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 21^st 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 21^st 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 15^th 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.