In his address to the plenary session, Mr Putin outlined the global economy’s main problems today, looked at the issues on the G20 agenda under the Russian presidency, and noted Russia’s efforts to stimulate economic growth and improve the country’s investment climate.
German Federal Chancellor Angela Merkel is attending the forum as a guest of honour.
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Speech at St Petersburg International Economic Forum’s plenary session
President of Russia Vladimir Putin: Good afternoon, ladies and gentlemen, friends,
The moderator began with the problems the global economy faces today, and I will also say a few words about these global problems, but I am sure you would agree that it would only be right for me, as Russia’s head of state, to talk about our country’s problems and the solutions we propose.
The St Petersburg International Economic Forum has particular significance this year because it is also one of the big events taking place as part of Russia’s presidency of the G20. Incidentally, I propose that we hold next year’s St Petersburg International Economic Forum on the same lines, in the run-up to the G8 summit, which Russia will be hosting in 2014.
The cornerstone of the agenda we proposed for the G20 is to take practical and systemic decisions that will clean up the global economy and finance and get them into shape again through growth and development. We can do this by making broader use of advanced technology that improve the quality of life, financial investment, above all, investment in people and social development, and developing high value-added industry that will create effective and modern new jobs. These are the Russian presidency’s priorities for the G20’s work, and they are also Russia’s socioeconomic policy priorities.
The times call for decisive action. It was not by chance that this became the motto for this year’s forum. Russia’s top priority is to create the conditions for sustained economic growth. For many years we had a situation when prices for our main export goods rose fast and almost without interruption, and this made it possible for Russian companies and for the government too, to cover high expenses.
”Russia’s top priority is to create the conditions for sustained economic growth. What is needed from us now are discipline, the best choice of priorities, and the right balance between working towards long-term goals and addressing current and sometimes urgent tasks.“
But this situation has changed now. There are no simple solutions and no magic wand we can wave to change things overnight. What is needed from us now are discipline, the best choice of priorities, and the right balance between working towards long-term goals and addressing current and sometimes urgent tasks.
Economic growth must be based on the three pillars – increasing labour productivity, investment, and innovation. Progress in all of these areas can be achieved only by bringing down financial, management and infrastructure costs, developing human capital, and creating a genuinely competitive environment for doing business.
A comfortable economic environment is also essential for growth. This means macroeconomic stability, further decrease in the inflation rates, responsible budget policy and compliance with the budget rule that we introduced and that is already in effect. For our foreign guests’ benefit, let me explain that what this budget rule entails is that extra revenues generated by high prices for our energy exports get put into a reserve fund.
We will stick to the strategic policy we set, and I particularly want to stress that we will continue this policy regardless of the personnel changes at the Central Bank and among officials responsible for economic matters in the Presidential Executive Office and the Government.
Incidentally, today is Ms Nabiullina’s last day working in the Presidential Executive Office. As of Monday she’ll be the Central Bank Chairperson. I would like to thank her for our joint work in the Government in previous years, and in the Russian Federation’s Presidential Executive Office.
”Economic growth must be based on the three pillars – increasing labour productivity, investment, and innovation.“
Ladies and gentlemen, by expending considerable efforts, and thanks to a responsible financial policy, we have been able to significantly reduce inflation. There were years – and you are well aware of that – when we were swamped by inflation of over 30 percent. The year before last, it was at a historic low: 6.1 percent. Last year it increased a little bit and this year it rose a little more, to 7 and odd percent.
On the whole, these are reasonable figures for our economy. But nevertheless we still have a great deal to do in this regard. The fundamental conditions for long-term investments, so necessary for changing the structure of our economy itself, are being established, or in any case we have to establish them.
As I already said, inflation remains high. And we intend to reduce it further. Today an important element causing inflation, including inflation expectations, is so-called non-monetary factors, in other words increases in tariffs. The growth in tariffs has become an independent and significant factor outpacing inflation. It is a real cause of a slowdown in economic growth, as well as the rising costs and reduced competitiveness of our manufacturers. Obviously, tariffs can no longer increase at the same pace as before.
In this regard, I want to inform you of a decision we’ve taken: the growth of regulated tariffs of infrastructure monopolies will be limited, and should not be higher than the actual inflation rate of the past year. This policy will be fixed for five years, starting in 2014. However, we all understand perfectly well that the final price of electricity, for example, for the consumer or the shipper is not limited to regulated tariffs.
I would ask the Government to propose a mechanism enabling the final consumer price to be set at an acceptable level, and for it to be in line with specific parameters and principles.
”The growth of regulated tariffs of infrastructure monopolies will be limited, and should not be higher than the actual inflation rate of the past year. This policy will be fixed for five years, starting in 2014.“
And another thing: consumer opinion must be consulted when making decisions about tariffs. The procedure must be strictly regulated so that proposed limits do not simply consist of wishful thinking. I suggest that we create consumer councils within the Federal Tariff Service, infrastructure monopolies and regional energy commissions. I would ask the Government and the business community to submit proposals on this account.
I want to stress that our infrastructure monopolies have the capacity to cut costs. Every such company should establish a programme to reduce costs and improve efficiency. You need to invest money wisely, and attract financing for your investment programmes in an intelligent fashion. But reining in tariffs should not have a negative effect, namely less investment in infrastructure. Our key challenge in the coming years is to remove many infrastructure constraints that literally stifle our economy, and prevent us from unlocking the potential of entire regions of the Russian Federation.
What are the proposals on this account? We have been discussing the possibility of using our financial reserves. We have several; one is the National Welfare Fund. Its resources must be used for the benefit of the Russian economy and future generations. They must not be frittered away or spent on inexistent programmes, but rather channelled to projects that are reshaping the country and opening up new development prospects.
For this reason we took another important decision: to invest 450 billion rubles [about $14 billion] in profitable infrastructure projects; naturally, these investments will yield a return. In general, about half of the National Welfare Fund will be invested in projects in Russia.
A key preliminary condition is that private business must assess the viability and effectiveness of a project, that is become involved in co-financing. I know that investors are hugely interested in infrastructure projects, especially if the state is willing to provide guarantees, minimise the risks, and act as a co-investor.
My meeting yesterday with heads of some of the world’s largest investment funds confirmed this. I see that some of them are present here today. Yesterday we had a detailed and quite a long discussion on the subject. Today I am ready to offer you the role of partners in implementing the first three such projects that will receive National Welfare Fund funding, as I just said.
”The National Welfare Fund's resources must be used for the benefit of the Russian economy and future generations. They must not be frittered away or spent on inexistent programmes, but rather channelled to projects that are reshaping the country and opening up new development prospects.“
What are these projects? The first is a high-speed train link between Moscow and Kazan. In fact, this will be a pilot project for the route that will eventually connect the Central, Volga and Urals economic regions.
Second, it is a central ring road that will actually be built anew and run through the Moscow Region and the New Moscow area. Some sections of that road will be 30 to 70 kilometres away from the existing Moscow ring road. In fact, the Central Ring Road is a new project that will change the entire transport logistics in the European part of Russia, connect the country’s central regions, open up new development opportunities for them, relieve Moscow of transit transport, and improve the capital’s environment.
The Russian participants of our meeting today understand what this means for the people living in the centre of the Russian Federation. About 20 million people live in Moscow and Moscow Region. And if we add those in adjacent regions, regions that will eventually use this infrastructure, the number of people and economic actors increases many times over.
And finally, as a third project we are going to significantly upgrade the Trans-Siberian Railway and expand its capacity. Let me point out that it is one of the longest railways in the world: nearly 10,000 kilometres. A direct rail route across Eurasia will act as a key artery between Europe and the Asia-Pacific region. It will give a powerful impetus to the development of the Far East and Siberia. Our transport infrastructure is getting very close to fast-growing Asian markets.
All these projects represent our invitation to work together in Russia. Let me repeat that for our part we are ready to invest, and we are interested in reliable, strong and ambitious partners. I would ask the Russian Government to create specific mechanisms for implementing these projects in the near future. I want to emphasise that these are projects in the economic sense of the word, with concrete plans, and not simply wishful thinking.
I would also like to add that the new pipeline infrastructure in the Far East, with a branch to China, and access to ports in the Pacific, enables us to carry out large-scale projects in the Asia-Pacific market. This infrastructure has made it possible for Rosneft, one of our leading companies, to sign a major contract with China National Petroleum Corporation today.
This provides for oil deliveries of up to 46 million tonnes a year for the next 25 years. The estimated contract value in current market terms is absolutely unprecedented, $270 billion. There are other figures – such as $70 billion – being bandied about in the media, but that is only the up-front payment.
Another important project that gives Russia access to Asia-Pacific markets is the construction of a railway bridge across the Amur. The relevant agreement was signed with our Chinese friends on the sidelines of this forum. I would note that at the first stage the bridge’s design capacity will exceed 5 million tonnes of cargo a year, and will then increase to 20 million tonnes.
Ladies and gentlemen, our domestic investors’ resources should become the resources available for investments in development programmes too. Resolving this problem implies increasing confidence in the financial sector, but in turn this requires an adequate system of regulation.
The regulation of all financial institutions will be transferred to a mega-regulator, which will oversee the work of banks, as well as investment and pension funds. This mega-regulator will be established on the basis of Russia’s Central Bank.
Already in the near future a pension savings guarantee system that will be established on the basis of the Deposit Insurance Agency. By creating a robust safeguards system, we will be able to get rid of the restrictions that currently prevent us from investing pension funds in long-term projects.
We must also determine the amount of pension funds that will be used to invest in the securities of sustainable infrastructure projects.
I cited the National Welfare Fund figures: 450 billion rubles for three projects. But we understand that this is absolutely insufficient to fully implement them, it’s only seed money. At the next stage, fully secured pension savings should be used, as well as the investors’ funds I already mentioned. As these projects develop we will look for other sources too.
”Our domestic investors’ resources should become the resources available for investments in development programmes too. Resolving this problem implies increasing confidence in the financial sector, but in turn this requires an adequate system of regulation.“
We will continue to develop our stock market to bring it in line with all international requirements. Concrete steps are already being taken, and today the Moscow Stock Exchange is all ready for major placements and privatisations.
I will stress once again that privatisation of state assets will be done on Russian markets. By the way, VTB share placement [on the Moscow Stock Exchange] showed that it is both possible and appropriate to do so. This public offering was quite successful and the work was conducted correctly.
At the same time, we will privatise gradually, focusing on the quality of deals and by selling assets at really competitive, fair prices. In parallel, we will increase the transparency and openness of public companies regardless of their ownership structure, create mechanisms to protect the rights of minority shareholders, and improve the quality of corporate governance.
I would like to talk separately about state-owned companies. Often investors use the quality of such companies’ work as a proxy to judge the quality of governance in the entire country, and it is no secret that the conclusions they come to are sometimes unflattering. We intend to strengthen the state’s role in overseeing the companies it owns, to introduce clear performance management indicators, including with respect to companies’ capitalisation and financial return ratios. Decisions about whether to reward or punish companies, as well as personnel decisions, will be taken based on these indicators.
Of course, no regulation or performance indicators will replace the main thing, namely competition. Regardless of who owns a company, no preferential treatment in our economy, a normal market economy, will be allowed. We must create a competitive environment in both internal and external markets for goods and services, for both private and public companies.
As the first step in the field where competition seemed impossible before, we offer to gradually lower the restrictions on liquefied natural gas (LNG) exports. Increasing opportunities in the Asia-Pacific market, where LNG consumption is expected to double, allow us to make a decision on gradual liberalisation of LNG exports. This will create conditions to fully exploit the potential of offshore gas production as well as that in coastal areas.
”Privatisation of state assets will be done on Russian markets. In parallel, we will increase the transparency and openness of public companies regardless of their ownership structure, create mechanisms to protect the rights of minority shareholders, and improve the quality of corporate governance.“
I note with satisfaction that agreements on LNG exports have been signed on the sidelines of our Forum; NOVATEK, one of our companies, concluded an agreement with the China National Petroleum Corporation on cooperation in the Yamal LNG project. The agreement contemplates that the Chinese party will buy a 20 percent stake in [NOVATEK’s] Yamal LNG project, and a long-term contract for LNG supplies to China will be concluded. Gazprom is also preparing to sign contracts for delivering gas to Japan and the People’s Republic of China.
Following these contracts, major investments in the development of offshore production will be carried out with global leaders in the oil and gas industries, such as ExxonMobil, Statoil and Eni. There will also be investments in localising production and up-to-date equipment with global technology leaders such as General Electric.
Ladies and gentlemen, an important factor in determining the amount of investment, whether in a specific country or a particular sector, is taxes. Tax policy should also be working to develop business incentives, encourage investment, modernise existing and open new production facilities in Russia, and create high-quality jobs. Therefore, as we develop our tax policy we believe that even the government’s strict budgetary constraints are not justifications for increasing tax burdens for business.
This past year we have significantly improved tax administration. Judging by its quality, Russia has taken a major step forward in international rankings: it rose by 30 points at once, from 94th to 64th position. According to this indicator, we are ahead of many long-standing OECD members. But we do not intend to stop there.
Thus, already in the near future we should narrow the gap between tax bookkeeping and accounting. We have discussed this with the business community many times already, and I agree that we need to move in this direction.
We will continue to develop tax incentives for investment. This applies to both investments in fixed assets and those in securities. Of course, we are first and foremost talking about Russian companies, as well as projects in our Far Eastern regions. I should add that the new movable property of legal entities is tax exempt.
Equally important is that citizens get more involved in capital markets, and benefit from tax incentives for long-term investments. This will give citizens the opportunity to earn revenue from economic growth. Such measures are currently being developed as well.
At the same time, we are going to fight tax evasion and funds fleeing to offshore finance centres. Work to this effect is proceeding at both national and international levels. Yesterday I met with G20 Youth Summit participants. These young people are suggesting very original and rather strict ways of dealing with offshore tax evasion. I think that a lot of their suggestions could be adopted.
”Tax policy should also be working to develop business incentives, encourage investment, modernise existing and open new production facilities in Russia, and create high-quality jobs. Even the government’s strict budgetary constraints are not justifications for increasing tax burdens for business.“
Together with our G8 colleagues (Madam Merkel was also there), we talked a great deal about this very issue, and the need to fight tax havens at the global level.
As one measure to prevent offshore tax evasion, Russia plans to sign special bilateral agreements with offshore and low-tax jurisdictions, in order to ensure a broader exchange of tax information. Such agreements are being concluded increasingly often.
Our domestic legislation is already in line with the requirements of the OECD and the Financial Action Task Force (FATF) (incidentally, Russia will soon take up the chairmanship of this organisation). The State Duma has adopted a relevant law and it will be signed in the near future.
Major changes to criminal, banking and tax legislation with the aim of combating money laundering are being introduced. In this way oversight of and responsibility for such actions has significantly increased. Now credit organisations will be required to identify clients, disclose information on owners and clients that benefit from their services, and stop providing services if violations are uncovered.
We are also introducing tools for the tax control of such operations. We foresee a disclosure of information to tax authorities about individuals’ bank accounts. In particular, you know that we have made relevant amendments to our Tax Code and agreed to provide such information to our partners abroad, on a reciprocal basis naturally.
And another thing about the banking system: the most important factor determining business and investment activity is the availability of bank loans. This is particularly true for small and medium businesses, and here we have to take a number of measures, namely improve mechanisms for refinancing the banking system, take steps to promote competition in the banking sector, and expand the system of state guarantees for small and medium businesses.
We must also give banks the opportunity to reduce their risks, costs, and administrative expenses, including by eliminating redundant administrative procedures related to accounting. Particular attention should be paid to protecting creditors’ rights. Often banks do not only fail to recover their money if the borrower goes bankrupt – they themselves become debtors. At the same time, we must protect the rights of those using financial and insurance services, primarily of citizens who often have limited financial expertise.
We are also introducing tax control over such operations. Banks must disclose information about private accounts to the tax authorities. In particular, we have adopted amendments to the Tax Code and agreed to provide such information to our partners abroad, on a reciprocal basis.
Another point about the banking system: bank loans are the most important factor in business and investment activity. This is a particularly acute issue for small and medium-sized businesses, and it is necessary to take a number of measures in this area: to improve the mechanisms of refinancing the banking system, promote competition in the banking sector and expand state guarantees for small and medium-sized businesses.
”We do not divide those who set up production and create jobs in Russia into domestic and foreign businesses. We value those who work hard, and we strive to create not just good, but the best possible conditions for those people. We make every effort to make their businesses in Russia profitable, comfortable and secure.“
We must also allow banks to reduce their risks, costs and administrative expenses, including through the elimination of redundant control procedures for reporting. Particular attention should be paid to the protection of creditors’ rights. Often banks cannot recover their money in case of the borrower’s bankruptcy, and even become debtors themselves. At the same time it is necessary to provide protection for the consumers of financial and insurance services, primarily individuals, many of whom do not always have sufficient knowledge about financial services.
Another point I wanted to mention is that we have recently established the Popular Front for Russia social movement. I suggest that this movement should think about becoming the platform for protecting borrowers’ rights. Also, I ask the Russian Popular Front to take charge of public control over government and state monopolies’ procurement. It is vital to ensure the transparency of resources allocated for priority projects.
Ladies and gentlemen, our key priority is to improve the business climate. Everyone must join in this effort, from the mayor of a small town to the federal minister, from the district police officer to the head of law enforcement agency.
The quality of governance at all levels of authority is becoming a decisive development factor, which is why the state authorities and officials at all levels must set objectives that are clear and understandable to the public. The results of their work are evaluated, as in business, in terms of personal efficiency. I stress that our joint actions and motivations fully determine our business environment and the investment image of the country as a whole.
We do not divide those who set up production and create jobs in Russia into domestic and foreign businesses, into theirs and ours. We value those who work hard, and we strive to create not just good, but the best possible conditions for those people. We make every effort to make their businesses in Russia profitable, comfortable and secure. We are confident that the measures to improve the business climate will be fully realised.
We have also done a great deal to eliminate prosecutorial bias in the work of law enforcement and judicial systems, to eliminate the reasons for commercial disputes to be turned into criminal prosecution. Together with the business community and the Parliament, we have made great efforts to liberalise the criminal law.
In order to ensure uniform approaches to the resolution of disputes involving both individuals and organisations, as well as disputes with state authorities and local governments, we propose to combine the Supreme Court of the Russian Federation and the Higher Arbitration Court, and to achieve that it would be necessary to amend the Russian Constitution. That is a serious issue, and we must consider and analyse all the aspects carefully.
I ask the Presidential Executive Office, representatives of the judiciary and the Parliament to join efforts in this work. I ask you to prepare this issue in time for consideration during the autumn session. The draft law will be submitted to the Parliament in the near future.
”The social dimension of the economy will play an increasingly important role. We must see real changes in the lives of every individual, every family. That is what we are working to achieve.“
In Russia, the office of the Commissioner for Entrepreneurs’ Rights has been introduced recently, both at the federal and regional levels. The Commissioner has the practical powers to defend business interests in relations with the state authorities.
These powers extend as far as suspending local government acts and are enshrined by law. By the end of this year, pubic organisations, including business associations, will have the right to file lawsuits on behalf of an unlimited number of its members. In fact, influential business associations will take on the role of public ombudsmen along with the Commissioner for Entrepreneurs’ Rights.
Another fundamental decision I would like to report to you: a month ago, I had a meeting with representatives of leading business associations. A proposal was made to declare an amnesty on economic offenses, especially since Russian legislation radically changed in recent years and many people simply would not have been convicted if the modern legal norms were in force at the time.
Of course, we should not be hasty in matters of amnesty. We cannot allow people who committed serious crimes against the state, individuals and property to walk free. For example, corporate raiders, counterfeiters or those who tricked people by taking away their homes. It would also be unacceptable to pardon those who committed crimes involving threats of violence. The draft resolution on the amnesty has been finalised by the business community and State Duma deputies. I can give my support to this version and ask the State Duma to consider and pass it. I hope that this will be done in a short time, before the summer break.
According to the draft resolution, the amnesty will apply to those who have committed economic offenses, for whom this is a first conviction, and who agree to reimburse or compensate for the damages or losses to the victims. The criminal records of these people will be expunged.
I stress that the decision on the economic amnesty will not only restore justice and will not only be an act of humanity in relation to specific businesspeople. This is an opportunity to relaunch a wide range of public relations, the work of our law enforcement and judicial systems, to realise our plans to radically expand the space for business initiative and in general strengthen public confidence in business.
I am convinced that the development of the state is possible only if there is public respect for private property, the values of economic freedom and entrepreneurial work and success.
Ladies and gentlemen,
In conclusion, I would like to return to the central issue of human resources. We are implementing a project aimed at the conservation of the nation, investing in human resources and personal development. We are paying special attention to demographic and healthcare programmes, making serious improvements in the social sector and all levels of education, including higher education. We are aware of the demographic challenges we will face in the coming years.
Most importantly, we realise that the social dimension of the economy will play an increasingly important role, and therefore the abstract figures of the gross domestic product and industrial growth, despite their importance, cannot be the ultimate goals of our policy. We must see real changes in the lives of every individual, every family. That is what we are working to achieve, and I invite you to join efforts with us.
Thank you very much for your attention.