Assembled friends and distinguished colleagues,
The President of the Russian Federation, Dmitry Medvedev, sends his greetings to conference delegates and I have been tasked with reading them.
Delegates and guests of the international conference "Russia and the World: Challenges For the New Decade",
I gladly welcome the delegates of the international conference "Russia and the World: Challenges For the New Decade".
Today, improving the competitiveness of the Russian economy through modernisation and the widespread introduction of innovation is an absolute national priority. This will allow Russia to become a country that bases its prosperity primarily on intellectual capital and it will considerably strengthen our position on the global market, and most importantly, it will improve people's quality of life and provide ample opportunities for their self-realisation both in terms of their creativity and business. In order to achieve these goals, we need to create an efficient system of long-term forecasting of the country's socio-economic development, and I anticipate that your forum, which has convened eminent experts drawn from business and government, will help us achieve this important objective. I wish you every success, fruitful discussions and all the best.
Dmitry Medvedev, January 21, 2010.
After Vladimir Mau's remarks (Vladimir Mau is the rector of the Russian government's Academy of the National Economy), I would like to say that for me personally, this is a great responsibility, because the conference is dedicated to the memory of Yegor Gaidar. We planned this conference, because we felt that the most acute phases of crisis were behind us, that we need to discuss those lessons we should learn from the most difficult period of 2009 and that we should talk about the problems that we will face in the near future. At the same time, we wanted to see the decade's development prospects in a new light. At present, we are being asked whether the crisis will affect our plans for the country's development to the year 2020, whether we will change our plans for modernisation of the country to 2012, since the period of 2012 is crucial in setting up certain institutions in the period to 2020.
We need answers on all these issues and I hope that in the course of these days conference delegates will, during roundtables and plenary sessions, find solutions to these issues. They are extremely important to us in our day to day work. It is also a great responsibility for me, since I am not a professional economist. I am a lawyer, but recent years I have been working in the economic sector. In Vladimir Mau's words I am a practicing economist and my outlook on various problems sometimes differs from that of those who have a solid educational background in economics. Nevertheless, I work with all the country's most important and most eminent economists, as well as with those who represent foreign economic schools of thought. And today, I would like to share my vision of how we will set today's agenda with you. It is no different from what I spoke about in St. Petersburg in 2008. I am often asked whether I'm ready to be held accountable for what I said in 2008. I am ready. But that time has not come. I think that in all seriousness, the conversation about what we will manage to do in the first stage from 2008 to 2012, still lies ahead. And right now, I would like to say today I will talk about the economic and social development of the country through the prism of integration. This is a continuation of what my colleagues and I prepared for my speech in St Petersburg in 2008.
During our work at the conference, I expect us to advance our understanding of key problems of the coming decade and to formulate a number of specific proposals under the program of measures for 2010-2011.
Today, we are experiencing a very important turning point in the development of global economic processes. The world faces new technological challenges. A rapid economic transformation is taking place. The global crisis has become an extension of these processes and has simultaneously raised thorny issues about the need to carry out structural and institutional changes in the foreseeable future. These changes are on the agenda, and neither we nor other nations, the leading world powers, will be able to evade them.
The crisis continues. It moves through the next phases of its development; however, already today it has become obvious that we learnt from the most acute phases of crisis. So, first of all, the crisis demonstrated the operational stability of the basic economic and political institutions. It is the second major crisis that Russia has experienced. And the present crisis is much more serious than the one in 1998. It is global. Nevertheless, it was possible to react fast enough in different sectors of the economy to the changing conditions. The Central Bank proved itself capable of finding new tools to solve arising problems. The authorities made decisions that eased tensions on the labour market. I am sure that Russia will emerge from this crisis with a new level of trust in the authorities, and in its political and economic institutions. Secondly, the soundness of our macroeconomic policy over the past decade has been affirmed, including the need to form stabilisation reserves, which served to mitigate the financial consequences of the crisis.
I particularly want to empahsise that this has been done in part due to Yegor Gaidar's efforts. He was one of the originators and proponents of the stabilisation fund. However, there is one more lesson we should learn. Reserves are not the solution to the problem. They are like anti-fever medication for a patient, i.e. they remove symptoms, but do not treat the illness. Our collective illness is our country's high dependence on income from the sale of natural resources, on external market conditions and, as a whole, on factors that are completely out of our control.
Therefore, the third lesson is also quite obvious: there is an acute need to modernise the economy. A heavy dependence on raw materials exports and foreign financial markets has defined the scale of the fall in manufacturing and on the stock market. The past year has also shown that we ourselves are the major obstacle to modernisation. Everybody says they agree on the importance of modernisation; however, modernisation processes are still not active enough. There is the widespread opinion, or belief, that it is "business as usual": we wait for high prices for oil, gas and metals, and then we go on as before. We understand this danger and consequently, in a crisis year, the country's leaders and the President of the Russian Federation have defined the modernisation policy's priorities. Remember that these concern information technology, energy efficiency, nuclear technology, space technology, telecommunications and medical technology. We have sent a signal to the economy about where the efforts of the state will be concentrated in the coming years. Therefore, I wish to emphasise that it is these priorities on which we daily concentrate our attention. But the list is not exhaustive.
The fourth lesson is that the crisis has shown that existing structural and institutional problems reduce the effectiveness of our economic policy. In developing and implementing anti-recession measures, we consistently encountered restrictions connected with the high levels of monopoly and inflation in the Russian economy. The former factor severely limited the opportunities for budgetary stimulation and the latter required a toughening of monetary policy in conditions when the majority of other nations would, on the contrary, have softened it and stimulated borrowing.
The fifth lesson was that the crisis reminded us once again of the need to increase the level of protection of property rights. Private property. Anatoly Chubais (CEO, the chairman of board of the state company Rossiiskaya Korporatsiya Nanotechnologii [Russian Nanotechnology Corporation]), you asked me about this in St. Petersburg... and I reply: now absolutely precisely, the level of protection for private property in our country. Otherwise, our economy can only count on short-term investment and investment in hi-tech sectors are possible only with a high level of protection for property rights. Therefore, this issue is also connected with our path of modernisation.
The sixth lesson is that the in past year, we paid particular attention to maintaining social stability, and this was not populism, but an understanding that social and economic stability, as well as macroeconomic, is a necessary precondition for successful modernisation. Prime Minister Vladimir Putin holds that the most important precondition for the further modernisation of our country is social stability. Without social stability in our society, no economic or social transformation is possible. Therefore, our entire anti-recessionary plan was based on the understanding that whatever we do with our economic institutions, we cannot afford any destabilisation in social relations. We were guided by this principle in deciding to support individual sectors and companies, as well as one-company towns. We inherited many structural problems related to the irrational arrangement of companies and manpower from the Soviet economy. These problems cannot be solved quickly. In each case, the decision should be made on a case by case basis, taking into account the specifics of the sector or territory in question. Sometimes even contrary to economic feasibility. One vivid example of such a situation is AvtoVAZ and the city of Togliatti. We are often asked why are you spending government money propping up AvtoVAZ? Why are you getting involved in the city of Togliatti? Wouldn't it be easier to close the plant? That was not an option. There are 700,000 people living in Togliatti. There may be even more. And the social problems which arise in this city, as they do in other one-company towns, are those problems which we are compelled and obligated to solve. We separate the manufacturing problems, i.e. the development of the industrial facility, the automotive facility, from the problems of people that the state cannot leave to the mercy of fate. And we will do this responsibly, fully understanding what will happen to the company's workers and their families are going to do.
And, finally, one more lesson. It is last on the list, but it is the most important for the aim of my speech today and for my daily duties. In the modern world, it is necessary to search for ways to overcome economic difficulties not through protectionism and economic isolation, but by strengthening international economic cooperation, opening up markets and economic integration. These are the basic directions of our further development.
Now, about integration, in recent years Russia has become much more active in various areas of international cooperation. In late 2009, documents on the establishment of a customs union were signed and a decision was made to form a single economic space within 24 months. Russia holds the CIS presidency in 2010 and we expect to lend new impetus to this economic cooperation. We are conducting negotiations to increase cooperation with the EU and we are preparing for our presidency of the Asia-Pacific Economic Cooperation (APEC). At the same time, we are continuing to conduct negotiations on joining the World Trade Organization and the Organization of Economic Cooperation and Development. We are systematically following a path towards the expansion of external economic cooperation. All the aforementioned efforts are links in a single chain. Some people ask how connected all these processes are. I will try to answer, and once again I want to say that we think that they are links in a single chain, a uniform policy for economic integration. First of all, we are building the closest economic association, which involves forming supranational regulatory bodies. This is the customs union and common economic space involving Russia, Kazakhstan and Belarus. It may be that in due course, the borders of this space will be expanded. In forming such a common space, we provide for harmonisation with the European legislation, to the extent that it will promote the economic growth of the common economic space. Together, we intend to move towards establishing a general economic space with the EU.
It is possible to confuse terminology. Common economic space, general economic space: experts will easily understand the difference. I can only say that Common (or Single) Economic Space (CES) is the space that we will create between Russia, Belarus and Kazakhstan. It will be governed by supranational regulation. When we say general economic space, we mean the harmonisation of legislation. But the EU will operate under its own regulation and so will the CES. It entails not only the harmonisation of legislation of our unions, but also the gradual removal of obstacles to the movement of the goods, capital and people. Our goal is a space without barriers and visa regimes, a space from the Atlantic to Pacific Ocean. Unlike a common economic space, the purpose of closer cooperation with the EU is a general space and co-ordinated rules of economic behaviour without the formation of any supranational bodies.
In 2010, Russia holds the CIS presidency, and my colleagues and I have already started to visit CIS states. As you know, the CIS now includes 11 countries, and we receive information from leaders of the CIS states. How do they view modernisation of this format?? I think that a little later, a special conference will be called, in early March, and we will talk about it in more detail then, but the modernisation of the CIS is on the agenda. And whereas it used to be thought, in the early 1990's, that the CIS was a format that would prevent repetition of the Yugoslavian scenario, then today, the CIS is a format which is required to underpin the processes of real integration. We have started working on making economic cooperation among its states more active. A draft CIS free trade zone (FTZ) treaty that meets the highest international standards is now ready. It is natural that the basic principles of the CIS space are virtually the same as those we plan to implement in our relations with EU. Therefore, via the CES, we are building a bridge to other CIS states to draft common economic legislation so that business development throughout this space has a uniform base. Through parallel advancement in these two areas, we can, in the long term, move closer to a wider economic space covering both EU and CIS countries. Therefore, activating this integration processes is not a local project and is not simply a tribute to the customary friendship with Belarus and Kazakhstan, and even less is it built on nostalgia for the USSR. We often hear that this is probably a repeat of the USSR. I can tell to you that this doesn't have anything at all to do with the project known as the "USSR." It is an absolutely different and modern integration project. The customs union and common economic space create essentially new institutional and economic conditions for our development. This involves the expansion of markets for goods and services, and the strengthening of not only foreign, but also domestic competition. The common economic space creates various conditions, including those for a competition of jurisdictions. It does not entail immediate or full unification of legislation and its application in practice. Accordingly, business can choose where it has better conditions for development, within which tax code and administration, which judicial system is the most fair and which customs administration works more efficiently. In this regard, we have to work faster since our neighbours: Kazakhstan and Belarus are considerably more advanced in the establishment of many institutions. And that should be remembered when I mention domestic competition. We are ready to make active use of our partners' experience. In particular, in the near future, we intend to adopt as Russian technical standards, those which are already in place in Kazakhstan. The Russian president decided on this yesterday and in several weeks, before March 1, the fundamental governmental decisions will be made.
The expansion of the markets and strengthening of competition will in turn promote more active modernisation processes. Modernisation is not only a technological issue. It has to encompass all aspects of public life, its technology, institutions and ideology. This is the specific understanding of modernisation as stipulated in the Concept for Long-Term Socio-Economic Development of the Russian Federation to the year 2020. At present, many people are asking whether it is necessary for us to change these reference points and whether it is necessary for us to change this program. I wish to emphasise today that we do not intend to reconsider either the tasks or their list and terms of their execution. Nevertheless, it is natural that we should now change tactics, since we failed to resolve many issues in 2009, we will have to work harder to ensure we catch up by 2012. We should create the conditions in which a person can be engaged in their favourite activity and choose his or her path, whether it be intellectual development, increasing their own prosperity or both, and the state should be there to facilitate. I understand that it is a very ambitious goal and it has never been completely achieved, but we move forward and continue to work towards achieving these goals. We are working to create the best conditions for conducting business; however, it is now abundantly clear that we need to work on the level of economic freedom and on improving the business climate: this is the most important agenda today.
The President has set us a number of tasks. Together with the Ministry of Economic Development, other ministries and departments, we are working on compiling the project, the result of which will be a considerably improved business climate in the near future. At the same time, we understand that there is huge competition between countries for attracting business to develop on their particular territories. . EU countries and Asia have demonstrated this and we cannot miss our chance in this regard. In the modern world, intellectual capital is the main competitive advantage. Natural resources may not be transported, but a clever and energetic person can go where there are the optimum conditions for his or her self-realisation. The same is true for hi-tech business. It is incomparable to conventional business sectors in that it is more mobile, less tied down to any particular place. It will develop where for the business and living conditions are most favourable. We already compete with other countries for people, and with the establishment of a common economic space, this competition will even more become pronounced. Oil wells and gas deposits certainly will not move to the other CES partner-states, but new companies will be created where tax authorities, law enforcement and courts function more efficiently. Therefore, development of human capital remains one of the government's main tasks.
Accordingly, the issue of equal access for state and private organisations to money from the federal budget allocated for education and public health services purposes is now under consideration. Money should follow the student, the patient, and the service should be paid for instead of the organisation of a certain pattern of ownership. We are working on specific legislation which will resolve this problem, and we will have every opportunity to pass the corresponding laws in 2010.
We are also discussing, no definitive decision has been made, that we could make private businesses associated with formation of the human capital, education and public health services exempt from profit tax. At the same time, development of human capital demands the resolution of problems associated with living conditions. It is one of our priority national issues. During this crisis year, we managed to save the construction sector and even gave it new impetus to build new housing. The state has established extremely reasonable prices above which it has refused to buy apartments from businesses. And after some resistance, businesses have accepted the new rules of the game. Moreover, in so doing we were able to establish price reference points for the affordable housing market. We think that until 2008, in large cities, even substandard affordable housing was unfairly priced. It was a very high and unjustified price, and now, those reference points which we established for affordable housing at 30,000 roubles, are reference points which also used by businesses. In the near future, we will implement a number of measures to de-monopolise and de-bureaucratise this sector, and we will develop mass programmess for the construction of quality affordable housing accessible to most of the population. And at present, after a year of the Housing Market Development Assistance Fund being in operation, over 1000 plots of land have been put up for sale. Quite recently, Alexander Braverman, the head of this Fund, reported back to the prime minister on work completed and we intend to see construction organisations to be fully provided with land also in 2010. Having removed certain urban planning restrictions, we can build even more affordable housing in 2010 than during the pre-crisis period.
We will pay particular attention to rental housing, which is a necessary condition for increased population mobility and also to another important factor: modernisation. As I have already said, modernisation projects include energy efficiency. Russian President Dmitry Medvedev also considers that increasing energy efficiency and moving to rational model of consumption of resources to be a priority. And it is not only a matter of our gross domestic product's energy-intensiveness. By concerning itself with energy efficiency, society changes its behaviour, natural resources are carefully conserved and new advanced technology appears. Accordingly, the Law on Energy Saving and Energy Efficiency, which defines the basic mechanisms of stimulating energy saving and increasing energy efficiency, has been passed. It will enable the constituent entities of the Russian Federation to move faster in areas where they are ready. In addition, pilot projects to build energy-efficient housing, schools and medical clinics are being implemented. The implementation of these pilot projects will enable successful experiences to be rolled out to the entire country. Increasing energy efficiency is a fundamental tool for decreasing carbon emissions, it contributes to the improvement of the environment for our citizens and future generations, and also enables Russia to meet the international obligations it will assume in the post-Kyoto period.
Now let's talk about financial integration. The success of Eurasian integration should promote the strengthening of our financial system. The world is changing. The global financial system is being re-tooled. International business is aspiring to expand as never before to access conventional markets and jurisdictions. Long-term macroeconomic problems, such as large debts, deficits and the prospect of higher taxes in developed countries is forcing industry and finance to look ever more actively in an easterly direction. This gives rise to new opportunities for Russia, and more precisely, for the development of a Eurasian economic space. In the next ten to fifteen years we have a unique chance to become an attractive financial market for global capital. This task is very difficult, but by no means impossible; therefore, the idea stated two years ago of establishing an international financial hub in Russia is becoming ever more relevant. The trend of capital inflow to new regions will increase. We can take advantage of this trend and improve the financial market's structure. As you are aware the Government has adopted a specific plan to establish an international financial hub. However, when we consider this plan, which was commissioned by the prime minister and the president, we think we will be ready to adopt a definite resolution this year and next year in order to give this plan a more specific outline and for us to reach the stated objectives faster.
Strengthening the financial system will help us rise to one of the main challenges of the next decade: balancing the pension system. At the height of crisis, we decided to improve the pension system. I know that many people criticise the government's approach, and I would like to offer some explanations. Incidentally, Yegor Gaidar in his works over the last few years insisted that it is precisely ambiguity in the pension system that is the main challenge to future macroeconomic stability. We will need to answer for these decisions. I will try to explain the government's rationale for making these decisions. We have essentially raised pensions and thereby supported the generation of senior citizens. This is fair in and of itself. But we must not forget that raising pensions stimulates demand, and the demand for domestic goods and services to a great degree. Opponents also assert that the new pension system eliminates the possibility of setting up accumulated pensions, which, in turn, deprives the economy of long-term pension money. I'm sure that the situation will develop differently, since given economic growth and the growth of the population's prosperity, under our plans, the size of the middle class will increase considerably by 2020, and thereby the number of people who can afford private pension savings will also considerably increase.
That this requires reliable non-state pension funds and a low rate of inflation is another matter. At last, we have defined the level of the state pension provision, having sent a clear signal to the population: the rest is in your hands. The state will provide a certain, approximately identical, level of pension to all citizens and will encourage them to make voluntary pension contributions. And subsequently, everyone will have to define their strategy for the future, whether it be a reliable family, long-term savings, consumption reduction in old age, or some other option.
In closing, I will provide a short summary of what I said. First, we have learned a number of important lessons from the crisis. On one hand, the course we have pursued over the last few years of maintaining macroeconomic stability has proven to be correct and the socio-political system has passed the durability test. On the other hand, customary institutional restrictions have become aggravated, including the protection of the property rights. Second, we not only do not shrink from modernisation plans, in fact we are expediting this work, and the formation of a common economic space will be a new stimulus for its advancement. It will considerably expand the market and simultaneously increase competition for human resources. Third, in order to be competitive in this expanding market, we should foster the necessary conditions for business and become fully engaged in improving the investment climate. We should also certainly remember that the life of ordinary citizens ought to change considerably in the near future. We need to simplify our citizens' relations with bureaucratic structures. We need to stop tormenting them with useless bureaucratic procedures and the government is at present actively working on this.
Distinguished colleagues and friends, we have come through a very difficult year and have gained important experience, which we need to consider and transform into practical solutions. I completely disagree with those who say that we substantially missed our opportunity, since 2009 turned out to be the year when we failed to make the most important decisions. I think that's wrong. If you take a good look at all the long-term and short-term actions of the government, 2009 was like a launching pad for our country's modernisation, to ensure we complete the tasks the country has set before us with regard to those new opportunities by 2020. At the same time, a stable and dignified life for our people remains the basic priority of the government's work. Thank you.