Vladimir Putin's opening remarks:

Good afternoon, colleagues,

We are here today to discuss three issues: the main parameters of the 2010 federal budget, the key figures for 2011-2012, and the list of federal targeted programmes to be financed in 2010.

However, I suggest we start with a no less important and poignant issue: the retail price for pharmaceuticals. According to official data, in the first half of 2009, the prices of medicines rose by 18.3%, much more than the prices for other goods and services. Moreover, in the regions, the price of one and the same drug can vary by as much as two to three times. All this indicates a lack of order here.

I believe there are no objective reasons to inflate prices so much. Pharmaceutical companies and distributors take excessive profits using loopholes in legislation. Specifically, the current system of registering prices is merely a formality.

Therefore I think we should tighten state regulation in this sector. Producers will have to prove the need to revise prices of vital medicines, and federal bodies of authority should develop an effective procedure to oversee and verify their calculations, and be given the authority to refuse the registration of inflated prices.

Distribution markups will be regulated by the constituent entities, as before, but based on the methods approved by the Federal Tariff Service. This will help exclude useless intermediaries from the supply chain. If a company violates pricing regulations, it will bear responsibility, up to losing its license.

I would also like to stress that the resolution we should adopt today is the first, urgent step, I emphasize, only the first step towards establishing order in the pharmaceuticals market. We will see how this arrangement will work, and then the Ministry of Healthcare and Social Development will finish developing the law, eventually settling the issue.

I will speak about the budget now.

First, I would like to tell you about the decisions we took yesterday at the meeting of the Commission on Budget Estimates. They concern changes in some principles of working on the country's main financial document. We have changed these attitudes because of the current situation on the global market, and in the global and Russian economies.

Today we are drafting the budget in the complicated conditions of a global economic crisis. Of course, we must take this into account. Since there are many elements of uncertainty, it is very difficult, and sometimes impossible, to plan a three-year budget in detail. But it would be unwise to abandon the system of medium-term budget planning.

This is why we have decided to do the following: The Government will submit to the State Duma a detailed budget for 2010, but will only outline the key parameters for 2011 and 2012.

The departments will be notified about the limits of their prospective spending. The Government will use these figures for taking its bearings, which will allow us to plan the implementation of budget programmes and work to sign long-term agreements and contracts.

I would like to stress that as soon as we forward the budget [to parliament] the ministries should start working to streamline their spending. They will have to make a thorough inventory to determine where they can, should or must make cuts. We are calling on everyone to start saving money, and we will begin with ourselves. I know - and we talked about this yesterday - that these are tough decisions for the departments, but they will have to be implemented. I am asking all ministries to address the issue very responsibly, and to approve relevant programmes by November 1, 2009.

Of course, we need systemic changes to lower ineffective spending, including by optimising the budget network.

I want to say it again - economic conditions are very uncertain. But we need to take this uncertainty into consideration, and at the same time understand that we will have to pursue a tight and highly responsible budgetary policy in the next few years. In particular, we must gradually reduce the budget deficit (I will speak about that later), limit the growth of budgetary expenditure, and increase the payoff from each invested rouble. These are the bases of macroeconomic stability and successful post-crisis rehabilitation of the economy.

Taking into account these decisions, I am asking you to promptly draft the requisite amendments to budget legislation.

Now, let us consider the budget for 2010 in more detail. It is assumed that its revenues will make up 6.6 trillion roubles, and expenditure 9.8 trillion roubles. That leaves an anticipated deficit of 3.2 trillion. True, the deficit is considerable, greater than we initially planned. But this is our conscious decision.

We do have a choice about how we deal with this deficit. What are the alternatives? Either we have an abrupt, dramatic reduction in expenditure, or we accept the deficit, but look for additional sources of income, and find reasonable ways of making up for the shortfall.

I think there is a stronger case for the latter, and that this is a more viable direction for the country today. It is also in line with the socio-economic policy of social justice, which is a policy we have pursued in recent years. It is, of course, imperative that we fulfil the promises we made to our people, the plans for economic development.

It is clear that an abrupt cut in budgetary expenditure would unavoidably lead to a sharp fall in the level of social support for Russian citizens, and curtailment of anti-crisis measures and development programmes. Furthermore, a "money famine" could provoke a new downward spiral in the economy.

We will not let that happen.

In addition, we must reorganise budgetary expenditure for 2010, and many projects will have to be cancelled or delayed until a later date.

But all the key priorities linked to investments in human resources and in the innovation sectors of the economy must be retained.

Over 70% of the 2010 budget expenditure has been clearly earmarked for social programmes. These resources will go towards supporting people's income, and providing them with vital services.

First of all, of course, this concerns the increase in pensions. I would like to stress once again that within the context of the financial crisis and the budget deficit, we are, essentially, taking an unprecedented step in the social sector: we are raising pensions. No one else is doing this, no one. It is also vital that we guarantee wages in the public sector, that we pay benefits and provide pharmaceuticals for pensioners and disabled. High-tech medical support will not be forgotten, nor will support for modern educational centres, or housing programmes. Let me add that the allocations for social policies in 2010 will increase by more than 10%.

I would like to point out the fact that while on paper some aspects of social policy will see a certain reduction in funding, overall spending on social policies in 2010 will increase dramatically in comparison with other areas of government spending.

The expenditure on national defence and security will be made in full.

The budget will also remain the most important source for stimulating the economy in conditions of the crisis and the development of the high-tech production sectors.

Now, regarding the deficit, this as I said, will amount to 3.2 trillion roubles in 2010 or 7.5% of our GDP. There is no doubt that we can find the funds to cover it. However, I should tell you directly that this is the maximum deficit that we can allow ourselves without harming our macroeconomic stability.

We have no right to violate our macroeconomic stability, and we will not let that happen. You all understand why. Because at the end of the day it hurts our citizens, the people we work for, and for whom we are preparing this core financial document of the country. We must not allow ourselves the luxury of populism, and here I look to members of the Government, and members of the State Duma, who will be considering this document in Parliament in autumn.

I repeat: we must strictly adhere to the decrease of the budget deficit planned for the period 2011-2012. Correspondingly, we will try to move to a deficit of 4.3% in 2011, and 3% in 2012.

Next on the agenda is assessing the proposal for the list of federal targeted programmes.

Time does not stand still. There are some key areas in which we cannot allow ourselves to "take a break", or to interrupt development. This would cancel out previous achievements and abandon the strategic aims set out in the concept of long-term development and guidelines of the Government activity.

Therefore, in 2010, not only will we continue to implement those federal targeted programmes that have already begun, but we will also take on several new high priority programmes. In particular, federal targeted programmes in the following areas are moving forward: the development of modern nuclear technology, digital television and radio broadcasting, and also support for one of our territories. You understand that we need to support the Republic of Ingushetia. They need additional and purposeful support from us for their local economy and social sector.

Let's get down to work. The Minister of Finance and Deputy Prime Minister Alexei Kudrin has the floor.