Vladimir Putin: Of course I am glad to have another chance to meet representatives of the French business world. A similar meeting was held two years ago. I think such meetings are important both for you and for your Russian partners.
The experience of business cooperation between Russia and France has already shown that the political dialogue that is based on the national interests of the two countries is sure to deliver economic benefits. This is proved by some results of the last year. At the end of 2002 mutual trade had grown by more than 11% to $4.2 billion, according to our data, and to over $7 billion, according to French statistics.
To us, the fact that French capital and companies have been more active in Russia is an important sign. Among the hundreds of enterprises working in our country are some French industry leaders. They include Renault, Gaz de France, Alcatel, Michelin and others. More than 20 ventures have been set up in France with the participation of Russian capital. They are active in banking, insurance and transportation. We also have major long-term joint projects in metallurgy, construction, tourism, agriculture and fuel and energy. You know that the company TotalFinaElf is making major investments in the development of oil in the Krasnoyarsk Region and the Nenets Autonomous Area. I am aware that it is planning to take part in developing the Shtokman gas condensate field.
On the whole experts believe that France will soon be the biggest investor in the Russian fuel and energy sector, provided of course, it steps up its efforts. I think you know that British Petroleum has announced that it is buying into the Russian company TNK. It will invest over $7-$10 billion. These are not just investments; for Russia it marks the attainment of a strategic partnership, because British Petroleum works not only here but is a major operator in China; it owns some fields not far from the Chinese border and it is basically an issue of bilateral cooperation. Other major international companies have similar plans. It is a sign of confidence in the policy pursued by the Russian leadership. It is a sign that the economic situation is stable. We hope that it will ultimately encourage investments not only in the fuel and energy sector.
We are making progress not only in traditional industries. We have started working together on high technologies that set the pace in the 21st century economy. These merit special attention. With the assistance of the Russian-French working group work is getting underway in various industries such as biotechnology, optical electronics and nanotechnology. We are also planning commercial launches of satellites from the Kourou launch site by Russian Soyuz rockets. We have discussed this topic with the French experts at length. We have ambitious plans of joint work with the European Commission for the development of aviation and aerospace. We have a project worth about $2.5 billion. I think that will be a big growth area. Practice shows that combining our efforts in the field of innovation technologies gives a competitive edge to Russian and French producers. That is our common potential for strengthening our positions in the world market.
Russian aircraft builders are establishing production and technological cooperation with the company Thales and with the European Airbus consortium. The production of a European heavy transport helicopter based on our Mi-38 is another promising project, involving French, German and Russian firms.
However, for all the evident successes I think you would agree with me that there is a lot of untapped potential, a lot of opportunities for increasing our business ties.
Unfortunately our cooperation is also being held back by all kinds of discriminatory barriers. The recent decision by the European Union to recognise the market status of the Russian economy has yet to lead to a revision of the EU’s anti-dumping measures against Russia. And I draw your attention to the fact that of the 14 current anti-dumping investigations against Russian enterprises, 11 have been initiated by French firms. I am sure these are issues that we can settle. I don’t want to dramatise things and I am confident that everything will click into place. I would just like to urge you to look for compromise solutions together. Solutions in which the main criteria are mutual economic benefit and firm awareness of the promise of civilised cooperation.
To reach new frontiers it is necessary to do more to improve the infrastructure of bilateral cooperation. I am referring to financial, organisational, legal and information mechanisms. I would single out the decision of the French agency COFAS to increase the volume of guarantees offered for financing bilateral projects.
One more point to be mentioned. At present the main investors in the Russian economy are French transnational corporations, whereas small and medium-sized enterprises, a dynamic sector, are hardly involved at all. This is an important part of our economies. If used competently, it will help us not only to diversify trade, but to increase its volume.
More active cooperation between regions can also improve the situation. As far as I know a delegation from French business circles this year is planning a trip to the Siberian Federal District. And meetings with representatives of the Russian regions have already taken place in France. I must say that our delegation includes many distinguished leaders of major Russian regions.
Finally, we should welcome direct links between our business communities, in particular, between the Association of French Entrepreneurs and the Russian Union of Industrialists and Entrepreneurs.
You surely follow the dynamics of the economic situation in Russia. And you will know that by the end of 2002 our economy has increased by 4.1%. Real incomes continue to grow in the country. And for three years in a row we have had a steady federal budget surplus.
Since 1998 the national currency reserves of Russia have increased fourfold, to nearly $50 billion. Russia’s credit rating is steadily improving. Perhaps for countries with stable economies the size of gold and currency reserves is not a very important indicator. But here, as long as inflation is still fairly high, that indicator is important and is a factor of stability.
We are glad that the positive dynamic is the result above all of the new growth factors, an improved business climate and investment environment as well as the development of the internal market.
Accumulated foreign investment in the Russian economy now stands at about $40 billion. In the first nine months of 2002 almost $13 billion was injected in the Russian economy, that is 33% more than in the same period of 2001.
To conclude this review I would like to say that France so far is the fifth biggest investor in Russia. But considering the great potential of French business we are sure that this is not the limit. Of course we appreciate the caution of the investors and their reasonable wish to have firm guarantees for their capital. At the same time I am sure that there are many people in this room who are working to strengthen property legislation, the stock market and the banking sector. As part of WTO accession negotiations an agreement has been reached to substantially raise the ceiling on foreign capital participation in the Russian banking system, from 14% to 25%.
We are also aware that foreign partners have problems because of the discrepancies between federal and regional laws. But that issue is already being addressed. I must say that as part of the administrative reform, government administration will be made more effective. The tax and budgetary sphere is being modernised. International principles of corporate governance and audit are being introduced by Russian companies on an ever-wider scale.
All these moves are aimed at creating a transparent economy provided with legal guarantees, an economy open to the broadest international cooperation.
In conclusion I would like to once again express confidence in the successful future of Russian-French business partnership. A partnership that serves not only the interests of the two countries, but deepens European integration.
Thank you for your attention.
Question: You have said that the Russian economy has been performing well recently. Don’t you think that it has been easy growth due to the rising oil prices? Don’t you think that structural changes in the economy are in order?
Vladimir Putin: Whenever I discuss the Government’s plans I urge the ministers to take bolder actions. But at the same time I would like to tell this audience what I would perhaps have refrained from telling my audiences at home: my task is not to praise but to criticise Government members to make them work harder. But to this audience I must say that the results of recent years have been achieved not only due to high energy prices, but also due to other transformations in the country, especially in the sphere of taxation.
In general, a lot remains to be done in that area. But major steps in the right direction are already being taken. You know that the Law on Income Tax was passed a year and a half ago. It is not only that we have established the lowest tax rate in Europe, we also cut profit tax to 24%. We have carried out transformations to make the tax system less bureaucratic. I must confess that we have not been uniformly successful. But we will move steadily in that direction.
We have taken some measures to cut red tape in the economy. These are early steps, but we will move in that direction. A number of important measures are under consideration to introduce the European standardisation system. And that in my opinion will make a substantial impact on the investment process. We have carried out a reform of the justice system, passing a whole package of laws to strengthen that system. I don’t think it is already up and running, it is only just putting its act together; but I am sure that it will have a positive impact on the economy.
We have at long last passed the law on land, which is important for every country. And not only on land used by industrial enterprises, but on agricultural land and its sale. In general, that is a revolutionary move for Russia. In our country land has never been freely sold and bought.
I have mentioned just some of the accomplishments of recent years. I must say that if any European country could boast that it had carried out one or two such measures in three or four years that would already have been great progress towards reform. We have done it within one and a half to two years. But the pace of these reforms must be moderated by our social obligations to the Russian population. And this brings me to another important component that we have managed to preserve. We have managed to preserve not only civil peace, but the authority of power. I think that is the decisive condition for progress. We will move along that road.
Question: What measures does Russia take to stimulate the inflow of foreign investment?
Vladimir Putin: I have already referred to this area of our activities. We will continue to improve tax legislation. I would like to warn you that this sphere is still in the process of development in our country. We will see how to best improve our tax legislation in line with international standards, but we also hope that such decisions will bring stability to this sector on the understanding that no revolutionary changes will take place in my country. We will think about the problem of security and how to steer it on the right course. But we will continue to do all we can to cut down on red tape in decision-making.
Question: What would be your advice to businessmen who have not yet entered the Russian market but would like to try to enter it?
Vladimir Putin: The answer is simple. Hire good lawyers, study Russian law and be bold in coming to our market. If you have good Russian partners, that increases your chances of success. But in my brief introduction I have already told you what we need. Of course we are interested to see not only those who work in the energy sphere, which is very important for us, but also those who work in other areas. If there is something that you miss or something that hinders you, say so and we will try to react appropriately. There is an agency reporting to the Russian Prime Minister which constantly meets with the representatives of foreign business. It is headed by the Prime Minister. You can put your questions directly and discuss problems. I assure you, the Russian Ministry of Economic Development and Trade will take it into account.
Question: Mr President, you have spoken about structural reforms in your country, in particular the tax reform, and the legal framework for investments. But there is one area in which reform is lagging behind and that is an important area for business, I mean the banking sector. I would like to know if you are going to speed up the restructuring of the banking sector and what measures you are going to take.
Vladimir Putin: When I spoke I said that we count on your cooperation in the high technology sphere. One such sphere is aerospace; and we have long been discussing the issue of using the Kourou site to launch Russian Soyuz rockets. I think it would benefit both Russian and French partners. Why are we so persevering in this sphere? I think the answer is simple: this is an area in which Russia is competitive and our partners are not in a hurry to allow us to enter that sector.
As for the banking sector Russia’s competitive capacity is small. So our bankers are afraid to let you into that sector. That is a fair reflection of the situation. At the same time I am on your side. I think if we artificially set obstacles to foreigners coming into this sector of the Russian economy, the market players in Russia and ordinary citizens will have to wait a hundred years before they get quality services.
But of course we should proceed stage by stage in order not to kill the banking sector in Russia. We have certain plans, we will move in that direction and I have already commented on decisions connected with the possible accession of Russia to the World Trade Organisation. That is a major concession on our part. I think it is a justified concession. Nevertheless, it enables us and your colleagues to work actively in banking services. Besides the Central Bank and the Russian Government have prepared laws on currency regulation, which also seek to liberalise that sphere. I think that the decisions proposed will also give a boost to cooperation between Russian banks and their colleagues, including in France.
Question: I would like to take this opportunity to tell you that today we signed an agreement on a joint venture with our Russian partner Mr Mordashov (Severstal) through the European bank. It has to do with rolled sheet metal for shipbuilding. We seek early mediation in obtaining a license from the Central Bank. Second question. Everybody knows that Russia has plentiful resources. Some of them are considered to be rare, such as palladium. If Russia is going to join the WTO, are you ready to eliminate the obstacles that we now face, for example, in the sale of metal scrap?
Vladimir Putin: First, I would like to congratulate you on signing an agreement with the respectable firm that is headed by Mr Mordashov. You can be sure that you have good connections in Russia and we will try to help you to solve that problem.
Now regarding mineral resources. There is a competitive procedure for obtaining licenses. On the whole it functions quite successfully. I think if you have specific ideas we will look at them. As far as I understand metal scrap is not a mineral. And that constitutes a certain problem. If you raise the issue you certainly are aware of it. Everything that has to do with metal has special significance in my country. The regional heads sitting here will tell you that trying to sell you metal scrap people dismantle power transmission lines, lifts and so on. So we have to introduce certain restrictions. I don’t think this is the best we can do. The best thing of course would be to introduce economic restrictions. But so far they have not been very effective. But we are taking forced measures. I am sure that gradually we will put this work on a civilised basis, although for the moment we have more problems than we have answers. I can tell you that if you and your partners have put in place a scheme for exporting scrap from Russia via Belarus, we will have to clamp down on that. We have relevant agreements with the Government of Belarus. I want you to know that we should all work according to uniform rules, even if you don’t particularly like these rules. The rules need to be changed and not sidestepped. But I agree that it is a problem.
Question: Good evening, Mr President. We are leading suppliers of industrial and medical gas. We have long-term investments, but our enterprises need a measure of stability in the tax, financial and legal areas in order to make long-term investments. I would like to know if controlling inflation is among your priorities.
Vladimir Putin: You have raised a very important question. The inflation control situation is promising. So far inflation has run high, and we are aware of it; but four years ago it was ten times higher than it is now. Last year it was 18%. This year it is only 11%. We plan to further cut inflation next year. It is one of the Government’s main tasks. So my answer to your question is in the affirmative. We have such a priority and I am sure we will gradually manage to bring inflation down and stabilise it. We still have a lot to do to reach the levels of inflation in France, but the prerequisites are there. At least the fact that our budget has a surplus speaks volumes. There are many other indicators that attest to macro-economic stability.
Question: I would like to ask a question about the social protection of the population. You have repeatedly mentioned the difficult demographic situation in your country and spoken about the shortening of life expectancy. France has a very sophisticated social security system. Our health service is practically free. By the way, it costs the state a great deal. There is a system of pensions which the Government finds hard to finance. What kind of social security system do you want to have in Russia? I mean elderly people who have very small pensions compared with what we have here in France.
Vladimir Putin: I wouldn’t speak about low living standards in Russia compared with France. Much depends on the cost of living. But it is a problem. I would like to tell you that incomes are growing steadily, at a pace unknown in Europe. They are growing in real terms. But that is still not enough.
As regards the social system there are several variants for tackling this problem. The first and most important variant is this: if we speak about budget financing I am deeply convinced that financing should not go to the institution, the hospital or school as such. Payment should be made for the quality and quantity of the services they provide. You have treated a certain number of patients – you get paid for that number. If people go to study not to school X, but to school Y, Y should get more funding. This is the principle we must introduce in our country. It is not easy but it is the most effective way to tackle the problem.
At the same time, we must and we will preserve free education and basic medical services. We still have many problems in these spheres. I have indicated the road that we are going to follow very carefully. In parallel we will develop paid-for social systems for the categories of people who are willing and can afford to pay.
As for pensions, we recently adopted a package of laws on pension reforms and have created conditions for a transition to the system of pension savings. The system was introduced this year. We will soon be able to demonstrate to our citizens who have some savings how much money is accumulated in their pension accounts. Now we must improve the way savings are used, liberalise that system without losing control over how the pension resources are used, so that they are not lost and contribute to economic development.