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The theme of the plenary session was “Building Long-term Cooperation and Developing Opportunities for Economic Growth.” The discussion focused on ways of adapting the Russian economy to the changing macroeconomic conditions that open up new opportunities for strengthening the Eurasian Economic Union and creating strategic integrational projects within the framework of the Silk Route Economic Belt, as well as other issues of importance for the Russian and global economies.

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President of Russia Vladimir Putin: I would like to begin by thanking you for the invitation and for organising such a representative forum. I believe it is both interesting and useful – definitely interesting and useful for this country. I hope those participants who came from abroad will also find it beneficial.

Actually, all those who spoke here have already said everything – and we have a very representative board here on stage: the best economists, the best financiers, the best bankers in the world – so I doubt that I will be able to add anything of substance. The entire idea of having me here actually boils down to saying that I support them and that we will conduct the policy they spoke of.

The policy that was declared, in detail and in numbers, I believe, is not something frozen. Our economic policy reacts to developments both in the global economy and in this country, and some adjustments are made, of course. However, the fundamental principles mentioned by my colleagues will remain.

We will do everything to ensure macroeconomic stability and respond to what is going on, as I said, in international finance and economy, on the world markets. If there is anything you would like to ask or clarify – go ahead, please, I will try to provide you with answers.

VTB Bank Chairman and CEO Andrei Kostin: Thank you very much, Mr President. I am certain there will be many questions.

The live discussion that takes place at our forums, when you answer questions from the public, is truly worth a lot and, in fact, it is the reason many people come here. If you allow me, as the host I would like to ask the first question.

This year we have been hearing that for the first time in 27 years money is being withdrawn from developing markets in general. There has always been an influx, while now we will have a pure outflow: money is being withdrawn from China, Brazil and Turkey. Incidentally, the drain from Russia this year is half of what we had last year, which is seen as a rather positive tendency.

Given this background, how much does Russia need foreign investment? Generally, are we expecting an inflow, do we need foreign investors, or will we replace them with some resources of our own?

My second question is if we do need them and if Russia is indeed calling, as our forum’s name says, then where is it calling? What are advantages can Russia and the Russian economy offer that allow us to say to investors: you can invest here, and here you will get some extra ‘chocolates’ or ‘carrots’ – something that would attract investors to this country, to this economy rather than let them look in other countries? What do you think is the greatest attraction of the Russian economy?

Vladimir Putin: There is no need to discuss the reasons for the capital drain from developing markets with the people gathered here. This could have been brought about by a change in the US Federal Reserve System policy or many other factors, like a drop in prices on traditional export goods in the developing countries. At the same time, I would like to draw your attention to the fact that in this country we have been experiencing a capital drain since the second quarter of 2010, while in the third quarter of this year we have seen an inflow, and absolute inflow of capital. I believe our colleagues have mentioned this here. If this is the case, it means the market is responding quickly to the developments in this country and in its economy.

So what is going on? Clearly, we have come across a crisis. I have already named the causes, and there are actually more of them, but these are the main ones. Nevertheless, some experts maintain, and I tend to agree with them that we have generally reached the peak of the crisis and overall our economy is gradually adapting to these new economic circumstances, not all of it, but generally, it has adapted.

These are the first signs of stabilisation. Despite the fact, say, that many sectors of the economy are still going through a slump, except for agriculture, the situation nevertheless is becoming more stable. The processing industry is gaining confidence. In conditions when the economy is adapting to lower raw materials prices, including hydrocarbons, opportunities open up for other branches of the economy: for machine building, agriculture, processing and so on.

This is the first factor that can attract potential investors not only to the oil and gas sector of the Russian economy, but to the other ones as well. In additional to that, as we always say, and this is true – here in Russia, we have a sufficiently well educated population and well trained personnel. This, of course, requires a lot more work in a professional sense, but we have a good pool of skilled personnel.

Finally, I would like to say some kind words about the Government of the Russian Federation and the Central Bank. Despite all the difficulties facing the Russian economy, our management team in the economy has demonstrated a high degree of responsibility, consistency and the ability to achieve results. I think this is also a good reason to believe that Russia is a good place for cooperation and investment.

As for Russian investment, there is a certain decrease in investment into basic capital; however, overall we are retaining a rather high level of investment, including investment from the federal budget. While last year it reached 1.5 trillion rubles, this year the amount will be greater, but without violating as much as possible the main macroeconomic parameters. Both the Finance Ministry and the Central Bank are trying to conduct a more flexible policy.

You have probably heard here about the relevant Central Bank programmes directed at so-called project financing to reduce interest rates for the end loan consumer. You have probably also heard about the various funds that we are creating. As you may know, or may not know, there are some positive trends in cutting red tape in the economy and raising Russia’s ratings in these areas. These are all good signs demonstrating that Russia is a comfortable and very promising place for cooperation.

Andrei Kostin: Thank you.

Would Mr Schulte like to add anything?

Chairman of the Executive Board of Fraport AG Stefan Schulte: As we are all here at this plenum I think we all believe in the future of Russia and we know that recovery will come as soon as possible.

If I take the aviation industry, yes, it is going through difficult times. You know all together the situation of Transaero. If we take St Petersburg, we know that Aeroflot is more focusing at the moment on Moscow. That is all fine. We would like to explore even more the potential of St Petersburg and invest even more, because we want to invest, and investment means jobs, and it means further potential for the GDP. I think a good proposal would be to open the sky somehow for more charter traffic for St Petersburg because St Petersburg is a great city with a lot of potential for tourists and if we could have some chance to discuss those issues it would be really great because we know there is a big appetite from a lot of European countries to go to St Petersburg to see this great city and to create more connectivity, and not just for tourism there but also to bring in business.

Vladimir Putin: I can only support everything our colleague has said, especially as he is speaking of my hometown of St Petersburg. The potential is great, and clearly, it has not yet been fully realised. We will do everything together with you to make this possible.

The airport did turn out very well, even wonderfully. If you remember, I even took part in the first steps of its construction: I laid a capsule there. It is a pleasure for me that the project has been completed with such brilliance. I am certain that it will be used to capacity and will operate efficiently.

Andrei Kostin: Thank you very much.

Colleagues, your questions are welcome. You can address them to any of the participants, though I believe most of them will be addressed to Mr Putin.

Question: The last 12 months have been very difficult for the Russian economy. Would you say the most difficult phase of reconfiguring the economy for lower oil prices and for less access to external financing has fully been completed? And if so, could we expect renewed growth next year, in 2016? And if not, when do you think the process will be completed and in that what do you see as the hardest tasks for the ministries of the Russian Government?

Vladimir Putin: We have already spoken about this. Next week I believe the 2016 budget is to be submitted to Parliament. Predictions are made on the basis of economic development forecasts formulated by the Economic Development Ministry and the Finance Ministry. Last year, as you may know, we had a certain slump, and it will continue this year. However, we believe that we will recover from this in the next few years.

I already said in my opening remarks that we have if not passed the peak, then reached it – I will be very careful with the wording here. Some colleagues believe we have passed the peak of the crisis and all our plans for the next few years have been made on the premise that we will not only overcome this, not only recover from this recession in certain sectors or the economy, but will also restore our overall positive dynamics. I have no doubt that this is the way it will be, and all our forecasts, which are very in-depth and professional, show this as well.

We will be doing this by using very realistic and very modest forecasts for prices of hydrocarbons, of energy resources – oil, gas – proceeding from $50 a barrel. This will allow us to concentrate greater resources on the main task facing us, which is now actually even easier to resolve than in conditions of high prices on traditional export commodities. The task is to achieve structural changes in our economy, and this is what all our actions will be based on.

Question: A question from Siemens. We have heard a lot about the crisis and about political difficulties. How do you see the prospects for the development of relations between Germany and Russia, prospects for German companies? We have just heard about the decision to build Nord Stream-2. What are the chances of taking part in a national project for high-speed transportation, for instance? How do you see the development of the economy for foreign, German companies?

Vladimir Putin: Germany as a country is one of our major trade and economic partners. This concerns not only trade turnover, but also the depth of penetration by German businesses into the Russian economy. German business comes to Russia, as we know, not only in areas of ‘fast’ money – German businesses come to machine engineering, to power generation on the territory of the Russian Federation, to agriculture, pharmaceuticals, to the key industries that we are giving special attention to and intend to do so in the future as well. This is the first thing I would like to note.

The second thing I would like to highlight is the balanced and I would say wise approach of German businesses to developing relations with Russia. German companies do not swing from one extreme to another depending on the political situation, but act very pragmatically, proceeding from their own interests and those of their partners. We value this highly.

As for specific projects, they were formulated quite some time ago, at least the ones you mentioned. Nord Stream-2 within the framework of the greater Nord Stream project was formulated several years ago, back in 2010, and was then implemented in stages, beginning with Nord Stream-1.

While we were implementing North Stream-1, our partners, the company’s shareholders were working on their ideas to expand the project. Therefore, there is nothing new about this. It is directed at meeting the demand for energy resources primarily in Northern Europe, considering the drop in production in Great Britain and Norway and the simultaneously growing demand for energy resources in this part of Europe. It is absolutely not aimed at taking away anyone’s transit opportunities. I would like you to leave behind all these political speculations.

As for Ukrainian transit and shipments to Southern Europe, we have separate plans, including those involving our German, Turkish and French partners – there are many possible participants in future projects. Nord Stream-2 has nothing to do with those transits and is not in anybody’s way.

Regarding high-speed transportation routes – we would be happy to see you on such projects, on infrastructural projects. Your company took a very active and significant part in Russia’s transport machine engineering and its development, and continues to do so. This is a mutually beneficial project and naturally we would be happy to carry on with this cooperation.

We know that our Chinese partners are also developing their transport machine engineering using German technologies. However, when implementing such large scale projects as high-speed railways, in this case from Moscow to Kazan and further, we have to proceed from economic parameters, from cost, primarily the cost of loans. This is a question to your Government rather than to ours. If access to European financing is limited for participants in such projects, it does not leave us much choice. In that case, our Chinese partners’ proposal to take part in the financing may be decisive. This is one thing.

The other is the price, of course. If we agree on all of these things, we will be happy to see your company join the ranks of those who are implementing projects of this kind.

George Sebulela: Mr President, thank you very much for giving me the opportunity to ask this question. My name is George Sebulela, I am from South Africa, Chairman of Black Business Council and I serve on the South African Presidential Advisory Group. I want to also note the role that Russia has played in the transformation of South Africa during the political times, particularly for the ANC, which was really appreciated.

My question is around the BRICS countries. One is: Is China-Russia a strategic partnership, a strong and a stable one? We have seen a lot of the Chinese travelling to Africa for various opportunities, becoming much more active. And secondly, what do you see as the priorities in terms of economic cooperation with China, similarly with Africa?

Vladimir Putin: We are aware of the activity of Chinese business in Africa. There is nothing unusual here: Africa is a very rich continent, rich in mineral resources of different kinds. It is natural that such a rapidly developing economy as China needs a stable supply of mineral resources to its rapidly developing market. Therefore, I believe this is the reason behind China’s activity in Africa generally and in the South African Republic in particular.

As for relations between Russia, China, the South African Republic, Brazil and India, they are acquiring a special nature and becoming more fundamental, because all of these countries, we are all working within the framework of trade that is growing in volume and the growing authority of the BRICS international organisation.

You speak about the prospects for the development of relations between Russia and China. China as a nation is our biggest trade and economic partner. I may get the numbers wrong, but it exceeded $83 billion last year — $83.5 billion, I think.

We have very big promising projects not only in energy, which is natural, considering the large volume of mineral resources in the east of the Russian Federation and the need to develop entire territories in China that are adjacent to Russia. There is nothing surprising in that we are supplying ever-growing volumes of oil and gas and starting the implementation of these major projects.

However, our cooperation is not limited to that. As you may know, we are doing a lot of construction in China in the sphere of nuclear power generation. This is an absolutely different type of energy, involving high technologies. We have built the Tianwan Nuclear Power Plant and we have an entire programme for future joint work in this area.

We have good prospects in infrastructure and transport. We are planning large projects in aviation, and there are other areas of mutual interest.

In this connection we find it very interesting to consider involving our partners in BRICS in joint work in all these areas; it seems very promising, specifically in nuclear energy. We are discussing one such project with the South African Republic.

However, this is not the only one – we have many different cooperation scenarios within the framework of the financial institutions we have created: the bank, the Contingent Reserve Arrangement – both are formed of $100 billion contributions. These are large resources that can, should and will be used for mutual development.

Question: Mr President, thank you for your time. I’m Steve Lantis, Portfolio Manager at Delaware Investments in the United States.

Russia adopted a fully floating ruble in a somewhat more dramatic fashion than many of us would have envisioned a year ago. But it has been clear that the steps you undertook have ensured that the economy is on a more stable path than we have seen in crises of 1998 and 2008. And as a member of the international investment community we applaud the fact that you undertook these steps without any restrictions on the free movement of capital. But I wanted to ask you at this time are there any circumstances that you can envision where the political leadership in Russia would make a change in that direction and put restrictions on the free movement of capital? Thank you.

Vladimir Putin: You recalled the crisis of 2008–2009. You have also mentioned the Central Bank’s decision to introduce a floating national currency, the ruble. We did not do it in 2008–2009. Then we believed the economy was not ready for such steps, such tough measures. Then we really did use up huge reserves to maintain the ruble exchange rate and retained economic stability. However, we did not make the decision to limit the movement of capital, nor have we made it now, and we are not planning anything of the kind in the future.

I believe that the fact that we have demonstrated to all our partners and investors who have invested into the Russian economy that we would not do that is also a reason why we had a direct flow of investment in the third quarter of this year for the first time since the second quarter of 2010. I would like to repeat that we are not planning any limitations on the movement of capital.

As for the introduction of the floating ruble rate, this also has its drawbacks for some participants in economic activity: there are some drawbacks for Russian citizens, of course, for individuals, as this has influenced prices and, consequently, inflation. In other words, this has some negative consequences for the economy and our citizens. However, overall for the country and its economy, and therefore for the citizens of the Russian Federation in the final count, this step turned out to be the right one and a timely one.

Andrei Kostin: Thank you, Mr President.

I remember the meeting you held in 2008 quite well, and this issue was addressed. At the time, I myself suggested limited measures, and you said: this will not happen, that is not why we made all our reforms and changes, to now go back. And since then, I do not recall a single instance when this topic was discussed seriously. I think that here, you are very consistent. But all investors ask: this is one of the main concerns that they have.

Vladimir Putin: You know, there are many possible limitations, from full prohibition to partial prohibition related to reserve requirements, certain volumes of transfers and so on. None of this will work.

Question: Mr President, this spring, after a two-year pause, the second pillar of the pension system started working again as before, with funds being transferred to NPFs. However, in September, there was already talk again about a new freeze. To the outside observer, this risks looking like uncertain decision-making, and that in turn raises question marks about the visibility on other elements of long-term economic policy. In addition, freezing payments would have direct effects on the long-term savings of the economy. In your view, what can be done to ensure that key long-term policy decisions are taken in a consistent manner, and that they agree with the long-term strategy that has already been announced? Thank you.

Vladimir Putin: In the economy, as in many other areas in the life of the state and citizens, this is always a compromise between what is possible and what is desired. First of all, we need to balance the pension system, whose income is not currently as high as we would like. And the extension of this freeze in the pension saving system has to do with this situation and the need to balance the pension system and guarantee that all Russian pensioners will get stable payments and stable income.

You said that something is changing. In this case, nothing has changed, because last year, we also froze these transfers. But I would like to note that we are not cancelling this programme or these plans drastically, and we assume that ultimately, the defined contribution pension system will develop in Russia in the future.

In this respect, I would like to note that I and many of my colleagues would like for these pension payments – much as in the United States and many other nations – to not only be used by our colleagues in the Finance Ministry, who take this money from the market and convert it into securities, but for it to truly be channelled into the economy. We need to resolve this issue.

If there are significant accumulations, then essentially, enormous reserves are created, but we need this money to be guaranteed for future pensioners, protected absolutely while working effectively in the economy. We will need to deal with all these elements and, in addition to everything else, we will need to ensure the safekeeping of these funds. All this, together – the first, second, third, fourth and fifth issue – when we achieve all of this, and I think that it will be done, then the pension system will continue to develop.

I repeat again, we are assuming that, A, it will be preserved, and B, we will invest funds into in the future to develop it.

Question: The set 5% inflation target seems to have been pushed back once again. And I think that’s somewhat understandable given the events of the past 12 months. But I think it’s worth bearing in mind what other countries have suffered as they’ve deviated from these targets and the difficulties they’ve had regaining control of such metrics. Could I ask you, relative to other priorities, such as restoring economic growth, job creation, reserve building, etc., how important is achieving the inflation target?

Vladimir Putin: Naturally, all these macroeconomic parameters, as I already said many times – as, I’m sure, have all of my colleagues here – there is already a kind of stamp, we will strive to abide by these macroeconomic parameters. But one of them should not contradict another. Just now, Mr Kostin stated that even here, on stage, when our colleagues spoke, they had disagreements amongst themselves. But you could also say that there are disputes constantly when we gather for various meetings.

 Today, we have another meeting with the Government members, and I’m almost certain these questions will come up again. What is more important? To maintain a macroeconomic parameter like inflation, as the Finance Minister states, through the Central Bank, or to reduce federal budget expenditures with the hope that more money will flow into the economy? This is the question, but it does not have a clear answer – whether this will happen or not. But in general, it’s hard not to agree with.

 On the other hand, the Economic Development Ministry always demands more resources for specific projects, for supporting the real sectors of the Russian economy, and says that it’s okay if the inflation parameters are a little bit higher. We were planning for 3% next year? No, 6%; that means, the subsequent years will be 4–5%. It’s clear that for developed economies, 2–4% inflation is optimal. Of course, we will strive for this. It’s hard for me to say now how quickly we will achieve this parameter. By 2017–2018?

Central Bank Chairperson Elvira Nabiullina: By 2017.

Vladimir Putin: By 2017 we expect somewhere around 5–6% – what is your estimate?

Elvira Nabiullina: Four percent.

Vladimir Putin: We’re even hearing four. God bless the Central Bank. (Laughter.)

But you see what the problem is? It’s that the Central Bank can regulate the volume of money supply and influence the national currency exchange rate. But if we analyse the situation, I was just looking at some fact sheets before coming here on how much the Central Bank has issued and the volume of money supply in our economy, as well as the inflation we had – this year, if I remember correctly, the Central Bank added the least money supply to the economy, while inflation was higher. This is only one of the parameters. So we need to give more attention to other factors, the most important of which, a fundamental one, is diversifying the economy, reducing dependence on energy resources and our so-called traditional exports, reducing bureaucracy in our economy, creating reliable conditions for investors and ensuring normal functioning of the judicial system and administrative structures. We are working on all of this. But these are issues that take longer than a year to resolve – and longer than two, or even five years – but we know that we need to do this, and we will follow this path.

Question: Over the weekend, US President Obama called into question your leadership over Syria. He said that you are propping up an ally rather than going after ISIS. He also said you are running down the economy here. Can I ask you, how do you respond to President Obama’s comments and what would you say to international investors who are dissuaded from putting money into the Russian economy because of such remarks? Thank you.

Vladimir Putin: You know, as we say in Russia, everything has been thrown into one pile. What does the situation with ISIS in Syria have to do with investments in Russia? Although, of course, everything in the world is interconnected. There is no direct connection, but ultimately, of course, everything is interconnected.

First of all, I do not want to debate with anyone right now, but I will note that we are not striving for some sort of leadership in Syria. There can only be one leader in Syria: the Syrian people. We strive to make our input in the fight against terrorism, which is dangerous for the United States, Russia, European nations and the entire world, without any exceptions.

I will point out that all our actions, as I have said before, are in strict compliance with the UN Charter and international law – unlike our colleagues from the so-called international coalition led by the United States, which is acting without UN Security Council resolutions and without invitation by the Syrian authorities. Over this time (operations by international forces headed by the United States – or if we put it simply, the actions by the US – have been underway by over a year), they have engaged 11 nations in bombing, with over 500 strikes on Syrian territory, spending half a billion dollars, and that’s only officially, to train Free Syrian Army fighters to fight against ISIS. We know the result: there is none, there’s no result.

Now, it has been reported that the Free Syrian Army is being supplied with ammunition via aircraft. Where is this Free Syrian Army? If they simply discharge or dump the ammunition and weaponry somewhere from the air, how can we know that it won’t all get into the hands of ISIS, as this happened during training of the Free Syrian Army personnel and arming it – what are the guarantees? After all, this was just done, this just happened, and just now, the United States admitted that the action failed. And now, they are simply throwing ammunition somewhere. To whom? This is not a rhetorical question.

Now, we often hear that our pilots are bombing the wrong targets, not ISIS. First of all, we briefed US leadership in advance, although the United States has never done this. We were the first to do this out of respect and a desire to establish a working relationship. Now they tell us, “No, first, we are not ready to cooperate with you, and second, you are bombing the wrong targets.” We said at the military level, appealed and asked, “Give us the targets that you are 100% certain to be terrorists.” The replied, “No, we are not ready to do that.” So then, we thought about it and asked another question: “Then tell us, where shouldn’t we be bombing?” No response there either. So then, what should we be doing? This is no joke, I did not make this up, this is what happened. Just recently, we said to the Americans, “Tell us the facilities we should strike.” There was no response. How can we work jointly then? Do you have an answer? I don’t have one either, yet.

I think that some of our partners are simply confused and do not have a clear understanding of what is really happening on the ground, nor what goals they want to achieve. But we will insistently work to ensure that the efforts in the fight against international terrorism are joint efforts, and the result is clear, expected, and aimed at fighting international terror, to eliminate this threat for all of us.

As for investments, as I already said, I do not feel the two are related, but when I was just telling you about how these events occurred; I had said from the very beginning that nobody ever warned against such actions. Whereas we did. This speaks to the fact that we want to work together, and whoever wants to work with us in the spheres of security, counter-terrorism and economics is welcome.

Andrei Kostin: Shall we get back to pensions?

Question: Vadim Sobolevsky from Finisterre Capital in London. Sorry, just to continue the Syrian theme just for one more second. Can you give a few words on how you see the relations between Russia and Turkey going forward? There seems to be some tension on the Turkish side about the recent developments. Is there a dialogue with Turkey? Where do you see this going forward?

Vladimir Putin: Turkey is one of our priority partners and good friends. We have had very good relations with Turkey for many years now; this is one of our major trade and economic partners. Take our construction market, where Turkish companies have spent about 12 billion, I believe, over the past years. We supply large volumes of energy resources to Turkey. We have large joint projects in energy and agriculture. Turkey has significantly increased exports of its agricultural products to our market, which actually meets the interests of the Turkish economy and Turkish people.

We need to understand how we can develop relations on the anti-terrorism track. Here Turkey has many concerns in connection with the Kurds and with fighting terrorism. We see these concerns and are ready to take them into consideration in the course of our joint work. Even now, we have contacts between our military agencies. I hope they would lead to better coordination between us. We have to arrange this work on a political level, just as with the United States.

Question: Thank you, Mr President. My name is Richard Lamb and I work at Lloyds of London in the UK. The Bank of Russia has started implementing the plan to create a national ratings agency. The requirements of such an agency are clear – to protect the national financing system against the risk of losing the services currently provided by the international rating agencies. However, do you not think that the appearance of such an agency, supported by the Government and the prominent business groups, could damage the chances of competing Russian rating agencies and correspondingly limit the competition in this important sector? Thank you.

Vladimir Putin: Can limit what? The agency’s competition? How? It does not exist yet. When it is created, there will be more competition for structures of this kind. I believe there is nothing wrong here. This will only be good for this sphere of activity in the world at large and here in particular.

I am sure you remember how nervous our European partners were a few years ago when they though that international (actually American) rating agencies were knowingly assessing the European economy and individual companies in a way that would reduce the competitiveness of the European economy with regards to their American competitors. Such fears were voiced not only by experts, but also regularly expressed at government level.

Therefore, I believe the implementation of the project to create a national rating agency will not aggravate the situation in this sphere, but, on the contrary, improve it. The main thing is to ensure that this rating agency is highly professional and independent in every sense. With this in view, we expect that all the participants in this project will hold no more than 5 percent of the equity; we intend to attract a maximum number of participants specifically from private companies, rather than companies with public ownership.

Naturally, all the work on such a structure should be free of lobbying of any kind based on any national principle or other motive. I expect the governing bodies of this agency to be made up of world-class experts. In this sense, their nationality does not matter.

Question: President Putin, what effect do economic sanctions have on the global economy? In connection with this, how substantial is the threat of the global financial system fragmenting? Can we talk about the end of globalisation, at least in the form that we have known it in the last 25 years? Thank you.

Vladimir Putin: The United States once created a General Agreement on Tariffs and Trade (GATT), then transformed it into the World Trade Organisation (WTO). And they attracted the majority of participants in international communications or international economic activity – they sucked them in like a vacuum cleaner. Clearly, the ideas formulated by the WTO are good and promising for export-oriented economies, thanks to a common currency (today, the dollar is the only real reserve currency); and the next step to take with the help of the WTO – removing national borders – was the right decision. Certain bonuses were also provided to nations belonging to this organisation, whose idea was to remove national borders and essentially provide the national regime to participants in economic activity in specific countries and offer them the most favoured nation treatment.

We view issues pertaining to limiting and destroying this system through sanctions primarily as a tool of dishonest competition. I feel this could be bad for everyone. I am not even talking about the losses incurred, for example, by our European partners, equalling tens of billions of dollars from our countersanctions, but this is simply a manifestation of the negative consequences of this approach to management on the international arena.

We in Russia thought the economic rules set forth within the framework of the WTO are inviolable and unrelated – and shouldn’t be related – in any way to politics. It turned out this is not the case. It turned out that these economic instruments are used to achieve competitive economic advantages and to achieve political goals. I believe this is highly damaging to everyone. We need to agree somehow, somewhere, that we will avoid this practice entirely in the future.

Question: Good afternoon. Thanks, Mr President, for your time; it’s certainly much appreciated. Recently, the governors of Sakhalin and Komi Republic were arrested and currently face some very serious charges. Could you comment on those events please?

Vladimir Putin: I think it is premature to talk about it. In Russia, as in any other civilised nation, an individual is considered innocent until a guilty verdict is reached by the court. The law enforcement agencies have good reason to believe that some serious violations of the law, crimes, were committed. But making any comments before the initial investigation is complete and before a court makes a verdict is wrong and, in my opinion, counterproductive; it can be bad for the course of the investigation itself and for objective conclusions by the corresponding judicial agency.

As for the fight against corruption, we are setting this as one of our most important objectives. You know that we have adopted a whole set of decisions of a restrictive nature, restrictive for people engaged in administrative work at all levels, from federal to regional. We will work to improve this monitoring system, we will work to improve the work of the law enforcement and judicial systems and, of course, we will contribute to international efforts in this area. Soon, in November, a corresponding forum will be held in St Petersburg under the auspices of the UN where Russia, as the host nation, will be a very active participant.

Question: Mr President, the first part of my question is very short. What share of your time do you spend on economic and infrastructure issues, and what share do you spend on settling international conflicts, deploying the army and humanitarian issues?

Vladimir Putin: I spend at least 80% of my time on the first, if not more.

Question: Thank you. The second part of my question is more specific. In order for foreign investors to come to Russia, they need to see an example of Russian investments. It was already mentioned that only 3 percent of the Russian pension fund is being invested in shares; frankly speaking, foreign investors are not very comfortable investing in shares. If we are talking about the real economy, it was mentioned at the last session that Russian roads are so dangerous that 27,000 people die in road accidents every year. This is twice as much as in Europe. In other words, Russian investors once again do not feel entirely comfortable coming here from a purely physical standpoint.

Vladimir Putin: You think foreign investors are driving around between Voronezh and Orel?

Comment: It would be wonderful if they were.

Vladimir Putin: I doubt it. Foreign investors invite us all to fly in planes.

As for the roads, it’s true, this is a well-known problem in Russia. Our territory is enormous, incomparable to any other state in the world, with many underdeveloped territories, and traditionally, the road network there was simply absent.

Moreover, our road-building standards are even stricter than in many European nations, and the climate is quite different, to put it lightly. There are objective and subjective difficulties, but one of the methods for developing the economy overall is certainly expanding infrastructure and the public road system, railroads, airports, ports and machine engineering – both in aviation and transport overall.

Question: Here is the last part of my question. What economic investment issue would you, personally, most like to see resolved?

Vladimir Putin: You named one of them: developing infrastructure, which has always been considered a priority, particularly in times of economic hardship, providing good returns for the economy in the medium- and long-term. We agree with this.

Andrei Kostin: We have been having a discussion concerning roads since this morning, because one of the speakers, Mr Sergei Galitsky, the owner of an enormous number of retail outlets, said that to increase demand, we do not need cheap money or anything else. We need for more people to be born and fewer to die, and then demand will grow, because the population will grow. I think this is an echo of this topic, which we already discussed. I believe it would be fair to say that investment in people will also allow us to increase demand within the country.

Colleagues, Mr President can answer a few more questions.

Vladimir Putin: Three last questions, and then I will let you be.

Please, go ahead.

Question: I have a question on competition – in other words, on the Government’s policy on de-monopolisation. Incidentally, I asked a question about this same issue at the first VTB Capital forum in 2009.The President – then the Prime Minister – responded positively to my question on whether the domestic gas market would be de-monopolised. And indeed, that is what happened. Thus, additional shareholder value was added at companies like Novatek, TNK-BP, which is part of Rosneft, and so on.

So today’s question concerns the merger of two agencies: the Federal Antimonopoly Service and the Federal Tariff Service. How are investors to understand this decision? Does this open the path toward further de-monopolising the most important sectors, such as rail transport and electricity? Incidentally, perhaps representatives of international business in Russia will also want to share their impressions of the competitive environment.

Vladimir Putin: As far as de-monopolisation of rail transport and electricity, we will move in that direction. Moreover, I personally feel that as far as rail transport is concerned, these questions are long overdue. Russian Railways’ position on this matter is that they cannot or should not let go of certain elements of this business. In my view, this is not convincing, given that they will control traffic control in any case. So I believe continued liberalisation is necessary, it should be developed and implemented.

In theory, the same is true of de-monopolising electricity. Of course, here, we need to monitor the market very carefully – I am referring primarily to rates.

With regard to combining the two agencies, there is nothing unusual about this. Resolving the issue this way was driven by the fact that there was a desire to eliminate certain overlapping work by the two departments, to make it more effective and aimed at resolving the challenges that you just asked about – continued, more effective work to de-monopolise the economy overall.

As for our aspirations in this area, you know that in addition to intensifying the work of these departments, particularly the Federal Anti-Monopoly Service, we also made a corresponding decision at the legislative level to significantly toughen penalties for monopolistic collusion, going as far as criminal penalties, which we never had before in our legal system. We did this in part based on the analysis of work by similar agencies in other countries, including the United States and the United Kingdom.

From the point of view of Russian practice, there is nothing unusual here; after all, the Federal Anti-Monopoly Service and the Federal Tariff Service were formed, I believe, in 2004 on the basis of the Anti-Monopoly Ministry. But after they spent some time working separately, practice showed that ultimately, it is probably better to combine their efforts for higher-quality and more effective work.

Question: Good afternoon, Mr President, my name is Bridgette Radebe, I’m from South Africa. I actually met you the last time you came for the BRICS business summit, we took pictures with our President. I’m the President of the South African Mining Development Association, which is a mining chain in South Africa. And I’m also the co-chair of the Russia-South Africa business forum in BRICS.

My observation within the BRICS context is that we have two very dominant countries in Russia and in China. And the amount of effort that Russia contributed towards the political liberation of the African countries during the colonialist time was very dominant and very fundamental. I feel when we see that the economic dominance is not enshrined and there would potentially be a risk of replacing foreign direct investments from Europe with that of China.

The Chinese are very, very active in the African economy, and would like to see more prominent Russian participation in terms of the oil and gas and minerals. We have created a BRICS bank for infrastructure. It would be very unique to create also a resources bank and maybe go beyond that and look into a BRICS stock exchange. And when you look at a stock exchange and maybe model it or cut into the flow through shares, flow through shares that might translate into tax incentives for those producers in the oil, gas and minerals that are investing in that BRICS stock exchange.

I’m just talking about the paradigm shift beyond what we started, by creating the BRICS infrastructure bank, and we would then like to pursue further interactions beyond that.

You are aware that you have not been sanctioned in BRICS. Africa is an economy of nearly a billion consumers, and we are well endowed with minerals and there are lots of opportunities. So let’s see what we can create beyond what we’ve started in terms of BRICS and would welcome everybody else to participate.

And please be aware of the dominance the Chinese are playing in the African economy. There are Chinese in every country, wherever you go. And we want the Russians to be a little bit – also active, taking into account that you played a very dominant role in our political liberation, and those economic benefits must match the role that you played. Thank you.

Vladimir Putin: Thank you very much. I think there is no need to fear any investments. Investments, if they are developed and accepted by a particular sovereign nation, should work in the interests of the nation where the money is being invested.

And the role of experts from one state or another is only to create rules for these investments that will benefit both investors and the receiving nation. But indeed, your speech is not actually a question but a suggestion on creating a common stock exchange and several other infrastructure-related things.

Of course, all this can be done taking into account that the Infrastructure Investment Bank and the Contingent Reserve Arrangement are starting to work, as I already said and as you just mentioned. We need to develop this at an expert level, so I thank you for your speech and for your suggestion. We will certainly think about it.

Andrei Kostin: One last question from Mr Ravi Ruia – this is a major Rosneft partner, and one of the biggest industrialists in India. This is a major industrial group that includes oil, metals, ports and everything else.

Ravi, please go ahead.

Ravi Ruia: Thank you, Mr Kostin.

Your Excellency, I’m Ravi Ruia from the SR Group in India. We are involved in the oil refining and exploration business, the steel business, the infrastructure business and the power generation business. In the recent past, we have been working very closely with Rosneft. We have now signed a long-term 10-year agreement to buy crude oil from them into India. This will be the first time after several years that India will actually be getting crude from Russia. We have been working closely with VTB Bank, who have supported us in the recent past. In fact, I can tell you that with Rosneft and VTB, today have become very well-known in India because of these transactions.

We are now looking at further investments both ways – both into India by Rosneft and VTB, as well as two-way, from our side, into the Russian economy.

Your Excellency, Russia has always supported India in the time when India needed help, and I think, as you well know, India has always been very grateful for that. And even today, all the political leadership in India continues to maintain the Russia-India – will continue Russia in every possible way.

From our side, the question I have is, other than the political side, how do you really see Russian economic cooperation with India, particularly in the private sector? Because in the recent past, the real investment or real cooperation has been between Russian government entities and Indian government entities. But increasingly, we see a role for Indian private entities and Russian private entities, as well as Russian state-owned enterprises.

We would like to see, what is really the commitment and how interested is Russia in developing this relationship with India in different sectors.

 Vladimir Putin: You know, we would very much like for this enormous, simply colossal political potential of our cooperation that has been built over decades, the huge potential of our mutual trust, I would even say, the great love of our peoples toward one another, to be realised in concrete actions, through concrete economic projects. And the potential of our economic development has clearly not been fully tapped. India is an enormous nation with a large population of over one billion people and naturally, with a rapid, effective emerging market economy.

And yes, until now, we have supported our economic relations, but if they are exceptional, it is largely thanks to the efforts of our two governments. But our goal is for our efforts at the governmental level to act as a trigger to activate work at the level of private companies.

India has a large number of private companies. Right now, many of them are already working in Russia, especially in the pharmaceutical industry, but in others as well. We have many good, large projects, but naturally, we would like to attract private companies to engage in joint work: in Russia, in India, and jointly in third nations. Let’s work together to use all the instruments we have, the interstate commission and the Business Community forum, to find such opportunities and bring them to reality.

Jacob Grapengiesser: My name is Jacob Grapengiesser, from East Capital. I have a couple of questions about Ukraine. First of all, do you think the current ceasefire in Ukraine is stable? Second, will the Minsk Agreements be fulfilled? And third, is there any chance Europe will lift the sanctions against Russia?

Vladimir Putin: Concerning the last question, you’ll have to ask Europe, or those who issue the relevant orders in a slightly different place.

As far as Ukraine is concerned, I already said this and want to say it again: there is no alternative to the Minsk Agreements. But it’s been constantly stated thatRussia should fulfil them – it’s becoming downright awkward. You see, it’s just not serious, it’s not funny, it’s simply awkward.

The most important element that must become thefoundation of the peace settlement in southeast Ukraine is the political process. And what is a political process? It has three to five components.

First, and this is stated in the Minsk Agreements, is amending the Constitution on a permanent basis in agreement with Donetsk and Lugansk. There have been no amendments so far, and whatever has been done at the preliminary stage has not been agreed upon with either Lugansk or Donetsk. At the same time, we are told about Ukrainian domestic policy limitations. However, there are limitations everywhere, but there is also an obligation to fulfil the Minsk Agreements. This does not depend on us; it depends on the United States, Europe and Kiev. Incidentally, this should be done on a permanent basis.

A law on the special status of these territories has been submitted within the transitional provisions. And we are told: this is on a permanent basis. But everyone forgot that this law itself was adopted for only three years – a year has already passed. It is not our role to give this law a permanent status.

Furthermore, they need to adopt a law on amnesty. It’s stated so right in the Minsk Agreements. But we, here in Moscow, cannot adopt a Ukrainian law on amnesty. And how can political dialogue be conducted with people who are under threat of criminal prosecution? Are we supposed to do this? Why are we constantly told that we need to fulfil the Minsk Agreements? Why substitute these concepts and these problems and transfer the responsibility for their resolutions to us? Why is this being done, if we truly want to achieve the fulfilment of the Minsk Agreements and solve the problem on that basis? And that is the only way it can be solved.

Finally, the law on the special status for governing these territories. It says right in the Minsk Agreements: within 30 days after signing, a Rada resolution must be adopted and implemented. Have they done this? Formally, they have. They adopted the Rada decision, but they added Article 10 to the law, without verifying it with Donbass, and the Rada once again postponed the adoption of this law from Article 2 through 9. In other words, they essentially created this ploy. They adopted it, used it formally, but in reality they cancelled it again. Is this our doing? We understand that there are internal political limitations but the Minsk Agreements must nevertheless be fulfilled.

The law on elections. The Minsk Agreements say that the law on local elections must be agreed upon with Donbass. The Rada adopted a law on local elections without any consultations with Donbass, in spite of the fact that Donbass has sent its drafts three times. They were ignored. They adopted a law and stated clearly in that law: local elections will not be held in these territories. Then what did the people living there do? They said, “Okay, then we will hold our own elections.” That’s what happened. Kiev began asking them to delay the elections – all right, they agreed to delay the elections, they wanted to meet them halfway. But now, the efforts to adopt this law must be aligned. It will be a difficult process to find compromises, but it cannot be done otherwise. There are no problems there from our side. In spite of all the domestic policy limitations, this must be done, first and foremost, by our colleagues in Kiev. It needs to be done.

Finally, the economic rehabilitation of territories. There is a full embargo against those territories. They tell us, “Ensure that they allow Ukrainian humanitarian assistance to access those areas.” While Donbass replies to us, “They should lift the embargo, and then no humanitarian assistance will be necessary.” That’s the problem. There are many problems, but the overwhelming majority does not lie in our domain.

Do our colleagues in Europe and the United States see this? I think they do. I also have reason to believe that they see it clearly. But they are uncomfortable saying that the current authorities in Kiev are incapable of resolving it. It’s much easier to blame it on us and tell us to intensify something or other, to triple or increase it six-fold. What should we increase six-fold? We need our partners to fulfil their obligations; the same is true of those who can influence them. We believe that by working together, we will ultimately achieve a positive resolution.

Question: I am from Verno Capital Foundation. My question is about small and medium-sized businesses. Mr Kostin wondered at the previous session whether small and medium-sized businesses should be given loans. They are risky and this could create…

Andrei Kostin: I will repeat exactly what I said. Please do not misquote me.

Question: I am sorry, I may have misunderstood you.

However, the point of my question is whether small and medium-sized businesses will develop in Russia. If we take statistics, currently the contribution of small and medium-sized businesses to the GDP amounts to about 20 percent, I believe. If we take developed countries, in England the figure is 50 percent, in some countries up to 80 percent. When export markets collapse due to certain external factors, the sector that supports the national economy remains. It would be interesting to know what would happen to it.

Thank you.

Vladimir Putin: The answer is obvious, I believe. I think you know the answer. Of course, we are aware of everything you said. The thing is that it has always been underdeveloped here, was not developed at all, the Soviet Union and then the new Russia never had such a sector. We are starting from scratch. Obviously, we need to create new administrative conditions, beginning with the registration of companies and appropriate legal entities, including access to the infrastructure, primarily power supply, to various premises, to investment, the fiscal burden of every kind, including payments to social finds and taxes proper should be reduced.

However, I am sure you know the support system developed by the state very well. We are studying your proposals in close contact with representatives of small and medium-sized businesses in various areas. I will not speak now of special support instruments via Vnesheconombank, of the funds allocated directly from the budget and distributed among small and medium-sized businesses through the regions of the Russian Federation.

This is probably not enough. However, this direct support is not the most important thing. The most important thing is to create proper conditions. We understand this very well too. And we will continue to do everything possible in the present economic situation. Have no doubt about that.

Andrei Kostin: May I make some corrections? I said lending money only makes sense if there is a demand for their product, is they have an opportunity to operate. However, there is no point in simply lending money if there is no demand. If nobody needs their product – why should they be making it?

Vladimir Putin: I believe what our colleague meant was that, despite the lower interest rate, and the average used to be 20 percent, while now it is slightly over 14 percent, this is the average figure, while, naturally, there are both higher and lower rates – for good, traditional borrowers…This is exactly why both the Central Bank and the Government are developing a system of special measures to support small and medium-sized businesses both through the regions and by directly funding existing projects. We need to increase access to project financing, to make sure that the threshold is not too high for investment, so that small and medium-sized businesses can get closer to such sources.

I will repeat that we will continue working closely and persistently with your colleagues, with small and medium-sized business associations.

Vladimir Korobkin: Good afternoon, Mr President, colleagues.

There was a difference of opinions among the participants in the previous session regarding the feasibility of stimulating investment into the oil and gas sector. I would like to hear your opinion, Mr President, specifically within the context of project financing. There has been mention of Government Resolution 1044. As far as we understand, it does not cover projects in our sector. Do you consider it feasible to adopt a similar resolution to stimulate project financing in the oil industry?

Thank you.

Vladimir Putin: You know, this is quite natural, and this should be no secret to you: as soon as prices go down, the consumption of energy resources goes down, and investment into this sector goes down as well. This has always been the case everywhere, and we have the same thing.

A company should envision future market developments and if the prospects are limited, investment is also limited. However, this eventually leads to a situation where promising fields are not commissioned on time, a deficit occurs and the price of energy resources goes up.

I am certain that this will happen this time in the world economy as well. However, this does not mean that we should not support promising national projects and the oil industry. Despite the views of some of our financial authorities, we are thinking about it. They would like to ‘bite’ a piece off you, I am sure you already had some arguments here.

However, it is not true that we would like to limit investment into this sector of the economy. Mr Siluanov [Finance Minister] has explained: the Finance Ministry wants to collect the surplus revenue generated by fluctuations in the national currency exchange rate. However, you may have noticed, and experts, market players know this, that initially we spoke of 600 billion rubles. The Finance Ministry eventually agreed that if we do consider this, the figure should be much lower, and we reached a very modest figure of about 200 billion through the use of various instruments: taxes, duty, etc.

However, I would like to assure you that we are fully aware of the importance of the oil and gas sector for Russia, for the Russian economy. In our attempts to diversify it, to achieve structural change, we will not do it by supressing the sector that is working efficiently.

Thank you all very much. I wish you success.