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Vladimir Putin: Ladies and gentlemen,

British business has always been distinguished by its common sense, balanced approach and pragmatism. For our part, we hope that our partners in Britain will stand by these constructive attitudes in future.

Mr Thompson said in his opening address that so far our trade balance has not been favourable to our British partners, and there are probably reasons for that. Today, we are ready to analyse these reasons together, and to look for ways to improve that balance and the general situation in our trade and economic relations, as well as to outline your business opportunities in Russia.

I would like to remind you that sitting at this table are our trade minister, Mikhail Fradkov, minister of fuel and energy, Viktor Kalyuzhny, presidential chief of staff, Alexander Voloshin, and Russian Ambassador to Britain, Grigory Karasin.

Mr Karasin has worked in Britain for a long time and knows this country very well. He used to be one of the most active cabinet members, regularly attending meetings of the government, and now has the opportunity to keep up his contacts with any cabinet member and to promptly address issues arising in the course of our relations. I would like to draw your attention to this and to tell you that Mr Karasin will not only represent Russia in Britain, but will promptly respond to any problems arising in the course of your work in Russia.

I would like to go over to the issue on the table today. To begin with, it is important to bear in mind that the parliamentary and presidential elections in Russia have created a reliable foundation for stable economic development and cooperation between Russia and its foreign partners, cooperation based on a policy of realism and balanced interests. It is an established fact that mutual benefit is the best insurance against conflicts. We know that axiom of British business very well, and hope that the business community of Britain will become an even more reliable and important ally and partner to us.

A few words about the economic situation in Russia. I do not need to say that a new economic system has developed there. Market economy instruments do not just exist, they have been effectively used, including to overcome the effects of the August 1998 financial crisis rather quickly. I want to draw your attention to the fact that Russia’s GDP increased by 3.2% last year. The highest growth was registered in the chemical and petrochemical sector, light industry, timber processing, and engineering. The increment in those sectors, from 16% to 21%, is considerable for Russia and the global economy. At the same time, inflation went down by 50%.

The results of the first quarter of 2000 reaffirmed this positive change. Inflation has gone down from 8.4% in January 1999 to 0.6% in March 2000. Economic growth has become an undeniable reality in Russia. Investment in fixed capital grew by 4.5% in January, 8% in February, and by approximately the same amount in March.

These are real growth rates, and they are impressive. But we are not satisfied with what we have achieved. During a meeting in New Zealand several months ago, I had an opportunity to talk with that country’s leaders. The growth rate is higher there, from 2.5% to 8% on average, but a GDP growth of 3.5% at this stage is a good figure for Russia. Most importantly, this is a real, not a fictitious figure.

We intend to continue working energetically. The new government will set only attainable goals. In our view, to make promises that cannot be kept is the worst policy. Words don't pay the bills, as you say in Britain. Therefore, we will try to do everything in real terms, in real figures and real indicators.

Despite huge payments for the servicing of state debt, we plan to pass and fulfil budgets with an initial surplus. I would like to stress that Russia has always fulfilled, and intends to continue fulfilling, its obligations to foreign investors, both private and state. But we also know that a deficit-free budget and rouble stabilisation cannot be the end goal of an economic policy. Although highly effective, they are only means of ensuring stable economic growth. This is what we will be trying to achieve.

We have said more than once that the government’s actions in this new period of Russian history will be based on several key principles.

First, the state must not control business. On the contrary, we will do our best to remove red tape and give the economy more freedom. We will not only try to implement the principles of a market economy, but will also work hard to continue liberalising it.

Second, we should introduce firm and equal rules for all levels of business. The state should not only formulate such rules, but also respect them without fail. I realise that this may sound a bit vague, but it must be said.

Third, along with firm rules, Russia also needs an independent and effective judicial system. I am referring to courts of general jurisdiction and arbitration. We intend to step up our efforts in this sphere too.

And lastly, Russia not only has a new president and will have a new government; it also has many pragmatic people ready for constructive work with the executive branch. This is a logical result of a consistent policy of consolidating society for the attainment of clearly defined practical goals.

I would like to focus your attention on that fact, because the people, including those who are dealing with Russia as professionals, believe that quite a few problems involving capital flight and economic instability were largely rooted in the political instability of the past few years. In view of the consolidation I was speaking about before, we can say that this problem, one of the biggest in Russia, is being successfully overcome.

A few words about economic problems that have caused a lot of concern both in Russia and among our foreign partners. One of them is the huge tax burden. I am not going to dwell on theory here, as all of you are aware that this problem is connected with our increased financial commitments. This is a philosophy we will be changing gradually. We intend to pay more attention to low-income groups, provide assistance to the people, and ensure that social assistance reaches its intended recipient. At the same time, we will try to remove all bureaucratic obstacles for the economy. This is the essence of the liberal policy I mentioned before.

The tax burden on the real economy sector is now extremely heavy. We know that this is the root cause of tax evasion schemes and the flight of capital from Russia. We are working to solve this problem: the second part of the tax code, which stipulates tax rates and easing the tax burden, will be debated at the second reading in June. We know that the solution of this problem is crucial for improving the investment climate.

But the main goal is to find internal areas for growth, although the issue of foreign investment is a major factor of Russia’s integration in the global economy. We can restore investors’ trust only by easing the fiscal burden on the Russian economy, and by steering towards a fundamentally new investment climate. We intend to work towards that goal. We are already working hard to convince Russian capital to return home.

This is one of the problems to which I would like to draw your attention. Russian capital is returning home slowly, often in the form of investment from offshore zones. We will also focus on them. However, I view this as an important signal for foreign investors. I believe that as we complete drafting amendments to the legislation, we will see a major inflow of investment, and this could happen soon.

Russia has a special legislation covering investment, including firm legal foundations for attracting investment in the oil and gas sector and in the production of mineral resources. The lower house of Russia’s parliament is reviewing agreements signed with Russian and foreign investors that limit foreign investment in Russia. The federal laws on value added tax, on customs tariffs and corporate profits grant a number of privileges to foreign investors. There are also local laws designed to encourage foreign investment, as well as plans to introduce the post of ombudsmen, who will help to solve investors’ problems.

It is also important to say here that we are opposed to re-distribution of property. I have more than once expressed my view on this issue publicly. Despite the resistance of our left-wing opponents, I have said so even during the election campaign. A consistent protection of owners’ rights in Russia is a basic and irreversible principle of our policy. In particular, we will soon rule out the procedure of “fake” bankruptcies. Unfortunately, this procedure is often used as a pretext for replacing owners.

So, quite a lot has been done to redirect global investment flows towards Russia. We are open to constructive criticism and proposals, and I hope to hear some from you today.

We expect that a more detailed discussion of this issue will be held in London soon, at an international conference and business forum, Russia 2000: A New Reality.

Britain is one of the four largest foreign investors in Russia. Objects of British investment are located all over Russia, from St Petersburg to Sakhalin. We are determined to build on that success, which I consider a positive achievement.

Our investment portfolio includes 31 projects, and we would like to invite Britain to take part in them. Some of these proposals were submitted to the British prime minister during his visit to Russia, when we met in St Petersburg. They concern aerospace equipment, shipbuilding, and transport vehicles.

Our plans include the development of Russian-British cooperation in trade and the economy, which we will once again discuss with the prime minister later today. We have developed close contacts over the past ten years. Russia’s State Register includes more than 900 organisations set up with the assistance of British companies. Of these, more than 40% are enterprises with 100% British capital, and 483 are local offices of British companies.

However, I must also say that our business partnership has been stagnating since the mid-1990s. This runs contrary to global economic tendencies and elementary common sense, despite Russia’s recent problems.

In our opinion, the outlook for developing bilateral relations is very good. We see this in the growth of the share of finished products and technology-intensive goods in Russian exports to Britain, and in imports of industrial and other equipment to Russia. We are ready to negotiate the renewal of the British credit line for financing British investment projects in Russia. We also hope to be able to buy modern technologies in Britain.

I also believe we should step up the work of the intergovernmental committee on trade and investment. Its productivity has been going down recently. It can and must become the driver of Russian-British business cooperation.

I know that you have questions on many aspects of the Russian economy. I am sure you will want to hear about the future of the gas sector, our plans for attracting global leaders in high technologies to Russia, and our work on protecting intellectual property rights. If you would like to ask these questions now, the cabinet members present here will study them and provide replies soon, if not immediately.

Ladies and gentlemen,

Russia is no longer an abridged map of the Soviet Union, but an independent, self-sufficient state that is becoming more confident by the day.

Our confidence is based not only on our experience of reforms, but also on the mistakes we have made. We are aware of them, we admit them, and we are trying to draw firm conclusions from them. In the past years, we have learned to distinguish between real opportunities and virtual ones. And we have at last accepted the predominance of domestic goals over external effects. This is why the Russian leadership is working hard now to streamline and develop internal economic processes. One of the basic goals of this policy is to become a pole of attraction for Russian investors and respected business circles in other countries, including, of course, the business community of Britain.

We know very well that such an attraction cannot develop of itself. It can be achieved only through impressive economic results, a clear policy and openness to the world. It can be achieved through a clear understanding of the complexity of the tasks and goals facing the country. At the same time, our achievements likewise depend on the objectivity, trust and patience of all those whom we have good reasons to regard as our partners. I would like to address these words to you: our achievements depend on our common determination to promote dialogue and our rejection of the detrimental policy of isolation.

The large-scale changes that have taken place in Russia in the past ten years speak volumes and are more important than empty words and slogans.

I would like to say in conclusion that members of the British government have said on many occasions that they want Russia to be a priority of your economic policy. We have a similar perception and a similar determination to develop our cooperation. Today I would like to ask you to support this determination, because our governments’ plans and intentions will be fruitless unless our business communities decide that they are beneficial and should be fulfilled.

Good deeds are better than fine words. I hope that at the beginning of the new century you will demonstrate traditional British foresight, which I mentioned at the beginning of this speech, and will use the huge opportunities offered by the new Russia to your advantage and to the benefit of our peoples.

We have an optimistic view of the positive changes underway in our bilateral relations thanks to the efforts of the British prime minister. We have the same noble goals of national progress and prosperity, and we will continue to modernise the Russian economy in the spirit of free enterprise, democratic development, and openness in the integrated global economy.

We will be happy to reply to your questions during our discussion today, and we will do our best to give comprehensive answers.

Thank you.