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Vladimir Putin:

First of all I would like to thank you for the opportunity to meet and talk with you. Our distinguished chairman has said that what matters is that I speak, and not he… Well, it is dialogue that matters. And it is important for the members of our delegation what the chairman says and what those present think. This event should bring mutual benefit.

Let me refer at once to some of the things mentioned by our chairman. First, a dip in our mutual trade. Our chairman referred to the problem of the structure of Russian exports and identified some problems that we consider to be key. They are taxation, customs levies and accounting.

We keep these problems under constant review. For example, bringing our accounting standards in line with international practice is a task we are tackling jointly with the World Bank. But I should note that not all the European countries approach the issue in a way that suits us. Of course one may and perhaps should expect Russia to deal with such issues ahead of other countries, but we all understand the economic realities, including in Europe.

I think we will be able to solve these issues together. Together, because the impulses coming from you are extremely important for us.

I remember one of my first trips to Spain. I met with business people, including the president of the Chupa-Chups company. He was at the wheel of his 1957 Cadillac, and en route he argued with the police. It brought home to me that Spanish businessmen are very energetic, smart and very concrete.

My colleagues and I would like to tell you in a more substantive way what is happening in the Russian economy, how we assess its state and what our economic priorities are.

This year, we expect to exceed the pre-crisis level of the output of goods and services. The devaluation of the ruble has made domestic goods more competitive in the internal and external markets. This generated sustained growth in a number of sectors.

I would like to stress that the jolt administered by the crisis made the Government and the ordinary citizens shed their illusions about an “easy life on credit”.

The Government is shortly to complete the development of a long-term Strategy for Social and Economic Development which should put the country on the road of dynamic and sustained growth. We are determined to make Russia a highly developed and prosperous country in the 21st century.

Russia already demonstrated positive trends last year. For the first time in many years the budget has been implemented on all the main counts.

I want you to make a note of it. You have worked a lot in your country’s economy, you know what a budget deficit is, especially in a country with an unsettled political system. You know what the consequences may be. We have paid much attention to these macroeconomic indicators and we are glad to report that all the budget indicators have been fully met. And starting from 2000 the federal budget has reported a monthly surplus.

The GDP increased by 3.2% last year. By comparison, in 1998 it had dropped by 4.9%. After a prolonged decline, investments in basic assets have resumed growth, most of them coming from the enterprises themselves. And this, in our opinion, is another important element of the current economic situation.

Thanks to a fairly tough monetary policy of the Central Bank, the rate of growth of consumer prices dropped to 36.5% in 1999 as against 84.4% in the previous years. Tax collection and, accordingly, federal budget revenues have grown. Last year, they amounted to 13.5% of the GDP. And in the first quarter of 2000, to 17.6%.

The doubling of the foreign trade surplus, coupled with a noticeable drop in imports, has created a relative stability in the currency market and enabled Russia to fully service its foreign debt.

Let me stress that Russia is paying all its debts fully without any support from the IMF. Our relations with the Fund are developing normally; we do not believe that Russia should constantly seek new loans. We look to the IMF above all as an international advisor and we expect these constructive relations to continue in the future.

We have already launched an active industrial policy and a rehabilitation of the financial system. A balanced budget and a stable exchange rate of the ruble are priorities of our economic policy. But we see all these measures as means to the achievement of the main goal: sustained economic growth and a real improvement of people’s living standards.

Western businessmen usually say that they like the Russian economy, but they like all the rest rather less. And when they say it they smile enigmatically, like some of you are doing now. I can tell you that all the rest is manifestations of the weakness of the state, which is unable to create the conditions it declares it is committed to.

We are fully conscious of this problem. So steps have been taken to strengthen the system of government in the Russian Federation. The main thrust of our actions is to strengthen law and order and develop democracy at all levels – the federal, regional and municipal.

This is not to say that the regions will become less independent. On the contrary, we will continue to develop federalism and local government. But the state must protect the rights of citizens, owners of property and investors throughout the country. It must establish a common economic space and eliminate any illegal and arbitrary behaviour of the regions.

It is our duty to help the ordinary people to overcome apathy and disenchantment.

Indeed now there is a chance to change many things. I think small and medium-sized businesses have more opportunities. Obviously, it is much needed in the production sphere and in the sphere of high technologies.

All this has been made possible by broader economic freedoms, the strengthening of the state and consolidation of democratic principles.

In the economic sphere our key principles at present are as follows:

First. The state no longer interferes in the affairs of business. Its role is to create conditions for an economic upsurge and guarantee the rules that the state offers in the shape of laws. These should be firm and uniform rules for everyone, including for the state itself, which must strictly comply with them.

Second. The strengthening of an independent and effective judiciary.

Third. Consolidation of the whole society. I am sure that many would agree that all the elements of consolidation in Russia are in evidence.

The tax sphere is particularly important. At present, the tax burden on the economy is too heavy. That accounts for wide-spread tax evasion and capital flight abroad.

Right off, I would like to point out that in the West they often confuse two notions: money laundering and capital outflow. Capital outflow is not illegal. It is a fact that we are not particularly happy about because we would like that money to be invested in the Russian economy, but it is taking place in the framework of current laws.

And I propose to make some changes in economic conditions in the tax, customs and banking sectors to prevent further capital flight and bring back the capital that has been exported. Money laundering is a different case. On this matter we will seek the assistance of law enforcement bodies, and strengthen their cooperation with their foreign counterparts.

The State Duma will shortly adopt the second part of the Tax Code, which provides for a cut of tax rates. If all the Government’s proposals are approved, the tax burden will be reduced by 2% of the GDP. That huge sum of money will remain in the economy, which is important for Russia. Naturally, we attach great importance to creating a favourable investment climate.

We are already coming to grips with all these issues. We are bringing our legislative and regulatory framework to international standards. The legal principles have been determined for attracting investments into the oil and gas sector, and the extraction of minerals. The groundwork has been laid for major projects in the automobile industry. A bilateral convention on avoiding double taxation has just come into force. I signed it into law yesterday shortly before I flew to Madrid. Next in line is the completion of a new agreement on encouragement and mutual protection of investments. Intensive negotiations on the issue have long been underway. If you have any questions, the Foreign Minister is ready to answer them.

For Russia, trade and economic cooperation with Spain is an important component of the whole range of bilateral relations. We have already agreed that we cannot be satisfied with the current level of economic ties between our countries. We hope very much that the downward trend in the trade between Russia and Spain will soon be reversed.

It is necessary to form an effective financial and credit mechanism of cooperation, in which an important role devolves on the Inter-Governmental Commission on Economic and Industrial Cooperation between Spain and Russia. The commission will be headed by Viktor Khristenko, who is present here.

Unfortunately, this work has not been regular for a variety of reasons. We will thoroughly prepare the third session of the commission in Moscow next autumn. So we invite all the interested parties to join in the preparation of that session through the Chamber of Foreign Trade.

We expect reciprocal steps from our Spanish partners and the Spanish Government to promote trade and economic ties. Judging from yesterday’s talk with the President of the Government Jose Maria Aznar and King Juan Carlos of Spain, they trust what is happening in the Russian economy. I think this is a good sign, a good starting point for further development of our relations. I believe that in the new conditions the leading business associations in Spain, the Chambers of Trade, and the bilateral Business Cooperation Committee will contribute to this work.

As the members of the Russian delegation can attest that it is hard to imagine the Russian consumer market today without Spanish goods, furniture, footwear and clothes. Things should not be confined to the consumer sphere and trade. There is a great potential for joint production, and what is important is that it exists in advanced, high technology areas, including electronics and aerospace.

In addition, we still think there are prospects for the interaction of businessmen of our countries in the markets of third countries, be they the CIS states or Latin America, Maghreb or the Middle East.

Inter-regional cooperation forms an important part of our trade and economic ties. Today some Russian regions, especially the Non-Black Soil and the Volga regions, are actively cooperating with Spanish partners. Thinking back to last night again, I talked with a Spanish official who works in the Krasnodar Region in the field of agriculture, producing fodders. We welcome and will support the development of such business in Russia.

But in addition to agriculture we have good performance indicators and plans in the field of building diesel engines for Ulyanovsky Plant trucks, car batteries in Samara, modernisation of the Saratov oil refinery, and construction of a factory to produce sportswear and shoes in Bashkortostan. We pin great hopes on railway projects. Spain has an edge on many other countries because our railway tracks have the same gauge. Spain has some good technology that we could use in Russia.

In conclusion, I would like to say that we very much hope that the visit to Spain will provide a strong impetus for more intensive economic relations between our countries, both at the level of small and medium-sized firms and at the level of major projects.

Ladies and gentlemen, thank you very much.