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Address at the plenary session of the XVI St Petersburg International Economic Forum
PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, ladies and gentlemen, forum participants, friends,
It is my great pleasure to welcome you to the St Petersburg International Economic Forum. I would like to share with this representative audience our plans for Russia’s transformation and to outline my vision of the situation in the global economy. But first let me say a few words about the G20 Summit, which has just concluded and tell you about its work.
The countries meeting at the summit account for about 90% of global GDP. Overall, the discussion’s participants share the view that the situation in the global economy looks quite alarming, but that is nothing new for the people who have gathered today in this hall. There are great many imbalances and accumulated debts. You are all aware of the situation in the leading Eurozone countries: Germany has 81%, France – 86%, the United States – 104% and the figure for Japan is even higher. This undermines the confidence of the business community and makes investors wary.
Unfortunately, along with the shortage of finance and budget deficits there is also a lack of decisive actions. We see how many basic and obvious steps are postponed due to political, party or group conflict, due to the current political climate, because of the political agenda in the leading economies, while half-measures only exacerbate the situation.
Europe is facing growing risks. The stock exchanges are showing diminishing confidence in the financial stability of major European countries. Regrettably, the core Eurozone countries cannot halt the descent into a new wave of recession. They have still failed to reach agreement on the ways out of the economic crisis. However, I very much hope that the next top-level meetings in the euro area will result in such consolidated solutions.
Unfortunately, the crisis is not localised, and it is natural that the signs of deceleration in business activity and slowing of economic growth are becoming increasingly apparent among the developing economies. However, the results of the elections in Greece, the choice of the Greek people, the determined attitude the European Commission, the European Union as a whole and some of the leading European countries in achieving financial discipline and the elimination of imbalances in the economy inspire cautious optimism.
Russia believes there is a need for urgent coordinated action in order to restore and reinvigorate global finance and their rigid adherence to the fundamentals of the real sector of the economy. In addition, it would be fair and reasonable to raise the issue of strengthening the role of the so-called developing countries and new economic powers in the elaboration and adoption of steps shaping the global economic order.
This was discussed at the meeting of the BRICS leaders, which was held on the sidelines of the G20 Summit. The group includes Brazil, Russia, India, China and South Africa. These countries not only confirmed their resolve to contribute to the implementation of stabilisation measures, to strengthen the stability of the global economy, but also took concrete steps in this direction: they have assumed the obligation to contribute an additional $75 billion to the IMF.
Our wish to influence the way in which these funds will be used is natural. We believe that we must proceed from declarations to the actual reform of the IMF and other international financial institutions, a reform that will reflect the new economic balance of power. In general, we must talk about the development of viable updated rules for world trade and mutual investment, the practical resolution of issues of sustainable development, including energy security.
I stress that we intend to give priority to all of these issues and to actively promote them during Russia’s upcoming presidency in G20 in 2013. We proposed to our partners that next year’s summit is held here, in St Petersburg.
The time has come for the G20 to take on the full responsibility of effective leadership. This means that the G20 should not turn into another elite club that cares only about its members. Selfishness and backroom deals do not add to stability and confidence.
The G20 is to become a venue for elaborating fair rules for the sustainable development of the entire global economy. The intercontinental nature of the global economy, where all states depend on each other today entails the global nature of responsibility – for the world's leading economies first and foremost.
This also applies to the countries that emit reserve currencies, in other words, the countries that run the printing press, as well as those states that are major holders of gold and currency reserves and thus ensure the stability of the international financial system, and, of course, those states that have the biggest national markets and natural resources, and which therefore largely determine the overall global growth dynamics. We must not only act together and implement a coherent policy, but also be aware of how decisions taken at the national level will affect the situation on a global scale.
I want to note here that Russia is guided by just such a responsible approach. For example, despite the problems in the Eurozone, we keep a large part of our international reserves is in euros and do not take any unilateral steps that could complicate the already difficult situation for the European currency. We realise that today the prosperity of the whole world to a large extent depends on the actions of the Eurozone leaders. Therefore, we support our European partners on the basis of our shared long-term goals.
Moreover, I believe that we should learn together from the situation in Europe and propose global initiatives that would prevent the recurrence of similar crises in other parts of the world.
In general, effective leadership and responsible course of action require today realistic solutions and actions that can boost confidence. That means a balanced budget policy, control over state debt and fiscal discipline. We must be able to state the truth and take responsibility. Rampant financial speculation and political populism are equally dangerous. There is no room for bubbles and pacifiers in politics or in the economy.
Finally, leadership means the ability to find a fundamental way out of global stagnation and instability, to propose and implement a long-term development strategy. Those who will do this first will achieve a strategic advantage.
The leaders who will be unable to bring about the desired results, who will not be able to give people hope for a better future, for good jobs, risk plunging their countries into the abyss of social and political instability, and all kinds of conflicts. Therefore, sustainable development today is a leading issue on the national agenda of every country in the world; it is the foundation of global security and the proper alignment of the entire system of international relations.
Ladies and gentlemen,
Here in Russia we have developed a programme of large-scale transformations, which has received wide public support. I consider its implementation a major challenge of my presidency.
What are our goals? They include the consolidation of Russia’s existing natural competitive advantages, the development of new opportunities in the global economy, stable national development, the state effectively serving the interests of the public, and law enforcement and judicial systems that enjoy the unconditional trust of citizens.
We hope that this will create new opportunities for the self-realisation of Russian citizens, a new quality of life and modern jobs; that it will improve education and healthcare and help in addressing housing issues.
For business it means creating the best conditions for investment, running your own business, setting up new companies and industries, free and fair competition, and ample opportunities for innovation.
I would like to focus on the principles of our economic policy in greater detail. In particular, I think I should reiterate some of the previously expressed ideas, because the business community and investors should feel that the authorities are consistent and predictable in their actions while maintaining continuity and without revising the declared objectives.
Naturally, everything that we say is easier said than done. I would like therefore to emphasise once again that macroeconomic stability has always been our special priority. This policy has already allowed us to achieve certain results. For example, the inflation rate over the past four years was significantly reduced (although it remains high compared to developed economies): last year inflation in Russia was 6.1% – that is still a lot, but I want to draw your attention to the fact that it was more than halved in four years.
Four years ago, inflation in Russia was more than 13%, whereas last year it was 6.1%, as I said. This is the lowest figure in Russia for the past 20 years. At the beginning of June, inflation was less than 4% in annual terms.
Russia has the lowest state debt among the G8, G20 and even BRICS states: on May 1, 2012 it stood at 9.2% of GDP. At the same time Russia's foreign debt is 2.5%. Also note that Russia is one of the three G20 countries that have a balanced budget. I will come back to this later.
The current macroeconomic indicators are quite good and acceptable, although there is no cause for euphoria. We are well aware of serious long-term and medium-term challenges for our economy. The economy is still not properly diversified. Much of the added value is created in commodities sectors. There is a high proportion of non-competitive old plants and the level of Russia’s dependence on oil prices remains high. We must reduce the dangerously high [budget] deficit if oil revenues are not taken into account. This, as I said at the G20 Summit, is the Achilles’ heel of our economy.
In an era of high volatility, such an economy is a very vulnerable and subject to significant risks. That is why Russia needs not just a deficit-free budget but a budget with a margin of safety, one that is not based on the oil and gas income. It should be based on non-oil revenues and the proceeds from the sale of hydrocarbons must be allocated a secondary role.
Therefore, in the near future we will adopt a new fiscal rule. Its logic is that the volume of our commitments, budgetary expenditures and long-term investment programmes with state participation must not be bound to the current oil price. As for the oil windfall, it will primarily be directed towards the reserves.
At the same time the Central Bank will continue its flexible exchange rate policy. Today, it is already making a major contribution to reducing the dependence of the real economy, of our producers, on external fluctuations, reduces the interest in speculative currency exchange transactions and allows us to curb inflation.
Please note: we will not depart from the principle of free movement of capital and will not impose any restrictions in this area. We realise the importance of transparency in this issue for investors who plan to invest their capital in Russia. I want to draw your attention to the fact that even in the most difficult period of the economic crisis, in 2009, the Russian Government did not impose limitations on the export of capital. It is true that we lost a significant amount of currency resources, but we proceeded from Russia’s long-term economic interests, and long-term interests require the confidence of investors. We intend to continue this policy in the future.
The past period has shown that abrupt, tough decisions and administrative restrictions in the economy do not work. To effectively counter the economic turbulence, the government and financial authorities must have a set of crisis management mechanisms, as well as sufficient internal sovereign resources that can be used in any situation.
In this regard, let me remind you about the situation last autumn. The banks in many countries around the world were facing a liquidity crisis. Joint actions of our financial authorities – the Finance Ministry and the Central Bank – ensured the smooth operation of the Russian banking system. Within a short time the Finance Ministry alone granted over $30 billion to credit institutions, and it achieved that without opening Russia’s reserve funds, which are also quite sizeable.
The Central Bank’s foreign currency reserves, which are the third largest in the world, amounted to over $512 billion as of June 8. In addition, we have the reserve funds of the Government of the Russian Federation: the Reserve Fund, with more than $60 billion, whose objective is to quickly resolve current problems, and the National Welfare Fund, which we use to support the pension system and which amounts to another $85.5 billion.
I want to emphasise that today Russia has sufficient reserves at its disposal and a whole range of anti-crisis rapid response mechanisms, including subordinated loans, state guarantees and programmes to stimulate demand and provide employment support. The entire arsenal was tested and proved to be effective in 2008-2009. And we are prepared to use it promptly and in full in the event of any negative trends in the world economy.
Meanwhile, we realise that the potential crisis may be different both in its duration and the nature of its manifestations. Therefore, I believe it would be expedient to create a full-scale system of forecasting and risk management. We will work on developing a system such as this. When I was Prime Minister, I asked my colleagues to think about designing such a system. The new Government is continuing this effort.
To be continued.