Working Day

11 september, 2009 15:30

Prime Minister Vladimir Putin met with members of the sixth Valdai Discussion Club

Prime Minister Vladimir Putin met with members of the sixth Valdai Discussion Club
“The crisis has affected Russia very seriously. However, we see nascent stabilisation in the country, beginning in June, and economic growth, even if modest, of 1% monthly since June. We know that European countries have recorded similar trends, especially Germany and France. We expect these positive trends to grow stronger.”
Vladimir Putin
At a met with members of the sixth Valdai Discussion Club

Transcript of the meeting's beginning:

Vladimir Putin: Good afternoon, ladies and gentlemen. I am happy to be able to meet with you again. I welcome everyone and would like to say at the beginning of our meeting that there are people who seem to be unaffected by the global financial and economic crisis. I am referring to journalists, editors-in-chief and political analysts who look well fed and well dressed. You are still going strong, aren't you? This is a good sign showing that [changes in the situation] will gradually have a positive effect on other sectors and other people.

This past year saw a multitude of different events and newsbreaks. However, we feel that you as professionals dealing with Russia pay special attention to these problems. In fact, many of you have spent many years of your lives on this. Getting first-hand information is an interesting profession.

For our part, my colleagues and I find meetings with you very instructive, as your questions spotlight things that present the biggest challenges and are therefore the most interesting. Just analysing the questions you ask offers rich food for thought.

In addition, it is good to listen to your opinions, which you express one way or another when you formulate your questions, to compare them to our views and to adjust our policy, plans and action.

Like last year, this meeting is taking place on September 11, the day when the United States and the rest of the world suffered a big tragedy - the terrorist attack on the United States. The number of victims was incredible. Like several years ago, we mourn their demise.

You know that we in Russia have recently marked the Day for the Victims of Terrorist Attacks; it was on September 3. Russia knows what terrorism is probably better than many other countries.

I view this as one more reminder of the importance of forgetting about differences and disputes, and uniting our forces in the fight against common challenges.

By the way, you know that I have recently been to Gdansk at the invitation of the Polish Prime Minister, where our Polish friends marked an anniversary of the beginning of World War Two. The lessons of that war show that there is nothing as important as a common struggle against common challenges. All of us must closely analyse the situation and respond accordingly.

If the world's leading powers had managed to rise above their ambitions, fears and complaints in that pre-war period, global history could have taken a different turn.

I mentioned the global financial and economic crisis earlier. It is a unique phenomenon, as has been said often, but I must emphasise it again: it is a unique phenomenon; the global economy has never experienced such a crisis before. This crisis has spread to all countries and has affected all of them, to a greater or lesser degree.

The crisis has affected Russia very seriously. However, we see nascent stabilisation in the country, beginning in June, and economic growth, even if modest, of 1% monthly since June.

We know that European countries have recorded similar trends, especially Germany and France. Revival has started in the euro zone. The United States still has major problems with non-performing loans and mortgages. The situation has not stabilized there, and falling real estate prices are still a major threat. However, the US economy is also seeing the light at the end of the tunnel. We expect these positive trends to grow stronger.

I will be happy to discuss all of these issues with you, and also as they pertain to Russia. This is all I wanted to say for now. As has become the tradition at these meetings, I will be glad to answer your questions and will try to provide exhaustive and comprehensive answers to them.

Svetlana Mironyuk: Mr Putin, please allow me to thank you, as an organiser of this meeting and on behalf of all members of the club, for this chance to meet with you again and to hear you answer our questions. This is our sixth meeting, I'm afraid. I say I'm afraid because it seems we first met only yesterday - or the day before yesterday.

This year's conference convened 45 political analysts form 15 countries. There are some new members, new colleagues from Germany, Hungary, Poland and Turkey.

This year we are in Yakutia. The motto was "Russia-West: Back to the Future." The club's four panels highlighted relations between Russia and the West, and discussed the new European architecture, asking each other if the Cold War has really ended and if the nuclear reset button has been pressed or not.

I think our colleagues will put forth their opinions and viewpoints in their questions, and will elaborate on them.

Please allow me, on behalf of the forum's organisers, to give the floor to former Polish Prime Minister Leszek Miller.

Vladimir Putin: Of course.

Leszek Miller: Thank you. Mr Prime Minister, Gazeta Wyborcza published an article you contributed to before your visit to Poland. That article was important not only for Polish-Russian relations but also, I think, for global politics.

You wrote that historical reconciliation between France and Germany paved the way for creating the European Union, and this is indeed so. In turn, partnership between Russia and Germany has become a good example of the ability to overcome difficult memories and develop cooperation.

The fact that Polish-Russian relations are currently complicated is an unpalatable paradox for my compatriots and me. These relations must be improved. It is important that your article should become the beginning and not the end of a long process.

Much has been said and written about your visit, and many of these opinions clash with each other. This is normal. But tell me please, what was the most important thing to you in Poland? And what is your impression of your visit?

Vladimir Putin: Most important when? During the visit, or when the decision to make the visit to Poland was made?

Leszek Miller: In general.

Vladimir Putin: The most important thing to me was to once again - I want to stress it - once again show the Polish people and society that Russia wants and intends to develop relations with Poland as a friendly state.

I believe that the attempts to use past problems to influence current political needs of certain political forces in any country are counterproductive. In fact, this is an attempt to use problems from our common history for mercenary purposes. We do not protest the proposal to once again analyse developments in Europe and the rest of the world before World War II. But we would like to see objective assessment, so that objectivity would help us to rise above common complaints, join hands and march on.

It was not easy for me to speak about some things while in Poland, because I was a guest. But I think it would be wrong and, I repeat, harmful to pretend not to notice them. We are talking about the events that eventually led to the beginning of World War II. In my article, I - I see that your have read it, and I am grateful to you for drawing our attention to it. One of the main ideas of that article is that the world order created after World War I was faulty. The Treaty of Versailles not only sealed Germany's status, but placed the German people in a humiliating position. One must not humiliate nations, especially such a great nation as Germany.

But if we look at what was written there, and this conclusion is confirmed by experts, we see that Germany would never have been able to pay reparations if it had tried to pay the full amount. This allowed the Nazis to say the deal was unfair thus justifying revenge.

The seeds of revenge were ingrained in the Treaty of Versailles. Okay, the victors ate alone. They failed to control themselves after World War I. But what happened after? Shortly after the Nazis came to power, in 1934 Poland signed a declaration with Germany, which was essentially the same non-aggression pact. In 1935, Britain signed a treaty with Germany, giving it more freedom of action at sea while actually denouncing this part of the Treaty of Versailles. France followed with a bilateral agreement, and in 1938, both France and Britain signed the so-called Munich agreement.

It was signed on September 29, and on September 30, Poland sent an ultimatum to Czechoslovakia. On October 1, both Germany and Poland simultaneously invaded it. Such coordination shows that the Polish leaders opened Pandora's box themselves. They let the Genie out of the bottle.

But if Poland considered it acceptable to take part in the partition of Czechoslovakia, who has the moral right to complain it was treated in the same way it had treated Czechoslovakia? I am not trying to defend Soviet diplomacy in 1939, but the Soviet Union was the last to sign a non-aggression pact with Germany.

Imagine that all European countries have signed non-aggression pacts with Germany. Now Germany offers Stalin a chance to sign a similar agreement but he objects. This would be a casus belli. What could the Germans have said in this scenario? Stalin does not want to sign a non-aggression pact with us; he is going to fight... Needless to say, the pact was signed.

Nevertheless, the Russian State Duma has denounced this treaty with the Nazis, although it was signed by foreign ministers Molotov and Ribbentrop, whereas the Munich agreement was signed by the French and British prime ministers and personally by Hitler. But for some reason this fact is never recalled. Why not? It was one of the steps which led to the outbreak of World War II.

If my opinion is not enough, let's recall the view of a man whose sincerity, professional skills, and dislike of the Soviet Union has not been doubted by anyone - Winston Churchill. Do you remember his words, which are well known to all historians: "Britain and France had to choose between war and dishonour. They chose dishonour. They will have war." Churchill said this in 1938. By then he had already admitted that war would break out. And now someone is trying to blame the Soviet Union for the war. Have you forgotten what Churchill said? How come you have forgotten this whereas we remember?

Now I'd like to say a few words about the Polish leaders of that time. Churchill wrote in his memoirs that the Germans were not the only predators to tear to pieces "the corpse of Czechoslovakia." Poland also joined in. Furthermore, he gave his opinion of Poland at that time. It is not positive either, and I don't even wish to quote it.

What we suggest, is to come -- on the basis of an objective analysis -- to a common understanding of what really caused this global disaster, to honestly look into each other's eyes, to get rid of all the trivialities linked with the current policies, and to look to the future and move on.

I think this is still topical for the countries of Central and Eastern Europe. Why? One observer said with good reason recently: "The Soviet Union could not give you freedom, because its people were not free." This is absolutely correct. What else could be said?

The problem is that at that time there were two Polands, and Churchill mentioned this as well. One Poland was fighting for the truth, whereas the other was eating the dust. Likewise, in the Soviet Union there were people who served time in labour camps, and those who put them there. Why choose only one side of the problem and blame the whole country for it?

It goes without saying that in Central and Eastern Europe these are fresh wounds because the socialist system was imposed on these countries and maintained by the Soviet Union for a long time. This led to certain events and attitudes in these societies. But this is all in the past. Speaking in Gdansk, I said and can repeat it here: let's not forget that Nazi Germany was the aggressor. Victims and hangmen cannot be put on the same level.

We visited Westerplatte. Poles defended their freedom courageously. They surrendered only when it became clear that the Western allies would not come to their aid, and after they had sustained heavy losses.

Ladies and gentlemen, I would like to draw your attention to the fact that the Soviet Union had no hope of getting any assistance from anyone. This is why our Brest Fortress fought till the last soldier. Only a few men were taken prisoner when they were unconscious. The others were killed. The same selfless fighting took place throughout the war. All in all, 55 million people were killed in World War II. The Soviet Union lost 27 million. Russia lost 70% of this number. You can look at any study to see these figures. This was the sacrifice brought by our country to the altar of a common victory.

Every nation suffered. We should not poke around in all this, promote some twisted data and stir hatred for each other. I think this is being done with a purpose. They are setting a fire and then acting as a fire brigade to receive some domestic political benefits.

I believe that the future belongs to those in our countries -- and they constitute an overwhelming majority -- who do not want just to live in peace but also to cooperate and be friends.

Svetlana Mironyuk: Thank you. I would like to give the floor to one of the first members of the club, Mr Sakwa.

Richard Sakwa (as translated): First of all, I would like to thank you for meeting with us today. This is a valuable opportunity for us to exchange opinions, especially at a time when it seems we are entering into another period of confrontation. My question is to what extent do you think the Western model for political and economic development would suit Russia? Or do you think Russia needs to adopt some other model, which would better suit local historical, geographical and the geopolitical realities? Thank you.

Vladimir Putin: Russia's fundamental political and economic system is fully in line with international standards. If we are discussing the political system, I am referring to free election and effective multi-party system.
We can argue as much as we want on this issue, and I would be happy to discuss it with you. And there certainly are political and economic problems specific to Russia. We can talk about this later on.
As for the economy, it is based on fundamental principles of the market, which are in force in every sector of the economy.
If we take Russia's financial system, it is much better adapted to market realities than other countries' systems.

For example, compared with the Chinese financial system, Russia's system, as you know, is very liberal and relies on the Basel core principles. We have removed most of the barriers that interfered with the flow of capital. We have adopted fundamental laws regulating property rights. We have passed a law allowing private ownership of land, which had never before existed in Russia.

Finally, in the realm of social policy, we have adopted a very important law called the Labour Code. I spoke about it with several of my counterparts from developed European countries, and they told me they would also like to have such a code in their countries. Their laws in this area are much more socialized. I think this was a great achievement on Russia's part. The current system protects workers' interests while keeping the labour market flexible, and at the same time makes demands on the workers themselves.

The trade union movement is well developed in Russia as well, as you know, and actively makes use of all its legal rights. All of this proves that this model is not only acceptable for Russia, but in fact already serves as the foundation for the country's current political and economic system.

However, the details of this model differ from country to country. There is even considerable difference between the United States and Western Europe - I don't think I need to say anything more. If we look at China and India, the differences are even greater.

However, the main point is that the global economic foundations are gradually becoming standardized as a natural response to the present-day challenges. Russia is certainly playing an active role in this process.

I believe that if we can succeed in working out this sorts of standard rules and basic regulations between the members of the G8, the G20 or other, larger groups, the global economy will become even more stable and reliable. Russia will certainly take an active part in this cooperation.

Svetlana Mironyuk: The next question is from the American "wing" of the club. Mr Colton, please.

Timothy Colton (as translated): Thank you very much. I would like to ask Mr Putin a question about his economic strategy. Mr Putin, before you stepped down as Russian president, you often spoke about important short-term and long-term issues. You made excellent plans. I even remember you joking about the Putin Plan in Sochi a few years ago, saying it was a publicity stunt. But you also brought up serious plans for 2020 and even 2030, which called for significant development, and would be under the Government's guidance but would also take market principles into account, of course. As we also know, the economic crisis hit shortly after.

So my question is whether your priorities have changed in any way because of the crisis? Do you think you will return to then plan when recovery begins, or will you have to change it? This is my question.

Vladimir Putin: If I answer your question fully, we won't need to discuss any other issues. We could discuss this issue until morning, take a break for lunch, rest, and then meet for dinner and resume discussing and debating your question. But I will try to give a short, concise answer, and tell you what I think on this issue.

First of all, our main objective in the development strategy of the country is to diversify the economy and to enhance labour productivity and investment in the so-called human capital, that is, in education, healthcare, and so on. These key priorities have not changed, despite the crisis. Moreover, while trying to overcome the consequences of the crisis, we are paying more attention to these issues as our key priorities.

We often say that here [in Russia], as well as in North America and Europe, professionals and members of government frequently claim that we should emerge from the crisis a stronger country. As you know, this is indeed true for all of us.

Yesterday or the day before, I met with representatives of the Mechanical Engineering Union, and again I have heard them say things that make me happy. A representative of one of the holding companies that manufactures agricultural machinery said that if not for the crisis, they would have continued living as before and been content with excessive spending and redundant personnel and with low efficiency. They lived with that in the past and had enough money. But now we have to lay off redundant personnel and cut expenditures. The representative said that his company is trying to use the trade preferences the government has extend to us to help us import equipment and spare parts in order to raise production and labour efficiency. That is exactly what he said.

I am sure that he did not read any official documents on the Strategy for 2020. Reality has forced that company to formulate strategic development goals. We are aware of this, and we are trying to help them. In a way, the crisis has unified society in support of the strategic goals we have formulated.

What was our problem before the crisis? Our economy did not have, and it still does not have, the so-called "long money" [long-term loans]. The main reason for that was our inability to control expenditures and to fight effectively the huge influx of investment in Russia.

In the best year - I think it was 2005 or 2003 - foreign investment in the United States amounted to $300 billion. Foreign investment in Russia in 2007 reached $81 billion. However, foreign investment in the US fell to $30 billion after the Enron scandal, but the figure for Russia remained $81 billion. Of course the Central Bank could not deal with such a huge influx of capital, and it failed to withdraw the excess money in time. The Government failed to control spending, although we maintained and even increased reserve funds, though not in order to use them on a rainy day but in order to improve macroeconomic indices.

We succeeded, to a degree, but we failed to attain our goal. Because we had the money, it was very difficult, even at the political level, to resist the demand to spend more and more. We went into the crisis with high inflation, and hence without long-term loans, because long-term loans are unthinkable during periods of high inflation. You need low inflation and a stable economy to have long-term loans.

Therefore, one of our tasks this year is to restore macroeconomic indices, lower inflation, and prevent the strengthening of the national currency to the levels we saw in previous years. We have not yet achieved this goal. We made the money, the speculative capital, by benefiting from the exchange rate and inflation.

People invested in Russia during a period of high inflation, when the dollar cost 30 roubles, and a year later, when the dollar cost 25 roubles, they took the profit and left the country. To prevent repeating this situation, we need our own sources of funding.

First of all, we must pay attention to macroeconomic parameters. Using this as the groundwork, we will try to ensure that long-term loans are available in the economy and at the lending institutions, so that we will be able to use internal financial resources.

Our second task is to strengthen the financial system. This is an incontestable objective. We have made a decision to increase the authorised capital of national banks. We expect the number of banks to decrease in Russia. It will be a gentle, positive process that will strengthen people's trust in our financial institutions and will allow the economy to use these resources more effectively.

And, of course, we will continue our efforts to diversify the economy, to encourage the development of high-tech and science-intensive industries. We are already doing this, while at the same time tackling a two-sided problem, as I have said above, which includes measures to prevent increases in spending. However, we have not cut state investment in high-tech projects that rely on government involvement in these industries - in aircraft manufacturing, in space exploration, or in shipbuilding. There are many problems in this area If you want to, we can discuss them, but I can assure you that we are investing as much as we planned in these projects.

And lastly, on the topic of social development. This area requires investment in human capital, in our people. We are implementing healthcare reform and will continue to do so. We will continue to focus on education and science and, of course, will continue to develop the social sphere.

All countries, with the possible exception of India and China, are facing demographic challenges. And therefore we and our partners in Europe and America have acute social problems. One of the more acute problems is pension security.

I would like to say that we will honour all of our social commitments this year, regardless of the crises. We have indexed social allowances, just as we planned to do before the crisis, within the framework of legislation we adopted during the good years. We will index pensions four times this year.

At the end of the year, we will honour the commitment I made back when I was President to raise social pensions to the level of the average subsistence wage in the country. Also, we will raise pensions to an unprecedented level at the end of the year. We will raise them by 30% on December 1. In fact I think it will be almost by 36%.

And that is not all. On December 1, 2010, we will start the so-called pension valorisation, that is, recalculating the pensions of those Russians who earned them during the Soviet period, before 1991. We will raise them by 10% and add another 1% per year of service during the Soviet period.

Why are we doing this? We are doing this for two, no, three reasons. The first is social justice. The people who worked in the Soviet period are now the worst off financially. The pension system is extremely complicated, and these people's pensions are not comparable to their labour contribution. We will review their pensions, and will ensure social justice, if only partially.

Secondly, we are raising the incomes of relatively poor people in order to maintain internal demand. We hope that this will serve as a factor in overcoming the crisis. These people buy Russian-made goods, foods, and basic necessities. They do not buy imported goods; they will buy Russian-made goods.

Last but not least, I would like to discuss an issue of no less importance, and of general concern. I began my answer to your question with it. This is the demographic challenge, the natural ageing of the population. Nothing can be done about it. Many European countries are increasing the age at which a person begins to receive a pension. In Germany and, if I am not mistaken, in Italy, the age is higher than in Russia. Typically Europeans begin to receive their pensions at age 60 for women and 65-even 67 in some countries-for men, while in Russia it is 55 for women and 60 for men.

We are valorising pensions and, after a five-year transition period, shifting to the insurance principle for distributing pension funds. A law has been passed, in accordance with which a relevant rule will enter into force in 2015. It calls for a 6% rise in the basic part of the pension for people who have worked for more than 30 years and who remain employed for at least a year above the pension age. That is how we encourage later retirement for those who want it. This is a voluntary program. Those who want to retire at the age stipulated by the present-day legislation are free to do so. I hope this will allow us avoid raising the pension age.

All that, put together, is the strategy we have devised as a part of the programme through 2020. The crisis has not significantly changed our plans. We are working toward our strategic goals the same as before, though we have had to respond to the challenges of the crisis quickly.

I now turn over the floor to Mr Rahr.

Alexander Rahr: Mr Putin, despite the financial crisis, there has been another interesting development in the German-Russian strategic partnership: the Opel contract was signed yesterday. I was disturbed last week by the rumour that all of the joint projects were doomed. Some people said that the Nord Stream project would be suspended. There have been many developments in Europe, and opinions toward the strategic partnership with Russia vary from country to country.

Do you think a breakthrough can be made? Is there a chance of implementing those strategic projects with the help of Germany, France and Italy, and achieving the goals you mentioned in your public address in Germany in 2001?

Vladimir Putin: I appreciate the Opel contract. It is encouraging, though its scope is not global.

Naturally, there is one thing I would like to immediately draw your attention to. I think I am speaking on Europe's behalf when I say that there is no reason to divide Europe into countries with which Russia can and cannot do business.

We have started with Russian-Polish relations. I have a feeling that there will be major changes in Eastern and Central Europe. There is growing realisation that cooperation is much better than harping on problems from the distant past. All such problems recede sooner or later. The year 1812 was a hard time. The war took its heavy toll, and Napoleon occupied Moscow. Now, few people besides historians remember it. Events connected with World War II and the post-war European situation will also recede into the past.

It might be easier today, however, to settle problems with countries with which Russia has lasting economic and political ties. Germany is Russia's principal partner in Europe and the world. Our number one partner in many respects. Exports to Russia have helped Germany retain several hundred thousand jobs. The fact is worth repeating: because Russia consumes German commodities and services, several hundred thousand Germans kept their jobs due to our partnership,.

As for Opel, I hope the contract is one of the first steps leading to European economic integration. Every cloud has a silver lining, and the crisis has laid bare many of the problems of mismanagement. This concerns many Western companies, among others, and General Motors is no exception.

We must give credit to GM managers-they have evaluated the situation sufficiently objectively, and have faced the bidders for a 55% share in their company with duly stringent conditions. They have made the right choice from the perspective of the market, while upholding their social responsibility.

They have succeeded because Magna's and Russian Sberbank's proposals are based not only on how to overcome the crisis, but also on the tentative social consequences.

Here, we rely more on the managerial proficiency of Magna, one of the leaders in the world automotive industry. Its executives have come out with an explicit plan for guaranteeing that jobs are retained in Germany.

Opel certainly needs improvement. Magna and Sberbank will discuss it with me, Federal Chancellor Angela Merkel, and, certainly, the trade unions. They have direct contacts with union leaders.

As you know, I met with the IG Metall Chairman in this very building when he came for firsthand information. Such attention to possible social consequences sets a good example.

In short, trade unions, the Russian and German governments, and potential investors have analysed everything, including all the liabilities and conditions to accept or reject. The contract comes as a result of extended cooperation. As I have said already, I would be delighted to see it as an initial step to practical economic integration in Europe.