OREANDA-NEWS. Transcript of the beginning of the meeting: Dmitry Medvedev: Good afternoon, colleagues. We are meeting here to review the results of the work of the Ministry of Finance last year. I won’t take the Minister’s words; naturally, Mr Anton Siluanov will deliver a detailed report. I would only like to make some general assessments and to share my perception of national and global developments.

First of all, I believe that the Ministry of Finance worked in a well-coordinated and highly professional manner. In some cases, the Ministry worked in a creative manner. And, most importantly, the specialists worked as a team of like-minded individuals. This is a very important quality in any ministry’s work, let alone such a sophisticated ministry as the Ministry of Finance. The specialists who know everything about the intricacies of our financial policy and the status of international financial markets are here. As you know, the results of national socio-economic development over the first two months were summed up last week. I would like to comment on these rather complicated results.

In February 2013, Russian economic growth slowed down considerably for the first time since late 2009, so to say. The GDP grew by virtually 0.1% over February 2012, as compared to 1.5% in January. The GDP grew by about 0.9% in January and February together. This is considerably less than at the same period in 2012.

Although the main causes are obvious, I would, nevertheless, review them. This includes a production slump, which has continued for over a month. Unfortunately, the construction industry is growing slowly. The same can be said about retail trade and the volume of paid services. In addition, overall investment activity tends to slow as a result of all this.

We have to seriously analyse why this is happening. And quite possibly, we might have to adjust some of the decisions which have already been made. How can this be explained? I don’t want to reinvent the wheel by repeating that the Russian economy is now deeply integrated into global economic processes. And naturally, the problems of the European Union, rising global food prices and a number of other factors seriously influence the Russian economy. High budget deficits in the industrial world, uncontrolled public debt, the sovereign derivatives market and major banks, which were not duly controlled in some countries, became key problems in 2011-2012. Consequently, global GDP growth slowed from almost 4% in 2011 to 3.1%. And I’m not even talking about the fact that the EU economies are in a recession and that the 2013 forecast, is unfortunately, negative: near zero or even below.

All these problems have raised the issue of formulating a new growth model. Of course, Russia also has to address this issue. This issue is discussed at international platforms, various international forums, including the G20 forum, etc. This implies state-of-the-art technology which will make it possible to reduce production outlays by several times, a search for a new social policy and substantial institutional changes. Russia also faces these global challenges.

National economic modernisation, incentives for the economy of knowledge and the attraction of domestic and, of course, foreign, investment is the only main development option. We must ensure real changes in our industrial development, but not like we did in the 1930s. We must accomplish this objective by ensuring the large-scale introduction of innovation, by improving the quality of life for Russian citizens, by creating the most favourable environment for doing business  and by promoting private initiative. Under these conditions, the inflation-targeting policy also remains the right approach. And, naturally, the same can be said of the decisions which have already been made, including the decision to establish the International Financial Centre in Moscow and the decision to establish a joint financial market regulator.

I’d like to emphasise that in modernising the country we must strictly observe fiscal discipline and fulfill all of our social commitments.

Obviously, the Ministry of Finance and the Government’s financial and economic bloc in general bear very serious responsibility for the implementation of these plans. I’d like to talk about some issues that I consider most important.

The first point is about the need to ensure a balanced budget system. First of all, I’d like to mention the introduction of the budget rule, which is making the parameters of the budget policy immune to the current fluctuations of oil prices, and is protecting our economy against external shocks.

Although everyone is criticising the budget rule (naturally, few people will like it), its strict observance is indispensable for general budgetary and macro-economic stability. Only in this case it is possible to ensure development and steady economic growth. Incidentally, the current events in Europe are just another example of how important it is to be attentive to spending and the problems of budget consolidation.

Second, it is necessary to use finances effectively. This year the Ministry of Finance will switch to full-scale long-term budget planning, and will draft a long-term budget strategy. It is necessary to adjust the requirements to state programmes. I think we should renounce – at least for the near future – the argument (sometimes used by our ministries) that we will carry out the basic version of some programme only if we receive additional funds. We have spoken about this more than once and I support the position of the Ministry of Finance on this issue. In general, we must use basic funding to fulfill the main parameters of a programme without resorting to any additional sums.

Also, in analysing the implementation of federal targeted programmes, we should actively use the project approach. In other words, we should achieve concrete results by implementing a project, rather than reporting on how the money was spent.

We have started a round of meetings on drafting the budget for the next three year period. Some decisions have already been made but, as usual, this is a difficult job and it requires hours of debates. As a result, by streamlining the budget we have reduced expenses on the purchase of products for state needs by 5%. I hope for a balanced position on the part of the Ministry of Finance, and for understanding from other agencies. On the one hand, we must concentrate our resources on priority areas, about which the Finance Minister talks at every meeting, and on the other hand, we must do this not by increasing expenses but by using resources more effectively, applying new technology, new approaches, instruments and rational management – something we are not yet good at.

The third point is about tax policy. It must be predictable and that’s the end of it. In other words, it should not drive business into the shadows but should encourage its long-term development. It is necessary to pay more attention to upgrading the quality of tax administration and developing tax ethics. We must overcome the attitude of the 1990s, during which tax evasion was seen as valour. To achieve this we must increase the share of cashless transactions and bring it closer to the standards of the majority of modern states. We must also steadily reduce the field of operation of fly-by-night companies, although this work is very complicated and it is essential to conform with legislation while doing it.

The fourth point is about the national debt. Owing to a sensible credit policy, the indicators of debt stability have remained at a low and safe level, and in this respect our country is doing much better than most states. Our national debt amounts to about 10% of the GDP. Obviously, we must preserve this competitive advantage.

At the same time, as the issuer of debt obligations, Russia has managed to preserve the trust of “old” investors while attracting new ones by offering longer bonds, such as 15 year federal bonds and 30 year Eurobonds denominated in US dollars.

Last year we took measures to liberalise the Russian debt market and upgrade its infrastructure to create the necessary conditions for proper IPO by our companies.

And the last point I’d like to make. We must keep inflation at bay. This means access to affordable bank loans for the real economy, but regrettably, we don’t have this, despite relatively low inflation. We must also have mortgage loans with a low interest rate. Our private companies should be able to plan large and long-term investment projects. Finally, we must protect the savings of our people, which is a key task for each of us.

Ladies and gentlemen, in concluding my opening remarks I’d like to emphasise that we cannot achieve stable and dynamic economic growth with just one or a few measures. We must conduct systemic work in all directions – in absolutely all areas. This is what we should focus on.

I’d like to thank once again the Ministry of Finance for its meticulous work and professionalism, and express my hope that you will continue doing a good job and occupying a balanced position in the near future and long-term perspective. I wish success to all of you!