Prime Minister Vladimir Putin addressed a meeting of the Eurasec Interstate Council

Good afternoon, colleagues,

I would like to welcome you here, to the meeting of the Eurasec Interstate Council in Moscow.

Our meeting is taking place against the background of the global economic and financial crisis.

I have to say that overall, the members of the Community have managed to avoid worst-case scenarios, and to preserve the stability of their national economies and banking systems. Obviously, our teamwork, mutual support, and the use of the integration's advantages to promote trade and industrial cooperation have played an important role here.

At the same time, it is necessary to continue building up an active concerted effort to effectively counter the global economic crisis. I am pleased to note that this approach is common for all partners in the Community. It has allowed us to undertake a number of urgent anti-crisis measures in a short span of time.

Today, we are to endorse a Eurasec plan of joint measures to overcome the consequences of the global financial downturn, and to sign a treaty on establishing Eurasec's Anti-Crisis Fund.

Strategic, systemic tasks also remain on our agenda. I am referring to the global modernisation of our economies, and the introduction of innovation. It is these factors that should become a foundation for the recovery and steady post-crisis development.

In this context, I would like to mention the decision to set up a Eurasec High Technology Centre. I would like to emphasize that both the fund and the centre are open not only to the Eurasec members but also to other interested parties. By inviting others we reconfirm that Eurasec is a centre of mutually advantageous integration.

I would also like to note that we will discuss and adopt responsible decisions. This makes the current meeting of the Interstate Council particularly important.

As a result, the Community should receive new opportunities, and build additional mechanisms for Eurasec cooperation, which will allow us to look to the future with more confidence, and to achieve tangible results for the benefit of our countries.
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Allow me to recall that Russia finished last year with GDP growth of 5.6%. In the first months of this year, GDP dropped by 9.5%. Industrial production dropped by 14.9% from January to April. Auto manufacturing, metallurgical industry, and production of building materials have been hit the hardest. At the same time, production grew by 1.5% in the agro-industrial sector.

Needless to say, it is too early to make any forecasts. As you know, world markets remain largely uncertain. Nevertheless, on the whole, the Russian economy and our domestic companies have adapted themselves to the changes, and have learned to work and even develop during the crisis.

The anti-crisis programme has been adopted and is being carried out. I have already mentioned that its funding is adequate - three trillion roubles. These funds have been allocated by the Government, the federal budget, the Central Bank and the National Welfare Fund, which is also our reserve.

Promising trends are gradually appearing it the economy. First of all, Russia has a positive trade balance. Despite the apprehensions voiced at the end of last year, trade balance has remained positive.

In January-April of this year, the external surplus was $27.3 billion. As we know now, this was a period of declining energy prices. I hope very much that Russia's export surplus will be even bigger in the second half of this year.

The rouble is even stronger than we hoped. Its current exchange rate is close to 30 roubles to the dollar, whereas in February the rate was 36 roubles per dollar and even worse, although with respect to the bi-currency basket the rouble was within the Central Bank-predicted parameters.

Russia intends to continue a responsible currency policy aimed at preventing sharp fluctuations in its national currency. This is important, among other things, for securing normal, steady trade and economic ties within Eurasec.

Russia's international reserves are again growing. Only yesterday, the Chairman of the Central Bank showed me these figures. In February, our gold and currency reserves decreased to $368 billion, whereas by June 1 of this year, they grew to $404 billion.

The flow of capital from Russia has practically stopped, which proves that investors have restored their trust in the Russian economy.

I don't mind telling you that energy prices, which are growing, are a boost for our oil companies, for the state and for the budget. The price of Urals today hovers around $67. We revised the budget based on $41 per barrel. I will speak about this later on.

Extra revenues will help us cut the budget deficit and use less of the Reserve Fund. Yet even if the upward trend in oil prices does not hold we will not have to seriously amend our plans.

This year's budget assumes a price of $41 per barrel. The budget for next year will be based on a more realistic, but still conservative forecast. As they say, we will hope for the best, but we will proceed from a worst-case scenario. In other words, our budget has a fair safety margin.

The situation in the banking sector has stabilised. Considering the falling rate of inflation, the Central Bank has decided to cut the refinancing rate from 13% - you know that this was the rate at the beginning of the year - to 11.5%.

Inflation has amounted to 6.8% since the start of the year compared with 7.7% a year earlier. In other words, it is lower than last year.

People have again been depositing money in banks. Household deposits increased by 1.6% in April, with most of the growth in roubles. There has been a dramatic decline in saving with foreign currency.

At the same time loan accessibility for the real economy sector is still a problem. In order to address it we are launching a massive programme of guarantees on loans to strategic enterprises. We seek to make the mechanisms of state guarantees as attractive as possible, both for the enterprises and for the banks.

Next, in the real sector of the economy we are already feeling the positive - if modest - effect of the anti-crisis measures taken by the Government, above all those aimed at maintaining internal demand and enhancing production technology.

That includes stimulation of the sales of domestically made cars by subsidizing loan interest rates. Of course, it is a modest step, but it cannot be anything else in the framework of budget incentives because we cannot restore consumer demand to last year's level with only budgetary solutions. But we do offer such incentives and they are making a difference in the market.

This applies to the renewal of the government and municipal services vehicle fleet, the leasing of agricultural machinery to farmers and support for automakers' investment plans.

Another measure is the vast housing programme which costs a total of ... we have calculated different aspects of it, and it works out to 500 billion roubles. It includes incentives for mortgage, accelerated fulfillment of the Government's obligations to provide housing for war veterans, servicemen and other categories of citizens, moving people out of decrepit and unsafe houses and the capital repair of blocks of flats.

Another project to be launched soon is the large-scale construction of individual houses.

The programme of anti-crisis measures includes support of some enterprises which are critical for the future of Russian industry. We will apply the formula "aid for efficiency". The recipients of government support must adopt and implement financial rehabilitation programmes, raise labour productivity, cut energy consumption, etc.

Measures to improve the business climate and support small businesses are called upon to play a major role in boosting the real sector. This year we made decisions on a drastic cut in the number of audits. My colleagues have spoken about it; we are not inventing anything new here.

By the way, we discussed these problems just yesterday at a meeting with United Russia activists. One of them is that the tax agencies in close collaboration with the Interior Ministry bodies are creating conditions for endless inspections by the police. It only takes a tax inspector sending preliminary findings to a corresponding Interior Ministry body for the Interior Ministry to launch endless inspections during the year. This fallacious practice must be abandoned.

Furthermore. Taxes on profit, small businesses, oil extraction and some other taxes have been cut. That has saved businesses and individuals about 700 billion roubles which will be reinvested in the economy.

The fuel and energy sectors must be mentioned separately. Oil production is at the same level as last year and its export to countries outside the CIS has grown by 3.1%.

Gas production has dropped by 19.3%. Our traditional buyers are waiting for price to fall.

You know how gas prices develop: they usually lag about five months behind oil prices. So, naturally the main buyers are waiting for gas prices to fall and fall they will in connection with the fall of oil prices that preceded it. In the second half of the year gas production should return to normal, we believe. Consumers will return to the market at a new price level.

Now as regards conditions in the social sphere. Real incomes are on the whole under control although of course there is a certain decline. The average wage has dropped by about 1.5% and the total household incomes have dropped by about 1%. There is a decline, but, as we see, we have prevented incomes from going into a free fall.

Let me stress that in the face of the crisis and a serious budget deficit we are not going to give up our plans to develop the economy and strengthen social guarantees for citizens.

Two problems are particularly relevant today. The first is the situation in the labour market. Unemployment has grown to 7.7 million. At the same time unemployment has peaked, in our opinion, and the number of jobless registered with the employment centres has started to decline, quite substantially in the last two weeks: first by 22,000 and in the last week, by another 24,000.

Of course, we are aware that the seasonal factor - the summer buoyancy in the labour market - has had something to do with it. Therefore our task is to prevent a new surge of unemployment in the autumn.

The overall improvement of the state of affairs in industry and special regional job-creation programmes will of course contribute to solving that task. We have earmarked more than 43 billion roubles for that purpose, of which 20 billion are already being used. Programmes have been set up in all the Russian regions.

In 2009-2010, Russia is implementing a large-scale pension reform, and that is the second area of our social policy. I would like to draw your attention to this. By the end of this year the social pension will reach the pensioner's living minimum, and in 2010 the basic pensions will grow by a further 45% in nominal terms. The average growth in nominal terms will be 35% and in real terms about 19%. That is a significant growth which will require a massive additional budget spending of about 700 billion roubles.

We are raising pensions because we are aware of our moral duty to the older generation. But I would like to draw your attention to the economic aspect of that measure. It spells growing demand, more money in people's pockets to spend on basic necessities. That will create more jobs in the real sector, in retailing, and in the services. So much for the state of affairs in Russia.

Thank you.