29 june 2008

Prime Minister Vladimir Putin met with members of the United Russia Parliamentary Party

The problems that must be solved before the end of the year, such as creating of the set of instruments to expand and improve the quality of housing construction, the support of small business and removing administrative barriers in the economy, the adoption of the federal budget, were discussed at the meeting.

Vladimir Putin's speech:

Galina Karelova has her birthday today. I would like to congratulate you. A round of applause would not come amiss.

Good afternoon, colleagues, Mr [Boris] Gryzlov, friends.

Most of those present know that we have had meetings in this hall before in roughly the same format. True, today we must say that the quality of our relations, at least of my relations with the United Russia Party, has changed substantially. There is now all the more reason for us to meet and discuss the current problems of law-making, the problems of interaction between Parliament and Government in addressing outstanding social and economic problems.

First of all, I would like to thank you for your support. Not only support in appointing me as Prime Minister, but above all for the large amount of day-to-day work that you are conducting together with the Government. I would like to thank you for your direct involvement in implementing the strategic plans of Russia's development.

Today we have a comfortable majority in Parliament. It enables us to act resolutely and effectively, and quickly implement the initiatives in the interests of citizens and the development of the country's economy.

The newly elected State Duma has made a good start both in terms of the number of laws passed and the quality and importance of these laws.

Let me mention just several pivotal laws passed during the spring session. Of course, you know about them anyway, but I would like to take advantage of the presence of the press.

The minimum wage has been almost doubled to 4,330 roubles. That is a serious step. It was not an easy decision for the Government to take. It requires large amounts of money. To some extent this is, of course, connected with inflation. We promise to fulfill our agreements with the trade unions. I think it is a justified move from the social point of view and a valid move from the economic point of view. The government's experts have calculated that it should not make a substantial difference to the rate of inflation today.

Student stipends have been raised. The issue of state support of voluntary pension savings has been solved. By the way, if you compare it with the practice in other countries, it is not everywhere that a citizen gets such a substantial addition to the accumulated part of the pension. Far from everywhere.

The new procedure of guardianship and trusteeship should contribute to more reliable protection of the rights of orphans and help them to find a family.

A large amount of work has gone into the draft laws in the tax and budgetary sphere. I would like you to complete it before the end of the spring session. Above all, it is necessary to introduce additional benefits for the citizens who are bringing up children. And also for those who use education and health services, build or buy housing. It is necessary to implement our plans of tax incentives for innovations, small business, the oil sector and agriculture.

The federal budget for the current year was amended twice during the spring session. This is not something to be welcomed, but it is a forced measure. If we have to do it we have to do it in a timely manner. Such frequent adjustments, unfortunately, have negative sides and negative causes. We had to protect our citizens against inflation. Without the support of the State Duma majority it would have been much more difficult to solve that task promptly and effectively.

From my information, work on the extremely important law on the Housing Construction Support Fund is due to be completed next week. Its adoption will enable us to use all the vacant land at the disposal of the state to build housing. There are some matters that still need to be discussed. I am sure it is a topic that concerns many people.

Now, about what we must do together before the end of the year. I would identify several major areas.

First. It is necessary to create a set of instruments to expand and improve the quality of housing construction within the shortest possible time, to adopt the corresponding building regulations, to set requirements for the comfort, safety and energy efficiency of housing, and finally, to get rid of the building codes and regulations of the last century. It is not only that they are outdated. They greatly increase the price of housing construction and construction in general. Normal economies have long got rid of such standards. These are the standards of the 1960s and perhaps even of the 1950s. They are so tough that building becomes impossible. It was brought home to us very forcibly when assessing the prospects of the building of Olympic facilities, preparing Vladivostok for the APEC Summit and some other major projects. These are absolutely obvious things. By the way, they are also quite complicated. But the government has promised to prepare the necessary legislation. So, I expect your support.

Second, support of small business and removing administrative barriers in the economy. We should seek a real reduction in the number of all sorts of inspections, a reduction in the number of licensed types of activities. The draft laws have been prepared, there is a whole package of them. I would like you to make a note of it and support them.

Third. The key topic of the autumn session has traditionally been the adoption of the federal budget. In fact, the budget lays the financial foundations of the social and economic policy, places the accents and determines priorities.

We will discuss all these issues with the Government tomorrow. I would like to note that discussing the draft budget with the deputies before it is introduced at the State Duma is very useful. We do not intend to give up the practice of the so-called "zero reading".

So I would like to ask you to submit your proposals to the Government before July 10. Before the end of the month we will jointly finalize them at the ministries and agencies.

We count on your active and practical participation in implementing a whole number of other government initiatives.

I cannot help mentioning some other issues connected with the work of the parliament and the deputies.

All know very well -- especially you, but also the whole country -- that United Russia holds the parliamentary majority. That imposes special demands on it, including in the area of relations with the other political forces.

You have tremendous parliamentary clout. United Russia can single-handedly secure the adoption of any law, even a constitutional law. But true political leadership does not consist in sticking to one's own ideas and rejecting any other opinions out of hand.

You should initiate dialogue and discussions and support all the best parts of the "legislative luggage" of the other forces in parliament.

In this connection I think the United Russia was absolutely right to grant the other parties the leadership of six committees of the State Duma. That is another step towards a real multi-party system and civilized political competition.

Work with the regional parliaments deserves serious attention. Under the Constitution they have the right to initiate federal legislation. It is a necessary instrument because people in the regions often have a clearer idea of how to respond to people's needs.

At the same time one would hate to see this right used to promote "raw" and financially unsupported and occasionally just plainly lobbied bills. I think that United Russia in parliament could assume the task of coordinating the law-making work of their fellow party members in the regional parliaments.

And of course, the authority of the parliamentary party depends not only on effective law-making, but also on the ability to explain to every voter the meaning of the decisions we take, the reasons that cause us to act as we do in every particular situation.

As we have repeatedly pointed out at our meetings with the Party's functionaries, we should not be afraid of controversial decisions if we are convinced that we are doing the right thing. On the contrary, it would be extremely counterproductive to stick our heads in the sand because the other end will still stick out. We have to raise our heads and explain to people honestly and clearly why we are taking this or that decision. Because in the final count we are guided by only one interest, the interest of the economy and the country's citizens.

At first glance some things may appear to be odd and even unpleasant, but you have to explain to people what ultimate result we seek. I am sure if this is done with conviction and competence and in simple human language, people will understand us.

I open the floor for discussion.

Vladimir Putin's comments on remarks by members of United Russia in parliament:

On inflation

Vladimir Putin: Mr Gryzlov, could I just make a couple of comments? I subscribe to practically everything you have said. Of course, we know, and I myself have said that economic problems, including high inflation, come to us from outside. They are imported. That is true to a large extent. But we share part of the responsibility. We should be aware of that.

Western economies, the leading economies of the world experience crisis phenomena as well, but it is still not yet a global crisis.

There was recently a mortgage crisis. There was a crisis in housing construction and as a result, as a consequence, a liquidity crisis of certain banks. The governments and the central banks in these countries faced these problems head on. They have practically solved them. True, it required massive financial injections, sometimes direct financial injections from the state in spite of the declared regulation principles. Nevertheless they did it, and thanks to these measures the problem is kept at bay.

The Western economies are facing major destructive phenomena such as the galloping prices of energy and fuel, above all oil and, as a consequence, gas. In accordance with the well-known formula, world gas prices are tied in with oil prices.

Secondly, a massive growth, unjustifiably rapid growth of food prices in the world markets. I am not talking about grain-crops. That, of course, influences us because we are part of the world economy. Today that is a fact.

But there are also internal factors. Mr Gryzlov has rightly said that we consider that it would be wrong to fight inflation at the expense of economic growth. Such a position has much to commend it.

Just to fill in the background a little bit. It is not only the question of the Russian Government. There exists a different point of view in the world and European economic and financial communities. What is this point of view? Just recently the head of the European Central Bank, Mr Jean-Claude Trichet, announced that he is raising refinancing rates. What is the purpose? To cut the supply of money to the European economy in order to fight inflation. And he said it without mincing his words: "I understand that it may slow down economic growth in our countries. I believe that fighting inflation is the number one task. I am taking this step even though there is a danger of a slowdown of economic growth. I am doing it consciously. This is the choice of the European Central Bank".

And he also said that it is better done now than later when the fight for higher wages begins in the context of inflation and sends it into a new spiral. Things are closely interconnected. I am not going to delve into this problem now. This is just for your information.

When we come to making decisions we must bear in mind the whole set of instruments to combat inflation and the different points of view on how to do it. These instruments work differently in different countries and different economies. We must choose the way that is best for our economy.

About high technology centers. Mr Gryzlov is right to note some setbacks. The blame rests partly with the regional authorities that failed to prepare the necessary sites and lay the foundations, which they were obliged to do. Part of the blame rests with the federal authorities because they delayed financing, crediting and payments to suppliers or failed to make corresponding administrative decisions and in general showed a lukewarm attitude to the issue. Mr Gryzlov cited a vivid example. They came to the site only to find that the site was not ready. End of story.

Now they are seeking to have the deadlines postponed. It must be said for fairness' sake that some projects will have to be dropped. But there is no doubt that we will complete this work.

On financing culture

Vladimir Putin: On the whole I think we should change the system of remuneration for cultural workers. The Culture Ministry must think about it and make corresponding proposals. Of course, the salaries of people working in this sphere are very small and do not match the importance of culture for society. It is an evident fact. Still, as Mr Gryzlov has mentioned, compared with 2005 the financing of culture has doubled.

Under the existing system we had to introduce preferential pay terms for leading cultural enterprises. The list is topped by the Bolshoi Theatre. Today only 30 leading musical and theatrical companies in the country receive presidential and government grants. We increase allocations for these grants by almost 2.5 billion roubles every year. To be more exact, 2.4 billion roubles. We are planning to extend that practice and to start paying additional grants to educational institutions in the cultural sphere next year - 12 presidential and 12 government grants, plus 14 government grants for musical groups and state artistic companies.

Regarding libraries. Yes, a programme is in place. We remember well what libraries looked like in the former decades. In the small cities and villages the library used to be a cultural center, a community center, a source of new information.

Unfortunately, in recent years they lost many of these functions - not everywhere but in many places. Of course, we should pay special attention to libraries. All it takes is to finance their revival, to impart a new quality to them, to put their work on a modern technological basis. Financing for this will come through two channels. First, allocations in 2009, 2010 and 2011 to improve regional libraries. I cannot give you the exact figure, but in the first year it will be 880 million roubles, in the following year about the same amount, and in 2011 exactly a billion.

The second channel is additional funding for replenishing the stocks of municipal libraries. If my memory serves me well, next year it will be 300 million, in 2010, 450 million and in 2011, 1.151 billion roubles.

I believe it is a priority. But I repeat, I agree with you that we should take a new look at the system of remuneration in the cultural sphere.

On aspects of anti-inflationary policy and social issues

Vladimir Putin: Mr Isayev, of course, touched upon the key and core issues. They deal with economics and the social sphere. The rate and quality of economic growth hinge on the methods we choose to curb inflation. And the people's confidence in the government, in the United Russia Party and the authorities as a whole would depend on how we address social issues.

Inflation is one of the problems not only in our country, but in the whole world. It is not by chance that I mentioned the decision of the European Central Bank to raise refinancing rates in order to combat inflation. The figures, of course, do not lend themselves to comparison, but in percentage terms the growth is dramatic. They planned 2%, and now they have 3.5%, which is a very large increase. In some countries it is even more.

Here we simply have a different situation. Let us not forget that in 2000 inflation ran at 30%. We gradually decreased it, but the upsurge of inflation in the world and some domestic factors prevented us from decreasing it further. At least we should try to keep inflation at its present level, and then move gradually to suppress it.
One of the causes is the money supply to the economy. Mr Gryzlov said that we should not stifle the development of the economy. That is correct. But we have a huge inflow of capital. You remember that in the mid-1990s and early 2000s the outflow of capital every year was 15, 20, 25 billion dollars. Last year the net influx of capital amounted to $81 billion. What does that mean for all of us? Thank God, the dollar is not a circulating currency. The Central Bank buys this money and prints roubles instead, releasing them into the economy. Money supply increases. Eventually money gets to the consumers who go out and buy goods. Our imports are growing because our own industry is still unable to provide quality and cheap goods. The net result is that we subsidize the development of other economies.

That is a tricky thing and we must react to it in a timely and skilful manner. There are many methods available. They are well known. They include raising interest rates and bank capital requirements, that is, the Central Bank orders the banks to increase their reserves. It prevents them from issuing loans to the real sector.

In the People's Republic of China, which as you know, is ruled by the Communist Party, the authorities use tough measures that combine market and administrative methods. The Central Committee of the Chinese Communist Party issues directives to the banks to give no more loans.

Cutting budget expenditure is another instrument. I am not saying that we should do it. I simply bring it to the attention of the colleagues who deal with it professionally on a day-to-day basis. Each of us, after all, has his own area of responsibility and has "to plough his own furrow", like St Francis. We cannot be experts in all areas. For the colleagues who do not deal with these matters every day I would like to say that cutting budget expenditures, including social ones, is one of the instruments to combat inflation that is put to very effective use in the world.

This raises the question of whether we can afford to use such tools. Perhaps, only occasionally and very carefully. In some developed economies the trade unions agree with the government to freeze wages in the context of a galloping inflation. But that applies to all the sectors of the economy without any preferential treatment for any sectors. Even the trade unions accept that and agree with the authorities at their own initiative. Can we use such instruments and freeze everything given the high rate of inflation? I wish we could afford it. But I believe that this is not the right way today because, unlike the developed West European countries, we have very many poor people. They have no savings, no financial "fat" accumulated by the previous generations. They have no money on their bank accounts.

When I worked in St Petersburg and spent a period of internship in a European bank we were taken to a bank and shown the savings of older people. The savings were not great, but they ran into hundreds of thousands. It was a German bank. They simply showed us the savings. Our people do not have much money. So just to freeze wages and let the people shoulder the burden of combating inflation is not an option for us. We will not do it.

In this connection I would like to inform you that we have been studying these issues in government. Mr Isayev has mentioned public sector employees, and he mentioned pensioners in passing: we should not forget about pensioners. Let me remind you that from August 1 this year the basic pension rate is increased by 15% and the insurance rate by 8%. On the whole, pensions should increase by 1100-1150 roubles during the year.

If we compare it with the inflation target this year the real growth of pensions should amount to 16%-19%. If we fail to meet the inflation target - I hope this will not happen - we will have to index the pensions once again, this is written down in our law.

Of course, it would be best if inflation did not grow so fast.

Now regarding public sector employees. I absolutely agree with you. It is one of the groups of the population that depend entirely on government decisions. Their material wellbeing depends on our policy and on how we treat them. This is a group of people that depends on us heavily. But on the other hand, in principle effective governance depends on them to a large extent. We are talking about people who are paid out of the federal budget.

So we have had consultations with our Central Bank, which believes that if public sector wages increase it would not have a major impact on inflation.

If we look at the structure of inflationary growth, inflation is above all due to monetary factors. Yet such a decision would not have a serious impact. So I made a decision to increase the wage fund for federal budget institutions by 30% as of December 1 this year.

That should increase wages considerably. The impact will vary from one institution to another. Where there are additional off-budget sources of finance the impact will be less. Where there are not enough such sources the growth will be greater, it should be quite substantial.

At this point I would like to ask for your help. We would like the introduction of the minimum wage, which the government did at your insistence and in fact in accordance with your decision, to be accompanied by a transition to the new principles of remuneration. That means that substantive and constructive talks will have to be held with the trade unions. I would like you to join that work actively.

On development programmes

Vladimir Putin: As you know, we have adopted a number of fairly long-term programmes. On electrical energy it is a programme until 2020, it is the scheme of the location of electrical generating facilities that costs 20 trillion roubles.

We have adopted a programme for the development of railway transport to 2030, worth 14 trillion roubles.

We have adopted a programme for the development of nuclear energy. If my memory does not fail me, it will cost 12 billion roubles, to be disbursed within a short space of time. We will have to build 26 major nuclear reactors. That is a lot considering that only 30 such units were built in the whole Soviet period.

We have adopted corresponding programmes for the development of ship-building, aircraft building, aerospace technology, chemistry, electronics and other sectors. By the way, we are preparing a programme for the development of the pharmaceutical industry, etc. We will prepare a corresponding programme for the automotive industry. All this requires a focused effort and concentration of administrative and financial resources. If a "framework" law helps to implement all these plans I have nothing against it. Only one has to keep in mind that in creating conditions for the development of the economy as a whole we should on no account create a special regime for certain sectors and freeze it for an indefinite time. This is a delicate matter. You are dealing with it professionally. We will have more discussions with you on this topic.

Vladimir Putin's answers to questions from members of the United Russia parliamentary party:

Question: Public reception offices of the Party, that is, your reception offices, are being created in the Russian regions. That work is already yielding tangible results. Do you think it makes sense to create a special mechanism for interaction between the regional party branches and its central structure on one side and the government on the other, to provide information on the issues that are most talked about in the regions?

Vladimir Putin: Regarding regional branches. We discussed this topic with Boris Gryzlov yesterday and I made a suggestion that he supported. I think that in the autumn we should convene a meeting of the representatives of regional branches and the heads of United Russia in the regional parliaments. We should initiate constant and systematic work with them.

Regarding the reception offices. Obviously, I will not be able to work in every reception office. Obviously, I will have my representatives working there. Having said that, naturally, the people who come to these offices want to talk to me directly. I think the experience of televised Question and Answer sessions could come in handy. We might change the format a little bit, choose the time, collect questions, invite people and, using modern communications, have live conversations with the people who come to these reception offices. That work should be put on a regular basis.

Question: Your social and economic strategy is quite rightly linked with the accelerated pace of housing construction. Still on this topic I would like to ask you whether the Government is going to take measures to revive industrial building methods? Specifically, to build new factories that produce prefabricated blocks for low-rise buildings and other inexpensive modern materials?

Vladimir Putin: We know well at what rate the building sector is growing, at 19% a year. In some regions housing construction grows at the rate of more than 20-25%. It is a lucrative business. At the same time, we know about some imbalances in the sector, the production of cement and so on. You are asking about the building of new capacities. I have a question: do you mean that the state should build them? I don't think so.

We must create conditions for business. To that end what is needed is not for the government to invest money, but to create conditions for work and ensure compliance with antimonopoly laws, which is very important in the economy and especially in the building industry.

Finally, I have mentioned the Housing Fund, which should accumulate all the vacant federal land. I would appreciate it if the deputies back that decision. I would like you to adopt this law as quickly as possible - if you think it practicable of course - so that all the instruments connected with vacant land could be used to launch large-scale housing construction.

Question: We all realize that the independence of any state is proportionate to its defence capability. You have made defence capability one of the priorities for our country. At present we conduct firing tests, exercises, we put to sea and we fly. The troops are getting new hardware, unfortunately not as much as we would like to, and the amount that we get is out of proportion to the money that we regularly earmark to procure it. This happens because the defence industry is heavily monopolised and any one type of military equipment is produced by one or at most two enterprises. This is behind the great leap of prices in this sphere. I can give you an example from my own practice: in 2002, as commander of a special antiterrorist unit, I was procuring SV-98 sniper rifles from the Izhevsk Plant. At the time it cost 20,000 roubles. Now the rifle costs 450,000 roubles with the gun sight and 200,000 roubles without one. An incredible price leap that cannot be accounted for by any growth of inflation and tariffs. How can we regulate pricing in the defence industry? It is a similar situation with other weapons. The Topol-M price quadrupled in four years. And a Topol-M missile is a far cry from a rifle.

My second question. Perhaps I should have asked it first. Without people weapons and military hardware are just a heap of metal scrap. Today the salaries of our servicemen are unfortunately uncompetitive in the labour market, especially in the context of unpredictable inflation. What can we do about it, especially for the permanent combat readiness units? Thank you.

Vladimir Putin: As for the first part of your question, it worries me greatly, too. Of course, you are right that it undermines the defence order in a number of ways and puts the Army in a difficult position. It is unable to pay for the weapons procured fully and in a timely manner. The manufacturers are in a difficult situation.

Somebody suggested that long-term contracts be signed in accordance with fixed prices. But we all understand, and practice shows that given the rate of inflation that we have, forcing an enterprise in the "Procrustean bed" of a fixed price is a road that may lead to the collapse of the enterprise.

What can I say? We should de-monopolise that sphere. As many goods and spare parts as possible should be produced in a competitive environment in the civilian sectors. We should control pricing. It is not a pleasant word, but apparently it is justified for defence enterprises.

Unfortunately, I doubt that contracts at fixed prices are a viable proposition in the near future. At least until we bring inflation down to single figures. We will have to do it by manual control. Honestly, I see no other way today. The whole process of price formation should be monitored more closely. Of course, everyone puts the blame on the related industries. So we have to work there because any rocket, any tank is produced from metal. We know what is happening in the metallurgical sector. So we have to work there. On the whole, a series of mechanisms and instruments is used: antimonopoly, anticriminal, customs and tariff regulation. There are a lot of instruments. All that must be used for the benefit of the economy with due account of the end results for the defence industry.

Now as regards salaries, especially of those servicemen on whom the country's defence capability depends crucially, the officers who are on duty in nuclear submarines or sitting in the underground silos of the Special Missile Forces, the servicemen in the permanent readiness units, that is, those who must promptly react to any armed challenge inside or outside the country.

You are right, of course. We should take prompt decisions with regard to these categories of servicemen. Proposals to that effect are on the table. I instructed the Defence Ministry, when I was still President, to work out such proposals. They have now been worked out. We are creating a special Fund and we will use it to add to the salaries of that group of officers. In 2009, 25 billion roubles will be spent for that purpose, in 2010, 33 billion roubles and in 2011, 45 billion roubles. On the whole the salaries of these groups of servicemen should increase to 65,000 roubles. And for some categories, meaning top officers, it will be up to 100,000-150,000 roubles and more. We believe that this is justified.