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Vladimir Putin: Ladies and gentlemen,

Meeting with the leaders of the Japanese business community is invariably of great interest to the head of any country, and we believe this to be an inseparable and very important part of our visit to Japan. I am speaking on behalf of all the members of the Russian delegation.

To us Japan is a strategic partner, and not only in the Asia-Pacific region, but in the world as a whole. This was highlighted by yesterday’s talks with the Japanese Prime Minister. This is borne out by the agreements we have achieved together with my colleague, Mr Mori. Besides, I hope I am right in saying that we have become good friends with Yoshiro Mori, which, as you know, is a good basis for bilateral relations.

The time is auspicious for expanding cooperation and reactivating the whole range of bilateral ties, not least, of course, trade and economic ties. We attach great significance to it. And of course we are interested in it. But I must tell you that we are not going to play it up, we believe the interest is reciprocal and mutual. We can and must complement each other. Both Russia and Japan stand to gain from it.

A warming of the political climate always provides a good basis for closer business ties. But in addition, there is a new and very tangible factor. I mean the process of Russian economic recovery, which is gathering momentum. Our economic performance today is better than at any time since the start of the reforms. The gross domestic product increased by 3.2% in 1999 and by 7.3% in the first half of 2000.

We have gathered here for breakfast, but I would make so bold as to distract your attention by citing certain figures that I think are important for an insight into the situation in which we are today.

Industrial output in Russia during this period increased by 8% and 10.3% respectively. The structure of industry has improved. The share of manufacturing has increased and that of fuel and energy diminished. We have managed to reduce the tax burden on industry, to curb the growth of prices for the products of natural monopolies and to rehabilitate the banking system. Today the rate of inflation is very moderate, even by comparison with developed countries. Tax budget revenues are growing, and we have a foreign trade surplus. It has to be said that it is a very strong indicator by Russian standards. Direct investment in the Russian economy is growing.

These indicators cannot be attributed solely to favourable external conditions and foreign markets. Having said that, we are aware that it is a positive factor for us. We have managed to introduce some measures that gave a push to the growth of the Russian economy. We have developed a long-term social and economic strategy for a period up to 2010, which envisages profound structural reform, and I would like to stress that. On that, we have worked together and intend to continue to cooperate with the World Bank. I mean the development of framework legislation to guarantee property rights, effectively reduce the tax burden on manufacturers and create a favourable business climate. I am also referring to financial stability by harmonising the commitments of the state with its resources. All that should take Russia to a qualitatively new level of development.

The Government is to play a key role in fine-tuning all the Government institutions that ensure the operation of the market. So, purely economic measures will be combined – are already combined – with the work to strengthen the mechanisms of state power, federal relations, and the judiciary, to create a single legal space throughout the country, to combat corruption and arbitrary rule by the bureaucrats.

I would like to note the analysis carried out by Japanese experts, an analysis of the situation on the ground in the Russian economy, an analysis of the Russian realities. It pinpoints many problems which by and large we are aware of. They include the problems in the banking system, erratic energy supplies, defective communications and so on.

But the problem the Japanese experts put at the top of the list was different: businesses in Russia have long suffered from neglect of the laws in Russia. Not only from the fact that there is a lack of necessary legislation, but that the laws that are in place are often violated. They named it as the most acute problem. And I think that the Japanese experts are right. This is a key problem. But I would like you to know that much of the effort of the Russian leadership is aimed at overcoming that particular drawback. This is the objective of the reform of the upper house of the Russian Parliament and a range of measures aimed at strengthening the court system. This is what we mean when we set the task of creating a single legal space.

It is notable that for the first time in many years there is a considerable degree of consensus and harmony in Russian society on these cardinal issues. To the extent, of course, that it is possible in a democratic society, where there is always a plurality of opinions.

I would like you to note that the Russian delegation this time includes many representatives of the heads of regions. Among them is the Presidential Envoy to the Far Eastern Federal District. We have created districts in order to harmonise Russian legislation and ensure its uniform enforcement throughout Russia. The federal authorities and the regional leaders are fully aware of their responsibility for solving that task, they understand that solving that task will further the interests both of the federal Government, the regional governments and the whole country. And that provides a good basis for tackling the problems identified in the analysis and recommendations presented by the Japanese experts.

The same end will be served by improved interaction between the executive and legislative branches. The State Duma and the Government agree on an absolute majority of issues related to state building and economic development. So one can look forward to an early adoption of laws and regulatory acts required for successful work of investors. But still, it will take some time and effort.

This is just to impress upon you that we are resolved on following that path…

…Last week, the Government forwarded to the State Duma a draft federal budget for the following year. It is a balanced budget. For the first time we are planning to live within our means, without resorting to loans. Formerly we needed them mainly to correct the imbalances of budgetary policy. Today we rely increasingly on our own resources and potential. That marks a great step forward for Russia.

Now a few words about the servicing and repayment of our foreign debt. In my opinion, it speaks volumes about the state of the economy and the Government’s intensions. In order to repay debts we need sustained growth. As I have said, this is our priority task, but it is impossible to achieve it without a mutually acceptable restructuring of the debt. All we want is a fair deal, I emphasise, nothing but a fair deal to enable us to meet our commitments and at the same time to develop our economy.

The new Russia has not only assumed all the debt obligations, but it is regularly meeting these obligations, including those the Soviet Union had refused to meet. I am referring to the debts of tsarist Russia. We have practically paid them off. And recently we have been repaying our debts without real external support. Other than good advice – which we appreciate – we have not received real financial assistance recently, and yet we have been regularly and fully paying off our debts.

Now let us go over to the topic of Russian-Japanese trade and economic relations. Total Japanese investments in the Russian economy so far account for a mere 1% of foreign investments. This puts Japan in 13th place among the countries investing in the Russian market. And it is in 14th place in terms of direct investments. I think that even with due account of all the problems we know about and which I have just indicated, it is a very modest indicator which falls short of the potential of Russia and Japan. The inter-governmental agreement on encouraging and protecting capital investments passed in May this year laid a solid foundation for our investment cooperation.

I think it is necessary to continue the study of the issue of creating a joint investment company. We are ready to resume a substantive dialogue with the Japanese Government on that subject. I know the widespread opinion in Japan is that Russia sometimes treats Japanese investors unfairly. We are ready not only to look into this, but to solidly protect the interests of all investors – whether they are Japanese or Russian. If this is to happen, the work of the judiciary should be dramatically improved, the judiciary system should be strengthened, and we will persistently seek to do it. We will carefully examine every case on its merits – even if it is just a small joint project – and achieve a just settlement of arising disputes through arbitration courts.

In our opinion, it would be useful if Japanese businessmen also shed some of the old cliches regarding Russia and worked in our market more aggressively. For example, we have every opportunity for active strategic cooperation in the field of energy. I am referring to the establishment of bilateral cooperation in addressing the key task of providing energy and fuel to the APR countries.

I am talking about the use of the potential of oil and gas fields in Eastern Russia, above all successful implementation of the Sakhalin projects. Of course, we may recall that they have long been signed, but many of them are moving very slowly. I have just visited Sakhalin and I addressed an international conference on that issue there. We should choose projects very carefully, we should not drag our feet, but nor should we be in a hurry. It is necessary to create good and well-designed legal conditions.

What happened in Sakhalin? For real work to start letters had to be exchanged with corresponding statements. In these statements the parties were to acknowledge that Russian legislation in this domain has been balanced and harmonised. They exchanged such notices and tried to start work without waiting for any harmonisation. That created chaos, confusion and led to mutual grievances. That is not the way to proceed.

We count on Japanese business joining other energy development projects on Russian territory. The idea of creating an energy bridge between Russia and Japan appears to be interesting and promising. We should also study the possibility of building nuclear power plants in the Far East, part of whose energy would go to Japan.

Cooperation on global warming is relevant and meets our interests. We are studying the Japanese proposals on pilot projects in exchange for greenhouse emission quotas. Japan may in future become a key partner for Russia in the context of its long-term environmental and energy policy.

Along with energy, transport is a highly promising sphere. First of all, there is the joint use of the Trans-Siberian Railway, which can be the basis for the creation of a transport infrastructure linking the Far East to Europe via Russia. Tunnels can be built to link Sakhalin and Hokkaido with mainland Russia. I know the idea is being discussed in the Japanese business circles, and it is very interesting and promising. Its implementation would bring a dramatic change not only to the economic relations between Russia and Japan, but to the economic potential of our countries. Without any doubt, it would give us a big edge in the competition in the world and would make Japan totally independent in terms of resources while Russia can get a real opportunity to develop the resources it possesses.

Real opportunities have emerged for cooperation in science and high technologies. This was highlighted by the success of the forum “Russia-Japan: Advanced Science Technologies” held in Japan in June of this year. The most promising areas are nuclear energy and the environment, as well as space, medicine, etc.

Speaking about new fields to conquer, we should not forget the traditional areas which have for many years been the “signature” of our business ties. Trade would get a boost if Russian commodity exports become more effective, especially timber and sawn timber, coal and non-ferrous metals. At the same time, we should move on from the export of commodities to the export of products with higher added value.

Good prospects of business cooperation are opening up. It would be unfortunate if we missed that chance. And, conversely, it would be right if we used it for the benefit of both countries. The Prime Minister of Japan and I have laid down the guidelines of a new economic cooperation programme which will build on and greatly expand the Yeltsin-Hashimoto plan. Russian-Japanese trade relations need serious support not only of governments, but of the business communities in our countries. So, a lot depends on you.

It was with this in mind that I have invited Mr Imai to visit Russia as the head of the mission of the Japanese Economic Association. I am grateful to him for accepting the invitation and I hope the trip will take place soon and will strengthen our ties.

We also pin great hopes on the next joint meeting of the Russian-Japanese and Japanese-Russian economic cooperation committees to be held in October this year. Needless to say, the Government structures, above all the Russian-Japanese trade and economic inter-governmental commission, need to be more active. Before this year is out, it should hold its regular session and a meeting of the sub-commission on economic cooperation with the Russian Far East. An agreement to the effect was reached by the co-chairs of the commission in Tokyo on September 1.

For our part it is our task to remove all the obstacles in the way of the development of trade and economic relations. I would single out the implementation of some projects connected with the credit lines of the Japanese Bank for International Cooperation, which have been on hold far too long. The fact that these projects have been marking time is indicative. We will look into all the causes of this state of affairs and we should draw our conclusions together. I am convinced that in this case too the main problem is that the preliminary terms have not been sufficiently well formulated.

In conclusion, I would like to stress that Japanese business initiatives will be met in Russia with great interest and will enjoy support. I would like to wish you success on that path and I thank you for your attention.