Good afternoon,
Speaking about the results, I'd like to recall the joke I read in the newspaper Komsomolskaya Pravda yesterday: "Russia has a horrible past and a great future. And it is always going to be like that!" We have a lot to work on.
I would like to give credit to those who worked with me to draft this programme. Today, I'd put my name to 99% of what is written there. I wouldn't sign off on certain technical details that since then have been thought out better and interpreted more clearly with fewer mistakes. The programme's goals and mechanisms were all adequate. Therefore, it would be appropriate to speak about what remains to be done and what we should do now.
We will study with care the booklet that the Centre of Strategic Developments has prepared on the basis of expert estimates. I haven't been so systemic in my analysis of every position. I will mention just three or four. Under the programme, we planned to almost double GDP. A bit later this goal became a slogan, but we have virtually reached the target figures: before 2009, from 2000 to 2008, GDP grew by 6.9%. If we are to double our GDP, we need to see an increase of about 7.2% every year. Due to the past year's crisis, this figure was less: 5.3%. But this is not a minor increase for a country like ours. We said that we had the technological base and could attract investment, personnel and new technology. All this allowed us to grow during that period. This fact alone shows that this was not for nothing.
Even more impressive is the income growth in terms of GDP per capita purchasing power parity that we have seen. In 2000 it was $7.800, and in pre-crisis 2008 - $15,900. In other words, per capita, GDP doubled. During the past year, it fell to $14,900. I believe it will at least not fall further in the near future and that it will grow slowly but steadily. Thus, we joined another category of countries: those with medium incomes. This places different demands on the market, the country and its position in the world. We should stop reproaching ourselves for being the worst. In reality, we are now in the middle in terms of living standards, management, the market and institutions. And most of this happened in these past 10 years.
Meanwhile, there was a time when Sergey Ignatyev, during his time as deputy minister of economic development, marked the goods on which price regulation had been cancelled month by month. It was one of his ministry duties in the 1990s. We don't know much about this period. Then, when he took up his position at the Central Bank, Ignatyev drafted a decree on the division of the currency space and on the formation of the national currency under national regulation. This was also in the 1990s. This period was no doubt more difficult. Nevertheless, our country emerged from the difficult 1990s and the no less complicated 2000s with a new market structure.
Let me remind you that in the 2000s the United States and Europe recognised Russia as a market economy. This had not been the case before. Eventually, Russia then received its investment rating: it had simply not been trusted before. Russia became an entirely different country in terms of investment and market opportunities. In the early 2000s, projects worth $100 million or $200 million were very rare, whereas today, even through our financial system, it is easy to mobilise one or two billion dollars for an investment project in any sector. The conditions and opportunities in this country have undergone a radical change. The formation of institutions was key - before 2000 we did not even have tax and budget laws.
The budget law was three to four pages long. Several budget laws were this length in the 1990s. But in 1999 we adopted the Budget Code. It was later improved and we moved to a civilised system of administering our resources and resolving other government problems through definite procedures, including those that required discussion in the State Duma at each stage. At that time the Duma was not as united as it is now. I remember how I submitted to the Duma my first budget as the minister in 2000. This was the first time that the communists did not vote for the budget. It was difficult for us to gather support for the budget on first reading, but eventually we prevailed. By one vote. Grigory Yavlinsky voted for us although at first he and his parliamentary party had been reluctant to do so. Later on he told me: "This was the right decision to support everyone." But the communists did not support the budget for the first time and since then they have not supported any of our budgets: not once in these past ten years. This is why we have every reason to say that everything we achieved during these years, such as better living standards, economic growth and market institutes, we achieved without the communists. But this fact should not allow us to sit on our laurels.
The first part of the Tax Code came into force in 1999. Since 2001, only 4 parts of the second chapter have followed. All in all, we are improving the Tax Code. It is 90% complete, but there are several more tasks to be accomplished. After that we will improve and develop tax administration as an institution - there are some unresolved issues remaining.
My work in the Finance Ministry and the 1998 crisis were a good lesson for me. In 1998 capital flight totalled $10 billion, undermining the country's solvency and the banking system as a whole, including individual and corporate deposits, and living standards plummeted 26% in two years. It is good that we tackled the problem immediately; we had to analyse it to understand which support measures were needed in a country suffering from external shocks.
We have been developing those supports over the past 10 years and continued to do so during the ongoing crisis; the process is not complete yet. Thanks to our efforts, the country's rating has not been downgraded, and we have been able to expand on foreign markets at acceptable terms during the recession, while European markets collapsed. We have once again demonstrated that we have not only the Reserve Fund, but also the National Wealth Fund. We also have a very small foreign debt, which we can use as an additional resource for "swimming against the tide."
Taken together, this means that we have additional points of strength.
Our foreign debt amounted to 140% of GDP after the 1998 crisis (including reassessment of the foreign debt to GDP ratio). Last year it was 8.5%. Time has shown that using oil revenues, temporarily held back from the domestic market, for foreign debt repayment was a considered and balanced solution.
Russia has skilled economists who are ready and able to manage key tasks. However, we do not always achieve the desired effect on many problems. What we are doing in Russia is nothing extraordinary or unique. Other countries with the same type of economy have done this before. Substantial experience has been accumulated in the world; there are analyses and studies of ways to avoid falling into the same trap. Of course, there are specific features that differ country to country, and we certainly need to find new solutions because there are no ready recipes. But many mistakes could have been avoided had we applied the latest economic thinking. However, this is not only a problem in Russia, but also in other countries.
Politicians often try to live up to the voters' expectations, which do not always coincide with these above achievements, research or better management practices. We want to put more money towards and tighten administrative control over the implementation of some projects, because we think doing so will speed up this process. Developing [economic] institutions is a long and uphill task. It is simpler to give 10 billion [roubles] towards improvements at an enterprise, which the people will immediately feel as government support and care. I repeat - this is an international problem. I will address it in detail after I finish speaking about the budget situation.
The main goal of accumulating reserves is not to save money for a rainy day, contrary to what many people think. They thought we had to accumulate money to be ready for a fall in oil prices, although we expected them to fall; it was a factor we took into account. But our main goal was to avoid the Dutch Disease.
The use of those funds resulted in an unprecedented strengthening of the rouble, because we did not accumulate enough oil revenues. Our priority goal has always been to maintain macroeconomic stability, because a change in the rouble rate could make whole industries unprofitable. For example, the strengthening of the rouble makes imports cheap. It becomes more competitive not because Western importers are more skilled, but because we have strengthened the rouble.
To make our financial system more effective, we should maintain the stability of the fundamental indices: the exchange rate and low inflation. These are the key factors we must do our best to maintain, whatever the cost. We must not allow excessive spending or any excessive interference in some economic areas even though we would like to.
We must protect this environment. I'd like to say again that we take money not from the budget, or the Central Bank or the mint. Money is created by the economic environment. When that environment is stable and everyone understands that the government will do its best to restrain inflation in the next ten years, they will issue 10-year loans at acceptable interest rates, and they will know that the government will not change the rules of the game. After all, any such change in the rules should result from a common desire and it should be well substantiated. We need these rules, and in this sense the environment and macroeconomics create the conditions for the banks to issue loans more boldly and to trust each other more.
Only in this environment will the money work differently, creating the money multiplier effect under which each rouble issued by the government produces five, six or even ten roubles generated by financial institutions. They invest in each other ever more boldly, and people invest their savings in the banks, which in turn use these funds to create the financial resources necessary for modernisation.
We are still not fully aware of this, even despite the crisis. It is a problem of personnel training, of the mentality of our chief economists and top management, who still cannot understand that some resources are critical. But they are gradually coming to see the truth.
I would like to remind you that in 2000, for the first time, we reported a budget surplus. Since then, budget expenses have grown fourfold in real terms. In the past, we thought that we had a shortage of money, which is not the case now. We are gradually coming to see that attempts to finance everything are not the best policy or the key to achieving goals. The key parameter now is effectiveness. It is cause for concern when a World Bank survey shows that 30% of expenses in healthcare are ineffective. The same is true of road building, defence orders and many other fields. We must admit that we can achieve more without increasing spending and without lowering the quality of services, doing so we can even improve quality.
Other governments are not increasing their expenses even by 10% in real terms, not even by 5% a year, while we increased expenses by as much as 20% or even 30% in some years. We thought we were short of funds for everything. We must overcome that way of thinking. We provide enough funds for these sectors, although it has been said that we should increase spending on healthcare as a percentage of GDP.
But this would be useless; we would only redistribute enterprises' funds even more ineffectively, taking money away from effective enterprises which create profits and pay taxes and channelling them into enterprises where the system is not working.
The other day, Alexander Shokhin told Vladimir Putin: "Why does Kudrin keep frightening us with talk of a tax rise? Why does he say taxes will be raised unless we enhance effectiveness?" Here is what Putin replied: "He is actually frightening us, the government, and not you, the business community."
Indeed, I wouldn't want the government to be faced with the need to raise taxes, because all obligations must be fulfilled. But we will face that decision unless we enhance effectiveness. This is an appeal to the government to change the way it works and it should be done through an effectiveness enhancement programme.
Here is one more indicator: Our tax burden once reached 35% of the GDP of the extended government's consolidated budget. Excluding the market situation, our tax burden amounted to approximately 29% at the beginning of the 2000s.
This brings me back to our international problem: What has prevented us from creating [economic] institutions? Where are we lacking the most? I think that Russia has not yet completed the period after which it will be able to pinpoint the key problems of today's realities, the market, the distribution of responsibility between the state and business, the federal government and the regions. We have not yet structured our problems and, consequently, not yet determined ways to resolve them.
I repeat - our problem is that we think we are short of funds. We must abandon this thesis. The crisis has taught us to see that [economic] diversification is impossible without creating [economic] institutions. Diversification is not only the high-tech Skolkovo project, which is just another innovation centre. What we are talking about is the innovation of the economy as a whole, when each element of the economy wants to introduce innovation in order to survive, and they need to be able to go somewhere to find that innovation. This will result in the appearance of 10 or even 20 Skolkovo projects.
In itself, the pilot Skolkovo project is a good project, but alone it will not ensure Russia's innovative development. We need technology parks, small businesses set up at universities, and also all kinds of research institutes. The Academy of Sciences must also generate innovations; we must teach it to implement its achievements in the field of materials, physics and all other fields in industry. We must develop a macro-policy, a business environment and competitive conditions that will ensure the development of only those enterprises that implement innovations.
We are gradually becoming aware of these factors. I read in the programme - it said exactly this - that this has a direct effect on diversification and the development of a competitive economy. Why have we neglected this for 10 years, why have we not used this as much as we could?
The line should be drawn more clearly between the government and business, and there are several pitfalls here. Many politicians said during the crisis "Here you are, the market has failed, and the government has to help business."
Of course, all governments should help their businesses in a crisis, but it has highlighted several other more complicated problems, such as the inadequate role of the government as a financial market regulator. Politicians are trying to shift the blame onto the banks: "Look how greedy they are, how much profit they wanted." But it is the regulator's job to see a problem, choose ways to prevent it from maturing, and introduce new regulatory institutions.
I have attended many G8 and G20 meetings where these questions were discussed. A year or even two years before the crisis, we spoke about global distortions, [market] instruments, the markets and risks of hedge funds, and the risks of the derivatives market. But nobody sensed the approaching trouble because nothing untoward seemed to be taking place, and, in fact, derivatives were attracting both speculative and non-speculative investment in a number of countries. Everyone who could was benefiting from that, not only large banks. In this sense, we will reassess our actions, but such reassessment must not replace the fundamental rules on the delineation of the government and business in the economy.
Should the state grow stronger? Yes, it should, but where? It should grow stronger as the financial markets' regulator as well as in tax administration, the establishment of institutions, the drafting of laws and verification of strict compliance with them. However, its role in the market has not been determined in Russia yet. As for the programme, much has been written on how we should privatise [companies] and that we should withdraw from business. But we will not succeed unless we set up [economic] institutions.
Our aircraft manufacturing, shipbuilding and several other sectors are living entirely on government allocations. We have now shifted the focus to the highly competitive automotive sector. We have not yet clearly delineated the responsibilities of federal, regional and municipal authorities for decisions. We still want to solve everyone's problems and make the leaders of municipal authorities do as we say. It is not easy to take a step back from the action.
People tell us they have no money to repair their house, or water pump, or road. [Instead of giving them money] we should develop the institutions that will work effectively so that the central authorities will not need to interfere. As our leader has said, "Nothing happens until the top man interferes." This is not how it should be - this is what we are forced into. Therefore, the strategy has so far not been effective in this sense, and the development programme to 2020 is not focused on these questions.
And lastly, I'd like to speak about strategic planning; I wanted to spend more time on it. The strategic planning system is not fully developed. Presidential decrees on strategic planning and the documents needed for this were published last year and this year. Not that we didn't do it before, but we have still not determined the priorities, the pillars on which we should rely and the key sectors on which we should focus, especially amid the crisis. Therefore, our immediate priority is to develop a system of strategic planning, which will serve as the rules for government activity and for pinpointing priorities that require our attention.
The question of personnel has been raised correctly here. German Gref was right to talk about education and personnel. I think that the St.Petersburg economic forum, which was created anew with the assistance of Mr Gref, is just the venue we needed for a dialogue of experts and business people, to review our priorities, and to implement these new principles. This is exactly what we see happening; the forum's role is growing.
In conclusion, I'd like to say that many of us "young reformers" have become "old reformers."
Thank you.