President of Russia Dmitry Medvedev: Colleagues,
We are coming to the end of a very difficult year. I hope that next year the situation will be at least a little bit easier, including as a result of our joint efforts.
Let’s discuss the current economic situation and the immediate outlook.
Although the statistics can be given various interpretations, of course, they show that the main indicators have stopped their fall, including in the manufacturing and financial sectors. The anti-crisis measures we took have ensured support for particular sectors and, most importantly, have had a beneficial impact on the social and economic situation in the country as a whole. I think our work has been well organised in this respect. Our gross domestic product has registered positive growth since June this year.
We know that other countries are seeing similar trends. The crisis is not Russian but global after all, and so the situation is starting to improve everywhere. But at the same time (as we discussed at the international forums, including the G20 and other meetings) it is still too early to talk about the start of sustainable growth. All the analysts share this view.
I signed a number of important laws this week, including on the federal budget for 2010 and the planned period of 2011 and 2012. This law makes provisions for financing all of the necessary anti-crisis measures. Keeping in mind the complicated and responsible decisions we have taken, and for a number of obvious reasons, this law lays particular stress on pension provisions and other important social mandates.
Our task in the budget policy area is to facilitate post-crisis development, but this is not the only work we have before us. As I said in the Address [to the Federal Assembly], despite the fact that next year will be difficult too, we must start modernising all different sectors of our economy. The budget allocates considerable sums for infrastructure development and road construction – more than was allocated this year. The regional budgets will also contribute to spending in these areas of course, and we will make the necessary decisions on revenue source distribution. I recently signed a law in just this area – a law amending procedures for paying the tax on property that is part of the Unified Gas Supply System [the amendments work in favour of the regions in which such property is located].
There are several things that I want to discuss separately with you today. At the recent State Council Presidium meeting in Ulyanovsk I spoke about the idea of restoring the Road Fund in order to ensure stable financing for road construction. This idea has drawn some very mixed reactions: from full support to categorical opposition. I want us to come back to this idea and give it a serious examination, including the possibility of tying it to specific financing sources such as petrol excise duties and the transport tax.
Of course, we also need to look at what we can do to make administration and management more transparent in this sector, because the main issues are related precisely to these problems. I hope to hear proposals from the Government on this subject within the next two weeks.
Coming now to the budget indicators based on growth forecasts for key macroeconomic indicators, including GDP, the exchange rate, oil prices, and inflation of course, I would like to hear a brief report on just how realistic the forecast targets are, and also on the risks inevitably present, on the proposals for managing and mitigating these risks.
Ensuring macroeconomic stability remains an undisputed priority for budget and monetary policy. I think we have sufficient reserves for a flexible economic policy, but we need to tread very carefully in using the resources we have built up, given that we already had to draw on these reserves this year and it looks like we will have to do so next year too.
Another subject directly related to this meeting is that the formation of the customs union between Russia, Belarus and Kazakhstan calls for new approaches in economic activity. We have already signed the agreement on a common customs code for the three countries, and have taken decisions on common customs duties regulations and also on establishing a common non-tariff regulation system. This is an extremely important step for our country’s economy, as it is for our allies and partners – Belarus and Kazakhstan.
It is already clear that this will have a big impact on the means at our disposal for influencing the pace and extent of economic growth. It will reduce our possibilities for managing and regulating these processes by hand. This will be the case for customs duties, at any rate, from now on. We need to think therefore on how to make optimum use of this mechanism next year.
On the subject of customs duties, I think that their increase has not achieved the desired results in most areas. We had a number of reasons for making this decision, but it has not had any substantial effect and has raised numerous objections on issues that you all know. I therefore want to hear from you on the preliminary conclusions and the proposals for further work in this area, including adjustment of duties on some specific goods in the upcoming months. I have just signed an instruction for the Government on this subject.
This then is today’s agenda. The Chairman of the Russian Central Bank will now say a few words.
chairman of the Russian Central Bank Sergei Ignatyev: Overall, I think the macroeconomic situation is stable and inflation is steadily coming down. Inflation was running at 0.3 percent for the first 23 days of November. Last year it was 0.6 percent for the same period. Accumulated inflation over the year as a whole comes to 8.4 percent, as compared to 12.3 percent last year. Overall, we expect inflation of around 9 percent, perhaps 9.2 percent this year – considerably less than last year, and substantially less than what we were expecting six months ago.
Dmitry Medvedev: At the start of the year.
Sergei Ignatyev: The drop in inflation has made it possible to lower the Central Bank interest rates. At the end of November we lowered (for the ninth time) the refinancing rate by half a percent, bringing it down to 9 percent. In April it was 13 percent.
Dmitry Medvedev: This refinancing rate is the lowest ever over recent years, isn't it?
Sergei Ignatyev: Yes, it is the lowest ever. Before the crisis began it was 10 percent, I think. Now we have lowered it to 9 percent.
Commercial banks are also lowering their interest rates on loans to the real sector, but unfortunately, this is not happening as fast as we are bringing our rates down. There are reasons for this. I imagine we will discuss these reasons later.
The main factors helping to bring down inflation are, first, moderate growth in the money supply, which has been growing by around 1.5–2 percent a month over recent months, and this is a very comfortable growth rate. Second, the situation on the currency market has stabilised. The ruble strengthened a little against the dollar-euro basket after February, but at the same time the exchange rate remains quite flexible. We are intervening less often than in past years, and on a smaller scale, and we are trying to smooth out only the sharpest fluctuations in the rouble’s exchange rate against other currencies.
As far as the balance of payments goes, it remains in a strong and stable situation. The current account has a positive balance of around $5–6 billion a month.
The capital flow situation is more complicated. We saw an outflow of capital in the third quarter, but in November, or in October to be precise, we registered an inflow of around $10 billion. Our preliminary results show that this inflow continued in November and came to around $4 billion.
Our currency reserves now come to around $445 billion. This is more than at the start of the year.
Dmitry Medvedev: What is the total now?
Sergei Ignatyev: $445 billion. At the start of the year we had $427 billion. The figure dropped in February-March to around $384 billion after we completed our devaluation. Now the reserves are quite high.
I will end my opening remarks there.
Dmitry Medvedev: Your opening remarks have turned out rather positive for everyone present I would say. Mr Kudrin, you have the floor.
Deputy Prime Minister and Finance Minister Alexei Kudrin: Thank you, Mr President, for signing the law on the 2010 budget and the financial plan for 2011–2012.
I want to speak first of all about the end of year results. We have achieved revenue higher than what was forecast in February-March, when we made changes to the budget and adopted the anti-crisis programme. Our revenue came to 450 billion [rubles] more than the forecast target, 280 billion of which came from earnings on investment of money from the Reserve Fund and the National Welfare Fund from the previous year. The rest is the result of higher oil prices. Oil prices were the main factor enabling us to achieve higher revenue. We had planned for lower earnings from oil. This makes it possible to close the year on a stable note, carry out all planned spending commitments and begin carrying out next year’s spending commitments as planned and in stable fashion. This will require some more bylaws, some more government regulations to be precise, documents of a normative nature.
Dmitry Medvedev: Bylaws, yes, don’t be shy about calling them that.
Alexei Kudrin: Yes. We have 107 government resolutions that need to be issued by the end of January. Most of them – almost 97 of them – need to be issued in December. This is a big task for all of the ministries and agencies. The Finance Ministry is coordinating this work. We need to get these documents issued earlier than usual so that all ministries get their limits opened in January. I can say that the main limits, 90–92 percent, will be open now in December. In other words, all of the ministries will be able to start work as from January 1 with a large share of their limits already available so as to begin financing. In other words, there will be no obstacles for holding tenders and bids.
Dmitry Medvedev: Excuse me please.
Mr Sobyanin, is it possible (I worked in the Government after all, and know how everything there is organized) to issue these regulations in a short period of time left in December?
Deputy Prime Minister and Government Chief of Staff Sergei Sobyanin: Yes, we will do everything possible to make sure that these regulations are issued swiftly as soon we receive them from the Finance Ministry and other relevant agencies and are not held up in the Government.
If the ministries have this work done on time, we will also manage, I am sure.
Dmitry Medvedev: Good.
Alexei Kudrin: We therefore hope that there will be no delays in the issue of regulations that could end up holding up meeting our spending commitments, and that in January we will have everything needed for financing ministries’ and agencies’ spending limits for the entire year. Rather than receiving funds on a monthly or quarterly basis, they will get full access to the year’s financing and will have it at their full disposal from January 1.
Dmitry Medvedev: Good, thank you.
I could give the floor to Ms Nabiullina too, but I see that you have a presentation ready. Should we hear you behind closed doors, or will you say a few words now with the media present?
Economic Development Minister Elvira Nabiullina: Can I say a few opening words on the economic situation?
Dmitry Medvedev: Yes, go ahead.
Elvira Nabiullina: Our analysis shows that we have had monthly GDP growth over five straight months now. Industrial production still falls considerably short of last year’s figures, but it is still possible to say that the acute recession period is behind us now.
There are of course monthly fluctuations, and it is important to look not only at the figures but also at the factors driving growth. What is important in this respect is to what extent our growth is based on factors that signal modernization. So far, our growth is mainly export-driven, fuelled by export prices and demand for our goods.
Dmitry Medvedev: This is the usual situation here.
Elvira Nabiullina: But over recent months we have seen good results from the agriculture sector, especially in September and October. The construction sector is also doing better. It was the sector hardest hit by the crisis, but showed signs of livening up in October. Of course, talking about whether or not our growth is based on modernisation factors, modernisation requires investment, and so far we are not seeing sufficient signals of a renewal in investment demand. This is also connected to the policy measures that we need to adopt to encourage this investment demand. The Government has already drafted some of these measures, including on financial rehabilitation of a number of companies and sectors, and on possible increase of access to ‘long-term’ money. We certainly need to revive investment demand.
I want to note in this respect that the demand factor is changing with every passing month, as industrial output figures show. October was not a very good month in terms of industrial output. Taking the seasonal factor into account we saw a drop of 1 percent, mostly in the processing industry, automotive and machinery sectors. This shows that our economic policy, our growth policy, should focus on modernisation, investment, and making our industrial and processing sectors more competitive.
Dmitry Medvedev: Thank you.