President of Russia Dmitry Medvedev: Let's start with business and talk a bit about the results of the St Petersburg International Economic Forum.
For some time now, during various meetings at which you were present and in the course of my encounters with different entrepreneurs and industrialists, I have been talking about the need to amend the law on bankruptcy. Unfortunately the recent situation shows that there is still a need for such changes, because many of the mechanisms set out in this document do not work.
As a result, enterprises are in a difficult position: they are often subjected to procedures that do not actually work effectively, but instead bring their work to a halt, prevent them from paying salaries, and stop them from carrying out normal production and business activities.
On the other hand, it's no secret that in times of crisis the laws concerning insolvency are often changed in order to protect strategic companies, or perhaps to give more space and better opportunities for companies to escape from this situation without the use of restructuring procedures or actually selling off their assets.
Therefore I would like to know how things are and whether the changes in the law have been prepared. And then you can tell me about the final results of the St Petersburg Forum, because we both took part in it: it was interesting, many very different encounters took place, and let's talk about the practical results of this work.
Minister of Economic Development Elvira Nabiullina: According to your instruction, our Ministry is working on amendments to the bankruptcy law. We have already prepared some of the amendments and others are being prepared. As the financial crisis has shown, the current law, which was passed in 2002, obviously does not work. So now in these crisis conditions we need some very effective mechanisms to protect the rights of creditors who are unwilling to lend to businesses because their rights are not adequately protected, and to protect the debtors, the enterprises themselves. For these reasons the main focus now is on preparing amendments to strengthen the process of rehabilitation, which presents us with an opportunity, a big opportunity, to engage in financial restructuring.
We have looked at the statistics: since 2008 we have had more than 30,000 cases of bankruptcy and only 48 cases of financial restructuring. In other words, this procedure is simply not working. In a crisis, when many companies can maintain their long-term financial stability but find themselves in temporary difficulties, of course we need such a procedure to work.
(Ms Nabiullina went on to tell the President about specific amendments to bankruptcy legislation that the Ministry of Economic Development is preparing.)
In general we would like this procedure to do what it is supposed to instead of frightening everybody, because in many countries it is the mechanism used for resolving a debt crisis. It’s not a fire sale, it's not about dismantling the company.
Dmitry Medvedev: You are absolutely right to say that everyone is frightened by these proceedings. Of course the reason for it is not to sequester the property of the company as soon as possible, then sell off parts of it while its labour force waits at the gate. On the contrary, the challenge is to engage in financial restructuring, to get the company healthy again, and only in the most extreme cases to close it down and sell off its assets.
Therefore, we need to go to work on insolvency in this area, to make sure that first and foremost it involves these restructuring procedures. Moreover, in my opinion this mechanism is still extremely weak. Often we need to come up with targeted decisions, very specific ones, in order to understand a given situation and to punish those responsible.
Actually this work should be based on common methodological approaches. In other words the Government Cabinet, the governors and respective companies’ CEOs must understand the situation, long before things have reached an impasse, when problems occur, when a financial fix is needed, when all this can be easily rectified with the help of conventional economic procedures.
Let's move on. I hope that all of this draft legislation will be accepted, well-calibrated and put to work.
What about the results of the Forum? Please go ahead.
Elvira Nabiullina: The Forum lasted three days. There were many guests from many different countries, chief executives of the largest companies, government leaders, heads of ministries. And the figures speak for themselves: the event featured 3,500 participants from 83 countries. There was a very broad cross-section of people there and all sorts of topical issues were discussed.
I think that one very important result of the discussion is that we have all become more aware of various actions that have been taken in other countries. This is very important, because Russia really is part of a global world, and the measures that other countries adopt affect us directly. This is one of the practical results of such encounters, because we learn how processes that affect the whole world manifest themselves in our country.
Dmitry Medvedev: And they get to hear about the measures we have chosen to adopt, because it is very important to understand what your partners are doing: our economies are inextricably bound up together.
Elvira Nabiullina: Absolutely. I think that in various sessions we were able to present our anti-crisis programme and our vision of how to change the world's financial architecture.
I wanted to say that this year we used a more interactive format.
Dmitry Medvedev: I noticed.
Elvira Nabiullina: Including setting up a voting mechanism. One vote was on the future of international financial architecture. 75 percent of those surveyed – and this was a highly qualified audience – said that the international financial architecture is changing: that is, almost everyone seems to understand that it has no future in its current form.
Dmitry Medvedev: It would be interesting to know who belongs to the remaining 25. It must be people who believe that the present architecture is useful for them.
Elvira Nabiullina: Maybe. We asked them the question: “Do you believe that the current structure will change?” Maybe they want it to but can’t in the end bring themselves to believe that it will.
We polled them on other things and some of the results seemed to me rather surprising. For example, when we asked “What is the first thing governments should do in a crisis situation?” the most popular answer was “invest in infrastructure.” That’s how 39 percent responded and approximately the same number — 38 percent — said that it was necessary to clean up the banking system.
Dmitry Medvedev: That coincides with our own views and for that matter with our actions.
Elvira Nabiullina: Here too I think there’s a real consensus that we need not only to solve the problem of old debts that have accumulated but also to create reserves for the future. That is, all countries are thinking about what has to be done in the future, including how to invest and where.
There were a lot of formal exchanges on business topics: there was Russia-EU, Russia-United States and, for the first time at such a high level, a business exchange between Russia and the Arab world. There were many representatives from Arab countries and talks with them were constructive.
Your meeting with entrepreneurs involved you in the discussion of many issues, and shows that even in the current difficult circumstances, the interest in Russia and in investing in Russia is very large. On the sidelines of the Forum a lot of specific projects were discussed, something that usually happens during the forums. I think that on the whole there was a lot of useful discussion, and we hope that it will allow us to better understand what is happening in our different countries.
Dmitry Medvedev: I could not agree more, although it is no secret that the situation at the beginning of the year was such that when, for example, we discussed this Forum, frankly it was not entirely clear to me how much interest there would be in it, because the situation was very difficult.
And when the heads of major companies choose to get on a plane and fly to Russia to discuss investment prospects, to come up with new projects, even to sign contracts, instead of staying home to deal with running their own businesses – that sort of choice says a lot.
And the fact that the Forum did not just take place, but took place virtually unchanged in terms of format from the point of view of the participants, and the fact that the number of people attending was even larger than it was before the crisis occurred – these are promising signs. They show that, despite our current problems, we are interested in discussing the most difficult international economic and financial issues, that we are really comparing national programmes put into place to counter the crisis, and that Russia remains an attractive target for investment .