President of Russia Dmitry Medvedev: Good afternoon, colleagues,
Alexei Leonidovich [Deputy Prime Minister and Minister of Finance Alexei Kudrin], we congratulate you and the other members of the Government on the fact that the budget was adopted today in the third reading – the three-year budget and the budgets for the funds. Part of the work has therefore been completed now and the main work continues.
Colleagues, I asked you to come here to discuss the question of preparations for the summit of the world’s 20 biggest economies, which will take place in Washington in mid-November.
As this meeting draws near we need to discuss ways to reform the international financial system and look at the future steps we should take in this direction.
Objectively speaking, since the start of the year Russia has warned on many occasions of the potentially negative situation that had built up in the American financial system, and that has now transformed into a full-scale international financial crisis.
Regrettably, no decisions were taken. The discussions we had on this issue at the [G8] summit in Japan did not go beyond general conclusions that we should work together on these problems. Some of my colleagues said that everything was fine in their countries’ economies. But we can all see the result today.
Reform of the international financial system is a very complicated issue, but it is something we must discuss today, something that has to be on the agenda.
I would like to say a few words on this subject now. We will continue our discussion later behind closed doors. I will also address this subject in the Presidential Address [annual address to the Federal Assembly].
What steps should we take? I think that the directions for reform are quite clear and should cover several areas.
First, we need to give the institutions greater legitimacy. That is to say, we need to improve the legislative foundation the international financial institutions base their work upon, and make them more effective. This should be done on the basis of conventions, and this would require new international agreements.
Second, we need to reinforce the international financial system’s overall stability by developing a system of multiple world financial centres and reserve currencies. This is also something we have talked about on many occasions now.
Third, we need to develop a risk-management system based on modern management technology – not on the historic principles at the foundation of the Bretton-Woods system. This includes a harmonised system of international and national standards for financial market participants. It is important that this be a genuinely harmonised system and not a system such as that we have today, where those who use continental Europe’s accounting rules are deeply unhappy with the Anglo-Saxon rules and vice-versa. We need a common, unified set of rules, rules that can be broadly applied without having to make concessions to national standards.
Finally, we need to develop a system of incentives for rational behaviour on the part of the financial market participants themselves. By rational behaviour I mean behaviour that is honest, appropriate, carefully considered and motivated.
The most difficult question is how to actually achieve this. Clearly, putting in place the new-look international financial system is something that will take years, but we need to begin this work without delay. So, let’s exchange views now in order to put together our country’s consolidated position.