Transcript of the beginning of the meeting: 

Vladimir Putin: Good afternoon, colleagues.

Today, as agreed with Mr Zyuganov, we are having an extended meeting. At the outset, I would like to say that along with other parliamentary parties, the Communist Party of the Russian Federation (KPRF) is one of the oldest parties in the State Duma. It has worked from the first to fifth Duma and has established many traditions that are central to the work of the Russian Parliament. I hope this time, too, we will be able to exchange opinions on a wide range of issues, in a frank and businesslike way.

To begin with, I would like to thank the party and its parliamentary group for the fact that despite different and occasionally diametrically opposite approaches to the development of Russia and solution of some of its problems, we still find an understanding on matters that are vital for the development and the very existence of Russia as a state. The recent crisis in the Caucasus is a case in point. I wish to thank you for the support you rendered to the President, the Government and the state as a whole on their actions in the crisis. Today, two months later, we still agree on the way we assess the ongoing developments and will, I expect, continue to uphold Russia's interests together.

The KPRF parliamentary group pays a great deal of attention to the real sector of the economy and supports Russian producers, although our views, as I said, do not always coincide on all questions. Still, you know the statistics: the Russian economy has been growing over the past 10 years at an annual rate of 8% to 10%. The main contributor to production growth in the last few years has been the manufacturing industry, not the mining industry. If you look at a diagram of growth, you will agree with me.

In January-August 2008, industrial production rose by 5.3%, while that of manufacturing increased by 7.6%. What is most gratifying is that we have seen massive investments in the manufacturing sector. In 2007, their volume for the first time surpassed one trillion roubles. Labour productivity, too, is showing a growth trend, rising by 5% to 7% a year, which is very important. Unfortunately, its growth rate still lags behind the real incomes of the population, and many of those present here will agree with me, despite our differences on a number of other issues.

The Government of Russia considers it its duty to promote the real sector of the economy through a variety of measures, including better customs regulation, tariffs and taxes. As part of the education national priority project, we are implementing measures to train the workforce at primary and secondary professional schools, although there are still many problems in this area, especially with the training of blue-collar workers.

The Government has recently examined a concept for the long-term social and economic development of Russia, which puts emphasis on key industries, such as aviation, shipbuilding, space rockets, nuclear energy, electronics, and heavy engineering. And the Government is not only concerned with long-term plans: You may have noticed that recently, over the past two or three years, we have also been concentrating administrative and financial resources there.

Despite signs of a global financial crisis, we are not going to abandon our policy of developing the real sector of production and making it more competitive. On the contrary, this task has acquired increased urgency. We will draw a clear line between anti-crisis measures and strategic issues. The operative word today is reform, or rather institutional reform, which will give a new dimension to our industry and thus stabilise the economy as a whole. The task facing us in the next couple of years is to overhaul the legislative groundwork in industry and adopt up-to-date technical regulations.

Yury Maslyukov, of the KPRF, heads the State Duma's Committee on Industry, and we look forward to productive cooperation with him on draft laws dealing with technical regulation. Mr Maslyukov knows how difficult the job is. Even if our decisions are sound, it is extremely hard to put them into practice. Incidentally, the Government has already approved the first such bill, regulating safety requirements for low-voltage equipment, and will soon submit it to the State Duma.

Another area of work is concerned with care for the older generation, or war veterans and pensioners. We have spent months, and, to be honest, even years, discussing a model of the pension scheme. The decisions we are going to make are hard ones, requiring considerable budget resources. They must have an effect in the shorter, medium and longer terms and even over a greater perspective, until 2050, to make the reform stand its ground and retain its integrity. We also need to solve the problem of re-calculating the Soviet-era work record of pensioners on a fairer basis in order to give them higher pensions, because most of them are unable to fend for themselves now. The proposal to index pensioner's rights acquired before 2002 by 10%, plus 1% for each year of the so-called Soviet-era work record appears to be optimal, and I ask you to support it.

I know that for the KPRF one of its main concerns is to keep alive the memory of the war, to support war veterans, and educate the youth in a military and patriotic spirit. I would therefore like to discuss with you the 65th anniversary of victory in the Great Patriotic War, which we are going to mark in 2010. By that date we plan to provide all war veterans with housing and special vehicles. The necessary decisions, as you know, have already been made, including by the President of the Russian Federation. Budget financing has been provided. I want the State Duma to come up with proposals of its own on how to address veterans' needs and how to show more daily care for war participants and pensioners.

In conclusion, a few words about the budget discussion. The second reading of the federal budget is set for October 17. Your parliamentary party refused to support it in its first reading. Still I would like to hear your proposals for the second reading. It is, of course, desirable that they are constructive and take the state's capabilities into account without spurring on the inflation, which I am sure we will still discuss in the course of our meeting. These things are inter-connected. All of us understand this.

The Government has announced new initiatives for 2009. Apart from expenses to stabilise the situation on the financial markets, it has also allocated an extra 80 billion roubles for troop rearmament and billeting. I do not believe the KPRF will refuse to support this initiative.

That is all I wanted to say at the beginning. Mr Zyuganov, the floor is yours.

Gennady Zyuganov: On behalf of our parliamentary party, I would like to thank you, Mr Putin, for this meeting. For many years we have regularly met with you as the country's leader, but this is the first time that we are meeting with you in your new capacity. We believe the time for such a meeting is most opportune. It is a critical and challenging period we are living through, and we would like our conversation to be frank and open, especially since our parliamentary party is known for high professional standards.

As we prepared for Duma and presidential elections, we drew up a programme called "Twenty Steps Towards a Decent Life". It is meant for every person and not only for the oligarchs and we had it published with a print-run of almost 200 million copies. We distributed it to all regions and all politically aware citizens, and secured a solid following both in local and Duma elections. Now we are continuing implementing it within the State Duma.

We have prepared 11 branch-specific programmes, and all of them have been passed to your ministries and departments. But, unfortunately, many of our meaningful proposals have been ignored in current practice.

I would like to call your attention to the fact that our parliamentary party has such deputies as Zhores Alferov, a Nobel prize-winning scientist, Ivan Melnikov, one of the leading experts in education, Oleg Smolin, the author of basic laws on education, and Tamara Pletneva and Nina Ostanina, people who have a professional knowledge of childhood and school issues. They have drafted an excellent programme in support of science and education, and for fighting homelessness among children. But unfortunately, Andrei Fursenko and his team have turned a blind eye to the programme and are not implementing it as it should be.

At a meeting in Belgorod you did a fine job of raising this subject and giving the necessary instructions. But I must tell you the Ministry remains unenthusiastic about it.

You must remember how Yevgeny Primakov and Yury Maslyukov pulled the country out of an extremely grave situation after the default of 1998. Our gold and hard currency reserves then stood at $6-7 billion, and oil cost $12-15 per barrel. Yet, in just eight months they managed to boost the growth of industry by 24%. We have a large team of specialists - Yury Maslyukov, Sergei Muravlenko, the Romanovs, Sergei Sobko, Svetlana Savitskaya and Vladimir Komoyedov - who have comprehensive knowledge of day-to-day production and industrial safety, and uphold these issues in the State Duma.

It seems to me it would be useful to instruct the ministries and departments to take a closer look at a number of proposals, including during the second reading of the budget.

You are well aware of the situation in the farming sector. Vasily Starodubtsev, one of the most experienced experts on agriculture in the country, Vladimir Kashin and Nikolai Kharitonov drafted a law on the protection and support of agriculture. Unfortunately, the draft was heavily edited, and was passed only in part. And now we are having big problems in this area.

Sergei Reshulsky, Anatoly Lokot, Nikolai Kolomeitsev, and Sergei Levchenko are experts on local government and have advanced a raft of proposals to that effect. But a clear and precise understanding is lacking here, too.

Viktor Ilyukhin drafted an anti-corruption law as long as six years ago. He prepared it together with other experts, drawing on international experience and practice. Nevertheless, it is only now that it has become possible to incorporate some of its articles in the proposals from President Dmitry Medvedev when they come up for a regular review.

Yuly Kvitsinsky is an experienced diplomat and heads the Presidential Commission on International Relations. Together we developed both a general policy for the Caucasus and guidelines for relationships with close neigbours, and are confidently upholding it. I can say with confidence that our parliamentary group and our party have always supported everything connected with national and state interests and the strengthening of our security. In this respect, you can rely on our coordinated policy line. We recently put it into practice at the Parliamentary Assembly of the Council of Europe, where 130 parliamentarians from 45 countries, each down for a speech, tried to lecture and educate us. And still we managed to prove that our position was right and well-balanced. Any attempts to unseat us, or at least to restrict our presence in the PACE, failed completely.

Next to you sits our deputy Oleg Denisenko, a colonel from Alfa, who took part in the Beslan operation, and accompanied you on one of your first difficult trips to Chechnya. He has some good proposals to make on how to improve his work. It seems to me that you as a specialist could profit from listening to him.

We also have a large group of young deputies - Yury Afonin, Dmitry Novikov, Andrei Andreyev, Vadim Solovyov, and Alexei Korniyenko - who know youth problems well. Currently, we are preparing to mark the 90th anniversary of the Leninist Komsomol (Young Communist League). I want to thank you for permission to commemorate this great event in the Kremlin Palace of Congresses. Almost 40 million citizens of our country passed through the Komsomol. Delegations from all former Soviet republics without exception have agreed to attend, as well as many representatives from the planet's largest youth organisations.

Now that the Government and the country's leadership have set the task of working out a strategy for the country's development in the next 20 years, it seems to me very important to take an honest view of the situation and work out basic criteria. Our point of view is that the monetary course has failed. Recently, Nicolas Sarkozy, speaking at a meeting of four European leaders, said frankly that those who believe that the market will regulate everything understand nothing in the current economic situation. My personal belief is that it will take the United States a long time to disentangle itself from the noose it stepped into by turning its economy and finances into a global big casino. It has issued $643 trillion worth of financial obligations, financial papers and promissory notes. But neither $700 billion nor $2 trillion will save it. This "patch" will not be enough to stop the landslide beginning there. It is bound to gather momentum. Incidentally, when it is claimed that they do everything right, I think the past three to four decades have shown this not so. America was hit by a fuel and energy crisis, it suffered a moral, political and military defeat in Vietnam, geopolitically it has lost most of Latin America and is elbow-deep in blood in Afghanistan and Iraq. The current financial crash is another telling proof of that.

By the way, Herbert Hoover, who held office just before and during the Great Depression of 1929-1939, greatly resembled President George W. Bush both in his personality and way of thinking. When Franklin Delano Roosevelt was elected President, he sent the best American economists to Russia, who spent weeks assessing the implementation of the First Five-Year Plan. And when they came back, they said the United States could not benefit from the USSR's single-party political system, but that Moscow was effectively tackling numerous economic issues. Roosevelt borrowed welfare programmes for the poor, social regulation and regulation of financial flows from the Soviet experience.

We are charting our strategy against the backdrop of Ukrainian developments. I am aware of your concerns. Not only do we share your concerns, but we are also ready to pool our efforts to the greatest possible extent.

On Thursday, President Viktor Yushchenko dissolved the Ukrainian Parliament. Elections have been scheduled for December 7. As you know, politicians on the left of the political spectrum both in Ukraine and other countries unanimously supported us even on the Caucasian conflict. This is why the issue of Ukrainian elections is acquiring special significance for us. These are landmark elections. And if another Yushchenko-style politician emerges, he would be more dangerous than the supporters of Ukrainian nationalist leader Stepan Bandera and Cossack Hetman Mazepa, taken together.

We must pool our efforts in order to turn Ukraine into a friendly and fraternal state. We will have trouble coping with our problems in the next few years, unless Russia, Ukraine and Belarus with a combined population of 210 million and impressive market and production potential act hand in hand.

Russia's real economy continues to develop despite the construction-industry recession. Fixed assets are over 20 years old and are becoming more obsolete. In all, 700,000 km of Russian pipelines measuring several million km have expended their service life. And 50% of our pipelines have fallen into disrepair.

Demography is the most dangerous aspect. Although your efforts in this field during your presidency have produced certain positive results, I think that the Government must redouble its efforts.

Given the current demographic policy, Russia will have a population of 135 million seven years from now. In two or three years, the birth rate will plunge again after those born in 1991-1995 reach maturity. We sustained double losses in this area on those years. By that time, the United States, the European Union and China will have 315 million, 500 million and 1.4 billion people, respectively.

However, Russia's working age population will match the number of retired people. Consequently, we will have to persuade young families to have three and more children. This means that every father will have to feed eight people, namely, three children, his wife, who will be forced to stay at home to look after the "kindergarten", and four elderly parents. In order to be able to do this, he will need at least 15-17 years of education, be able to operate state-of-the-art equipment, and be in excellent health.

Under the current social system and present-day official policies, 70% of Russian students have to pay for their education. Right now, 90% and 80% of German and French students, respectively, get state grants. The Government of Japan has made an unprecedented decision to guarantee universal free education to the nation throughout the 21st century. Here everything is just the other way around. Although the Soviet Government was able to guarantee top-quality higher education to all young people even after the war, Russia is now implementing a diametrically opposite policy.

Khrushchev-era blocks of flats account for 40% of housing in Russia. The real-estate market situation has not been improving, as the authorities have shifted the burden onto ordinary people. Of 74 million working-age Russians, 55 million earn an average of 5,000-8,000 roubles ($190-304) per month, while paying 2,000-3,000 rouble ($76-114) rent and eking out a miserable existence.

Although the new three-year budget policies have channeled 30% more funding into the social sector, they remain basically the same. The three-year budget does not facilitate expanded production and social-sector development. In effect, it does not invest in individual talents and abilities. It will lead to greater social stratification and official corruption to some extent. In our opinion, the budget-formation principle is wrong. Russia cannot be a modern industrialised country unless it allows national producers, regardless of their forms of property, to get proper funding.

We have repeatedly told Mr Kudrin that our substantial funding must be used to finance production facilities, and that we had every motivations for doing this. But he replied that production facilities would not benefit, and that all allocations would be embezzled by officials.

If the Government does not want to finance production, then it should reduce taxes and allow successful businessmen to implement retooling programmes for further development. Otherwise there will be a gaping hole in the budget. The world has not invented any other methods for tackling production problems.

In our opinion, the monetarist policy of the Finance Ministry and your team, including Alexei Kudrin, Viktor Khristenko, German Gref, Alexei Ulyukayev and many others, is absolutely ineffective. What we need is a new team that would focus on production and investment in human resources, and would deal with the new global realities.

We believe that Mr Kudrin and his team will fail to accomplish this objective. Here are some examples from the draft budget submitted by him to the State Duma.

The budget envisions 7.5-8.5% inflation for 2009. But if we look at the following page, it says that gas tariffs will go up by 25%, electricity by 19-26% (depending on the type), and municipal utilities payments by 22%. Consequently, Russian citizens, our voters, will face 20-25% inflation.

The Russian Federation's three-tier budgetary-planning system implies that Mr Kudrin is proposing a unitarian-state tax system. Only 2.5% of Russian municipalities can pay their own way, while the rest have to beg for funding all the time. However, this absolutely ineffective system will not facilitate healthy regional development.

As far as discipline is concerned, I believe they do not brief you on this issue. I have studied the Audit Chamber's report on implementing the 2007 budget. Mr Kudrin failed to channel 548 billion roubles ($21 billion) into the real economy, social programmes, defence and security. This sum could have facilitated Russia's cost-effective development.

I thought the situation would improve in 2008. But the Audit Chamber's September 1 report shows that the social and municipal utilities sectors and R&D projects have received 45%, 38% and 30% of projected funding, respectively.

The latter is particularly deplorable because Russia lags behind other countries in the R&D field. Allocations for science are scattered in various sections and do not exceed 30%.

The most important programmes, such as support for children, developing Russia's Far East and expanding civil aviation, have been fulfilled by just 5-20%.

In effect, the Government has failed to implement the most expensive programmes and is promising that it will finance them some time in the future.

The Government can use just about any arguments, including the US "financial earthquake" now engulfing the world, in order to explain its stand.

The transport sector faces even more serious problems. I get a feeling that another aviation crisis will begin in November-December 2008. I have just returned from Irkutsk near Lake Baikal in East Siberia. A single air ticket to Moscow costs between 40,000 and 80,000 roubles ($1,520-3,040). The airfare from Vladivostok to San Francisco is cheaper than from Vladivostok to Moscow. I have seen you issue orders and appreciate your concerns. Nevertheless, I get the impression that the officials do not want to work properly.

Russia is unable to develop normally without aviation. We would suffocate and become completely dependent on foreign carriers if European airlines enter our market. The survival of a major nation depends on its transport network.

The 15 national aircraft plants used to manufacture 1,500 planes annually. The Kazan aircraft plant alone made 50 Tupolev Tu-160 Blackjack strategic bombers and Ilyushin Il-62 long-haul airliners. We were proud of that unique plane. But it took three years to assemble the last plane, and we did not pay the workers' wages on time.

Speaking of the automobile industry and other sectors, I want to ask you to study the Belarusian experience. Belarus, which has retained the entire engineering sector, will manufacture 60,000 tractors this year, while Russia will assemble only 15,000 tractors. They will also produce twice as many harvesters as Russia.

Belarus and its German partners have designed a wonderful bus and lots of other technology. Belarusian technology earmarked for Russia costs 1.5-2 times less than that being sold to Europe. Minsk sells 50 modified tractor versions to 72 countries of the world.

Although we may face problems and difficulties, we must exert every effort to expand the national engineering sector, the pillar of normal development.

About the defence. You have set an important goal, I think, of achieving a ratio of 30% to 70% between content and equipment. I've looked into this. Mr Kudrin seems to ignore your instructions - he has set the figures of 45% to 55% for the next three years.

The uranium problem is nothing new. You have raised the concern in the past. You and I also discussed the gunpowder issue last year, which is crucial to missilery and other modern weaponry. We used to have 11 gunpowder plants, but now we have only two and a half. The best plant, in Perm, was taken over by racketeers last year. The instruction you gave to Mr Ivanov and others was never fulfilled. Those who have seized the plant were taken to court, but the director was fired. The director, who is a highly qualified professional and knows the business inside out, was never restored in his position, although the court acquitted him.

The same, I think, is now happening to the cobalt industry, and cobalt is a strategic material. Norilsk Nickel is the only cobalt producer in Russia, I believe. Last year, they sold the whole batch produced to the United States. That very cobalt they sold, which is crucial to making rocket engines and aircraft, was used to fire at us in South Ossetia. The US dealers who bought it refused to sell it back to us, which leaves us with a shortage of an important defence and security component.

We now have a shortage of 1,000 to 1,500 materials required to finish and use the military equipment stipulated in the federal budget, the very equipment you're worried about.

In agriculture, the consequence of this kind of policy will be even more devastating. A mere 1% is allocated for areas which require at least 10%. There's 0.9% for housing and utilities, but in fact, residents themselves are left to shoulder the expenses. About 40% of all housing was built during Khrushchev's time, and people can't afford repairs, not with their meager wages and pensions. And the budget allocates about 3% for all social issues. In addition, Mr Kudrin earmarks 3-4 billion roubles for the Union State, our alliance with fraternal Belarus. It's ridiculous.

Almost 30 million Russians find themselves living "abroad". It means they allocate 7 roubles per person, not enough even to send a greeting card. But we need them, we have to stretch a helping hand to them, and insistently invite them to come and live and work here.

Russia accounts for 2% of the global population and a third of the global mineral resources including many untapped fields in East Siberia and the Far East. We won't be able to extract these riches without their help. The population of Russia's Far East decreased by 2 million over the past 15 years, and in Siberia, by 3 million. We have lost a total of 5 million people, while in the previous 400 years the population of those areas was on a steady increase, even during war time.

I would also like to point out that being patriotic and anti-Soviet is incompatible. I don't see who needs this mess. Just listen to the Chanel One TV programmes, they now even present Alexander Kolchak as a respectable and decent person - the man who had a rule of shooting ten villagers for every one of his officers killed. They seem to have left Denikin alone now, thank God. Denikin, when taking over a village in my native Orel Region, shot all men aged between 18 and 50 to prevent them from joining the Red Army. What do they need this for now? Why fuel the hysteria instead of consolidating society?

Let me provide a reference for the media. In mid-December 1916, Russian Tsar Nicholas II met with leaders of six parliamentary groups who referred to themselves as the Progressive Bloc. There was not a single Bolshevik among them. They told him that the empire was disintegrating, troops were deserting, and industry wasn't working. They suggested forming a more capable Government to avoid a collapse. There is a historic transcript of the meeting available, it's all true. He agreed, but three days later, harassed by his family prodded by Grigory Rasputin, he revoked his consent. Now, when I read Vladimir Lenin's works he wrote abroad in January 1917, there isn't a single hint of a planned revolution there. None of the official newspapers mentioned the threat of a revolution in January 1917 either. The February revolution came as a rebellion of hungry women who couldn't get any bread in St Petersburg. Many know what happened next. So when speculations begin about it, all they do is exacerbate the whole situation.

We have several proposals to make. We believe that of all the recent Governments, only the Yevgeny Primakov-Yury Maslyukov Cabinet pursued a left-of-center policy. That policy was the most effective, most in line with Russian traditions, the industry's needs and people's expectations and hopes. We believe that we can't survive without the development of science and technology and a new industrialisation. In this respect, we are wiling to support you in every way we can.

We believe that national strategy is very important for the development of Russia's natural riches, and we have several good proposals about it. We absolutely agree with your decision to suspend the WTO accession, because they have advanced three unacceptable requirements. America doesn't want us to invest in agriculture and science, Europe demands that we raise fuel prices to the world market level, while larger countries (with larger populations) require us to open our labour market.

If we meet their demands, we'll end up with the euro circulating in the Volga area and the yuan in the Urals. This won't help solve any of our problems, but will cost us our sovereignty in the end.

It is extremely important to bridge the gap between the high and low income levels, which is widening dangerously now. We need to restore the system of government control, including indicative planning. And a crackdown on corruption is a must - we will give every support to the Government's efforts in this respect.

I would like to point out that your team is too small. To run a country, one needs at least 500-600 high-level administrators, and 150,000 middle-level managers.

In certain regions, things largely revolve around one person, or one clan. This isn't effective. We are ready to assist with manning these positions, and we will provide professionals who know the process and are interested in a normal and broad dialogue.

We are taking part in local election campaigns in several regions. I would like to make a personal request to you. We run a newspaper in Kemerovo, where an election campaign is underway, but it is printed in Novosibirsk. The official in charge there has been suing me for six months over a small criticism on my part. He is setting a bad example to other governors, I mean suing people for six months for criticism, especially in a local court. He didn't even have enough common sense to move the proceedings to a neutral ground as I suggested. I am not frightened of a court hearing, I just do not want to see an election campaign turned into a dirty mess.

We were genuinely happy for Chechnya about the restoration of Grozny. Much has been done to that end, and we hope there will be peace and stability, now and forever. But I do not want Chechnya, which is entering an election campaign now, to follow Mordovia's example, where 98% of residents turned out at the polls, all voting for United Russia. We, too, enjoy solid support there, and I hope that you as the United Russia's leader will insist on a fair and honest election there.

There is a major Anti-NATO movement in Russia, and I think it is a concept which could consolidate us all. It is extremely important for us, especially in working with Ukraine and other regions.

I would like to thank you again for this meeting. I appreciate the businesslike atmosphere. I would also like you to accept my warmest birthday greetings and to wish you success in this difficult time, in your highly important work.

Vladimir Putin: Thank you, Mr. Zyuganov, for congratulations and for such an informative speech. I don't even know what to highlight since almost everything you spoke about is relevant and critical.

However, I will start from the very beginning. You said that this is the first time that so many members of the Communist Party have come together for a meeting with me. I am afraid you are mistaken. In 1999, when I was nominated for the high post of Prime Minister, I met with all the members of your parliamentary party. And I should say we had a rather heated discussion. Even at that time, in 1999, I was surprised to find that a part of the Communist Party members voted for me as Prime Minister. I remember this, and I am grateful for it.

I would like to take up now what I regard as the key issue. I am referring to the monetary policy of the Government. This monetary policy was pursued in the early and mid-1990s. I think you will agree with me that we have had no purely monetary policy in recent years. Otherwise, we would not have had any development institutions, Bank for Development, special economic zones, the investment fund and so on. There would have been no sectoral programmes - and I will touch upon it later - the programmes we have developed and allocated tremendous resources for, which has never been done before. This concerns the infrastructure primarily.

You have also mentioned transport. This is a very real problem, which has always existed in Russia - in the Russian Empire, in the Soviet Union, and now. But we have invested trillions of roubles, 13 or 15 trillion roubles, in the development of transport infrastructure. We have never allocated such funds before. It is important that they are spent wisely and efficiently.

Now I would like to say a few words about the global economic situation. You recalled US Presidents Herbert Hoover and Franklin Roosevelt. I suppose you did it deliberately. All those events you spoke about did take place in the world history, in the history of economic development. In my opinion, it has much to do with cyclic development of the world market economy. As soon as the economy starts rising, a free and uncontrolled market emerges. At least, it is promoted and presented as a cure-all, and is believed to be the most effective means of developing and improving people's wellbeing. As soon as there is a downturn in the economy, people begin speaking about the necessity of state regulation. What do we see today? The same things Roosevelt saw before World War II. We are experiencing it today once again.

You made a good point when you said that the faith in the United States as the leader of the free world and market economy has been shaken, as well as the trust in Wall Street as the centre of this world, and it will never be restored. I agree with you here. Things will never be the same again. It is not only my viewpoint. European leaders and experts, central banks' chairs and finance ministers think the same, either stating it openly or dropping hints.

Now I would like to turn to the CIS. You said that we are primarily supported by leftist forces. This is both true and not true simultaneously. Leftist forces have always supported us, it is true. I am grateful to your colleagues in the CIS for following the Government's line in helping develop relations between Russia and our closest neighbours on the firm basis of cooperation and mutual understanding, as well as responsibility for the future generations. Nevertheless, we have actually drummed up a lot more support. If you have a look at the latest surveys - and I studied them yesterday - you will see that only 20% of Ukrainians are in favour of their country joining NATO. This means that 80% of those polled are against it. I think you will agree that not all of them belong to the Communist Party of Ukraine. So, it means that the pro-Russian community is more numerous. And this is really encouraging.

Let me now go on to education and demography. I would include healthcare in this discussion. I would rather not go into details now, perhaps we can do it during the discussion later. Of course, all these matters are very important. We have already brought up these issues many times. I mean the idea I put forward early this year at the expanded meeting of the State Council, in which you also took part. I emphasised that this country needed a completely new foundation for its development until 2020. The mechanisms we used to partially restore the economy and to create a basis for further development are not sufficient. Now we should give innovative momentum to our economy. But we will not reach this goal unless we address education and healthcare problems. An unskilled or unhealthy person will not be able to achieve the objectives we have mapped out.

The same holds true for demography. I would like to reiterate that I was very pleased to learn that the decisions we made were effective. First, we successfully put them into practice, and second, they proved effective. Those were difficult decisions. We could not predict how they will work, whether we would succeed at all, and whether people would put trust in what we did. That is the reality, you know. And it gives me great satisfaction, although I fully agree with you that these measures are not sufficient. We should plan our further steps together.

First of all, I would like to draw your attention to one thing: we should do it very carefully. We cannot take on new commitments all the time without considering the effect they might have on the budget. Those must be rational decisions. We should look a decade ahead, trying to predict what will happen in ten or fifteen years. Of course, it is easy to make popular decisions now to raise support for ourselves. But what will happen later? How will it all function in the budget system? Will the budget be able to keep up with the social commitments the Government may take on today? How will it progress? We should address these matters responsibly. No doubt, it will take time to arrive at a good decision. We need to seek solutions.

Now I would like to cover the sources of financing real economy. I know what Mr Zyuganov and my colleagues who are present here think of the Government's economic policy. I am not going to enumerate our achievements now. I will simply state that they are evident. I will skip this issue because I would not like to boast. The Government has made a great contribution to it. However, there are drawbacks too. But I won't dwell on them either.

Let me focus on the sources of financing real economy. They must be multi-faceted. We should not use budget funds only. Otherwise, it will result in aggravating corruption and non-efficient spending. We need to use budget funds to finance infrastructure, science, education, healthcare and the pension system, and we speak about that openly. These are our so-called federal mandates, our commitments to the nation. These real economy spheres are our priorities, and we really mean that.

I have already mentioned space. Another 58.2 billion roubles have been allocated for this branch, with GLONASS accounting for 31.5 billion roubles. Ms Savitskaya is well aware of the role GLONASS plays in space development. We are to create a cluster of 30 satellites. We have adopted a programme of accelerated development. I would like to draw your attention to it - accelerated development. If we followed the previous plans, we would still have ten satellites only. But we have left the Europeans behind already. I am sure that we will finish our system, a global one, faster than Europeans do.

Civil aviation, which you mentioned, has received 19.4 billion roubles; nuclear engineering and the energy sector - 87.4 billion; precision machinery - 3.7 billion; civil ship-building - 4.2 billion. Just think about these numbers. We should attract private funds and foreign investment in these branches and other economic sectors. Last year we raised 81 billion of foreign investments.

Gennady Zyuganov: How much?

Vladimir Putin: 81 billion. Some of these investments are speculative, not in the worst sense of the word, but at least half of them went to the real sector of the economy.

You mentioned tariffs. Of course, I always pay attention to the developments on this front. We should apply a well-balanced approach if we want to give a boost to the real sector of the economy. In the 1990's, which were extremely difficult times for Russia, including a breakdown in the real sector, the economy survived on cheap energy and low transportation tariffs. Gazprom has been supplying the country with gas at prices much below the market ones for 15 years. This should not continue indefinitely. If it does, we will never solve the problems in the housing and utilities infrastructure. This may sound strange, but it is true! We will never be able to diversify our energy sources, and will rely only on gas. Actually this is what is happening today, but this is risky even from the point of view of ensuring our security. The entire economy, the public and private sector, the housing and utilities sphere cannot rely and depend on one pipe. What will happen if there is an unpredicted interruption in service? Do you understand what may happen? We need to diversify our energy sources with a combination of furnace oil, coal, nuclear, and hydroelectric power. We should not use only gas.

If there is no market mechanisms at work, if prices are not approximately equal, we will not be able to make progress in this respect or convince anyone to use a source other than gas. Even if Gennady Zyuganov took my place at the White House, he couldn't force the change because the economy works on market principles. Prices should be roughly equal, but this has to be accomplished carefully. To this end, we have designed an action plan to move gradually and carefully to market prices, to a new pricing scheme. This plan excludes public utilities. Prices for the population should be changed very slowly and carefully, with respect for real income growth. So far we are not ready to discuss it yet. If our economy is energy intensive, we will never be able to upgrade it and make it energy efficient. But without upgrading and strengthening our economy, we will never be competitive. There could be a chain of negative consequences.

You also mentioned aviation. In the past, we produced many planes. But we cannot produce such planes today. You mentioned high prices for plane tickets to the Far East. If we compare an Il-62 and modern planes, which consumes more jet fuel? This is one variable that determines air ticket prices. In fact, our aircraft fleet should be updated. I have to admit that we have always lagged behind technically in terms of competitive planes. Our combat aircraft were competitive, but as for civil aviation... I am not sure we kept pace at all. We only developed a handful of planes. Hence, our present deplorable situation. Nevertheless, I am optimistic about new developments. Our new Superjet was designed with digital technology to replace outdated standards. It is a new-generation plane which will soon be produced. Other companies are working on similar latest technology aircraft, too. We also need to complete the creation of the united aircraft building corporation and make it operate smoothly. I am sure we can do this. I am sure we are headed in the right direction.

Speaking of the army and its upkeep and development, financing is 30% and 70%, respectively. I am glad that you understand this objective and support it. You know that not only the Finance Ministry plays a role in this respect, but also the army's receptiveness. Even with abundant funding, the army will not change at once; it is a long process. We need to solve the housing problem first, especially provide accommodation for the officers who are retiring from the army. We have many social commitments to the army. We cannot solve these problems immediately, we need time. But we must do our best otherwise we will never have a modern army.

Now a few words about the Compatriots Programme. You know that I initiated it, and I want to thank you for your support. But there are also a lot of problems involved in its practical implementation. Imagine: expatriates are invited to return to their homeland and promised new housing, but local residents say: "What about us? Why do you build new houses for them? You have not solved our problems. How about helping us first?"

But I agree with Gennady Zyuganov that we will continue to have demographic and economic problems for much longer if we do not attract our compatriots from abroad. We need to join our efforts to work out a relevant programme and not only allocate additional funds, but also make it comfortable for those who arrive while not forgetting local residents. It is difficult psychologically, economically and socially, but we have to solve this task. I will not argue with Gennady Zyuganov on this issue, because our opinions coincide.

If you have noticed, I have spent much time in the last few years trying to consolidate our society, trying to cure the wounds related to the past, to heal dissensions in Russian society due to the civil war, to the Soviet era. I have tried to bring peace to Russian people, to their hearts and souls, not formally but in practice. I want Russian society to feel united. I consider fanning inter-ethnic enmity or inter-party contradictions absolutely inadmissible. I do not want to give assessments to new films or works of literature, but one thing is certain - our history should be presented objectively. Current and future generations should have an objective historical knowledge, an objective picture of the past. Only then can we look to the future with confidence. I know we can achieve this goal together.

Now about the election. I am speaking not as the leader of United Russia, but as the prime minister. I will do everything possible to make the elections at all levels legitimate and honest. We will create all conditions for the people to freely express their opinion, without any outside pressure, to make the results objective. I will try and do my best to make it so.

Thank you!