Ladies and gentlemen, thank you for inviting me to speak at this Government Hour meeting today. I'm ready to take any questions you may have both for the government in general, and for me, as Finance Minister and Deputy Prime Minister personally. I'm here with several of my colleagues, deputy ministers from other ministries. Hopefully, together we will be able to answer all your questions in full.

First of all, I'd like to say that in the first quarter of this year industrial production showed growth, which is a good indication that we are steadily moving on the path of recovering from the recession. First, over January and February, manufacturing grew by 11.8%; the motor vehicle and transport equipment sector posted a rise of 70%; and the production of machine tools increased by 13.8%. At the same time, mining only gained 3.4% and is unlikely to remain the main driver of economic growth in the upcoming years. We are going to overhaul and diversify the entire economic structure in order to maintain growth primarily through non-oil and gas industries, which the government considers one of its main goals.

I'd like to add that over the first two months of this year, real wages grew by 1.8% while the consumer price index increased by 3.8%, compared to 3.2% for the same period last year. Is this a big increase? Well, the economy is still facing the effects of last summer's drought and the resulting winter increase in fruit and vegetable prices, which drove up inflation late last year and in the first two months of this year. But the negative effects of this factor will fade over time, disappearing completely as soon as the new harvest arrives. If the weather is favourable enough for agriculture, we'll be able to keep inflation below 7%, as planned, which is lower than last year. It is the Central Bank that will have to work hardest in order to keep monetary factors under control in the second half of the year. This will help us meet the 7% target should non-monetary factors, primarily the growth in food prices due to possible adverse weather conditions, have a relatively minor impact. This is how we are going to curb inflation this year.

The Central Bank is asking the government not to spend the surplus revenues that we expect to receive from oil and gas this year, since spending this money may only place an extra burden on the economy. We need to stick to the current budget or at least use only those surplus revenues that were received from non-oil and gas industries.

The financial sector has also been on the rise this year, and the banking sector has rebounded strongly, as expected. Last year, commercial lending to the real economy picked up by 11.5%. This is very good; this rate is higher than in G7 economies and even most G20 countries. We helped the financial sector through the crisis, and the effect is already visible – lending is on the rise and the average interest rate is decreasing.

Banks boosted their assets by 14.9% last year and by 0.2% over January and February of this year. There was a 2% increase in loans over this period. The aggregate value of arrears on consumer loans has increased somewhat and currently accounts for 7.1% of the total value of loans issued.

Unfortunately, capital outflow still persists. According to preliminary data, it stood at $21.3 billion in the first quarter. We have a lot to work on in order to attract more investment. On a bright note, direct investment in industrial construction is growing.

Last year, against the backdrop of that capital outflow, direct investment totalled $32 billion. Unfortunately, there is an outflow of portfolio investment from the stock market, as well as of other types of investment due to loan defaults. But direct investment, critical for maintaining economic growth, has been flowing in steadily.

In the first quarter, our stock market showed the highest growth rates among BRIC countries and even in the world in general. While the Dow Jones picked up 6.4%, our RTS grew by 15.47%, and MICEX by 7.4%. The Chinese stock market showed a smaller growth – 4.4%, while the Brazilian stock market fell by 1% and the Indian dropped by 5.2%. Overall, our stock market is on the rise, remaining attractive for international investment. But we need to keep in mind that this increase is driven by rising oil prices.

We are implementing the budget as planned. In the first quarter, it showed a surplus of 1% of GDP for the first time in recent years, which is partly due to rising oil and gas prices.

The Ministry of Economic Development suggests that we should base our forecast on an average annual oil price of $105. In the past three months, the average price was $102, but the Ministry of Economic Development expects it to increase to reach $105 on average. We will revisit this issue with them again. If we proceed from this forecast, we should expect oil and gas to provide an additional 1.38 trillion roubles in revenue, while other industries will bring in 301 billion roubles, which we could safely invest in the economy. Within the next few weeks, we will submit our proposals to the State Duma to adjust the budget for 2011 so as to invest additional non-oil and gas revenues in the economy.

At the same time, we have somewhat fallen short of our targets for revenues. First of all, this is because the rouble has picked up against the dollar. Given that our forecast placed the dollar to rouble rate at one to 30, while the dollar is currently at 28 roubles, the shortfall in revenue totals 356 billion roubles. Currency fluctuations are only one of the factors. A $10 growth in oil prices may bring in 670 billion roubles, while the rouble's gaining two points may result in a shortfall of 370 billion. But these trends balance each other out, and even if this forecast proves correct, we will receive nearly 1.14 trillion roubles in oil revenues anyway.

If we spend the 301 billion non-oil and gas revenues, this year, the budget deficit will amount to anywhere between 1% and 1.4%. There will be a budget deficit even if the oil price remains that high. Over the next years, we should do our best to minimise the deficit and our dependence on oil prices.

We will soon adjust the budget so as to be able to use additional revenues for addressing important problems faced by social services. If necessary, we can budget the funds to index pensions by 6.9%. If inflation exceeds 6% by August, by law, we will have to index pensions.

The prime minister has recently suggested giving those additional funds to the regions for their education modernisation programmes. For example, they could be used to raise teachers' salaries by 30%. But each region should decide itself how to use this money.

So, by the end of this year, we'll be able to improve significantly the state of social services using surplus revenues. I'd like to add that we are also going to index student maintenance grants by 9% and create a reserve fund of two billion roubles to pay higher grants to the best students.

In addition, we will need to continue funding the housing programme for veterans. The number of veterans on the waiting list is growing. The government and the State Duma have committed themselves to providing housing this year to everyone who was on this list as of January 1, and we have already earmarked an additional 13.7 billion for these purposes.

Given that farms haven't yet overcome the consequences of last year's natural disasters, we will propose to allocate an additional 15.2 billion roubles to them. Almost 10 billion roubles will go towards animal farms, 3.7 billion towards leasing and other support measures, for example, covering 50% of the costs of land registration. A total of 1.6 billion roubles will be used to fight wildfires and provide support to those affected by them.

One more thing. In December, the Duma revised insurance premium rates for small businesses, reducing them from 34% to 26%. We will need to provide 82 billion roubles from the federal budget to offset a shortfall in revenue from these taxes.

Early this year the Duma also changed maternity benefit rates, which will require an additional 16 billion roubles.

We will also need to offset the deficit of the Social Insurance Fund, which turned out to be 16 billion roubles more than we expected. That's another 16 billion roubles.

These measures will require 300 billion roubles in total. Unfortunately, there won't be much left to satisfy other appetites. The funds that will be used to increase teachers' salaries, pensions, student maintenance grants, support agriculture and small businesses, and improve the effectiveness of wildfire relief efforts will be provided through the amendments that we will submit to the Duma within the next three weeks.

Thank you.