Transcript of the meeting: 

Vladimir Putin: Good afternoon.

As we have agreed we have regular meetings, perhaps not as frequently as we would like to, but they are regular meetings still. Today, I have asked you to assemble in order to discuss the issues connected with the end of the Parliament spring session, to discuss what has been accomplished over the past six months and the priorities for the next six months of 2009.

I would like to begin with what we have been talking about a great deal recently. It is natural that we are discussing it, so I would like to begin by talking about the crisis which affects the whole world economy and, unfortunately, the Russian economy too.

The problems are not new. They emerged practically as soon as market relations began to develop. Scholars have constantly turned to these problems, scholars and economists belonging to different schools and persuasions. Marx and Engels who studied these phenomena wrote about crisis cycles. First they wrote about 5-7 year cycles and later about 10-11-year cycles. In effect, they had started investigating the problems connected with what we call globalization when we see industrially developed nations expanding into new markets in America and Asia.

Unfortunately, no one has come up with an antidote. Nevertheless, I consider all these studies to be interesting and important and I would like to present to Mr.Zyuganov the first edition of the Communist Manifesto published in Soviet Russia, he will refresh it all in his memory and share his thoughts with us - in connection with your 65th birthday. Many happy returns.

As I said, the spring session of the State Duma is coming to a close. By tradition, we are meeting to discuss its results, to talk about the law-making plans and, of course, to exchange opinions on the topical problems of the country's development.

I am aware that the State Duma and the parliamentary parties have worked intensively over the past months. Some important decisions and significant laws have been passed connected with support of the banking system. Small and medium-sized enterprises, the network of federal universities, the development of education in general as well as legal acts to enhance the social guarantees for Second World War veterans, families with children and other categories of citizens.

Not all the parties have voted in support of these laws. Nevertheless I appreciate all the State Duma deputies for their active participation in reviewing and discussing them. In any case, discussion and constructive criticism are useful and they have helped to improve the quality of the laws being passed.

I would like in particular to recognize the cooperation in discussing the Government's proposals to combat the crisis. The remarks and proposals from practically all the parties have been considered and everything useful has been taken into account. Many of them have formed part of the final version of the decisions taken.

Several plenary sessions remain until the end of the session. The Government hopes that several draft laws will be finalized. I would like to draw your attention to the following.

The package of laws to improve anti-monopoly legislation, the laws to promote competition, counteract raiders, and improve energy efficiency.

As for plans for the autumn session, I would single out the law on trade which we will shortly submit to the State Duma. You will have heard and seen our discussions which involved experts, businesspeople and had a very hands-on character.

It is a particularly important theme. It has both an economic and a social dimension. We are talking about creating a level playing field for all forms of trade, about establishing civilized standards of interaction all along the chain from farm production to processing and sale to the consumer. In the long run it will be good for business and, most importantly, for ordinary customers. We are talking there about the interests of all the country's citizens.

We are aware of certain abuses. We respect all forms and types of business, but these abuses must be eliminated. The fact that the average markup at some enterprises on certain goods is 55-78-100% speaks for itself. This is too much. Clearly, every link in the chain has its pluses and minuses and we should treat all kinds of business equally. But the state must exercise its regulatory role.

Among the priorities are new technical regulations and additional initiatives aimed at supporting small and medium-sized enterprises. They should be offered preferences in placement of orders by natural monopolies, state corporations, federal and regional enterprises, budget grants to small business should be exempt from taxes.

I am aware that a decision has been just taken - we discussed it in a meeting with the representatives of small and medium-sized enterprises - to relieve the enterprises which had switched to the imputed income taxation of the requirement to use cash registers. I would like to thank you for passing this legislation.

True, there is one problem that should command our attention. The thing is that the laws passed contradict another law, the law on the sale of alcohol. It says plainly that alcohol may not be sold without cash registers. But let us be open-minded about this problem. We must fight alcohol abuse among the population, but what we are discussing now has nothing to do with that theme.

We know that every selling point seeks to obtain a license to sell alcohol. Obviously, they should not be located close to children's and some other kinds of institutions. We should talk about it and sort this problem out. But if we pretend that it is none of our business and that everyone will be allowed to work without cash registers with the exception of those who sell alcohol, then nearly 70% of the selling points will be excluded from the retail system and will be forced to bring the cash registers back. We do not need such lobbying on the part of those who produce these machines and the software for them. Please pay attention to this and eliminate this discrepancy.

Of course, our common and probably the most important task at the coming autumn session will be to prepare the budget for 2010-2012. I would like to dwell on that topic in more detail.

What are the fundamental features of the budgetary process that has got under way? The situation in the world, and accordingly, in the Russian economy has changed dramatically. We are living through a crisis and a high degree of uncertainty persists in the global markets. All this dictates a very careful and even a conservative approach to budgetary planning. It would be rash to count on "windfalls" in the shape of sudden changes on the market or additional revenues due to growing prices for our traditional exports.

The period between 2010 and 2012 will be one of transition from the acute phase of the crisis to a new stage of development and diversification of the domestic economy. In a way one can draw an analogy with the beginning of the 2000s when the economy was groping for new paths after the crisis of the late 1990s.

In the years ahead we are to outline the main financial parameters of a more effective and advanced economic model that we may have after the crisis. The federal budget must address that task.

In other words, we should gradually put our budgetary policy out of the crisis mode, restore normal macro-economic parameters, cut the deficit and gradually shift the accents away from financing anti-crisis measures (which are yielding and will yield results, I am sure) to a routine structure of spending with emphasis on the innovative way of development for which we have opted.

The Government is currently working to determine the key macro-economic parameters of the budget. What are the facts and assessments we proceed from? In recent years federal budget revenues have been on average 23-24% of the GDP. That is a very high indicator both for our economy and for any other economy. The windfall profits from oil and gas accounted for a large part of that growth. For example, in 2008 they topped 10% of the GDP.

It has to be admitted that such a revenue level can hardly be achieved in the foreseeable future. In 2009 budget revenue will be an estimated 16% of GDP. Assessments vary, but it will be around 16%, 15.7% or slightly more than 16%. We expect similar indicators in 2010-2012. Let me note that this is a normal and sustainable level of revenue that we can confidently count on. Let me stress that this would not require serious changes in the current taxation regime. What I would like to stress is that we have and will have the money. The question is how to make rational use of it in the current conditions, in the changed circumstances.

In drafting the budget we proceed from a moderately conservative assessment of the price of oil and gas. The 2009 budget assumes the price of $41 per barrel. Perhaps it will turn out to be a little higher, $50-55 per barrel.

The next key factor is inflation. You know that in recent weeks and months it has slowed down substantially, practically by 1.5 times compared with the same period of last year. That of course is a positive factor. But the "inflation disease" did not go away. Its symptoms have merely diminished. When the economy starts to rebound the inflation situation may deteriorate again.

To prevent inflation growing, and especially to cut inflation, first to one digit figures and then to 3-5% a year, we must above all curb the budget deficit.

Let me remind you that this year the budget deficit is 7.4%. If one counts in the so-called quasi-fiscal spending, it will be about 8%. These are the measures of the Central Bank to overcome the financial crisis. In other words, extra spending by the Central Bank.

Budget deficit must be reduced beginning from next year. I am not talking abut exact figures. We should think about it together and decide based on the finance needs of various areas of our activities: the social sphere and Government investment activities. But in any case we should seek to reduce the budget deficit.

Of course we cannot afford deficits of up to 13% that some developed economies have. As I said, we should cut the budget deficit next year and in future keep it down to 2-3%. But when I say in future, I do not even mention the timeframe. I am not going to say anything on that score, we will discuss it with you, but it is certainly a goal to work for.

I will now dwell on the key sphere of spending. In recent years our spending has been growing very fast, but on the whole I think we did the right thing because we could afford it and it was necessary to develop the social sphere, to support our citizens, it was necessary to launch new programmes - which we did - to develop the economy.

We created a stimulus for innovative activities: changes in the taxation sphere in favour of high technology, the creation of special economic zones, special funds and so on and so forth. On average we increased spending by 1.5 trillion a year. In 2005 it stood at 3.5 trillion roubles, in 2006, 4.3 trillion, in 2007, 6 trillion and in 2008, 7.6 trillion.

I would like you to take note of the next figure I am going to cite. In spite of the crisis phenomena in the economy, and considering that we had been spending freely in the preceding years, we had to increase budget spending from 7.6 trillion roubles in 2008 to 9.7 trillion roubles in 2009. One-third of the projected budget revenue was never raised because of the crisis. We cut our revenues by a third and increased spending.

As I said earlier, we can count on revenues being within 16% of GDP in the future, i.e. about 6.5-7.5 trillion roubles a year. To prevent a budget imbalance, to preserve the reserves, we will have to cut spending, but we should of course do it in a judicious and careful manner. Still, we should think about it. It is a very important and necessary decision. I would like our colleagues in Parliament and in the regions to understand it. I want to be clear: we should not allow any across-the-board mechanical cuts and we shall not allow it. In some areas we even plan to increase spending.

Basically, the decision is about the following: we should set clear priorities and make budget spending and budget programmes much more effective. In other words, everything that is not the No1 priority , everything that gives grounds for suspecting that money may not be used effectively or may be simply stolen - all this should be cleaned out of the budget.

Everything connected with the fulfillment of social obligations is top priority. That includes pensions, social benefits, demographic programmes, including the payment of mother's capital. We will remain committed to renewing education and healthcare and to finance the achievement of the goals declared in the National Projects. We should take a closer look at whether spending is effective, but we will go on with the National Projects. I am referring to payment to homeroom teachers, the development of a network of national research universities, modernization of vocational training in general as well as cancer and cardio-vascular disease programmes, the development of the blood service, promotion of the healthy way of life...

Undoubtedly our priorities ought to include innovation and high technology. This means those programmes, which are able to provide the Russian economy with a technological breakthrough. The world does not stand still, and no one will wait for us. In this sense even the tightest of budgets must include development.

Construction investment should be focused on facilities that are near completion. We need to resist beginning new construction projects in 2010. I mean, above all, projects that are due to start from scratch.

I would like to underline that our work must be based on consolidation. It is vital that we proceed from national interests. When it comes to the draft versions of the budget, there must be no room for lobbying of any kind, be it by agencies, regions or companies.

As agreed, the draft of the country's fundamental financial document will be introduced to the State Duma by October 1. Tomorrow there will be a Government meeting dedicated to preparing this most important document. In addition, I consider our meeting today, colleagues, essentially as the beginning of our traditional "zero reading." I hope I will hear your proposals.

Boris Gryzlov: Thank you Mr Putin. You mentioned that work during the spring session was demanding and it really was, as the number of laws we passed demonstrates: an absolute record 170. Moreover, these laws related to implementing the anti-crisis programme. Usually we pass 220 laws a year, but here we have had 170 just in one session. In addition, there are another 20 laws or so currently in development. They will be moved forward to the second and third readings by Wednesday and by Friday. So there will be about 190 laws. We also passed a law to push the budget deadline back from August 26 to October 1. This has been formalised into law which the State Duma has adopted.

We understand that the zero reading phase, as you called it, has begun, and it should be a very pragmatic process. We should be able to see the results of implementing the anti-crisis measures during seven to eight months - before the budget is ready for introduction.

There are a number of laws to be adopted in the spring session, about which we spoke earlier. The purpose of these laws is to help small businesses. One law is raising the limit to 60 million roubles for those small businesses that work in the simplified tax scheme. Regarding cash register technology you referred to, that law was adopted on Friday.

There is a discrepancy between various laws which we will of course eliminate during the first meeting in September. Clearly small businesses will breathe more easily. Small businesses that work according to the unified tax system for the imputed income will not need to buy any checkout equipment. This is a great support for them. If in addition they come under the simplified tax system, then the accounting audit will be even easier to perform.

Vladimir Putin: I ask that you do that, eliminate this discrepancy in laws, otherwise it will look like we have failed in the promises we made. It would be as if we'd worked everything out on paper, but in reality that we hadn't thought the decisions all the way through.

Boris Gryzlov: Good. You touched on a law on commercial activity in the consumer market; this text will be introduced soon. I want to remind you that this is the text of the deputies' draft law. That meeting, which you chaired, brought to light regulations that contain inconsistencies between the deputies' draft law and the draft law drawn up by the Ministry of Trade and Industry.

Here I would like to say that regarding retail chains, first the law needs to define what a "retail chain" is. This definition is so far not contained in the language of the draft law as introduced by the Ministry. We need to define a maximum limit for mark-ups, and then the law will have a direct effect. This limit should be set by the Government depending on the kind of product and the time period. It is a flexible system, but those limits, I think, need to be set.

Setting these limits will facilitate a significant fall in prices. And one very important aspect is that at the same time the retail chains, working within this system of mark-ups, will strive to buy goods at higher prices. This will stimulate an increase in the purchase price for the producer. So we can kill two birds with one stone, both lowering the end price and raising the purchase price from the producers.

Vladimir Putin: You mean we can kill the birds, then despatch them to the shops for sale...

Boris Gryzlov: ... It's more than several kilograms of prime cut meat...

I think this law should be adopted in September. During the summer, we will be able to work on constructive proposals and regulations under this law.

I would like to remind you that the adopted law stipulates that the Government and the Central Bank report back to the State Duma on the results of implementing the programme of anti-crisis measures. The first such report will cover the six month results. We hope that this report will be discussed in the State Duma at the first meeting of the autumn session. We estimate this will be about September 2-9.

I would like to draw your attention to another question, which affects our approach to the budget for 2010. It is understood that the budget could be approximately 16% of the GDP. But in addition to distributing the funds which are dependant on revenues, I would like to talk about the need to increase this revenue. One option is to introduce a state monopoly for spirits production.

This subject has long been discussed. If we compare the contribution to the budget from alcohol production during various periods of Russian history, in Tsarist Russia it was on the order of 30% of the budgetary revenues, in Soviet times, around 20%. Today, based on figures from excise duty revenues it is less than half a percent.

In this respect we cannot say that alcohol production today is profitable for the state. I suggest we discuss this subject. I am talking exclusively about a monopoly on the production of spirits, not on all alcohol production. This could provide an additional revenue of approximately 300-400 billion roubles a year taking into account investment.

Another important issue is raw materials resources in this country. We have probably four kinds of raw materials with a global impact. They are: oil, gas, timber, and clean water.

Regarding timber, we have 20% of the world's timber reserves but only 5% of the global timber market; that is the world market of timber product consumption. Of the 5% of our market share, 70% is the export of round timber.

Unfortunately timber is smuggled, suggesting that half the timber is taken out of Russia illegally. I suggest that this subject be considered very seriously. Earlier I suggested introducing a law banning the export of round timber, as it would encourage deep timber processing. We could create a leasing company which would offer equipment on operating leases in two very important areas in timber processing: house construction and energy.

Regarding house construction, here I include only one figure. We have companies that build wood frame turn-key houses at a price of no more than 20,000 roubles per square metre. It is a very good price today.

Vladimir Zhirinovsky: That's expensive, you can get them cheaper.

Boris Gryzlov: Well, up to 20,000 also includes 10,000, Mr Zhirinovsky.

Vladimir Zhirinovsky: 100 metres at 20,000 works out to two million. But we've already got the technology to do it for 500,000. That's four times cheaper.

Boris Gryzlov: We need to get to the bottom of this.

Vladimir Zhirinovsky: I have a procedural suggestion. First I suggest that everyone says their piece, and then when the press takes a break, we move to discussion.

Boris Gryzlov: We have talked a great deal about the need to consider alternative kinds of energy. Even by burning abandoned timber, we can increase our country's energy balance by 15%. Just by burning abandoned timber. That is not even taking into account new technology which can provide a more efficient use of timber for bio fuel and for burning in boilers.

Regarding clean water. This subject is one of the United Russia party's projects, and we have been pursuing it for three years. Now we are moving to preparing a state programme called Clean Water. The programme was prepared by the Ministry of Economic Development, and we already have 606 city and regional programme versions of Clean Water across Russia. The day before yesterday I was in St Petersburg where the Northern water treatment works used their last ever chlorine cylinder. St Petersburg has converted completely to a system of cleaning water without using chlorine, as chlorine is not just unsafe in terms of storage, but also, in interacting with organic compounds to clean the water, it unfortunately forms a toxic substance which can be absorbed by the human body.

It is the first city in the world where water will be treated with hypochlorates and ultraviolet irradiation. Russia is rich in fresh water, and I think that in the coming 5-10 years Russia will export fresh water, receiving an income from that no less than what it gets currently from exporting oil. This is currently a very important global problem, but we have 20% of the world's fresh water reserves, and we are also a leader in this area.

If you do not object, I would like to now hand the floor over to my colleagues, and then discuss some specifics.

Vladimir Putin: Yes, only if you permit me I would like first to contribute a couple of responses, so I do not forget them. I would like to give my reaction immediately.

Regarding the law on retail and the anti-monopoly package. We both know that wherever you go, whatever region, one of the first questions we are asked is about prices. Here there are many internal problems, which are partly beyond our control and we cannot effectively impact them. I am referring to the prevailing global market situation affecting the goods in question, the macroeconomic indicators linked with the global financial market, the need to make decisions related to a weaker or stronger national currency depending on the condition of the economy and so on.

There are nonetheless some factors that we can influence and which we have not yet used. You have just spoken about retail mark-ups, but I will not comment on this now, because it requires careful thought. Generally, any business or individual wants to get more, to buy cheaper, and if it is at all possible, get it for free.

However, if we take this to an extreme, we risk destroying the producer, from whom the whole process begins. We clearly cannot allow this. So what should we do? We should achieve an objective balance of interests between those who produce the product, those who process it, those who sell it and those who buy it. That is what we can, and must do.

That said, of course we must start by taking a whole number of factors into account. In fact it is a complex matter, but it can be solved. I know that the deputies have their draft law and that the Ministry has developed its own. I think the best solution would be a combination of both approaches, relying mostly on the draft developed by the State Duma deputies.

But in adopting this law all our actions must be focussed on stimulating production and making it efficient while also ensuring that an agricultural producer receives the fair income he needs to develop and improve production, and so on.

The second important aspect of this work is the package of anti-monopoly decisions. It is a very important task that we still have not been able to resolve. I have already spoken in public about this many times, and I would like to state it once again. In many developed economies, the battle with monopolistic tendencies and price fixing has been ongoing and has employed some rather strict methods. Criminal punishment and imprisonment have long been measures applied to those who break these laws. Here, corporate collusion is commonplace, which leads to monopolistic price hikes on the market among those who provide energy, food products, and services. It is a very important area which I would like you to pay serious attention to.

Now moving on. The monopoly on alcohol, a state monopoly. We need to consider this carefully, and define what we mean by monopoly. Currently the excise duty is levied against all alcohol products in the vodka section: the spirits, then alcohol production, and finally sale. Generally, this applies to alcohol products. There is a proposal to transfer the emphasis to the spirits section, and then create a so-called government monopoly in order for the subsequent links in the chain to be free from the tax burden.

Gennady Zyuganov: That is a lot more efficient and the income will be much greater.

Vladimir Putin: I agree. We need to be very careful to ensure that in transferring the excise duty to spirits there is no price increase on all spirit containing goods. That would, as you know, include many medicines, household cleaning products, food, etc.

Gennady Zyuganov: Confectionery.

Vladimir Putin: Confectionery and so on. That is why we need to consider this very carefully. And it is most important that this does not lead to an increase in prices on these goods, which is very burdensome for consumers.

Those developing the law suggest that in moving to this system, the excise duty be decreased by 50%. But at a time when budget revenues are declining, this could lead not to an increase, but to a decrease. In other words, I sympathise with this approach, but it needs very attentive consideration and calculation.

Further - timber. I completely agree that everything needs to be done to ensure deep processing of our raw materials on the territory of the Russian Federation. We have made the corresponding decisions regarding timber. We announced that we would raise the export customs duties on round timber. Today, given the global economic crisis, we must take our timber processing industry into account, because demand for this product and therefore its prices have fallen sharply.

If under these circumstances we immediately and significantly increase export tariffs, they would in practice be prohibitive and would put our timber processing businesses out of business. Here too, as in other sectors, we need to act very carefully, to pay close attention to domestic and world market conditions. Meanwhile I think that, as a strategic goal, this challenge remains on the agenda.

I have specially warned our Finnish and our other partners about this. They get a significant proportion of the materials they use in manufacturing from Russia. We are holding talks with them and will agree on the possibility of extending the previous system of customs levies for a particular period, but the strategic aim remains and we will absolutely attain it.

Gennady Zyuganov: It is very good that we are discussing this topic at the end of June and not at the end of August, like last year. Apparently, a crisis the situation dictates a different kind of behaviour and a more coordinated work on measures. I would like to thank you for congratulating me and for the gift and to say that in Europe the print run of the works of Karl Marx has increased by ten times and all the big businessmen are enthusiastically studying Das Kapital. So, it is a very good choice for a present.

But I have handed in a memo on 12 world crises, their causes and methods of combating them. During a meeting with President Medvedev he noted many useful and interesting things in it. I would like your ministers to take a look at it too. Yes, crises recurred every 10-12 years. The last two systemic crises ended in two world wars. This crisis will be more powerful than the previous ones in terms of depth, scale and possible duration, so there is indeed a lot of uncertainty and unpredictability.

We have looked at the performance of the world economy in the first quarter: out of 220 countries only 12 countries have reported growth. China is in first place with 6.5%, followed by Vietnam, 6.2%. All the Western democracies have failed dismally. So far there are no signs of growing buoyancy there. Therefore the hopes of some of our ministers that we could piggyback on the American locomotive may turn out to be groundless, at least in the near term.

We should expand the geography of interaction. It is right that you are strengthening ties with China, Vietnam and more recently Africa. We should look for a broader way of strengthening our economy. I think it should be taken into account in drafting the new budget.

As for the general strategy, I believe that the latest statement of the country's leadership on innovation and high technologies... I hear , and Mr.Gryzlov has been speaking about it more and more often, but actually we have been speaking about forests and water for the last 10 years. Projects had been proposed and much could have already been done. Deeper processing of timber could yield 35-40 billion dollars in net profits without any damage to nature. We have immense potential in that respect, but to tap it we must invest in construction, and all the construction projects across the country, beginning from Moscow City and the Byelorussian Train Station, are at a standstill. Loans are only available at 20-25%, which is meaningless. So, I insist that in discussing the budget we look thoroughly above all at the construction industry.

We say that construction gives the first push: it consumes 30% of metal, almost all the cement, brick and provides load to at least 6,000-6,500 enterprises. For example, why are the Chinese coping? I had sent a special team to study how they do it. They are currently building 60 new airports, country roads of a high quality. They have increased the size of this domestic market. So, if we gave industry such a push, I assure you, many sectors - production of timber, bricks and metal - would feel much more confident and energetic.

But I have looked at how some ministries are going about this task, and I see that they are starving industry of cash. An acquaintance of mine is building a house, he has been building brilliantly all his life, and he has all the credentials, but he cannot borrow 15 million roubles at 20% in order to complete the house. He has been struggling for three months to obtain a loan, without success. If this is the typical situation then we can hardly reinvigorate the economy.

Now about the most important approach. The world has proved to be unprepared for innovation development and new technologies, even the powerful American and European economies are stumbling upon it. Only 1% of our products are high-tech. I spoke at the last meeting, you have heard me, I said that almost all our programmes connected with scientific innovation and high technologies have failed, they have been spread thin over all the budget line items. I think no more than 25% of these programmes have been fulfilled. And yet there is an abundance of genius and talent in Russia. Unless we conduct an inventory of all the interesting discoveries, all the schools - you have visited many exhibitions and you have seen it all - unless we establish tight control over the spread of these discoveries and their financing with an eye to the end result, we have no future.

I think this is one of the main areas of effort which can give a big push to all sectors from agriculture, household appliances to space and all the rest.

You recently dropped by at Pyaterochka, or was it Perekrestok? I liked the idea.

Vladimir Putin: Perekrestok.

Gennady Zyuganov: You looked at the markup. I'll tell you how it is growing, starting from our field. We have just held meetings in all the regions...

Vladimir Putin: I did not just come for a look-see, I had representatives of the processing industry and retail networks with me. We looked on the spot at what happens to the prices when the good passes from processing into the distribution network. I did it on the spot so that they do not pull the wool over my eyes in the quiet, well-appointed Government building.

Gennday Zyuganov: I would like to commend it, this is the right approach. Look, we have just held meetings in Khabarovsk, Tomsk, Ulyanovsk and in Altai region. I am just back from Rostov Region. Good fields, good crops, high-class cattle breeding and meat and dairy production is well run in some farms.

They produce meet and it sells. They no longer sell milk at 6.5-7 roubles per litre. But the retail networks sell it at between 30 and 50 roubles. This is more than 100% markup, it is multiples. Nowhere in Europe do they have a markup of more than 50%.

So, maybe we should urgently pass a law or whatever: milk is profitable today, as in Rostov Region, beginning from the price of 11 roubles per litre.

If they continue to procure at 6-7 roubles, pedigree cattle will simply be slaughtered. They are desperate: they took out loans 5 years ago, they can no longer pay, they have no land, balanced feeds cost a lot and so on.

Vladimir Putin: Do you support our position in the dialogue with the Byelorussian colleagues? I don't quite understand who is desperate.

Gennady Zyuganov: It is not about the Byelorussians. It is not the Byelorussians who buy in the fields in Rostov Region at 7 roubles, it is our own people. I discussed this problem at length with the Minister yesterday. She wants to correct...

Vladimir Putin: If dry milk is several times cheaper than ours then our milk producers will be unable to sell it.

Gennady Zyuganov: Many cannot even afford to buy a bottle of milk. If, say, the average pension is 3,500 roubles, the utilities rates take 2,000 -- the rates have again jumped by 40% -- that leaves 2,000 roubles for 30 days, you cannot afford a bottle of milk and an extra loaf of bread.

This is the first position. The second has to do with meat. I don't want to spell it out to save time, but you understand that it is the same situation. Diesel fuel was 14 rouble per litre - that's after you brought pressure on them - but now it is 18 roubles again.

Vladimir Putin: Yes, that is correct.

Gennady Zyuganov: The harvesting season is starting. So, what can he do?

Last year we procured... We discussed it with you five times. You gave a powerful impetus at the time, and Mr.Medvedev supported you actively, we procured 8.2 million tons of grain, but we could have bought 15 million. Unless we pay 6,000-6,500 for a ton of gain this year they will not buy harvester combines or tractors from us, they won't be able to.

Do a good turn to a charming female minister. She proposes that a contract be signed in advance to buy this grain. We can buy 15 million tons. We import half of our food. If we do not stock up on grain, milk and meet - and 7 out of 10 pills are also imported - considering the crisis we will become beggars by the time winter comes. We will be in a difficult situation. It can still be corrected. If a decision is made in advance all the parties in Parliament will back you.

I see that your United Russia party has also started giving a thought to economics - things are looking up. As for science, please recreate the State Committee on Science. As it is, nothing is being done in the way of coordination. How much have we earmarked for science? 130 billion?

Plus 40 billion under other line items. 170 billion is a lot of money. I have just been in Taganrog. Sapfir, a start-up firm, has made a great invention. Sapfir does everything from good glass for watches to spaceships and rocket tailings. The Chinese are wooing it. But they cannot do anything, they are squeezed from all sides and nobody wants to support them. I believe that we may be looking at a breakthrough there and corresponding revenue gains.

Last time we had a very good discussion with you about aviation, agricultural machine building and the engineering industry in general. Everybody tells us that our goods are shoddy. In 1956 the Volga car won a prize. Chaika won a gold prize. Our first self-propelled harvester combine won a gold prize. But now, it seems, we have no cars, no technology, nothing. Before long we will stop building rockets, although we could do all these things. I would fund and strictly monitor the programme that was launched at the time.

Regarding alcohol. We can derive huge profits. We have submitted the proposal and validated our projection that revenues could be increased 20 times. At present we get 20 billion, I think, from excise. And we could get...

Vladimir Putin: One trillion.

Gennady Zyuganov: Yes. 40,000 people die from fake vodka. If you have alcohol, sell it to a private firm or to the state and the money will go not to these crooks who are lining their pockets.

Finally, about natural resources. I almost hear you say, "here we go again." If you look at proven resources, we have 160,000 dollars per person. In Europe the figure is a mere 6 dollars and in America 16 dollars. Why are all the natural resources controlled by 15 clans? They have not laid a single good pipeline, they have not discovered a single new field and so on. They have proved to be wretched owners. And they were the first to queue up for Government bailout money.

A whole number of decisions could be taken. We brought Mr.Gryzlov a whole package of Norwegian laws, they have 20 oil laws. They have extracted the oil and planned how to spend all the money. They paid for free education, medical service and foreign travel 20 years ahead. They are at the top of the human potential league. Only a short while ago they were a backwater. We have water, forests and black soil. Lake Baikal has 24% of the world's clean water, it would take a year to fill it if all the rivers of the world were flowing into it. We have colossal extra sources of revenue. We could make very effective use of all this.

And the last thing: human resources. You should strengthen your team. Your financier will ruin your finances. You see, you cannot organize production if the head of the enterprise has nothing. Land is not his. The buildings and premises are not his. On paper he is the owner. But in reality he owns nothing. He is not the master. He cannot do his own financial planning.

And come the new year all the tariffs jump by 20-25%. The budget has been put together and is to be adopted at the grassroots level, and then all the indicators are changed and you have to start planning from scratch. You cannot plan even three months in advance.

Let me pass on to you the opinion of teachers and scientists. Fursenko's "guessing game" system which produces Anglo-Saxon robots will ruin the mentality and education of our people. Can you translate Sholokhov into the terms of this system? Or the poetry of Pushkin and Lermontov? Or the beautiful prose of Turgenev and Sholokhov. This is rubbish. This is not literature or history or a world view, or assessment of great military commanders - they cannot be assessed in terms of "yes or no". This is pathetic. They bring up nuts cases.

They have chosen the worst of all options. The Russian classical school, the Soviet school. In Israel they use Kiselev's mathematics text-book. It's mathematical poetry.

Look at the test results, but don't ask Fursenko, ask those who understand and know the school from within. This is pathetic. He is ruining the last good thing that we have. Please get rid of him as soon as possible, otherwise we will be left without education.

The Japanese have made a decision to have compulsory 17 years of education. We have 40 million pensioners. We used to have 6 million invalids, now we have 12 million. We had no drug addicts, now we have 6 million. Three million children do not go to school. He cannot even get them to go to school and provide them with text books. He keeps harping on the merits of his "guessing game" method which cripples the mind.

These then are the three key areas headed up by people who are incapable of leadership and of solving strategic tasks. Unfortunately, the crisis looks like getting worse.

There will be a spate of bank defaults in August-September. We should think what to do about it. There are already 7, in fact nearly 8 million unemployed. When children grow up, there will be no jobs available to university or high school or trade school graduates. Meanwhile they all play the "guessing game" instead of doing on-the-job training, youth work teams, providing more free university places for straight-A students, more places in post-graduate education, engaging young people, preparing a law on the first employment and so on.

To sum up, many things can be done, and you have the right ideas, but this team is not up to the challenge of the crisis. It has to be strengthened as soon as possible.

Vladimir Putin: Thank you very much.

With your permission, I would like to respond briefly, especially to the charge that we are trying to piggyback on the American economic model and the American economy.

You made a slip that shows this is not the case. Our main priority is the CIS countries, both in foreign policy and economics. We have the highest degree of cooperation there. This is a given which has to be reckoned with even by those who do not want to promote closer ties. But I don' know of any such people in the Government of the Russian Federation.

Not only do we have a high level of cooperation with these countries at the production level, we have a unified transport system  and in fact a unified power grid. This is the foundation of any economy.

And there is another important humanitarian aspect, the Russian language. These are highly relevant factors that are being used and will develop.

You may have noticed that after many years of negotiations on the accession of the Russian Federation to the World Trade Organisation, while we have not stricken it off the agenda,  we now give priority to the creation of a Customs Union of Russia, Byelorussia and Kazakhstan. That is a clear pointer to our priorities. Just recently the first BRIC summit (Brazil, Russia, India, China) was held in Yekaterinburg. We will invigorate that area of our cooperation.

We support and we were among the initiators of creating an international currency on the basis of the instruments at the disposal of the United Nations. The idea has been backed by 140 countries at the recent UN conference.

These are the long-term tasks. They take time, steadfast and not conflict-provoking work in world markets and joint decisions. There should be no revolutions there. They will do nothing but harm.

We have huge gold and currency reserves and they have been growing recently. They already stand at 407 billion dollars, as the Central Bank Governor told me yesterday. The growth has stopped temporarily, but only because the Central Bank does not think it is practicable to buy currency now. The reason I mention it is that some of this money is in dollars. We will do everything neatly, without causing damage to anyone and proceeding, above all, from our own interests.

As for the construction sector, I completely agree with you, we in Government also consider the construction sector to be a key driver of our economic development. I would also like to draw your attention to the following fact: This year we are devoting more public funds to the construction sector than in the past. That is the main thing I wanted to note.

You have mentioned that in several countries, such as the People's Republic of China, great attention is being paid to this, and that they are increasing their social infrastructure funding.

So what, then, are we doing? Exactly the same. Major building sites, which are either fully or to a significant degree state funded such as the Olympic facilities are employing thousands of people, thousands of new jobs have been created. A huge number of Russian corporations are working in cooperation. You can also see this in the preparations for another major project in Vladivostok, the Russian Far East - the Asian Pacific Economic Cooperation Summit (APEC) in 2012. It is evident in the development of, the support for and the increase in financing of programmes that provide housing for military personnel and World War II veterans. It is there in the expedient use of maternity capital to pay off mortgage debt. It is also present in the support we have provided for the mortgage system, defence, and agricultural construction. Finally, it is evident in utilities reform and associated funding.

Last year we allocated a little over 50 billion roubles to these ends, and this year the figure has already exceeded 100 billion. During the crisis we are doing this specially to support the construction sector. But transferring budget funds to private companies would be a mistake; it is not possible and would damage the budget process as well as our ability to honour our social commitments. Overall we are spending about 1 trillion roubles on the construction sector as a whole. This is a huge sum, significantly greater than the amount spent last year.

As for interest rates. This issue not only affects the construction industry, but as we know, it touches all sectors of the Russian economy. Interest rates really are quite high and Mr Zyuganov and I are in complete agreement.

In addition, due to the fact that we took measures to stabilise the financial sector, we not only succeeded in raising the liquidity of the national banking system - this is in addition to the fact that capital flight from Russia has practically stopped and continues only in small quantities, which is an entirely normal occurrence - moreover, the Central Bank has succeeded in significantly lowering the refinancing rate.

The Chairman of the Central Bank reported to me that they are considering a possible future reduction in refinancing rates. I hope that this will have a significant and positive impact on the activity of the banking system as a whole.

Next issue: intervention on the grain market. I am in complete agreement with you: Last year and the year before we also intervened and this had a significant impact on supporting market prices. In addition to that we need to find a rational balance here. We should be careful in our approach, to ensure we don't obstruct our businesses to further open the field up to exports. Because if we were to cede anything in this sector, then winning back those external markets would be a long and wholly difficult process.

Gennady Zyuganov: We're going to see the grain elevator and storage businesses freeze...

Vladimir Putin: Thank you, I will look into that. We have already talked about excise duties on spirits. I listened to your views, and will take them into account. Here, as I understand it, both United Russia and the KPRF support it.

In fighting alcoholism, first we need to use those measures we spoke about earlier. These include promoting a healthy lifestyle, and also making specific administrative decisions. It is not right for vodka to be on sale near a kindergarten, school or even a university. We need to look at that. There is a lot that can be done to improve the situation here, but we must be sure to avoid any return to the negative experience of Soviet times.

Now, natural resources: regarding their being controlled by a small group of inefficient owners. In my time we did a great deal to move away from the dominance of the so-called seven bankers. I think that there is no going back to that past.

Our oil and gas companies are developing successfully. They have certainly become multi-faceted and multinational. It is a sound process and we should continue to support it in the future. The capitalisation of oil and gas industry last year achieved great heights. This year with the fall in the price of raw materials capitalisation has clearly fallen. We do not consider this a catastrophe. Everything will recover. I do not doubt that for a second.

As you noted correctly, we have huge reserves which exist nowhere else. And the demand for these goods on the market can only increase. The effects of the crisis will pass, and the demand for these goods and their, price, will rise.

Yesterday we discussed with our Dutch partners from Shell the problems of one particular region, Yamal. There we have over 11 trillion cubic meters in confirmed gas deposits. We talk about the Shtokman fields all the time, and there, there are 3 and a bit, or 3.5 trillion, and people say it is one of the largest in the world. But in Yamal, there are over 11 trillion, and that is only in one location.

I am not even talking about Kovytka or other deposits. Ours really is a very rich country, but we need to act rationally relative to this, as in other cases.

Regarding what is under development. New deposits in East Siberia are being explored. Rosneft is working actively on new deposits, as are Surgutneftegaz, LUKoil, Gazpromneft, and Gazprom itself. New infrastructure facilities are being built, and construction work is proceeding for our pipeline system to the Pacific Ocean. We have concluded an agreement with the Chinese to build a branch of the pipeline to China. We recently held a routine meeting in Moscow, and confirmed our proclivity toward this project. Our Chinese partners...

Gennady Zyuganov: And have they confirmed their loan?

Vladimir Putin: They have not simply confirmed it; they are giving us $25 billion.

Gennady Zyuganov: At an interest rate of 6%?

Vladimir Putin: No, the interest rates are very good, almost on concessionary terms. Not just for the pipeline construction, but also for the development of the oil and gas industry. This cooperation is for the long term. In essence, we are developing a strategic partnership.

They have in practice begun work on their territory, but we will nonetheless build our pipeline to the Pacific Ocean, to make sure that this market doesn't have only one consumer, and so that we can expect world market prices in the Asia-Pacific region.

Regarding staff. Of course personnel need to be constantly refreshed and renewed, and people need to be supported in improving their skills. Strange as it may seem in the current climate this is not difficult. Because current conditions confront us with very difficult and serious challenges, they require we all improve our qualifications, from me personally to all the members of the Cabinet.

Regarding the financial system. Judging by the way the financial-economic bloc dealt with its problems at the end of last year and the beginning of this year, we can at least expect for our financial system to survive and remain reliable.

The difficulties of getting money into the real sector of the economy remain. But we will talk about that a little later. That problem still exists, but there is a lot we can do about this, to ensure that money from banks that are sufficiently capitalised goes into the real sector, in significantly larger volumes than has been the case to date.

I am aware of the problems linked with the Unified State Exam. I do not want to go into details here but at least there is one positive factor, which is that the process is resilient to corruption.

Today if you call a close friend in any university in the country and ask them to make sure a certain applicant is admitted, they will simply shrug their shoulders and say - the applicant has to pass the Unified State Exam. But joking aside, there are many problems, and the scholasticism of the decision-making process in this sector is one problem, I agree entirely with you, but the anti-corruption element is a patent fact.

Now regarding non-payment. Non-payment is possible, we have a safety cushion, we have built that into this year's budget, and we will make allowances regarding next year. There is no doubt that significant failures in the work of major financial institutions will not be allowed. Regarding small businesses, medium and small-sized financial institutions get into difficulty even in good times, if their financial and economic policy is dangerous or inefficient, if they increase bonuses, lower their interest rates too much, raise them on loans issued, or inflate the interest rates on deposits. It is immediately clear that the higher the interest rate is (for deposits), the less reliable the financial institution is, because it cares more about attracting clients whatever the cost. How they proceed is unpredictable. We should keep this in mind, and no serious failures in the financial system should be allowed.

Now regarding employment for school and university graduates. This really is a problem given the crisis. It is not universal, but in our estimation, on average about 11% of those who leave higher and secondary educational or technical training institutions experience difficulties finding work. This varies region to region. In the South it is a big problem. In the central part of the country it is less of a problem, but on average nationally it is about 11%. We are due to talk about this today and will think about what can be done.

Mr Zhirinovsky, please go ahead.

Vladimir Zhirinovsky: On the overall question of the crisis: This is a normal occurrence. There's no reason to frighten people, to remember Karl Marx - the man never worked, he relaxed and observed what was happening in the economy. Every decade in human history, mankind experiences a crisis, this is the norm, and we need to be ready for it and not think about the fact that it has happened. That is why we need to see it as natural. The lending policy is the most important factor in the economy's recovery. This is a classic; you don't need to read Marx or anyone else. That is why the cheaper the loans, the longer their term, the better.

Regarding the alcohol monopoly. The LDPR position has long been that there should be a national monopoly, a state monopoly, on the production and sale of all alcohol, sugar and tobacco. These three products are used by nearly every citizen in the country almost daily, and that is big money. In the morning the country wakes up and starts living, and by evening huge money has been made from the sale of these products. There is no way this should be handed over to the private sector.

Why am I talking about sale? If we introduce a monopoly only at the factory where alcohol is produced, then again they will go back to making vodka out of illegal spirits at those places that produce spirits. By day, state spirits, by night black market. That is why the strictest control is needed right to the point of sale, because there they can pass off fake vodka as the real thing. That is why it needs to be studied.

I agree that nothing can be done immediately, but further regulation would result in increased budget revenue. Also, regarding sales, limits can be introduced, maybe not at 11 pm, maybe at other times, but in large stores that can monitor the quality.

As for agriculture, we are in a tight spot as there are no consumer cooperatives. There are procurement organisations for meat and grain, or in other words, for making stock. In spite of all the problems, agricultural production continues but there are no sales or distribution. They cannot transport it, process it and more importantly, sell it. This would be another great support, if we resurrected the consumer cooperatives. They existed; we've got experience in Russian conditions. Abroad you might have to transport something 5km away, but here sometimes it is hundreds of kilometres.

And the monopoly, the battle with monopolies is external and internal. Regarding the pipeline, for God's sake let the branch line go wherever, but it must get to the Pacific, to Nakhodka, and the market there. Let the Chinese, Japanese, Koreans, anyone buy it.

Vladimir Putin: You know in a very short period of time we built up massive capacity in the Baltic. We have just mentioned, as you have, Mr Zhirinovsky, the Pacific, but we created something entirely new in the Baltic...

Gennady Zyuganov: In the Leningrad Region...

Vladimir Putin: Yes, in the Leningrad Region, and in the Primorye Territory. From absolute zero we built up a massive port. If in Novorosiisk the volume of oil products transshipped hardly increased, if it increased at all, then in the Baltic it grew from zero and outstripped the transshipment volumes in the south of the country.

Vladimir Zhirinovsky: It is vital as a general development formula for the economy: not to allow a monopoly on production, processing or transportation; and to sell to everyone. Overall foreign policy must be neutral. With the West there should be defined, business-like relations, as there should be with the Far East (Japan, Korea China) and the South (the Islamic world, neighbours first of all - Turkey, Iran and to a degree, Afghanistan).

Getting back to agriculture. Apart from the need to reintroduce consumer cooperatives; it is long overdue. Unfortunately we have no agencies left. I remember the Soviet ministers of internal and external trade. But in the last 15 years I can't even remember who we have dealing with trade, internal or external. He must be such a quiet man, sitting there so quietly in his office you hardly notice him...

Vladimir Putin: There's no one sitting in that office.

Vladimir Zhirinovsky: Just sitting in that office, nothing else.

Given the possible growth in unemployment, this is a natural process worldwide, it can go up to as high as 10% or more. How can we here create jobs quickly? We need something like the Presidential resolution of 1992, or a law on trade regulating the market.

So there is this law which is being drafted now, a general law. We have retail chains and well-known goods, and we know how they are transported across the country, and people sell them. We should let people trade freely, let them once more set up trading stalls and sell what they want where they want. That includes small business. Let them do whatever they want without any permits. And we should make sure the police stop operating protection scams, and that the bureaucrats make sure this law is implemented or that there is a new law on grassroots free trade, on the streets.

There's no need to eliminate the markets, squeeze out foreigners, traders - we should have them all, and at the same time set up stalls in another part of town. There will be competition, and an opportunity to enter the market. Because that is a problem today. If we stop them, there will be shrill objections. No, let them go and trade. They have things to sell, people have collected enormous amounts of things. In the past, they used to go to the pawnshop but you've got to wait there...

Small business. Trading premises. Ex post, without a preliminary permit. If a space becomes available in your building, just tell the local authorities that your business is moving in tomorrow. No permits needed. A Russian passport and that's all, nothing else. In two years or in six months, you can sign a rental agreement at a basic rate, as well as for the land. Give it for free to people if it's for housing. Only if it's for housing - for free.

Mr Gryzlov said 20 or how much was it?

Boris Gryzlov: Up to 20,000 roubles per square metre.

Vladimir Zhirinovsky: 20,000 per square metre ready to move in. There are companies that can do this for 5,000. Imagine, there's not even a market and they're already prepared to lower the price. Imagine - cheap housing: 500,000 for a house, and they are already living there. Lets give them interest free loans to buy materials, let them build it themselves. When companies are ready to build them that's one thing, but this is the people themselves. Give them a plot of land for free, an interest free loan for construction costs, and there's unemployment, family and demographics sorted in one go, as well as the land connection. He would have free no time to protest, or to lead an unhealthy life. The healthiest lifestyle of all is in the village. We won't only be giving people loans...

We do not issue loans only for the purchase of construction materials. Anyone is free to buy farming machinery and cattle. Instead of funding, we issue purpose loans. We will pay any specific bank or company for construction materials being requested by anyone. We will also pay cattle and farming-machinery sellers.

We will provide the impetus to people from the very outset. Everybody is talking about small businesses and trade. We must implement such resolute measures, and the surplus workforce will start tackling this issue. We have resources, including land, funding and the people's desire to live in single-storey wooden homes with an area of 100 square metres each. Most importantly, this is a healthy situation.

Those who are still unable to pay for gas or to receive pipeline gas can use firewood. Two billion roubles' worth of timber rots away in Russia each year. Instead of letting it rot, we can use this timber as cheap heating for the new homes.

Naturally, the road problem exists. It was our pleasure to support the Federal Road Agency (Rosavtodor). Although I am not saying we must issue mandatory work visas to CIS citizens, we should study this issue closely. They can come here as guests and tourists for a period of up to three months. Those wishing to stay in Russia after that time must apply for work visas. This implies visa-free access for everyone and work visas for those wishing to stay on.

We will drastically expand our labour market and will curb crime and illicit drug trafficking. Afghan drug trafficking volumes now match global heroin trafficking before the U.S. invasion. One country supplies just as much drugs as the whole world, and Russia receives 70% of Afghan drugs. However, drug trafficking involves people as drugs do not fly through the air. Every regional migrant worker will bring one gram of drugs in his pocket, and the law cannot limit this.

Vladimir Putin: Yes, it can.

Vladimir Zhirinovsky: Speaking of one gram, it is hard to check couriers and to prevent them from coming here. Work visas will help us greatly in this respect.

As far as job programmes are concerned, young people, school and college graduates need to find work. Military personnel who have finished their service will also be discharged from the Armed Forces this October. Many office workers have also lost their jobs.

We have to create job schemes for them. The well-educated office workers must aid the development of small businesses and, if necessary, they must also help conduct population censuses. Instead of paying unemployment benefits, we must provide real jobs to them. Otherwise they would stay home, and new Karl Marx-style theoreticians will appear among them and will start assessing the economy. Let them work! Censuses are primitive. But let them visit families and receive all the complete information.

Vladimir Putin: Mr Zhirinovsky, they do not have a Friedrich Engels who supported Karl Marx.

Vladimir Zhirinovsky: Employment programmes, informatisation. Let us recall the 1920 programme for eliminating illiteracy. What we need now are programmes to eliminate legal and economic illiteracy. These office workers can accomplish this objective.

There are many unemployed lawyers. Where will the 25,000 Tomsk graduates work? St. Petersburg Governor Valentina Matviyenko has promised to find jobs for 75,000 graduates, while there are three times less people without jobs in Tomsk.

Let's involve them all in the new programmes. IT experts must tackle their relevant issues, while economists must compile surveys on the Russian economy. Let them cross-verify with all legal entities. In other words, let's give them jobs. If we are paying unemployment benefits, we should better provide them in the form of labour activity, so that they would not sit back and relax.

We will have to tackle all these issues, no matter what. If we want to provide jobs, there are several programmes, including the elimination of legal and economic illiteracy and conducting censuses. They must have something to do. We can select such people.

There will be no unemployment. They will find jobs and will earn a reputation for themselves in the course of their work. Although there are vacancies, nobody knows how this or that person is going to work. Their initial performance must be assessed. Let them work for six to 12 months at the expense of the state. After that, they will be offered jobs at town and city councils. Or they will become organised and will receive the opportunity to work for themselves. In that sense, the state could support them.

Ministerial officials will not implement specific programmes, if they are told to do this, because such programmes are directed against them. It would be better to instruct specific commercial companies employing the best deputy ministers ousted by the current human resources policy. But they have knowledge and the motivation to display their capacity for work.

It is therefore absolutely possible to solve the unemployment problem, and this will not cause any social upheavals. The loan policy will facilitate a recovery. Add to this assistance to our farmers.

Firstly, we can build housing closer to the countryside and small towns. We must also promote consumers' cooperative societies, curb prices and pass trade legislation. The Japaneseparliament annually stipulates staple product prices and is not afraid of cutting budgetary allocations.

Our trade chains would stipulate prices and price surcharges if our Government does everything. There are 10% price surcharges at every stage. A 10% surcharge is stipulated during initial product deliveries. Food processing companies and stores each stipulate 10% surcharges. This totals four times by 10-40 % and even 50%, at most. Everyone will understand this.

Let every producer state initial prices, so that a unit of produce worth 10 roubles would cost 14 roubles at stores. 40% price surcharges are something normal. However, a packet of milk costing 40 roubles exceeds initial prices several dozen times over.

First, this is a way to curb price surcharges and second, to stipulate profit rates. Global profitability rates a total of 20%. If I sell products and my profitability rates exceed 20%, then the state must pocket the surplus. The same can be said about trade chains posting 90% profitability rates. In that case, I would find it unprofitable to raise prices because the state would react accordingly. The market-economic concept, this one I am telling you about, is being implemented all over the world. I am not making anything up. Global profitability rates a total of 20%. The state pockets everything in excess of 90%.

This can already be done, so that we can finalise specific standards in the next three to four years. Naturally, we must charge global prices while trading with any of our customers. We must make concessions to people, as nobody will ever be grateful. All this amounts to free gifts or understated prices. Everybody must get used to European prices; this will allow healthier relations with our neighbours.

The ongoing crisiswill make them change their opinion of Russia because crises have sometimes led to wars or the reconstruction of a major state. When small regions that have seceded find themselves on the brink of destruction and are ready to rejoin a major state, then this would seem a good option in such conditions.

I don't completely agree with Gennady Zyuganov on the Unified State Exam issue because this exam system has far more positive aspects. First of all, take a look at just one exam. It is such a huge stress to take graduation and entrance exams as this leads to major health consequences for school graduates.

Second, you can take the Unified State Exam at home, without going anywhere. This, too, helps save federal funding. Some school graduates who did not enroll at colleges and universities came back feeling dejected and are now staying home.

Third, you can apply to any Russian college or university. Just imagine, one graduate who failed his or her entrance exams is staying at home, while another one can write to a hundred colleges, and one of them will eventually accept him or her. The Unified State Exam concept therefore has far more positive aspects.

The ten-minute regular exams will never allow a student to discuss the characters from stories by Leo Tolstoy or Anton Chekhov in great detail. A student can write something about "Mumu" by Ivan Turgenev or "The Captain's Daughter" by Alexander Pushkin, using a crib in the exam. But he or she can choose from several answers during the Unified State Exam.

You simply do not understand the essence of the Unified State Exam. You can choose from several answers, you don't need a crib and you don't have to bribe educators. This allows parents to save money. Do you know that bribes now total 150 billion roubles? This year, all Russian families will save 150 billion roubles on bribes because the illicit turnover was like the one mentioned by me before the Unified State Exam.

There is a plus here. I agree that every exam has its drawbacks. The best idea would be to completely abolish all exams because our colleges and universities have more vacancies than can be filled in by prospective students. However, the number of college and university entrants will dwindle. And so, we can discuss specific issues and make something happen. But what does Andrei Fursenko have to do with this? The State Duma passed this law, but the Liberal Democratic Party of Russia did not vote for it. But we now agree, and they are forcing us to toe the line.

Gennady Zyuganov: I didn't even think of supporting ...

Vladimir Zhirinovsky: All things new receive a hostile reception. Any school students would feel ashamed because they don't know that somebody is paying bribes for them. They think they have enrolled at colleges and universities. But, in reality, their parents have paid for them. We are training future corrupt officials.

When the parents of 17-year-old students have paid for them, they are already taking the road of corruption; they know what their parents have done. They will subsequently tell professors to give them good marks because the professors have been paid handsomely. The same can be said about their future careers. I think this is a mistake.

Science is very important. There are many talented people and inventors. However, they and all construction projects are running into a bureaucratic wall. This is outrageous.

It is impossible to start doing anything in this country. High prices remain without any programmes. We must give officials a shakeup. We do not necessarily have to imprison them. We must get rid of them because they hinder construction projects. Those agreements hamper everything. Bureaucrats receive money at every stage.

Gennady Zyuganov: Mr Zhirinovsky, 150 signatures must be collected.

Vladimir Zhirinovsky: You see? It's impossible.

Gennady Zyuganov: This takes two years.

Vladimir Zhirinovsky: They are doing this deliberately.

Gennady Zyuganov: This construction project has been dragging on for 12 months. In the past, it could be completed in six months.

Vladimir Zhirinovsky: I'll give you a letter. The land plot is vacant. No funding is needed. What is needed in order to prevent Moscow and the Federal Agency for State Property Management from intervening? We don't need money or anything else to prevent them from meddling.

For instance, a land plot has remained vacant for many years. But I won't be allowed to build anything there. There are many such empty spaces all over Russia. They are asking for money. Nobody is begging for money. The people are suffering, while officials are engaged in sabotage. This is what happens, for the most part. The situation is not only linked with corruption; the economy does not develop.

Why are you attacking Alexei Kudrin or Sergei Ignatyev? Take a look at all those low-level officials at every town hall. They are waiting and demanding money everywhere and slowing down our work. I am opposed to bloodshed and repressions. But while we have to remove them, oust them and install young college-and-university graduates, let's remove all those who have been hindering the process for the last 20 years and who have been working since the Soviet period. Can you imagine what they think about the new economy and what their world outlook is like? You should install honest and ambitious young people who will tackle these issues faster. Low-level officials are a major hindrance.

Vladimir Putin: Thank you. I will not revert to the alcohol issue because we have discussed it twice. I have heard your viewpoint concerning, tobacco, sugar and the entire production chain.

Although Russia has consumers' cooperative societies, they do not develop in the required way. I completely agree with you that this calls for additional attention. You are absolutely right here.

And now a few words about trade businesses. Mr Zhirinovsky, everybody wants to liberalise this sphere to the maximum possible extent. One aspect causes apprehensions: the lack of any state control could create certain disproportions. They would start selling dog meat, rather than rabbit meat, at roadside cafeterias. But we are not Koreans, and our culture is different.

This issue requires serious additional assessment. Most importantly, we must not impair consumers' interests. Still, I completely agree with you that we must discuss the subsequent liberalisation of the trade sector.

Housing construction is a high-priority aspect of our work. In the past few years, housing construction expanded greatly and developed at an unprecedented pace. This market posted substantial growth rates. Naturally, bloated sectors suffer most of all during the crisis. But this does not mean that we must leave them to their own devices. We must help them. I also mentioned this, while replying to Mr Zyuganov.

In addition, I want to tell you that we have established a fund for facilitating housing construction. The fund controls available, state-owned land plots. Unfortunately, the fund has not yet started operating in full volume. We must also think how to reduce red tape in this sphere and how to assist its development.

All of us must focus on just one problem: large farmlands have been removed from circulation. In our striving to resolve one issue, we might aggravate another one and change the status of farmlands without sufficient reasons.

It is obvious that some farmlands around major cities will probably never be used to grow crops. But this requires a special, attentive examination.

Speaking of the foreign workforce, this has become an extremely acute problem today. We can issue work visas. All of us realise that any CIS citizen simply vanishes into thin air, after entering Russia, where there is no visa system. The issue of work visas will differ little from those attempts now being introduced by the Federal Migration Service.

We have another problem that must be solved. And we must think of ways to accomplish this objective. Foreign workforce quotas are currently being stipulated and formulated by constituent entities of the Russian Federation and subsequently approved by the Government. Although we reduce such quotas, the problem is that these regional quotas are not linked with specific enterprises.

When a foreign citizen enters a region under such quotas, he or she does not necessarily work at enterprises requesting such quotas. We should discuss this issue and find ways of eliminating this discrepancy and problem.

Speaking of unemployment benefits or involving people in any paid works, it would better to pay for specific products or services. But to completely abolish unemployment benefits would be both excessive and erroneous.

Many people are unable to find jobs despite our efforts. It is the state's duty to support them. Consequently, we do not plan to reduce unemployment benefits but intend to expand employment opportunities.

This year, we allocated 43.7 billion roubles for implementing regional labour market expansion programmes, and you have supported this decision. One ought to describe such programmes as sufficiently effective.

They are being drafted together with regional state power agencies. Regional governors and their deputies are directly involved in drafting such programmes in line with regional specifics. We have spent just over 25 million roubles from this 43.7 billion-rouble sum. If need be, we will ask you to increase the funding. But this is not yet necessary. We will request additional funding if the need arises.

How is the funding being disbursed? First, it is spent on the so-called public works mentioned by you, Mr Zhirinovsky. Such public works are quite diverse, and I believe their list could be expanded.

The funding is used to implement personnel training programmes, so that the people could adapt to changes and find jobs in areas where they had never worked before and to receive new professions.

The funding is used to support all those who are ready to relocate to other regions facing workforce shortages. Unfortunately, we still lack the traditions of relocating from place to place. This is explained by housing shortages. Maybe we should cast our thoughts on this? We should think how to help people to relocate without any losses and probably even to raise their living standards. We should think how to support families. We are going to act in this direction.

You have mentioned support for the countryside. As you know, direct state support has proved effective, important and timely in this sphere of activity. Last year, we allocated an additional 25 billion roubles to Rosselkhozbank and increased its capitalisation once again.

Gennady Zyuganov: The situation at the bank is good.

Vladimir Putin: The situation is very good. We have allocated additional funds to Agroleasing, increasing its authorised capital by 25 billion roubles. We have also made decisions in the sphere of customs regulation, limiting the import of agricultural machinery to Russia's customs territory. And lastly, we have adopted a crucial decision for agriculture as a whole: Last year, we subsidied two-thirds of the Central Bank's rate for agricultural producers, while this year we increased the subsidy to 80% of the rate.

The volume of commodity production has clearly grown dramatically. We have adopted special programmes in livestock breeding and support for large and private farms. I would like to remind you about the previous decisions to simplify taxation of agricultural producers. Taken together, this is producing a positive result. We see that the consequences of the crisis have been the smallest in agriculture.

Gennady Zyuganov: It is doing better.

Vladimir Putin: Yes, it is doing better than all other economic sectors. Moreover, it is developing despite the crisis, with the volume of commodity production growing.

Now about the goal of keeping to global prices in trade with all our partners. I wholeheartedly support this goal and thank you for your support in this sphere.

Gennady Zyuganov: With everyone except for our allies.

Vladimir Putin: A few words about allies: Belarus is now the only country enjoying privileges and buying our resources at prices that are below the world prices and the lowest in the CIS.

It is thanks to this Russian policy that Belarus has become one of the largest petrochemicals exporters to the European market. It gets our oil cheaply, which, coupled with low export duties on petrochemicals, ensures their sale on the global markets of petrochemicals and gas products, and therefore high revenues for the Belarusian budget.

This is not the only way in which we are supporting the Belarusian economy. But we intend to continue this policy in the near future, bearing in mind the goal of transferring to world prices.

That is all I wanted to say on this matter. Now a few words about research: It is a very important segment, and I am grateful to you for drawing our attention to it. We have greatly raised salaries for the staff of organisations affiliated with the Academy of Sciences.

Their main problem is the shortage of housing for young researchers. It is the only factor hindering the inflow of skilled research personnel that is now working abroad. Many of them would like to return to Russia.

Gennady Zyuganov: Yes, they have started coming back.

Vladimir Putin: They are, but we must later discuss finding housing for them. Mr Levichev, you may have the floor.

Nikolai Levichev: Thank you, Mr Putin. I would like to use this occasion to convey the gratitude of the delegates of the fourth congress of A Fair Russia for your highly informative address at the congress. In my opinion, it is an important example of political tolerance in modern conditions. We hope that our executive authorities will take note of this.

I would like to remind you that an International Socialist Forum was held simultaneously with my party's congress and was attended by delegates from 40 parties of 32 countries. I am telling you this because I do not agree that a crisis is a routine phenomenon. It has been recognised at the global level that the current economic crisis is a global even without analogues in history. Our representatives sit on all international commissions, and we attend all global conferences and symposia, including the Socialist International Commission on Global Financial Issues chaired by Nobel prize-winning economist, Professor Joseph Stiglitz from the United States.

The world's best thinkers are trying to forecast how the crisis will develop, but so far we don't have any reliable forecasts.

Gennady Zyuganov: They are trying to build socialism...

Nikolai Levichev: Yes, everyone seems to agree that state regulation should be used to overcome the crisis and can be an effective instrument in the economy.

A few words about the work of my party in parliament. We have prepared reports for the congress, so I will not waste your time relaying them here, but will submit them to you. We have been working energetically, adopting an average of four laws per deputy.

The reports show what we have achieved and where we have failed. As you know, we did not wholeheartedly support the Government's anti-crisis measures, and that we submitted our own proposals. Initially, I was happy that the Government's package was augmented with measures in the sphere of culture, until I saw that it consisted of just two items. As the Minister of Culture has said, cultural issues were added to the plan, but no funds have been allocated for implementing them.

I would like to focus on some issues that have not been covered thoroughly here. The housing problem is key to social welfare, and we believe that this problem has been aggravated by the crisis. Everything depends on it, from the meaning of life to economic efficiency.

I would like to once more draw your attention to the fact that members of our party have drafted detailed mechanisms for creating two new institutions. Some people may be sick and tired of listening to this, but building societies and the housing fund for non-commercial use could be created, especially during the crisis, to improve the social wellbeing.

Building societies have an anti-inflation potential because they contain the money mass. We have attended many meetings and conferences, including in the Government and the State Duma committee, where we proved that the effectiveness of state budget investment in this sphere is 12 times higher than the effectiveness of investment in mortgage. With initial investment of 2 billion roubles, we will peak at 15 billion roubles.

Not a single financial pyramid in this sector has been registered in the countries that have this institution - I am saying this to preempt the arguments and doubts regarding it. There have been no financial pyramids and no bankruptcies in this sector in China, Romania, Hungary, and especially not in Germany. Since the beginning of the crisis, in the past year, the number of participants in building societies in Germany increased by one million and turnover grew 30%.

Because the housing legislation does not have a notion of "non-commercial housing stock", we have problems with legal regulation of the housing issues of those families that are not listed with the low-income group but are still unable to buy housing even under mortgage programmes. Renting housing in the non-commercial stock will cost such families as much as they are now paying for renting housing at market prices, is not more.

In our opinion, this problem concerns 60%-70% of the families that need to have their housing conditions improved, mostly those that work in the public sector, large families, and young professionals whose families cannot help them financially .

The main distinction between non-commercial housing stock and commercial housing is the fact that its owner cannot benefit from letting it. It is a self-sustaining stock, which means that the group of people involved can pay the rent. However, unlike the social stock, it does not receive additional budget financing.

Amendments based on our proposals regarding the Housing Code have been formed as a separate bill and submitted to the State Duma. However, [head of the Duma committee] Boris Krasheninnikov has not put it on the list of hearings, not even for autumn. We would like to ask you help us resolve this problem. Let us discuss it publicly, exchange views, bearing in mind that it is a combination of very many problems.

As for building societies, Mr Putin, I would like to for your emergency intervention. We have held a number of discussions since the Government gave a positive assessment of the first wording of the law. As of now, the [State Duma Finance] Committee chaired by [Vladislav] Reznik plans to discuss the law without the above amendments, because of bureaucratic reasoning. They say we submitted the draft law with proposals to the committee, and not to the State Duma Council, so they will discuss the law without the proposals.

In fact, they are sticking to formal elements instead of considering the essence. During our meeting with President Dmitry Medvedev on May 5, we were promised that a special meeting would be held on that issue, to be attended by Government members. We are asking Mr Gryzlov, to ensure that the [Finance] Committee does not consider the issue before the meeting and we are asking Mr Putin to accelerate the meeting in order to clarify the details.

Now I would like to say a few words about the effects of the crisis. I visit many enterprises and meet with delegates from the non-financial sector. Their situation is dramatic because they lack working capital. This is their biggest problem. We have supported the banking sector, but the producers do not feel the effects of such assistance, not even the more successful enterprises, for example furniture companies that I have visited recently.

They hire designers who used to design spacecraft, and who now have designed quality furniture that can easily compete on the world market. But even they say that they would not last more than three or four months without Government support. But Sberbank refuses to lend them money even at an 18.5% interest rate, setting incredible conditions.

Here is what some people say...

Gennady Zyuganov: This is a typical example.

Nikolai Levichev: It is indeed typical, Mr Putin, and a typical attitude. Many directors say that this is being done to prepare the ground for a new re-division of property. The current reassessment of property pledged for loans reduces its value, which means that large amounts of the pledged property will change owners if the borrower does not repay the loans. I would like you to address this issue.

Speaking of the budget you plan to propose, which we will discuss in the autumn, our party wants you to know that the biggest problem with the 2009 budget is the gap in the budgets of Russia's constituent entities. We have received many complaints. You said that pay increments for form masterseachers should be paid out of regional budgets. But they don't have the money for that, and form masters no longer receive these additional monies. Formally, the salaries of doctors and teachers have not been reduced, but we know that their aggregate incomes consisted of payments for combining jobs. The regions no longer have money for that, and so the incomes of these groups are falling.

Now about the leasing schemes: I have seen agribusinesses that signed leasing contracts for processing equipment, not the production of agricultural products before the crisis. At present, Rosselkhozbank and the [Agriculture] Ministry refuse to extend these companies' loans under the pretext that they fall under the law banning the import of agricultural equipment that can be produced in Russia.

Vladimir Putin: Say it again?

Nikolai Levichev: As far as I see it, they can no longer issue loans for the import of equipment for agricultural production.

Vladimir Putin: No, they cannot.

Nikolai Levichev: The agribusinesses that need such equipment for processing are refused the loans because this segment is treated as if it fell under the same category. I can provide a number of relevant examples.

Vladimir Putin: So, there is a ban on loans to the companies that plan to import agricultural machinery such as tractors, harvesters, and so on. They can import the equipment that is not produced in Russia. We will not yield to the pressure put on us to make us open our markets to foreign agricultural machinery this year and possibly next year, in order to support the Russian producers of such equipment.

Nikolai Levichev: But as regards processing equipment...

Vladimir Putin: I have told you that loans can be issued for the import of certain kinds of equipment that is not produced in Russia.

Nikolai Levichev: Can they apply for such loans?

Vladimir Putin: There is an approved list. If you have proposals on expanding it, we are prepared to discuss them.

Nikolai Levichev: As for science, I support Mr Zyuganov. I am a member of the State Duma Committee on Science and High Technology, which is not a coincidence. Vladimir Zhirinovsky is on the Committee on the Agricultural Policy.

You are right that housing for young researchers is one main problem. But we think that if we introduce the above two proposals, they will allow us to ensure mobility, including the mobility of young researchers, because the housing they own prevents them from moving around. They don't need their own flats at this stage in their lives. What they need is comfortable [rented] housing at an affordable price. But this possibility is closed to them now.

As for the Unified State Examination, we tend to support the Liberal Democratic Party. You probably know this. To end the discussion, I will tell you that we believe that school graduates can enrol at universities without entrance examinations. That would be an anti-corruption and an anti-stress formula. I support Mr Zhirinovsky's view on this issue: We should consider the problem thoroughly. Those who fail can be expelled after the first semester.

And now a few words about education: An All-Russian Committee on Education has been established at our initiative. It is chaired by Sergei Mironov. Its first meeting is to be held in the next few days. We believe this is a very important issue.

Vladimir Putin: Thank you very much. Mr Levichev, you said crises are not a routine thing. That's not true, crises are a routine thing, but the current crisis is unusual; we have not had such a crisis before. This explains the problems with determining ways to overcome it, the deadlines for doing it, and so on.

As for the housing problem and the construction sector, we have addressed this problem more than once during this meeting. I said that our construction sector had been growing exponentially in the past few years, by 15%-20%, of by 18% on average. This is a very fast pace, a record-high pace not registered anywhere in the world before. I don't want to talk about "bubbles" now, as these problems are described now. It grew dramatically, and therefore it is difficult to maintain the pace in the sector during the crisis.

I have also spoken about the Government's efforts in this sphere. It would be dangerous to increase allocations from the budget, but we must create conditions for a normal operation of the economy, including this sector. We must think about ways of doing it.

Now, regarding an important issue you mentioned, the building societies. Of course, we would like to establish them, but we still remember all kinds of pyramids, which you have also mentioned. If the idea rules out the appearance of such pyramids, we should seriously consider putting it into practice.

Another attractive issue concerns non-commercial housing stock. However, I would like you to bear in mind that this cannot be done without allocations from the budget. We will have to form a fund, which will generate profit, as you said, create normal conditions for operation in this sphere, and help resolve people's housing problems.

The only question that comes to mind in this situation is this: We will allocate money for dealing with the housing problem for the middle class, which is the purpose of such a fund, but what are we going to do with the people on the housing waiting list? They will be justified in saying that we have started spending funds on a new programme without resolving their housing problem, although they have been on the waiting list for years. Given the budget deficit, we will have to choose a priority.

And this brings me to pay increments for teachers. Mr Levichev, you said that they are to be made from the regional budgets. I want to remind you that it has always been the responsibility of the regional budgets, and should remain so. However, we have decided to allocate additional funds within the priority national project Education and to subsidise constituent regions in this sphere, and of course, to ensure pay increments for form masters. I believe that such pay increments must be maintained next year.

So, let us start the debates - but no fighting, I hope.