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Discussion centred, in particular, on measures to improve inter-budgetary relations.

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Excerpts from transcript of State Council Presidium meeting

President of Russia Dmitry Medvedev: Today’s State Council Presidium meeting addresses a subject very relevant for all of us – raising the regions’ role in governing and modernising the country.

I am talking about planning for the future, building an innovative economy, creating a modern infrastructure, and developing our public institutions and human potential, of course — in short, all of the big development issues facing our country’s regions today. I will start by outlining a few key points.

First, a principle at once very simple but also very complex, is that our country’s and economy’s modernisation cannot proceed from the centre but must be underpinned by people’s activeness throughout the country and by local initiatives, otherwise we will not achieve our goals.

It is the regions and not Moscow that determine the investment climate and the shape of our transport, engineering, and social infrastructures. It is ineffective to look at improving the investment climate only in terms of decisions implemented in Moscow alone. 

”Our country’s and economy’s modernisation cannot proceed from the centre but must be underpinned by people’s activeness throughout the country and by local initiatives, otherwise we will not achieve our goals.“

But at the same time, the situation differs from one region to another. There are regions that are attractive to investors, not so much through the resources they possess as through the policies the regional authorities implement. And then there are regions that, while they have potential, do not look so appealing in investment terms.

We need to organise our work keeping in mind this reality of a country in which the regions really do differ considerably in terms of economic development, pace of modernisation, and people’s living standards. Ultimately, the regional governors are responsible for building good business and social climates in their regions. It is they who coordinate the authorities’ work at the regional and inter-agency levels, and of course it is only right and proper that they should have all of the instruments they need in their work, while at the same time taking real responsibility for successfully pursuing their regions’ modernisation.

Second is an issue that I want to place squarely and directly before you, namely, a shift in distribution of budget money in favour of the regions and municipalities. I completely agree with you and with the municipal heads that we need a clear and transparent financial incentive system. We need to introduce these financial incentives above all through the system of inter-budgetary relations, while continuing the work to delimit powers between the different branches of state power. 

I also want to draw to your attention that development resources must be very clearly regulated. The money allocated from budgets at all levels for the different programmes and projects must be pegged to concrete results. The times demand this: what we need are results that can be judged by specific concrete, and not formal, criteria. These criteria must be clear to all parties concerned. 

Third, the regional authorities need to think in terms of growth, rather than survival. We were busy trying to survive in the 1990s, but what we need now are growth and development, and we therefore need to establish modernisation hubs based not so much on natural resources as on human and production resources, science and technology, and education potential. 

The big cities should become the focal point for agglomerations that will take shape, advancing the regional economies and narrowing the gaps in our people’s living standards. No matter where they live, our people must have access to social protection, medical care, quality education, and all the benefits of modern civilisation.

”We need to establish modernisation hubs based not so much on natural resources as on human and production resources, science and technology, and education potential.“

Of course, we need to develop growth centres not just in European Russia, the Volga region and the Urals, but also in the Southern and Siberian federal districts, and in the Far East, where we are working today. I want to hear your ideas here.

Fourth, the individual regions’ development strategies must be drawn up in close coordination with the overall federal strategy. This work must take into account development prospects for territorial clusters and municipalities. It goes without saying that we cannot afford to plan only for the present moment or even the coming three years, but must focus on putting together and carrying out long-term programmes and projects and developing our regional planning system.

The cluster approach is viewed as being a particularly effective means of achieving regional economic and social development. It makes regional economies more competitive and brings in new knowledge and people, thus boosting to the region’s skills and capabilities. I therefore instruct you to select territorial cluster pilot projects and draw up the support mechanisms they will need, including support from the state development institutions. 

We need to look at the current situation too. In this respect, I want to inform you that on November 4, following a complex approval procedure, the Government, acting on my instructions, took much-needed decisions on price formation in the electricity sector, in accordance with which electricity tariffs for small and medium-sized businesses will not now be allowed to exceed the inflation level. The distortions that enabled suppliers to manipulate prices and left consumers facing losses – issues we discussed on past occasions — have now been eliminated. 

Coming now to the final point, we need to put in place particular incentives for the country’s eastern regions. These regions are our gates to Asia and the Pacific and the conditions of life here, the business and investment climate, should be such as to foster our integration into the global markets of the Asian region. We therefore must modernise the infrastructure, modernise the transport infrastructure and make it more accessible for people. It is this infrastructure that unites the regions into a single whole after all.

”The country’s eastern regions are our gates to Asia and the Pacific and the conditions of life here, the business and investment climate, should be such as to foster our integration into the global markets of the Asian region.“

Building high-speed railways, roads, and developing local airlines is all very important, but sadly, these sectors are in a lamentable state. We realise that these are not just economic projects but have a social dimension too. They have an impact on labour mobility, on changing the country’s population patterns and movements, on business organisation, and to put it simply, these transport arteries are as vital as the air we breathe.

Work is going full steam ahead on preparations for the 2012 APEC summit in Vladivostok, but, turning now to the heads of the Far East regions and the plenipotentiary presidential envoy, I do not want to see the work stop here. This event and its preparations act as a development driver, a financial and even moral driver, but the work must continue. You cannot sit back complacently after the event and think that all is well now, the summit has taken place, the roads built, Vladivostok has a new sewerage system, and now you can relax.

Do not forget that the Far East is not just Vladivostok, and do not forget either that not everything can be done in time for the APEC summit. We therefore want to see the active work continue, including as regards building mutually advantageous relations with neighbouring countries. We need big projects that will develop the region’s infrastructure. We can discuss the list of these projects. I hope for your active participation.

We need to get neighbouring countries involved in these projects, convince them of the interest these projects have for them too, make them see that they will not lose money by taking part, but will gain new opportunities and advantages. I stress too that the APEC summit is just the start of the road towards building a competitive Russian development hub in the Asia-Pacific region.

Let’s begin work.

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At first glance, decentralisation and delimitation of powers seem to be administrative issues that concern the federal government, the regional governors, and the municipalities. But in fact, these issues concern above all the lives of the regions and their people and have a big impact in general.

As you know, I have entrusted this work to two groups set up by the Government and headed by two deputy prime ministers, Dmitry Kozak and Alexander Khloponin. Representatives of the regional governors and municipalities are taking part in these groups’ work. But perhaps the time has come to get everyone more actively involved in this work, consult with civil society representatives too, talk with all of the different parties concerned, so as to ensure that these powers are organised more competently and effectively. 

This is all in the natural run of things. You could say, really, that every 7–10 years or so we need to come back to this question as life changes, the situation changes, new revenue sources emerge and old problems get resolved. This makes it essential for the state authorities to come back to this matter from time to time.

Let’s take it as settled then that, starting from today, we will intensify the consultations underway on this issue, and I invite all of you to take part.

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Russia is a country that will always have a need for the kind of big projects that act as growth engines, if only because our infrastructure is still poorly developed in twenty-first century terms. We therefore need to reflect on the growth engines that will drive infrastructure development in the Far East after 2012.

I want you to discuss this with the experts, the governors, and the Government. This includes the project to build a bridge to Sakhalin Island. This is a very ambitious project of course. It has a geopolitical dimension, a symbol of belonging and sovereignty, but more important than that, it would make life easier for a huge number of people. I am not anticipating any decisions though, but am simply proposing that we reflect on the subject.

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This is a useful discussion in that these issues concern all of the regional governors and municipal heads, and the federal government too of course. I am referring to the question of decentralisation, tax incentives, regional development incentives in general, and efforts to raise the regions’ role in economic modernisation. 

I want to note the points that seem to me of interest and have them reflected in the decisions we reach, in addition to the instructions to be drafted following this meeting. This concerns use of the National Welfare Fund’s reserves, and provision of state guarantees, which some of you raised in your speeches. I think these are fitting issues to examine in terms of making more active use of these instruments that we have at our disposal.

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Each of you, when you receive the mandate to govern your region from the president and regional legislative assembly, must have a clear idea of what you will do, and what your priorities will be for your given term in office. If you are successful in your work, your mandate will be extended and you can put together the programme for your next term in office. This kind of planning is essential because otherwise it is hard to know on what basis to evaluate governors’ performance.

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It is my big hope that all of you, the regional governors and the government leaders, pay attention to proposals coming from ordinary people, because they often contain a good number of sensible ideas. By ordinary people I mean everyone: public sector workers, businesspeople, everyone and anyone interested in their region’s development. This is work in which you must not allow yourselves to drift away from the concerns and needs of the people who have entrusted you with government.