27 december 2011

Prime Minister Vladimir Putin holds a government meeting

Vladimir Putin

At a government meeting

“The most important achievement of this past year is the consolidation of the trend towards steady growth. The Russian economy has overcome the effects of the crisis and has reached its pre-crisis figures in key parameters.”

Vladimir Putin's opening address:

Good afternoon,

Today is December 27. The New Year is approaching and according to tradition, we are summarising the results of this past year. Let's see what we have done to improve the socio-economic situation and to make the economic foundation strong enough to resolve social issues. In general, we have already briefly summed up the results of the outgoing year. Let's discuss them in more detail and say a few words about our future plans.

To start with, the most important achievement of this past year is the consolidation of the trend towards steady growth. The Russian economy has overcome the effects of the crisis and has reached its pre-crisis figures in key parameters. Experts will still have to calculate the exact GDP growth in Russia in 2011 early next year, but it will be somewhere around 4.2%--4.5%, hopefully, closer to 4.5%. This is a good figure compared to that of the world's advanced economies. The Eurozone is finishing the year with a growth of a little over 1% and in the United States the figure stands at about 1.8%. But these are our experts' tentative figures. The final figures are yet to come but I don't think our experts are far off the mark – the figures will be about the same. Our growth is between 4.2%-4.5%. In any event, such growth allows us to reach the pre-crisis levels in major areas. Importantly, we are restoring the pre-crisis scale of industrial production.

In January-November 2011 (we have the figures for this period) industrial production increased by almost 5%. For the year, this figure will be about 4.7%-5%.

This has all had a positive impact on one of the main socio-economic indicators: the labour market or employment. The level of general unemployment has decreased as compared with the beginning of the year. It was at 7.8% early this year, and now it is a bit over 6% (6.3%). The number of people who are officially registered as unemployed has decreased by 400,000. I will cite some figures to show how we compare with other countries. In general, unemployment in the Eurozone is much higher, at about 10.3%, and it is skyrocketing in some countries. All we can do is sympathise with Greece, where it is more than 17%, and Spain, where it is over 22% (22.8% - almost 23%). Of course, it is a very bad situation when almost 23% of people are jobless. The figure is just over 6% for us, which is the result of our concerted effort. I would like to thank you very much for this, and I would like to thank the governors because we could not have achieved this result without the active involvement of governors, leaders of republics and the business community. We must also give credit to the top managers and shareholders of our major companies – they have been very active and responsible in this respect.

Real salaries and wages have increased by 3.4%. This is not much, but it is still more when adjusted for inflation. We recently summarised the results here, and determined that real incomes (not salaries and wages but inflation-adjusted incomes) have grown by a modest 0.5%. These are tentative estimates. Why is there such a difference between the growth of salaries (3.4%) and incomes (0.5%)? Real incomes also include pensions, allowances and the like. Pensions and allowances have been growing this year in accordance with our plans and because of adjustments for inflation. But growth in overall incomes has not been as serious as last year, when pensions within a year increased by 45%-47%. I clearly remember the discussions during that time. Some of my colleagues advised me not to increase pensions by so much in 2010 because it would make more sense to do this in the election year, in 2011.

Let's be straight – we should not be guided by our domestic political calendar. In any event, the Russian government must proceed foremost based on the interests of our people. Of course, expectations are different after the increases of this past year, but we must be honest with our people, and if we had an opportunity to help we had to take it. And, after all, we understand that the political effect would probably have been more substantial now than in the past year, but our people have received higher pensions for an entire year. It was important to support people with modest incomes during the hard times – in 2009 and 2010 – and we have done the right thing by doing this.

After the drought of the past year and a serious decline in agriculture, we have not only restored the performance of the agro-industrial complex but have even improved the figures from the pre-drought year of 2009. Our tentative estimate is that the industry has grown by 17.8% in 2011 but some experts believe that the final average for this industry will be about 20% when all additional figures are considered. The grain harvest is 93 mln tonnes after processing. And the export grain potential has been restored in full.

What else should I add to complete the economic picture? I would like to thank our colleagues from the Central Bank. This has to do with inflation, which I will speak about a bit later. Together with the government, the Central Bank has done a lot in this area, and has approached our currency reserves with great care. Russia's international currency reserves are growing – they are steadily above $500 billion, making us third in the world after China and Japan.

Apart from our gold and currency reserves, the government's currency reserves are also on the upsurge. This is our Reserve Fund, the government's Reserve Fund. During the most difficult times in 2009, we used this fund to finance our budget deficit. We assumed it will be brought to zero in 2011, but this did not happen. On the contrary, the Reserve Fund is growing and will reach 1.8 trillion roubles by the end of this year. Our second fund – the National Prosperity Fund – is also doing well. We finance the pension system from it and it is in good shape, with 2.7 trillion roubles. Let me remind you that our oil and gas revenues are accumulated in both funds and they total 4.5 trillion. I should say that the government's Reserve Fund consisted of about seven trillion roubles at its peak. It has become smaller but it is still in good shape in relation to the GDP. It is doing very well! Let me repeat that these incomes and funds are growing. We will have a budget surplus for the first time in two years. We won't have a deficit – our incomes will exceed our expenditures by 0.8% of the GDP. I have just spoken with the finance minister and he said that... (he does not want to say this on the record but hopes I will mention it) we will probably crawl up to a 1% surplus. We will reach 0.8%-0.9% for sure. Moreover, our national debt is one of the smallest. It is just 10% of our GDP, including 2.5% of foreign debt. This is one of the lowest figures in the world. All these facts speak to the stability of our economy.

In general, Russia's foreign trade has increased by about one third this year. Both exports and imports have grown at about the same pace. Our foreign trade surplus has increased by 30% to reach about $100 billion. Оf course our integration projects have also played a positive role. And speaking of which, when I was talking about our foreign trade volume and our foreign trade surplus of 100 billion (which is not bad at all), it's important to mention things that we should be on guard about, and that we should pay attention to. I am referring, for example, to the outflow of capital, which will amount to some $80 billion this year. What does that mean and what are the reasons behind it? Of course, we should take a look at how to improve the investment climate in the country. That is clear, we are attending to this, we talk about it frequently and are taking the necessary steps in that direction. But it's important to be realistic and to understand what is happening in the world economy: liquidity in the leading world economies is shrinking and money is being brought back from developing countries. That is the first reason.

There is a second reason as well. Considering the turbulence in the world economies, our major companies, especially those that generate oil revenue, are looking to place their free resources where they will feel they are safe, and they are looking for havens. In general there is nothing extraordinary about that, and much of that money comes back, becomes repatriated into our economy during the year. I think that will happen next year as well.

I am glad to note, and we would like the government members, the expert community and the general public to pay attention to the fact that the non-oil and gas budget deficit has gone down, which is a positive factor in the development of our economy. It shows that our efforts that are aimed at diversifying the economy have been fruitful. The oil and gas deficit will be about 9.8% of the GDP, which is almost two percentage points lower than the forecast made early this year. In 2010 the oil and gas deficit was 12.6%.

Total trade within the Customs Union increased by 38% to $48.5 billion in January-October 2011. The integration processes we have initiated are also yielding results: trade between our countries is growing, and growing significantly, not least thanks to the mechanisms that were introduced with the creation of the Customs Union. The completion of the legal treaty framework for the Common Economic Space was undoubtedly a major breakthrough. In just a few days’ time – on January 1, 2012 – that association will go into operation. More than 90 functions in the sphere of macroeconomics, natural monopolies, competition, industrial subsidies, railway transport, agriculture and government procurement will transfer to the supranational level. At the same time we are seeing in other European countries and elsewhere that there are still many, many risks in the global economy, so we must continue pursuing a highly responsible and careful policy. One clear achievement that I feel compelled to note is the stability of our national finances, as I have mentioned. I should remind you that in designing the 2011 budget, we assumed that the budget deficit would be 3.6% of the GDP. As I said, we subsequently cut this figure to 1.5% of the GDP. We can now safely say that we will have a surplus for the first time, the size of which I have already mentioned.

The lowest inflation rate in the entire history of modern Russia represented another milestone of 2011. We have been steadfast in our efforts towards that goal for many years. While in 2009 and 2010 we managed to cut inflation to single digits, in 2011 it is expected to be a little over 6%, an all-time low.

To lower inflationary expectations next year, we have made a landmark decision to limit the growth of tariffs for the services of natural monopolies to the yearly inflation rate. In addition, we have postponed indexation for the second half of 2012 in order to avoid stimulating inflationary processes from the early days of next year.

This means there is no objective justification for jacking up housing and utilities rates, and I urge the heads of the Russian regions, the governors, as well as the federal agencies, to closely monitor the situation in that sphere, to work with the managing companies, with the utilities offices and companies, preventing any attempts by dishonest schemers to turn a profit at the expense of the people. And I have to remind you once again that the heads of Russian regions are personally responsible for everything related to housing and utility tariffs.

In general I would like to stress the importance of the joint work of the federal and regional executive bodies. Above all, this applies to our major social projects. They include healthcare modernisation in the regions, support for Russian schools and addressing the acute problem of waiting lists for kindergartens. The measures taken, along with significant budget allocations, should produce a considerable effect in the coming year, and most importantly, the people should feel it.

The salaries of interior troops, of the officers of interior affairs agencies will be raised by 2.5-3 times on average. For servicemen and other military agencies, their salaries will be increased starting January 1, 2013. Moreover, all military pensions, regardless of affiliation, will be increased as of January 1, 2012 by an average of 1.6 times, and many pensioners have already received their increased January pension.

I would like the relevant agencies to mark the fact that we need to take a close look at the difference that these massive programmes have made for every concrete individual, whether everything has been taken care of, how military pensions and salaries have been revised. I have just met with my colleagues from the Russian Popular Front and these issues were raised, especially with regard to pensioners. We should take a close look at how these pensions have been revised. We should hold special meetings soon with military pensioner and veterans' organisations, in order to discuss all these things with the people who actually receive this money.

Further. Next year’s federal budget allocates funds for indexing labour pensions, which will be raised twice, on February 1 and again on April 1 of next year for a total increase of 9.6%. In addition, the social pension will be increased by 14.1% starting April 1. As a result, the average labour pension next year will be 9,300 roubles, and the average social pension, 5,700 roubles.

In order to tackle ambitious social tasks we must strengthen the foundation of our economic growth, and above all we must take drastic steps in order to improve the business climate. This year we switched the federal agencies over to electronic delivery of social services, and extended the list of entrepreneurial activities that require only notification, and not permits, and we have made important decisions that simplify connection to the power grids. This approach to encouraging entrepreneurial activities will be maintained. We will work in close contact with the business community. Our goal is to create a fully competitive situation in Russia, a situation that would be among the best in the world. I think this task is vital, and completely realistic.

The implementation of large-scale long-term development programmes remains a high priority. I am referring above all to the modernisation of  the infrastructure, the development of social amenities in our villages and cities, everything that has to do with creating comfortable conditions for the quality of life of our citizens. Speaking of which, I should remind you of our decision to set up road funds and of the need to use these funds to solve the problem with roads within communities, cities, villages and in rural areas. Special attention should be focused on the regional level. Russian federalism and the potential of local self-government should be strengthened. Obviously, there should be more resources and more responsibility at the local level. The subject arose for detailed discussion at a meeting of the State Council yesterday and the Government must of course continue this work with its counterparts in the regions and monitor the decisions that are being made there very thoroughly.

I would like to stress once again that if we work together as a team, we will be able to resolve the most ambitious tasks involved in the steady improvement of the quality of life in this country. Communication with the people is particularly important, and we should listen to people and prioritise their interests. Let me remind you that there have been very useful meetings this year with doctors, teachers, educated residents of rural areas, entrepreneurs and the main non-governmental organisations. Many of the ideas that were voiced during these meetings have already formed the basis of government decisions and amendments to legislation. I think this kind of constructive dialogue must continue.

In conclusion I would like to thank all those present for their joint work, to express my appreciation for the cooperation of the deputies of the previous Duma and of this one (I hope that we will form correspondingly good relations with the current Duma), to the members of the Federation Council, and our colleagues from the regions. Incidentally, we expect to have a surplus in the consolidated budget of all the regions of the Russian Federation this year as well. The budget potential of the Russian regions is growing.

We all want Russia to be a strong and stable state with a powerful economy, a dynamically growing social sphere -- a country that is comfortable to live in and is securely protected. The main thing for all of us is to stay the course of steady and dedicated development, social and civil and ethnic harmony. In doing so, I am convinced that Russia will be able to face even the biggest challenges.

I would like to wish all of you success and prosperity, and a happy New Year.

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