We have done much else to promote innovation development.

If you think that is not enough, please submit your proposals for extra efforts and say where, in your opinion, we can re-channel funds taken from other branches.

Boris Gryzlov: Thank you.

Vladimir Putin: Mr Chereshnev, do you want to add something? Please do.

Boris Gryzlov: Switch on Mr Chereshnev's microphone again, please.

Vladimir Putin: Go ahead, Mr Chereshnev.

Valery Chereshnev: Mr Putin, the Science Committee, of which I am a member, met on Friday. The following figures came up: Fundamental research allocations have been cut by four billion, civil applied research by two billion, and military applied research by eleven billion.

However, we have made our proposals and will make more after your report.

Vladimir Putin: Mr Chereshnev, overall allocations have increased. Whatever cuts you might see in various budget clauses, they are possible theoretically, I suppose-but summary allocations on innovation and science have increased. Just have a closer look at all clauses.

Boris Gryzlov: Mr Sergei Zheleznyak of the United Russia group has the floor.

Sergei Zheleznyak: Mr Putin, you have mentioned shortage of long-term money necessary for national economic development on several occasions today. Meanwhile, much money stays idle in private hands. Many people are reluctant to trust bankers with their savings. The economy and the people suffer as the result.

As we see it, the public need to have foolproof deposits-not in the financial sector but in the more reliable realty or infrastructural projects. It might be possible to go on increasing the state support of property mortgaging or promote infrastructural bonds. Putting it into a nutshell, depositors should know where their money is channelled, how they will regain it, and with what interest.

Is the Government ready to analyse the matter together with Parliament, and what do you think of such troubleshooting methods?
Thank you.

Vladimir Putin: Mortgaging will be promoted, as I have said in my report. We are increasing housing allocations as a whole through the mortgage system.

As I have said, we are allocating another 20 billion and loaning 40 billion to the Mortgage Agency. But please bear in mind that we have recently increased Agency capitalisation by 60 billion. That's the extra money I mentioned in my report. So the programmes will go on.

Let us say out loud that, come what may, we should first of all guarantee private deposits in Russian banks, guarantee banking stability and prevent losses. With this aim in view, we should cautiously promote bank restructuring and enlargement. Meanwhile, Russia has 1,500 banks. This huge number is hardly justified, though Central Bank and certain experts think regional banks are extremely important. That is why I call for the utmost caution.

As for infrastructural bonds, I agree with you that they should depend on the reliability of emitters' programmes and public interest in investing. We will support emitters. The matter demands more thorough analyses, at any rate.

Boris Gryzlov: Thank you.
Mr Sergei Sobko of the Communist Party has the floor.

Sergei Sobko: Thank you, Mr Gryzlov.
Mr Putin, the United Aircraft Corporation was established under the patronage of the President and the Prime Minister. It has promised to manufacture 850 latter-day long-haul and medium-range liners, 430 of them before 2012.

It fails to cope with production plans year in, year out, though the state has been perfectly true to its funding pledges. The corporation intends to strike the Il-96 out of its plan. The Voronezh plant might close down next. Mass production of the AN-148 has not started to this day. Superjet-100 supplies have been put off for longer than two years. The MS has not got past the stage of rough design. Russia is lagging behind Brazil, Canada and China.

What does the Government-and you personally-deem it necessary to do to improve the situation and prevent aircraft-building plant closures? Do you intend to discipline the managers of government aircraft-building companies, through whose fault things are so bad now?

Vladimir Putin: Mr Sobko, I am sure you do not doubt that the establishment of the United Aircraft Corporation was the right thing to do. In fact, it was the only right thing because all developments in this sphere throughout the world are connected with mergers. This is the case with IDS in Europe and major companies in the United States.

I do not think more than three companies are active in the global aircraft-building market presently. True, it is common knowledge that Russia is somewhat behind its principal competitors in civil aircraft-building.

The Soviet Union did not pay due attention to the development of civil aviation. We know that well. It was regrettably so. Our civil aircraft have been rebuilt from warplanes, and are no longer competitive.

I try to convince Russian air transport operators to use Russian craft but without result because Russian planes are non-competitive. That's the crux of the matter. If we had not established the United Aircraft Corporation, we would have 50 companies at present because as soon as Russia switched to the free market, everyone snatched at big and small companies, and never cared about the future of the Russian aircraft industry. They all stood on watch preserving their companies like so many patrol cops.

It took several years to switch to the latest management systems. Everyone knew it was necessary yet no one would lift a finger for years.

We had to come through some crucial procedures of transformation into joint-stock companies. Fortunately, that stage is over. The state is doing everything that depends on it. We have earmarked 19 billion roubles for aviation, as the Industry Ministry applied.

As for AN-148, IL-96 and MS-21, I don't think they are stricken off production plans, and no one intends to close the Voronezh plant. At any rate, I haven't heard anything about it. We will do everything necessary to support aviation.

More than that, I am deeply convinced that the future of Russian innovation development depends on it. There is no doubt. I will say more: We will support the industry even if it is inefficient at a certain stage. To tell the truth, I don't think I should have said it out loud, or industrialists will pester me with requests for this and that, and forget all their good intentions to restructure the industry and reduce costs.

We will work to implement those plans and improve civil aircraft-building, I pledge.

Boris Gryzlov: Mr Sergei Ivanov of the Liberal Democratic Party has the floor.

Sergei Ivanov: Mr Putin, you have said that a platoon commander's monthly salary will be 50,000 roubles. That is good-but we will know whether it is enough for decent life only when we learn comparable prices. You know quite well that oil prices have shrunk more than three times.

But look at Russian petrol stations. Have petrol prices gone down? You may be talking about production efficiency but, even if our workers are super-efficient and we purchase the latest equipment, Russia still stays a vast northern country. Perhaps the Government should think about regulating domestic fuel prices because countries that have no such regulation depend on the world market situation too much. But then, Russia has oil and natural gas of its own-so why should we Russians depend on it?
Thank you.

Vladimir Putin: First of all, when I mentioned platoons, I wanted to say that the people in all those relevant sections of the armed forces (that is, the Strategic Missile Forces, the Land Forces, the Navy and the Air Force) who did well in their studies, in their combat training, already receive from 34,000, plus the monetary allowance for service personnel. So that is twelve thousand, plus 3,000-4,000, then do the maths, that's already the situation today, and there's no guesswork involved. The question is how to expand this rule by 2012 into all of the Armed Forces. And that we began, that is happening now.

Now regarding oil and oil products. When the price of oil on the international market rose rapidly, it also rose here, but not as quickly as it did internationally. This is linked to the customs regulations and rules that we have here. The very same thing happens when the prices fall rapidly, but here they fall slowly, they do fall, but too slowly.

I agree with you when you say that we should regulate what is going on in the oil and petrochemicals sector more attentively. But in doing so we should make sure we don't impact the profitability of production in oil and gas companies. In all of course, this is fair, lets think about it together, how to fine tune this so it is more sensitive to events on the world markets. But it is impossible to isolate our economy from the external market.

But we have spoken about the need to adopt European pricing in our country, for example, on gas. This is necessary for our own economy, so that we can begin to deal seriously and attentively with the issue of energy conservation. As you know, if gas is cheaper than other energy sources, then even if you send a policeman to the business, they'll continue to steal gas, and our whole country will be dependent on the gas pipeline, which is not a good idea either for the economy, or for security.

Still, our gas will always be cheaper for our domestic consumers because there are no export taxes and no transit interruptions. The same should apply to oil.

Boris Gryzlov: From the United Russia party- Lyubov Shubina, please.

Lyubov Shubina: Thank you.

Mr Putin,

I think you will agree with me when I say that from the moment the crisis began, it is those who are vulnerable in our society, especially children, who have to a large extent suffered most. And sadly, we see disagreements between the different authorities of the Russian Federation on a regional and federal level.

In order to optimise their expenditure, several regions are reducing their spending on children and mothers. And we, the United Russia Party, have discussed issues of social protection of children, school food, busses for children, motherhood, and maternity capital, in the State Duma on more than one occasion.

Now in your speech you mentioned the use of money from the maternity capital fund. Won't this lead to us frittering away this maternity capital, and losing the sense of why the law was created in the first place. You were, as I understand it, a supporter of this idea.

And my question is, how can you coordinate the actions of the authorities at all levels on social protection for children and mothers?

Thank you.

Vladimir Putin: First regarding maternity capital. In my speech I said that we should retain the idea for how maternity capital should be used. And here I am in complete agreement with Ms Shubina. Housing problems, pension provision for mothers, education - but I agree with the suggestions of some of our colleagues who thought that it is possible to allow, some of the maternity capital to be used in 2009, given the crisis.

For what? We will not touch the basic lump sum of maternity capital. Where did the 12,000, which I suggested be used as people want, come from? We planned the initial indexing this maternity capital, to inflation when it was 8%. But now it is indexed at 13%. The difference between 12% and 13% is incidentally 12,162, as I make it. So it is this 12,000 I suggested channelling for use in 2009 for families who have two or more children, if it is wanted. That is the basis of the maternity capital, it remains the same. It comes first.

Now regarding your question about mothers and children.

Ms Shubina, I don't have the statistics on hand indicating that resources are being squeezed in the regions, just as you suggest. But perhaps it is like that somewhere, and it deserves investigation. What I have seen in reality is a fall in regional income. But the regional leaders and Governors are doing all they can to reorganise their budgets so that they are still able to fulfil exactly those social responsibilities, including those relating to motherhood, children and family support.

I do not know of a single example where you can talk about the reverse happening. If any MP has an example, then let's look at it together. Overall, on the federal level, the support fund for children in need continues to function and we are allocating about 1 billion roubles for it.

Regarding food: A trial of 100% hot food for children is taking place in several regions. I think, it's already underway in 21 regions, and we have allocated 4 billion roubles for this, with 1.5 billion coming from the state budget.

And next year, in 2010, we will be ready to add another 600 million to it. In general this is one of the fundamental areas, and we will, absolutely, give it our undivided attention.

Boris Gryzlov: Svetlana Goryacheva from A Just Russia.

Svetlana Goryacheva: Thank you very much.

Mr Putin, I also have a question about children. For decades the Government has not had enough spare money to deal with child neglect. One of the reasons for it is a high number of children born in disadvantaged families. What do you plan to do? Doesn't it seem to you that it's long been time to move away from this institutional disconnectedness into family politics and create a national fund to support the family?

We need special programmes for poor and socially isolated families. It's vital to stimulate not only the birthrate but also the wholesome raising of children, and we can suggest possible measures.

I am sure you are aware that for a country with a large territory this is far from an idle question.

Vladimir Putin: Ms Goryacheva, what can I tell you? Of course, all that is important and it would be unfair to say that we are not doing anything at all. Here is the indexing of all benefits, and we have planned 8.5 for children and it will be indexed at 13 %. We have introduced maternity capital. All these programmes did not just appear of their own accord. These programmes had been proposed over the past years by the Government.

We have set up a fund, and I spoke about it just a moment ago, a fund for children in need. One billion roubles has already been deposited there. Similar programmes are being established in the regions.

I would like to draw your attention to the fact that we have significantly increased the resources to encourage people to bring children from children's homes into their families. I would like to mention one statistic here which is, as I see it, very good. In the past four or five years, the number of children taken into families has increased by 11 times, and the number of Russian citizens who do this is now twice as large as the number of foreigners.

And while we're on this subject, if we are proposing additional measures, we can also discuss situations such as when a child is taken into a family, it could become eligible for a financial benefit or help obtaining housing in the area, and so on.

Boris Gryzlov. Thank you.

From the Communist Party of the Russian Federation, Oleg Smolin. If you please.

Oleg Smolin: Mr Putin, in the budget that was passed for 2009, for the first time in post Soviet history, there is a mention of increasing wages for public sector workers in the regions overall, and for teachers in particular. As a result the funding differential in education, the amount allocated per child, has grown dramatically and looks broadly as follows in village schools: 62,000 in Sakha, 53,000 in the Moscow Region, and 11,000 in the Omsk Region, while in Amur it is only 9,000 roubles. There is more than a seven fold difference.

But the child's right to education should not differ depending on the region he or she was born in, on whether he was lucky or unlucky with the Governor or President.

Question: Is the Government ready to offer financial help to the regions in order to help them raise the pay of the intelligentsia and to defend the rights of children for education, and to what level?

Thank you.

Vladimir Putin: Mr Smolin, it seems that wherever you look, you notice that we have neglected something. We have increased expenditure by 70% and there still remains something we haven't done. It's strange, but nonetheless, I suppose you can look at every problem from that point of view, and I absolutely agree, the income distribution in budgets region to region is a real phenomenon.

Regarding the federal Government employees, you know very well that at the end of last year we increased our wage fund by 30%. In the regions of the Russian Federation they also made similar increases; in fact, in many regions this was carried out before it was adopted on a federal level.

And I agree with you that here we need overarching coordination between the federal centre and the regions. And it's not possible to abandon it, but also it is also dangerous to run on ahead, because from the social point of view it is also hard to explain to people, that the federal budgets have been increased, but the regional ones haven't. Try to explain that this has already been done. All the same, people are already waiting for further increases, and that is generally as it should be.

That is why our actions must undoubtedly be coordinated with the regions. That's the first point.

Second. As for the regional state employees, lets not forget them. We are after all responsible for people in the regions and should not take it all onto our own shoulders or it won't work. About the idea that there won't be enough money. There is never enough money. The issue is the selection of priorities What is more important, the construction of a barn and chipping in 20-30% for the construction or giving the money to teachers and doctors?

Regarding our support, I have already said that 1 trillion 200 billion has been given to the Russian regions, and I am thinking of their falling incomes due to the crisis.

More than that, another 300 billion we are giving additionally (originally we planned on a smaller scale). Of them, 150 million is a bail out and the other 150 is in the form of budget credits. Incidentally, if we used to hand out this kind of budget loan for a year, now it is for three years. And in general the sum was agreed with the regions, and we consider it sufficient. How the priorities should be defined and decided in those places, so you'll have to ask them.

Boris Gryzlov: from the Liberal Democratic Partly, Yelena Afanasyeva.

Yelena Afanasyeva: Mr Putin,

There are redundancies due to the need to optimise production in the economic crisis in a whole host of businesses across the country. The managers admit that they cannot guarantee jobs for some of their workforce as they lack the funds. People lose their jobs, or they fall into the category of hidden unemployment.

And at the same time, as far as we can see, the number of state sector employees is not in decline. And not so long ago the President of the Russian Federation, Dmitry Medvedev, declared that it was necessary to cut the state apparatus by 30% and suggested starting with his Executive Office.

The Liberal Democratic Party in the State Duma also suggested cutting the number of committees and commissions in Parliament, a number of which, in our opinion were illegally set up when the 5th Duma was formed. Today the parliamentary majority doesn't have the stomach for this.

So could you tell me, please, how issues of redundancies and long term job hunting, or retraining those made redundant, are being handled. Are there any projections about how many people made redundant in Parliament will collect their unemployment benefits and take part in social work?

Vladimir Putin: Ms Afanasyeva,

Highly qualified experts work for the Government. If any of them are let go, then they will be able to find work immediately. I think that its highly unlikely they'll end up at the job centre. And not because they don't want to but because that calibre of specialists even during a crisis are needed by the economy. That's the first point.

Secondly, the increase in expenditure has been about 8% but there will be an approximate 8% cut to spending on the state apparatus. This affects the President's Executive Office, the Government, ministries and agencies. I don't recall how much the overall saving was, but the Government apparatus closed about 128 positions. And the overall savings are over 35 billion roubles.

And regarding the number the State Duma needs to cut back, it's clearer for you - do we need to cut the number of committees? We need to do more than just a campaign. Its clear we need to optimise, but if there's some sphere that needs particular attention form our Parliament, simply to save 5 kopecks and to let some sort of regulation in the country, then its best not to.

Boris Gryzlov: from the United Russia, Irina Yarovaya. Please, go ahead.

Irina Yarovaya: Mr Putin,

It's true that a significant role in overcoming the crisis today and in the near future lies with the regions themselves. We also understand that the situation has changed in very many regions which are dependent on natural resources. And you have mentioned those massive figures, enormous sums of money in regional support that the Government is offering to the regions.

But at the same time, how do you rate the quality and effectiveness of the anti-crisis programmes which you offer today on the regional level? And how do you plan to account for that factor, from the point of view of the anti-crisis co-financing of regional programmes from the Federal budget?

Vladimir Putin: I mentioned in my speech that we have created a way of reacting to the problems that have occurred, especially in the labour market. You know that the Government set aside 43.7 billion roubles for this. Not long ago we met as part of the discussion of anti-crisis measures and I talked about this then.

I personally do not define that quality, but we have created a special working group headed by Deputy Prime Minister Alexander Zhukov and I have asked the regional heads to personally head the regional anti-crisis headquarters. Each region is preparing its own programme. When it is ready, the regional head will submit it to the Government commission, present it and defend it. If we decide that it is efficient we will begin co-financing.

I would like to draw your attention to the fact that when I discussed with the regional leaders the extent to which we would finance these programmes, and how much they would be expected to contribute, we initially had this kind of request. They said that they couldn't afford more than 20-25%. So what was the result? We financed 95% of the programme, and the regions only put up 5% of the funds.

So the financial participation is significant. We have retained these 5% simply so they felt they were participating in the programme.

Of course, when it comes to quality, then it is above all the responsibility of the regions themselves, because only there is it possible to understand what they need now, and what they will need tomorrow. Commissions have also been created, they have been formed in part with the representation of economic and business figures, and together they are choosing programmes for retraining staff, in social work and so on.

Let me repeat that we begin the co-financing only when we are certain that the programme will be efficient in that region.

Boris Gryzlov: The A Just Russia Party, Oksana Dmiriyeva. Please,

Oksana Dmitrieva: Mr Putin,

The decision has been taken to correct the pension system through reassessing rights through length of service. That is correct. But if it is done in isolation it risks discriminating against pensioners who earned more than average and who have a high education.

In order to avoid this, we have introduced a law which in the recalculation of pension rights takes into account not only the length of service but also wages. I suggest the raising the coefficient for service length from 1.2 to 2, and for list No. 1 and No. 2 to 2.8.

We have also introduced the law, taking into account what's known as the uninsured periods, like study. How do you see the possibility for a reconsideration of this and for the pension system?

Vladimir Putin: Ms Dmitriyeva, regarding the first part of your question, let's consider this in detail when we make the decision on those issues linked to valorisation. Our suggestions are as follows: 10%, plus 1% for each year before 1991. Let's see whether we can count this as valorisation, as you suggest in your proposal, formulated in the first part.

Regarding the second part of what you said, or your second suggestion, taking into account when assigning pension rights to citizens, those periods they spent in education in higher educational establishments and further study institutes, and so on, we can think this through together and make a responsible decision.

The question remains, how to ensure these decisions are socially fair? After all, we don't all have a higher education, not all of us were successful in obtaining professional training. If a person didn't study, what happens to him? Is he to be in the worst position? On the other hand, if we consciously raise the pension rights for those who are educated, then we are sending a message to society that people should go and study, and then they'll get a better pension.

We need to pay particular attention to detail, and approach this very carefully from the point of view of social justice.

* * *

Vladimir Putin's concluding remarks

Vladimir Putin: I am not sure you can call it a closing speech.

The heads of parliamentary parties and other colleagues know the usual work procedure, and we often, or at least regularly, meet to discuss current business and solve longer-term tasks. Usually the colleagues express their proposals and formulate their criticisms and questions which I try to answer. I propose to do the same today.

The speakers have made some additional proposals and asked questions. I deem it my duty to react.

First, I would like to thank Boris Gryzlov for his support, but let me start with the colleague who spoke last.

A tax holiday for certain types of business, small business and so on, is not a bad idea. However, let us not forget that we have been through this in the 1990s. At the time we faced the problem of "one-day" firms which did not exist long enough to report on the benefits they were enjoying or the results of their financial and economic activities.

We too want to find effective means of support, including support of small and medium enterprises. But let us make sure that we do not repeat the former mistakes.

I absolutely agree that Law 94 is flawed, it needs to be "tidied up" and improved. Shall we scrap it altogether? Well, when it is used, when we do it, when the Government does it, the claims of commercial entities for budget resources diminish, sometimes by several times. Where the budget comes in, spending immediately grows.

I have cited this example at a recent meeting with colleagues. You remember the grisly story of hunting baby seals. It should long have been banned. I ask, why haven't you banned it? Because it is the livelihood of the people who do it, the local inhabitants. How much will they lose if we ban this industry? Six million roubles. I say, OK, prepare an executive order imposing the ban and envisaging compensation in the amount of six million. After a while I ask them, have you done it? Yes. I sign it. Now what are your ideas about compensating for the lost incomes? How much? 48 million. Listen, yesterday it was 6 million. As soon as the budget is mentioned it becomes 48 million. And it's the same everywhere, you see? And then it turns out that they need to buy boats and they need this and that.

So, we need a mechanism that protects the interests of society and the state in the process of state procurement. Yes, Law 94 is imperfect. It cannot be applied in some sensitive social spheres, in science and defence. It would be absurd to hold tenders in these fields if there is only one provider of goods and services. It is impossible and foolish.

The Government proposes to introduce amendments quickly. If you have any conceptual proposals and solutions, please come forward, but formulate them in a competent manner so that a proper balance is struck.

Now about government housing and savings banks. Who said it is bad? Who is rejecting it, as it was claimed here? No, we are not rejecting it, but we should think how to do it in order to avoid new "pyramids". A decision can be taken, but who will then answer to the citizens for new financial "pyramids", who will bear the responsibility for this and who will compensate the damage to people if we get the initial principles of the mechanism wrong? Let us search together for these mechanisms of supporting people, but do it in a way that nobody is "set up."

Now about energy saving. I quite agree there. Indeed, when I lived in Germany, we had the same thing in our vestibule: you pass and the light goes out, you enter and the light is on for a few seconds. Simply, these technologies are costly at the initial stage both for the state and for the consumers. Let us do it, but that would be an extra burden, it is the right thing to do really, but then everything should be honest and above board and we should talk with the consumers honestly.

A speaker said here that we have high electricity tariffs. I agree, they are too high. But we have held back, substantially, the growth of railway tariffs; instead of lifting the gas rate by 25% at one stroke we have raised them by just 5 %, 5% instead of 25% , and instead of 19%, I think, for railway carriage, we made it also 5%, if I am not mistaken.

About the power industry. We had lured in investors and we had to preserve this tariff. Otherwise we would have cheated them. However, the growth should not be as dramatic as we have seen it happen in some regions. If this is the case, the regions have the right to reduce the percentage of the family income that goes to pay the utility rates from 22% to 15% or 10%, the cutoff line from which people are entitled to subsidies.

That is why we direct money to the regions. As I said, 1.2 trillion, and by the way, they do it in some regions. Let them go on doing it, we should pay attention to this because our proposals and actions should be economically reasonable and socially fair.

Now for culture. I agree, I have no arguments against it. It is true that if we do not mention it when speaking about anti-crisis measures, it is a mistake.

The Social Charter. Everything is right there, I have seen it, I have seen the proposals on the social responsibility of business and so on. But I said it in my speech - and heard no objections - that assistance and support should come in response to efficiency. We cannot bail out the whole country, we should make business efficient. And we cannot use the one-size-fits-all approach, what if restructuring is justified in some cases? As I said, we should then help not the enterprises and owners, but ordinary people. And that would send a signal to everyone: don't do anything in the interests of social justice. That would also be wrong.

A surrealist nightmare would occur precisely if we violate the balance between social justice and economic expediency.

Now about the complaints that we haven't raised salaries for all servicemen, or have not paid everyone, and have started paying unemployment benefit of almost 5000 roubles. Yes, we haven't raised salaries for everyone. But we have indicated in what direction we are moving. We cannot do it at once. You understand it.

In the army the pay rises have been granted to those who perform best in combat training and only in the areas that are critical for the country's defence capability. I have already said it. But I have also said that by 2012 these principles would be adopted in all the units, and that is a substantial increase.

Now about unemployment benefits. You know by how much we have increased them. Would it be right if we gave these benefits to absolutely everyone, to all those who have lost their jobs? Both those who have not worked for five or six years and those who have just lost their job? Is that fair in social terms? I don't think so. We should help those who have worked until recently and have faced problems in connection with the crisis, these are the people we should help first. But at the same time we should encourage the regional and local authorities and the federal agencies to retrain people and find new employment for them. If we grant these benefits for everyone and for life then, pardon me, what incentive will there be to create new jobs?

As regards the decision to use force against Iran, I do not have such information. But of course it worries us because we believe that the use of force in the world arena has recently been overdone. Instead of conducting unpleasant and prolonged negotiations all too often problems are solved by crude force, and that is counterproductive. I don't think that is the way to act in the international arena, be it with regard to Iran or any other participant in international life, international communication.

Now about the need or otherwise to increase state regulation at present. First, crises occur all the time. They follow a sinusoid, they have occurred in the last 15-20 years as well. They were not on such a large scale, but they have been constant. They come and go, come and go. And I would like to stress that each time a crisis arises state regulation begins to play a bigger role. This time is no exception. But that does not mean that it should be like that in the future. That is why we should think even now what our policy will be in the near and medium term perspective.

About internal demand. As I said, we won't be able to solve that problem only through the state order. That is obvious. I said in my speech that there should be a system, a set of measures so that demand should recover in a natural way. That is why, let me repeat, we speak about subsidizing credits, the development of the leasing system, consumer loans, etc., in order to make demand natural.

And still, and I am sure you are aware of it, without restoring world markets we will not be able to restore the full volume of production. If 50-60% of our metallurgical industry was geared to export, we cannot cover it by domestic consumption, that is clear. Accordingly, the wages there are going down.

But I have to tell you that though it is unpleasant, people understand it as well as you and I. The point is that we should react to events adequately and that there should be "light at the end of the tunnel." I think the programme I presented does turn on such a light.

Why keep money in foreign securities? This has been a long-mooted point.

We may of course, dissolve all and sundry, dissolve the Government, dissolve the Duma. But, as has been said here, the Tsar abrogated responsibility, the Soviet leadership abrogated responsibility and the country collapsed in each case. Is that right? Neither we, the executive branch, nor you have the right to shirk responsibility when times are hard. Everyone must walk his part of the way.

Regarding our gold and currency reserves. Nothing has been lost. We have no losses because, strange though it may sound, they have been placed competently. Over the past three years we have been removing our gold and currency reserves from the riskier instruments (I am disclosing a state secret) consistently and carefully, in order not to bring down the markets. I issued this directive when I was President three and a half years ago. And we gradually removed everything from there.

The instruments in which we remained had low yields, but we suffered no losses, unlike the countries which invested in high-yield but risky paper and instruments. They have suffered huge, colossal losses.

So to say that the Finance Ministry and the CB have acted in an incompetent way would be absolutely wrong.

I won't speak about specific sectors, aircraft building and so on. I think I have already answered these questions. I go along with the critics who say that we should have paid more attention to these sectors. I agree. Let us pay attention to them. I will repeat. Even if it is not effective from the economic point of view at a certain stage we will help them all the same.

Now about reform, including army reform.

You know well, and I have said it in the meetings with the heads of parliamentary parties, everywhere in the world there is a triangle: at the bottom are soldiers and junior officers, and higher up the pyramid there are fewer positions, generals, admirals, etc. In this country it is an inverted pyramid. At the lower level, those who fight and make critical decisions on the battlefield, there are not enough people, and the top is overcrowded.

The reform of the Armed Forces is aimed at changing that situation and making our Armed Forces mobile, effective and not overly costly. That is a challenge. We cannot solve it by cutting "living flesh". We do not discharge servicemen who have not finished their term of service or those who retire for health reasons.

About the efficiency of those who implement these reforms. You know that in the mid-1990s our Armed Forces - I don't want to throw stones at anyone now - were headed by quite competent people. And the country was awash with blood in the North Caucasus. Now we have a new Chief of the General Staff, and a new Supreme Commander-in-Chief, and yet our Armed Forces met the challenge in Southern Caucasus in August of last year with flying colours.

And the last thing. I think that today's discussion was very useful and constructive. I would like to thank you all: those who supported the anti-crisis plan and those who criticized it. I must say that on the whole the critique is well-argued and we will take note of it.

Thank you.

***

Prime Minister Vladimir Putin made a statement to the press after the meeting.

Good afternoon.

As I said in the conference hall, we have established a new tradition, one that I find to be very good - Government reports to Parliament. It is a new stride in Russian political development.

We have had a practical, constructive, and useful discussion today. The anti-crisis programme takes much into account. We will analyse the suggestions of parliamentary groups once again after the discussion. We will take into consideration everything that is constructive and promises to improve the situation.

Thank you.

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