TRANSCRIPT (partial): News conference of Vladimir Putin

(Kremlin.ru – December 19, 2013)

Vladimir Putin held a news conference at the World Trade Centre on Krasnopresnenskaya Embankment. Over 1,300 Russian and foreign journalists have been accredited to cover the new conference.

PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, ladies and gentlemen, colleagues,

It feels as if we never parted. We met here last year and have barely blinked since then and already a whole year has gone by.

It has been a year of much hard work. You know all the main figures and results of course, above all on the economic side of Russia’s life, but let me nonetheless give you a few of the latest statistics. Then, as is tradition, we will have a free exchange of views and a direct discussion, which will be more interesting for everyone I think.

Anyway, the latest figures show an increase of 1.4 percent in real GDP this year compared to last year. The final figure will probably be 1.5 percent. Inflation currently stands at 6.1 percent, which is slightly lower than last year’s figure of 6.6 percent. Overall these are not bad results.

Agricultural production is up by 6.8 percent. I must say that our agriculture sector and our farmers have made a big contribution to our economy. Last year, as you know, agricultural production was down almost 5 percent, but this year we have an increase of 6.8 percent. This growth in the agriculture sector is helping to push up the overall GDP and offsets some of the difficulties the industrial sector has been facing.

Housing construction is up by 12.1 percent.

Wages have gone up by 5.5 percent, and we are talking about real wages, not the nominal pay but the actual earnings adjusted for inflation.

There has been a change in real disposable incomes. The growth was 0.5 percent in 2011, 4.6 percent in 2012, and 3.6 percent this year. I think that’s a good figure.

Let’s look at the retirement pension. Last year, more precisely, on January 1, 2013, it was 9,790 rubles, and now it is 10,742.

This year we will have a significant trade surplus: $146.8 billion.

That’s the general picture in figures.

Let’s begin our discussion and give Mr Peskov the opportunity to do some work. He will invite your questions and then, as usual, we will move on to free communication.

Mr Peskov, go ahead, please.

DEPUTY CHIEF OF STAFF OF THE PRESIDENTIAL EXECUTIVE OFFICE AND PRESIDENTIAL PRESS SECRETARY DMITRY PESKOV: Hello again, everyone,

Let’s start. Naturally, I will give the word to the Kremlin press corps first. These reporters accompanied the head of state on all trips, at all events, so let’s hear your questions. Please.

QUESTION: Alexander Chudodeyev, Itogi magazine.

Mr President, you have said many times in the past that “we should stop subsidising Ukraine’s economy.” So how can you explain such generosity towards Ukraine now?

And one more question. Do you expect to get something in return from Ukraine, i.e. under what economic or perhaps political guarantees has Russia provided such substantial financial help? Do these guarantees include Ukraine’s accession to the Customs Union? Thank you.

VLADIMIR PUTIN: I saw a sign that someone raised earlier, which said “Ukraine”. Who was that? Could you ask your question as well, since it will probably be formulated in the same vein. I will try to answer both.

QUESTION: Roman Tsymbalyuk, Ukrainian Information Agency UNIAN. Thank you for starting with Ukraine.

VLADIMIR PUTIN: I didn’t start with Ukraine. To be honest, I expected questions on this issue, but I thought they will come up somewhere towards the middle of our discussion.

ROMAN TSYMBALYUK: Still, it was your press corps that raised this issue.

I just wanted to clarify something regarding the discount on gas. How can you explain this: you choked Ukraine with high gas prices for three years and then suddenly reduced it. Does this mean that the price was not “fraternal” before but inflated and unfair for Ukraine? You said that even now we have only a temporary arrangement and must move forward. What does that mean?

Also, could you please clarify if these $15 billion are the price for Ukraine’s rejection of the EU association agreement? How much would you be willing to pay to…

VLADIMIR PUTIN: Right, the discussion is getting serious. Well, how much do you need?

ROMAN TSYMBALYUK: One second. …to permanently discourage the official Kiev from looking in Europe’s direction?

Thank you very much. Ukrainian Information Agency UNIAN.

VLADIMIR PUTIN: Well, I’m very glad you have asked this question.

I will start by answering the question asked by your colleague, who brought up this matter first. In fact, as I suspected, your questions boil down to almost the same thing.

Why did we make this decision to extend this loan and to reduce the gas price? Let me comment on that. You know, let me tell you absolutely seriously and without any irony that we often use the phrases “fraternal country” or “fraternal nation.”

Today we can see that Ukraine is experiencing serious economic, social and political problems. There are a number of reasons why this situation has arisen, but this is how the situation stands objectively. And if we really say that it is a fraternal nation and a fraternal country, then we should act the way close family members do and support the Ukrainian people in this difficult situation.

I can assure you that this was the main reason why we made this decision. Let me note that we worked actively with Ukraine’s previous government, headed by [Yulia] Timoshenko. We worked very hard with them in all areas.

Incidentally, it was the government that she headed that signed the gas contract back then. It was my view then and now that this contract was absolutely justified from the economic point of view and is totally in keeping with our practical work with partners abroad. The gas pricing formula was exactly the same as the one we use for all of our consumers in Europe. That really is all there is to the situation and there is no point reading anything else into it.

No one was trying to strangle anyone here. It was said from the start, including in Ukraine itself, and quite fairly too, that, “if we want to be independent, we have to pay for it, behave like an independent country and follow the norms of European and global practice.” The contract that we signed back then was based on precisely these norms.

So, why have we decided to make changes to the contract now? Why have we decided to offer Ukraine these loans? We did say after all, that if someone wants to subsidise Ukraine’s economy, let them do so, but not at our expense.

We said those words when we were debating the energy issue, and I still hold to those views now. There is no point in coming to us, especially other countries, with proposals to lower prices or suchlike. If someone wants to go ahead with that sort of thing, let them do so.

Let me say again now that today’s decisions, which you all know, were taken in response to the difficulties the Ukrainian economy currently faces. These difficulties, as I said, are due to a number of different reasons.

I will not analyse the internal reasons. They have their domestic problems too, like Russia, as I said in my Address [to the Federal Assembly]. We have domestic reasons for our economic difficulties, and so does Ukraine. There are objective external circumstances too.

What is the cause of these external problems? They are due to the situation on the markets for Ukraine’s main export products. Ukraine sells a roughly equal amount of goods to Russia and the European Union countries, for a value of around $17 billion in each case if I recall correctly. But the types and amounts of particular goods sold on each market are different. Of the $17 billion worth of Ukrainian goods exported to the Russian market, machinery and equipment account for $7 billion or more, but these particular goods account for only around $2 billion of Ukrainian exports to the EU, while agricultural goods and produce account for more than $5 billion. You see the situation? One only has to be an amateur in these things and make a little bit of effort for everything to become clear.

And what is it that will become clear? It is clear that if… You were talking about the association agreement. You think we are against this? We are not against association, but are simply saying that we will have to protect our own economy because we have a free trade zone with Ukraine, and we will not be able to leave those doors wide open in the present situation if Ukraine opens its doors wide to the European Union. We will have no choice but to close our doors. What will this mean in terms of trade flows? It will mean that output in Ukraine’s machine-building sector will continue to fall, because these goods are mostly sold on the Russian market, but it is unlikely that Ukraine’s agricultural and produce exports to Europe will increase because they have all kinds of non-tariff restrictions in place there, phytosanitary restrictions and so on. They have learned how to use these kinds of measures. And the documents that were proposed for signing did not offer Ukrainian goods any preferential treatment. You try telling farmers in France, Germany, Spain, Greece, Portugal and the south of Europe that they need to tighten their belts a little for Ukraine’s sake. I’d like to see their reaction. I’m not talking about bureaucrats, but about the people actually out there working the land. In any case, there is no money.

It was in this situation that we made our decision, which is linked to our particular relationship with Ukraine. Let me say again that this decision is not about the interests of Ukraine’s current government, but is about the interests of Ukraine’s people.

Secondly, it was based on pragmatic considerations. After all, this is not the first decision of this kind. I think you’ve forgotten some things here. Gazprom signed supplements to the existing contract twice before, postponing the first payment until October, and then again until November. Now it has deferred payment once again. We fully realise that there are problems with Ukraine’s ability to meet these payments. So why should we finish off our main partner? Therefore, this is a pragmatic solution. And yes, this supplement is a temporary measure.

We expect that we will be able to find some long-term solutions that will allow us to keep this price and work closer together in the future. A long time ago, under President Kuchma, we offered Ukraine the option of using the Ukrainian gas transit network jointly. We were not going to buy it, to make it our property; it would have remained the property of the Ukrainian state. What we were proposing was to create a consortium of Russian, European and Ukrainian companies that would manage the network, service it, and so on. Everyone agreed, but then it fell through. And what is the result? The result is that we have built the Nord Stream gas pipeline and started the construction of the South Stream. The cost of the Ukrainian gas transport network is approaching the bottom line. Do you understand?

The same thing is happening with industry. As you probably know, and if some of you don’t I will tell you, for example, that we bought almost 100 percent of helicopter engines for our Armed Forces from Ukraine until now. Almost 100 percent. We offered various cooperation options many times, but we have failed to reach agreement. What is the result? We have started to build the second plant for the production of aircraft engines near St Petersburg. The first one has already started production, it is manufacturing the engines, and these are the next generation engines. Where will the Ukrainian manufacturers turn to with what they produce at home? Are they going to export to Europe? I very much doubt it. It might be possible, but it will be very difficult.

Next. I’ve told you about the structure of trade flows in Ukraine. Out of the 17 billion worth of their exports, Russia buys 7 billion worth of machinery and equipment, whereas Europe buys 5 billion worth of agricultural products. But if Ukraine adopts EU commercial standards, they won’t be able to sell to us anything at all. Do you see? So, Ukraine will immediately become ­ and this is just by definition, you don’t need to think about it too hard, just read the documents ­ an agricultural appendage [to the EU]. But keep in mind that appendages can be different too: some of them are healthy and others aren’t. And a lot of work will have to be done to get Ukrainian goods to the European market. Where are these trade preferences? The documents say nothing about any preferences.

I think that’s what concerns the Ukrainian leadership today. After all, it is easy to say, yes, let’s shut down a plant for a while, that’s okay, but then we’ll have everything like they do in Europe. But you need to survive until then. And many businesses will close down forever; they won’t survive at all. That’s the point. At the same time, is it possible to adopt these standards and trade rules? Yes, it is possible and it is necessary; they are good rules. But it takes time and investment. You need money, and not just 15 billion. You need hundreds of billions to modernise industrial enterprises. These 15 billion are to support the budget, to be able to pay salaries, pensions and social security benefits.

We believe that this part is also quite pragmatic. Why? Because yes, it is support for the Ukrainian economy and Ukrainian people, without a doubt, but this money comes from the National Welfare Fund, as you know, our reserve funds. Today we have $175 billion in Government reserves, and another $515 billion in the Central Bank’s gold and foreign currency reserves. These $15 billion came out of the Government reserves, from the National Welfare Fund, and we have extended this loan on commercial terms, at 5 percent. At the request of the Ukrainian side, these bonds will be posted on the Irish Stock Exchange and VTB Capital will be the manager of this transaction, again, at Ukraine’s request. This suggestion did not come from us; we would have accepted any manager. That is the essence of our proposals and agreements. It has nothing to do with Maidan or Ukraine’s negotiations with Europe. We just saw that Ukraine is in a difficult situation, and it should receive our support. We have such an opportunity, and we have used it. I reiterate, we are doing it because of our special relationship with Ukraine and because we want to continue our cooperation, which we are also interested in.

Incidentally, the machine-building industry products that we export from Ukraine are part of our cooperation heritage from the Soviet Union. There is a lot that is archaic there, but on the whole, it gives us huge joint advantages, which we must use well and develop further. And we can do it for the benefit of both the Ukrainian and Russian economies.

Ultimately, as I have said many times, the Ukrainian politicians, economists and experts should make these calculations for themselves and adopt a pragmatic solution. Which option is more profitable? We make no demands. But these 15 billion are a loan that will be paid back. I want to remind you once again that we will earn 5 percent, and the bonds will be placed on the Irish Stock Exchange. I think the transaction will be done in line with British law, so it is protected. I do not see it as wasting money on our part. And, of course, it will be tangible support for our Ukrainian friends.

As for gas, it is a temporary solution. It can be extended in line with the partners’ agreement. I hope very much that in the end we will agree on some form of long-term collaboration. I think that is quite possible.

QUESTION: Interfax news agency.

My question is on domestic finances. The Central Bank recently revoked the licences of several fairly large banks. In each case this was linked to systematic violations of the law by these banks. Why has this sudden purge taken place only now though? Was the Central Bank not supervising banks so carefully before?

Doesn’t it give the impression that these banks had some kind of administrative resource that they were using before? Why were they able to systematically violate the laws and have it all came to light only later? And does this not all mean now that the Central Bank will be simply unable to revoke other banks’ licences when it catches them breaking the law because the Deposit Insurance Agency will not be able to cover all the deposit insurance payments?

VLADIMIR PUTIN: You have practically answered the question.

First, insolvent banks had their licences revoked before too. True, we have seen a series of such decisions recently, difficult decisions for the Central Bank and for the financial institutions. These decisions aim to clean up the Russian financial system. I don’t think there’s really anything more to comment in this regard.

It is obvious that banks that cannot guarantee their depositors’ funds are incapable of working effectively with the resources at their disposal and create a risk for this whole very vital sector of our economy. It is only natural that these banks should have to leave the market. At the same time, the Central Bank must act very carefully of course, above all so as to protect depositors’ interests.

You mentioned the Deposit Insurance Agency. I remind you that in accordance with the law, the agency guarantees compensation for deposits of up to 700,000 rubles. Deposits over and above that figure must be compensated too, but are put in a queue that is dealt with as the rehabilitation or final liquidation procedures are carried out at the bank in question. As you know, deposits of up to 700,000 rubles comprise the bulk of all deposits. Most depositors, around 85-95 percent, (in some banks) do not have more than 700,000 rubles in their accounts.

With regard to the Deposit Insurance Agency, I might be not quite right in the exact details, but the agency currently has funds of 250-270 billion rubles, and past payments come to around 108-110 billion rubles. In other words, these kinds of decisions were taken in the past, payments are made to depositors, and this will continue of course.

Everyone who by law is entitled to these insurance payments will get their money. But the Central Bank must be very careful in its work in order to protect depositors’ interests and keep the Deposit Insurance Agency’s resources in mind. The agency currently has 250-270 billion rubles, and it has already paid out more than 100 billion rubles. Its resources are not infinite, therefore we must be careful so as not to end up with no funds left.

True, a decision was made recently to allow the Deposit Insurance Agency to borrow the needed funds as five-year loans from the Central Bank, so as to make the deposit insurance system more robust, stable and reliable.

QUESTION: Alexander Kolesnichenko, Argumenty i Fakty

Mr President, until recently, Russian senior civil servants’ wages were pegged to those of the President and Prime Minister. They were unpegged recently. I would like to know why you did not raise wages for yourselves but raised ministers’ and deputies’ wages considerably? Starting next year, they will receive 450,000 rubles a month. Isn’t that a lot when you look at the average wages and pensions that you mentioned in your opening remarks?

Will this be followed by tougher new anti-corruption rules, demands on openness, effectiveness, and greater modesty too, when you look at state procurement, state contracts for cars and so on?

Thank you.

VLADIMIR PUTIN: I am enjoying working with you today: you ask questions and immediately answer them yourselves. I am talking about you and the colleague who spoke just before.

So, what is the whole issue here? I quoted some figures before, some of the results of our work. There are some problem areas, but on the whole I am satisfied with the Government’s work because this has not been an easy year for the global economy.   The European economy, which accounts for more than half of our foreign trade, has been in decline and many European countries are going through economic stagnation. We managed to maintain quite a high level even so, but now we too are starting to feel the effects of these difficulties. Overall though, I think the Government has worked quite professionally.

The point I am getting at here is that at the highest government level and in the key State Duma committees we need to have professionals of the highest quality. It is hard to find such people on the job market. If they are already earning high wages in the banking or energy sectors say, it is not easy in today’s conditions to attract them into the civil service. You can’t force people after all, can’t make them stay here.

At the same time ­ and you already practically answered the second part of your question yourself ­ you know the measures we are taking to fight corruption, especially in public administration. These measures include compulsory income declarations and disclosure of purchases, bans on holding bank accounts and real estate abroad, and a whole arsenal of other measures. I will not repeat them all now, you are familiar with them. Of course we will continue to toughen the requirements in this area. But if we do not pay people good money to attract good professionals and top-class experts ­ and we need this kind of people in our state agencies ­ we will not achieve the results we want in our work. If we have problems here, it is ordinary people who suffer, people in industry, people who receive social welfare benefits and pensions, because the quality of these people’s work is crucial for the economy’s success in general.

As for my own wage and that of the Prime Minister, we have enough. There are some problems of course related to the fact that the wages of a large group of officials were pegged to our wages, but we will sort this out. This is not the biggest issue.

Thank you.

QUESTION: Good afternoon, Mr President.

I have a question about the Iskander [missile system].

There has been a lot of fuss in Europe of late about the Iskander missiles that are being deployed in Kaliningrad. Defence Minister Sergei Shoigu said that this is Russian soil and we have the right to station what we want there, but the hysteria continues to grow nevertheless. The Americans have already made the rather odd statement that they are ready to defend their European allies. The whole situation is looking a bit like a farce.

In whose interests is all this fuss, in your opinion? Why accuse Russia of flexing its muscles when at the same time in Europe there are around 200 nuclear weapons deployed, which the Europeans do not even control?

VLADIMIR PUTIN: This is a good day today. You just said everything. I don’t even really know what to add here.

Yes, there are indeed US tactical nuclear weapons stationed in Europe, and the Europeans do not have control over these weapons. And then there are the missile defence systems being installed around Europe’s periphery now. They form another component of America’s strategic weapons.

We have stated on many occasions that these missile defence systems create a threat for us because they threaten our nuclear capability, and we have to take some kind of measures in response. It was my predecessor who first said that one of possible responses would be to deploy Iskander missile systems in Kaliningrad Region. This is all nothing new.

But let me draw to your attention that we have not actually taken such a decision yet. I hope that will calm everyone down.

Second, there is no need to protect anyone. It is important not to provoke anyone into taking countermeasures.

The Iskander missiles are not the only means we have at our defence however, and not the only possible response to the threats we see around us. They are just one possible response and certainly not the most effective, though in their particular class they are the most effective weapons system in the world.

QUESTION: Good afternoon, Mr President,

Guberniya television company, Khabarovsk. My name is Daniil Zaitsev.

Mr President, as you know, three regions in Russia’s Far East ­ Khabarovsk Territory, Amur Region, and Jewish Autonomous Area ­ were hit by devastating floods. You were there and saw the situation for yourself.

It is now more than 100 days since the floodwaters began to recede, but we still don’t know what happened exactly. Was this just freak weather, or was it a case of the gates being opened at the hydro power stations at the wrong time?

In this respect, I have a second question. Are there plans to build any more hydroelectric stations on the Amur and its tributaries? The Far East will soon need electricity; after all, it is one of the priorities in the twenty-first century.

Thank you.

VLADIMIR PUTIN: There is no doubt at all that what happened was due to freak weather conditions. We can debate the quality of the HPP staff’s work and whether everything was done on time or not, but not a single expert among those who checked the whole situation has so far found any serious problems in the hydroelectricity people’s work, and we have had the prosecutors, the Investigative Committee, and experts all conducting these investigations. Anything can always be a subject for debate.

As you know, I went to the Far East and we discussed this situation. Some people think, and not without reason, that if the hydroelectricity people had taken such and such a measure things would have been better, or on the contrary, could have been worse. Overall they acted quite professionally.

There is no question that this was an unusual weather situation. What we can say for sure is that we will continue to develop the Far East’s energy sector, including hydroelectricity.

I draw to your attention that the situation is good now at the Boguchanskaya hydroelectric power station too. A sizeable part of the electricity generated can be exported, since there are no domestic consumers for it as yet. We need to synchronise our domestic energy consumption and generation capacity growth together with the grid networks. This is complicated work that involves many different aspects. It is not enough to simply build more hydroelectric power stations that could and will be needed. I stress the point again that we also need the networks and consumers. We will do this together and it will go ahead, all the more, I hope, after the recent decisions on incentives for greenfield projects and new production facilities in the Far East. These incentives concern above all profit tax and land tax. And there are the measures that must be taken following the Address [to the Federal Assembly], and which I hope will be implemented throughout the whole country.  These new decisions on zones of advanced economic growth concern not just the breaks I just mentioned, but also additional incentives involving deductions from contributions to the social welfare funds. All of this together should provide the conditions for rapid growth. The energy sector in general and hydroelectricity in particular are among our priorities of course.

QUESTION: Alexander Gamov, Komsomolskaya Pravda.

My newspaper has a section called Hardball Question. So, unlike some of my colleagues here, I won’t feed you the answers, Mr President, if you don’t mind.

You are the number one politician in our country. In your opinion, who can be called the politician number two in terms of influence? And do you have a successor already? Thank you.

VLADIMIR PUTIN: You have really put me in an awkward position.

You know, we have a lot of politicians, and they’re very experienced people. I’ll name them, but you know these names well already.

Communist leader Gennady Zyuganov. (Applause.) There’s nothing funny here. Millions of people vote for the Communists. He is a popular politician. He has his own views on things, and I don’t agree with many of them, I don’t share them, though some of them seem quite realistic to me, especially in international affairs and on some social issues too.

Vladimir Zhirinovsky is also well known. Yes, he enjoys a good row but he is a very talented man. I can say that he has a lot of sensible proposals, very sound ideas.

Some time ago I invited Sergei Mironov to come work in Moscow. I think many will agree with me that he has become a very serious and independent politician of national stature.

We have a leading political force, the leading political party headed by Dmitry Medvedev. He has extensive experience in government work. Now he is involved in managing the national economy.

You know, I’m familiar with all the popularity ratings and so on. But what can I say? These ratings are drawn up by educated people, by experts, but real life is far more complicated than ratings. So I wouldn’t treat this with too much indifference. New people appear on the political spectrum, some of them are in opposition to the government, other are not. Those who oppose us, try to take a bite out of those at the top, because it always raises their own rating. This is a general rule of conduct for all opposition parties in the world, it is a well-known, trivial trick, and, in principle, it is the right move for people who want to make themselves known. They jump out of their skin and get into fights, but they must be careful about it because, as they say in the country, you can lose your pants if you’re not careful. It’s all right if they have something to say for themselves, but if there’s nothing to brag about, they can just embarrass themselves and put an end to their political career.

So, what am I trying to say? All in all, this is a very good process and it is right that we have more and more people who not only consider themselves to be politicians, but think that they are in fact number one, so you should be careful about what you say. We don’t know who is number one. Maybe it’s them who are number one.

I didn’t say anything about a successor because there is nothing to talk about.

QUESTION: Kira Latukhina, Rossiiskaya Gazeta.

I want to come back to the economy. The experts’ economic forecasts are not the brightest for Russia. They are talking about stagnation and about a possible slide into a crisis, and they say that the raw-materials economy is about to outlive its usefulness, while we have still not managed to build an innovative one. What do you think we can do to get out of this dead end?

Also, on the National Wealth Fund, what part will it play if the economy does go into a protracted crisis? It has already been decided to dip into its resources and invest part of the funds in long-term infrastructure projects, and now with Ukraine, in securities too.

VLADIMIR PUTIN: What do you mean by saying “now with Ukraine”?

KIRA LATUKHINA: I mean the decision to spend money on securities.

VLADIMIR PUTIN: That is not the case.

KIRA LATUKHINA: To invest.

VLADIMIR PUTIN: Not to spend money, but to invest it.

You see the issue here? I realise that at the moment Ukraine is a ‘tasty’ subject arousing a lot of interest, following our decision. Yes, it is true that we have so far invested money from our reserve funds in highly liquid securities. What kind of liquid securities? In American government securities and some other assets. First of all, if you look at the state of the American economy, not everything there is going so well. It is recovering, and this is good and makes us truly happy, and I say that without any irony, but there are plenty of problems nonetheless. Just look at the debt situation ­ this alone is a big enough problem. We do not know how things will develop with the world’s biggest reserve currency. So, there are risks there too.

As for Ukraine, its rating is not high at the moment, but we have confidence in the Ukraine’s basic competitive advantages. We believe in Ukraine. This is not about the fraternal ties between our peoples and countries, but because we have a very high level of cooperation. We are aware of how much part of our industry depends on the situation in Ukraine in the companies they work with there. Our decision was therefore political, pragmatic, and economic all at once. If someone wants to raise the issue from yet another angle again, I will try to further clarify our position.

Now, on the subject of investing the National Wealth Fund’s money inside Russia, you know what I want to come back to? First of all, I’m grateful to you for asking this question because it really is a fundamental issue. One of the key subjects of discussion, if not the main subject, at the G20 was how to get the global economy out of this clearly protracted crisis. There are two roads here.

The first is the Anglo-American road, or rather the American road, which involves soft-line financial regulation and cheap or even free money for the economy. Look at their interest rates ­ I think it is something like 0.25 or 0.50 percent, in other words, practically free. This is the road that Britain and the USA are taking.

Then there is the other road, which the European Union, the European Commission and Germany are proposing. The proposed solution to the crisis here is budget consolidation, cutting ineffective costs (social costs in other words) and levelling out macroeconomic indicators.

It was no easy task for us to find some way of making these two positions mutually compatible at the G20 summit in St Petersburg. We did manage to work out a formula that makes everyone happy, and this concerns the issues that you raised just now too.

What is using the National Wealth Fund’s resources inside the country all about after all? It is essentially an easing up in the money policy. It amounts to much the same thing as an issue. This is because these are funds that were not earned by the country. After all, when we introduced the budget rule, we continued the policy of withdrawing from the economy windfall earnings from our foreign trade. These oil and gas revenues were as if not actually earned by us. You could have oil at $95 a barrel, or at $107 like now. We withdraw all the windfall revenue. And what we are investing into the economy now are these funds that were as if not actually earned as such. Essentially, this is more like an issue.

By doing this, first, we make it possible to follow a more cautious social sector policy that some of the European Union countries are doing. We are not forced to make drastic social spending cuts and we can use these funds to raise pensions and benefits. Our non-oil and gas deficit is still very big, unfortunately, at 10 percent, but inflation is normal overall, and we have hardly any deficit. The deficit will be around 0.5 this year, and last year it was close to zero, also around 0.5.

Europe is in a different situation. They are forced to make drastic social spending cuts, especially in the problem countries. We do not have these problems. We built up this safety cushion over the past years and we can now use it to be more moderate in our social policy and also invest part of the money in development.

When we withdraw these oil and gas revenues from circulation we are following the European road: consolidating budget funds and strengthening macroeconomic indicators. But when we withdraw them and then release them back into the economy what we are doing looks more like what the American financial authorities are doing. The difference is that we are not just releasing this money back into the economy in general, but are channelling it into specific projects, above all infrastructure projects, and it is underdeveloped infrastructure that is one of the obstacles hampering our economic growth.

Look at where we are investing the money: in the BAM [Baikal-Amur Railway], Trans-Siberian Railway and the third ring road around Moscow. We have held several meetings with business community representatives now and have done all the calculations. They said directly that if we develop the Trans-Siberian’s capacity, they will use it to carry such and such an amount of freight. But for them to be able to increase production and freight transport, they first need to invest in developing mineral resources. So you see, there is an instant multiplying effect. Private investment goes into mineral resource development, and then the trains start carrying the freight and all of this money starts making a return.

Having this safety cushion therefore allows us to carry out quite a shrewd and balanced economic policy. I hope it will produce the expected results.

To be continued

[featured image is file photo]