Vladimir Putin's address:

Good afternoon, forum participants, ladies and gentlemen.

I just visited a very interesting exhibition where presentations were given on the Russian regions, and primarily the regions of the Southern Federal District. Everything points to the gradual revival of the economy of Russia and its regions.

It has become a tradition to meet in Sochi in September. Likewise, one of the main topics at the forum is discussing the economic agenda for the next year and analysing the current economic conditions in Russia and the world. I'd like to tell you about the plans that are being drafted by the government.

The most important lesson of the 2008-2009 financial crisis is that it becomes impossible to surmount difficulties if the people do not trust their leaders, their government.

The Russian economy has recovered from the crisis rather quickly and without major losses exactly because the people, on the whole, trusted in the measures we were taking; they felt that the government was trying to protect their interests. We proposed and carried out a large-scale anti-recession programme, trying to work quickly and without undue fuss.

We decided to use the Reserve Fund without mulling over the problem for too long. Indeed, reserves are accumulated primarily for spending when the time is right. We approved a budget deficit in order to support people's incomes, ensure the growth of pensions and allowances, raise salaries in the government-financed sector, and develop additional programmes such as a programme of social employment for people who were laid off or planned to be made redundant, as well as for those who had their working hours cut back. We approved support measurers for all of these.

We spent a considerable part of the country's international reserves, but still maintained the stability of the national currency. We supported banks by lending them more than 2 trillion roubles.

In fact, we invested in the reliability of our banking system. I can tell the foreign participants of this forum that when supporting the banking sector we made no distinction between purely Russian banks and banks with foreign capital. We helped all of them and to the same degree.

The country's people have seen that their savings have been protected and that the banks are stable. This means that we have made another step towards encouraging long-term loans, so that people's savings will not be stuffed under a mattress but will bring stable revenues while at the same time working to benefit economic development.

I'd like to inform you that the volume of deposits with our banks has grown 30% this year; I have said this before but I wanted to repeat it. There was a period when people got nervous and almost panicked. There was a period when they started withdrawing money from their bank accounts. In that situation we decided that the banks must comply with all such requests without restrictions, regardless of the size, for as long as people continued to withdraw their savings. It turned out we were right: eventually people realized that the banks are stable and reliable. The withdrawal of money from the banking system soon stopped. Moreover, a little over a month later - and even sooner for some banks - people started bringing their money back to the banks.

Bank deposits totalled 8.4 trillion roubles as of July 1, 2010, compared to 6.5 trillion roubles on July 1, 2009.

On the whole, the crisis has not seriously undermined the positive development agenda of the country or people's plans. For example, there have been twice as many mortgages issued in 2010 than during the crisis.

Russia's GDP is growing by about 4%, or maybe even higher. Industrial production has increased by 9.6% since the beginning of the year and the people's real incomes by more than 5%.

Unemployment has decreased considerably. It is now 7% of the economically active population. We have created - or restored - over 1 million jobs over the past year. Many economic sectors again have a demand for workers, like before the crisis.

It should be said that we have lifted the basic restrictions on bringing foreign professionals to Russia. We spoke about this at the forum last year. A labour permit is issued for three years without any quotas, and foreign professionals pay the Russian income tax, which is very moderate, 13%, beginning on the first day of their employment in Russia. The procedure was different in the past.

Our next step is to cancel visas for travel between Russia and the European Union countries, as visas are the main obstacle to personal and business relations. Russia is prepared to contribute its part to achieving this as soon as possible; the decision now depends on the political will of our European partners.

Dear colleagues,

We are well aware that only large private investments will allow us to attain the strategic goals of modernising the country, and not only in those sectors where business has long been actively progressing but also in the sectors that the government dominated until recently, in particular in the social sphere, in infrastructure and in strategic industries.

No government action, budget resources or administrative decisions can replace the painstaking daily work of private businesses. It is the work of businesses that is changing the nature of our economy day by day, giving it a  new, innovative face.

Hundreds and even thousands of projects are implemented every year, and investments have reached tens of billions of dollars. And yet, the Russian economy has not been spoilt by excessive attention from foreign and Russian investors.

Many complaints have been made about the business climate in Russia; some of them are justified but others are not, at least I think so. We are familiar with the problems that we are facing and we will gradually solve them.

The Russian government sees a sensible and conservative (in the good sense) macroeconomic policy as a key factor in maintaining public confidence. In 2009, as you know, we ran a budget deficit equal to 5.9% of GDP - nearly 6%. This year, we expect to cut it down to 5.3% or maybe even lower. These estimates are much more ambitious than the ones that Russian and foreign analysts suggested only recently. They had far more modest expectations of the pace of the Russian economy's recovery, to say the least.

The Russian government recently approved the basic structure of the 2011 budget, with a planned deficit of 3.6% of GDP. Among other measures, we plan to issue rouble bonds to finance this deficit. Russian debt securities will be traded for roubles on domestic and international markets.

And we are certainly determined to have a balanced budget again in the foreseeable future, a deficit-free budget.

Lowering inflation is another important factor of macroeconomic stability - I am referring to a steady and long-term trend rather than one time cuts.
The government has approved a programme to develop competition. Similar programmes are being adopted in the regions. They are aimed at consistently removing all the factors that lead to unjustified price growth, which includes expanding the space for free competition, nationwide as well as on local markets, and preventing the emergence of new monopolies that corrupt the economy and hinder modernisation.

Ladies and gentlemen,

We intend to tighten the requirements for the operation of regulators and supervision agencies that oversee businesses. We are planning several different policies in connection with this. We decided to draft a set of documents streamlining the procedure for obtaining permits to build industrial facilities.

We have just discussed a shipyard project in Russia's Far East. Our Korean partner immediately noticed that our standards were outdated, which leads to increased project costs, and the absence of any incentives that the government could give, such as special tax regimes. Our partner said bluntly that these drawbacks could increase project costs by 30%-50%. We understand that and will work on removing these obstacles.
We will try to reduce the length of time and the cost of the various appraisals and introduce simpler procedures for standard projects.

A standard contract form is being finalised for connection to power grids and other utilities. The government will approve these standard forms thus making it much harder for suppliers to manipulate investors by imposing disadvantageous terms and conditions on them.

We have recently adopted another significant decision which should make it easier to put new industrial products on the market. The disconnected and costly product certification systems will be eliminated and replaced by a single national appraisal system. Safety certificates will be issued by independent laboratories and experts.

Let me add that we are adopting new technical regulations harmonised with standards applied by developed economies. Moreover, Russian laws now recognize the technical standards and rules of the European Union, Belarus and Kazakhstan as part of the Customs Union agreement.

In 2011, Russia will revive the system of road construction funds sourced from excise taxes on refined petroleum products. As you may know, we have increased the rates by one rouble. This will help build a significant resource for road construction. We expect to raise additional funds for road repairs and construction, and begin an overhaul of the country's roads, from federal highways to rural roads, rather than implement isolated road projects.

I am confident that good roads will be a significant government investment in making Russia more competitive in the long term, as well as creating additional demand in the economy. In fact, modern roads boost demand for almost every product imaginable - from sand and crushed stone to complex computer equipment. We are aware of that and count on this synergy. We expect an inflow of private investment to the road construction sector, also through concessions.

This last remark also applies to the housing and utilities sector. The recent legal amendments have opened up this sector to projects implemented through public-private partnerships.

Now let me say a few words about taxes.

Today is certainly not the best time to cut taxes. Russia is not the only country facing the need to reduce its budget deficit. Some countries are even worse off than Russia in this respect.

Our approach is to avoid a general tax increase. For example, the corporate profit tax rate remains low (20%). On the other hand, social security premiums will grow in 2011. We have no other choice but to raise premiums because we need to pay good pensions to our senior citizens and we need the funds to modernise the healthcare system.

But even in these circumstances we found a way to keep  social security payments lower for IT companies, residents of innovation zones, media companies and small innovative enterprises established at universities.

In addition, we will continue establishing a system of tax incentives to promote investment in high-tech production facilities. For example, already during this autumn session, the government will submit to the State Duma a draft law on specifying accounting procedures for R&D works.

We have also decided to lift the profit tax on selling securities if they have been in  ownership for more than five years and are not convertible in the stock market. This measure is very significant for the development of  venture business in Russia.

To motivate production facilities to purchase new energy efficient equipment, we propose exempting such facilities from property taxes for three years beginning from the day that such equipment is entered into the facility's books.

Finally, non-profit and for-profit organisations in the healthcare and education sectors will be exempt from the profit tax. Such a measure has never been taken in Russia before. These tax holidays will remain in effect at least until 2020.

I would like to add that the tax authorities have been instructed to help honest taxpayers smartly use all the available tax exemptions, and to avoid nitpicking.

An in-depth modernisation is in store for the Russian customs service. The customs service has been tasked with making export and import procedures for industrial products as easy and reasonable as possible.

Many corresponding decisions have already been taken within the establishment of the Customs Union with our partners from Belarus and Kazakhstan. For example, the list of documents to be submitted to customs authorities has been cut in half and a four-hour deadline has been set for completing customs procedures for exports.

The State Duma has recently held the first hearing on the new law On Customs Regulation which is intended to remove the remaining roadblocks in this area. For example, it stipulates that any changes in customs regulations must be preliminarily discussed with business representatives. 

Serious simplifications will be introduced in the clearance procedures for technological equipment as well as samples that are being imported for research, testing, exhibitions and several other similar purposes.

I hope that the work on the draft law On Customs Regulation will be finished as soon as possible.

In addition, Russia is joining the International Convention on Simplification and Harmonization of Customs Procedures. The proposal to ratify the convention has already been submitted to the State Duma.

There is another change that, to my mind, has gone unnoticed. The establishment of the Customs Union of Russia, Belarus and Kazakhstan has already led to a decrease in import duties. The average import duty stood at 11.5% in 2008 and has decreased to 10.15% in 2010. This means that Russia continues to integrate itself deeper into world trade, even while existing outside of the World Trade Organisation.  

I would like to address our potential investors now. You should use these opportunities well and work in the domestic market, and at the same time focus not only on the domestic market but also manufacture products that would be competitive in international markets.

Russia lies at the centre of integration processes in the CIS. We have action plans and road maps for extending cooperation with our partners in the former Soviet Union and other countries. That's why one, establishing a production facility in Russia, should bear in mind that, as I have just said, the products should be competitive in international markets rather than be created only for domestic consumption in Russia.

Ladies and gentlemen, to conclude my address, I would like to wish all the participants in the forum fruitful work and a pleasant stay in Sochi. Make yourself familiar with the progress of the preparations for the 2014 Olympic Games. I'm sure that you will find something interesting - it is worth seeing what large-scale projects Russia is carrying out here. Our builders and specialists are working in close contact with their partners from the American continent and Europe. The city is changing for the better right before your eyes.

I would like to wish you all success and thank you for your attention. Thank you very much.

* * *

First of all, I want to say that in general our predictions for 2010 have come true. I will not go into the details now. First, the predictions were pessimistic enough, then too optimistic, but on average, things happened just as we had expected. In general, as I mentioned in my introductory speech, the Russian economy continues to recover at a very fast pace.

Last year, in 2009, we had some contraction in the economy, as you remember, amounting to about 8% (7.9%, in my opinion), and this year there is growth. First they said that it would be good to break even, but this year we are seeing growth and a steady growth at that. Even now it is more than 4%. I think it will remain so through the end of the year, maybe around 4-4.4%.

In 2008, inflation was over 13%, in 2009 we cut it down to 9%, and this year it will be a little more than 7%. I hope that the number will be small.

Even in 2009 our budget deficit was smaller than, say, in some European countries, yet it was still rather large. And I have told you about the parameters of this year's deficit, and it is going down substantially. Next year we count on reaching 3.5-3.6% or even less.

Honestly, our own experts and our colleagues in Europe and the United States could not even believe that we are able to cut the budget deficit so quickly. Nevertheless, it is happening. We are reducing it, to our regret, by curtailing certain programmes, although not ones that are sensitive for the economy. And the programmes which we believe are sensitive are those related to the development of innovations, the transition of the economy to a path of innovative development, and not at the expense of social programmes.

In these conditions of strict budget restrictions, including those associated with the deficit and inflation, we made efforts to substantially support, and I would like to emphasise this, people's living standards. Even in 2009, the real incomes of the population grew by 2.3%, to my mind. I mean real incomes, exclusive of inflation. And this year they will be even higher: the rise is 4.4%.

Many people know that this year the average retirement pension is to go up by 45%. We have not cut any benefits, and many of them were even increased.

The permanent reduction of the unemployment rate is a major indicator of stable economic growth. We have lowered the number of unemployed by a million and are now a whole point down, a whole percentage point. As you know, these are very good peripheral signs of economic recovery and rehabilitation.

Of course, we would like to see some things even more stable, and rapidly improving. The last issue raised concerned energy prices. No doubt, budget revenues from oil and gas sales are very important and allow us to solve both social and development problems. However, in the near future we are planning to lower oil and gas revenues and, conversely, raise budget revenues coming from outside the oil and gas sector despite the fact that we are currently, as one of our colleagues has said, the largest oil producer in the world, having surpassed Saudi Arabia.

Nevertheless, our plans are to reduce budget revenues from the oil and gas sector and to raise those from other sectors. We are making predictions for next year's revenues in a very conservative manner, proceeding from the estimates that I just heard: $80 for a barrel, or $100. We are planning budget revenues based on the price of $75, and the expenditure side based on $70.

I think this is justified because risks persist in the world economy; we can see them and are going to act very carefully. Such policy, a conservative policy, produced favourable results during the crisis when we were able to promptly react to the emerging problems, to support, as I have mentioned, the country's financial sector, support the people, implement major social projects and projects designed to support the real sectors of the economy.

By the way, as far as the real sector is concerned, its representatives are also here and they have already spoken about it. Indeed, the decline in industrial production was even greater than the decline in the economy as a whole. It was almost 10%, 9.9%, to be exact. And at present there is growth: not to a point of breaking even, but we have provided for a growth of more than 7%. If I am not mistaken, industrial production has grown by 7.7%.

As for the processing industry, which dropped even more abruptly last year, by 15.3%, it is now recovering at a stable rate - the growth is about 10%, 9.9%.

These are, of course, positive indications. We will do our best to turn these into a steady trend, and I am emphasising, above all, the observation of macroeconomic parameters. As regards the projections of energy prices, as I have said, we will proceed from conservative estimates.

Vladimir Putin's comments on speeches by forum participants

Rair Simonyan: Mr Putin, the main problem is demographic. Birth rates have to increase to ensure population growth, and a higher proportion of young people, above all.

Vladimir Putin: I agree. Joking aside, this is, indeed, a major problem. Only recently it seemed like this challenge was too big for Russia to cope with.  Do you remember that how just five years ago, it looked like this country would never be able to stop its population from declining and would just continue to slide into a demographic deadlock? But the situation has changed radically, and now we're seeing a steady trend toward higher birth rates and a decline in mortality rates.  We've got a positive trend for all major mortality figures, including deaths from heart disease, cancer and infection, as well as infant and maternal fatalities. This year and last, Russia's population figures have been showing signs of stabilisation for the first time. This is largely the result of targeted efforts made under programmes that we launched in 2006. Those programmes, all related to demographics in one way or another, have proved even more effective than similar initiatives by foreign counterparts, including in the European Union.

Now on to your main question, about how the Russian economy differs from the economies of our partners and competitors. There are differences, of course, and the speakers at today's forum have mentioned them. Some said there are countries with high education standards, which provide a competitive edge. Advanced scientific research is another thing that can make economies competitive. Other countries are rich in mineral reserves, and that's what helps them compete on the market.  As for us, we possess both these assets. This happy combination is bound to yield positive results, and it is already.

A colleague involved in the oil business said that Russia has now become the world's leader in oil output, having passed even Saudi Arabia. I have good relationships with partners across the world, you know, and we often communicate in an informal way, as friends. One of them (a top official in an Arab country, which is a member of OPEC) could not conceal his annoyance, and said to me: "You don't have to pump a lot of oil. You just need to be smart enough to slow down a little bit at times." It's understandable that we can arouse envy in OPEC countries, because, as a non-member, Russia produces more oil [than they do], and this affects world oil prices. But what I'm trying to say is that we'll work in coordination with OPEC. We'll also coordinate our work within the framework of a newly established association of producers and exporters of natural gas, where Qatar is a key partner of ours. But this doesn't apply only to the energy sector (by which I mean not just hydrocarbons, but also nuclear power and renewable energy sources). We're trying to embrace other areas as well.

As I said earlier, and others had before me, our key priority is to modernise the economy. A colleague from Boeing spoke about our long-standing cooperation, with twelve Russian specialists involved at the beginning and as many as a thousand by now. They're already employing the services of a thousand Russians, you see, and have subsidiaries in regions across Russia.

We're, indeed, moving toward deeper cooperation with Boeing. I'm referring specifically to the creation of joint ventures to produce titanium. Our colleague said they had been anxiously watching our cooperation develop. That's something that creates dependency, he explained, and I know just what he meant by it.  But let me explain to those of you who have no idea what kind of dependency we're talking about. If I remember correctly, Boeing gets some 25% of its titanium from Russia, and so does Airbus, by the way. But this is no ordinary metal; this is a metal requiring sophisticated processing. Until recently, we haven't been able to produce certain parts domestically, for lack of advanced equipment.  Now Boeing and the Russian company Avisma are setting up a joint venture to progress to more advanced stages in titanium processing. This is a high-tech production, and through joint efforts, they're building a foundation for economic and political cooperation. But this is something that creates interdependency, as well. 

We have a similar situation in our energy cooperation with Europe. We sell them natural gas and they consume it. They've made a lot of noise lately about their being dependent on Russia. But we depend on the Europeans, because they are our main customer. Such interdependence is positive, I think. The same in industrial production, where we're bound to Boeing and Airbus.

Speaking of the financial sector, which I cracked a joke about earlier today, we're moving closer and closer to our partners in this area. By the way, we're really thankful to your partners from financial institutions in the United States and Europe. They operate very meticulously.  When they came to our financial market, they brought along a considerable positive share of the sector's work culture. This enabled them to make the Russian financial sector more reliable, and now they themselves have become an integral part of it.

As I said in my opening remarks, when proposing and implementing our anti-crisis measures in Russia, we made no distinction between domestic and foreign banks. Foreign-owned banks were offered the same bailouts as banks that are 100% Russian. Incidentally, Russian banks' subsidiaries operating in Western Europe didn't receive such support. They were discriminated against, I believe. But hopefully, things will eventually get back to normal. 

We're willing to further develop these relations, making them deeper. We don't mind U.S. and European financial institutions with good reputations buying stakes in some of our leading banking operators. We're considering this possibility now. There's nothing extraordinary about it. And we're ready to work with our partners in that area.

The same is true for infrastructure. I hope together with our French partners we will carry out these two projects. Thank you for your reasonable attitude toward the necessity of an additional study into the environmental impact of the projected Moscow-St. Petersburg motorway. Thank you for your understanding. The Public Chamber is discussing this issue and we will continue these discussions. Together with the public we will work out the final version of the development scheme for this project.

In fact, this is the first concession project for infrastructure and we naturally want it to succeed. I'm sure that there will be other projects like this. By the way, concerning port infrastructure, unlike other countries, for example, the United States, we do not impose restrictions on foreign investment in this area. And we do not discriminate. We do not say that will not let Arab capital in. You're welcome! In addition, sea port infrastructure is developing successfully and at a good pace essentially throughout Russia, including the country's Far East.

Some projects have already been completed. Regarding the East Siberia - Pacific Ocean system, a pipeline running from West and East Siberia to the Pacific Ocean coast, the port there has already been built. It is up and running and will continue to be developed. There are also other projects in the Far East, and this region is working on them.

The port in Novorossiysk on the Black Sea is also being developed. Great strides are being made in the country's north-west. Only several years ago St Petersburg lacked an appropriate facility and for several years there were only discussions about setting up a port there. Now the port's cargo traffic, if memory serves me, has reached 70 million tonnes and it has become one of the largest ports in the country. It took only several years to build it and now we are developing it. Another port is being built at Ust-Luga on the south coast of the Gulf of Finland. This will be a massive port facility. Investments in it are estimated in the billions of dollars. And we will be attracting partners to working on this project. I would like to repeat that work on infrastructure is kept out of the bureaucracy and politics as much as possible.

Now let me say a few words about all the transformations, high technology and financial centres. Do you believe that Roman Trotsenko (president of the United Shipbuilding Corporation) was addressing you while speaking? No. He was addressing me. He said: "We should not invest in nanotechnologies or microelectronics because we are too far behind and it will be difficult to catch up. We'd be better off investing in aviation and shipbuilding." How am I supposed to hear this? "Give the money to us. Invest in shipbuilding instead of other sectors." First of all, I would like to point out that, and experts know this, the Russian microelectronics field is developing at a good pace. And I can assure you that by the end of this year this industry will meet European standards. We will transform it at all levels, or at least get as close as possible to doing this, and will continue developing this industry and investing money in it. Without the nanoindustry and technologies, many people understand this, it is impossible to build state-of-the-art aircraft or ships, let alone rockets and missiles. And we need all these components both to develop our economy and to ensure the country's security.

Regarding the financial centre in Russia, particularly in Moscow, this is not an untenable goal, but we realise that it is very difficult. You know, even Anatoly Sobchak spoke about making St Petersburg a financial centre in his days. I know every detail of it. We all understand that there are various ways of setting up a financial centre. The easiest way is to create an offshore territory. However, we will not use this option in Moscow. Creating a powerful financial centre is not something that can be accomplished in five minutes.

What does it take to attract large financial companies? Naturally, we will have to introduce certain tax incentives - not offshore-type but still very favourable in terms of the functioning and development of the financial and banking sectors. Such incentives will be necessary. We will have to develop the infrastructure of those territories where we want to attract banks. We simply need to... You know, there are certain issues that on first glance have nothing to do with banking, for example, the cultural environment needs to be at the appropriate level. This problem consists of many components, and this cannot be achieved in one day. However, this goal is achievable. At least as far as our closest neighbours are concerned, this is a real goal - the CIS countries are clearly interested in cooperating with us and developing our relations in finances. For example, over 90% of our financial transactions with Belarus are carried out in roubles without using foreign currencies. The share of rouble transactions with Ukraine and other CIS countries is also on the rise. I'm sure that the same will happen with Kazakhstan. So, this is not idle talk. This is an achievable goal.

Naturally, we still have much to do to attract large foreign financial institutions but some are already working in Russia and, I repeat, are doing this quite successfully.

As for investment, I have already spoken about its importance and our attitude toward it. Do you know what pleases me the most? I'm glad to see that investment has become a two-way road. According to Russia's Central Bank, direct investment in Russia totalled about $22.5 billion in the first half of 2010 and Russian companies invested a little over $20 billion in various foreign projects. These are comparable amounts. And this is a very positive trend.

Thank you.