Working Day

29 september, 2009 14:46

Prime Minister Vladimir Putin addressing the VTB Capital Investment Forum “Russia Calling”

Prime Minister Vladimir Putin addressing the VTB Capital Investment Forum “Russia Calling”
"At present, nearly all the leading countries are trying to determine their place in the post-crisis world. Russia is also facing this task. I believe that Russia can not only strengthen its traditional competitive advantages, for example, in energy, metallurgy, chemicals, transport, and now also in agriculture, but also greatly enhance the role of its high-tech innovation sector."
Vladimir Putin
At the VTB Capital Investment Forum “Russia Calling.”

Vladimir Putin's speech:

Good afternoon,

I am very happy to greet this large and authoritative assembly. I would also like to thank the top executives of Russia's Vneshtorgbank for providing this format where businessmen, politicians and analysts from numerous countries can meet each other.

Naturally, the forum will continue to discuss global economic problems, concentrating on new development models and prospects for a post-crisis world and a post-crisis economy.

Surely, numerous uncertainties persist in the global economy. Unfortunately, we have not yet made significant headway in overhauling the global financial system. Still we hope very much that specific decisions, adopted at the recent G20 summit in Pittsburgh, will at least create a good base and favourable conditions for passing real decisions in this sphere.

The use of anti-crisis tactics in many countries can cause contradictory consequences. As far as Russia is concerned, it too faces problems and issues. I will discuss them later in my speech today. Excessive protectionism is also a cause for concern.

Economic authorities and the business community must continue to prioritise these risks. Nevertheless, we cannot help but notice the initial signs of a global economic recovery. Such optimistic trends are also manifested in Russia. There are enough statistics and arguments to prove this point.

I will not go over present-day conditions in great detail. All I want to say is that stabilisation measures are producing an increasingly greater positive effect. The Russian GDP stopped plunging in June 2009. Some sectors began to recover even earlier. All this gives reason for cautious optimism.

When the crisis began, we and our foreign colleagues and partners had to act quickly to start implementing an anti-crisis programme. In some cases, the Government had to assume responsibility for business risks, to make decisions and to supplant some rather ineffective management at specific enterprises or entire companies, to put it mildly.

At the same time, we realised the illusory nature of that blind faith in the state's omnipotence and in the hopes that all-out economic intervention could improve the entire situation and settle all issues.

Moreover, I'll tell you frankly that we also felt the pressure of our colleagues from the business community to borrow from state wealth. They began to forget about freedom and the market economy and became even greater advocates of a stronger government or state role in the economy than the state representatives themselves. This is also quite natural and understandable.

Anyway, you can see that Russia did not witness any large-scale nationalisation. Nor did it revert to all-out administrative regulation. We have retained free capital flows and a convertible rouble.

I am confident that all this served as a convincing sign for investors. I would like to stress once again that Russia will not revert to the past and will remain a liberal market economy.

Today, I want to repeat that we will consistently promote private enterprise, the country's integration into the global economy and will also do our best to create a favourable investment climate.

As the situation becomes stable and the crisis trends are overcome, it is our intention to purposefully and consistently reduce state economic intervention, to use traditional market tools, including privatisation instruments.


We regard some countries' proposals to curtail anti-crisis programmes as premature.

We believe that we still need to support those industries where a dramatic decrease in demand has created serious problems. As in many countries, these include the automotive industry, engineering as a whole, housing construction and other industries. Many enterprises in these sectors need to be overhauled.

Additionally, we need to focus our attention on single-industry cities and the need to create new businesses and jobs there. The Russian Government's anti-crisis measures for 2010 will highlight these areas.

However, we can now shift our attention, moving from "manual control" to systemic solutions capable of ensuring the sustainable development of the Russian economy in the post-crisis period.

At present, nearly all the leading countries are trying to determine their place in the post-crisis world. Russia is also facing this task. I believe that Russia can not only strengthen its traditional competitive advantages, for example, in energy, metallurgy, chemicals, transport, and now also in agriculture, but also greatly enhance the role of its high-tech innovation sector.

We are facing the crucial task of making Russia maximally comfortable for its people. This means that we should continue to modernise the education, healthcare and pension systems, resolve housing problems, and implement environmental programmes.

The plunge of Russia's GDP due to the crisis was substantial. According to tentative estimates, it will decrease by 8% in 2009. At the beginning of the year and in the summer, we thought it would fall by 8.5%. I don't think now that it will fall by more than 8% by the end of the year, and the figure could be even lower. But anyway, we must do our best to compensate these losses in the next few years.

I would like to say that we need not so much a quick, as a qualitative recovery. Our recovery should be based on fundamentally new precepts, with reliance on new growth parameters.

I mentioned before that the Russian Government is drafting a so-called "exit strategy." In fact, it is the reviewed agenda we are to start implementing in 2010.

We are not starting from scratch. Russia's main market institutions proved their sustainability and efficiency during this dramatic crisis. It is true that we have suffered numerous losses, but - and I think you will agree - our [market] institutions have not collapsed; they are still functioning and they are manageable. Russian business has proved its ability to adjust to changing conditions.

We have enough resources and opportunities to protect the country from new currency shocks, from shocks to the national currency and the financial system. Russia's gold and foreign currency reserves exceed $400 billion. By March 1, 2009, these international reserves fell to $384 billion, but they surged back to $413 billion by September 25. Again, we have enough resources to protect our financial system.

I would like to remind you that in 1998 the Russian Government took out loans from international financial organisations such as the IMF and the World Bank. Since then, we have developed constructive relations with them, and we are grateful to their management for this. I see some of these executives in this audience. I would like to express my sincere gratitude to them. Today Russia is contributing to the programmes of support for crisis-hit countries and regions, providing billions of dollars.

On the other hand, we need to improve many things in legislation and corporate governance, and to modernise the structure of the real and financial sectors. But we do not need to reinvent the wheel. Russia's development strategy until 2020 and the guidelines of the Government's operation until 2012 outline the main directions for development, the main projects that should ensure qualitative changes in the Russian economy, and the innovative vector of its modernisation.
Of course, these projects should be adjusted to modern realities, with due regard for the crisis in the global and Russian economies. But we will not put off their implementation or reconsider their targets.


We believe that the first and most important prerequisite for stable development is a highly responsible and conservative budget policy, and we are not planning to sacrifice the macroeconomic balance.

This year, the country's budget has been affected by dramatically shrinking revenues, mainly because of the falling prices of our traditional commodities. At the same time, we were forced to increase federal expenditures. The increase, although insignificant, was due to the need to deal with the challenges triggered by the global recession and to fulfil our social obligations to the Russian people.

Doing so eventually becomes an investment in human resources, while steady economic growth is only possible during social stability and support for domestic demand.

Moreover, Russia is the only country that proceeded with a large-scale pension reform during the recession. The basic portion of labour pensions will be increased again by 30% later this year - on December 1. Next year, pensions will grow by an average of 46%, an unprecedented rise in Russia. Now what economic implications will this have? This reform will produce internal demand for an additional 1 trillion roubles, or over $30 billion.

Allow me to draw your attention to the fact that retired Russians never buy expensive imported goods. This group usually opts for Russian products.

Also in line with the pension reform issues, we postponed an increase in corporate insurance premiums, so as not to worsen the fiscal burden on businesses during the recession. Admittedly, as a result - back to our macroeconomic problems - the 2009 federal budget will carry an 8% deficit for the first time in a decade.

We can see the threat but we do not see it as fatal. We view this as a threshold that helps us maintain macroeconomic sustainability. Let me add that we have reliable sources for covering this deficit - I am referring to our reserve funds, not necessarily the Central Bank's gold and foreign currency reserves, but the Reserve Fund and the National Wealth Fund managed by the Russian Government.

We will be gradually but steadily cutting the deficit starting next year, including the channelling of additional budget revenues for this purpose. I expect additional revenues as early as this year and the next to try and bring the budget deficit down to 3% of GDP by 2012. This, as you understand, is also in compliance with the Maastricht criteria on budget deficit.

As for the government debt, it is not higher than 10% of GDP, while only 3.6% is foreign debt. Economists will know that this level is extremely low for a G8 country; the lowest in fact.

Our programme of saving and effective use of budget funds will also play an important role in cutting the deficit.

We are also pursuing a tight anti-inflation policy. Our goal here is to reduce the current inflation level almost by half (from the estimated 12% this year). I believe - I know - that Central Bank officials agree with these proposals: 11% on average by the end of this year, or even lower, and no more than 5%-7% by 2012.

This is the most direct way to preserve people's savings, and to achieve affordable bank loan interest rates for non-financial sectors. Incidentally, the Central Bank today announced a cut in its refinance rate from 10.5% to 10%. It will take effect tomorrow.

I also believe that we have no other option but to form a full-fledged and stable financial market of our own, where national savings will be converted into development capital - a source for so-called "long money." And this is yet another of our key goals.

People's savings should lay the foundation for such a market, as is the case in any economy. People should also feel comfortable and confident about their savings.
The economy should be stable and reliable, which is not likely to be achieved through administrative decisions. This should be the result of market investors' hard work. The money should come from corporate balance accounts, pension funds and insurance companies.

Measures will soon be taken to improve the banking sector's and the stock market's operations. We will introduce more flexible but at the same time protected investment tools people can use for their savings and pensions.

In particular, I am referring to the development of a national securities market through the use of such innovative instruments as infrastructure and project bonds. They will be secured by reliable guarantees and therefore attractive for investors.

We will also create additional stimuli for mergers and consolidation of Russian financial institutions. This policy has been needed for a while, and we think we should be careful and cautious here, so as not to infringe on owner rights, but to give them more opportunities.


During the crisis, many countries have suffered from overproduction and excessive investment, including in the auto and housing industries. In Russia, however, the main problems lie in the general underinvestment and imbalance of the economy.

Hence, we need to focus on consistently modernising the economy and forming a more sustainable and diversified economic structure. There are multiple areas that we can focus on. Virtually all of them have an enormous potential for revival and import replacement. We believe that investments will have the greatest impact if they are followed by the use of modern technology in the Russian economy, and first in energy-saving and in productivity-enhancing technologies.

We are also interested in the creation of new businesses in advanced raw materials processing, machine-building, telecommunications, biotechnologies, and pharmaceutics. We are ready for expanded cooperation in space technology and nuclear energy.

Projects relating to maritime equipment, transportation, auto components, as well as oil and gas production equipment are also very promising.

Ambitious development programmes are currently under way in all of these spheres, which means that a stable and high demand is guaranteed for many years ahead.

We certainly call on businesses to more actively invest in Russia's regions. Do not stay in the same place, where there is often not enough "room" for everyone, but consider the regions that are not spoiled with overinvestment and where it is possible to take advantage of optimum business conditions.

There are, in fact, examples of large 100% foreign capital-based enterprises being created and successfully operating in many regions.


The Russian Government seeks to maintain constant contact with business, both domestic and foreign. In recent years we have done a lot to improve the investment and taxation climates, lift administrative barriers, and implement hundreds of successful projects.

We are open to continuing this mutually beneficial dialogue and cooperation. Furthermore, we would like to improve its effectiveness to fully use your experience, capabilities, initiative, and knowledge in implementing the modernisation agenda.

Let us discuss together what forms of our cooperation are best suited to the current conditions.

I would like to wish you success both in your work at the Forum and in your daily business activities. Thank you very much for your attention.

  * * *

Prime Minister Vladimir Putin answered questions from participants at the Investment Forum.

Question: Mr Putin, your statement was the first that focused on the problem of the underdevelopment of domestic capital markets, in particular the lack of long-term loans in Russia.

Frankly speaking, it is apparent to me as an investor that this is the main reason for the scale of the problems currently facing Russia. Some countries, such as Brazil and South Africa, depend on natural resources as heavily as we do, but they have suffered considerably less.

Investors are happy that you have recognised the problem. I would like to ask what practical steps you plan to take, and when you are planning to resolve this problem. Thank you.

Vladimir Putin: I have already spoken about this in general. I do not think my words will come as news to you. The formulas are well known to everyone. I will now repeat what I said in my address.

Long-term loans are not issued by the government. They cannot be assigned the way you appoint an official to a post. They must be an integral part of the economy. But this is possible only when the economy is stable and healthy, and when investors and the public trust the policy pursued by a country's economic authorities.

If they see that the national banking system is stable, they will not hurry to withdraw their bank deposits at the slightest change in global or domestic markets.

I would like to draw your attention to the fact that we acted on the assumption that this atmosphere must be created in the economy despite the crisis. I have said publicly, but I would like to repeat now that we deliberately created conditions enabling the public and investors to make proper decisions during unavoidable changes in the exchange rate. When confidence had plummeted to the lowest possible level, we still issued the amounts of funds from the banking system that clients required. We were prepared to go all the way.

Those were not random actions but decisions based on careful calculations. We knew very clearly how much money the people had in their bank accounts, and how much funds the Government and the Central Bank had to meet the demand. The supply was many times larger than the potential demand.

So, we did not stint money. We acted on the assumption that stability would be restored as soon as the public and the investors saw that the government would honour its obligations unconditionally. And this is exactly what happened.

As for reserves, you see that they are growing. This is first.

Second, under these conditions we hope that business capital and the balance on bank accounts will be used more freely - not only the people's money, but also the remaining funds in all bank accounts. We hope that the insurance system will be developed, along with other institutions, which are used all over the world, to ensure the supply of long-term loans, such as the pension funds. At the same time, the Government also plans to use special measures. I mentioned this. I am referring to infrastructure bonds, the bonds usually issued for the implementation of major projects. There could also be other measures.

We hope that all this taken together will allow our economy to use the advantages of long-term resources.

If Mr Kudrin has anything more to say on the matter, we will be happy to listen.

Alexei Kudrin: Mr Putin, you have answered the question exhaustively. The only thing I would like to add is that the introduction of international standards in the financial system, which are being specified within the framework of new rules for regulating financial markets, as well as a wholehearted introduction of these standards, will keep us from accumulating risk and at the same time will increase transparency, which is very important. This is all I wanted to say.

Vladimir Putin: It should be said that the Ministry of Finance is consistently working on the issue I have mentioned, and is the main advocate of not administering the issue of funds, but creating economic conditions conducive to their appearance in the economy.

You know that, good or bad, we had to use pseudo-administrative tools such as subordinated loans, about which you certainly know, and support to the banking system by the Government and the Central Bank. But these are also long-term loans.

However, I am referring to the funds issued not for six months but for years. The main shareholder of Bank VTB is the Russian Government. When the Central Bank, the main shareholder of Sberbank, increases the bank's value by another 500 billion roubles, this is a long-term loan. The Government has increased the capitalisation of VTB by 400 billion roubles. When will this loan mature? In ten years? When will the bank repay the 380 billion roubles?

From the audience: The government invested 180 billion roubles in the bank's capital and issued 200 billion as a subordinated loan.

Vladimir Putin: So, 180 billion roubles invested in the bank's capital and 200 billion issued as a subordinated loan for 11 years. This is also "long money." Unfortunately, this is a semblance of "long money," a temporary measure taken in conditions of a crisis. Our goal is different. We want to issue money to the financial system not from the Central Bank or the Government's reserves, but to create an internal source of growth of free money, which investors could use for a long term.

Question: I have a question about the restructuring and privatisation of natural monopolies, which I believe is important to all investors. The privatisation and restructuring of the oil industry in the 1990s raised many questions, but led to positive results for the Russian economy and investors. In the 2000s we saw the same in the power industry - the restructuring of RAO UES. Can we expect this to happen also in the gas sector? If not, why?

Vladimir Putin: You can expect it, you can.

In fact, this is not a simple question. We in Russia, just as everywhere else, see the negative effects of excessive monopoly rights in economic sectors. The gas sector is little different from any other sector in this respect.

Excessive administration and inefficient management in some sectors of this market, and lack of required flexibility in the market are all a result of monopoly domination and also corruption.

I am not talking about Gazprom here; I am talking about the problems of monopoly dominated markets in general, although they also concern Gazprom. We are aware of this and are trying to fight it. We see that the growth of independent producers is restricted. And we are also trying to find a way to counter this threat and are considering medium- and longer-term moves in this area.

The first thing we are going to do - it will be a difficult decision; I will tell you why, and many people will understand it - is to try to ensure equal access to the gas infrastructure to everyone. This implies certain difficulties in current conditions, during this crisis. They are related to the falling demand in the domestic market and in the markets of our main foreign partners.

Access to pipelines means the freedom to produce more. And increased production means a lower price. This is good for consumers. But ultimately this may create certain threats to consumers and to the budget.

It is extremely difficult to calculate everything correctly to the last dot. This is why we will move in this direction but cautiously. This is first.

Second, we will try to liberalise the domestic market soon, to make it the true market it should be. Again, we will try to legalise access to the pipe, to the infrastructure, for market players. But we will retain a monopoly on exports, although not until the end of time, but certainly for the near and medium terms.

On the other hand, you know that there are specific rules in the gas sector, for example. The global gas market differs from the oil market; the hydrocarbon market is not the same everywhere. To a large degree, global markets are working on the basis of long-term contracts. To ensure their implementation - Gazprom has signed contracts for 10-15 years and for longer terms - the state must guarantee our consumers that Gazprom will be able to do this.

There are many factors in this sphere that force us to act cautiously. Mr Schroeder has mentioned in this address the projects to build the Nord Stream gas pipeline on the bed of the Baltic Sea and South Stream across the Black Sea. These projects require huge investment. Where can we raise it? These are borrowed funds. But who is borrowing them? Mostly Gazprom and our main partners. German companies in the case of Nord Stream, also a Dutch company, and now French companies are considering joining that project.

We will need to repay these investments. We sign long-term contracts in order to guarantee certain revenue, and to ensure repayment. Therefore, there are no quick solutions in this case.

Of course, we will strive for liberalisation in this sphere, just like in any other economic sector.

* * *

Prime Minister Vladimir Putin met with international businessmen at the Investment Forum "Russia Calling."

Prime Minister Putin gave a working lunch attended by the CEO of the Norwegian telecommunications concern Telenor Jon Fredrik Baksaas, representatives of investment companies, including Capital Research, Lansdowne Partners, TCW, Artio Global Investment, Nord Stream AG, as well as representatives of the sovereign funds of Abu Dhabi (United Arab Emirates), Kuwait, Oman and Singapore.

* * *

Prime Minister Putin also held a brief meeting with Anand Sharma, the Indian Minister of Commerce and Industry.