Prime Minister Vladimir Putin’s opening remarks:

Colleagues,

Today we are summarising the results of the execution of the federal budget for the first six months of 2011.

Let me note that overall, the economic background was positive during these months. Russia’s GDP was up 3.9% as compared to the same period last year. The inflation rate was 5% during the first six months. In June, consumer prices were up 0.2%, which is the lowest figure since November 2009.

Russia’s trade surplus increased. Russian exports exceeded imports by $101.7 billion over the first six months of 2011. As a comparison, we also had a trade surplus during the first six months of 2010, which amounted to slightly over $86 billion. This figure, which was $65 billion in the second half of 2010, now stands at $101.7 billion. Real wages are also up 2.4% in Russia. The unemployment rate is down to 7% from 8.1% in the first six months of 2010. The federal budget performance results have exceeded our expectations.

Budget revenues amounted to 5.3 trillion roubles at the end of the first six months of 2011, and expenses stood at 4.6 trillion roubles. Therefore, rather than the budget deficit that we expected, we ended up with a surplus in the amount of 2.9 % of the GDP.

However, I’m once again compelled to talk about our traditional problems. Cash execution of budget expenses is proceeding at an uneven pace. Normally, they tend to accrue towards the end of the year. During the first six months of 2011, they assimilated only 41.8% of projected funds.  The situation, of course, is different across different ministries. Therefore, I’d like to ask the heads of departments to keep a close eye on the efficiency and proper pace in the use of budgetary funds. This primarily concerns financing of the state defence orders. We have already discussed this issue on several occasions. I hope that all necessary conclusions have been drawn from this, but certain questions remain that need to be settled. I've asked my colleagues to look into this, so they are aware of it. Please do so immediately today and report back to me tomorrow with the decisions.

In general, we need to continue with our disciplined and responsible budget policy – all the more so with the persistent and serious risks that we are seeing in the global economy.

The next item on the agenda concerns the development of the national financial market infrastructure and the improvement of its legal and operational base employing the latest international standards. One of the priorities in this area is to build the best possible relations between key market regulators, in order to make the existing system flexible, clear and convenient for investors and all other interested parties.

Concerning this, it is proposed that we delimit the range of responsibilities of the Finance Ministry and that of the Federal Service for Financial Markets.

The Finance Ministry will be responsible for developing state policy with regard to financial markets and the regulatory and legal provision for their activities, as well as strategy development and areas of long-term development of the securities market.

For its part, the FSFM will be responsible for oversight and supervision in this sphere, which will also include the insurance sector.

This delimitation of authorities will allow state entities to complement each other’s work as best as possible, and will make the actions of the state more transparent and more understandable for both Russian and foreign market participants. It will also help regulators receive effective feedback from them.

We will also be looking into a number of issues related to the development of integration cooperation. The issue primarily concerns strengthening our partnership within the Customs Union and forming the Common Economic Space.

As you know, the control over the transportation of goods between Russia, Belarus and Kazakhstan was lifted on July 1, 2011. Thus, a fully-functional common customs area has finally been formed, with the potential for implementing the most ambitious business initiatives. Incidentally, the mutual trade turnover between our three counties grew by 41% during the first six months of 2011. In the first half of 2010, trade turnover between Russia, Belarus and Kazakhstan amounted to $20.8 billion, and this number was up to $29.3 billion in the first half of 2011.

Naturally, we need to continue introducing other integration tools within the Customs Union, the Common Economic Space and, of course, on a bilateral basis.

As you know, the meeting of the Council of Ministers of the Union State of Russia and Belarus took place last week, and resulted in very good progress in our dialogue concerning energy. You have probably heard about the critical decision to implement a policy, whereby gas prices for Belarus will be determined using a special decreasing integration ratio beginning in 2012. As for what this ratio should be, I would like economic agents and the Ministry of Energy to determine this value and the procedure for its introduction. All these issues should be worked out together with our Belarusian colleagues.

We need to settle one more issue today, one of a technical nature which is a cause of some inconvenience to economic agents. I’m referring to customs duties for Russian goods that are exported from Belarus, in particular, duties on petroleum and petroleum products.

The existing procedure does not allow our Belarusian colleagues to correctly calculate the amount that should be transferred to the Russian budget. The solutions that we are suggesting today should help sort out customs procedures.

We will also look into the draft Treaty on Cooperation between Russia, Belarus and Kazakhstan in the Currency Sphere. This document is part of the legal framework of the Common Economic Space, which is due to become effective starting on January 1, 2012. The issue has to do with building a foundation for closer cooperation between currency control bodies. Proposals include simplifying information sharing between responsible entities of the three countries, providing practical assistance, exchanging experience and training personnel.

I believe it’s important to stress that we are not putting up any additional barriers for businessmen or investors in this area. On the contrary, let me remind you that even in the midst of the raging crisis in late 2008 and early 2009, Russia did not restrict the flow of capital across its borders. The logic behind the Common Economic Space includes, in addition to the free exchange of goods and services, the free movement of capital. The goals of the proposed treaty are to ensure the safety of financial systems, compliance with common currency legislation and, of course, to encourage the development of investment and foreign trade activities between economic agents from all three states.

Let’s get to work.