21 july 2011

Prime Minister Vladimir Putin chairs a meeting of the Government Presidium

Vladimir Putin

At a Government Presidium meeting

“Society must be informed. It should know what is happening in the key areas that determine the country’s future. Society should be informed and should, in general, be involved in these efforts. This is why we are discussing the drafting of the budget and the development programme for social sectors such as education and healthcare at different venues.”

Transcript of the beginning of the meeting:

Vladimir Putin: We will begin with the latest information. Mr Kudrin (Finance Minister Alexei Kudrin), will you please report on the budget performance? The main question is how much we have earned and how much we have spent.

Alexei Kudrin: In this case, I will only briefly speak about the amounts of revenues and expenditures.

Vladimir Putin: And also about how much we have stashed away. We now have a budget surplus, if memory serves, don’t we?

Alexei Kudrin: Government revenue for the first six months totalled 5.304 trillion roubles, or 51.5% of the adjusted revenue target. You probably remember that we adjusted this in June, during discussions of macroeconomic forecasts for the year.

Vladimir Putin: How much, did you say? Five trillion?

Alexei Kudrin: Yes, 5.304 trillion roubles. Expenditures in the reporting period were 4.664 trillion roubles, or 42.3% of the year-end figure after adjustments. The budget surplus is 640.2 billion roubles, or 2.7% of GDP. At that time last year, we had a budget deficit. But it should be remembered that we customarily have additional expenses at the end of the year, so we have confirmed our previous budget deficit forecast at about 1%, or slightly more than 1%. The year-end figure will depend on the fulfilment of expenditure obligations by the ministries and other government agencies.

The biggest unplanned revenues, an additional 93 billion roubles, have been transferred by the Central Bank. We expected it to transfer 60 billion, but the Central Bank’s actual transfers for the past year stood at 153 billion roubles. This equals 75% of the bank’s profit last year; the size of transfers is stipulated by law.

So, we are now working in compliance with our plan. In the reporting period, the ministries and other government agencies have made payments under contracts in the amount approximately 18% higher than they did last year.

At the same time, the limits for budget obligations and the ministries and other agencies’ budget breakdowns are being adjusted to the changes made to the budget in June. I am asking them to accelerate this work and to inform their subordinate offices about the revised limits added as amendments to the budget in June.

Vladimir Putin: Thank you. I fully agree with Mr Kudrin. Our government receipts are growing not only because of high energy prices, but also because of growth in the economy. The positive trends can be seen in most sectors of the economy. What are the results for the first six months?

Elvira Nabiullina (Economic Development Minister): I am prepared to speak on the main economic development indicators in the first half of the year. Reconstruction growth continues. Gross domestic product has grown 3.9% in the first six months, and 0.3% in June compared to May on a seasonally adjusted basis. The growth was 0.4% in May. Overall, we see stable, positive trends regarding GDP growth. It slowed to 3.7% in the second quarter from 4.1% in the first quarter, and the average figure for the first six months is 3.9%. In the second half of the year, we expect GDP to grow 4.5% due to several nascent economic trends. One of them concerns investment. In the past few months…

Vladimir Putin: Did you say [the GDP growth will be] about 3%?

Elvira Nabiullina: No, it will be about 4.5% in the second half of the year. The first positive factor underlying this is the growth in investment. Investment has been increasing at a higher rate in the past few months. It grew 0.8% in the first quarter and 4.9% in the second quarter, which is why we expect a higher year-end growth in investment. The reason for this is that state investment – federal and regional – which accounts for a major share [of total investment] is usually made in the second half of the year. Evidence of this investment growth is the accelerated pace of construction, which is a good trend.

Vladimir Putin: How much has the construction industry grown?

Elvira Nabiullina: The construction industry has entered a positive phase. It grew by seasonally adjusted 0.8% in June compared to May and 0.9% for January through June. Simply, the growth rate was unstable in…

Vladimir Putin: So, the construction industry has grown by about 0.9% overall?

Elvira Nabiullina: Yes, it was 0.9% for the whole of the construction industry in the first six months. We have also entered a positive phase in terms of new build housing completions. We have housing completions up 6.4% in June 2011 on June 2010.

Vladimir Putin: What is the growth rate for industrial production as a whole?

Elvira Nabiullina: Industrial production increased 5.3% in January through June. Manufacturing has been growing at a faster rate during the reporting period – at 8%. The way the figures changed in June confirmed the trend. Industrial production grew by seasonally adjusted 0.7%, and the figure for manufacturing is 1.1%, mostly for machinery, equipment and vehicle production, as well as in the steel sector. So, overall, industrial production is growing at a commendable pace.

As for agriculture, we certainly expect growth. Agriculture presently contributes about 5% to the economy, which is a considerable amount, and we expect higher growth in agriculture in the second half of the year. Of course, one reason is that we had a low growth rate last year, with production volumes slumping due to abnormal weather. But this year, we expect a good harvest and also considerable growth in agriculture as a whole. We think this will boost food industry development.

Vladimir Putin: This year is very important for agriculture. We had droughts two years running, so now we need to replenish our stocks and also ensure exports and supply enough to the domestic market. The agricultural sector is facing challenging tasks. I know that people are working hard in the northern regions, often forgetting about their meals and sleep. In the past, we used to award people for the best achievements in their trade or profession. Let’s do it this year. I suggest that we join forces with the regions to choose the best grain growers, bearing in mind that their trade is very important for the entire agricultural sector, for the country and the national economy. I expect you to submit proposals at the end of the harvesting season.

What about small business? We have a support programme for this. What is small and medium-sized companies’ contribution to GDP growth, particularly to industrial production? Can you report on SME support measures?

Elvira Nabiullina: Small businesses account for about 20%-25% of the GDP, according to various methods, including employment, which means that they constitute a considerable part of the economy.

Vladimir Putin: Are they growing at all?

Elvira Nabiullina: I think their contribution to GDP growth is proportionate to their share of the economy. We have not registered such data – I mean, on contribution to the GDP – but we will consider doing so.

Vladimir Putin: You should also monitor production growth rates at small and medium-sized businesses.

Elvira Nabiullina: We’ll look into that. Certainly, as we have discussed, both qualitative and quantitative indicators are important. Today, we have a large share in the small business structure, namely in retail. This does not mean retail’s share should diminish – no, it should grow as well, but we expect that small businesses in the industrial and innovation sectors will grow at faster rates. And this programme to support small businesses targets enterprises operating in the industrial and innovation sectors.

Overall, 20.8 billion roubles have been allocated from the federal budget to support small business. Last week, we finished distributing these funds to the regions. The funds are distributed on a competitive basis: the regions submit their programmes in various spheres, which are then reviewed by a commission that includes members of the Small Business Association. I would like to specify the main spheres of activities. The first is supporting innovation ventures. Fifty-nine regions will receive funds for this purpose, with a total of 2.4 billion roubles allocated. We estimate that some 1,500 small innovation companies will be able to use the funding. The second sphere, which we have been extensively developing in the past few years and which is in demand in the regions, is supporting equipment leasing at small companies. Fifty-seven regions have submitted their proposals and have been awarded funding. According to our estimates, some 2,000 small companies will receive leasing support. The third one, a traditional sphere of activity, is awarding grants to entrepreneurs who are just starting out. This year, we will allocate 2 billion roubles for this purpose, with grants totalling some 300,000 roubles, the sum which small companies or beginning entrepreneurs will be able to request.

The main sphere is access to financing and developing microfinance organisations. We are providing support for 64 organisations under the corresponding programme. This means that small businesses, which often cannot get access to regular banking products, can obtain some amount of financing through these organisations, with the maximum loan of one million roubles granted for a period for up to one year. Some five billion roubles have already been granted while microfinance organisations have been active – a short time so far. This year, we will allocate 1.6 billion roubles for this purpose, which is a considerable sum for such organisations. I would like to note that we make the final interest rate a condition. Under our programmes, the maximum rate is 10%, meaning that the interest rate on the loan may not exceed 10%.

For those entrepreneurs who lack mortgage security, we have established guarantee funds, which have been actively developed in the regions. Now these funds have  26 billion roubles in capitalisation, which has made it possible to issue 85 billion roubles in guaranteed loans to small businesses. There is demand for this instrument, and it is working well.  

Vladimir Putin: Through the regions, right?

Elvira Nabiullina:  Exactly. We implement all programmes through the regions on co-financing terms. This is our rule. The regions put up a certain amount of funding, in accordance with the size of their budgets, in addition to funds from the federal budget.

Another activity I would like to mention is supporting small companies in the North Caucasus Federal District. We have started developing this new sphere of activity. There is demand for all support measures here, including grants, microloans and building business incubators. This year, a total of 1.7 billion roubles will be allocated for the district. We hope that this financial support – though it is not very significant and may not reach every small company – will allow many companies, especially those in industry, to start operating and create new jobs.

Vladimir Putin: Okay, good. Mr Fursenko, we had agreed that you would finish signing agreements with the regions on upgrading the general educational system by around today's date. Where do you stand on this?

Andrei Fursenko: We agreed that we'd do so by August 1, but as of today we have already signed…

Vladimir Putin: But this date is approaching.

Andrei Fursenko: Yes, it’s time. We signed the last agreement yesterday and have transferred the 20 billion allocated for this purpose to the regions.

Vladimir Putin: For this year?

Andrei Fursenko: Yes, for this year. We signed these agreements after the ministry agreed on a set of measures for the modernisation of general education in 2011 among all regions. We have also determined a time frame for raising salaries for teachers during the entire period of the project. According to these schedules, the average teacher salary in September will exceed the regional economic average for the first quarter. Another 41 regions will match this average and the remaining 37 regions that are unable to do this will increase average teacher salaries by at least 30%.

At the same time we are going about explaining how this will actually take place, because it is very important that higher salaries lead to better quality and a better, modernised system of education in the regions. We’ve devoted five national conferences to this issue, and every region has also conducted a meeting related to this project. We hope to continue the discussion during teachers’ councils, which begin in August in all regions. Our ministry officials will take part in most of them. We’ve also sent agreements to representatives of the Popular Front and requested that they take control over how these agreements are implemented, because we understand that our ministry cannot control everything, and they specify every step, up to…

Vladimir Putin: How many schools are in this country, in all?

Andrei Fursenko: There are about 50,000 schools. It's a rough estimate, because there are basic schools, and there are their affiliates.

Vladimir Putin: I'm asking for a reason. There are tens of thousands of schools and your ministry by itself will find it very difficult to monitor what is happening in the regions. Of course, we rely on the professionalism of our regional colleagues, but control will be helpful here – in this case, public control is the best option. Therefore, what you have suggested is right.

Andrei Fursenko: At any rate, we’ve asked them about this. We want these agreements and sets of measures to be public, and maybe this would be the best form of control, where everyone will be able to say, “our school was promised this or that but nothing was done,” or alternatively, “they’ve done what they promised.”

Vladimir Putin: Good. Now let’s move to the scientific sphere. Where do we stand on the issue of grants to scientists?

Andrei Fursenko: We are currently working on the second stage of grants in line with resolution 220. We analysed all applications in late June. The interest in the contest has grown – we have received 527 applications from Russian and foreign scientists. I'm referring to the contest for a 150 million rouble grant for three years, with a possible extension. We determined the first 40 winners last year. Since then, we have established 13 labs in our universities, and each of them employs between 30 and 35 young Russian specialists. These labs are run by the world’s leading scientists. During the second stage we looked at…

Vladimir Putin: Pardon me, didn't we agree that the money would go to scientists that propose the most interesting projects to be implemented in Russia?

Andrei Fursenko: Exactly. During the first stage we even had problems, because scientists were responsible for the money even though it was sent to universities. We are also actively monitoring this situation. Our young specialists have shown much more interest in developing priority areas in these labs. We hope that the second stage, the results of which we will sum up in September, will allow us to set up at least as many labs in priority areas of research.

Vladimir Putin: Good. So, the second stage will take place in October, correct?

Andrei Fursenko: We will summarise the results at the end of September.

Vladimir Putin: Okay. Now let's say a few words outlining the agenda of the Government Presidium session. Our first item is about progress in the development of federal government programmes.

In recent years, we’ve substantially increased funding for all federal budget expenditures. This was a necessary measure in order for us to meet our ambitious national development goals, as well as to overcome the effects of the global economic downturn and financial meltdown. Now that we are transitioning to a post-crisis growth model, we need to work on modernising the way we manage our public finances. We have been discussing this issue for a long time. Increasing the efficiency of budget spending should become a key priority.

Starting in 2013, most federal allocations will be distributed among specific targeted programmes.  Budgetary funds will be channelled into government programmes in sectors crucial to our national development. I want to stress that we do not have in mind a formal redistribution of funds. The idea is to rethink the principles guiding government agencies’ work in order for them to perform their duties more responsibly, as well as to ensure that monetary allocations, along with regulatory mechanisms, taxes and customs duties, produce the desired results.

Today we’ll review the progress in the drafting of these programmes. But let me first identify the main principles underlying our new approach to budget spending, to be built around targeted programmes.

First of all, the objectives of government programmes should correspond with the priorities of government policy. The programmes themselves, as well as their goals and the methods of implementing them, should be linked to the nation’s economic development outlook and especially to the plans for modernising the sectors concerned. It is fundamentally important that government programmes take into account not only the current economic and social situation, but also current trends that reflect the country’s long-term development. It is essential that the public should be well-informed of the nation’s strategic activities. To be able to make informed choices, the public must have an idea of what goes on within sectors crucial to the country’s long-term development. They should be informed, and they should be participating in this work. It’s with this in mind that we are initiating open discussions of budget planning and reform of healthcare, education and other public services. I believe this is a step in the right direction and that we should expand such activities even further.

Government programmes cannot be an exclusively federal endeavour. We need to be proactive in engaging regional government agencies, businesses and public institutions. The result will primarily depend on how competent and well-coordinated their efforts are.

Activities stipulated in government programmes should have specific aims and objectives, as well as realistic deadlines. And they should yield tangible results that improve living standards. We must also follow through on all of our current targeted programmes, ensuring that they are not underfunded. Mechanisms developed within their framework (notably, the partnership between the government and the business community) should be comfortably integrated into new programmes. We should strive to avoid inefficiencies, the unnecessary overlap of functions and the assigning of tasks to irrelevant agencies. We should clearly identify responsibilities and targets for each specific area of activity. We’ll continue with our old federal targeted programmes, integrating them into the new scheme. We cannot afford to pay twice as much in order to finance two separate projects aimed at achieving the same result. I therefore ask you to strive for cohesion.

Next, as you all know, the reduction of the budget deficit will be a key priority of the government’s budget policies for the years ahead. We brought up this issue earlier today. Hopefully this year the budget deficit will be minimal, or nonexistent. But forecasts for 2012-2014 suggest that our budget deficit may increase slightly during that period, and minimising it will be no easy task, given the performance of the world economy as well as our own. This will require strenuous efforts and a very careful approach to spending. So I urge you once again: please try to keep all non-priority spending to a minimum. Government agencies should keep in mind the budget’s actual capacity as they plan expenditures for specific targeted programmes. It’s important to avoid any sharp fluctuations in spending. We should set realistic timeframes for all scheduled activities, putting aside adequate funding for each. Please also provide the necessary measures to ensure proper monitoring and control over the use of treasury funds.

While working to enhance the efficiency of budget spending, we should not lose sight of the government's current obligations. Any violations or delays in distributing pledged funds are unacceptable, as they may lead to systemic, sector-wide breakdowns.

One other item on the agenda that I’d like to highlight today has to do with care for orphaned and abandoned children. Clearly, no orphanage can ever replace a normal family. With this in mind, we should improve the ways that we support foster and adoptive families willing to take in disadvantaged children. We regularly increase benefits and extend tax breaks to these families. In cooperation with public organisations, we also try to find additional means of support. Our efforts have already yielded positive results. About 59% of [Russia’s] orphaned and abandoned children were placed in foster care in 2005, while in 2008 this figure rose to 65%. This year, however, it dropped slightly to 60%. So, it seems, we still have quite a few problems to solve.

We already have quite rigorous requirements for foster and adoptive families. But experience shows that we need to take this even further. Raising an adopted child is a great responsibility, in addition to a professional and psychological challenge, which not everyone is ready to cope with.  This is why I believe we should introduce compulsory pre-adoption training courses for potential adoptive parents. At the moment, such training is provided on a voluntary basis. Pre-adoption courses should involve workshops and seminars in psychology, pedagogy, and primary healthcare. The requirements should apply to Russians as well as foreign nationals willing to adopt a child from Russia. Such measures will decrease the risk of maltreatment of adopted children in their new households, helping to protect their lawful rights and interests. At the same time, we should make sure that new requirements don’t become an obstacle in the path to adoption. We must not create any additional material problems for potential adoptive parents. I think regional authorities should commit themselves to covering adoption expenses for Russian families.

Now let’s proceed to discussing our agenda.

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