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Vladimir Putin: Mr Mayor,

Ladies and gentlemen,

First of all, I would like to tell you that I appreciate the opportunity to meet with you in Milan, an Italian business centre. I look forward to a frank and interesting conversation on how to make our cooperation as effective as possible.

Let me begin by sharing my impressions of the talks with the Italian leaders. I am satisfied with the exchange of opinions that we have had. Both sides have demonstrated their commitment to real partnership, more profound and more diverse. And it is unthinkable without effective economic interaction. Intertwining of mutual interests is the best way to reach agreement. I think this was what the patriarch of Italian politics, Julio Andreotti, used to say.

The Italian business acted as the trailblazer in relations with Russia. The enterprising spirit and, most importantly, the foresight of our Italian partners have already played a positive role in the cooperation between our countries. We should now identify the focal points of our further actions and outline more clearly the prospects for your business in Russia.

Italy is Russia’s second biggest trading partner in Europe. But it ranks only seventh among the foreign investors in Russia. I am sure that the level of investment cooperation still falls short of your potential and the potential of the Russian market. We hope that the implementation of such projects as the Blue Stream, the production of FIAT cars in Nizhny Novgorod, the building of a new-generation Russian-Italian training plane and some other projects will bring in new partners and investors.

There is a huge and still untapped potential for Russian-Italian cooperation in other areas: in the power industry, space, in the sphere of high technologies, transport and environment.

Present in this room are important businessmen who have worked in Russia for decades. And I am sure that you are closely following the dynamics of the economic situation in our country.

In recent years a new economic system has been established in Russia. The market economy instruments do not just exist, they work and prove to be effective.

I think you are aware of the positive trends in our economy. Last year, the Gross Domestic Product increased by a substantial margin of 3.2%. Industrial output grew by 10% in the first four months of the year compared with January-April of 1999. The rate of inflation is steadily going down: from the beginning of the year prices have risen by just 5%. This is the best performance since the start of reforms. Barter is gradually giving way to normal trade. The dynamics of investments in basic assets have improved.

I don’t want to bore you with figures. Let me just say that this year the federal budget reported a profit for the first time. Budgetary commitments are being fully met. The once acute problem of fiscal imbalance has been solved. The Government no longer has to resort to massive borrowing.

A balanced budget is a key means of ensuring stable economic growth, which has already become a reality in Russia. It means, among other things, that we keep our commitments to foreign investors, both private and government. So, ever broader business circles in Russia take an optimistic view of the prospects of Russia’s development.

I believe that you are interested to know what our economic strategy is and what principles the Russian Government will follow in implementing it.

I think the following points need to be stressed. The political stabilisation, which has begun in Russia, has created objective prerequisites for sustained economic development. Hence, for cooperation with foreign partners. Most importantly, it enables us to work with a long-term perspective in mind. To work confidently and calmly.

We intend to be guided by the spirit of pragmatism and to do everything for real, deal with real figures and real indicators.

Our actions will be aimed at making the economy less bureaucratic and more liberal and, also very important, more responsible. We will set clear and uniform rules for all the levels of business and demand exact compliance with them.

We will move vigorously to create a truly independent judiciary system. I mean both general jurisdiction courts and the system of arbitration courts. And we would like to complement that system with a mechanism of out-of-court settlement of disputes.

We are already coming to grips with the vital task of making the government structure effective. The State Duma is debating a package of laws to strengthen the vertical power structure.

The main aim of our initiatives is to ensure that the rights of citizens are equally respected throughout the country and to form a common legal space. That means not only uniform application of federal laws in the regions, but strict correspondence of newly passed regional legislation with the Constitution. I would like to stress that point because without such measures it is impossible to restore elementary order or to create uniform and transparent rules of the game, or to ensure equal access of business entities to resources.

One of our priorities is to reduce the excessive tax burden. We will tackle that task along with reducing excessive obligations of the state. We will concentrate our efforts, on the one hand, on targeted assistance to poor strata of the population, and on the other hand, on having taxes that would enable the real sector of the economy, its main industries, to develop normally.

We expect that the second part of the Tax Code will be adopted soon. Which means that we will be able to set the rates of taxes and duties that would make things easier for the enterprises operating in Russia. Including your enterprises. We are well aware that diminishing the fiscal character of our economy is a key to improving the investment climate. And we see the attraction of foreign investments as a key factor in integrating Russia into the world economy.

Let me stress our fundamental position: protection of property rights in Russia is the basic and irreversible principle of our policy. We intend to put a legislative barrier to the use of various procedures and schemes as a cover for the change of owner.

Another point is important for our foreign partners. We have recently seen Russian capital returning from abroad. So far it takes place in a way that is not very noticeable, often in the shape of investments from offshore zones. If we improve the investment climate, the flight of capital will diminish and it will start returning sooner.

We are working on laws on concession agreements between Russian and foreign investors, on bans and restrictions on foreign investments in the Russian Federation. We are confident that once this work is completed, the inflow of investment will increase noticeably.

Poverty remains a serious political and social problem. Fighting poverty also has an economic dimension to it. We will start the engines of internal demand. For this is one factor that ensures the growth of national economy. We have already achieved some results. The real incomes have increased by more than 8% since the start of the year, according to tentative data. And real wages have exceeded those in the same period last year by about a quarter. The growth of solvent demand is a serious benchmark of our economic policy.

Restructuring the Russian banking system as one of the pillars of the investment process is an important task. We spoke about it in detail at the last meeting of the Advisory Council on Foreign Investments under the Russian Prime Minister in March. By the way, two Italian business representatives are members of the Council – FIAT and the FATA group, part of the Finmeccanica concern.

Our aim is to revive the mechanism whereby enterprises raise money for investment, to recreate the infrastructure for secure savings by households. The banking system should address the task of financing the real sector. I am sure prospects exist for cooperation with Italian financial and credit organisations.

Finally, the question of small and medium-sized enterprises. I am aware that small and medium enterprises are the underpinning of Italy’s economic power. By the way, you have very good experience in energy saving. And this is a priority for making the Russian economy more effective and healthy, a key factor in ensuring that it is competitive. We have yet to tap our potential. The Italian experience has confirmed that the creation of small enterprises does not require large-scale investments. All that is necessary is to simplify the procedure of setting them up and the conditions of their functioning, crediting, taxation, accounting and reporting. We intend to pursue this work.

Ladies and gentlemen,

In conclusion, I would like to note that in recent years we have learned to distinguish between real and imagined opportunities. We have acknowledged that internal tasks take precedence over external ones. We see the economic resurgence of Russia as our key priority. One of the main goals is to become attractive both for domestic investors and for authoritative business communities in the world, and the Italian business community is certainly among them.

In the beginning of my speech I said that the political leaders both of Russia and Italy are ready to support and stimulate the increase of economic ties between our countries. To this end we will make active use of the Russian-Italian Council for Economic, Industrial and Monetary Cooperation. It will have its regular session in Rome in June. I think the Enterprise Committee operating under the Council will step up its work too.

Now I invite you to express your opinion about the prospects of cooperation with Russian partners, to share your ideas and proposals.

Thank you.