15 january 2009

Prime Minister Vladimir Putin held a conference on measures of Government support for the military-industrial complex

Vladimir Putin

Conference on measures of Government support for the military-industrial complex

"When we develop measures to support the military-industrial complex, we proceed from its special significance for Russian security and for the technological development of our economy and industry. In the last few years we have seen a marked increase in the supply of our armed forces with new weapons, special military equipment, spare parts and other essential hardware."

Transcript of the start of the meeting:

Good afternoon, colleagues,

As I've said more than once, we should closely follow the current situation in the real economy and assess on a daily basis the effectiveness of the anti-crisis measures we are elaborating in order to make timely additional decisions and adjust previous ones.

Today, we are looking at the military-industrial complex with 1,400 companies, which together employ more than 1.5 million people. Importantly, many of these companies are essential to the community where they are located, and the social welfare of dozens of towns and cities depends on their steady performance.

Needless to say, today's economic problems could not but affect defence plants. Many of them have faced delays in payment for the delivered goods, debts on loans, and difficulties getting loans.

Needless to say, this situation requires an adequate response from the Government.

When we develop measures to support the military-industrial complex, we proceed from its special significance for Russian security and for the technological development of our economy and industry. In the last few years we have seen a marked increase in the supply of our armed forces with new weapons, special military equipment, spare parts and other essential hardware. We have far-reaching plans for re-equipping the army for the future. More than one trillion roubles have been allocated for this purpose just for 2009. The overall expenses for this purpose will total about four trillion roubles by 2011.

The state defence order will supply the industry' enterprises with enough contracts to preserve as far as possible the production levels they have achieved, even considering a lower demand for their civilian products.

The federal budget for 2009-2011 provides for Government guarantees for loans for the military-industrial complex for up to 100 billion roubles. Another 50 billion roubles have been allocated to subsidise interest rates, measures on preventing bankruptcy and investment into capital stock. In addition to this, we have made amendments to the Tax Code which facilitate procedures of refinancing tax debts and granting investment tax credits.

I believe that our main task today is to create the conditions for the military-industrial complex to use effectively the state defence order and other instruments of Government support.

First, we should adopt without any delay the delegated legislation on implementing anti-crisis standards of the federal budget. If there are any problems with them, I'd like my colleagues to point them out today.

Second, we should carefully select the companies which will receive Government support. I'd like to draw your attention to the following: A company may find itself in a difficult position for objective reasons, and, regrettably, there are many cases like this, but it's a completely different case when a bad situation emerged as a result of mistakes and erroneous decisions by its managers.

I'd like to note that the majority of companies in the military-industrial complex are in federal ownership. This allows the state to deal with ineffective managers and avoid covering the expenses they regularly generate.

Third, as you know, in the last few months commercial banks have received substantial additional funds from the National Prosperity Fund and from the Central Bank. It is important to analyse whether this liquidity reaches companies, and whether the military-industrial complex is content with the terms of loans offered by banks.

Both the representatives of the financial sector and the chairman of the Central Bank present here today are aware of the special support measures in individual fields that have been introduced in a number of countries. This is being openly discussed now, and not only at the level of experts but also in the Government. Let's think about this today.

Fourth, despite all the existing problems, it is essential that we continue implementing the programme for the technical re-equipment of defence companies and for the production of modern military hardware. We understand that under the circumstances, defence companies find it hard to allocate funds for development purposes, at least, on the scale that was planned before. Therefore, it is necessary to streamline federal defence-oriented programmes, and use the funds thus saved for the completion of the projects which are critical for improving the technological level of the national military-industrial complex.

Finally, we should enhance the effectiveness of the military-industrial complex's major holdings. Why have we set them up? We should make them truly competitive so as to fully meet the requirements of our armed forces and increase the export potential of our military-industrial complex.

I hope that we'll hear specific proposals on all the issues discussed at this meeting.
Now I'd like to give the floor to Denis Manturov, Deputy Minister of Industry and Trade.

Closing remarks

Let's sum up.

First, I'd like to tell you that today I signed a Government resolution on measures of state support for the Russian exporters of industrial produce. Some measures about which we spoke here are included in it and have been provided with funds.

First, these measures subsidise interest rates. Allow me to recall what we have agreed on. The companies in the military-industrial complex involved in carrying out state defence orders will receive subsidies from the federal budget to make up for part of the expenses on interest rates on loans received in Russian lending organisations. Second, they will get subsidies to compensate for the part of their expenses on profile industrial activities, which would prevent their economic collapse and bankruptcy. In 2009, the companies involved in fulfilling state defence orders will receive state guarantees on loans.

We have also agreed on streamlining federal goal-oriented programmes to use the saved funds on priority directions. It is important not to downgrade production and to guarantee priority implementation of state defence order in defining the limits of budget commitments.

I'd like to draw everyone's attention, first of all, Government ministers, to the fact that we have agreed with the Defence Ministry that the state defence order should be fulfilled, but it involves both priority and absolutely indispensable goals and secondary ones. Everything that concerns armaments and R&D should be fully financed.

We also spoke about the need to secure an application to take part in the tender for state contracts. It is necessary to improve the mechanism of granting budget investments to open joint stock companies.

The Finance Ministry and other colleagues have also backed the decision on the payment of dividends. They should be primarily channelled into investment. I'd like to ask you to draft a relevant instruction, which should be carried out by all Government officials in the companies concerned.

We have again stressed the need to reimburse defence companies as quickly as possible, within 30 days at most, for value added tax on industrial produce exported abroad.

We have agreed on investment tax breaks and on investment tax loans, and on deferments and instalments in paying federal taxes.

I'd like the Central Bank and the Finance Ministry to consider the bankers' proposals on rating commercial banks which are involved with the military-industrial complex on a big scale. Indeed, this does not fully conform to competition, but this is true in normal conditions, not in a crisis that has gripped the whole world, including our economy. We must secure priority directions of our industry. The military-industrial complex is one of such priorities, and the financial institutions that are working with it should enjoy some preferences.

I'd like to reiterate that we have agreed for certain contracts of the military-industrial complex to be used as collateral for granting loans. I said "certain contracts", and this classification requires expert assessment, but it is abundantly clear that if the Government is interested in some special products or types of weapons, we'll eventually fund them anyway. This is the most reliable guarantee for the real economy companies and for financial institutions.

I'd also like to repeat what I said in the beginning. We are adopting a big package of measures to support the military-industrial complex. No doubt, this is a sphere of responsibility of the state and the federal budget. I'm hoping very much that in cooperation with banks and top managers, the Government will find the optimal mechanisms for the functioning of this complex during this year and beyond.

If need be, we will establish additional special instruments and special institutions for funding the complex, up to establishing special institutions outside the banking sector. For the time being, we should make our work through the banks more effective, and subsidise interest rates on a broader scale because many companies cannot afford to work effectively with the current rates. We have to accept that.

We have set up a special commission for supporting strategic companies. As it was mentioned today, we have agreed to set up a special commission for the defence companies. It is also essential to select priority strategic companies within the military-industrial complex on the support of which the Government will concentrate its attention. This commission is headed by Deputy Finance Minister Anton Siluanov.

We'll hold similar meetings regularly, both with you and with the commission I've mentioned.

This takes care of my speech. Thank you for your attention. Good luck.