John Micklethwait: You've just talked about the Russian economy, we'll come back and I ask you about reserves in just a second. But it struck while you're talking in detail in all the ways Russia got stronger. You're about to go to G-20 you have studied and watched the west many times. You've been to G-20 more than any other leader at the moment. Have you ever been to G-20 where the west is seen more divided, more in doubt, more distrustful in itself. Look at all those things happening in Europe — you look at migration, you look at Brexit, you look at America with all the election and the problems with that. Does the West seem particularly disunited at the moment to you. How do you explain that?
Vladimir Putin: There are many issues in the global economy in general and in the western economy as well: population ageing, drop in labour productivity growth rates. This is obvious. The overall demographic situation is very complicated.
Then, the specialists themselves, and you are one of the best specialists in this area, probably believe that in the course of EU expansion, for example, some elements concerning the readiness of some economies to enter the Eurozone have not been taken into account.
It is very difficult to enter a single currency zone having fairly weak economic parameters and maintain a favourable state of the economy, not to mention positive growth rates. We have witnessed it not only in Europe, but for example in Argentina (nearly 10 years ago or more), when they tied the national currency to the dollar and later they did not know what to do about it. It is the same with entering the Eurozone…
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John Micklethwait: Do you expect the euro to survive?
Vladimir Putin: I hope so, because we believe in the fundamental principles of the European economy. We see that leaders in Western Europe (there are some debates of course, we also see that and analyse it all) stick to, I cannot say right or wrong ones, it always depends on someone's view, but I think, very pragmatic approaches in addressing economic issues.
They do not misuse financial instruments, financial injections, but, first of all, seek structural change. This is urgent for our economy as well, maybe even more urgent bearing in mind the problem that we cannot yet deal with, namely the prevalence of the oil and gas sector in the Russian Federation and, as a result, dependence on revenue from oil and gas.
This is also evident in Europe, not the dependence on oil and gas, but the fact that structural reforms are long overdue, and I think that the leading economies are very pragmatic and efficient in addressing the issues facing the European economy. That is why we keep approximately 40 percent of our gold and foreign currency reserves in euros.
John Micklethwait: You expect that Europe won't keep the existing membership, and they going to lose more like they lost Britain?
Vladimir Putin: You know, I do not want to answer your provocative question, though I understand that it may be interesting.
John Micklethwait: Come on, many, many times you've criticized Europe…
Vladimir Putin: Well, yes, I have criticized it, but I repeat: we keep 40 percent of our gold and foreign currency reserves in euros, we are not interested in the collapse of the Eurozone, but I do not rule out the possibility of decisions being made that would consolidate a group of countries equal in economic development and this, in my opinion, will lead to a consolidation of the euro. But there can also be some interim decisions in order to keep the present number of members of the Eurozone unchanged. This is not our job, but we always follow the actions of our European partners closely and we wish them luck.
Now, regarding that criticism you spoke about. I have criticized foreign policy, but that does not mean that we should agree with everything. Indeed, we criticize a lot of things, we think that our partners make many mistakes (may be we make mistakes too, no one is immune to making mistakes), but as for the economy, I repeat that, in my opinion, the European Commission and the leading European economies are acting very pragmatically and are on the right path.
John Micklethwait: Can we talk about the Russian economy. I know you will say that exchange rate a lot depends on central bank and the exchange rate is set by the market. I saw back in July, on July the 19th when the ruble was 62,9 with the dollar you said the ruble is too strong, you criticized that. And a ruble is now come down to 65 to the dollar. Is it weakened enough to make you happy? Or do you want to see it weakening further?
Vladimir Putin: I did not criticize the Central Bank's position. I have always thought and I still think that the Central Bank should act independently. Indeed, it does, you can take my word. I do not interfere in the decisions of the Central Bank and I do not give instructions to the Bank management or to its head.
The Central Bank observes the economic situation and, of course, I keep in touch both with the managers and the President of the Central Bank, but I never give instructions. If I said that the ruble had become too strong, I did not say that the Central Bank's position was wrong, I said that it added pressure to export‑oriented sectors of economy. We all understand that this is true. When the ruble is weaker, it is easier to sell, to produce here for a cheap ruble and sell for an expensive dollar, get revenue in dollars and then exchange it for rubles and get a bigger income. This is simple.
But if we speak about fundamental things, regulation of the rate is actually the function of the main regulator, namely the function of the Central Bank. And it should think of how the economy and industry react, but also of its fundamental tasks in order to ensure the stability of the rate. The stability of the rate is the main issue and the Central Bank manages to ensure it one way or another. This was finally achieved after the Central Bank switched to a floating national currency exchange rate.
The Central Bank should take into account other things as well: the stability of the bank system in the country, the increase or decrease of money supply in the economy, its influence on inflation. The Central Bank has a lot to handle and it is best not to interfere with its competence.
John Micklethwait: You personally, would you like to see ruble a little bit weaker still, with their help? I know it is not you job but you made a comment before. What do you say now?
Vladimir Putin: You know, my position is that the rate should align with the level of economic development. Because it is always about a balance, a balance of interests, and it should reflect this balance. A balance between those who sell something across the border and those who benefit from a low rate, as well as a balance between the interests of those who buy, who need the rate to be higher. A balance between national producers, for example, agricultural producers who are interested in it. Here we have 40 million Russian citizens involved in the sphere of agriculture one way or another. This is very important. We should not forget either about the interests of the regular consumers who need the prices in supermarkets to be a little bit lower.
Therefore, let me reiterate that the rate should not meet the interests of a specific group or one or two groups, it should meet the fundamental development interests of the economy itself.
John Micklethwait: So you are no longer complaining. I will take it that you are not too unhappy where it is?
Vladimir Putin: I did not express any disagreement, did not complain. I simply noted that one of the groups, especially exporters, would prefer to have a weaker rouble.
John Micklethwait: You mentioned earlier Russia used to have $500b. Now it is $400 billion. You have this target to get back to $500 billion. What you think is the realistic target? And your opinion: should the central bank be buying more dollars in order to push it back up towards $500 billion?
Vladimir Putin: The Central Bank is constantly purchasing, purchasing and selling and vice versa – this is their job. I believe that over the last six months gold and foreign currency reserves increased by 14 percent.
John Micklethwait: They gone back up a little bit, but they haven't been buying dollars in the same systematic way as they did once.
Vladimir Putin: You and I know very well about the necessary level of reserves of the Central Bank as well as the purpose. We can tell the general public that the gold and foreign currency reserves of the Central Bank are not designed to finance the economy, but rather to ensure foreign trade turnover. Therefore, we need this level to be able to provide the necessary foreign trade turnover for such an economy as Russia’s for a period of at least three months. If everything stops functioning our level will be able to ensure our trade turnover using its gold and foreign currency reserves for at least six months or more, which is more than enough.
Therefore today we have an absolutely sufficient level of gold and foreign currency reserves in order to ensure economic stability and sustainable foreign trade turnover. All other issues – purchasing and selling of currency – are related to the regulation of the national currency market. However, it is still difficult to say what will be the reaction of the Central Bank and if it would lead to increasing the gold and foreign currency reserves. Let us not forget that we have two governmental reserve funds: the Reserve Fund and the National Wellbeing Fund that represent together $100 billion.
John Micklethwait: I want to jump back — all these things affect budget. You have budget deficit, you just given some more money which you mentioned earlier to pensioners. You will have to borrow sometime. Are you likely to go this year? And will you go to the domestic market or will you go to the international market to borrow money?
Vladimir Putin: There is no such need at the moment. We do not have to borrow in the external market, but we have used and are using this traditional instrument in international financial relations. We have issued financial instruments in the past, and there is a strong demand for them, it is simply unnecessary now. Given the cost of borrowings and the $100 billion in Government reserves, there is no reason for us to borrow. We should review the situation carefully. Besides, borrowings are possible, but we must understand what is more profitable at this point. This is one point.
The second. The deficit. Last year the federal budget deficit was 2.6 percent. I think you would agree that this is a rather acceptable level. This year, we expect a slightly higher deficit of about 3 percent, maybe a little more than 3 percent. It is also an absolutely acceptable level. But what are we seeking to achieve? We are seeking to optimize budget spending. I believe that even in such uneasy times we employ a very pragmatic approach towards economic and social issues. We do address major social problems and deliver on our promises to our people.
The Government has just announced a four percent indexation of pensions. There has been no indexation in the second half of the year, but early next year we will make a one-time payment of 5,000 rubles to each pensioner, which is actually comparable to the indexation. We act in a pragmatic and careful manner. We reduce spending on budget items that do not constitute a priority. We are not going to waste our reserves and burn them for any political ambitions. We will act very carefully.
I hope that there will be no particular need for us to attract external funding. It is worth noting that despite the fact the turnover is smaller now we are still maintaining a trade surplus. I believe that we now have a trade surplus of $45 billion for the first half of the year. Year-on-year inflation has dropped several-fold. Several-fold! Year-on-year it was about 10 percent compared to last August, but now it is only a slightly more than 3 percent. The unemployment rate of 5.7 percent is also acceptable. Our microeconomic indicators are stable and it gives me reason to believe that we will calmly and steadily pass this uneasy period in our economy, which has already no doubt adapted to the current situation.
John Micklethwait: The G-20, this one will be the last times when you'll see Barack Obama. And as you well know there is American election on the way and as you well know there is a choice in that between Hillary Clinton and Donald Trump. Who would you rather have at the other end of the telephone if there is geopolitical situation — Donald Trump or Hillary Clinton? Do you have a feeling at all?
Vladimir Putin: I would like to deal with a person who is able to take responsible decisions and implement the agreements reached. The name does not matter. Of course, this person is to have the trust of the American people, then he or she would not only have the wish but also the supported political will to implement all these agreements.
We have never meddled in the domestic affairs of any state and we never will. We will keep a close eye on what is happening and wait for the election results and after that we will be ready to work with any Administration given that it wants to work with us.
John Micklethwait: Can I just push you on that? Back in 2011 you accused Hillary Clinton of seeking to trigger the protests that you were facing in Russia at the time. And by the contrast when I look at some of things that Donald Trump said about you back in 2007 that Putin is doing a great job, in 2011 he praised your no-nonsense way, the next year he said you is new best friend, next year he said you're outsmarting the Americans, he said you have good ratings to get … And I can go on like that. And you are really telling me that if you have a choice between a woman, who you think may've been trying to get rid of you, and a man, who seems to have this great sort of affection to you, almost bordering on the homoerotic, you not going to make a decision between those two, because one of them would seem to be more favorable towards you?
Vladimir Putin: You know, actually I have already answered your question, but I can put it differently, say it in other words: we are ready to deal with any President, but of course, and I mentioned that, it depends on the readiness of the future Administration. We always welcome when somebody says he or she is ready to work with Russia. But if anybody, just like you said, (inaccurate translation possibly), wants to get rid of us, then this is a different approach. However, we will get over it; you never know who is going to lose more with such an approach.
Here is the thing: I have seen several times that anti-Russian cards are being played during domestic campaigns in the United States. I find this approach very short-sighted.
At the same time we receive different signals all around that in fact, everything is fine. The same situation occurred with the previous administrations during the election campaigns, claims that everything will be restored later. I do not think it matches the level of responsibility shouldered by the United States. I suppose it should be more sound, calm and balanced.
As for the criticism we receive, you know, even Mr. Trump's team criticize us. For instance, one of the participants or members of his team claimed that Russia was giving money to the Clintons through some funds and that in fact Russia is controlling the Clinton family. This is nonsense. I do not even know where Bill Clinton delivered his speech and I know nothing about any funds. Both parties simply use it as a tool in their internal political contention, and I am sure it is a bad thing. But again, we welcome the fact that somebody expresses readiness to work with Russia whatever the name of that person.
John Micklethwait: Can I ask one last question on Donald Trump. Some people say that he is too volatile to be an American president. You would be happy with him as American president in the same way as you would be happy with Hillary Clinton in that role.
Vladimir Putin: We cannot decide for the American people. After all, despite the scandalous behavior of one and, by the way, the other candidate (they are both scandalous in their own ways), they are smart, they are really smart and they are aware of the leverages they should use to make the voters in the United States understand them, feel them and hear them. Donald Trump is targeting the traditional Republican voters, the average person with an average income, the working class, a certain group of entrepreneurs and those people who embrace traditional values. Mrs. Clinton is focusing on a different part of the voters trying to influence them in her own way as well; so they attack each other and in some cases, I would not want us to follow their pattern. I do not believe they are setting the best example. But this is the political culture of the United States, which one should accept as is. The United States is a great country and it deserves non-interference and no third-party comments.
Answering your question for the third time, I can tell you that we will work with any Administration and with any President in whom the American people have placed their trust. That is, of course, if they wish to cooperate with Russia.
John Micklethwait: Let me ask you about other country. Another person you'll meet at G-20 Theresa May. Britain has ended up in the same situation as Russia, it is in Europe, but not, likely not to be in European Union. Will you approach them with a free-trade deal?
Vladimir Putin: Well, I would like to finish my answer to the previous question. You have been working as a journalist for a long time. You are quite knowledgeable and you understand all the threats that may arise from a tense international environment, don't you? Especially if there is tension between major nuclear powers of the world. We all understand this.
Of course, you are the one asking me questions. It is you who is the interviewer, not I. However, let me ask you a question: do you want another Cuban Missile Crisis? Or don't you?
John Micklethwait: No, nobody does.
Vladimir Putin: Of course, nobody does.
John Micklethwait: But that is one reason why I asked about Donald Trump because he is seen as a more unpredictable force than Hillary Clinton.
Vladimir Putin: And you too would prefer that Russia maintained good relations with both the United Kingdom and the United States, wouldn't you? I would prefer it as well. If anybody in the U.S. or in the United Kingdom says: ”I would like to establish good partnership relations with Russia“, then both of us, you and me, should welcome that. So should people like me and people like you. However, we have no idea yet what would actually happen after the elections. That is why I am telling you that we will work with any President designated as such by the American public.
As for the United Kingdom, we have a meeting scheduled with the Prime Minister in China on the G20 sidelines. We had a telephone conversation. Unfortunately, the relations between the United Kingdom and Russia have not developed in the best possible way; however, it has never been our fault. It was not we who decided to discontinue relations with the United Kingdom; it was the UK who preferred to ”freeze“ our bilateral contacts in various fields. If the United Kingdom considers it necessary to start a dialogue on certain issues, we are ready for that, we are not going to pout or sulk. We take quite a pragmatic approach towards cooperation with our partners and we believe that it would be beneficial for both our countries.
We were speaking about our largest oil company Rosneft, and I recalled in the beginning that almost 20 percent of it (19.7) belongs to BP. Who’s company is that? British Petroleum, isn't it? I suppose that is not bad. I have to tell you that British Petroleum’s capitalization is significantly related to the fact that it owns more than 19 percent of Rosneft, which has vast oil reserves both in Russia and abroad. This has its impact on the company's stability as well.
Thus, BP found itself in a difficult situation after the tragic events in the Gulf of Mexico. We did everything we could to support it. Britain is interested in this, isn't it? I think it is. The same is true of other areas.
We are marking the anniversary of the Arctic convoys. You know about that, don't you? We really do consider members of the Arctic convoy to be heroes. This is true. I am not saying this as a fashion of speech. Indeed, that is exactly what they were. We know that the conditions in which they fought were appalling. Time and again they faced death in the name of a common victory and we remember that.
John Micklethwait: Do you think Britain might be more compliant or more likely to do a deal with Russia now it is outside or going to leave the European Union?
Vladimir Putin: Britain is leaving and has de facto left the European Union; however, it has not withdrawn from its special relationship with the United States and I believe that the UK's relations with Russia depend on Britain's special relationship with the United States rather than on its presence in or absence from the European Union. If Britain pursues a more independent foreign policy, it might be possible then. And if it is guided by commitments to its allies and considers this to be of a bigger national interest than its cooperation with Russia, so be it.
After all, this is not our choice; this is the choice of our British partners, the choice of priorities. Anyhow, we obviously understand that, being a United States' ally and having a special relationship with it, the UK in its relations with Russian has to make an allowance for the opinion of its partner ‑ the U.S. We take this reality as a given fact, but let me underscore once again that we will be ready to do as much as Britain will be ready to do in order to resume our mutual cooperation. This does not depend on us.
Part Four to be published.