OREANDA-NEWS. April 20, 2010. Good afternoon, ladies and gentlemen, Mr Gryzlov,

The Government of the Russian Federation would like to present a report on its performance in 2009, as required by the Constitution.

I will also answer your questions. I hope that we will have a useful and constructive dialogue, as we had last year.

I am sure you remember how 2009 started. Those were the most critical months of the recession; almost all economic indexes were falling. The unemployment was growing and loan interest rates were increasing, sometimes becoming totally prohibitive.

The whole world, including Russia, was facing grave problems. Global economy shrank for the first time since World War II. Nothing of that kind had happened since WWII.

Many experienced great concerns and uncertainty. Some drew parallels between the default of 1998 and even the tragic and terrible events of 1992.

Looking back, one can say that the situation was truly difficult, and we haven't dealt with all troubles yet. Nevertheless, the gloomy forecasts didn't prove correct, and that cannot be explained purely by good luck.

We can see that even developed economies are experiencing post-recession hardships, facing social disturbances and have to turn to international organisations for help. One could hardly imagine it a couple years ago, but these countries have no other way out.

Surprisingly, when our European partners discussed whether European countries should ask the IMF for help, many responsible and prudent politicians, the proponents of the Atlantic, North-Atlantic approach, said that it is inadmissible for European countries. It's admissible for us, but inadmissible for them. We have excellent relations with the IMF. This organisation has been very helpful, but the reluctance of European politicians to turn to it speaks for itself.

I am not saying this to gloat; I want to emphasise how important it is to us, the government and the State Duma, to pursue a prudent financial and economic policy, not to go with a hat in hand, losing economic and, consequently, political sovereignty.

Of course we also had a backlog of problems, and still do. In 2009, the Russian GDP fell by a record 7.9%, industrial production fell by 10.8%, the export price of oil, gas and ferrous metals plummeted by 40%, 30% and 43%, respectively. And these are our main exports.

However, if past hardships threw this country far behind, this time Russia proved prepared for them much better than before.

We faced the crisis after a 10-year period of economic growth. Labour productivity increased by 50%, and the number of people living below the poverty line almost halved.

The very profile of the Russian economy changed greatly, or at least significantly, if not greatly. The financial sector, industries and social services became far more effective and stable. Russia responded to the recession as a strong state which does not wait until things settle on their own but acts decisively and proactively.
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In 2009 the government implemented an unprecedented anti-crisis programme.

We decided not to cut the government spending on every budget item. We can often hear that there was a radical reduction, but we didn't make wholesale reductions of spending on every budget item. We chose a different solution, and I believe we did the right thing.

As a matter of fact, we kept the budget at the planned level, redistributing budget spending to benefit the sectors that can ensure social and economic stability in the country.

Moreover, budget spending grew significantly in 2009, if compared with 2008, the pre-crisis year. I was surprised to see these numbers myself yesterday. Budget spending grew 27.3%, whereas revenues dropped 20.9%. We used the reserves we accumulated to offset the deficit.

I repeat, we revamped the budget to address the most acute problems.

Half of it went to payments of salaries, pensions and social benefits, as well as education, healthcare and housing, all of which determine the quality of life. The amount I am referring to totals five trillion roubles, which is one trillion roubles more than in 2008.

A total of 1.65 trillion roubles was allocated to support the national economy, with hundreds of billions of roubles allotted to high-tech industries. The year before our allocations to these sectors were three times smaller.

A total of 1.1 trillion roubles was allocated to the Army and the Navy to ensure their combat capacity. This amount exceeds the 2008 allocations by 150 billion roubles.

Over three trillion roubles were budgeted for the anti-crisis programme. That figure includes the resources of the federal budget, the National Welfare Fund, the Central Bank and government guarantees. At the current exchange rate, that amounts to over USD 100 billion.

One can say with confidence that most measures proved very effective. We prevented a collapse of industries and the financial system, and most importantly, a fall in the net incomes of the people. I will talk about this later.

There was a decline in salaries, on average.Wages and salaries were either frozen or cut in some sectors. I would like to repeat that the average income increased by 2.3% in 2009. This primarily reflects public-sector employees and retirees, rather than business oligarchs whose fortunes have dwindled considerably over the same period.

We have managed to preserve primary social programmes, to implement selective social-support measures and to help those who had lost their jobs or whose incomes had plunged.

We took preventive action to avert critical unemployment growth, to enable people to keep their jobs, to learn new professions or to open their own businesses. We also tried to help enterprises retain their most skilled personnel.

Employment-facilitation programmes covered 2.8 million people.

In February 2009, unemployment hit an all-time high of 7.1 million during the crisis, declining to 6.4 million in March 2010. Although this is still a lot, the overall trend seems positive.

This means that, regardless of seasonal fluctuation, we managed to launch processes that restored the labour market and promoted the creation of jobs.

The deputies have raised the issue of the government's attitude towards job cuts and redundancies. I will reply to some of your questions during the speech. Then, if you don't mind, I will go to my area and will answer them online.

Naturally, we oppose market-fluctuation layoffs, that is, when people lose jobs due to temporarily reduced demand. Employment programmes were launched in order to prevent this scenario.

Incidentally, corporate owners and managers do care about human resources because they realise the difficulty in finding new skilled workers.

However, redundancies may also be linked with production modernisation programmes and the need to boost labour productivity. In that case, it would be pointless to struggle for inefficiency. It would be much better to organise advanced-training and retraining courses for people and to help them find new and worthwhile jobs.

In 2010, employment programmes will receive 40.5 billion roubles. These programmes will stipulate new measures, including on the job training for school, technical-school, college and university graduates, employment opportunities for disabled persons and defusing tensions in single-company towns. Special employment measures will also be initiated in the North Caucasian Federal District. I don't need to repeat how important this is.

Naturally, we will continue to apply selective anti-crisis measures, as long as there is a need for them. For example, we will support the housing market and the automotive industry.

But I would like to be clear that the special anti-crisis measures, as well as all our steps and all our budgetary resources, are currently working for the fastest possible economic recovery and a resurgent labour market.

 

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Esteemed colleagues,

In 2009, 1,762,000 children, or 50,000 more than in 2008, were born in Russia, while mortality rates declined 3%. As I have said, everything was the other way around in the crisis-ridden 1998 period. At that time, mortality rates soared by 8%, while birth rates declined 5.3%.

Many of those sitting in this room probably remember that, when the demographic programme was proposed, we had to overcome skeptical attitudes and disbelief that the situation could change for the better. But the result is here for us to see. This result is even better than those in many other countries trying to implement demographic programmes.

The Russian population has stabilised for the first time since the mid-1990s, and average life expectancy has reached 69 years.

I would like to remind you that the average life expectancy was 64.5 years in 1995. Although this change is not very impressive, it is nonetheless quite noticeable.

The first stage of our demographic policy has been completed. During the second stage, scheduled to last until 2015, we have to promote sustained national population growth and to increase average life expectancy to 71 years.

The national population census will be conducted in October 2010. Its results will be used in drafting subsequent demographic and social initiatives.

I am adamant that, no matter how profound the crisis may be, it cannot justify violating promises given to the people.

Consequently, we decided not to revise the parameters of indexing children's allowances which were increased 13% on January 1, 2009 and by another 10% on January 1, 2010.

Maternity capital has been indexed and now totals 343,000 roubles. People are able to spend this money ahead of schedule.

About 118,000 families used their maternity capital to repay mortgages in full or in part. Such payments totaled 32.7 billion roubles.

Another 1.5 million families took advantage of another support measure which was not initially stipulated but which was introduced by us because of the crisis.

They received cash for their current needs under the Maternity Capital programme, 12,000 roubles each. The money has indeed helped these people in a difficult situation. I think it expedient to continue paying these benefits at least for another year.

Also, we receive a lot of proposals on expanding the options for using the Maternity Capital benefit. Some of them are quite reasonable.

You must remember how this programme originated and you must know that I personally helped write it. I even invented the name, Maternity Capital. I'll tell you what the thinking was when we selected the three options - housing, retirement savings, and the child's education or medical services. We tried to protect the mothers' interests this way, to prevent wasting this money. These amounts are duly included in the budget; so it is not a question of trying to keep them - we just tried to prevent ineffective spending.

One proposal is to spend the Maternity Capital benefit to buy a vehicle. But who would end up driving this car?

Yet, some of the options of spending the benefit can be expanded. For example, the housing option: we in fact planned that the programme would help resolve any housing issues a family has. Therefore, it is possible to include individual home construction, also cases where people build their homes themselves, without hiring workers, and buy construction materials.

The government will soon draft the required amendments to the Maternity Capital law and submit them to parliament; I would ask you to support these changes.

Speaking here a year ago, I pledged that, despite the difficulties posed by the recession, we would review the right of people who earned their pensions in Soviet times to retirement benefits. And we did this, regardless of the hardships.

Russia is probably the only country that ventured a major pension reform at a difficult time like this, raising pensions substantially. In fact, the word probably is not accurate - it is the only one for certain.

Retirement benefits were indexed four times in 2009 - in March, April, August and December; the average annual effective growth was 10.7% (let me stress the effective part here, because I mean adjusted for inflation). The end of this year will see a 45% rise, starting in April: the average size of the monthly labour pension is currently 8,100 roubles, while total benefits payable to World War II veterans have grown to 23,000 roubles.

In addition, nearly 5 million retired Russians living in regions where the cost of living is high now receive additional social benefits. As a result, we have succeeded in raising senior citizens' incomes above the poverty line. Let me emphasise that I mean the official poverty threshold. This does not imply that they are now prospering exactly; we still need to keep their welfare in mind.

Let me add that the rise in the older generation's living standards is our shared success. It is a tangible result of a fruitful cooperation between the government and parliament, including the State Duma members. I highly appreciate the work you've done.

Indeed we are not going to wave aside plans to raise military servicemen's pay, the salaries of teacher and doctors and other professionals working for government-financed institutions, or retired servicemen's pensions.

Let me remind you that the 2009 plans to raise military pay (including retired officers and those in active service) were not revised. They were raised by 8.5% in August 2009. Earlier, on December 1, 2008, payroll funds for government-financed institutions were raised by as much as 30%. We have promised to consider another increase in their salaries, in military pay and in college scholarships; we will do so next autumn after reviewing the federal budget.

I mentioned once that it would be wrong to beg; we should pursue a wise and responsible policy. Many governments are cutting social benefits and suspending the indexation of pensions and salaries. This is something we are trying to avoid; however, we should also be honest with the public and be realistic about our possibilities conditioned by the economy. We will certainly continue doing so as best we can.

I have already mentioned that our anti-crisis policies have been effective. On the other hand, some of them probably could have been implemented faster and could have been better managed.

For example, we had to adjust the procedure for providing state guarantees as we were going along, as it proved inconvenient. Eventually, these guarantees did help companies borrow 374 billion roubles, which is a substantial amount. These companies made a commitment to keep their financing transparent, to preserve jobs for people with disabilities and other socially unprotected groups and to cut senior executives' remuneration.

We tried to support the auto industry which was hardest hit in Russia and probably in the world. Overall, the government will purchase an additional 100 billion roubles worth of domestic vehicles in 2009 and 2010, including cars, trucks, buses and other vehicles for federal and municipal services.

Moreover, when I talked to company executives, many said flatly that their companies would have long gone out of business without this programme. Production would have been halted and people fired.

We have subsidised bank interest on car loans and extended a grant to AvtoVAZ, the country's largest automaker.

The old car utilisation (trade-in) programme should have probably started long ago, but we wanted to see how it worked in other countries first.

I recently visited a dealership in Novosibirsk that is working under the car utilisation programme. The plan certainly needs some adjusting, but it is working. It was initiated six weeks ago, but we already have good results.

Certificates for the purchase of new cars have been issued to over 50,000 people. Suspended production at car plants has become one of the most vivid examples of the crisis in many countries, as I have said before.

Indicatively, Russian automakers are increasing output after 18 months of falling production. The auto industry is regaining strength alongside many other economic sectors. By the way, AvtoVAZ has commissioned additional production lines to meet the demand created by the old car utilisation programme.

Since the beginning of the crisis we have also provided targeted support to the defence sector and other high-tech enterprises. Last year's grim expectations by some politicians who forecast the collapse of the national defence sector, have not materialised.

I know that there are many serious problems in the sector; we have been addressing them one by one. You have probably noticed that I hold special meetings in individual sectors at which we discuss their problems in depth. Still, the production of military equipment grew nearly 13% in 2009 despite a general decrease. Production in shipbuilding increased 31.6%, in the missile and space segment 16.5% and in aviation 9%.

The trials of the fifth-generation fighter is proceeding well, and I'd like to use this occasion to once again thank everyone who created that aircraft and who are now making it fly.

We will not limit our efforts to the above. After completing work on the fighter plane, we will start a project to create a prospective long-range plane, a new strategic bomber that will also carry missiles. We have conducted an inventory in the defence sector and will now draft long-term rearmament programmes for all basic combat equipment, including command and reconnaissance systems, armoured and naval equipment and precision weapons. As a result, the percent of modern weapons in our armed forces should grow to 70% or 80%, and these weapons should be of a new generation.

Deputies have asked us about the possibility of restructuring the defence enterprises' debts. This can be done.
In December 2009, the government issued a relevant resolution for 2010. It concerns the debt that accumulated by January 1, 2009 - it was the Communist Party that raised these questions.

Colleagues, I'm sure you remember that a year ago sharp questions were asked here about problems in agriculture. In 2009, assistance to agriculture from the budgets of all levels amounted to approximately 300 billion roubles. Another 776 billion roubles were provided to farms in the forms of loans, including 453 billion roubles as easy term loans at interest rates subsidised by the government.

Thanks to the hard work of industry personnel and timely assistance from the government, no decline has been registered in agriculture. On the contrary, production grew 1.2%, which is a positive fact even though it is not a large figure. And grain exports went up 60%.

By the way, this is one more proof of the importance of investment in infrastructure, notably roads and seaports.
Of course, the crisis forced us to adjust part of our perspective plans. But we tried to carry on or complete projects that were under way. Under the federal targeted programme of Modernisation of the Transport System, we invested 632 billion roubles in infrastructure, including 285.6 billion from the federal budget.

Last year we commissioned 3,000 km of federal and regional highways, 700 km more than in 2008. This year we will complete the construction of the Chita-Khabarovsk route, and will be able to open it to through traffic from Russia's western borders to Vladivostok on the Pacific Coast. I am confident that this new highway will greatly benefit the country, and will remain in use for a long time just like the Trans-Siberian Railway.

The Trans-Siberian Railway was built in the tsarist period, in 1903-1904, and the region had no other comparable route. We are now building the first highway that will link the country's European part with the Far East. This is a major event.

We have the Baikal-Amur Mainline (BAM), but is it being used effectively? How well was it built? The Trans-Siberian Railway is working to capacity; why doesn't the BAM? There are economic reasons for this.

But then, the Trans-Siberian Railway and the BAM were built because Russia expected to be at war soon after their completion, or at the least because of a military threat. But we are not building this highway for either reason. This is the first time we are implementing such a major project in a planned manner.

Traffic safety has greatly improved. Like in 2008, the traffic fatality rate fell, this time by 14.8%. This is a good result. Thanks to measures taken to improve the quality of medical assistance to traffic victims, to better organise traffic and to develop infrastructure, the number of traffic accident victims is lower now than 20 and even 30 years ago.

I will cite a figure to prove my point: 27,100 people died in traffic accidents in 1980 and 20,400 in 2009, in spite of the huge increase in the number of cars on our roads since 1980.

But this is not a reason for feeling content, as the number of Russians who die in traffic accidents is still dramatically high. I think that we should formulate a new goal and work towards it; we must ensure the same traffic safety as our partners in Europe have.

Last year we completed the modernisation of eight airports, in Petrozavodsk, Veliky Novgorod, Rostov-on-Don, Kirov, Nizhnevartovsk, Novosibirsk, Tomsk and Khatanga. We have implemented a strategic high-speed rail project between St Petersburg and Moscow, and high-speed trains will soon run between St Petersburg and Helsinki. Next we must create high-speed rail transportation between Moscow and Nizhny Novgorod, and such routes must also be built in Siberia.

Preparations for the Sochi 2014 Olympic Games and the 2012 APEC summit in Vladivostok are proceeding without a hitch. As many as 27,000 people are building new facilities there. Last year, about 1,000 sports facilities were commissioned with allocations from the federal, regional and local budgets and business. The number of people regularly engaged in sports reached 24 million, 1.5 million more than in 2008.

In other words, new stadiums, swimming pools and skating rinks will not remain unused; on the contrary, we will need to build more modern sports facilities if we want to create conditions to encourage people to take up sports.

We will do this, and we will nudge the regions and municipalities into doing the same.