TRANSCRIPT: Vladimir Putin’s annual news conference (partial transcript)

(Kremlin.ru – December 23, 2016)

[Russian here http://kremlin.ru/events/president/news/53573]

The President’s news conference was broadcast live by Rossiya 1, Rossiya 24 and Channel One, as well as Mayak, Vesti FM and Radio Rossii radio stations.

President of Russia Vladimir Putin: Good afternoon, colleagues, friends. Let’s begin.

We have agreed with my assistant here that I will not make any lengthy opening remarks, so let us get down to business, to your questions. Go ahead, please.

Presidential Press Secretary Dmitry Peskov: Following a tradition we have, I propose that we give the first question to one of the most experienced members of the Kremlin’s press pool, who, I think, has been working in it since the end of last century. Valery Sanfirov, Mayak radio station, your question, please.

Valery Sanfirov: Mayak radio station, Vesti FM, Radio Rossii.

Mr President, the year is coming to an end, so it is time to take a look at the state of the Russian economy. At meetings on economic and other matters held throughout this year you have often used such terms as ‘turbulence,’ ‘hitting the bottom’ or ‘reaching yet another low’. I can even quote a joke you shared with us at last year’s news conference, saying that 2015 was not as bad as it could have been. How could you describe the current state of the Russian economy? Thank you.

Vladimir Putin: This is a traditional question and a natural thing to ask. Of course, we are analysing our performance over the past year. As usual, this performance needs to be put into perspective. We need to look at the macroeconomic indicators of 2015 and compare them with what we have achieved in 2016.

As you can probably guess, I have the latest figures that we reviewed yesterday with colleagues and a number of experts.

Last year, Russia’s GDP, which is the key indicator, dropped 3.7 percent. This year GDP also declined, but we are not talking about a contraction of this magnitude any more. Initially we believed that the GDP would fall by about 1 percent, but this figure was later adjusted to 0.7 percent and then again to 0.6 percent. In November, national GDP inched up. Overall for the year we are expecting a decrease in GDP in the range of 0.5 percent – 0.6 percent.

GDP increased thanks to growth in industries of the real economy, such as machine building, truck manufacturing, heavy machine building, manufacturing of road-building equipment, transport machine building, the chemical industry, light industry, processing and, of course, agriculture. Growth in agriculture was substantial – 2.6 percent last year. We expected 3.2 percent growth this year but the current figure is 4.1 percent and the yearend figure will be at least 4 percent. I think this is a very good trend and we must try to maintain it.

There is also the inflation rate. You remember that it was rather high last year, even for our economic system. One of the reasons was the import replacement programme in agriculture and the ensuing market disproportions. We could not substitute everything we had imported. But agriculture has demonstrated very good dynamics, and the inflation rate will be different this year. I would like to remind you that the previous lowest inflation rate – 6.1 percent – was reported in 2011. It will be below 6 percent this year. We had thought it would be around 5.7 or 5.8 percent, but it will be most likely around 5.5 percent. That is a record low inflation rate and a reason to believe that we will soon be able to reach the target inflation rate of 5 percent and subsequently 4 percent.

I believe that our budget deficit was 2.6 percent [of GDP] last year. It will be slightly larger this year – I will explain why later. The figure for the first 10 months is 2.4 percent, but the yearend figure will be 3.7 percent. I believe that it is an acceptable figure, in part because we have a foreign trade surplus of over $70 billion. We have maintained our reserves.

It is true that the Government’s Reserve Fund has decreased a little bit, but the National Welfare Fund is almost intact. The Government’s reserves are estimated at some $100 billion, while the Central Bank’s foreign reserves have increased. They amounted to $368 billion at the beginning of the year, if memory serves, and by now they have grown close to $400 billion, or more precisely more than $385 billion. In other words, we are doing well in this respect, too, and this is a solid safety net.

Finally, cargo shipments are on the rise, which means that the economy is recovering. This is a very positive indicator.

Are there any other encouraging signs? Capital outflow is decreasing. Just look at the trend: in 2014, the outflow exceeded $500 billion, but in 2015 it was $57 billion. This year, it came in at just $9 billion in the first 9 or 10 months, and is expected to total $16 billion – $17 billion in 2016, taking into account payments under loans, etc. Overall, the trend is quite encouraging.

What are the problems? Are there any issues? Of course, there are. We have to ensure further economic growth and higher industrial output, real disposal incomes have somewhat declined, which is not a very good thing in itself, since it leads to lower consumer demand and thus affects investment. That said, there is a positive side to it, as well: over the last several months we have been seeing a rise, albeit a modest one, in real wages in the real economy, which is a positive development that gives us reason to believe that the positive trend will remain in place in the near future.

As for the social sphere, the demographic trends remain positive. Natural population growth continues. The birth rate has slightly decreased, but the mortality rate also declined. Overall, there is a positive trend in terms of natural population growth. This is how things are.

In this regard it can be said that we are advancing in accordance with the plan that was publicly announced. It is being implemented, and the performance so far has been quite positive.

Marina Sevostyanova: Good afternoon,

Svetich agriculture media holding. My name is Marina Sevostyanova. My question has to do with subsidies for Russian agricultural machine manufacturing.

In fact, these subsidies benefit two industries, both manufacturing and agriculture. My question is to what extent do you believe these support measures are still needed? Are there any plans to expand them and make anti-crisis initiatives permanent?

Vladimir Putin: Anti-crisis measures cannot be permanent. They are intended to help specific industries, in this case you mentioned the manufacture of agricultural equipment, overcome current challenges and put them on the path of steady growth. This is about demand, and there is no doubt that it is our job to ensure that there is demand.

By the way, agricultural machine-building, which, if I didn’t already mention before, I will now, has posted very good growth. This is one of the sectors that is now driving industrial growth rates and, ultimately, our GDP figures. But we need to set a clear course of having this and other industrial production sectors live not on state subsidies but on natural demand.

How do we create this natural demand? By developing the agriculture sector itself. If we develop the sector and our agribusinesses have more money at their disposal, they will be able to invest more in buying new equipment and this will support agricultural machine-building.

As I said, the trend is very good here, with agriculture up by slightly more than 4 percent, and I am sure that as this sector continues to grow, demand will grow with it, and this will support the agricultural machine-building sector too.

For now though, these trends are still fragile and so we need to support them. The Government will continue providing state subsidies next year to the sectors that need it. A total 7.5 billion rubles have been earmarked for industry as a whole, and 216 billion for agriculture. I hope that these combined measures will produce positive results.

Since we are on the subject of agriculture and there will probably be more questions on this sector, let me say that we have been celebrating along with the rural population lately, celebrating this record harvest we have had. We said it would be a record 117 million tonnes. In fact, it will be more than 119 million tonnes, which is quite simply an excellent result, and I want to thank the farmers for their work.

This really is an unprecedented achievement in our recent history. There were similar results back in the 1970s, when Russia was called the RSFSR, even slightly bigger in 1973 and 1976, but we know that even with those bumper harvests foodstuffs and fodder were still in short supply back then.

The structural changes and organisation in the agriculture sector today show that the result we have now is something unique and offers us excellent opportunities for developing the sector further.

Alexander Kolesnichenko: Alexander Kolesnichenko, Argumenty i Fakty.

This is a good opportunity to double-check the economic growth you are talking about. Everyone says the world is on the threshold of some serious economic changes and even revolutions. Economic growth will be impossible in principle without new technology and this will seriously change the place of many countries in the world.

We have talked for a long time about a new technological paradigm. You devoted much time to this in your recent address. That said, it seems that in some areas we are lagging even further behind, for instance, in IT, as well as in production and social development with IT.

We have fallen far behind others. Could this be forever? It would be interesting to know your viewpoint, your opinion, if you could be more specific about this. Maybe you could even explain what the biggest problems are and what to do about them. Thank you.

Vladimir Putin: Some experts believe our economy is unresponsive to scientific achievements and modern high-tech economic trends. I think this is not quite so because the problem with economies like ours is that it is possible to take in big revenue from the energy-related sector and it is difficult to compel business to invest in other areas if there is one area where they can make quick and fairly large profits.

To change the structure of the economy, give it a new dimension and create development prospects, our Government has for many years taken steps to subsidise certain areas of economic development, primarily, high-tech industries, of course. Yes, for the time being we invest less in high-tech industries than the OECD, in the economy in general, and the difference is considerable. The OECD countries invest about 2.4 percent of their aggregate GDP in it compared with Russia’s 1.2 percent.

These efforts have produced the first results. First, the authorities and businesses have joined efforts to adopt the National Technology Initiative, as you know. We are drafting a comprehensive economic development plan to 2025. The Government is to complete and make it public by May. Priority development areas are being created in the Far East and eastern Siberia as zones of high-tech production with special incentives. In general, special incentives have been available in several sectors, including the IT sector, for the past few years, and we can see the results.

What are the results? For example, IT exports were around zero several years ago. Today we export $14.5 billion worth of weapons and $7 billion worth of IT products. I have cited these figures before. Many of our high-tech sectors have become competitive. They may look like mere growth points now, or individual achievements, but we are certainly a global leader in many areas, including those we have led traditionally, such as civilian nuclear technology, space exploration, some aviation sectors, and the like, as well as in the defence industry, which has experienced exceptional growth in productivity.

This will also carry over to civilian sectors. You know that the Government has been instructed to translate the current positive trends in the defence industry to civilian industries. By and large, I believe that there is no reason for despair. More than that, there are grounds to believe that we will not simply achieve leadership in many key spheres, but will also preserve this leadership for decades. Of course, we proceed from the belief that we must become part of the global trend and even lead the transition to a new technological revolution. We have every chance of doing so, considering the high level of development in research and education.

One sign says ‘Tatars’, and the other ‘Not without Tatars…’ So, what about Tatars, what is the problem?

Yelena Kolebakina: Mr President, my name is Yelena Kolebakina, Business Online business newspaper.

I have the following question. As you probably know, there are more and more troubled banks in the country. It is not uncommon for the Central Bank to revoke …

Vladimir Putin: What does this have to do with the Tatars? How cunning of you.

Yelena Kolebakina: Hold on, that is not all.

It is not uncommon for the Central Bank to revoke licences and suspend operations, and Tatarstan has not been spared. Of course, individual depositors will get their deposits back in the amount set by law, which is 1.4 million, while small enterprises that you support so much, they will go bankrupt, since they are viewed as third-rank creditors, so more often than not they end up not getting anything back.

My question is whether a fund of some kind should be established for legal entities that would operate just as the Deposit Insurance Agency does for individual depositors? Maybe you have some idea of how this issue can be resolved? Maybe we will end up having just four or five federal state-owned banks? In your opinion, do we need small regional banks?

Thank you.

Vladimir Putin: First, almost all experts, both Russian and foreign, support the Central Bank in its efforts to improve the financial system. No one believes that in doing so the Central Bank of the Russian Federation is doing something wrong. Nobody believes that. These efforts are undertaken above all in the interests of depositors. If organisations that are not financial institutions at all, but money laundering vehicles, remain on the Russian market, it will do no good, and depositors will be the ones to suffer. It is for protecting the interests of individuals that the deposit insurance system was introduced.

As far as I am aware, the Central Bank is working closely with Tatarstan authorities. The President and Government of Tatarstan, which is one of the regional leaders in the Russian Federation in terms of development in the economy, social sector and many other areas, are working with the Central Bank to find ways to support all depositors, including legal entities. There are legal procedures in place in this area, the provisions we have today, but of course we will need to take a close look at how to support our industrial companies and small and medium business.

The Tatarstan bank you mentioned is not some small establishment but a sizeable institution. As far as not simply the big banks but also small banks and small and medium business go, as I said in my Address [to the Federal Assembly], if you noted, we need a network of smaller regional banks too, and the Central Bank could apply different regulatory requirements for these smaller banks. The idea is to take a differentiated approach, apply tougher requirements, closer to the Basel III, to big banks and banks that play a central role in the system overall, including regional banks, and apply less stringent requirements to small regional banks working with small and medium business and with ordinary people. This would give them greater flexibility in working with their customers. But a lighter regulatory framework should not mean lower quality of these establishments, and the financial authorities must continue their oversight role here.

As for the bank you referred to, let me say again that the Central Bank and the authorities of Tatarstan continue their work and this process is proceeding quite smoothly.

To be continued.

[featured image is file photo]