28 june 2012

Prime Minister Dmitry Medvedev chairs a government meeting

“We will honour all our social commitments despite the difficult global economic situation.”


Dmitry Medvedev: Good afternoon again, colleagues.

It is clear that our immediate task is to work on the budget. The president delivered the 2013-2015 Budget Address today; everyone here was present when he gave it. It sets out the strategy for drafting the federal budget for the next three years. Of course, it is very important for the country and also the government to ensure economic stability and to balance the budget in order to achieve the country's main development goals. We have already discussed approaches to drafting the budget, including the elaboration of the budgetary rule. The ministries and agencies have come to an agreement following consultations, which was reflected in the Budget Address.

I would also like to stress that we will honour all our social commitments despite the difficult global economic situation. We plan to discuss the basic elements of the federal budget at the next government meeting.

Today we need to discuss part of the package of anti-crisis measures which could be implemented in the event of a (negative) change in the global economic situation. Everyone here knows – all of us are intelligent people who listen to news reports – that there is a very high level of uncertainty in the leading markets, not only in the eurozone, but also in the United States and the Asia-Pacific region. But assessments of the macroeconomic situation differ. Russia is actively contributing to the common programmes aimed at preventing a global recession. We are ready to invest considerable funds in ensuring the activities of the International Monetary Fund and will soon make a decision on the structure of our budget expenditures for 2013-2015.

We have greatly benefited from the experience of working in crisis conditions in 2008. However, crises never repeat themselves. We have started preparing for possible changes in external conditions and have held a number of meetings on this issue. We need tools for responding to current challenges, at least for the challenges that exist today. The government must be able to use such tools at short notice. That is why today we will discuss the issue of amending the Budget Code and the Law on the State Budget for 2012. These amendments will be instrumental in resolving a number of issues, in particular, to create a reserve fund for taking measures to stimulate economic development where necessary, to support people's incomes and internal demand, and ultimately maintain the stability of our financial system.

Another important issue concerns measures to support people and boost employment. This issue is clearly not only important from an economic standpoint, but is also connected with financial uncertainty. In any case, a stable career, career prospects and the possibility of professional growth and fulfilment have a significant impact on people's social and psychological wellbeing, which is of priority importance for the government.

Over the past three years, over 187 billion roubles have been allocated from the federal budget to stimulate employment, thanks to which nearly 37 million people received professional training and did community work, and many started their own business, which is especially pleasing, given the global crisis and the post-crisis period. Lastly, some people moved to other regions, where their skills were more in demand in the labour market. Over 5 million people took part in regional programmes to ease tensions on the labour market. Over 4 million permanent and temporary jobs were created, including 600,000 in small businesses, which again is very satisfying. I would like to remind you that more than 87 billion roubles of federal budget subsidies went into the regional programmes, which, I am sure, helped us along. I have talked about this many times with the people who participated in these programmes and with regional leaders.

Employment has surged back to the pre-crisis level. Overall, the situation on the market has stabilised. The number of registered unemployed is about 1.2 million, which is slightly more than 1.5% of the economically active population, and the total number of jobless people is 4.4 million, or 5.8% of population if calculated according to the ILO principles. This is a very positive figure for a major world economy. For example, the figure is 8.2%, or 3% higher, in the United States and in Europe it is 5.5% to 10% and even higher in some countries.

On the other hand, finding employment remains a major problem in some regions, in particular in the North Caucasus republics and single-industry cities, where the unemployment level is much higher than the average level in Russia. Unemployment often becomes a chronic condition, so that finding a job takes a minimum of more than a year. We are working to remedy that situation, but it takes longer than we would like. It is obvious that the situation can be improved radically only within the framework of the general economic growth in these Caucasus republics, the solving of socioeconomic issues and the implementation of development programmes in single-industry cities. We have development programmes for each such case. We should continue implementing measures to support employment and stimulate the creation of new jobs in small and medium-sized businesses. We should also plan onsite training for graduates and professional certification for those who have learned a profession on their own. Programme financing should be provided without delay and in accordance with an approved schedule, especially since the issue concerns people’s future prospects.

In particular, I would like to mention the measures that have been taken to assist in providing jobs for people with disabilities. In recent years, we have worked consistently to establish accessible environment and equal opportunities for their professional self-actualization. This programme is in the focus of our attention. Among the officially registered unemployed, one in five is a physically challenged person. This year, with assistance from the government, some 25,000 people with disabilities, or one third of those who applied to the corresponding agencies, found jobs. This is a decent figure. The regions where these activities are carried out most efficiently are the Arkhangelsk, Nizhny Novgorod, Tambov, Lipetsk, Voronezh and Rostov regions, as well as Udmurtia and the Chuvash Republics and the Khabarovsk Territory. According to various estimations, in these regions up to 60% of people with disabilities find jobs, which is excellent. We should continue the programmes for equipping special work places for such people and creating special conditions for their professional training. This year, the government continues to assist in providing employment opportunities to parents of children with disabilities and families with many children. As many as 7,000 such parents have found employment this year. Some 200 million roubles was allocated from the federal budget for this purpose. The aim of the regional authorities is to use this financing in the most efficient way possible.

Finally, one more task that requires a prompt solution is establishing a forecasting system for the labour force balance at both the federal and regional levels. This balance will allow for assessing the economic demand for the labour force and improving the employment of specialists by institutions of professional education. In addition, this will help solve issues related to labour migration.

These are major issues concerning population employment support. Now, let's get down to work. The first issue on the agenda is the draft federal law On Introducing Amendments to the Budget Code and Certain Legislative Acts Concerning the Use of Oil and Gas Revenues of the Federal Budget. I would like to give the floor to Anton Siluanov.

Anton Siluanov: Mr Medvedev, colleagues, in his Budget Address, President Vladimir Putin emphasised the necessity to adopt the budget regulations in order to protect the budget from external shocks, and to provide an increase in macroeconomic stability and the country’s investment attractiveness. The draft law On Introducing Amendments to the Budget Code and Certain Legislative Acts Concerning the Use of Oil and Gas Revenues of the Federal Budget has been introduced for your consideration. The grounds for establishing special rules are the federal budget’s high dependency on the volume and cost of hydrocarbon exports. It is no secret that two thirds of Russia’s exports and about a half of revenue inflows into the federal budget come from these revenues and this export item. The revenues from hydrocarbons exports are always hard to forecast due to price fluctuations.

The draft law proposes establishing new regulations starting from January 1, 2013 for using oil and gas revenues, as well as forming and using finances of the Reserve Fund and the National Welfare Fund. These rules are based on the oil benchmark price, which is used to determine the maximum expenditures of the federal budget, calculated as an estimated value of the federal budget revenues with the benchmark price, increased by one percent of the Gross Domestic Product. The mechanism for determining the benchmark price is as follows. The average annual oil price per barrel in the equivalent amount in US dollars for ten years is proposed as the basis. We are proposing to use this ten-year period gradually, starting with the five-year level, with each year added annually to this estimated value. This mechanism of defining the benchmark price would avoid any subjectivism and allow for stability with respect to short-term oil price fluctuations.

Additional conditions: if the average price of oil over the past three years is lower than the benchmark price, the benchmark price will be adjusted to the three-year average price. This will make calculating the benchmark price more precise, as well as the federal budget’s revenues.

The mechanism of using oil and gas revenues is as follows: if the oil price is higher than the benchmark price, additional revenues go for refilling the Reserve Fund, or for substituting the funding sources to cover the federal budget deficit, by decision of the government. If the projected price of oil is lower than the benchmark price, Reserve Fund resources will be allocated to cover the budget deficit to the extent necessary to offset the oil and gas revenue shortage. The proposed budget policy is counter-cyclical, as you can see.

When the Reserve Fund funds reach the normative value, which is set at 7% of GDP, additional oil and gas revenues can be channelled to the National Welfare Fund and used to finance infrastructure and other priority projects. The sum must not exceed 50% of additional oil and gas revenues. This is a fundamentally important decision. After the Reserve Fund is replenished, and there’s enough funds for the fulfilment of mid-term spending commitments, oil and gas revenues can be used for priority infrastructure projects.  

What are the limitations in federal budget spending? The total amount of federal budgetary spending for the next fiscal year and the planning period cannot exceed federal budget revenues (without account of additional oil and gas revenues) and the estimated budget deficit, which should not exceed 1% of GDP, as mentioned before. If the benchmark price for the next fiscal year is lower than the price used when calculating federal budgetary expenditures, the approved level of federal budgetary expenditures for three years is not reduced. Then the federal budget planned expenditures for the first and second year of the planning period are not used in full. The norm is recorded in the Budget Code and related rules. As we apply rules starting from 2013, and since we have approved the budget for 2012-2014, the amount of expenditures for 2013-2014 are adjusted only as regards the provisionally apportioned spending that are not distributed to specific spending commitments.    

Financial provision of expenses exceeding the overall spending level approved for the corresponding fiscal year is made at the expense of additional oil and gas revenues that are to be transferred to the Reserve Fund, or at the expense of the Reserve Fund.

The draft law introduces other amendments into budget legislation that must be adopted in line with the adoption of the new budget rule. The introduction of new budget rules, as already mentioned, will increase macroeconomic stability, predictability, and will make the Russian economy more attractive for investment.

We ask our colleagues in the State Duma to consider the draft law in the first reading by the end of the spring session, and in second and third readings by September 20, for us to be able to adopt it, and forward the bill on the 2013-2015 federal budget with due account of the rules we are to consider today. Thank your for your attention. I request your support for the draft law.

Dmitry Medvedev: Thank you, Mr Siluanov. Please, sit down.

Colleagues, if you have any comments… However, we have already discussed the budget rule during our meeting with the president. You, please…

Andrei Belousov (Minister of Economic Development): I have a brief comment to make, if I may. We have endorsed the proposed draft law with a small and seemingly technical reservation. In fact, oil – no matter how important for the budget – is nothing more than an ordinary dollar-priced stock-market commodity. Thus, it is susceptible to global inflation. Today, the oil price is higher than yesterday not merely as a result of supply-and-demand vacillations, but also because it is susceptible to the inflation trend. If we fail to consider this circumstance, a sufficiently large system error could build up over a 10-year period. Translated into roubles, this would add up to tens of billions of roubles. They could lean to either side and give us either unjustified additional revenues, or detract from required spending on wages, investments, defence, and so on.

We have drawn up the relevant amendment. This can be calculated easily. The financial world has amassed great experience in this regard. Considering these things is a generally accepted practice... We have drawn up a brief amendment that reads as follows. While calculating the basic oil price, the oil price figure for the calculation periods envisaged by paragraphs 2 and 4 of the present item will be subject to indexation by a ratio determined according to the procedure established by the government while bearing in mind global inflation indices. It has been suggested that the government should decide on the methodology for factoring in the amendment. We should accept it once and for all to rule out any subjectivism, to quote Mr Siluanov. We should then let it operate as an integral part of the law.

We certainly don’t plan to slow down the law's passage. I completely agree with Mr Siluanov that it should be approved during the spring session. However, this amendment should be considered, as the government’s amendments are being prepared for the second reading, with appropriate instruction for my ministry and the Ministry of Finance recorded in the minutes. Thank you.

Dmitry Medvedev: Thank you. What is the Ministry of Finance’s opinion? Please, Mr Siluanov.

Anton Siluanov: Thank you, Mr Medvedev. Actually the amendment is not totally technical. If we approve it, then the benchmark oil price, on which we’ll base our estimates in 2013, will be increased from $92 to $99 per barrel. This is the first consideration.

Also, if we approve the amendment, the expenses calculated using the so-called new budget rule will be lower that the expenses set by the budget law for 2013 minus the provisionally distributed expenses. This means that the amendment does not influence the expenses situation in 2013. That’s why we think that we need to preserve the principles of the previously discussed budget rule. Thank you.

Dmitry Medvedev: Mr Dvorkovich? (addressing Deputy Prime Minister Arkady Dvorkovich).

Arkady Dvorkovich: Thank you. Mr Siluanov is right about the influence on the budget for 2013.

Nevertheless, basic rules of economics and mathematics dictate that we should make adjustments for inflation. I believe that this amendment is absolutely appropriate and it can be included in the second reading. This is simply the right thing to do in terms of mathematics, let alone…

Dmitry Medvedev: What’s more important: the laws of economics or the laws of mathematics?

Arkady Dvorkovich: The thing is, I am a trained mathematician economist, and they are both perfectly blended in my head.

Dmitry Medvedev: But that's only you.

Arkady Dvorkovich: Yes, but I believe that the government should follow certain reasonable rules, and this particular rule is precisely reasonable, since we cannot ignore inflation.  We adjust salaries, pensions and many other things for inflation. Ignoring this important parameter in defining basic income-related hypotheses defies logic. I believe that the amendment should be included in the second reading. Thank you.

Dmitry Medvedev: I see. Are there any other comments? Mr Shuvalov, please go ahead.

Igor Shuvalov: Mr Medvedev, I believe we have discussed this issue with you and have made a clear decision regarding it. Most of the participants in the meeting supported the position of the Ministry of Economic Development, which held that inflation should be taken into account. I support what Mr Belousov said and I also believe that this is consistent with economic laws.

Dmitry Medvedev: The fact that we are discussing this in public in the presence of so many people indicates that we have not reached a final decision. I have a proposal regarding this. We should go ahead and submit the draft law, but we should come back to this issue within the next few days and discuss whether or not we are going to adjust for inflation. I mentioned earlier today that the budget rule proposed today is the result of joint work and shared approaches. I would like us to keep these shared approaches intact, because we have already sent them to the President’s desk and have, in fact, used them on many occasions already. One thing is clear, though: failure to take inflation into account will make our budget rule much tougher. That’s it. It doesn’t mean that the rule will become worse because of it. These are just different approaches to making this budget rule work. Colleagues, let’s review it later and decide on submitting a corresponding draft law. Any objections?

Vladislav Surkov: I have a short remark.

Dmitry Medvedev: Please go ahead. 

Vladislav Surkov: I would like to emphasise that the issue was submitted in full compliance with the procedure.

Dmitry Medvedev: That's right. Otherwise we’d have to remove it from the agenda. Things are perfectly in order with regard to the procedure. Agreed.

Let’s move on. Mr Topilin will report on measures to promote employment in Russia.

Maxim Topilin: Mr Medvedev, members of the government, the labour market figures that we see in the official statistics appear to be fairly optimistic. This is the result of the measures undertaken by the government on the labour market over the past few years, including measures to overcome the employment crisis. The current figures are in line with the figures that were available in 2008, i.e., before the crisis. Unemployment figures, both registered and general, are even better today than they were in 2008, with registered unemployment at 1.5% or about 1.2 million people. The number of job openings has grown sharply over the past year.

Dmitry Medvedev: I have 1.6% here. Is the number better now?

Maxim Topilin: Yes, it’s 1.6%.

Dmitry Medvedev: I see.

Maxim Topilin: The ratio that we currently have with established labor market constraints   stands at 0.8 units. This means that the number of registered unemployed workers is below the number of available job openings. During the crisis, this figure was over 3. The number of job openings available at employment services is over 1.7 million. The labour market conditions vary across Russia depending on the economic situation. There are regions with traditionally lower unemployment rates than the average for Russia, such as St Petersburg, the Leningrad Region, Moscow, the Tyumen Region, the Moscow Region, the Lipetsk Region and some other regions with unemployment levels below 1%. However, some regions – primarily Northern Caucasus regions, the Republic of Tyva, the Republic of Kalmykia – have higher unemployment than the average in the Russian Federation. The highest official unemployment rate, 31.9%, is in the Chechen Republic. But if we compare these figures against the past three-year period in the Chechen Republic, we will see that this republic has had the largest reduction in unemployment, both the officially registered and calculated using the International Labour Organisation methodology. Both show that in the past three years these indicators have been cut in half.

Regarding the measures traditionally implemented this year on the labour market, we are now seeing a reduction in the number of people applying for benefits at the employment services – this is a general trend, confirming that unemployment is falling. Between January and March 2011, 4.3 million people applied for employment benefits; and between January and March 2012 this number fell to 3.5 million people. In 2012, employment assistance  increased by 1.7 percentage points against the same period of 2011. Given this year’s dynamics, since the beginning of the year the official number of unemployed decreased by 62,900 people, or by 4.9%.

The measures traditionally implemented by the employment services to help the unemployed include professional training and retraining of the unemployed, facilitating self-employment, conducting public works, temporary employment of young people (aged between 14 and 18), assisting unemployed people who have just graduated from various schools and colleges and have difficulty finding jobs. These are traditional measures and they show a stable trend. This year between January and May, 117,000 people were engaged in professional training, and 150,000 people were employed in public works. This equals the level of last year’s indicators, and here we see rather normal and calm situation.

As for current spending, starting this year, after transferring powers on active employment programmes to Russian regions, between January and May this year the regions spent 17.8% of the funds allocated for the regions, while they spent 33.5% of funds on unemployment benefits. There is a gap in funding active employment programmes, but this will be overcome this summer.

As Mr Medvedev said, this year we continue to fund and implement additional measures to reduce tension on the labour market in Russian regions. The key measures that we continue to finance from the federal budget (this year the federal budget will allocate 1.5 billion roubles to this end) is primarily the assistance to employment programmes for people with disabilities. We ratified the UN Convention on the Rights of Persons with Disabilities in May, and we had been developing these programmes while preparing to the ratification of the convention. Their features (which differ from the programmes that had been carried out earlier in the Russian Federation) include subsidies for creating jobs for people with disabilities on the open labour market. In years past, civil organisations of people with disabilities had received some support. These programmes continue, but under the convention, the essential task is to create jobs on the open market, on the free market, at businesses that are not adapted to employ people with disabilities, on the contrary, at ordinary businesses that mostly employ people without disabilities. This year’s allocations to this end amount to 385 million roubles – this is not an enormous sum, but it will make it possible to work with individual regions on creating and subsidising such jobs.     

I would like to note that in accordance with the presidential order our goal is to create 14,200 such new jobs annually in 2013, 2014 and 2015. We have made the relevant calculations with the Finance Ministry, and this year we must… We have 7,700 people here and we suggest extending these measures next year, because there are effective and are well-received by associations of people with disabilities. According to our calculations, the spending will total 873 million roubles next year, which will be used to achieve the figure set forth in the presidential order. Subsidies vary from 30,000 roubles to 400,000 roubles with an average of 50,000 roubles. It depends on the job in question and expenses are different in each case. However, increased spending will help us place more people with disabilities.  As you may be aware, employment numbers for people with disabilities are twice as bad as employment numbers for people without disabilities. We believe that we should drastically improve the situation.

With regard to the second area of work related to additional measures that we propose continuing next year – I am referring to supporting 15 regions with a lot of tension in their labour markets, including republics of the North Caucasus, Adygea, Altai, Buryatia, Mari El, Tyva, the Altai Territory, the Trans-Baikal Territory and the Kurgan Region where the job situation is twice as bad as the average in Russia. The measures are underway and 20,800 people should participate in them in 2012. Primarily, these measures seek to keep graduates on the job and help them get on-the-job training with employers in their respective regions, since college graduates are faced with serious employment difficulties. This also includes validation of employees’ professional skills. Workers in regions with tense labour markets often can’t validate their skills, and these measures help them obtain requisite diplomas and certificates from educational institutions in order to be able to get a job.

Next comes another area that was also mentioned by Prime Minister Medvedev. I am referring to supporting small businesses. We are no longer issuing loans to finance small business startups, but we provide subsidies to existing small businesses if they hire unemployed people thus contributing to a multiplication of the job creation effort. We believe that these measures will help us cut unemployment in Russia by 6%.

Once the government approves our work in these areas, we will start working with the Finance Ministry to include such additional calculations in the budget for 2013-2015. Thank you.

Dmitry Medvedev: Thank you very much. Please take your seat, Mr Topilin.

Colleagues, do you have any questions for the minister or comments with regard to the government’s protocol decision? Mr Dvorkovich, please go ahead.

Arkady Dvorkovich: From my experience working together with the minister in the Presidential Council on People with Disabilities, I would suggest adding joint work with the Russian organisations for people with disabilities to all provisions that deal with drafting various proposals regarding people with disabilities. Thank you.

Dmitry Medvedev: Any other comments? No? I support what Mr Dvorkovich just said, because we have made such cooperation much more productive recently. Agreed? Good, then the decision is adopted.  

I would like to thank the media for their attention. Let’s keep working.