31 january 2013

Expanded Government meeting

An expanded Government meeting chaired by President Vladimir Putin was held in the Kremlin on January 31. During the meeting, Prime Minister Dmitry Medvedev presented the Policy Priorities of the Government of the Russian Federation to 2018.

The Policy Priorities have been developed in accordance with the Federal Constitutional Law, On the Government of the Russian Federation. They define the goals and priorities of the Government's mid-term social and economic development policy.

The document is aimed at ensuring the implementation of the President's Executive Order of May 7, 2012, On Long-Term State Economic Policy, as well as the objectives outlined in the 2012 Presidential Address to the Federal Assembly.

The main instruments for implementing the Policy Priorities for the Government's Performance will be the state programmes of the Russian Federation.

The Policy Priorities of the Government of the Russian Federation to 2018 will be published shortly.


Vladimir Putin: Good afternoon, colleagues,

Last year we outlined a strategy for our activities in the long term. We identified our priorities and targets in the documents and executive orders you are familiar with, as well as the pre-election articles and some Government documents. The work is already under way. I spoke of this in the Address to the Federal Assembly and the Budget Address.

Based on these guidelines, the Government’s task was to develop a detailed plan of actions, taking into account all economic and foreign policy factors, new challenges and new opportunities, and linking together the state programmes and sectoral and regional strategies.

The draft guidelines for the Government’s activities through 2018 have been prepared. Mr Medvedev and I discussed them yesterday and we will review them together today. We will be implementing our plans in difficult conditions. It is clear that there can be no return to the pre-crisis development model, the pre-crisis growth model. This is true for Russia and the rest of the world. Unfortunately, and I want to draw your attention to this, although we understand this and often talk about it, yet we continue to rely on the old criteria.

A steady increase in consumer demand in the developed economies – the United States and the European Union – generated growth for the global economy over a long period of time. Now these mechanisms are failing. To spur demand, the developed economies, burdened with debt, have been trying to use methods that they themselves criticised in the past – I wanted to say “non-standard” methods but basically these are fairly common approaches: they are resorting to emissions, printing money. It is not clear what consequences this may have for the future of these countries and for the global economy in terms of the economic health of the Eurozone and the North American continent.

We must also bear in mind other factors that are changing the global economic landscape. They include rapid growth of the regional markets and significant technological changes taking place all over the world, including in countries that are now faced with the difficulties that I have mentioned. This also includes the re-industrialisation policy and job creation, which are being launched in many developed economies. The goal is to restore production, which was earlier relocated to Latin America and Asia. All of this directly affects the future of our development.

Naturally, we must not just go with the flow, passively waiting for the situation in the global economy to unfold. We must be proactive and look for new approaches. Again, if we want to be competitive and successful in addressing social issues and challenges, Russia’s economy should grow at a faster rate than the world economy.

However, the national economy has slowed down in the last half a year. The growth rate of industrial production in recent months fell below 2% year on year, and there has been a simultaneous decrease in investment in fixed assets.

The main factors that stimulate the economy today are income growth and consumer spending. Retail sales in 2012 rose by 5.9% and real disposable incomes by 4.2%. This is good but not enough to generate economic growth.

Interest rates also give cause for concern as they have risen to a level significantly above the inflation rate, which inevitably affects lending to businesses and individuals.

We must also bear in mind the grave long-term challenges, especially demographic issues. It is forecast that in the coming years the working age population will decrease by up to 1 million people per year and, conversely, there will be an increase in the number of unemployed, children and pensioners per worker.

The situation is further aggravated by the lack of qualified personnel, a problem that employers say is becoming increasingly acute in our country.

Colleagues, today the quality and efficiency of economic development are coming to the fore, and the goals identified in presidential executive orders are gaining particular relevance. This concerns, above all, increasing productivity by 50% to 100%, as we have said. This is a very difficult task, one that may even seem unachievable at first glance, but we must move forward and resolve this issue. We talked about creating and updating 25 million jobs, which may also appear unattainable, but I believe that we can do it, and, in fact, businesspeople have confirmed it – this figure was not plucked from thin air but was reached in dialogue with the business community.

The Government must have a clear idea of which methods it will use to achieve these indicators in the current situation, how it will build up cooperation with investors, which sources of the so-called long money it can use, how it will overcome infrastructure limitations, and how it will tackle the training and retraining of the labour force and increase its mobility. Finally, how will this be tied in with investment strategies and social infrastructure? In this regard, I would like to dwell very briefly on several important points.

I will start with the investment climate, which we have been talking about a great deal recently. Our country has a number of fundamental advantages for attracting investment. Russia has one of the biggest markets in Europe and in the world. Add to this the opportunities created by the Customs Union and the Common Economic Space. We have natural resources, the basic infrastructure and a highly educated population.

According to experts, Russia has the potential to become one of the top five countries in terms of investment attractiveness. Our task is to turn this potential into a real flow of investment and creation of new businesses and jobs.

The key priorities on the economic agenda today are to improve the business climate and competitiveness in all aspects of doing business. Together with the regional authorities we must do everything in our power to remove the barriers created by corruption. Our crucial joint task, including the Government’s, is to increase transparency of government procedures and conduct an anti-corruption evaluation of the regulatory framework.

I ask you to pay special attention to the implementation of anti-corruption measures, which we have identified with our G20 partners. The business community has formulated a plan of action for the Government and the regional authorities as part of the national business initiative. The work on the roadmaps and the regional standards for improving the investment climate has shown its effectiveness. We must continue to use this format and maintain an ongoing dialogue with business associations. It is not enough to create the conditions for investment; we must learn to take advantage of these conditions, to sell our projects to investors so that they put their money in the Russian economy.

We must intensify work with potential investors, particularly in our core industries, and take advantage of the benefits created by Russia’s accession to the World Trade Organisation, including the placement in Russia of production facilities oriented towards export to Asia-Pacific countries, for example.

Just a couple of words about the state of the labour market. The unemployment in Russia is at an unprecedented low level of 5.4%. This is good, but it also means that we have practically no reserve workforce. We can develop only by improving the quality. Therefore, investing in people and their qualifications, in improving productivity and modernising production are the main source of economic growth. Our challenge is not just to increase the number of jobs, but to create efficient and therefore highly paid jobs to replace the old ones.

At the same time, it is necessary to build such a system of continuing education which becomes a resource base for 25 million modern jobs.

Close cooperation between employers, investors and educational institutions is an essential pre-requisite, as well as ensuring that lifelong learning becomes accessible for all. I propose to hold a detailed discussion with business associations and the Agency for Strategic Initiatives regarding the steps required to achieve this goal.

One more point. The mobility of the labour market has increasing importance in the present-day conditions. People should have the opportunity to relocate to a region that has good jobs. All of us know that we have traditionally had problems in this respect. The people are not to blame because there is no infrastructure to move from one place to another.

We must think about which public-private partnership instruments could be used for a comprehensive development of new centres of economic growth, including the creation of new social infrastructure and the formation of a civilised market of affordable rental housing. We have discussed this many times in the past but let us come back to this topic again. All this is essential to achieve balanced territorial development.

The Prime Minister and I have agreed to meet here in the Kremlin to review the document you had prepared, bearing in mind the importance of the issue we are discussing today and the prospects of economic development.

I give the floor to Prime Minister Dmitry Medvedev.

Dmitry Medvedev: Good afternoon, Mr President, colleagues. We are meeting for an expanded Government meeting chaired by President Vladimir Putin, where I will present the Policy Priorities of the Government of the Russian Federation to 2018. They have been defined in previous decisions, the President’s executive orders and address to the nation, as well as a number of other policy documents.

We have only one goal on our agenda: to improve people's quality of life and to create conditions in which everyone in Russia will be able to realise their potential and become successful in life so that they can make plans for their future and for the future of their children. I am confident that it is by this criterion that our efforts will be judged.

I’d like to note that I believe it was thanks to the efforts of the previous Government that we managed to maintain people’s real incomes and low unemployment rate at the most acute stage of the crisis, which Mr Putin just mentioned. Russia’s gross domestic product has been growing for the past three years. Our next task is to maintain all of these positive trends despite the current situation in the global market.

Russia is an open country highly integrated into the global economy, a situation with its pros and obvious cons. Therefore, we need to take into account not only the current state of affairs but also nascent trends in global finance and the global economy, and be able to rise to challenges adequately and promptly. Experts believe that this primarily involves the creation of a new technological base for long-term growth, when the so-called non-material factors, i.e. education, science and healthcare, are becoming increasingly more important. Raw materials and energy markets are experiencing substantial changes. Unfortunately, demand for our traditional exports is decreasing, so it is imperative that we think about the future. And, finally, the initial post-crisis stabilisation remains unsteady, as overall instability and uncertainty persist. That is why the next five years we are discussing are critical. The new contours of a post-crisis world, new technological and social alliances, new priorities and economic and currency configurations will evolve during this period. Government teams will have to make strategic and sometimes severe decisions, and they will have to transform challenges into new opportunities and sources of stable development. Many countries are addressing these issues in great detail.

Nevertheless, domestic, rather than external, factors constitute our main development risks. I am talking about the predicted decrease in the economically active population, the low quality of public administration, the need to improve the investment climate, diminishing domestic consumption growth rates and the need for budget consolidation. Obviously, those factors which ensured our economic growth in the previous decade are no longer always adequate. The potential of development in line with the traditional export-oriented model has also been virtually exhausted.

The people of Russia are no longer satisfied with the current levels of healthcare, education and social services. And this seems to be the greatest challenge. We can also see sustained public demand for social institutions to work according to entirely new, modern standards and the demand for a new quality of life.

I am confident that we can meet this demand only if we maintain sustainable economic growth. The President has just been talking of this. Our annual economic growth should be at least 5%. Yes, this is a very ambitious and extremely difficult objective, but it is not impracticable. How can this growth be attained? Using old-time terminology, we need a five-year plan of cost-effective development. As for the economy, this means boosting national competitiveness and labour productivity and the dynamic development of domestic and foreign markets. As far as public administration is concerned, this requires the skilful spending of state and municipal funding, as well as making improvements in the quality of state services. We must also ensure well-balanced regional development and create new economic centres in the south, in the east and in Russia’s Far East. I would like to say once again that in a changing world the social sphere can be modernised only on the basis of high economic growth rates. The Government will have to accomplish this objective in the next few years.

We will have to rely on programme/target-oriented management mechanisms in our work. State programmes stipulate long-term guidelines and formulate a system of indicators which make it possible to assess the effectiveness of spending. It is precisely the state programmes which will be the main mechanism for accomplishing specific objectives in socio-economic development. However rigid it may seem, the new budget rule will make it possible to insure the fulfillment of social obligations from oil price fluctuations, which depend on the market. We have also taken a fundamental decision to use part of the accrued reserves to finance infrastructure projects that recoup their expenses.

I will now speak in detail about the 10 key areas.

The first of them concerns the business environment, which Mr Putin just mentioned. The business environment, including legislation, must be competitive and amenable for both Russian and foreign investors. We need large-scale and stable investment that should reach 25% of the GDP by 2015. Its total amount should nearly double by 2018, as compared to 2012, and the number of new jobs should reach 25 million by 2020, as has just been said. It is a difficult but feasible task.

We will improve customs and tax management and simplify the procedures for access to infrastructure, bank loans and government guarantees. These are the most important issues for any investor, and we will deal with them within the framework of the National Entrepreneurial Initiative and relevant roadmaps. Russia must become one of the 20 best countries for doing business by 2018.

Second, it is often said that there are negative aspects to the Russian economy’s increased transparency following our accession to the WTO and the creation of the Customs Union and the Common Economic Space. We understand that competition is always an impetus for further development. The economy is like a parachute: it works well only when it is open.

I am confident that international integration can help bolster economic and social modernisation and enhance these sectors’ effectiveness. We should proceed in three areas simultaneously: Eurasian, European and Asian Pacific, but we should do so in a balanced way. By addressing the task of innovation-based development and joining international chains that create added value, we will be able to protect the interests of our exporters and investors abroad and ensure the sustainable development of Siberia and the Russian Far East with due regard for the goal of creating new business activity centres in Asia Pacific.

Third, global technological modernisation, which has been discussed here, is a fact of life. New technologies are being created before our very eyes. And not just that: whole new industries are being created. We must participate in these processes comprehensively, creating conditions for innovative activities in Russia by taking tax and budgetary measures and using customs and antimonopoly regulation. It is only by setting ourselves the goal of introducing cutting-edge technologies, which amounts to a technological breakthrough, that we will be able to secure the necessary economic growth rates.

One of our priorities for the next few years is to create a competitive research and design sector and to ensure stable and solvent demand for its products. We intend to increase the domestic funding of research and development projects to nearly 2% of the GDP by 2016.

We need a detailed system of support for innovative projects at all stages, from conception to commercial result, which is not always possible, and not in all  regions. We must not only create conditions for innovative activity, but also ensure an efficient use of this system, expanding the scale of operation of development institutions, as it is successful implementation that turns ideas into innovative products. We must not forget that innovations are impossible without the people who propose them, without their creative energy and will to act. The Government must create an environment for scientists and establish new research schools and areas. Scientists must know that we need them. By 2018, salaries of researchers and the faculty of higher educational institutions will be 200% of the regional average. We will further develop the system of support, bonuses and grants, and cooperation between universities and business. We will invite scientists with global prestige to Russia, including for participation in the projects of such major centres as Skoltech. The total funding of state-run research foundations should reach 25 billion roubles by 2018.

Fourth, to bolster our traditional industries we must ensure the growth of domestic and foreign demand and effective state regulation, and also create technological alliances with global leaders. This concerns transport machine-building, the production of medicines and medical equipment, and several other industries. We must find new opportunities for the national oil and gas sector through the development of offshore deposits and hard-to-access hydrocarbon reserves, and also introduce modern methods to increase oil recovery.

The defence industry will be given a powerful boost and must become a source of technological innovation for the defence and civilian industries. We need to develop a research and technological foundation for creating new weapons and military equipment, and our enterprises must be upgraded to produce competitive mass produced goods.

We will pay special attention to the aircraft- and ship- building, radio electronics, aerospace and nuclear power industries under the relevant programmes. We will also continue working on a modern system of technical regulation and standardisation. We must support the export of high-tech products and services. By 2018 we must increase our non-energy exports by more than 50% as compared to 2012.

Fifth, we must make our agriculture competitive, and we can achieve this. We have done much to make this possible in the last few years, and we must do everything we can to retain our achievements even despite poor harvests and other seasonal problems. This year we have launched a new government programme for the development of the agro-industrial complex. By 2018 we must bring the average annual growth rates of agricultural products to no less than 2.5% and of food production to 3.5%-5%. We must also reach all major targets of the Food Security Doctrine. Now that we have joined the WTO, it is important to help our companies become more competitive with a view to entering new markets. With regard to food, these markets and truly enormous. We have ambitious plans – to become one of the world’s leading agricultural powers, or rather, to recover this status of our economy.

And one more point. The rural community is more than an economic branch. This is a way of life for almost one third of Russian citizens, a major component of our national identity. Therefore, we must enhance the living standards in rural areas. We are planning to build more than four million square metres of housing there, mostly for young specialists and their families.

Sixth is the development of infrastructure. Our inadequate transport performance is not only impeding economic growth rates, but is also reducing social mobility. We must improve the quality and accessibility of transport services. By 2018 we must enhance travel behaviour by 40% and the export of transport services by 80%.

We must develop regional air travel, about which we have been recently talking at length and making decisions. We must build high-speed motorways and upgrade transport hubs across the board. It is also necessary to increase the transshipment capacity of our sea ports. We will continue developing the Northern Sea Route, which is almost twice as short than other sea routes from Europe to the Far East and is therefore of special interest both for Russian and foreign companies.

We must pay special attention to the energy infrastructure. It is necessary to create the conditions for upgrading thermal energy sources and the heating networks. By 2018 we should reduce the access period to power grids to 40 days for consumers with a maximum capacity of 150 kW.

We will build facilities for the introduction of new generating capacities, including those based on renewable energy sources. We will continue increasing energy and ecological efficiency. It is very important that we overcome the so-called digital inequality of our regions. This is not an abstract problem for us. Russia is the world’s biggest country. We should tackle this problem at all levels – government, regional and municipal – and replicate the best regional practices in the entire country, including those that will help us to raise the computer competence of the older generation.

By 2018 the absolute majority of Russian citizens will enjoy the advantages of broadband Internet access. We will upgrade the quality of our postal service and make it more accessible.

Seventh is the housing problem. It remains urgent. According to sociologists, this is a key issue for the absolute majority of our people – practically 60% of them consider it the most important. It is impossible to resolve this issue overnight and we must continue working for its step-by-step resolution. We have adopted a state programme, Affordable and Quality Housing and Utilities. The Government has allocated a very impressive sum for its funding to 2020 – about 2.5 trillion roubles.

To make housing affordable we must build it on a much larger scale than today – about 100 million square metres a year. The cost per square metre must be reduced. We can do this by simplifying administrative procedures that are still excessive, building economy class housing and reducing the cost of land for real estate development. We will develop the utility infrastructure. This is an opportunity to resolve the housing issue, thereby promoting economic growth rates in this country.

Finally, our people must be satisfied both with the scale and the cost of housing and public utility services. The Government must focus on the elaboration of the legal foundation and regulatory mechanisms in this sphere. I believe we must encourage fair competition there, improve the management of residential blocks and enhance public control. Municipal authorities bear special responsibility in this respect.    

Now the eighth point. As I’ve already said, our society calls for a completely different level of education, healthcare, culture and social support. We have substantially increased the funding of the social sphere in the last decade, and this is a good thing. But money is not enough. We must carry out structural and technological modernisation and adopt new standards of services that will match individual requirements. This is not easy because everyone has different needs, but this is the essence of effective social reforms.

We have adopted state programmes on education and healthcare and are implementing regional programmes on their upgrading. Naturally, modernisation must affect not only budget-funded institutions but also relations of the state with public agencies. I’m referring to support of voluntary institutions and socially-oriented non-profit organisations.

It is important to consolidate the recent positive demographic trend that makes us all happy. We must achieve a steady growth of the birth rate and a reduction of the mortality rate, and bring the life span to 74 years. In this way we will be able to ensure the growth of our population to 145 million by 2025. This is a very complicated and comprehensive task for the state, society and business. The need to think about one's health should become the norm for each person. The Government is taking tough measures to reduce the death rate from traffic accidents, smoking and drinking, and to create the conditions for mass sports. In the next few years the number of people who regularly play sports will double.

The current Year of Environmental Protection is aimed at reducing harmful emissions. We want our cities – big and small – to be eco-friendly.

A few words about our family policy. We fully realise that the well-being of a modern family, its desire and ability to have children, depends on whether the future parents have jobs and good incomes, on their housing conditions and access to education and healthcare. Maternity capital is an effective measure of family support. This year it was again adjusted for inflation and reached almost 409,000 roubles. In 2013, 50 demographically challenged regions have introduced monthly payments upon the birth of a third child, and every subsequent child. We will continue helping families with many children to improve their housing conditions.

By 2016 all children from three to seven years of age will be able to attend pre-school institutions. To ensure this, the state will support regional programmes for upgrading old private and family kindergartens and building new ones. We must pay more attention to preventing family problems, especially at an early stage when it is still possible to improve things and preserve a family for a child. We will adopt additional measures of state support for foster parents and guardians. The adoption and guardianship procedures will be simplified. By 2018 we plan to reduce the number of children in orphanages by twice.

We have established the Government Commission on Public Health Protection, which concentrates on disease prevention and quality of healthcare. We will continue making high-tech medical aid more accessible and developing it in federal and regional clinics.

Mandatory medical insurance will allow people to choose clinics and doctors, thereby encouraging medical specialists to upgrade their professional skills and toughening competition among them.

The introduction of IT is designed to improve medical services and make them more convenient for patients. Online appointments, electronic clinical records and tele-health are already being used, but we must turn individual examples into routine medical practices, both in cities and remote rural areas.

Pediatric care is yet another priority. The Government has decided to channel the funds allocated for regional healthcare modernisation programmes primarily to healthcare for children and obstetrics. In 2013 it will transfer 50 billion roubles for this purpose from the Mandatory Medical Insurance Fund alone.

We must guarantee standard medical examination of all children and adolescents.

Children's rehabilitation centres, palliative care and care for seriously ill children will be continuously improved in the future. The network of  perinatal centres needs to be further expanded, and advanced reproductive techniques should be widely introduced. Government decisions to this end are being drafted.

The prestige of the medical or teaching profession, the quality of education, health care and social services are largely dependent on the level of compensation paid to these people for their hard work. In the coming years, we must provide a consistent increase in salaries for health care workers, educators, social service employees, and cultural workers. Starting this year, the salary of heads of government and municipal agencies will directly depend on the quality of work of their respective organisations.

Now a few words about education.  Education determines the prospects for each individual and the future of the state. Importantly, schools and universities should prepare our young people for life in a competitive high-tech world. In the next few years, we should provide all children with high-quality modern pre-school and school education. The academic programmes and methods of teaching, including online education, should be updated. New standards of education that are scheduled to be fully implemented by 2020 have been developed exactly with this goal in mind. Particular emphasis should be placed on science, mathematics, literature and foreign languages. We must preserve and improve our ratings in international comparative studies and ratings. Of course, it’s important to identify gifted children in time and help them develop their talents. A nationwide young talent search and support system is in the making. We believe that additional education has a special role to play. As of late 2018,  over 70% of children aged 5 to 18 should be involved in it. We will work to ensure the effectiveness and competitiveness of the higher and vocational education and its compliance with the needs of an innovation-driven economy. Around 800 professional standards will be developed within the next two years that are designed to determine the qualitative characteristics and requirements with regard to key professions.

All educational institutions should be made accessible for people with disabilities. This is our responsibility. The state programme Accessible Environment is the largest in Russia’s history. Its goal is to create a barrier-free environment, so that people with disabilities have free access to social and cultural facilities, and are able to use transport and have access to employment.

We will continue reforming the pension system. Our goal is to build a stable and balanced pension system, which will take into account the interests of all generations. The law on mandatory savings based on the new rules has been adopted. Citizens have 12 months to make an informed decision and make the right choice with regard to the relevant portion of their retirement benefits, and the task of the Government in the near future is to significantly expand opportunities for the profitable and safe investment of these funds by creating appropriate financial instruments and mechanisms and making them clear and accessible to people. Pension increases in real terms will be anywhere from 20% to 28% by 2018 as compared with 2012. The average retirement pension will amount to at least two retiree’s subsistence minimums and will, of course, depend on the length of service. The mechanism for calculating pension entitlements will become an additional incentive for people to continue working after retirement age.

Now about culture. It is not only part of our rich heritage, but also a factor of modernisation. The cultural environment forms a modern, tolerant and caring people who approach any activity with creativity. Exposure to the best of world art should be part of the education process, and it should be available to all citizens of our country. The Internet has a special role to play here, but it is certainly not the only way to get information from. Other priorities include upgrading the infrastructure and the industry itself, especially in the provinces, and promoting domestic tourism.

Ninth, regional policy. We are faced with the complex and important task of balancing regional development and unlocking the potential of each region. I am confident that the quality of the work performed by administrators is part of the recipe for success. There are regions that are growing their gross regional product by more than 10% annually, and they are doing so without any oil or gas resources. So, this kind of work can be done. Regions should be encouraged to stimulate effective competition for investment projects, new jobs, skilled workers and additional revenue going to regional and local budgets.

We will strive to improve inter-budgetary relations and help alleviate the debt burden of regions and municipalities to encourage faster growth of local revenue sources. Beginning in 2014, the regions will be entitled to levy real estate taxes based on cadastral value. In the Russian Far East, high-tech industries, such as aircraft- and shipbuilding, the automotive industry, mining projects and harvesting aquatic resources will receive a boost. In the North Caucasus, we will focus on developing the tourism and recreation cluster and create about 500,000  jobs. We will continue to implement complex investment plans, which will help us  diversify the economy in one-industry towns, which should see at least 350,000 new jobs by 2018.

Tenth, we will continue to improve the public administration system and consistently improve the quality of public and municipal services. Without that, we won’t be able to achieve our goals. The specific steps that will get us there include making more information about government activities available to the public, developing the National Action Plan for implementing open government mechanisms and supporting socially-oriented non-government organisations, the Russian Public Initiative and, of course, ensuring ongoing public oversight in the most sensitive areas, such as government procurement and investment. In accordance with the proposals by the Government Expert Council, several government programmes and laws have been revised. This is good practice that should be used on a wider scale. It is now important to monitor the implementation of the approved documents, proper use of public funds and actual changes in real life. One cannot overestimate the importance of the monitoring and feedback coming from individuals, public organisations and representatives of all social and professional groups. This is, in fact, what the Open Government is all about. We have very clear guidelines with regard to providing government and municipal services. By 2015, the vast majority of the Russian people (90%) will be able to obtain these services from one-stop shop offices, which we’ve been busy creating over the past 10 years or so. By 2018, at least 70% of our people will be able to obtain government and municipal services electronically.

Occasionally, it makes sense to go over common truths over and over again. The purpose of the government is to serve the people, and a modern state should be open, friendly, speedy and efficient in its dealings with the population.

Colleagues, Mr Putin, I would like to emphasise that the Government Action Plan is based on the tasks that we set for ourselves in regulations, plans and our understanding of how things should be done in light of our problems and new global challenges in order to modernise social services and improve the quality of social institutions based on fast economic growth rates and improved efficiency of public administration. This is a very ambitious and challenging goal. Changing things while maintaining order in the country is a great art. However, people are ready for major changes in the economy, law and their lives as well as in the quality of public administration and, most importantly, in social conscience. And such changes are effectively taking place. We should look at the challenges we are confronting as new opportunities for us. I am confident that together we will successfully traverse this important period in the history of our country and achieve the results that we want. Thank you.

Vladimir Putin: Thank you very much, Mr Medvedev. We agreed to invite several regional heads to this expanded Government meeting in order for them to share with us their opinions about the Government Action Plan to 2018 proposed by the Prime Minister and, perhaps, provide their comments and suggestions. Mr Gruzdev, Governor of the Tula Region, please go ahead.

Vladimir Gruzdev: Mr Putin, Mr Medvedev, colleagues, I will begin with the real sector of the economy and industrial modernisation. Overall, the industrial complex in the Tula Region is developing at a steady pace. In 2012, we created over 17,000 jobs, carried out major investment projects and commissioned modern industrial facilities.

Machine building plays a special role in promoting the economic growth in the region, and it has always been central to the Tula Region. The output manufactured by Tula engineers is widely known in Russia and abroad. The defence complex of the region includes 25 companies employing over 33,000 people. As we look at the 2012 results, we can say with confidence that the defence industry in our region is on the rise.

Mr Putin, I would like to sincerely thank you and the Government for taking a systemic approach to these issues.

In 2012 alone, Tula military and industrial complex enterprises received over 12 billion roubles in federal allocations under the targeted programmes. To improve the effect of state investments, the Tula Region is developing a mechanism of public/private partnership. Private capital actively participates in updating production capacities and launching the manufacturing of new products. To date, we feel that the machine tool industry needs state support, including favourable conditions for foreign companies selling their products in Russia. Presently, the Government of the Tula Region together with the Ministry of Industry and Trade are working on one of these projects. The next step might be the creation of a federal machine tool industry centre based on the enterprises of the Tula machine-building sector. This is an ambitious task. They tried to implement it during the Soviet era, but in vain, unfortunately.

The next area of developing the defence industry sector is the creation of a business incubator or a high precision system technology park based on Tula State University and top military and industrial complex enterprises. The technology park will look to select the most promising high precision armament projects. The technology park should be aimed at training skilled personnel and sharing defence technology with the civil economy. 

The development of Tula's industry is closely linked with the development of neighbouring regional economies. Mr Putin! In your address to the Federal Assembly, you spoke about creating new centres of industry, science, and education, and a new modern social environment in all Russia's regions. Native (historically ethnic Russian) regions in Central Russia can also become such growth centres. The industrialisation of the 2000s boasts the Kaluga Region as a successful example, as it created a modern automotive cluster and other industrial clusters... In my view, we need interregional economic development programmes. This is a common position among regional governors – particularly those governors located near Moscow – that we need develop our territories comprehensively. We think that the federal Government should continue working on the Central Federal District Development Strategy. When advancing territorial organisation, it is necessary to resolve the following issues – to develop uniform urban development documentation, to form the transport, environmental, and logistical sections of the programme, and to eliminate disproportions within the social, energy and utilities infrastructure system that exist in Moscow and in neighbouring regions, and also create new and renovated jobs. I am sure that the positive results of such integration will improve with federal support and closer interplay between the regional and federal executive bodies. Thank you. 

Vladimir Putin: Mr Miklushevsky, please go ahead.

Vladimir Miklushevsky (Primorye Territory Governor): Mr Putin, Mr Medvedev, colleagues! First of all, I would like to thank you and the Government because the Government invested 680 billion roubles in the Primorye Territory's infrastructure while preparing for the APEC Leaders’ Week that was held in September 2012. This creates colossal possibilities for development. Yesterday, a second important international event – the Twenty-First Meeting of the Asia-Pacific Parliamentary Forum – ended successfully. Thus, we have not only proved that we can hold significant international events, but we also have shown that we can attract attention to the region, including potential investors. Given the time limit, Mr Putin, and while sharing the positions included in the report, Mr Medvedev, I would like to briefly highlight key points, mainly concerned with Primorye.

First of all, the Primorye Territory has a number of advantages due to its geographical and geopolitical position. Primarily, its position is unique in the transit and logistical aspects... In my view, these favourable possibilities are used rather poorly. For example, I am referring to the transit of Chinese commodities. We have two transport corridors – Primorye 1 and 2 – but their present condition prevents any increase in transit, including the export of the services that you mentioned during your opening remarks, Mr Putin.  

The same is true for the M60 motorway that was built for the APEC Leaders’ Week, particularly the section between Ussuriysk and Vladivostok. We discussed this today with the Minister of Transport – that the motorway should be extended to reach Khabarovsk because its current condition in the north is yet bad. Finally, this will create normal competitive conditions for interaction with the Trans-Siberian Railway because tariffs are said to be overrated, but in Europe many commodities are transported by car. A lorry transports freight from point A to point B, but I am primarily referring to container haulage, which is currently gradually gaining the dominating position. And, in this respect, we have two serious projects – this is the development of the Troitsa Bay in the Khasansky District and the Vostochny Port near (the port city of) Nakhodka. This is the extension of the two transport corridors that I mentioned.

We believe that we should have international standard freight processing in these ports. I mean that we should create bonded areas, that is, integrated bonded warehouses (private investors create them) with customs information systems. In fact, these are warehouses where we could reclassify freight. This is also an important service that makes it possible to reclassify freight redirecting commodities to different destinations, and this again concerns container haulage.       

Why is this important? This concerns not only the transit of Chinese freight or the export of Russian products from the Far East or Siberia, which corresponds with the strategy mentioned earlier... It is also important for supplying imported goods to the Far Eastern and Siberian population.

Domestic logistics are presently organised in such a way that imports destined for the Far East and Vladivostok – and Primorye in particular – are hauled through Finnish ports, etc. This means that new Toyotas – not those assembled by Sollers (Sollers-Bussan joint venture) – are hauled by sea, pass customs control in Finland, and travel across Russia back to Vladivostok. This does not sound right! So, we face this limitation... Our ports operate under a rather restricted regime.   

The second important competitive advantage – that you, Mr Putin, and you, Mr Medvedev mentioned today – is the placement of high-tech production facilities and largely the export-oriented economy. This is the situation in Primorye. Timber processing is mostly an export-oriented sector. Transit includes export-oriented services.

The Far Eastern Federal University has set the objective of having many foreign students… And this should continue – perhaps, the federal and regional governments should consider additional measures supporting exports to this end, on the one hand. And, on the other hand, (the federal and regional governments should consider measures) supporting consumption of commodities produced in the Far East – specifically in Primorye, the Far East, and Siberia.

Mr Putin, you know the plant that has been built with your initiative very well – the Sollers. To date, you know that the majority of Sollers cars are hauled to European Russia, which is understandable because the major consumer market is there. But I think that we should embrace programmes for selling the majority of cars in the Far East and Siberia. Perhaps we should develop a short-term programme – for two or three years – that would support the sales of these cars to boost the market in Siberia and Far East. In this case, we will not need to haul cars across all of Russia, but will be able to sell them in the region. Of course, we should mention precise terms when…

Vladimir Putin: Mr Miklushevsky, just say what kind of support you mean.

Vladimir Miklushevsky: For example, we could introduce a scrapping premium, Mr Putin.

Vladimir Putin: What?

Vladimir Miklushevsky: A scrapping premium. In this case we would gradually replace… This would be an option for replacing right-hand cars, which we have been discussing for a long time. For example, when an individual scraps his right-hand car, he gets a scrapping premium. With this money, he can purchase a Toyota Prado, which currently…

For example, a person turns in a right-hand-drive car, gets a scrapping premium, and he could, for example, buy a car, the very same Toyota Prado, which Sollers has now started to manufacture, well, as one possible option. And, of course, when we talk about exports, we do need to understand that we have a huge market because 400 million people live 1,000 kilometres far from Vladivostok. We drove to see Mr Artamonov (Anatoly Artamonov, Governor of the Kaluga Region) not so long ago. By the way, I’m travelling there with a large team on February 2 to learn from his experience – and many governors are a little jealous that he's in a privileged position because he lives in a region where there are about 100 million people living around. But we live in a region surrounded although by 400 million but within as little as an hour's flight from here, so I think we should take advantage of this.

The next thing is an infrastructure for attracting investment. Here, I think, the experience gained in the Kaluga Region is exactly suitable for us and we have already started to move in this direction. What do I mean? We have created an investment promotion agency, and we are creating a development corporation that would pave the way for investors to create industrial zones with their own infrastructure.

Finally, Mr Putin, we also discussed this today – mass housing construction. This is an important topic because it is – among other things – labour mobility, which we do not have enough of in the Far East. Maybe people would like to come, but they have nowhere to live. We also feel that this is important. We are constantly discussing this topic with Igor Shuvalov (First Deputy Prime Minister), and he helps us a lot with this issue. We have also established a separate structure that would enable the site to be prepared for large-scale, low-rise construction because it is important to make this housing affordable. And this can be done by lowering the land prices – you talked about in your Address to the Federal Assembly – and by facilitating construction. For example, take the same Canadian technology. Canada is in the same climate zone as we are, so we could actually use it.

Finally, in conclusion, we are constructively and successfully co-operating with the Ministry of Defence on land transfer. This gives us a genuine advantage because we are set to receive 170.000 hectares in total, including agricultural land, land used for military towns, and simply unused land... And we are going to use everything that we get, including some for these aforementioned projects. Thank you.

Vladimir Putin: Thank you. So, please, colleagues, who would like to say a few words about the main topic today, perhaps to respond to Governors’ speeches? Let us ask the Minister of Economic Development, the Minister of Finance, and then the ministers of culture and education. Mr Belousov, if you please (addressing Andrei Belousov).

Andrei Belousov (Minister of Economic Development): I would like to start by saying that the document that is presently under discussion has already been created and discussed at length. These discussions reflect real, objective medium- and long-term problems and challenges in our society. The point is that we have delayed the modernisation of social services long enough. We have postponed them for objective reasons while solving pertinent issues, but we have reached the point today where there is already a middle class – a massive middle class – that is demanding of quality social services comparable to those of leading nations. But even if we do not look at the middle class, the rest of the population has raised the bar on housing, healthcare, and education quality. And we have reached the point when it's really necessary to upgrade, and this upgrade costs quite a lot of money.

Another component of these challenges is the fact that a similar situation is developing in the field of defence. There, we have reached the point where it is necessary not only to carry out the modernisation of the armed forces in practice, but also to prepare and to implement a new cycle of arms upgrades, which is also very expensive and capital-intensive.

And the third challenge, which in some ways is the opposite of the first two, is the challenge associated with the consequences of the financial crisis, which is still continuing – meaning a huge non-oil and gas deficit. Indeed, the non-oil and gas budget deficit is comparable to the deficit of the United States with the capabilities that we have – because these capabilities are significantly smaller than those of leading global economies. This is about 10% of the GDP despite the fact that this level is more or less universally recognised by the expert community and by us as being about 3%-5%. And we need to combine these problems. We need to combine the two solutions in a fairly limited timeframe. This can be done only one way – what Mr Medvedev talked about – by improving labour productivity. We don’t have another option.

Here, we have sufficiently large resources. This is obvious. In terms of labour productivity, we presently lag behind a number of leading economies by 60%-67%. And, basically, if you support the investment climate by ensuring the establishment of institutions that will really transform the available savings in the capital of the real sector, then we can solve this problem for about one hardware upgrade cycle. And this cycle is about 10 years. Therefore, an increase in labour productivity of 50-100% over 10 years is a task – particularly in terms of the demographic background... This is now the priority for the economy.

How do we achieve this? This is what Mr Medvedev spoke about, and these areas of endeavour are well known. First of all, there really are problems with the investment climate. Although we have the necessary conditions, the current conditions are unsatisfactory... Another condition that is now coming to the fore and is comparable to the problem of improving the investment climate is issues associated with the development of transport infrastructure. At the moment, we have limited transport infrastructure, with constraints that are mostly in Central Russia and a number of other regions – here in the Far East, which we talked about today, and in the north-west – and have become a real factor that hinders economic growth and even just the improvement of the pace and the quality of economic growth. Already now we are incapable of transporting the production volume we could produce... The regions that are the best for attracting investments, such as the Kaluga Region, the Ulyanovsk Region, and many others, are already facing this issue. The road capacity is limited. We must resolve this issue in the near future within the confines of the budgetary constraints that we have today. But, in general, all of the plans have been formulated and the goals have been set, and now it's time to get it all done.

Vladimir Putin: Thank you. Mr Siluanov (addressing Anton Siluanov), if you please.

Anton Siluanov (Minister of Finance): Thank you, Mr Putin, Mr Medvedev, colleagues... Indeed, the main challenge facing the Government is to ensure high rates of economic growth. Five-per cent economic growth is an ambitious goal. What tools, what resources could we consider for the task?

The main areas of endeavour are defined in Mr Medvedev’s report. Indeed, we must ensure that this growth is not – as might be thought by some colleagues – due to increased federal spending, but rather to the creation of an environment that is conducive to investment. What does this entail? This, of course, as we say, entails clear, transparent economic policies, so that international investors will directly invest in our economy, and our economy will be more attractive than other developing economies and countries with developed economies.

And what does that mean? It means a transparent budget policy, that is, we have adopted budget rules and naturally we should abide by these rules in the coming years so that the volume of budget spending, of budget commitments is fixed, so that we can meet these commitments in any situation, regardless of the external political circumstances.

What is it? It is an understandable policy in the field of financial regulation because, let's face it, recently we've been lagging behind in this area and a number of legislative measures, regulatory measures need to be taken to ensure the inflow of capital into our financial markets which are sources of investment. To this end we must strengthen supervision of the financial market and put in place the relevant legal framework. We have agreed to create a single financial market regulator. All these things combined will make the work of investors here in the Russian Federation more comfortable without putting investment under other jurisdictions. That is a very important task.

The next point is monetary policy. Of course the main task here is to continue bringing down inflation. Low inflation means low interest rates and increased credit for the economy. We should achieve economic growth primarily through such institutional measures. Therefore the government, Mr Putin, has a clear vision of its activities in this area and it has plans to ensure this kind of economic growth. We will work to fulfil it.

Vladimir Putin: Thank you, over to you first please, and then we’ll hear about healthcare.

Dmitry Livanov (Minister of Education and Science): Mr Putin, Mr Medvedev. We are proceeding from the assumption that education and the standard of education in the country is the most important resource for the development of every individual, the regions and the country as a whole. Of course we must have a common education space and make sure that every Russian citizen has access to high-quality and competitive education programmes, beginning from pre-school education and ending with additional education programmes for adults, because without it we cannot prepare people for the new economic realities and for the implementation of the projects we have been discussing today.

Our education system of course faces a range of new challenges that did not exist 5 or 10, let alone 20 years ago. Our children are growing up in new conditions, conditions that did not exist before. I am referring to the colossal amount of information now available, a situation where teachers and schools no longer have a monopoly on the knowledge and information that children receive. We face growing internal and external migration. That too is creating a new situation in many schools and many classes because children speaking different languages and raised in different cultural traditions find themselves in the same class. This means that the education system must be geared towards fostering a new cultural identity, towards shaping a common cultural and educational capital for every person, it must strengthen its educational function, the function of developing the individual.

As regards professional education, we believe that this is a sector with a high export potential, considering our traditions and the potential for growth that we have. Thus, professional education must, on the one hand, be competitive, it must provide our citizens with high educational standards comparable to those in other countries. On the other hand, it has to be practical, oriented towards the needs and interests of our economy in general, specific production facilities and the industrial clusters that will be created in various regions.

These tasks and of course many other diverse tasks are fully reflected in the state programme Development of Education, adopted by the Government at the end of last year. We will have to exert major efforts to consolidate the professional education community and society in the broadest sense, school pupils, parents and employers, and community-based non-profit organisations to implement this programme. We are ready for this work. Thank you.

Vladimir Putin: Mr Medinsky please.  

Vladimir Medinsky (Culture Minister): Mr Putin, Mr Medvedev. I would like to focus on two aspects of our plans for the coming years. First, what is the main mission of our state culture and cultural institutions? The main task in the 1990s was to preserve our cultural heritage. I repeat, to preserve. There was a very clear task: to conserve what we had so that our culture would not be pillaged and lost. Now we are setting the next task. We have preserved what we had and that is good, but in addition we have to develop, cultural institutions must perform educational functions. Museums must be not only for museum workers, the custodians, but above all for visitors, for young people, there has to be constant interaction with schools where lessons could be held and so on. In addition, we should encourage internal tourism. This is the main purpose of the tasks that we set for our cultural institutions, ranging from the national ones to smaller regional ones. These are educational centres, tourist centres and centres that attract investment because many regions have great potential for attracting tourists and investment and people could come there from all over the world (today for example we discussed the Kizhi Museum with the Governor of Karelia).

The second issue that is going to be very important over the next few years is preserving and developing cultural monuments. We have approximately 140,000 monuments of cultural and archaeological significance (I say, approximately because we don't have, nor have we ever had, a single register, but we have set ourselves this target). It is unrealistic to restore all of them at government expense, no country in the world has ever done that and it is impossible to do. Most of the monuments are in a sorry state, many completely in ruins. We have prepared a draft government resolution, which has all the necessary approvals, whereby ruined monuments on the balance books of would-be investors could be leased to them for a moderate price (naturally, after independent evaluation and so on), but only on condition that private investors restore them within a brief space of time under mandatory supervision by the state.

Vladimir Putin: Make sure that they do not rush to ruin these monuments, pay attention to that.

Vladimir Medinsky: This approach, Mr Putin, has been tried out in Moscow and this year several auctions have already been held in Moscow, and auction prices have tended to rise. This practice turned out to be very effective under Mayor Sobyanin. Without bringing in private investors everything will crumble.

We will pay particular attention to determining the function of these facilities, that is, they should not be just offices or hotels… If it is a private museum then it should be open to the public, as happens in Europe, and so on.

This is the task we have set ourselves for the coming years and we are looking for political support in that respect because that is the way to restore these monuments. Thank you.

Vladimir Putin: Thank you. Ms Skvortsova, please.

Veronika Skvortsova (Minister of Healthcare): Mr Putin, Mr Medvedev. Esteemed colleagues. Our main goals and tasks are set out in the state programme for the development of healthcare until 2020, which has been adopted by the Government, and in the roadmap that lays down specific measures and the algorithm for implementing these measures.

We've set ourselves a number of key goals. First, to form an integrated preventative environment on the basis of intersectoral cooperation and close cooperation with non-governmental organisations. To this end, on the initiative of the Ministry and with the support of Mr Medvedev and of the Government, a governmental commission for the protection of public health was created. This would make it possible to implement Healthy Region and Healthy City programmes on the understanding that it is a multi-pronged approach to the problem, which should be underpinned by people’s heightened sense of responsibility for their own health and the adoption of an active and healthy lifestyle.

The second area is to bridge the gaps between the regions and attain a uniform quality of healthcare, from prevention to rehabilitation, throughout the country. With this aim in view, by the beginning of 2013 the Ministry had developed 775 standards for all the main types of medical care and 58 procedures for delivering medical assistance. The procedures and standards were based on a sweeping revision of the potential of the regions and today they correspond to the regions’ capacity to implement them. They will be updated every year and the quality bar will be raised.

Our task until 2015 is to balance the programme of state guarantees of free medical care and its basic component, mandatory medical insurance, by fully financing the tariffs of medical assistance and medical services which should meet the minimum quality standards and procedures. In addition, we will develop the infrastructure.

We have made a good progress in the last two years. We have increased the funding for our state municipal infrastructure by 60%, however, it is still more than 7 times less than in countries with developed healthcare systems. So we have identified certain areas, including maternity systems and the child healthcare system, and we have to pursue that area. And the third area that is extremely important for the sector is the human resources policy. We have launched an ambitious project in this field. It includes upgrading the quality of professors and teachers at medical education institutions, training and upgrading the skills of medical personnel and introducing a system of accreditation for healthcare staff from January 2016. This includes also a new approach to the distribution of jobs strictly in accordance with the requirements of the three-tier system of healthcare and the introduction of some changes to labour relations in healthcare, a revision of all the main performance indicators for doctors, mid-level and junior medical personnel.

We hope that by fulfilling this range of tasks by around 2015 we will, from 2016, be able to expand the lists of the most essential medicines and medical goods. I would like to note that we are already trying to step up public-private partnerships and are looking at alternative sources of financing for the healthcare system. They will become more important from 2016. Thank you.

Vladimir Putin: Mr Ignatyev (Chairman of the Central Bank of Russia), just a couple of brief comments on the document we are considering today.

Sergei Ignatyev: Thank you. I think the Central Bank is up to the challenge and if the budget policy declared today (especially the budget rule) is fulfilled we will manage to reduce inflation in the coming years to 6%, 5%, 4% and perhaps even less. I am sure that interest rates will then fall too. Not at once perhaps, perhaps with a certain time lag, but with inflation going down interest rates will also fall.

It's true, we have another bunch of problems connected with bank regulation and bank supervision. Now perhaps after the adoption of the relevant amendments to the law, the Central Bank will have to deal with the financial sector in general, including insurance companies, pension funds and so on. In general we expect that the Central Bank will cope. Nevertheless it is a major challenge and much work needs to be done, especially in the field of regulation, but not only that: a good deal of practical work lies ahead and we need support. Why? Because I believe that the Central Bank should interact more closely with the law enforcement bodies because we are still seeing some criminal phenomena in the banking sector and it is not only up to the Central Bank to deal with this phenomenon. Thank you.

Vladimir Putin: Thank you very much. Mr Medvedev, concluding remarks.

Dmitry Medvedev: Mr Putin, thank you. Well, our colleagues have spoken about the priorities and I spoke for quite a long time, so, I will perhaps say no more.

Vladimir Putin: Thank you. Colleagues,

In conclusion of our work today I would like to say that in order to solve all the problems faced by the country, to fulfil all the promises that we made in political campaigns, primarily during the election campaigns, we must do even more than is set out in the Policy Priorities of the Government of the Russian Federation to 2018.

We must develop democratic institutions in the country, support and strengthen civil society, improve the regulatory framework in all areas, fight corruption, strengthen and further develop law enforcement and the judicial system.

I consider the document we have reviewed today to be extremely important, because it is only by mobilising all the resources at our disposal, both administrative and financial, that we will be able to get results. In this connection I would like to thank the Prime Minister and all of you for the work that has been carried out on the preparation of this document.

There is great scope for effective collaboration on the preparation of conceptual documents and their implementation, and I very much hope that this potential is realised.

A few more points I would like to address. We heard the argument today about the need for a more efficient use of domestic resources. This can be expressed in terms that are clear and understandable to any expert. We’re talking about attracting investment, both domestic and foreign. This is beyond doubt our development choice. There is no question about that. We must involve our domestic resources, and we know this and have the right to do it. What are they? We know this too. We should plan ahead to make sure that they appear, grow and are utilised. Crucially, it is not only our reserve fund that is to grow, but also the assets of businesses and savings of individuals; our insurance companies must develop so that they have free resources and so that we can make efficient use of pension accruals.

With regard to the pension component, it is necessary first of all to ensure decent retirement incomes for our citizens. However, as I said, this is also an economic factor. This is one of the sources of long-term money that is most effectively used by developed economies.

This is what I’d like to say in this context. We have decided together that during this year people can decide themselves whether to transfer 4% of social contributions to the pay-as-you-go pension scheme or to the funded part of their pensions. We also discussed the possibility of preserving the right to make this choice after January 1, 2014. Many of my colleagues agree, especially those in both the Government and the Presidential Administration that deal with economics, and I share this opinion that this can and must be done but under at least two conditions that I’d like to draw your attention to. We must guarantee that these funds will not disappear, be lost or stolen. I do not want to proceed from the presumption of guilt of our business and I won’t do this. That said, we have a sad history with things like swindled investors. Repeating it in the pension system would be not only unacceptable but criminal. Therefore, we must make sure that these funds are preserved in the long run so that neither the state nor our people find themselves back at the bottom of the ladder in 15 or 20 years. This is the first point. Second, we must organise meticulous financial monitoring over the activities of these pension funds. I agree with the Government’s proposal that has just been mentioned by the chairman of the Central Bank. If this sphere is transferred to the Central Bank in connection with the formation of a mega-regulator, let’s go for that. I’m ready to support this, but it is necessary to pass new rules for calculating pensions during this year, implement decisions on guarantees and monitoring of the pension funds, create a legal foundation for this work and put it on a practical plane.

And this is what I’d like to say to the colleagues who are directly in charge of this work. If you really want to develop this market, preserve this business and have a modern, mobile and effective pension system oriented toward the future, this is the way to go. This is your responsibility. Create these two conditions, at a minimum, for implementing these plans.

I believe we should organise very intensive and productive cooperation. I hope our parliament will be able to pass relevant legislation in the beginning of its autumn session.                  

Most importantly, we must organise ongoing work for the implementation of policies set out in the Policy Priorities of the Government of the Russian Federation to 2018. At the same time, I ask you not to forget about your regular responsibilities. As you know, Russia, along with the global economy, is facing a number of complex problems, some of which are unique to our country. Last year’s harvest was below target, and this is not through the farmers’ fault; on the contrary, we got a good harvest thanks to them, but still agricultural production was down 4.7%. We must monitor this very carefully and provide an effective response when required. I believe the Government took prompt decisions on interventions. We must watch the grain market carefully in the near future, both domestic and international.

There is also the problem of rising petrol prices in the country. I ask you to watch this carefully and respond, especially with the approach of the spring fieldwork, the agricultural season. This does not mean that we should always use the old methods, they should be more timely, perhaps, but they must always be effective; they must support the farmers and provide us with the necessary conditions for the harvest that the country and the farmers need.

I ask you to bear all of these factors in mind. Thank you once again for your work today.

Thank you.


* * *

Following an expanded meeting of the Government, First Deputy Prime Minister Igor Shuvalov and Deputy Prime Ministers Olga Golodets, Arkady Dvorkovich and Dmitry Rogozin held briefings for the media

Olga Golodets: Our main objective is to ensure economic growth and improve the quality of life in our country, the social and economic well-being of our people, which is primarily based on our social policy. Therefore, when we talk about people and our social policy, we should first of all focus on labour, skilled and highly productive labour, which is the absolute priority of our social programme. A lot has been said this year about the rate of development in various industries. Some industries are developing much faster than the average growth rate in the economy. Today, we are focusing on these very industries, which have a high potential. Thus, the air transport market has grown by 17%. It is for this kind of industries that we are preparing targeted professional development programmes and establishing professional standards to support the industries that are actively developing and creating high-skilled jobs. As you know, the law on professional standards that the Government submitted to the State Duma last year has been adopted. We need to ensure that our professional standards meet international standards. This concerns all occupations and specialties. This work has to be completed within two years. It is currently in full swing, with the active involvement of the Russian Union of Industrialists and Entrepreneurs and representatives of employees. Hopefully, this task will be successfully accomplished.

The second issue that I would like to address is that high labour productivity and high-skilled jobs in fact create the necessary conditions for people’s well-being, especially that of those who are engaged in them. We are talking about raising the pay rate, and not only for those groups that have been mentioned in the executive order (particularly teachers and doctors, which are certainly the priority groups for us), but we are also talking about creating the same conditions in all sectors of the economy, to ensure that high productivity jobs help people occupy positions that provide them with a decent salary. To use the same example of air transport, senior pilots on long haul airlines are paid over 360,000 roubles, which is a very good salary. And today we are saying that those trained according to  modern standards become pilots. This profession is currently in high demand, with an enrollment competition rate of 17 people for a place. This is indeed a real market for high-paid productive labour, which has a very serious potential and will continue developing.

We have a similar situation in medicine and health care, with young people increasingly choosing medical specialties, as high skilled doctors are paid very good salaries today. This focus on wages, skills, and productivity will continue to be a priority of our policy in the next three years, and this is one of the main objectives of our programme.

The second issue that I would like to discuss is the demographic policy. It is common knowledge that a developing economy is an economy with a growing population. Toward this end, we have certain goals that have been included in virtually all of our social programmes and are aimed at ensuring demographic growth and an increased birth rate in Russia. We have lived through very difficult times, when in 1992 and 1993 our population was declining at a very fast rate, and reached an absolute minimum. Only 1.2 million people were born in those years, whereas in Soviet times the number of people born in Russia was two million per year.

Last year we reached a birthrate of 1,804,000, which is a good number, but there is still a long way to go. Today, all mechanisms of demographic policy are in place, including the new benefit for the birth of a third child, which was introduced starting January 1. Hopefully, this will help young families in making the important decision on having a third and subsequent children. We’ll make every effort to support the birth rate, including by educating young mothers, assisting them with employment opportunities, including distance employment. At the same time, we will provide all kinds of support to mothers and children, especially concerning healthcare.

I will briefly touch upon healthcare issues now. The healthcare programme has been adopted by the Government. It outlines specific numbers that we will work to achieve. Life expectancy in Russia should reach 74 years, and mortality should be reduced to a level that is acceptable for Russia, particularly from the most common causes.

There are tasks that we will address this year, and we hope to be able to make a real difference in healthcare. We have done our best to develop high-tech healthcare: we have bought large quantities of equipment, repaired hospitals and we now have high-tech medical centres in nearly every Russian region. However, there is a huge gap between these institutions and the actual availability of medical assistance for patients. High-tech medical care should be available to all Russian people who need it. Any action by any player in the healthcare market aimed at preventing patients from getting such help will be prosecuted. Let me give you a simple example. I looked through the recent edition of Kommersant dated January 25 which has an extensive list of individual requests for medical help. We reviewed each request and found that more than half of them can be met through the government guarantee programme. We are working with every hospital and every doctor to figure out why a particular child did not receive their operation on time. We will team up with civil society and a special board of trustees and have a big convention of all the boards of trustees of our institutions. We should be able to see what is covered by the government guarantee programme and insist that these commitments are fulfilled immediately. When we have a newspaper publish a request for an insulin pump for a child asking readers to chip in and buy it – it's nothing short of a disgrace. We need to find out immediately why this child was left without an insulin pump. We have the funds needed to buy an insulin pump, we have highly trained specialists and the requisite infrastructure. Where is this mechanism failing? We are very much counting on our healthcare professionals and civil society. I hope that together we will be able to solve this critical problem. Patients with serious chronic diseases need serious medical attention, and we must help them get it.

I will now briefly go over education. The education system should be based on new professional standards. We should teach our students in accordance with international standards. We should keep everything that is good in our education system, but we also have to realise that our school-leavers and graduates are free to look for employment on the global market, and not only in Russia. One thousand Russian researchers are currently employed at CERN (the European Council for Nuclear Research). If they had been even slightly lacking in their professional knowledge or command of foreign languages, then those specialists wouldn't be working on that project.

Our goal is to transition to new professional standards in education across all trades and professions over the next three years. New types of education, primarily preschool education, are high on the list of things that we need to accomplish. We didn’t focus much on early childhood education before. With the introduction of the new law on education, preschool children should start getting education at the age of three. This is a varied kind of education, including play, but it is an education nevertheless: children should develop basic social, speech, physical, mental, intellectual and cultural skills at this age. This is considered the golden age by experts, and the skills that are developed at this age determine the future development of an individual.

Additional education is something that we are focusing on in particular now. Additional education is important, because the greater the variety of skills people have, the higher their competitiveness. The world is evolving fast, and various skills are important in securing the competitiveness of a child on the labour market 20 years from now. The issue is not about memorising information or facts, since they are readily available in today’s world. What matters is the overall understanding of the way the world works and knowledge of the basic rules in all fields of human life, including culture, physical education and so on.

Now, very briefly about culture, because here we are also placing the emphasis on making cultural achievements available to our people. Much is being done in the area of research and promotion of museums. We have many highly qualified museum workers and many interesting theatres. However, the goal is to make them available, to have theatres go to Russian regions, theatre workers go to see children at schools, have trips to museums included in the curriculum and have children visit places like the Hermitage in St Petersburg during the summer vacation... These things are on our list of priorities, we have had them quantified and we hope to achieve our goals within the next three years. Thank you. Questions, please.

Question: I have a question about today's Government meeting. Vladimir Putin said that people should be allowed to choose between funded and pay-as-you-go pension systems even beyond 2014. It's until what year then? 2015 or 2016? Can you clarify?

Olga Golodets: I have heard, and I've heard as much as everyone else, President Putin saying that this opportunity will be available even after 2014, but he did not specify the deadline, so it’s undecided at this point in time. Importantly, the President said that there must be a financial mechanism in place to use these funds differently; that is, the funds should guarantee everyone a real rate of return.

Question: He also talked about the need to tighten oversight of private pension funds. Is there anything else in addition to the proposal to transfer regulatory functions over the National Pension Fund to the Central Bank? Perhaps you have some suggestions?

Olga Golodets: These proposals only apply to financial oversight, such as specific financial proposals to reserve and insure funds, and so on. These proposals are being drafted, and I hope we will see them adopted this year.

Question: Last week, the President came up with a proposal to provide plots of land to families with many children as a way of improving the demographic situation. What’s your take on this issue? Could you share with us any new measures designed to increase the birth rate which we are not aware of yet?

Olga Golodets: Yes, indeed, certain regions raised the issue of allocating land to families with three or more children. First, this question is being raised primarily by the regions with consistently high birth rates, such as the North Caucasus, where three children in a family is a fairly frequent occurrence. In this sense, fulfilling the decisions that have already been adopted looks like a difficult proposition. Today, regions are coming up with various proposals ranging from housing subsidies for young families to different forms of mortgage lending. Regional specifics are taken into account, as well, because implementing this decision in Moscow or St Petersburg wouldn’t be easy, either.

Remark: Thank you.

Olga Golodets: Thank you.

* * *

Arkady Dvorkovich: Good afternoon, colleagues. Everyone has heard about the implementation of the Policy Priorities of the Government, so I don’t have to go over it again. You also know about its format, meaning that the Policy Priorities is a document approved by the Prime Minister. It is not a Government document, but rather a document approved by the Prime Minister. He may have already signed the hard copy of this document or will sign it today. Everyone will get the chance to see it, since it will be a public document.

The Policy Priorities of the Government is comprised of 10 main items, several of which fall directly into my sphere of competence, and others are also related to some extent. These are four areas – the expansion of the transport infrastructure, development of agriculture and the agro-industrial complex and everything related to industry and technology. The area of science and technology includes several issues that are part of my remit. All these priorities are outlined in the relevant state programmes, which are the main mechanism for implementing the Policy Priorities of the Government. I’m sure every one of you is wondering how we are going to achieve these goals and resolve these problems. The state programmes provide clear and detailed answers to that. Some of them have been adopted, others are being discussed. I think that all the state programmes will be adopted during the first half of 2013, meaning that the implementation mechanism will be in place soon. The state programmes include all the financial, administrative and regulatory tools that we will use. That way, we will know how we will go about achieving our goals.

There’s one more important thing, at least for me. The list of top economic priorities includes the creation of 25 million new highly-productive jobs. To quote President Putin, “effective, meaning well-compensated” jobs, which is also important, because it will help us to form a middle class, and that many jobs will undoubtedly swell the ranks of the middle class in Russia. It also includes increasing productivity by 50-100%. Both goals are ambitious and challenging. I believe that our actions across all areas should focus on finding solutions to these two tasks. Of course, this does not mean that these goals should be achieved at any cost. It does not mean either that social or other considerations should be left out as we focus on achieving these objectives. It’s not about victory at all costs, of course, but neither should we do things that lead in the opposite direction and take us away from our main objectives. Creating efficient jobs implies that we shouldn’t create inefficient jobs. We must not pursue the creation or preservation of inefficient jobs for any reason. With regards to single-industry towns, the Prime Minister said that 350,000 new jobs would be created in these areas. All these jobs should be efficient and very productive, otherwise the whole programme makes no sense. This is true with regard to the North Caucasus as well. The North Caucasus tourist centres should create 150,000 jobs and the state programme for the North Caucasus Federal District provides for a total of 500,000 jobs that should be highly efficient and productive, otherwise we might as well forget about creating 25 million jobs. We shouldn’t pull in different directions. I mean labour productivity and investment. If we want labour productivity to grow, we have to invest heavily in technology and management. And we shouldn’t invest or encourage investment in anything else because these investments don’t lead to the main goal. Government members, governors and all decision-makers should clearly realize this. If we continue to simultaneously address a variety of different tasks as, regrettably, has been the case in previous years, if we fail to choose our priorities (and the priorities, let me repeat, were clearly outlined earlier today), we will be unable to achieve the objectives we’ve defined. This is perhaps the most important thing.

Colleagues, please, are there any questions?

Question: Mr Dvorkovich, Mr Medvedev said today that we should invest in infrastructure projects. The Ministry of Economic Development suggested the other day that the Investment Fund should be replaced by a newly created Development Fund and that the Reserve Fund should be used to contribute to it if its assets exceed 5% of the GDP. How do you feel about establishing a development fund for infrastructure projects? What amount of funds, in your view, should be committed to this fund – over 5% or over 7%? Thank you.

Arkady Dvorkovich: This proposal has been discussed for several months now, it’s nothing new. In the larger scheme of things, figures are not so important. The important thing is the mechanism, or the capability for managing these funds in a specific way, while addressing specific tasks and demonstrating to potential co-investors and private investors that we have a mechanism for allocating resources on a long-term and stable basis that they can count on. They should know that the money will not disappear or walk away and that the projects can pay their way, even if only in the long term. These projects are long-term indeed – transport, power, and some other industries. I think that we do need a special fund. It’s not so important what it’s called. But we have discussed the subject and have presented our points of view. To my mind, there is a need for a fund of this kind but the final parameters, including quantitative, are yet to be discussed. The Government will work this out.

Question: Please specify when the Government will come up with an establishment deadline?

Arkady Dvorkovich: We haven’t taken a joint position yet; we just have proposals from different agencies. Some Government members support the idea, but the details and mechanisms are yet to be hammered out. There is no final decision on whether or not it will be established.

Question: Mr Ignatyev (Russian Central Bank Governor Sergei Ignatyev) said today that inflation was likely to decline to 4% or lower, if the budget rule is complied with. But the 5% or 7% we’ve mentioned amounts to the mitigation of the budget rule. Given this, how real is a drop in inflation to 4%?

Arkady Dvorkovich: 7% is not a change in the budget rule, if we are left with 7.

Remark: Not a change, not at all.

Arkady Dvorkovich: The budget rule says precisely 7%. For this reason I wouldn’t forestall events or say that the figure is sure to decline and that we’ll change the budget rule. It is in effect. We proceed from the assumption that the decision on the budget rule has been approved and that no one has modified it. So, we should speak about the fund only within the framework of the existing budget rule. Accordingly, it is not affecting inflation. It’s another matter if the fund or potential investment really leads to our failing to achieve inflation reduction goals. It’s a debatable point. The Central Bank’s position is the determining factor because inflation is within its purview. We should therefore pay attention to what Mr Ignatyev says. I think a certain apprehension is understandable in this regard. But we should consider all the consequences. As I see it, moderate additional investment demand will not lead to an increase in inflation.

Question: Mr Putin said that we need to invest pension money competently. Earlier it was claimed that a calculation of longer-term money, which Vnesheconombank (VEB) intends to invest in Russian Railways and the Federal Grid Company, would be ready by late January, if I’m not mistaken. Is it available? And how will it work?

Arkady Dvorkovich: We have been considering different investment mechanisms, specifically the possibility of investing a certain part of the reserves through VEB. Another option is issuing infrastructure bonds. We might also use a portion of the pension reserves to finance repayable infrastructure projects. But as was stressed today – and we had discussed it in advance – safeguards to ensure the security of the pension reserves and oversight over its use should be created before this decision can be implemented. The pension funds will not be directed anywhere unless we have this mechanism in place. VEB has indeed been working on this. I don’t remember whether the deadline is late January or some other date. But the calculations should be completed shortly so that at least the reserves, not the pension money, can be invested.

Question: What will the safeguards be like?

Arkady Dvorkovich: I think a mechanism will be devised (albeit a more complex one that conforms to the nature of this money), a mechanism similar to the bank deposit insurance mechanism, but a more sophisticated one because insurable events will have to be defined in much more detail, and there are many more options in contrast with bank deposit insurance. Everything needs to be considered and calculated carefully.

Question: Mr Dvorkovich, you said that it doesn’t matter if resources are contributed to the Development Fund when it reaches 7% or even 5% of GDP. But Mr Belousov said yesterday that it does matter because we won’t reach 7% until 2016, provided oil prices are high.

Arkady Dvorkovich: It all depends on oil prices.

Question: Yes. Roughly speaking, we could skip three years. Aren’t you afraid that we might really miss these three years? That is my first question.

My second question is: We are currently discussing whether or not we have reached our potential growth rate and how to reach 5% in growth. In this context we are having disputes about proposals to develop, for example, the offshore shelf … Does it not seem to you that access to the shelf being restricted to state-owned companies will also restrict oil production on the shelf and ultimately economic growth? Perhaps it would be more beneficial to take unattractive shelf sites back into state ownership and then auction them off? What do you think of this idea?

Arkady Dvorkovich: As far as the three years’ gap is concerned, I believe that even with existing government investments there is considerable potential to increase the efficiency and not waste it especially with regard to the main objectives. What’s important now is not to increase the volume of government resources, but find financing mechanisms that are attractive to private co-investors even with the amounts currently available. For a long time now we have just ignored this option, believing that the budget would be enough, it is flexible and could provide extra billions of roubles for the asking, with no need to worry about private investors. However, the budget rules largely preclude such a possibility. So we need to think about a fresh approach. I’ve been pressing this point to all my colleagues, to the ministries and to the private sector. Show me how the extra-budgetary financing model will work; show how much needs to be borrowed from the budget, not 100%, but the optimum percent. After that we can discuss how to obtain money from the budget, not the other way round – this point should be understood.

Second, potential growth. Have we reached the limits? I don’t think so. Our potential for production efficiency, higher productivity and better energy use is so great that even simple and easily recoupable projects can yield quick economic results and higher growth rates. The only condition is to keep the main objective in sight and push aside the others. I agree with the Culture Minister that we focus too much on preserving things and forget about development.

There will be nothing left to preserve if we persist with preserving. We will be standing around, and there will be nothing inside. Potential growth could and should be higher.

Now regarding the shelf. The Prime Minister has issued instructions– and this is on the record – that we should develop a mechanism for withdrawing shelf sites that don’t interest the two state-owned companies. And a mechanism like this will be used. It was also suggested that there might be two options then. The withdrawn sites could be left undistributed if we don’t need to develop them rapidly or have no interest in them, or, if such interest exists, should be auctioned off to qualified Russian companies. But again, we don’t have such a mechanism yet, it remains to be worked out. Some state-owned companies have voiced objections, but some private companies are interested. We will work out the mechanism as the Prime Minister instructed.

Thank you and good luck to everybody.

* * *

Dmitry Rogozin: And now everything in a nutshell. The Policy Priorities of the Government of the Russian Federation to 2018, as far as the defence industry, the related high-tech, aerospace research and the nuclear industry are concerned, contain certain specifics: we are moving over to an entirely new planning format. A decision to this effect was taken yesterday by the Government’s Military-Industrial Commission. To avoid designed in programme mistakes like the ones in the previous years that led to discrepancies in the programme and the government defence order for a specific current year, we are converting to new rules for writing these programmes, rules that are formulated by experts and based on scientific principles. These rules oblige armament programme writers to be guided by meticulous forecasts and analysis of, first, military threats likely to exist in the next 30 years and, second, the forecast development of science and technology in the following 10 years. In general, to draft an armament programme, we will require our ordering customers to count everything. They must tell us how realistic their orders are. We must know whether the requirements set forth by the Defence Ministry or other state customers (law-enforcement bodies, Roskosmos and Rosatom) are justified by our country’s access to technology, competence, resources and industrial potential. We don’t want them to order something that cannot be realistically produced.

This forecast must be realistic. This is a mandatory rule in our new approach.  The ability to achieve results is the main criterion for our planning.  As for general economic indicators, we plan to increase industrial production in general and in ship- and aircraft-manufacturing in particular by 2.3-2.4 times over 2011. I’m using these simple indicators to illustrate our plans under these guidelines.

Needless to say, we have also outlined individual projects that we are launching. I’m not talking hypothetically – we’ve already started carrying them out. First, we have the project of the Vostochny Cosmodrome. We have launched construction on a large scale. In the first stage alone we have employed over a thousand people in the Amur Region. We suspended the work for several days in January because of severe cold but have now resumed it. We will be employing more people in the Amur Region. As you know, the Amur Region is demographically challenged. We have a kind of human Gulf Stream, a humanitarian current that has been washing away people from the Far East and Eastern Siberia in the last few years and decades. We are launching major new projects in the Far East to attract more people, particularly young specialists. We want them to start families and settle there. We are transferring the most prestigious production lines there to allow them to use their potential. Self-realisation is extremely important. In other words, we are taking into account the human factor.  

So, the construction of the Vostochny Cosmodrome is our main project and it’s already underway. By 2015, we are planning to launch a light Angara rocket from there. Incidentally, yesterday we began the Angara’s flight tests. This is the first point.

Second, as for major projects, I’d say we must transfer large numbers of them to the Far East. I’d say we need a Depardieu-like investor in this country, particularly in the Far East. This is why we are now analysing in detail the decisions made by the State Council meeting on the Far East development, especially those on tax incentives. No profit tax for start-ups for the first ten years is a major point for an image-building campaign on attracting large investment for new production lines in the Far East. This primarily applies to the hinterland of the Far East – the Khabarovsk Territory, Yakutia, the Magadan Region and the Amur Region. It is in these areas that we are planning to launch new start-ups provided that, apart from meeting the requirements of the defence industry, they will also manufacture high-tech products for civilian markets. Considering that these areas are not populous, we will lay special emphasis, particularly at the first stage, on robotics and automated systems that can make up for the absence of skilled manpower.

But even after building new ship-manufacturing capacity and the Vostochny Cosmodrome in the Far East where, apart from the cosmodrome, we are also planning an academic city and new research schools working for the aerospace industry… Even after we transfer assembly lines under the plan for the aerospace industry, because if we have to assemble large sections of heavy rockets it’s hard to imagine how they would be transported from Moscow to the Far East – by railway or some other transport that is even less likely… This is why we’ll have to  assemble heavy rockets in the Amur Region. Thus we’ll create new jobs and develop modern production centres. This is why we are convinced that as a result of these measures we will turn the tide and develop a second geopolitical centre in the Far East that Russia, an enormous country with so many time zones, requires.

This country should not be developed in a lop-sided way, with the gravity centre only in its European, Western part. Take the United States: it has two almost equal coasts – the East Coast (Philadelphia, New York, Washington and Boston) and the West Coast (Seattle, Los Angeles, San Francisco and so on). We want Khabarovsk, Vladivostok and the new cities that we will build in the Far East for science and production to create new centres that attract people, specialists and industry there, and hence, a new source of budget revenue in the Far East.

This is also vital because the analysis of political, economic and military factors (conflict potential rather than threats) shows that the future of the 21st century will be decided in the Asia-Pacific Region. The influence of the European Union will not be as great. Key decisions will be made in places where such giants as China and India (they can be also regarded as part of the Asia-Pacific Region) are rising to their feet alongside the two Koreas with their uneasy relations, Japan and the United States. Naturally, Russia should not be isolated from these processes. And if Russia wants to be a player in 21st century geopolitics, it should be represented there by its new industrial potential, particularly by that of processing industry. All products that we bring out of the Far East must be highly processed.

As for the defence sector, the nuclear industry and space exploration, we consider various goals and priorities in Policy Priorities of the Government of the Russian Federation to 2018 to be obvious and understandable. Moreover, this is already being regulated by state programmes that were largely passed in late 2012. This includes ship and aircraft manufacturing and space-exploration programmes. We will return to the programme this May in order to refine it, after the parameters of the aerospace industry have been determined. In one respect or another, all these state programmes have become a road map for the development of specific industries. Today we need to assemble these road maps, which give us an idea of where we are heading, and which provide specific indicators that should guide us, as well as economic growth rates, sales volumes, production volumes and probably the manufacturing costs of ready-made products. In effect, we understand all these elements, for which the Government is responsible.

Are there any more questions?

Question: Mr Rogozin, you mentioned the January 31 meeting of the Government Military-Industrial Commission. Those present at the meeting discussed an action plan to draft the state arms procurement programme for 2016-2025. I would like to know whether the new ten-year state programme will receive funding that is comparable to the current 2011-2020 programme. This is my first question.

And here is my second question. In late 2012, President Putin signed a law on establishing a fund for breakthrough research projects. You and some others have lobbied for this...  

Dmitry Rogozin: Advanced projects.

Question: …advanced projects, or a Russian version of the Defence Advanced Research Projects Agency (DARPA) in the United States. Who has been appointed to be in charge of this fund, and what is its budget? And I would like to ask a third question to clarify one more issue. You said that tests of the Angara launch vehicle started yesterday. As I see it, the rocket has not yet lifted off, and pre-launch preparations are still underway. Or has the rocket been launched already? Is Angara development on scheduled?, I mean these deadlines have been postponed repeatedly.

Dmitry Rogozin: As for the prospects of the 2016-2025 programme, we have now decided that all ten-year arms procurement programmes should overlap each other every five years. This enables us to plan the sustained development of state contracts and, consequently, the sustained development of the production facilities. It is very important that we promote better motor activity in heads and hands – in heads for those who develop military and specialised equipment, and in hands for those who will mass-produce this equipment.

Naturally, the pricing parameters for the 2016-2025 arms procurement programme have not yet been determined because this work has just started. Under the law on the arms procurement programme, we are to begin the work on the new programme three years and three months prior to its approval. But I can tell you that this programme will be comparable to the current 2011-2020 programme in terms of funding, although it will receive somewhat smaller allocations. This can be explained by the fact that the arms procurement programme currently receives substantial allocations in order to ensure the rapid modernisation of the Russian Armed Forces, which were under-financed for many years. We spend a lot under the arms procurement programme and the federal targeted programme of the defence industry. This makes it possible to purchase equipment, to improve production facilities, to finance research projects and to create advanced scientific and technological achievements. This is all proceeding as planned. That’s  true. But we have something else. For example, take a bridge that now links the Zvyozdochka and Sevmash enterprises in Severodvinsk. Construction of this bridge was financed under the federal targeted programme for the defence industry. Although it appears that the bridge has nothing to do with the defence industry, it effectively links two large production facilities, namely, a shipyard and a ship-repair plant. Of course, the funding now being allocated makes it possible to reimburse the defence industry, as well as the entire industry, which remained under-financed for many years after the Soviet Union.

That’s why we hope that we can ensure sustained production and a high level of military-technical cooperation and arms exports, and that we will already attain … We will create a new defence-industry economy. We will no longer have any federal targeted programme for the defence industry, which would simultaneously finance enterprises under the state arms procurement programme and in line with specific weapons purchase projects. On the contrary, we will have a federal targeted programme for the defence industry that will finance production projects, including the purchase of machine-tools and software, the creation of research schools and the training of production workers… These are two parallel and extremely complicated processes. We hope that the future federal targeted programme for the defence industry, if it continues to develop, will no longer be linked with these secondary production-funding projects, but rather with the creation of technology and production processes, their development, the purchase of technology and production processes, the creation of a new production ideology, while ensuring the sustained consumption of and access to rare-earth metals, as well as the creation of a reserve potential for the defence industry. The renovation and depreciation of fixed assets, as well as the purchase of new equipment, will be part of acceptable profitability rates during the purchase of weapons, military and specialised equipment in line with state defence contracts. The rather low current profitability rates are compensated for by the second federal targeted programme for the defence industry. But this economic pattern is counterproductive, and amounts to a forced measure. Everything, including all corporate expenditures and corporate renovation prospects, must become part of the profit structure. This is the first major specific feature. That’s why I don’t think we will exceed current statistics during the formulation of the new arms procurement programme. Quite possibly, these parameters will be somewhat lower, and we will not stick rigidly to this percentage with regard to the GDP. We will not require the current defence spending volumes. However, we will revitalise the Armed Forces at a rate of 70% up to 2020. After that, we will have to maintain it in a normal state by creating repair facilities and service centres and, furthermore, through the creation of advanced science and technological achievements. That’s why we hope that a new economy capable of compensating for these expenditures will be initiated.

As for the fund for advanced research projects, 14 members of a Board of Trustees were appointed on December 29 by a Presidential Executive Order. Seven members represent the Government, and the other seven represent the President. I have also been placed in charge of this Board per the Presidential Executive Order. The Board of Trustees nominates the Director General, whose candidacy is submitted to the President for approval. A Presidential Executive Order approving the candidacy of the Director General is then issued, and the Director General becomes the 15th member of the Board of Trustees. This procedure is stipulated by the law on state defence contracts. I hope that we will learn the name of this person in the next two or three days. Theoretically, this Presidential Executive Order has already been coordinated accordingly, and it has been submitted to the head of state for signing. This was the most difficult and large-scale task. We had to find the right person with all-round technical skills and knowledge. This person should also have a reputation for developing specific types of weapons, military and specialised equipment. In effect, he should know what is needed in order to launch high-risk and pinpoint research projects. On the other hand, this person should have fire in his eyes, as the press likes to say. This means that he should have an idea of the newest and most interesting concepts, which need to be addressed and implemented. On the whole, participants in the Board of Trustees meeting discussed the form of the fund’s work. The fund will primarily help establish small temporary research teams for a period of not more than three to five years. These teams will create specific research and development projects, and they will prove that various pin-point projects are feasible. And, of course, we rely solely on university campuses, the university centres; in other words, we need a high volume of people with good brains, and this cannot be accomplished, with all due respect, on the basis of academic institutions. We need specifically university students to integrate into these creative laboratories and come up with some innovative ideas. So, strictly speaking, we’re seeing the expansion of the activity of this structure. We are now dealing with completing very tedious, but very important tasks – finding suitable facilities, seating people and selecting the right people. The budget that we have for this year, carried over from last year, is 150 million roubles, but this is the beginning, the start of the foundation’s operations. Overall, I think that there should be a budget, at least in step with the delegation of work, of at least 3 billion roubles. We have already discussed these preliminary figures, the President knows about them, and the Government is ready to ensure that such amounts are funded. We hope that the impact of the foundation’s operations will be considerable.

Question: What about “Angara”?

Dmitry Rogozin: “Angara”? Watch the news. Did you see the news yesterday from Korea? Make your own conclusions!

Question: Mr Rogozin, if I may, I will clarify a little bit about the Foundation for Advanced Study. Your deputy Ivan Kharchenko just recently named a candidate and said it will be Andrei Grigoryev. Were you just talking about him? It’s just that he’s a bit of a dark horse candidate.

Dmitry Rogozin: The members of the Military-Industrial Commission are very public and transparent. I've been trying to create some intrigue, but my colleagues reveal everything.

Question: So it really is him?

Dmitry Rogozin: He turned 50 yesterday. He is talented scientist, he worked recently with the Federal Service for Technical and Export Control, and he also worked for many years in the Armed Forces, and has worked for the Military-Industrial Commission not very long, about two months – he was responsible for special programmes. In principle, his candidacy was one of many that were discussed among trustees at the board of trustees meeting, but the President will specifically be the one to make the final decision.

Question: But has this candidacy been submitted to him?

Dmitry Rogozin: Yes, this candidate was proposed by the board of trustees.

Question: Some time ago, Defence Minister Sergei Shoigu said that footcloths are so last-century, and the army must get rid of them. Tell me, were there any calculations that you know of on how much this will cost the Defence Ministry budget?

Dmitry Rogozin: Footcloths?

Question: Yes, footcloths. How much does it cost for a change of shoes and clothes? And, accordingly, are our companies ready to ensure that this is done as quickly as the Defence Minister wants? Thank you.

Dmitry Rogozin: You know, I’m not responsible for footcloths. We have other people who are trained and competent in the matter. In general, the Military-Industrial Commission is not responsible for the armed forces’ clothing and equipment, and this issue was removed from its jurisdiction back in 2010. Unfortunately, it was also removed from the jurisdiction of Rosoboronzakaz on behalf of the supervisory authority, the Federal Service for Defence Contracts. Now the Federal Service for Defence Contracts is restoring its authority in all matters, including military rations, supply of worsted fabrics, as well as new clothing and equipment for the needs of the Armed Forces. It is specifically this agency that will be responsible for these issues through the Ministry of Defence. I reiterate, the Military-Industrial Commission is not responsible for footcloths, we are responsible for flying and seagoing hardware. Footcloths don’t fit the bill, so we are not responsible for this matter, unfortunately.

But seriously, to answer to your question – although thank you, it’s nice to have a little levity – I want to say that at the end of this year, we will review the final results of the Ratnik (“Warrior”) R&D centre. The Central Research Institute of Precision Engineering (TsNIITOChMASH) is primarily engaged in working on this. At the meeting of the Military-Industrial Commission on Wednesday, we decided to approve the general designer for the uniforms and battle gear of military personnel. The latter consists of two dozen departments, ranging from weapons, optical media and communications, to military uniforms themselves, of course. But the matter is one of battle gear, not parade uniforms and so on. We test everything there using TsNIITOChMASH facilities. They either accept or decline the results of this kind, proposals from specific companies, firms that supply, as I said, a variety of items of battle gear and support equipment for the military.

Obviously, the military uniforms and battle gear must meet high standards for servicemen to be able to carry out their duties, without them having to think about how comfortable or uncomfortable, hot or cold they are. Everything should be as comfortable as possible, so we test individual elements of military equipment. I can tell you that some of the items are not just competitive, but exceed the standards of the military equipment of leading NATO countries – such as body armour, communications, as strange as it may seem – well, these are good, interesting parameters for us. But as a whole, R&D should have been completed by the start of 2013, and this work will be approved. Accordingly, I hope that I have answered your question.

Remark: Yes.

Dmitry Rogozin: Thank you very much, colleagues.

* * *

Igor Shuvalov: Our Constitution gives the Prime Minister the right to endorse guidelines for the Policy Priorities of the Government. In general, the Government is a collective body and all decisions are documented as resolutions and directives. That said, this is a special format. The Law on the Government stipulates that the Prime Minister independently determines guidelines for the performance of the Government. Obviously, this format is linked with the most important format in the country – that of the President who lays down the foundations of domestic and foreign policy. After the President signed and published his 7 May orders, addressed the Federal Assembly and made other political statements, we in the Government started actively translating these documents into reality and adopted major state programmes. During this period we acquired experience and an understanding of what we are going to do in the next few years and today the Prime Minister presented his own format.

In essence, our action plan containing specific budget allocations is based on the President’s main orders, his political instructions and the 2012 address, as well as the Policy Priorities of the Government and state programmes.

Now we have to adopt all state programmes. We have a few left and we must review and approve them at the Government meeting in the next few weeks and then discuss and endorse a very detailed work plan for the next five years. Apart from stating sums allocated for the development of different industries and their sources, state programmes outline measures and specify what should be done legislatively and what should be accomplished together with regions, municipalities and the private sector. In other words, these programmes contain a detailed plan of action for the next five years.

I have heard some people express their disappointment. When this document came from the Ministry of Economic Development, many asked: “How will these goals be achieved? What about funding?” Here’s the answer – read the Government programmes that outline specific measures and sources of their funding. They contain the answers to practically every question. As for the issues raised by the President and the Prime Minister today, you can find an answer to every question in the documents that have been already endorsed by the Government and are called the Government programme. Now we must summon the courage and discipline and implement everything. We must prove to ourselves that we can realise such ambitious plans and present the results of our work to society. This is what I wanted to say for the beginning. Do you have any questions? Please go ahead.

Question: I’d like you to clarify one issue. Today Mr Ignatyev said that if the budget rule is observed, it is possible to bring inflation down to 4% or even lower. Now the Ministry of Economic Development has submitted to the Government a proposal to establish a special development fund for windfall profits from oil and gas sales once the Reserve Fund contains funds exceeding 5% of GDP. But is Mr Ignatyev’s proposal realistic given the current budget rule…

Igor Shuvalov: I understand and I’ll answer you briefly. What Mr Ignatyev said is a result of the discussion by the Government and the Central Bank. This issue was reviewed more than once at our Banking Council. The economy needs real money, loans with low interest rates, and macroeconomic stability. We still have different opinions and they are being discussed at length. Deputies, for one, believe that 7% of the declared reserves do not provide a more reliable safety net and are unnecessary – it is possible to have just 5%. The funds that will exceed 5% could be channelled into short-term projects – those that will be completed in one, two or three years. These are not long-tern federal expenses or permanent obligations. These are the infrastructure projects we discussed today – roads, ports, airports and railways. This infrastructure can be built with loans. It will also require non-repayable funds from the budget. The budget will also spend funds on these projects.

So, does this pose risks of macroeconomic imbalance or higher inflation… I’m confident that if everything is done sensibly… All of us must implement the spending of the federal budget step by step and without splashes and with detailed coordination of all financial authorities (primarily between the Finance Ministry and the Central Bank, on the one hand, and the Ministry of Economic Development and branch departments, on the other). If there are fluctuations or contingencies on our financial market, we will not endorse additional spending. This issue has many aspects. As to your question whether this will create risks for macroeconomic stability and lower interest rates on loans, the short answer is no.

That said, this does not mean we will make this decision. It must be made by parliament and made into law. I’m referring to the law that is supported by the Government and approved by the President. We must get through these debates and agree that if we need these accumulated reserves, it is quite enough to have 5% of the GDP.

As for spending… Once again, the main point is that the spending provided for certain projects over this 5% (that is the difference) should by no means come as additional permanent federal spending. Such spending should only come in the form of investment.

Question: Mr Shuvalov, President Putin approved turning control over private pension funds to the Central Bank. It is our understanding that they would be placed under the control of the Central Bank even before the Central Bank becomes a mega regulator. Is this correct?

Igor Shuvalov: President Putin approved this idea last week. In his report to the President, Prime Minister Dmitry Medvedev said that the Central Bank should assume the functions of a financial regulator. By the way, the same report says that this single regulator should also oversee private pension funds. The policy decision was taken last week. After I’m done here with this interview, I will meet with my colleagues from the Central Bank, the Ministry of Finance and other departments to discuss how to approach the Duma in order to have the appropriate laws approved by it during the spring session. I hope that the single regulator will start working this year. People from the FFMS (Federal Financial Markets Service) will go to work at the Central Bank. A special service will be set up in the Central Bank which will start working this year. We will be able to say that the single regulator is in place only when people start moving from the FFMS to the Central Bank after the adoption of the federal law and when the appropriate functions have been transferred under the law (this is the most important aspect of it). I believe that this will happen no earlier than autumn. There is no need to hurry, but there’s no need to procrastinate, either. Everything must be done in phases to avoid any chance of messing things up. By the way, the main directive coming from the President, which is fully supported by the Government, says that the single regulator should improve the situation in the sphere of ​​regulation and oversight. You know too well what happens with the transparency of financial institutions and how the financial markets are regulated. We don’t want to see even more irregularities during the transition period, and we want the situation to be at least as good during the transfer of authority. Therefore, we should do our best to avoid any disruptions during this period.

Question: As a follow-up to this question: Since you are about to discuss everything in such great detail, perhaps you already have a short list of candidates to head the mega regulator?

Igor Shuvalov: Of course, we do. The President and the Prime Minister are discussing it now.

Question: You wouldn’t be able to give us any names, would you?

Igor Shuvalov: No, I can’t.

Question: Recently, the media reported that the law on the Central Bank may be amended to renew Mr Ignatyev’s term as chairman. It that a real possibility? And keep him...

Igor Shuvalov: No, I think this is pure speculation. No one in the Government or the presidential administration has ever discussed this issue. It’s just because people may want this to be discussed. Could there be a special law to do so? Well, I guess you can pass any law if legislators deem it necessary. But we haven’t discussed it seriously, and I have never heard Mr Ignatyev say anything about changing the federal law in order to extend his stay in office. I believe he's been very effective all these years. He is one of the world's top central bankers. Our bank and the banking centre accomplished a lot over these years. But what you’re saying sounds far-fetched to me.

Question: Mr Shuvalov, has anyone ever offered the post of head of the mega regulator to you?

Igor Shuvalov: No, they haven’t.

Question: Would you like this job?

Igor Shuvalov: No, I wouldn’t.

Question: Let me ask you a question about the Vanino deal with Mechel. What’s your take on it? Isn’t it at odds with everything that we know about privatisation? Mechel buys a company, and it ends up in the hands of three...

Igor Shuvalov: Yes, I’m aware of the situation. I discussed it with Head of the Federal Agency for State Property Management Olga Dergunova. She says that the deal is perfectly legal, but it’s nevertheless being audited now. We believe that if it was done legally there can be no complaints. Of course, in the future, we would like to be working with prospective investors knowing that they are actual investors, not someone who’s there only on paper, whereas other people are the real beneficiaries. It's not good for the market. It breeds mistrust and is an indirect indication of the lack of transparency. It’s a routine business practice when one company represents the interests of other companies, but in this particular case the public interest is involved. Since these assets are not simply pulled out of thin air but are transferred between legal entities – and on top of everything these are state-owned assets – the sides should abide by special moral principles during the disposition of such assets. Again, there were no legal violations, but the issue here is also about transparency rules, if we want to further strengthen them. On the other hand, the public is entitled to know the real owner of the property that it’s selling under contract.

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