Good afternoon,

It is a great honour to me to address this forum. I have already had occasion to say that Troika Dialog is one of Russia's leading investment companies. The most interesting thing is that it is a company that has emerged here in Russia and today demonstrates world standards in its work. I would like to say that Troika Dialog is on the list of the leading organisations the Russian Government has named as companies to refer to for consultation in placing our loan bonds in the external market. I cannot yet say today whom we will choose for the first round, but it will be made known within days.

I am also glad to tell you that Ruben Vardanyan and I participated in the global discussion at Davos. It is a major and serious forum, it invariably attracts dozens of presidents, prime ministers, deputy prime ministers and finance ministers of many countries. It is probably the only place where leading politicians, economists and chief executives of all companies gather in such numbers. It saw a committed discussion of the further development and paths of the world economy. One of the key issues was sustained world growth at this stage. The conclusion from the discussion is that we do not yet have sustained world economic growth even though the expectations are moderately optimistic. Before the Davos meeting the IMF upgraded world growth indicators. It predicts a growth of about 3.5-3.9% for this year and about 4-4.3% for the following year. For Russia the IMF forecasts a growth of 3.6% this year and 3.4 % in 2011. The World Bank forecast for this year is 3.2% and for next year, 3%. I would like to stress two aspects of this forecast. There are expectations of a big leap this year from decline to growth. On the other hand, a cooling is expected in many countries in 2011. There will be no further increase of growth rate, the growth rate will remain at the level of 2010. For example, the forecast for the United States has also been upgraded, but in 2011 it will remain at the 2010 level.

So, it is too soon yet to say that we are firmly in an upward trend. Many speak about persisting risks in the world economy. We are closely connected with the global economy owing to the nature of our own economy. If world demand grows, if demand and growth increase then the Russian economy will follow the world economy because of our dependence on oil supplies to the world market, on supplies of metal and other items of demand that will be supported by Europe and China.

Accordingly, we should adjust the indicator of slowdown of Russia's economic growth last year. We expected it to be 8.5%. Preliminary data from the Federal Service for State Statistics (Rosstat) now speak of 7.9%. This is because statistics for the fourth quarter so far have been better than expected. We will have more accurate economic growth data in the next month or two.

On the whole Russia remains attractive for investments. Although investment dropped by 17%, because of the expected growth I think we will start building up investments again. Before the crisis foreign direct investments here approached the $70 billion mark a year. Six or seven years ago we could not have dreamt of such a figure. This is due to a complex of measures that have been implemented: improvement of the tax system and financial legislation and a more rigorous macroeconomic policy. Let me say right off that it could have been even more rigorous. That would have given us greater opportunities in terms of financing, holding back the strengthening of the rouble and lower inflation. And yet our macroeconomic policy has been sufficiently rigorous even by international standards.

Obviously we must mention liberalisation of capital movement in 2006. There again I would like to make this reservation: we had an inflow of speculative capital before the crisis and thus increased our dependence on world markets in the corporate sector. At the same time we got $70 billion in direct foreign investment in 2008. This is undoubtedly a positive factor. In terms of foreign investments as percentage of GDP we reached the level of China.

During the crisis, i.e. in 2009, direct foreign investments dropped by $30 billion and the net outflow of capital amounted to $52 billion. Direct foreign investments also turned out to be lower, but they were growing. Investment processes have continued and many companies have kept their investment plans. I am sure that we will begin to recover the level achieved before the crisis. Within the next 2-3 years we will restore the level of direct foreign investment to $60-70 billion.

A tighter macroeconomic policy that we will need to pursue will, I think, guarantee that we will attract less speculative capital. That will ensure a balanced position for Russia in the world both in the corporate and state sectors.

One major factor that attracts investments to Russia is the hope that the investments here will yield good returns. The government's policy on fundamental matters is well known. We have adhered to a conservative position on budgetary matters. That ensured a safety cushion for the economy. Before the crisis we restrained the strengthening of the rouble and accumulated part of the resources that were not used. Now, in the period of crisis, on the contrary, we have started to actively use these resources.

Such a countercyclic policy at the time of crisis is approved by many. It has enabled us to maintain state demand in key areas. Far from decreasing, we have built up demand under the defence order, for the construction of roads, the purchase of equipment and automobiles for all the federal and municipal agencies. We have allocated an unprecedented amount - multiples of what we did before - to purchase vehicles, I repeat, ranging from military to municipal buses. We adhere to this policy today. The government has just decided to earmark 20 billion roubles to buy vehicles for federal agencies and 10 billion roubles to municipalities to buy municipal vehicles, above all buses. The government has allocated a billion dollars to buy vehicles from Russian companies and enterprises to support demand. In this way we use our potential at the necessary moment.

Last year the budget deficit was 5.9%. That characterizes the scale of our anti-crisis package. If one includes the assets from the National Welfare Fund used for subordinated credits to banks, the total deficit should be put at 6.4%. The deficit target in 2010 is 6.8%. I have even heard forecasts that say it may be less than that. I think that needs clarification. When planning the 2010 budget we proceeded from an oil price forecast of $58. Today it is a little higher. We believe it may be $65 and more. According to the IMF and the World Bank it will be in the $70-80 corridor.

Will it enable us to increase revenue this year and diminish the deficit? It cannot be immediately referred to increased revenue. It changes our forecast for the rate of the rouble as well. Given the fairly high, strong balance of payments - it turned out to be stronger than we expected last year - 3.9%. This is a current account surplus on trade transactions above all. This shows that we also support a stronger rouble than it could have been if the price of oil was lower.

An adjustment of the rate of the rouble on the whole allows us to stay within the planned budget revenue framework. So far we do not forecast a substantial decrease of the deficit for 2010 compared with the earlier target. So far we assume it to be around 6.8%. Of course, the situation will change and there are still uncertainties. This forecast can be seen as a conservative starting point. Only reality will show what the real indicators will be. Is a 6.8% deficit much or little given the price of $65? Of course, it is a little too high. But we are still in the period when private demand has not fully kicked in, when all the factors that ensure growth have not started working. Credits are still less accessible than before the crisis. According to surveys, 80% of enterprises previously said credits were accessible, now only 50% say so.

There are uncertainties in a number of sectors and the banks themselves are still assessing the policy of enterprises in a very conservative way, they are stingy and are afraid to assume large risks. So, a whole range of factors are still uncertain or lower than before the crisis.

Our growth before the crisis reached 8% of GDP a year, and it was due to temporary factors that could be attributed to overheating. When the price of oil in 2008 reached $147 per barrel the inflow of capital and borrowing of private companies in the corporate sector were very high. This provided great money supply and liquidity. That was easy money and of course it boosted demand in the Russian economy. The sectors that can work with short money were growing faster than others. So strong was the demand that it seemed that all the real estate that we buy, reconstruct or build would be sold at a still higher price. The trends seemed to be so stable that, for example, credits in the real estate sphere alone increased by 80% in 2007. An incredible figure. But all that came to an end when the price of oil dropped and the inflow of capital was replaced with outflow. Such is the impact of factors which, I repeat, are not the most reliable but which determined our growth before the crisis: the high price of oil, the inflow of capital determine a great deal. These factors will now be much weaker, they are still in the period of stagnation. We should look for other factors of economic growth. They are cutting costs, innovation, renewal of product range and entering the market with better offers.

Many companies at present seek a new quality. This is apparent in my meetings with the heads of enterprises and companies. Many say that they are still waiting to see what the price for their products will be in times of crisis, to understand the new demand. The new demand has not yet assumed a final structure. They say that they are cutting costs and trying to achieve profitability. But so far some enterprises are still suffering losses. Yet they continue to work and restructure as they go along.

That process should also yield results. Some will manage to meet the new requirements and fit into the new framework of the market with shrunken demand. Some will probably not succeed. Since cost-cutting and increased productivity will make more labour redundant, unemployment will continue to grow at its current rate for some time, even when growth resumes. This is inevitable in the current period of our economy.

Cost cutting, renewal, innovations are important factors for extricating ourselves from the crisis. The government today in supporting innovative economy is considering the need to increase our share in state procurement. The shares of innovative products in order to support those who are ready to work in this sphere and are ready to work for the future.

Previous experience of such periods and situations shows that in this way we will support the more competitive enterprises. If we take today all the state procurement and subtract pensions, wages, salaries and social benefits, tariffs for electricity, utility services which we routinely subsidize as public commitments, all the levels of government procure products worth 4 trillion roubles a year. Within that volume of procurement for state needs we will gradually increase the share of innovative products. At present that share is 10-15%.

But we will increase these requirements. Among other things we propose to introduce amendments to the law on state procurement, Law No.94, which is at present oriented more towards price than anything else. Meanwhile we should take into account other factors supporting that type of the economy. We want to spread these requirements to the procurement for state companies and state corporations. The largest state companies, including Gazprom, Rosneft and others will work towards that end.

On the whole the Government will seek to substantially increase the effectiveness of innovative institutions. The country has more than 110 industrial parks, more than 100 transfer centres, more than 120 business incubators. There are about ten funds for support of business, including innovative business. There are venture funds. We should take stock of their performance. The performance of these institutions must improve to help the real sector work with innovative products.

This will be the subject of discussion at several meetings of the Presidential Commission for Modernisation and Innovation. The next meeting that will be held next week will be devoted to stimulating investments in private sector innovation. We are preparing our proposals for that meeting, some of which have to do with taxes and are designed to support innovative enterprises.

The President of the Russian Federation yesterday chaired a meeting on improving the investment climate, we were comparing ourselves with other countries and our next-door neighbours. We have identified the indicators on which our performance has worsened. We regret to say that the situation in terms of investment climate as a whole, with the exception of some positions, has not been improving. There are still serious barriers and the government must take more resolute measures.

Yesterday's meeting was attended by Prime Minister Vladimir Putin, key ministers and deputy prime ministers. On the whole we agreed an action plan. Initially it will be in the shape of the presidential directive. Subsequently it will become a more detailed plan in a number of areas. It will supplement what we are doing in a routine way in all the sectors. But the ministries and agencies will be much more responsible for the quality of administration of their respective areas.

Igor Shuvalov will be the person responsible for work with business and he is the man to call. The government's main working body for the support of entrepreneurship will be the Ministry of Economic Development which will accumulate proposals, review the acts passed by ministries and agencies for compliance with current requirements that ensure a good investment climate in the country.

Proposals have been made regarding the personnel policy and greater responsibility of those agencies that exert the greatest administrative pressure on business, ranging from fire inspection and Rospotrebnadzor (Federal Service for Supervision of Consumer Protection and Welfare), Rostekhnadzor (Federal Service for Supervision of Environment, Technology and Nuclear Management), the tax and customs services and others. Today they are being closely watched by the country's leaders. Their sphere of responsibility will be determined and they will be reporting back what they have done in order to relieve the pressure on business that we see today. And that includes corruption, which amounts to an extra administrative tax on enterprises.

Our task is to pass through the crisis in such a way as to use it to curb inflation and reduce interest rates in the market, and encourage citizens to save. They should be aware that our financial institutions are reliable enough for them to keep their savings in Russia. That alone can be a fundamental factor that would create long money.

Of course, we will welcome foreign investments. We will create a favourable regime for them, especially for those who are ready to bring new technologies. I want to be emphatic about it. This is the position of the President, the Prime Minister and the Government. We will give the green light and do everything to attract Russian and foreign investments that lead to the introduction of new technologies. We will create a better investment climate. There is no other way. Otherwise we will not be able to use the chance the crisis offers: to remain competitive and to renew our economy during the crisis. This is a challenge because any such project, any such task involves a multitude of technical and organisational problems. But the government is prepared to meet that challenge. This is our goal today.

Thank you.