[TRANSCRIPT: Medvedev, Dvorkovich:] A working breakfast with foreign investors in Davos

(Government.ru – January 24, 2013)

Dmitry Medvedev: Good morning. I hope it is truly a good morning for you.

Arkady Dvorkovich: It is. We have just managed to discuss a number of issues regarding global and Russian economic growth. And we have even held a vote on possible global and Russian economic growth rates.

Dmitry Medvedev: And what did the vote show?

Arkady Dvorkovich: I have failed to convince the room to support high or low growth rates. The vote has revealed that everyone believes that the global economy and the Russian economy will grow by about 3% in the mid-term, that is, during the next three to five years. However, people are divided on the meaning of 3% growth. Some say that this amounts to high growth, and others believe this growth is low.

Dmitry Medvedev: That depends on what figures you are starting with.

Arkady Dvorkovich: The factors that we discussed are linked with European problems and with the fact that Europe still has a long way to go in order to restructure its economy. As has already been said, Europe is not very eager to do this, because Europe considers it more important that workers at French plants should feel calm, and that nothing should disturb their wellbeing. We have noted that, of course, the debt problem will have to be solved, and that the monetisation of debts merely delays the solution of this problem. This measure does not solve the problem completely. We have also noted that Europe, as well as Russia, had to and still have to restructure their income patterns and budget spending in order to improve their policy. It has also been noted that the demand for raw-materials has continued to increase. China uses 50% of global resources. Demand for resources will continue to increase. The countries will have to find the proper incentives for encouraging tremendous long-term investment for the development of new mineral deposits and for food-production purposes. And we will have to feed China and all other emerging-market countries. But there is also the issue of innovations, which create new technologies, wealth, and which ensure the more cost-effective use of resources in this world. This is a serious source of future growth.

As far as Russia is concerned, it has found itself in a situation where we face serious risks that raw-materials prices might decrease as a result of various factors. In this situation, we have to follow the budget rule, streamline spending and implement reforms, which you mentioned in your speech yesterday. We have to implement the reforms that are becoming critically important. These are the main conclusions from the discussion, which is taking place against the backdrop of currency wars and serious discussions among world leaders on the overall global economic situation.

Dmitry Medvedev: And Mr David Cameron (Prime Minister of the United Kingdom) has proposed holding a referendum on withdrawal from the European Union.

Arkady Dvorkovich: Mr Medvedev, you have the floor.

Dmitry Medvedev: As for the issues that you have discussed, I believe that this is the essence of the current global concerns. Is 3% growth high or low? You know, I’m with you in believing in 3% growth, but I hope that higher growth is possible. Obviously, 3% is some average volume that can be posted in the Russian Federation and worldwide this year. But we must try and make this growth more substantial. By the way, this is one of the priorities of Russia’s tenure as the G20 chair: global economic growth and the employment issue. Consequently, we must ensure 3% growth, but we must strive to achieve more impressive growth. Such is my stance on this issue.

As for the problem of debt, most countries view this as a highly important issue. Obviously, a subsequent increase in debt-burden volumes is extremely dangerous. We have stipulated all sorts of fiscal-consolidation indicators to eliminate a debt burden. I didn’t have time to hear what Mr Kudrin (Alexei Kudrin) said on this issue, but I recall that both of us had attended a G20 summit where we had set specific indicators. Far from all countries managed to do their homework. Incidentally, Russia managed to cope. I am talking about the years when all of us were combating the active phase of the global financial crisis. But the debt problem remains extremely complicated. Despite yesterday’s decisions by the United States not to set any debt ceilings, many difficult and unpleasant decisions will, nonetheless, have to be made in this area. And this must be done.

We in Russia always discuss what will happen to Russia in the event that oil and gas prices come tumbling down. Frankly speaking, yesterday’s discussions and various scenarios compiled by our esteemed experts were based on this assumption, at any rate, some of them. One scenario was submitted by Mr Alexei Kudrin, and two other scenarios were not linked with hydrocarbon prices. Nevertheless, they were rather complicated, as far as our country is concerned. I believe that we should really think about what we should offer the world in the future when the energy paradigm changes. I have no doubt that it will change. The current decline or changes in the markets do not even matter in this context. They don’t. We simply know that every 50-70 years the world undergoes an energy revolution, and nuclear energy will be followed by the development of new energy sources. This means that hydrocarbons will not fully determine the energy profile of our planet. Therefore, Russia should be getting ready for this without falling into hysterics. We should continue receiving revenues from hydrocarbons but with an eye to the future.

What should we do? Obviously, we should develop a modern high-tech economy and we should think about how Russia will feed the world, to quote Mr Dvorkovich. Russia used to do this to a considerable extent. It was a major supplier of food products in the beginning of the 20th century. Later on we stopped doing this for certain reasons, but we have fantastic opportunities for crop and animal husbandry. This is why we should develop in this direction as well.

What scenario is better for us? We discussed this for a fairly long time yesterday. I think the discussion was interesting if only because it was reversed. The Prime Minister spoke not at the beginning (which would have demonstrated a tutorial description of our plans prior to the discussion) but at the end. At first we listened to a tough and unflattering analysis of our development, and only after did I come up with my proposal. Obviously, any scenario is impossible without the reforms about which my colleagues and I spoke yesterday. The intensity of these reforms will be determined by the current macroeconomic indicators and the global situation, but it will also largely depend on a subjective factor ­ our ability to conduct them. We still have the time for this but we should start acting now. This is what I wanted to say. Thank you for inviting me for your breakfast, though I haven’t been able to eat anything.

Arkady Dvorkovich: Mr Ulyukayev (Central Bank First Deputy Chairman Alexei Ulyukayev) began his speech by saying that last year our VTB breakfast led to the growth of VTB capitalisation by literally one percentage point in just one hour. So you should eat something by all means.

Dmitry Medvedev: This is why VTB is inviting us. It pays for this breakfast.

Arkady Dvorkovich: But Mr Ulyukayev also recalled a wonderful proverb: “One with a plough, seven with a spoon” ­ one man does the work while seven others take the pickings. One of the more fundamental conclusions is that we should work more. All those who work must increase their labour productivity. This is a priority for the whole world.

Dmitry Medvedev: Particularly for our country.

Arkady Dvorkovich: When consumption grows faster that labour productivity, the situation becomes unhealthy. This is what happened during a few pre-crisis years.

Dmitry Medvedev: This is fair and I fully agree with you. Speaking about labour productivity, this is what we should develop above all, because regrettably, in Russia it is lagging far behind the world standards and our consumption rate.

Probably, there is nothing special that needs to be added to what has been said. I can only agree with the last few remarks. Here’s what I neglected to say ­ obviously, the task of reducing inflation should remain the Government’s priority, because on the one hand we are happy to have the current inflation rate compared to what we had before, but still 6.6% is the highest figure compared to the inflation rate in emerging markets, not to mention industrialised countries. We will continue curbing and targeting inflation ­ this is absolutely normal. We were dealing with it, and we reached certain results but we must bring it to a close.

As for the quality of public management, I haven’t spoken about it at length for a reason, but it is obviously a global issue. All governments must change and work in a new way. They must establish direct contact with different professional environments, civil society and the expert community. Only in this case will the Government be equipped with the required strategy and be able to make correct decisions.

And finally, the issue of decentralisation has also been mentioned. This is also a global issue, but for Russia it is of particular importance because our economy was super-centralised in a certain period, and because Russia is a federation. We must advance here as well, but I’d like to emphasise that decentralisation may be carried out only when the regions themselves are ready to accept these powers. Nothing must be imposed. We are already transferring some powers to them. If the regions manage with them, we’ll give them more powers, thereby moving along the road of decentralisation.

Thank you very much for inviting me to take part in this discussion.