Vladimir Putin's opening remarks:
Good afternoon, colleagues. I am glad to see you in St Petersburg; this is a comfortable place for work. Nobody will interfere with our work and, more importantly, we will not interfere with others' work either. City authorities will not have to stop traffic for us because we won't have to change locations. We have everything necessary at our disposal and everything is in order...
I am confident that this will help us approve the agreements that our experts have been working through. This will indicate that we are moving toward higher standards of integration.
You know that we started working within the framework of the Customs Union even before gathering here. I am confident that as we move on, the number of member countries in the Customs Union will grow, first of all through the admittance of the EurAsEC members.
In about a year, in 2011, we will expand integration in the Customs Union and move closer to creating a common economic space, which entails signing a number of agreements to coordinate our economic policies.
This will be the driving force, the core of our organisation, which will enable us to gradually bring EurAsEC up to a similar level... As far as I know from speaking with colleagues, actually all the EurAsEC members would like to become involved with the Customs Union. We will join forces with them toward this end.
I'd like to wish you success and to thank the experts who have prepared this meeting.
* * *
Prime Minister Vladimir Putin's speech:
We know well that the conditions and trends in the Russian economy have considerable influence on all EurAsEC economies, as well as on all post-Soviet and CIS countries.
I'd like to discuss briefly the state of the Russian economy and a number of our current goals. We hope that the Russian economy will be able to overcome the consequences of the past year's recession fairly quickly and return to a trajectory of steady development. According to the forecasts, in 2010 GDP is expected to grow by about 4%. The current trends and the latest data confirm this assessment overall.
From January to April of this year, industry grew by 6.9% and agriculture by 3.6%. We saw an increase in production in all sectors of the real economy, even those hardest hit by the global downturn. In particular, the automobile industry has started growing, producing 54.7% more cars in January to April. In fact, some carmakers cannot cope with increasing demand. Quite often customers have to wait for two or three months before receiving the car they ordered.
Obviously, anti-crisis measures played an important role in this, especially subsidised car loans and the scrappage programme. However, I still believe that these steps merely served as a trigger. The fundamental reasons for the market's turnaround are different: people's mindsets are gradually changing for the better, and they are starting to buy goods they can use for a long time again.
Incidentally, these positive changes in people's mood have also been reflected in the housing market. We are seeing increased demand for mortgages. For reference, I can tell you that in the first quarter of this year, the total value of mortgages issued reached 56 billion roubles. The figure for the same period of last year was 26.7 billion roubles. So mortgages almost doubled. On the whole, real incomes grew by 7.4% in the first quarter. I'd like to emphasise that these are real, adjusted-for-inflation incomes.
Real wages also increased by 2.2%. Unemployment is gradually decreasing, just as in all of your countries. It now stands at 8.6% of the working population, as compared with 9.5% at the peak of the crisis. Nevertheless, the number of unemployed is still very high, I'd even say far too high, and for this reason we should be very cautious about letting more foreign workers in. I would appreciate your understanding of this situation.
On the other hand, we have taken a number of steps to enable foreign workers to feel more comfortable in Russia. For example, one recently adopted law simplifies the registration procedure for foreign workers hired by Russian citizens.
It goes without saying that we will gradually lift the barriers on the free movement of workers within the future unified economic space now being formed by Russia, Belarus and Kazakhstan. This is one of the necessary tasks for establishing this space.
The Russian Government is ready to discuss a gradual reduction in import customs duties and the cancellation of other measures introduced for the protection of the domestic market during the peak of the downturn.
I'd also like to say a few words about major macroeconomic indicators. We find that overall they are positive at present. First of all, Russia has a strong trade balance. In 2009, our trade surplus was $111.6 billion, and it has already reached $46 billion in the first three months of this year. Russia's international reserves are growing, and now stand at $456.7 billion. We are seeing capital flow into the country. The rouble's real exchange rate has reached its pre-crisis level. Inflation has slowed noticeably - its annual rate is below 7%. Prices have increased 3.6% since the start of this year. The situation in the banking sector has also improved. Since April 30, the Central Bank's refinancing rate has been at 8%, which is a historic low for Russia. Let me remind you that the Central Bank's refinancing rate was at 13% at the peak of the crisis.
Commercial banks have also substantially reduced their interest rates on loans - from 25% at the peak of the crisis to between 11% and 12% for their prime borrowers and up to 13% and 14% for other categories of borrowers.
I should also say that our major banks have increased their liquidity significantly. There is no problem of liquidity for Russian banks.
As a result, we expect lending to increase by 5% to 10% by the end of the year. Naturally, lending was increasing much more quickly before the downturn. But still, I'd like to draw your attention to the fact that lending was increasing by 10% or a little over 10% in healthy Western European economies before the downturn. In other words, we have reached the pre-crisis lending levels of the European zone.
This is important because the Russian economy needs investment to solve its problems of stable growth and technological modernisation. This includes foreign investment, of course.
Like in other countries, capital investment in Russia decreased in 2009. Investment shrank by more than 16%.
This year we intend to reverse this situation, to buck this trend, and we have decided to act in several areas in order to accomplish this.
We plan to improve the investment climate and abolish excessive bureaucratic restrictions, in particular by reviewing the regulatory framework governing foreign investment in strategic sectors of the Russian economy. We have continued to undertake major public investment programmes, including in housing and transport construction.
We will continue to reform social services. This year we launched a large-scale pension reform, as a result of which the incomes of pensioners will increase by a handsome 45% to 46% during the year.
We have decided to embark on major healthcare reforms next year.
We continue to prepare for the Winter Olympics in Sochi, the APEC (Asian-Pacific Economic Cooperation) summit in Vladivostok and Student Games in Kazan. These are enormous investments and huge construction projects.
We have applied to host the World Football Cup in 2018 or 2022, but we will focus on 2018. I am convinced that if we win our bid to host the tournament, the positive stimulus from the preparations for the World Cup would be felt not only in our own economy, but in virtually all EurAsEC countries. This will be an enormous construction project.
Cutting the budget deficit will be a key objective for our financial policy in the next few years. According to the latest predictions by the Ministry of Finance, this year the deficit will fall to 5.5%, and we expect to reach a level of no more than 3% of GDP, maybe less, in 2012.
As far as paying for this, we will continue using the resources in our sovereign wealth funds to finance this deficit. We also consider borrowing, if it is advantageous and economically justifiable.
How extensive are our sovereign wealth funds at present?
Alexei Kudrin: Our sovereign wealth funds are about $80 billion, if we convert them into dollars.
Vladimir Putin: This includes the National Wealth Fund, the Reserve Fund, where the balance is...
Alexei Kydrin: The Reserve Fund and the National Wealth Fund...
Vladimir Putin: These are the government's reserves, about $80 billion.
Now I'd like to say a few words about one of the key sectors of our economy: energy. From January to April of this year, oil production increased by 3.1% and natural gas production by 20.4%.
The forecasts of a post-crisis recovery for gas exports are being fully justified. As compared with the past year, exports have increased 90%. Oil prices, as you know, have held steady at about $70 to $80 per barrel, which suits us quite well. This allows Russian companies to grow and to provide the required revenues for the budget.
We based our calculations for this year's budget on a much lower price for oil.
I'd also like to note that a number of important events have taken place in the Russian energy sector in the past year. By building the first stage of the Eastern Siberia-Pacific Ocean oil pipeline and the liquefied natural gas facility on Sakhalin, Russia has gained access to Asian hydrocarbon markets.
These are major projects that are diversifying our markets. In a little more than two years, we built a huge pipeline system that is more than 2,000 kilometres long. We will continue this work. We have built an entire port facility in the Far East, on the Pacific Coast. This is an important event for our country's economy, primarily the energy sector.
Obviously, we will continue implementing our plans to build relations with Asian countries such as the People's Republic of China, India and other partners.
Recently, we have started commercial oil production in our sector of the Caspian Sea and started construction of the North-European gas pipeline under the Baltic Sea.
We expect to commission this pipeline next year, in exactly one year's time. The initial pumping and injection tests are scheduled for May, and the pipeline system will begin supplying gas to European consumers in November of next year.
Preparations for the final stages of the construction of the gas pipeline along the bottom of the Black Sea are entering the final stage.
I'm convinced that these projects will have a significant effect on the global energy market. They will contribute to the further diversification and stability of natural gas supply and help meet the growing demand for raw materials.
In conclusion, I'd like to emphasise once again that we all saw the benefits of joint action in the CIS and EurAsEC during the crisis. The coordination of our efforts and exchange of information helped us avoid many problems and mistakes, and allowed our economies to recover more quickly
I must say that we closely followed your actions and measures and tried to draw on the positive experience accumulated by the governments of our EurAsEC partners to use in Russia.
Russia is sincerely committed to further, significant integration of our government agencies.
Many thanks for your attention.