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07.04.2009

Prime Minister Vladimir Putin reported to the State Duma on the Russian Government's performance in 2008

"Today, too we cannot be wholly satisfied with the quality of our market and social institutions. But one thing is certain: The crisis has shown us that these institutions are functioning. They remain stable, displaying their ability to resist destructive trends. Apart from confidence in our abilities, it is precisely this circumstance that allows us to expect success, even to a greater extent than the financial resources we have accumulated."

Vladimir Putin
Report to the State Duma on the Russian Government's performance in 2008

Mr Speaker, 

Esteemed deputies,

Today, we are going to discuss the problems of Russia's socio-economic development.

All of us understand the nature of the current situation. To put it mildly, the entire global economy, including the Russian economy, are going through difficult times. It would seem that this is not the best time and an unrewarding task to report to the Parliament on the Government's performance. However, I am truly happy to meet with you today because this is an opportunity to discuss national problems and national development issues in an absolutely open and business-like atmosphere, and because we are now creating a new tradition, namely, the Government's report to the Parliament. This is yet another step in the development of our political system. And I think it is very important.

I would like to say from the very beginning that the Government is interested in getting feedback from legislators and parliamentary parties representing the interests of an overwhelming majority of Russian citizens.

Esteemed colleagues, the incumbent Cabinet was established almost a year ago, in May 2008. I presented our programme in this very hall. The programme served as a basis for approving a concept of Russia's long-term development until 2020, the so-called Programme-2020, and the plan of the Government's work until 2012.

I would like to thank all of you who supported these documents.

While determining the logic of our steps, we proceeded from the continuity of our policy and the main provisions of the President's State of the Nation Address. At the same time, we strove to focus on accomplishing specific high priority objectives and to facilitate more dynamic transformations aiming to ensure Russia's leading positions in terms of key socio-economic development parameters and raising the living standards in the country.

Today, we have to act in an entirely different environment and in conditions of a global economic crisis. But we do not think, and I have repeatedly talked about this, that we must renounce our current strategy. Our choice is as follows: We must continue to steer towards reforms, create a new economy and support and consolidate all aspects constituting the base of its top-quality growth.

You often visit Russian regions. You can also see that I constantly travel all over the country. The people often ask whether Russia could have avoided the crisis and all of its negative consequences. Of course not. That was simply impossible. It is an illusion. The problems appeared elsewhere and not through our fault. Although nobody doubts this obvious fact, the problems have affected virtually everyone, including Russia.

Analysts predict that the global economy will post negative growth rates this year for the first time since World War II. In the 4th quarter of 2008, the annual GDPs in the United States, Japan and Germany fell by over 6%, 12% and 8.2%, respectively. Unemployment is climbing towards 8% all over the world; it has already exceeded 8% in the European Union and has reached 8.5% in the United States.

Virtually all sectors of the global economy are suffering from a deep recession. Although some sectors of the Russian economy are faring better or worse, the national economic situation does not differ greatly from global trends.

At the same time, the crisis has aggravated our well-known problems, namely, the dependence on the global markets, weak diversification and the lack of the so-called long money.

We had to parry two blows at once. First, we had to deal with the financial crisis which caused the outflow of capital because Western economies faced liquidity shortages and took away their assets. Speculative capital also started leaving our market. Foreign crediting sources dwindled, too.

Second, demand for our traditional export items and their prices plunged.

Imagine what could have happened if Russia entered the economic crisis with the problems plaguing it only a few years ago. I am talking about huge external debts with non-payment "blood clots", systematic and wage, pension and benefit arrears and stage-by-stage power cuts.

Today, too we cannot be wholly satisfied with the quality of our market and social institutions. But one thing is certain: The crisis has shown us that these institutions are functioning. They remain stable, displaying their ability to resist destructive trends.

Apart from confidence in our abilities, it is precisely this circumstance that allows us to expect success, even to a greater extent than the financial resources we have accumulated.

And now, a few words about the results of 2008. Despite slower growth in the fourth quarter of 2008, the national GDP, industry and agriculture grew by 5.6%, 2.1% and over 10%, respectively. Investment and labour productivity grew by 9.8% and 5%, respectively.

Last year, real wages increased by 10.3%. Minimal wages were raised by almost 100%. 64 million square metres of housing were built last year, hitting an all-time high in modern Russian history.

Our meetings in the regions show that the Housing/Municipal Utilities Reform Fund's programmes to resettle people from rundown and dilapidated housing and to repair residential buildings have won high acclaim. As a result of such programmes, over 120,000 people have either received new flats already or will receive them in the near future. Under these programmes, over seven million Russian citizens will improve their living conditions.

Expedited municipal utilities transformations are another equally important aspect. I would like to add that the Government continues to prioritise the work of the Housing/Municipal Utilities Reform Fund.

We have accomplished virtually all objectives in the sphere of the high priority National Project on Education. Modern education curricula are being introduced. At a meeting with State Duma deputies, it was proposed to make such work more transparent and to involve the public. I think this would be absolutely correct. That is exactly what we are going to do.

Tens of thousands of schools, technical schools, colleges and universities have had their material and technical base improved. The number of computers at schools has tripled. At present, our school students have just as many computers as their peers in many European countries.

On the whole, the Internet was widely introduced throughout Russia last year. One-third of the population, or 50 million Russians, has regular access to the Internet.

In 2008, which was proclaimed the Year of the Family, 1.717 million children were born in Russia. This is the highest number since the early 1990s. Average life expectancy has reached almost 68 years, increasing by three years over the past five years. This means that the quality of life is changing for the better, that we are using correct methods for accomplishing this objective, and that we are achieving our goals.

Naturally, investment in healthcare and physical fitness, in the accessibility of hi-tech medicine, nationwide preventive check-ups and vaccinations, the health of mothers and newborns, and the development of sports facilities has played its role. Sports have become a way of life for 22 million Russians. We must double their number, at least. All Russian school students must be able to regularly exercise free of charge.

Due to more effective first aid, road accident fatalities have decreased by 8% or by over 2,000 persons.

The state is investing more into the social sector and has created favourable conditions for the influx of private investment. For instance, we have exempted a considerable share of corporate healthcare, education, housing and pension expenses from taxes.

We hope that, despite the crisis, responsible businessmen will find an opportunity to preserve social programmes for their employees.

Last year, we also charged lower taxes on corporate R&D investment and production modernisation programmes. A fundamental research programme of the Russian Academy of Sciences and other state academies was adopted for the first time in modern Russian history. We continued to implement ambitious infrastructure and innovation programmes.

A total of 2,300 motor roads were built. We completed a key stage of the power-generating industry's reform. I would like to draw your attention to the fact that the industry was overhauled without a hitch. At the same time, Russian enterprises are becoming less energy-intensive, spending 5% less energy last year. This means that our economy is becoming less expensive and more competitive.

We have ensured the complete renewal of the raw-materials base in terms of virtually all strategic resources, namely, crude oil, natural gas, gold and metals. As you remember, we used to say several years ago that the scale of raw-materials production considerably exceeded the scale of prospecting operations. The situation has now changed. Prospecting programmes received eight roubles of private investment per every rouble of state allocations.

In 2008, commercial oil production got underway at deposits of the new east Siberian oil province, and the first section of the East Siberia - Pacific Ocean Pipeline was commissioned. Although the pipeline still operates in the reverse mode, the CEO of Transneft has just reported to me that it will reach the Chinese border within the next few days, and that its construction will continue all the way to the Pacific Ocean.Industrial production of oil at new fields began in 2008, as I have said before. We worked to develop new routes for the transportation of hydrocarbons such as Nord Stream, South Stream, the Caspian pipeline, and the Burgas-Alexandroupolis pipeline.

Of course, not everyone in the world wants these projects to materialise, increasing Russia's ability to export [hydrocarbons]. But we are convinced that these projects are economically substantiated, satisfy the strictest environmental standards, and will enhance the global energy security. We will continue to implement them.

In this connection, I want to say once again that attempts to exclude Russia from making decisions of worldwide importance, especially in the field of energy, and to ignore its legitimate interests are counterproductive.

As to foreign economic cooperation, we have nearly completed the drafting of the legal foundations for a Customs Union of Russia, Belarus and Kazakhstan. I believe the Customs Union will be able to start working in 2010, one year ahead of schedule; our partners support the idea of accelerating these efforts.

Ensuring the country's defences and the security of its citizens is a crucial constitutional duty of the Government.

This year, defence spending will grow by 15% compared to 2008. We plan to focus on large-scale rearmament and strengthening of the personnel potential in the sector.

I will now highlight social guarantees for servicemen and their families. Many of you probably remember that a year ago in Zhukovsky, a town near Moscow, at a meeting with AF pilots and graduates of pilot schools I spoke about the need to change the system of remuneration in the Armed Forces. This implies above all a rise in the salaries of those servicemen who make the largest contribution to national security, who serve in the key or hazardous spheres, such as Air Defence, the Strategic Missile Force, the Air Force, Space Command, the Navy, and permanent readiness units.

This mechanism of financial encouragement of the officers who show the best service results was put into operation in January 2009. As much as 100 billion roubles will be allocated for this purpose over three years. As many as 34,000 officers, from company commanders to commanders of nuclear submarines, who show the best service results are receiving such payments, which vary between 35,000 roubles to 150,000 roubles per month.

Of course, this is only the first step. I think that by 2012 all servicemen of the Armed Forces should be converted to the new system of payment. A company commander will receive approximately 50,000 roubles a month; some of them already do.

We will also continue working to solve the housing problems of servicemen. Last year, over 22,000 flats were built or bought for them. The plan for this year is 45,000 flats. From 22,000 last year to 45,000 this year - an increase of more than 100%.

This means that by the end of 2010 all servicemen of the Defence Ministry and citizens retiring from military service will have their own housing. You know how important this is and how we have been moving toward this goal. By 2012, we will have formed a fund of service flats in the Armed Forces. This goal will be achieved by other security related agencies in 2011-2013.

The President promised that all veterans of the Great Patriotic War would have [befitting] housing by May 1, 2010. I can assure you that we will definitely fulfil this task. By May 1, 2010, all veterans of the Great Patriotic War will have [befitting] housing. We will fulfil this task. Just to remind you: we have already fulfilled our obligations to provide them with cars or, at their choice, with monetary compensations.

Colleagues,

The biggest part of my speech will be devoted to the analysis of the current situation and our mid-term objectives.
I will begin with the Government's emergency measures adopted in the second half of 2008. They were designed to protect the people and the economy from the crisis, and to preserve the viability of our financial sector. You know that the insured amount of money deposited in bank accounts was increased to 700,000 roubles, that funds were allocated for the rehabilitation of ailing financial institutions and replenishment of bank capital through subordinated loans.

In addition, the Government supported the efforts of the Central Bank to restore the liquidity of lending organisations. We also needed to support banks- and probably above all - because we needed to preserve the people's savings in our banks and prevent the paralysis of settlements between enterprises. We attained both goals.

The threat of collapse of the banking system has retreated, and it was a real threat that was looming large. Moreover, the banks that received support managed to increase lending to the real sector by more than 15% over the five crisis months, and issued loans worth more than 1 trillion roubles. Other financial institutions, which did not receive such assistance from the Government, have also increased the volume of lending, but only by 7%. So the mean figure is 9%.

We should bear in mind that the volume of loans grew by a record figure, over 50% - I think it was 54% - in 2007 and by 34% in 2008.

I want to tell you that these figures were unprecedented in the global economy. Loans are growing at the fastest rate in China, by 19%, whereas the usual figure is 7%-9%, the level we have approached.

I would like to stress that the state has not given out presents to anyone: Private banks received loans from the Central Bank and the National Welfare Fund, which they will have to repay.

Next, we had to protect the national currency affected by the flight of capital and declining export revenues, to ward off the attacks against the rouble. We managed to prevent uncontrollable devaluation. As we promised, the decline in the rouble exchange rate, which was inevitable in the situation, was smooth; that allowed the economy and people to adjust to the new realities.

Moreover, the current exchange rate of the national currency is clearly boosting the competitiveness of Russian producers in the external and, most importantly, domestic markets. Many of you know this very well. During my visits to enterprises, where I talked with the workers and management, they told me openly that that exchange rate changed three days before and now they can sell their products in the external and domestic markets.

The growth rates of tariffs were curtailed in the interests of the economy.

The exchange rate is an exclusive prerogative of the Central Bank, in accordance with the law. The Government maintains routine contacts with the Bank of Russia, and will continue to consider the indexation of tariffs, which I have mentioned, with extreme care.

At the same time, freezing tariffs is a dramatic but not always effective solution.

Along the way, I am going to answer the questions I have received from the parties in writing while delivering this report. The answers are incorporated in it. One of these questions concerned the freezing of tariffs. I repeat that this solution may seem right, but could have serious negative consequences.

What would a total freeze on [the growth of] tariffs mean for, say, Russian Railways? It would mean a shortfall of profits and hence a reduced investment programme. In practice, this means that RZD will not buy more rails, mounted wheels, etc., that steel plants will have no contracts, and miners will not be required to provide coking coal. In short, the freeze will affect the entire chain.

Therefore, we should consider the matter very carefully and in a substantiated manner. We have slowed down the growth of tariffs as it is, but freezing it would be a mistake.

We see a different solution - in creating a competitive environment, introducing energy-saving technologies and modern logistic schemes. And, when we speak about tariffs, we should not forget about efforts to enhance the effectiveness of the natural monopolies, and their transparency to the state and society.

Another anti-crisis measure I'd like to mention is the reduction of quotas for foreign workers. It is a temporary, forced measure aimed at protecting our labour market.

In these new conditions we need rapid response mechanisms. That is why we set up the Commission on Sustained Development of the Russian Economy, working groups in the key federal ministries and departments, and anti-crisis headquarters in the regions.

We are monitoring the situation in the labour market and in the regions. We have compiled a list of backbone enterprises. In fact, we have two such lists, one for the civilian sectors and the other for the defence sector.

As a result, we have embracing information and can take the necessary decisions maximally quickly.

I agree that performance discipline is a problem. The Government routinely hears reports of the federal bodies of authority on the implementation of the anti-crisis measures. We will work to ensure that all the decisions are implemented on schedule and to the letter.

What is the main result of the emergency anti-crisis measures? We have managed to avoid the worst-case scenario. As far as this was possible, we cushioned the effects of the crisis; the economy has proven its viability and also its ability to develop in new, less favourable conditions. However, 2009 will be a difficult year for us.

The State Duma received a new wording of the budget and the government programme of anti-crisis measures was published several days ago. These documents reflect our stance, our vision of a responsible and purely realistic socio-economic policy.

What is the essence of such a policy? It is to ensure an optimal combination of anti-crisis measures and long-term projects, not only to ward off attacks but also to undertake offensives, to build a new, more effective economy. In other words, we must not simply preserve the key enterprises, but also accelerate the transition of the economy to knowledge-based development. We must not simply maintain the domestic demand, but also implement major projects to start creating an infrastructure for the future. We must not only prevent a GDP plunge, but also improve the most important market institutions. We must not only guarantee macroeconomic stability but also make our credit and financial system more competitive.

This is the ideology that underlies the new wording of the budget. I repeat - this is very important - that the budget remains a development budget.

Here are its main parameters: revenues of 6.7 trillion roubles and expenditure of 9.7 trillion roubles. So, we will have a budget deficit of 3 trillion roubles, or 7.4% of GDP. But in reality the deficit will be larger. Taking into account the so-called quasi-fiscal measures, mostly taken by the Central Bank, it will be 8%. I will tell you about this now.

We have stipulated the allocations of 1.4 trillion roubles for the implementation of anti-crisis policies. Taking into account the effect expected from the reduction of taxes, the reserves of the Central Bank, the National Welfare Fund and other sources, we will spend a mind-boggling sum, 3 trillion roubles, on anti-crisis relief and economic rehabilitation.

Our key priority is to implement our commitments to the people. I will speak in greater detail about this a bit later; I will begin with economic problems because ultimately the economy gives us the resources for an active social development policy.

The possibilities of the real sector have grown considerably in recent years, thanks to investment and introduction of innovations. Our objective is to preserve and develop the accrued industrial and technological potential, to help those enterprises that invested in new products and in enhancing their competitiveness, but now have difficulties with obtaining loans and temporary difficulties with marketing their products.

It should be said that federal budget spending on the national economy has been increased by 70% in 2009, to a record-high 1.733 trillion roubles (it was 1 trillion roubles in 2008).

As much as 500 billion roubles will be allocated for state guarantees on loans, additional capitalisation of companies, and support for exports. But state assistance should not replace the responsibility of business. The right to receive [state] support will be granted only to those who can independently attract resources, service debts, and implement restructuring programmes. We will not invest in obviously unpromising enterprises. That would amount to keeping the Russian economy in the past, and squandering the taxpayers' money.

Of course, all of us want to do something good, to be kind and even very kind, but such "kindness" may have extremely negative consequences. It runs contrary to the nation's interests.

This is why I must say that if curtailment or restructuring is inevitable, we should help not the enterprise in question and not its owners, especially if they failed to do something, or stinted money on restructuring their enterprise or retooling it. In this case we should provide direct assistance to the people concerned.

We must ensure strict respect for the rights of the people being laid off, help them to find new jobs as soon as possible, upgrade their skills or get retraining in new professions.

The state is ready to buy into authorised capitals to preserve crucial enterprises. The MiG Corporation, for example, has received 15 billion roubles, and the Khrunichev Centre 8 billion roubles. We may take similar decisions regarding other companies, above all those who are directly responsible to the state, primarily in the defence sector.

To begin with, 70 billion roubles have been allocated for industrial support, and the figure is 170 billion roubles with due account of guarantees on loans. We have greatly eased the fiscal burden on the economy as a whole and on its key sectors. You know that we have increased the depreciation bonus to 30% from 10%. Lowered the profit tax to 20% from 24%, and introduced a new, less taxing procedure of VAT payment (not before but upon delivery). Constituent entities have received the right to establish differentiated tax rates for small businesses ranging between 15% and 5%.

Cuts in export duties allowed oil companies to keep production profitable. We expect to see the basic effect from tax cuts already this year, in 2009. According to our calculations, 600 billion roubles more will remain in the economy. We know that the budget will not receive this money, yet we are doing this deliberately. The Government will continue to try to optimise tax burdens, yet decisions should be maximally balanced.

A few words about the possible transfer to a differentiated income tax rate. We are currently using a flat scale, 13% for individuals. I often receive such questions during my meetings with workers. I have recently met with the heads of grassroots trade union organisations, and they asked the question too. And parliamentary parties ask the same question. So let's consider it seriously, more closely.

At first glance, the situation does not seem fair: Those who receive a large salary pay 13% and those who have a small income also pay 13%. Is this social justice? It appears that this scheme should be changed. But we used a differentiated scale before, and what did we have then? Everyone paid from the minimal wage and received the rest "in envelopes," under the table.

After we introduced the flat tax, tax revenue increased by twelve times over eight years. Take note of that - twelve times. And today this budget income exceeds that raised in VAT. The results are absolutely clear.

What could happen if we return to a differential scale? I think that unfortunately, and perhaps it is shameful to talk about it because it would mean we are not managing as we should, but it is likely it would be the same. Again there would be no kind of social justice. In reality those who are paid less would continue like that, and would pay the minimum tax. But those who are today on high salaries would get part of their wages in brown envelopes. And there would be no fairness.
But that's not all. People would then not receive their pensions, because their pension rights would not be formulated.

I'm not saying that we will never do this. I am simply drawing your attention to the fact that this is not a clear-cut problem. It simply needs to be handled with care. But the whole world envies us, the whole world envies us, and they envy us, I am serious, I know what I am talking about.
So let us recall another well-known saying: "The road to hell is paved with good intentions". This does not mean that we will freeze it forever. I repeat, we will analyse this attentively, we will observe, and someday we will make a decision with you about this. But there's no rush.
Regarding the land tax for individual holdings, and dacha plots, we think that the issue should be resolved at the regional level, because it is their source of income. It is of course possible to deprive them of that source of income but then we need to think what to give them in exchange, so lets consider this with them, we shouldn't think for them.

The next priority is to boost internal demand. The government will do all it can to compensate squeezed markets, support national producers and at the same time create the infrastructure and technological capacity for future development. So, by comparison with 2008 the budget for transport infrastructure development will increase by more than 100 billion roubles. It will rise to 560 billion roubles including 312 billion to be spent on motorways, compared to the figure of 294 billion for 2008. As you see there's been growth here too.

A host of new programmes are beginning to be implemented. As an example I'll mention the project for the renewal of passenger and communications transport and also the fleet of cars of the defence and law enforcement agencies. To this end, taking into account the additional regional co-financing, 21.5 billion roubles will be assigned to this, and in my view this is mainly aimed at supporting our national producers. That, I remind you, 12.5 billion to the agencies: the Emergency Ministry, the Defence Ministry, and the Interior ministry, for the purchase of particular means of transport; 20 billion roubles from the Federal Budget to solve problems in the regions, and they have promised to add in another 10, so it works out as 42.5.

We ourselves understand that it will not be simple to keep up the same tempo of residential construction, but we think that this sector can become one of the engines that leads the whole economy.
In 2009 the unprecedented sum of 440 billion roubles will be spent through the federal and regional budgets, the housing agency funds, and the mortgage credit agency in order to stimulate construction and other housing programmes. In 2008 this figure stood at 249. Can you imagine what a difference that is? It is nearly double what it was last year. This money in equivalent worth equates to, I stress, the value of one third of the total housing market in the country.

But I know that the MPs asked the question, and we have had very heated discussions in government, while investigating the possibilities of finding additional resources for the housing sector.
I would like to report to you, that we have now virtually resolved the issue of one of the additional capitalisation of the Mortgage Credit Agency by 20 billion roubles, as well as offering them 40 billion roubles of credit from those resources set aside to support the banking system. That is 60 billion roubles, nearly 2 billion extra dollars, those are the sums of money we are talking about. Of course these resources, the total value of which is half a trillion roubles, does not only go to supporting construction, but also towards facilitating the resolution of people's housing problems.

I would like to focus separately on the prospects for future of the largest infrastructure project, the preparation for the winter Olympics. There are building works underway in Sochi that involve 7.5 thousand people, and that figure will increase imminently. The preparation for the Olympics ensures a bulk order for construction materials, machines, equipment, and engineering and design services.
The Asia Pacific Economic Cooperation's summit in Vladivostok and the international student summer Olympiad in Kazan will have similarly positive effects.

Regarding the budget, I would like to stress this and I am sure you also understand that it is impossible to completely solve the problem of low demand in the economy. That's why the essential emphasis in the anti-crisis policy should be made not merely on direct state orders, but on the recovery of business activity.

But how? Through partial subsidies, the growth of hire leasing, and support for consumer credit. It is mechanisms such as these that are already being used in agricultural technology markets, cars and aeroplane freight. As a result we should see a real, organic structure of internal demand developing, which will become an efficient basis for post crisis reconstruction and subsequent economic development.

The fourth priority is the stimulation of innovation and the restructuring of the manufacturing sector. Our industry should emerge from the crisis stronger and more modern. At the moment there are many who turn to the state asking for support, and of course, we accommodate them, but in exchange we are prepared to use the leverage gained in order to increase the company's competitiveness, and to turn the slogan "help - in exchange for efficiency" into reality. Every business that receives state resources should draw up a programme on a) improving labour productivity b) the use of energy saving technology and c) innovative development.

In the amended budget, expenditure on the development of such key sectors as aviation and shipbuilding, space, and the nuclear and electric industries, has been retained.
We have decided to free imported equipment from VAT, where we do not have a domestically made alternative. Together with the state guarantee for credit for these measures allow businesses to continue their programmes of technological renewal.

The fifth priority is the creation of favourable conditions for economic revival, above all in the development of the most important market institutes, removing unnecessary barriers to commercial activity. The clearly excessive powers that the ministry of the interior had over business activities have been removed. The list of goods and services that require certification will be reduced. A legal decision has already been taken to introduce, from the 1st of July this year, severe limits on a variety of inspections. I have indeed looked into why this is only from the 1st of July? It's not clear, obviously there is some sort of explanation, but we will see whether perhaps we can speed this up.
The establishment of notification requirements instead of permits in the broadest range of activities has broken new ground.

The government passed the competition development programme, and we introduced a draft law to the State Duma, to develop antimonopoly regulation. You know I think this is particularly important. We spent years preparing these alterations, we were opposed at every stage of its development, but antimonopoly regulation here is excessively liberal, and inefficient.
In many countries with developed economies, a breach of antimonopoly regulations will result in a criminal case being brought. In our proposal we have suggested significantly stricter sanctions. I ask you not to delay the passing of this law.

The fate of the trade law was also raised during this discussion of the renewal of anti-crisis measures. It goes without saying this is important. It is most important that our decision does not lead to superfluous administration, which we would then have to fight, and about which I have just spoken. We must make sure we do not prompt a decline in investment activity in the most vital sectors.
Lets think, and pay close attention. I know that we have been discussing this for a long time, but nonetheless, the decision should be adjustable.

In addition we need to develop alternative modes of trade, so that people have a choice: not only the main supermarket chain, but also weekend markets, local shops and so on.
Our next priority is the construction of a powerful financial system on which we can rely, as we develop the national economy. We have to move away from the extreme measures for saving the banking system to a planned, rational broadening of its resource base, and increasing the availability of credit for businesses and citizens alike.

The anti-crisis plan takes into account the possibility of allocating 225 billion roubles to support the banking sector, banking systems, and the offering of government support will be strictly linked to loans for the manufacturing sector.

Please colleagues, when you discuss the budget, do not to be too harsh on the bankers. Of course you can call them whatever you like, you can offend them: "fat cat" and so on. It is an important sector of the Russian economy. And we have serious tasks before us, especially in the second half of the year. There have been many instances of non-payment and loan default. We should all take this very seriously, without using slogans, relying instead on information and analysis.
Problem credit institutions should be cleared out of the banking system. The necessary legal basis for the bank merger and financial restructuring has been established and the real work in principle has already begun.

You often hear the suggestion that credit be made cheaper in exchange for a lower interest rate on refinancing from the central bank. True, it is one of the key orientation points for the definition of the amount of credit, but is a long way from being unique. Banks attract up to 90% of resources on the market. They're also not cheap. Of course the high inflation rate also has a significant influence.
In addition, banks have an economic function beyond credit; they also take care of savings held by Russian citizens. And this should not be forgotten, asking banks to act more riskily.
Also, and we can all see this, the rouble has stabilised. There is a basis for suggesting that inflation will fall. This means that in coming months we will be able to count also on the fall of the Central Bank rates.

But I stress that this decision is fully under control of the Central Bank. And in relation to this I would like to note that throughout the crisis the leadership of the Central Bank of Russia has been really rational, calm, and professional.

The seventh priority of our plan is ensuring macroeconomic stability, securing trust in our country's budget system among Russian and foreign investors.
I have already put the 2009 deficit at 3 trillion roubles, which is in the order of 7.4% of the GDP, as I said, but taking into account those quasi - fiscal resources, and above all, the same expenses from the central bank for the capitalisation of Sberbank, other expenses, it will be 8%. Such a sizeable deficit is a strong, effective medicine for the economy, but it should not be misused. That is why our plan envisages a strict programme to lower the deficit to 3% of the GDP by 2011. At the same time we suggest a war on inflation.

Now the Ministry of Economic Development has laid out its parameters, which give us three years to get this to about 8%. Its possible to try for this sooner, but it is also a significant factor in the fight against rising prices. But then we must have a responsible attitude to the budget expenditure of recent years. Everything is related here.

Colleagues,

The anti crisis plans demands the collective action on all levels of public authority. People should not worry who is carrying this out, whether it is federal, regional, or district authorities, what matters to them is how it affects their daily life.

Now a great deal depends on the efficiency of regional and local administrations. It was on this very level that most of the public sector workers were employed. It is here, after all, that many of the questions about education, healthcare, social security, and housing concerns, are delegated. In the regions there are anti-crisis programmes already being implemented, and serious alterations to the budget is underway in the search for increased efficiency.

The priorities here, as in regional politics in the regions of the Russian Federation should include: wage payment, the creation of new jobs, and fulfilling the social obligations to Russian citizens.
Serious work needs to be done to preserve and widen the tax base, and this is, above all, a question of helping small and medium sized businesses. We need to create the most favourable conditions possible for business. The possible support measures include: discounted rent, lower charges for connecting to communal services, and state purchase quotas for small and medium sized businesses.

I remind you that on the federal level we have already taken a series of measures to support small business, and here I have in mind the preferential rates for renting accommodation, lower charges for connecting the electricity, and increased subsidies for small businesses. I remind you also that we have set aside 10.5 billion to achieve this, in addition to the credit offered by Vneshekonombank of 30 billion roubles.

On their side, the Government is providing the necessary help to stabilise regional finances. The volume of Federal support for the regions in the revised budget has been increased by 36% compared with 2008. As many of you know we are working on the basis that the regional budgets are also facing problems, and we must help them. This help is accounted for in the new budget. In total we have set aside 1 trillion 200 billion roubles for this.

Dear colleagues,

Now I'd like to return directly to social policy. I'm convinced that we should continue national projects and other programs to improve living standards. Our task is to not allow the crisis to demoralize society and destroy the long-term plans of our compatriots. Those who were set to study or receive a new trade should have this opportunity. Those who invested in mortgage or housing construction have the right to hope for government support. Those who have lost their wages should receive a chance to find a new job or a temporary source of income, or start their own business.

All in all, we are allocating an additional 600 billion rubles for social needs. The bulk of these funds are designed for the pension and other off-budget funds.

In addition to that, the draft budget has a special reserve of 125 billion rubles. There are too many factors of uncertainty - we cannot 100% predict the details of the events, and we need an "airbag of security" in case we have to urgently interfere in the development of unfavorable trends. The budget offers such an "airbag."

We are planning to preserve the number of budget seats in the higher educational establishments. This year, they will number 197 for 10,000. Moreover, more students will be admitted to magistrate and post-graduate courses.

On the whole, we have transferred the students with the best results in studying or those who found themselves in a predicament from commercial departments to budget seats.

The job promotion program has been launched in conjuction with the regions. Almost one million jobs will be created. More than 170,000 people will have a chance to retrain for a new job in demand by the market. As I've already said, 57,000 people will receive government aid in opening their own business.

In the final result, these programs are aimed at preserving the economy's labor potential. We should not lose experienced specialists, while people should not drop out of active life, but on the contrary, should receive a chance to upgrade their social status.

I must tell you that businessmen understand this. It is easy to lose qualified experts but it will be very difficult to collect them together and retrain them.

We are already carrying out the restructuring of the mortgage debts of lenders who lost their jobs or faced reduction of incomes.

Allow me to recall that since the start of this year, it has been allowed to use maternity capital to pay off mortgage debts. More than 80,000 families can use this right.

We discussed the possibility of going further this year by giving people the right to use part of the maternity capital as they see fit, including on daily needs. I think that in this year's crisis conditions, this is possible. We offering people the chance to get an additional 12,000 rubles in a lump sum. This sum is about equal to the maternity capital's additional adjustment. However, the ideology of the maternity capital should remain the same: education for children, pension provision for mothers, and acquisition of housing. We must preserve all three goals.

We intend to seriously develop and upgrade access to modern medical aid. Four centers of high medical technologies will be commissioned, and construction of prenatal centers will be continued. The program for improving aid to cancer patients has been launched. A project to develop blood service was launched last year. However, I want to stress that not everything here boils to money. Much depends on people's attitudes toward this problem, and we are hoping for the participation of the whole of society, as well as the popularization of blood donations as a noble and humane mission.

The program of demographic development will be continued this year. A package of measures will be launched to promote healthy lifestyles and reduce the use of tobacco and alcohol, especially among young people.

Dear colleagues,

I would now like to touch on a very important and sensitive topic for all of whole society. I'm referring to the prosperity and dignified life of senior people, the senior generation to which Russia, and all of us, owe very much.

Last year, pensions grew by 18.5% in real terms. This year, the nominal increase in labor pensions will be over 24%. As we declared, the average social pension will reach the pensioners' subsistence level. With this aim in view, we will make a tangible pension adjustment - by more than 30% -- next December.

Nonetheless, I have to admit that our pension system is far from being effective. It has many distortions and breaches of justice. The worst thing is that it cannot truly guarantee a secure old age. We have been talking about this for a long time, and have made a principled decision - to switch to a new insurance model for the pension system - but yet do not dare carry it out. It is clear why -- because this requires huge budget spending. I'd like to emphasize that pension system reform is a major social option for any country, and its the effects are designed for decades ahead.

Can we take a step like this today, in conditions of the crisis? Our actions will be justified socially, but what about economically? The introduction of the new system will require additional big spending both from the budget and from business because, as I said, we will certainly have to increase taxes in the future. However, during the crisis we must lower any kind of fiscal pressure on the economy, be it taxes, fees, or duties. Only this logic seems correct during the crisis.

At the same time, I believe that even during the crisis it is inadmissible to resolve the problems of the budget and the economy at the expense of seniors, the least protected people in Russia.

It is no longer morally possible to concentrate development resources and at the same time accept the miserable pension provided to millions of people - we still have pensioners who receive less than 2,000 rubles, 1,950 rubles in some cases. True, this is still the legacy of the Soviet past, when workers in state farms received little money, but these people are living today and we should think about them.

For this reason, I believe it is impossible to delay the reform of the pension system and a tangible pension increase.

I believe that as we planned, starting January 1, 2010 the pension rights acquired before 2002 should be adjusted by an additional 10%, plus one percent of extra adjustment for every year of service during the Soviet period - until 1991. In this way, we will more justifiably appreciate the labor contributions of people during the Soviet time. We will introduce a single order of adjusting the basic and insurance parts of the pension.

In 2010, the average annual labor pension will grow nominally by an instant 45% in comparison to this year. We will also combat inflation. We'll see and probably increase pensions by even more. At any rate, we will deal with injustice inside the pension system. Pensions will increase by at least 30% in real terms.

Furthermore, if pensioners live in a region with a high cost of living and their pensions are below the subsistence level, they will receive special social payments.

As I said, the question arises as to whether or not we can resolve such an important social problem without raising the fiscal pressure on the economy during the crisis? I think that we will be able to do this as well.

During the discussion of the government's anti-crisis program with the Union of Industrialists and Entrepreneurs, employers asked to postpone the increase in this pressure for one year.

I deem it possible to meet the business community halfway, and to not raise the rate until January 1, 2011 despite a switch to insurance principles. To shape the pension rights in 2010, I suggest changing the scale of calculating insurance contributions from today's three-stage scale to the flat one, and collecting insurance contributions from the annual income ceiling of 450,000 rubles.

I consider a switch to this system to be fully justified, considering that in the last few years we have not adjusted this scale for inflation at all, and in this sense business owes us money.

I suggest covering the rising pension system deficit during the crisis - despite the suggested measure it will be higher in 2010 - at the expense of the federal budget and the National Prosperity Fund. This is, after all, why we established them.

I'd like to draw the deputies' attention to the fact that the adopted decisions are very responsible and not easy. To carry out our plans and prevent negative macro-economic consequences, we should display the utmost caution in approaching other items of the budget for 2010 and the subsequent years. We cannot allow ourselves unjustified spending - we'll have to save on something by all means. In effect, we must make the whole budget system more effective and suited to the present conditions. Those who seek to swell the budget or insist on its swelling are against higher pensions.

However, it is a switch to the new principles that will let us build a self-sufficient and stable pension system for the long-term, and to substantially increase pensions with reasonable taxes on the economy.

Dear Deputies,

I consider our discussion of the anti-crisis plan useful and productive. We have received more than 2,000 proposals and remarks, including 700 directly from citizens. A considerable part of them was taken into account. Others are being studied attentively, and I'd like to emphasize that we'll consider all constructive ideas, no matter who voiced them, regardless of party affiliation.

We are hoping for the support of political parties and our people. This is why we are going to continuously explain the gist of our actions through the media and experts.

The global crisis is far from being over. The situation in the world economy is still uncertain and fraught with significant dangers. We cannot resolve all problems in one go. We understand the complexity of the situation and that we will have to act in conditions of many restrictions and uncertainties, including low prices on our basic traditional exports.


Source:  www.premier.gov.ru

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