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The discussion at the Forum is focusing on attracting international investors to the Russian markets and increasing investment in the Russian economy in view of the current international situation and the sanctions imposed against Russia.

VTB Capital, the investment business of VTB Group, has taken part in over 500 deals on debt and share capital markets since its creation in 2008. This helped attract over $200 billion worth of investment in the economy of Russia and the  Background information Commonwealth of Independent States (CIS) CIS.

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Excerpts from transcript of the Development of Russia: In Search of New Opportunities plenary session

President of Russia Vladimir Putin: Good afternoon, ladies and gentlemen, friends,

I am happy to welcome yet again all the participants and guests of the VTB Capital Russia Calling! Investment Forum. Traditionally the event brings together business community representatives from different countries, as well as heads of investment funds and global companies. Many of you are actually working in Russia and you have a good idea of the opportunities and long-term prospects for work in this country. We, naturally, appreciate your determination to have a comprehensive sincere dialogue and to cooperate constructively – regardless of the current political and economic situation.

As you may know, the first forum was held in 2009, when we all experienced the consequences of the global economic crisis. This, however, did not stop us from making joint plans for the future. Many of those plans have been successfully implemented, have turned into business projects because we trust each other and work together as partners. I would like to stress that many serious investors and our country’s partners of long standing continue increasing their investment in various sectors of the Russian economy.

Ladies and gentlemen, we share the principles of the WTO, however, unlike certain founding fathers of this organisation, we have always strived to have Russia develop as an open market economy, and will continue to do so. This strategic course remains unchanged.

”External limitations have an adverse effect not only on Russia’s economy, but also on that of the whole world. They only add to our determination to meet our targets in the priority areas of our country’s development, which include economic growth, upgrading the industry and infrastructure, the creation of new jobs and improvement of the quality of life of Russia’s citizens.“

We will gradually overcome the challenges facing Russia. External limitations have an adverse effect not only on Russia’s economy, but also on that of the whole world. They only add to our determination to meet our targets in the priority areas of our country’s development, which include economic growth, upgrading the industry and infrastructure, the creation of new jobs and improvement of the quality of life of Russia’s citizens.

True, the conditions have become more complicated, but, as I have already said, this stimulates us to concentrate our resources and choose the best solutions, to achieve our goals in the shortest possible time and to work more efficiently in all areas.

As before, our actions will be based on a responsible and balanced macroeconomic and budget policy. The events of this year have convinced us yet again that the choice we made many years ago is the right one.

Despite the complicated external situation, in the first eight months of the year the federal budget showed a net surplus of over 900 billion rubles, which accounts for 2 percent of the GDP. This is two times more than in the same period last year. At the same time, we adhere to the budget rule and allocate part of the oil and gas revenue to reserve funds, which have grown to exceed 9 percent of Russia’s GDP.

As for inflation, by the end of the year it will be around 7.5–7.6, about 8 percent, which is higher than last year (it was 6.5 percent in 2013). The reason is obvious: the growing prices of certain foods. Incidentally, as you may understand, this is an additional stimulus for us to develop our agriculture. I would like to note here that monetary inflation does not exceed the planned figure of 5 percent.

The Federal Budget for 2015 and the 2016–2017 Budget Plan, which the Government has submitted to the State Duma, envisages a rather limited deficit of 0.5–0.6 percent of the GDP with oil prices averaging $96 a barrel. These are stable basic parameters, which will make it possible to strictly comply with all our budget commitments, including those in the social sphere.

I would like to stress that despite the difficulties, we did not increase the tax burden on businesses. As you may know (we did not conceal these discussions going on among the country’s leaders and within the Government) that we did not follow the path of increasing the tax burden and do not intend to introduce any limitations dealing with hard currency or capital movement. I hope this has already been mentioned today.

”As before, our actions will be based on a responsible and balanced macroeconomic and budget policy.“

True, we are observing significant fluctuations on the currency market. All sorts of comments are being made, but I would like to stress the most important thing here: the fundamental factors that ensure our stability are very strong and reliable. These are a practically deficit-free budget, significant reserves and a strong balance of payments. Thus, the net balance of current operations has turned out higher than we expected.

I would also like to note that the Bank of Russia has enough instruments to maintain financial stability. I would like to add here that the move by the Bank of Russia to a floating exchange rate does not mean there will be no more exchange market interventions. You actually witnessed this only recently.

Besides, we deem it necessary to safeguard ourselves from possible risks in some of the most sensitive areas. We will create an additional safety margin, primarily in the financial sphere.

We have already created mechanisms that make it possible to make payments on the territory of the Russian Federation using plastic cards of the leading payment systems even when Russian banks are disconnected from these systems.

In 2015, we will create a national plastic card system with an infrastructure that will be independent from international systems: a single operations centre and its own payment instruments. It will guarantee the security and confidentiality of payments made by Russian citizens.

Next. We will continue to adhere to the declared course for the expansion and diversification of foreign economic ties. Among our priorities is greater business, trade, investment and technological partnership with Latin America, the Asia-Pacific region and our colleagues within BRICS, including China and India, naturally.

As you may know, during my May visit to Beijing, we signed a big package of Russian-Chinese economic agreements worth tens of billions of dollars. Among them is a 30-year contract for the supply of Russian gas to China.

The creation of the infrastructure necessary for its implementation will become one of the largest construction projects in the world. This is, of course, not only about energy cooperation – we intend to work in other areas as well.

I would like to add that only recently Gazprom made the first trial supply of oil for rubles. Further, we intend to actively use our national currencies in our trade in energy resources and in other foreign economic transactions with both China and other countries. As you may know, corresponding mechanisms have been created within BRICS as well.

We see the use of national currencies as a serious mechanism for reducing risks, creating opportunities for participants in economic activities and, of course, great prospects for promoting regional integration. I would like to remind you that the agreement to set up the Eurasian Union comes into effect on January 1, 2015, which creates a 170-million strong market with a free movement of goods, services and capital. This project can be of noticeable benefit for both national companies and foreign investors.

I would like to remind you, colleagues, that Russia is a member of the WTO, while Kazakhstan and Belarus are not. However, the principles that we are building the Eurasian Union on are in full compliance with the WTO rules and principles. Therefore, I believe it will be easier for our foreign partners to operate on this joint market as well.

”Despite the difficulties, we did not increase the tax burden on businesses. We did not follow the path of increasing the tax burden and do not intend to introduce any limitations dealing with hard currency or capital movement.“

We are currently completing the process of Armenia’s accession to the Eurasian Economic Union, and we are actively negotiating with Kyrgyzstan. I am certain that gradually the number of this union’s members will grow. At the same time, we would like the Eurasian Economic Union to establish close ties with other integration structures both in Europe and Asia. Such cooperation would add stability to the global economy. This kind of dialogue is especially important for the European Union, which is our leading trade partner.

Ladies and gentlemen,

Alongside the development of foreign trade, stimulating export, and participating in integration projects we intend to make full use of one of Russia’s competitive edges – its receptive home market. In volume, it ranks sixth in the world. Our goal in the next few years is to make an industrial breakthrough, and to create powerful national processing companies capable of producing competitive goods.

I would like to note that many regions of Russia are already demonstrating good results in developing the processing industry. In some regions, industrial growth rates in the first eight months of the year exceeded 10 percent. Ever more regions of Russia are coming up with interesting and profitable investment projects. This growth reached 11 percent in Kursk and Voronezh regions, 12 percent in Tyumen and Vladimir regions and Perm Territory, 16 percent in Mordovia and Tula Region, and 16.6 in Orenburg Region.

National agriculture and the foods industry have good prospects as well. I am certain that Russia will enhance its status as one of the world grain export leaders, especially given the record crop forecast for this year. We expect Russian entrepreneurs to significantly expand agricultural production in those sectors where we still depend on imports and to strengthen their position on the world market by supplying high value-added agricultural produce.

I would like to separately mention machine building, machine tool and instrument making. The current situation creates a powerful stimulus for intensifying research in all areas where we have excessive technological dependence on our foreign partners. This primarily applies to critical technologies that we import – for now.

Projects in industry and agriculture will get access to loans at a low interest rate by means of project-financing instruments. Many of you here are probably wondering now where these low rates and long-term loans are. I assure you, we are constantly working on it, certain instruments are being proposed, and it is only a matter of their efficient implementation. Project financing that I mentioned can also be one such long-term instrument. The issue is in the projects that should be interesting, promising and efficient.

Besides, in 2015 we will also launch an industrial development fund. To modernize the economy and infrastructure we intend to both use our own financial resources and sources of funding and step up our cooperation with investment funds and banks in other countries. Serious financial institutions are not losing trust in Russia; this is obvious from the work of the Russian Direct Investment Fund: it has already attracted some $15 billion into joint investment projects and platforms.

The draft budget for the next three years envisages recapitalization of the Russian Direct Investment Fund. The Fund’s resources will be replenished in 2016–2017. I would like to say that the Fund has to be recapitalized to the planned level, as this will allow it to expand the range of projects.

We also intend to replenish Vnesheconombank’s resources. Starting this year, we will allocate over 30 billion rubles to its registered capital – the resources have been set aside. To retain the scale of the bank’s participation in the national economy it will have the required volume of liquidity.

Besides, the state is ready to support those sectors and companies that had to deal with the unjustified external sanctions. Among other things, we will assist them in increasing their capital; I am referring mainly to financial institutions now.

Next, we will propose systematic measures to improve the business climate in Russia. Together with the business community we have already made serious amendments to the legal framework at both federal and regional level, removed many barriers and optimised administrative procedures. The assessment given by international institutions confirms our obvious progress here. However, I would like to reiterate that it is not the rating that matters – of principal importance is how comfortable an investor feels in specific regions of the Russian Federation.

I expect that at its autumn and spring sessions the State Duma, the parliament will approve the remaining draft laws within the framework of the national entrepreneurial initiative to improve the business climate. I would like to use this opportunity to ask the deputies to consider the drafts constructively and without delay. Some 30 draft laws of the total 100 are still being drafted by the relevant agencies. In other words, a lot of work is being done, and more remains to be done, but we will deal with this on a regular basis.

”The fundamental factors that ensure our stability are very strong and reliable. These are a practically deficit-free budget, significant reserves and a strong balance of payments.“

The work of regulating and supervisory bodies is becoming more open and transparent. There are still quite a few issues here, however there have been some positive developments. A single federal web portal on business activity inspections is almost ready. Entrepreneurs and society in general will get access to information on what inspection authority initiated an inspection and for what purpose, and, most importantly, will be able to see the results.

I would like to stress that we are working with businesses as partners: not a single decision involving the business community is made without the participation of the leading business unions and organisations of Russia. Besides, the businessmen themselves constantly control the actual implementation of our resolutions. Results of such inspections are made available to the Presidential Executive Office and the Government of the Russian Federation.

A national investment climate rating in Russia’s regions is compiled based on entrepreneurs’ opinions. This helps us find and spread the most efficient methods of creating a favourable business climate and environment. I would like to add that competition between regional management practices would stimulate regions of the Russian Federation to create better conditions for investors. Eventually, this would lead to the dynamic development of the entire country.

Colleagues, we are persistently moving towards our goals, we are sincere in our desire to build a strong, prosperous, free country open to the world at large. I count on our joint efforts towards this end.

Thank you for your attention.

<…>

VTB Bank Chairman and CEO Andrei Kostin: Mr President, in your address you already answered many of the questions that were raised here yesterday and today, specifically about the deficit-free budget, about the decision not to raise taxes, about long-term loans and about the fact that the Russian authorities are not planning to limit currency operations and capital movement. These are things that our audience has been concerned with for two days, but I am sure there are other questions as well. If you do not mind, we could move on to our question and answer session – or would you like to make any comments right now?

Vladimir Putin: No. Who were the speakers this morning?

AndreI KOSTIN: Mr Ulyukayev [Minister of Economic Development], Mr Siluanov [Finance Minister], Ms Nabiullina [Central Bank CEO] and Mr Gref [Sberbank CEO].

Vladimir Putin: I do not know what I can say in additional to what such speakers have said. You all know them well, they are the ones who both formulate and implement Russia’s economic policy, and they have been doing this for many years.

Andrei Kostin: However they keep arguing, but you, Mr President, are the one who has the final say.

Vladimir Putin: Right. All I have to do, I suppose, is smile to show that everything is not as bad as it seems, or frown to show this will never happen. Let us try to proceed in this mode. (Laughter)

Andrei Kostin: Are there still any questions left? (Laughter)

Vladimir Putin: Firstly, I would like to thank our colleagues – Russian ones, with whom we are in constant contact, and foreign ones, the ones who came here to take part in the joint work and to speak here. I would like to express the hope that all the plans will be implemented in the most efficient way.

Now something everyone is talking about – I do not think we have to spend much time on this, but I will make it clear right from the start: all the limitations that I mentioned in my address, the so-called sanctions are foolish, considering that those governments are limiting their own businesses, not letting them operate, reducing their competitiveness, opening up opportunities on such a promising market as ours for their competitors. We are taking this calmly. It is a shame that we see a violation of the fundamental principles of the WTO, of the global economy and competition, a destruction of trust in international financial institutions, in reserve currencies – the dollar and the euro. This causes long-term damage to the entire global economy that may be invisible at first glance.

”In 2015, we will create a national plastic card system with an infrastructure that will be independent from international systems: a single operations centre and its own payment instruments. It will guarantee the security and confidentiality of payments made by Russian citizens.“

I would like to hope that we would overcome this period of misunderstanding to enter a period of stable development of the world economy. Russia will be ready to make its contribution to this joint effort.

Are there any other questions?

Question (retranslated): My name is Christopher; I am a member of the Board of a Swedish investment company. May I ask my first question?

The company is splitting up its investment portfolio into the Russian power sector – almost a billion dollars upon initial market capitalisation. My question is how to make better use of the investment breakthrough and the introduction of innovative technologies, like Pirelli winter tyres, which is becoming ever more important in view of the changing external geopolitical conditions. Mr President spoke of this need in his address. I believe the targets set in the presidential executive orders of May 2012, like increasing the investment to GDP ratio up to 27 percent of the GDP now, under current circumstances, look rather modest.

Here is the question. This investment breakthrough, will it be based mainly on state-owned companies or, maybe, for productivity and efficiency sake it would be better to focus on the private sector, on investment from the private sector? I will give one example of possible thousands: through the implementation of the official Government plan to privatise inter-regional power grid companies of the Inter-regional Distribution Grid Company.

Vladimir Putin: This is a very specific professional question. It is also a very timely one, because I do not intend to say anything new, but rather to reiterate our principled position that we have always focussed on attracting private investment, and will continue to do so. However, this requires special conditions. It is impossible without a certain amount of investment by the state, including into the development of the infrastructure.

It is common knowledge that without a developed infrastructure investment into individual sectors of the economy is problematic, private investment is difficult or almost impossible because the investment becomes very costly and inefficient. Therefore, here the role of the state is to invest into the infrastructure.

Your sphere of activity is very profitable and we remember our obligations to our investors. This applies not only to your company, but also to other Scandinavian companies, and those from Central and Western Europe that have invested into the power system. We remember our obligations dealing with the liberalisation of the power market.

I am sure that you are involved in all our discussions and know that we have to tread lightly, bearing in mind the events of 2008–2009. I mean, we have to be careful not to damage the consumers in any way. However, we will continue moving in this direction, including in terms of privatising the grids that you mentioned.

Andrei KOSTIN: Mr President, if I am not mistaken, I believe Christopher was a British diplomat at Moscow’s embassy. Is that right? And then he left that work. He loved Russia so much that he stayed here.

Vladimir Putin: It is not possible to work in espionage all your life. You see, I also changed my place of employment for the better. (Laughter.)

You know, Henry Kissinger once told me – I respect him very much – he is an interesting, very smart person. We met in St Petersburg in the 1990s. I was meeting him at the airport, and he began to ask me where I worked. I began to list the places,but without actually mentioning the particular institution where I had worked. And he kept asking me: “And before that?” Finally, he “got” me. I said, “I worked in Soviet intelligence.” He looked at me and told me: “All decent people start out in intelligence. I did, too.”

Andrei Kostin: Thank you. Number two, please.

Question (retranslated): My question concerns the following: in the last three years, growth has been slower than planned for the 2012–2018 period. Do you think those goals are achievable? If not, what are the forecasts you are using now when making strategic decisions?

”We will continue to adhere to the declared course for the expansion and diversification of foreign economic ties. Among our priorities is greater business, trade, investment and technological partnership with Latin America, the Asia-Pacific region and our colleagues within BRICS, including China and India, naturally.“

Vladimir Putin: You know, our goals will not change. Naturally, life always forcescertain adjustments, and now, a question is raised. We were talking about certain goals and when we were formulatingthose goals in mid-2012, we were saying, and it was true at the time, that these goals can be achieved assuming certain growth rates in the Russian economy. Now, we see that these rates do not correspond to the indicators that we were counting on. Does that mean we should cancel those strategic goals? Of course not.

First of all, let’s recall: 15 years ago, we talked about the need to double the GDP in ten years. And at the time, it seemed highly improbable. Moreover, many people simply laughed at us, saying that this was impossible, but we did it. Now, of course, there is a different trend, not just in Russia but in the global economy as well.

The speakers here – as our moderator just said – our ministers, the Chair of the Central Bank, I’m sure they told you about the economic cycle and structural limitations, right? Well then. The truth is, nobody can predict anything 100%.

I do not know whether this issue was brought up: how high will the oil prices be? Our budget is counting on $96 a barrel. As for what happens later, the risks to the global energy industry stemming from political risks and what is happening, for example, in the Middle East, nobody can predict that. So we nevertheless intend to leave our goals unchanged, but we will need to seek instruments that will allow us to achieve them, or at least get closer to those goals using other instruments.

What are those goals? They are well-known: improving the business climate, creating conditions, as my colleague stated, for attracting Russian and foreign private investments, making the economy less bureaucratic – a whole set of goals. Mr Shokhin [Head of the Russian Union of Industrialists and Entrepreneurs] knows this; he is constantly setting these objectives for us, but we are resolving those challenges – better or worse, sometimes not very well, and sometimes truly quite satisfactorily – and we will continue moving in that direction.

I simply do not doubt that we will achieve the main indicators, including moving toward further privatisation of state assets. Just look, for 2015, 2016 and 2017, there is a whole long list. Incidentally, we will certainly need to look at the market conditions in individual sectors when we make the final decisions, but we will nevertheless do this.

You mentioned the 2012 executive orders that set out certain goals, and immediately asked, “Has the situation changed?” Yes, it has changed. If you look at my pre-election articles and the subsequent executive orders, I stated that we will work on privatisation, but I put our energy companies in parentheses, so to speak.

And now, the situation is changing, and I am not sure we must stick to this position. What’s more, we are now looking at options for enteringthe market with large stocks of our biggest energy companies, which are under state control. We will find these solutions and I am sure we will move forward quite energetically.

Andrei Kostin: Thank you. The fourth sector, please.

Question (retranslated): Thank you. Mr President, my question concerns your views about the Central Bank. We are currently in a difficult situation: there’s little growth, while inflation is fairly high. When you listen to the comments from the Central Bank, it’s clear that they recognise the importance of lowering inflation. And indeed, the future goals for lowering inflation represent a historical minimum. Right now, during this period, should lowering inflation be the Central Bank’s main goal?

Vladimir Putin: The main goal of any Central Bank, including in Russia, is to support the stability of the national currency. It is impossible to achieve that without lowering inflation.

In addition to everything else, and I said this in my speech, we adhered to very strict macroeconomic principles in the last decade. Of course, we always based our work onthe reality on the ground, and today we will do the same, but we are determined not to deviate fromthose principles. I don’t know whether my colleagues have told you this, but even today, I mentioned in my speech that we will adhere to the so-called budget rule: as much as our colleagues might like it, we are not going to increase government spending recklessly.

As for the slight spike in inflation (I think that the overwhelming majority of the people here understand this), it has to do first and foremost with the food basket and our actions to limit imports of food products from several of our partner countries as a retaliatory measure to their sanctions against the Russian economy. Are there downsides to this? Of course, there are. But I am quite certain and absolutely confident that this is temporary.

This will be a wonderful incentive, not just politically but economically too, to invest in the agriculture sector. Our Chinese colleague and friend spoke earlier, and I believe he also mentioned Russia’s agriculture as a direction for investment. Why? Because it gives a solid rate of return. And this will certainly be a stimulus for the development of agriculture in Russia.

We have already made very significant progress in the last several years. Last year, the agriculture sector in the Russian Federation grew by 6.2 percent. We drastically reduced our dependence on imports of poultry and pork. We still have a high level of dependence on beef imports, 26.5 percent, I believe, but there is potential for growth in the agriculture sector. So I do not see any tragedy here.

Naturally, we must look very carefully – the antimonopoly services must look very carefully – for any imbalances in the market caused by profiteering. That goes without saying. I am sure this is a temporary phenomenon. Meanwhile, the Central Bank’s policy, to finish answering your question, is ultimately balanced and the Central Bank is not confined to any dogmas. An intervention was required, and they did it. The policy is consistent and fairly flexible.

Andrei Kostin: Thank you. Even the bankers do not complain about our Central Bank.

Vladimir Putin: They do complain, everyone complains. They complain about the Central Bank, as well as the Finance Ministry, everyone does. They grumble that the interest rates are high, or something else. They are always complaining!

Andrei Kostin: The first sector, please.

”We see the use of national currencies as a serious mechanism for reducing risks, creating opportunities for participants in economic activities and, of course, great prospects for promoting regional integration.“

Question (retranslated): Hello. My name is Michael, and I’m from the United States.

Mr Putin, you mentioned sanctions a little earlier. The effect of those sanctions on the cost of capital in Russia has grown. This means it is now harder for global capital to cooperate. Do you feel that the Government should help find a solution to this issue? One of the solutions would be to deepen the domestic market, create a bond market that is more liquid, more profound. What are your thoughts on this issue?

Vladimir Putin: It’s clear right away that you are an American. Your Government is following the path of relaxing its budget policy, and is probably doing the right thing, but it is because the United States produces its most important product: US dollars. However, we do not produce dollars, so we must proceed very carefully.

With regard to the securities market, the Finance Minster is already releasing those securities; nonetheless, we must carefully monitor their volume in the domestic market, because the financial sector will be happy to buy these securities from the Government of the Russian Federation. But this means we will remove some of the liquidity from the market, which will create problems for the real sector of the Russian economy.

We are keeping this in mind, we understand this, and naturally, we will use these instruments and increase the national debt slightly, because it is currently at a record low level, or very low, in any case. Still, we will proceed very carefully. After all, we must ensure that growth does not come at the expense of pumping liquidity or using some other financial instruments, but through structural changes in the economy of the Russian Federation.

Andrei Kostin: Thank you. The fifth sector, please.

Question: Hello. My name is Cedric Etlicher, I am French, an elected representative of French citizens residing in Russia, and also a member of the board of directors of a small bank.

I would just like to remark that during these two days, we have been constantly discussing macroeconomics. As small players in Russia, we are concerned with microeconomics. And in this area, we are currently working on matters related to improving the standard of living or simply saving money in a small village or a small town in various regions of Russia. And here, we see little support, or little understanding, or little desire to help.

Right now, for example, we are working on a project that will help a town reduce its expenditures on electricity. And this small bank will help, because other banks have refused to back such a project – one that is not so glamorous as electricity or gas, but one that can improve lives in that town, because there will be significantly less taxation.

The next area is agriculture. And here, it is very interesting to work with small producers. Russia introduced retaliatory sanctions starting on August 8. Over the course of the ten years I have been living in Russia, I have done muchto support imports from France, to bring in their goods, and helped exporters look for goods. And in return – we need to look for friendly goods, we have found them, but now we need to encourage all local authorities to help their small producers.

And a final little story. I visited Altai, and they all lament that they do not have money for fertiliser. I said, “Let’s help them, everything will be sold as organic or eco-friendly goods.”

Question: is it possible to help the microeconomic network that is creating many jobs today and should fill the shelves in the stores? This help is needed, because we do not really feel it.

Vladimir Putin: To be honest, I do not fully understand what the problem is. You should approach… I’m sure all of this has to do with financing. The VTB has unlimited money, they’ll help. (Laughter.) They don’t know where to put money, where there are good projects. Except that everyone is crying that there is no money, but in reality: where are the good projects? Everyone is looking for good projects.

As for small projects, small and midsize businesses, certainly, we are greatly indebted to this sector of the Russian economy. We have created the necessary tools, but unfortunately, they do not have full government financing. And we will certainly need to increase all the funds to support small businesses, as well as improve the mechanisms for supporting them and providing various incentives. This does not just apply to the federal authorities. In this domain, the regional and municipal authorities must work more actively as well. And here, you are certainly right, there are many problems in this area.

There are regions in our nation that are considered productive in this respect, and I mentioned several of them; but unfortunately, there are also those where much still needs to be done. That is precisely why – and I have said this today as well – we are working with businesses to set up a system for assessing the efficiency of the regional and municipal teams. This way, we will try to influence the conditions they create for developing small and midsize businesses.

Of course, we also need to develop micro-financing schemes for smaller businesses. We didn’t do enough in this direction before and we need to do this now, develop the kind of scheme currently in use in many countries, created by one of our Indian colleagues, I think. It is being applied to many different sectors and people have won the Nobel Prize for it. Sadly, we have clearly not done enough in this area as yet, and this is obviously a direction with big development potential for our economy as a whole.

As for the specific project you propose, all jokes aside, I ask our moderator to make sure that they will get in touch with you.

Andrei Kostin: I can promise you that we will give money for sure for developing bio-fertilisers in Altai Region.

Vladimir Putin: Yes, this really is an important, interesting and promising area of work.

Andrei Kostin: Good, Let’s take a question from sector two.

Question(retranslated): German headquarters. Thank you for giving me a chance to ask my question. Russia has made big efforts this year to step up economic cooperation with Asia and Latin America. Is this a long-term strategy for developing ties with these regions rather than with Europe and the United States, or is it just a temporary phenomenon linked to the current situation?

Vladimir Putin: You are aware of the global situation. All of us here know how fast Asia is growing today. Our Indian colleague spoke earlier, before I arrived, and our Chinese colleague spoke too. I am sure that when the Chinese investment fund’s representative described Chinese investment funds’ possibilities and opportunities, it couldn’t fail to make an impression on everyone present. 

When you hear these kinds of figures, and they are real figures, not invented, you inevitably start pondering the question our Chinese colleague put to the audience, namely, how can we, each of us present here today, make use of China’s growth in our own economies? Russia is reflecting on this too, of course, and we did not start this reflection only yesterday, in response to whatever sanctions or political restrictions. This has long been in our thoughts.

After all, why did we establish the Shanghai Cooperation Organisation, and why did we set up the BRICS group? How did BRICS begin? That was back in 2005, when St Petersburg hosted the G8 summit and together with our Chinese and Indian colleagues we agreed to hold a tripartite meeting. We met and that was the start of the BRICS group. At our latest meeting, now with Brazil and South Africa too, what were the issues we discussed? 

We agreed to establish a joint arrangement of contingent reserves and a joint bank. We are looking at carrying out settlements in our national currencies and at launching big cooperation projects. This is a conscious choice and it did not just begin yesterday, nor the day before yesterday, nor a year ago, but long ago, many years ago, in line with the development trends at work in the global economy.

But the sanctions do push us into speeding up our efforts, which we are doing. There is nothing out of the ordinary here. And let me say too that we are not scaling back our relations with our traditional partners, with Europe, for example. After all, the European Union is our biggest trade partner with trade turnover of $430 billion. This is the situation as it stands today, but we also need to look to the future.

”We are currently completing the process of Armenia’s accession to the Eurasian Economic Union, and we are actively negotiating with Kyrgyzstan. I am certain that gradually the number of this union’s members will grow. At the same time, we would like the Eurasian Economic Union to establish close ties with other integration structures both in Europe and Asia.“

Andrei Kostin: Thank you. Let’s hear from sector four.

Question(retranslated): Thank you for taking the time to have this discussion with us. I want to ask about Ukraine. Looking at the results of the situation in Ukraine, in your opinion, which development scenario would best suit Russia’s national interests? Is such a development scenario even possible, and what are Russia’s actual aims?

Vladimir Putin: It is in Russia’s national interests to help Ukraine to find a way out of the political and economic crisis, and we see that Ukraine today really is in a state of serious political and economic crisis. Rebuilding Ukraine’s economy, political life and social sector is in our national interest. We want to have a reliable and predictable partner and neighbour.

Ukraine is not a country we are unfamiliar with or indifferent to. I have said many times and say again now that despite the tragedy currently unfolding, especially in the southeast, the Ukrainian people have always been and will remain the closest fraternal nation in our eyes. We are bound by ethnic, spiritual, religious and historical ties. I hope that we can draw on these foundations to develop our cooperation, build our relations in the future, and do everything we can to make this happen as swiftly as possible. 

I hope that Ukraine’s parliamentary election will go well and that the long-awaited political stabilisation will finally begin. But I must say too that our position is that everyone in Ukraine, no matter where in the country, should have the same full rights, as prescribed by international law and by Ukraine’s own laws. No one should be subject to any discrimination on language, ethnic or religious grounds. This is the only way to preserve the country’s territorial integrity, restore unity and guarantee social and economic development. We hope very much to see this happen and will do our best to help.

We have a colleague over there who wants to ask a question. Pass on the microphone, please.

Question: My question concerns the Bashneft case. This case is based on allegations the assets were privatised unlawfully and should now therefore be confiscated and returned to the state.

You have said on many past occasions that the privatisation process had many grave flaws and was not really very honest, and you also spoke about the oligarchs being far from ideal. It would be hard not to agree with you on both these counts, but nonetheless, do you think it wise as far as our economic development is concerned to start stirring up the past?

The episodes in question took place 10 years ago in one case and more than 20 years ago in another case. Is it wise to cast doubts on property rights now, all the more so as this could be used as an instrument for confiscating the assets of any owner, not just the person who actually privatised the assets but subsequent owners too.

You mentioned your election campaign statements and articles today, and the question I want to ask is whether what you said in one of your 2012 election campaign articles still holds true? You wrote in that article that there is a lot of talk in society about how dishonest the privatisation process was, but then you went on to say: “But confiscating assets now, as some propose, would simply bring the economy to a halt, paralyse businesses and set unemployment on the rise.” 

Vladimir Putin: I think this is a valid question. Let me make it clear once again that there will be no large-scale revision of the privatisation process. At the same time though, cases differ in their nature and quality. If the law enforcement agencies have questions regarding the movement of assets, we do not have the right to refuse to let them investigate a particular case and make a decision.

I hope that decisions will remain within the scope of civil law and arbitration law rather than involving criminal charges, but I am not going to intervene and give any directive signals from above. Let me just say again that what has happened does not in any way mean that the state authorities have plans to start large-scale revision of the privatisation process. This will absolutely not be the case.

Please, go ahead.

Question: Good afternoon. My colleagues and I would like to ask what stage you have reached in implementing two state programmes designed to make Russian companies substantially more attractive for investors.

The first programme was drafted by the Economic Development Ministry and concerns measures to improve corporate governance. The second programme, drafted by the Government Analytical Centre, aims to increase labour productivity. For some reason, these programmes have received little coverage and there have been delays. Do you think them of strategic importance, and what stage are they at now?

Vladimir Putin: Mr Ulyukayev [Economic Development Minister] was here before, you should have asked him. 

I also want to ask him what is happening with these programmes. I want to ask him because yes, I do think they are important.

They will certainly be completed. The main thing is for them to be effective, functional and able to be put into practice. I already said that we will continue to look for and develop new ways to improve the investment climate, remove red tape in the economy and create good conditions for start-ups. You are probably familiar with the system and the instruments available. They include working on the technology platforms and encouraging the regions to help get businesses started, including through federal support, having the federal authorities pay costs related to infrastructure development and subsidise interest rates for some projects.

I am not sure if our colleagues mention project financing. I mentioned it in passing. Let me add a couple of words now. What will happen is that particular projects go through an approvals process in the Economic Development Ministry and other government agencies. Incidentally, I ask you to keep this in mind and make use of the opportunities this system offers.

The logic here is that the Government needs to be able to guarantee that these are effective and competitive projects that can then get funding from VTB or a similar financial institution at the Central Bank’s key rate plus one percent.

This is an excellent instrument but the business community is still poorly informed about it, how it works and what companies need to do. I think that this could become one of our big development instruments today. We will work too on the programmes that you mentioned.

”Alongside the development of foreign trade, stimulating export, and participating in integration projects we intend to make full use of one of Russia’s competitive edges – its receptive home market. Our goal in the next few years is to make an industrial breakthrough, and to create powerful national processing companies capable of producing competitive goods.“

Andrei Kostin: Last question please.

Question: Mr President, you already mentioned the subject I wanted to ask about, but I would like to go deeper into the details. Is the privatisation plan for selling all state assets except for infrastructure monopolies and defence industry companies still part of your strategy, or have these plans changed in any way?

Vladimir Putin: There have been some small changes to these plans, as I mentioned. The changes concern the possibility that we might sell assets belonging to big energy companies in which the state currently holds a controlling stake. We have no plans to give up our controlling stakes entirely at the moment, but we are examining the possibility of selling part of our stakes.

It’s still early to be even talking about this. I’m not entirely clear if the Government has already discussed this idea or not, but if they haven’t yet it will soon become public anyway. We are examining these possibilities and they will probably go ahead, perhaps even this year.

Actually, the same is true of our defence industry assets. We are looking very closely at the situation, deciding how to go about it and which assets to open up. Of course, this cannot apply to all companies in the sector, but some could be… It may be possible to privatise part of their assets and sell them on the market. This would create better growth conditions, all the more so when the state authorities are investing a lot of money in the defence industry, three trillion rubles [around $76 billion] over the coming period, and these funds have been earmarked in the budgets for the coming years.

We have not reduced any of our planned spending in this respect. In fact, we are extending the state armament programme’s timeframe somewhat because industry is not yet ready. It is not that we do not have the money, but the industry is not ready for it. We will therefore invest more in infrastructure and in developing the defence industry. Much of what is produced in this sector is already dual-purpose products.

Civilian goods already account for a quarter of all that our defence industry companies produce today. To make these companies even more flexible, efficient and competitive, we are considering the possibility that some of them could issue shares and be listed on the stock exchange, on the market.

Thank you very much for the interest you have shown and for what has been a fascinating discussion today. I wish you every success.

Andrei Kostin: Thank you, Mr President, and thank you to all participants.