Transcript of the meeting

Vladimir Putin: I would like to discuss the mechanisms and methods of subsidizing the market economy.

Viktor Khristenko: Mr Putin, several years ago we were actively using financial subsidies as an instrument to support the real sector of the economy. At each stage and practically every year this instrument was used for various objectives.

At the beginning, the objective was to support the Russian economy (producers) in foreign markets - that is, to support the exports by the real sector of high technology, complicated products. The bulk of federal budget subsidies were provided for this purpose.

The second objective was to support the defence industry with respect to the state enterprises servicing the special needs of the defence sector.

Later, in 2007 and 2008, we provided subsidies for one additional objective - to increase the competitiveness of Russian products in the domestic market. These subsidies largely reflected macroeconomic factors such as the appreciation of the rouble and the credit rate increase. We used subsidies to provide an equal competition environment for the priority sectors of the economy.

We were able to achieve a gradual and slight subsidy increase rate. The initial subsidy volume in 2006 amounted to 6 billion roubles, while in 2008, at the time the economic downturn was starting, the subsidies totaled about 9 billion roubles. In other words, the subsidies have been steadily increasing; and not just due to volume increase, but as a result of clarifying the areas and objectives of subsidizing.

Naturally, the emerging crisis has made this instrument even more necessary. Furthermore, the crisis requires a broader diversification of subsidized areas, more refined methods, and of course increased subsidy volumes.

The first additional anti-crisis measures were allocated already in 2008 - an extra 3 billion roubles to support exports.

In 2009, we have already included in the budget, taking into account the submitted amendments, about 45 billion roubles for subsidies. These figures only refer to the real sector of industry and cover about 20 types of subsidies. More than half of these subsidies, about 24 billion roubles, are provided for the defence sector. Export subsidies also constitute a considerable portion, about 6 billion roubles. The rest covers various sectors in civilian industries.

Vladimir Putin: I believe the decision on export subsidies has been made recently...

Viktor Khristenko: That is correct; we have made that decision recently. I would like to address that issue separately a little later. Here you can clearly see the subsidy breakdown by industry in 2009. Currently, the defence sector is a priority for us; hence, the sector's enterprises will receive the bulk of the 43.5 billion in subsidies already approved by the Government. I would like to specify that these subsidies have already been approved by the Government, not just mentioned in the budget.

Some of the industries in these sectors still have not been receiving any subsidies. These industries are listed here. The subsidies are mostly aimed at stimulating demand. Out of the indicated amount, about 6 billion roubles in subsidies are allocated for leasing; 6 billion roubles will be provided for exports support; for technical upgrade - a little over 6 billion roubles.

You recently approved one additional subsidy that will be used for crediting the ongoing operations of the defence sector enterprises, contracted under the state defence order, worth 15 billion roubles.

For bankruptcy preclusion, the Government has just approved the allocation of an additional 3 billion roubles. We now have funds available, 7.8 billion roubles, to provide to strategic defence sector enterprises for bankruptcy preclusion. The state enterprises will receive about 2 billion roubles. Subsidies will also be provided for artistic crafts industries and seasonal acquisitions in the timber and light industries.

As far as the subsidies for civilian industries are concerned, the Government has done some initial planning. More precise figures and funds to be allocated will be available after the adoption of the budget. This will be the Government's prerogative. I will provide some estimates that we have made on the required funds.

We have addressed the issue from two perspectives. There are certain strategic enterprises in the civilian sector of the country's economy. The amount of subsidies that would be required for these enterprises is very large. We have taken into account the loans that the enterprises are planning to obtain, as well as the feasibility of securing them. With all these factors considered, the estimated figure is still about 40 billion roubles.

I would like to remind that the amount of subsidies allocated to the defence sector is 15 billion roubles, for the same purposes as for the civilian sector.

If we choose the enterprises in the industries related to the ones we have already been supporting, it would be absolutely reasonable to support their current operations; otherwise, it will be very difficult for them to fulfill the prospective task. The funds required for this purpose are approximately 15 billion roubles.

It is quite feasible to allocate this amount. Hence, the choice that we need to make is between the 15 billion roubles and the 45 billion roubles.

As far as the export subsidies, we have allocated 6 billion, 135 million roubles for this type of subsidy. As of today, we have made decisions on the entire amount, which means that all funds have been distributed. By the beginning of April, we had paid out 3.5 billion roubles. Payments are made based on the Ministry of Finance's payment schedule. In April or at the beginning of May, we will fully pay out the funds allocated for export support.

The recipients of these funds are mainly the high technology producing enterprises of the defence industry.

Vladimir Putin: The shipbuilding, nuclear energy, and military industrial sectors?

Viktor Khristenko: The shipbuilding sector and the auto industry are the main segments receiving the subsidy. It is very well-developed and time-tested. It is easily understandable, both technologically and in terms of decision-making. We will propose to possibly increase this type of subsidy, along with the civilian sector subsidies, in the framework of the anti-crisis funds that will be made available for the Government

Vladimir Putin: Very well, thank you.