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Yekaterina Andreyeva: So, the first question, Mr President. What has this year been like?

Vladimir Putin: We held a national population census for the first time since the late 1980s. At the time of the census the population, according to the documents, was supposed to be 143 million.

Of course, considering the complicated demographic processes, the birth rate and the mortality rate, it was hard to predict the results of the census with any degree of certainty. The final results have yet to be assessed, but experts are already sure that the figure will not drop below 145 million.

It can safely be said that there are 145 million of us. And of course, the legitimate question that you have asked arises: how have we lived? How have the 145 million people and the country lived in 2002?

I think that even the smallest and most prosperous country can hardly boast that all its citizens have lived happily and comfortably throughout the year. And this is of course true of such a huge and controversial country as Russia which is at a turning point in its development.

Our life has been chequered: there have been many problems, some caused by natural disasters. You know that there were problems connected with social issues, connected with crime and terrorism in the Far East, Siberia and in the south of the country.

Memories will linger of the tragedy involving the hostage taking at Dubrovka Theatre Centre in downtown Moscow, and of course, the people who have lost their loved ones as a result of that terrorist attack will keep these bitter memories for life.

Nevertheless, in spite of all the complexities and problems, the country has been developing quite vigorously. The judicial system has grown stronger and the economy has developed.

We have exceeded the targets we set early in the year. Thus, we had planned that the economy would grow by 3.5%. It can safely be said that we will reach the 4% mark, perhaps a little more. We had planned that the real incomes of the population would grow by 6.5%. Actually they will grow by 8.5%. Wages due and payable will grow by over 36%, by 36.7%. Pensions will grow by a little over 35% considering that inflation will amount to 15%. That is a little more than the target of 14%, but much less than last year. Last year it was 18.6%. Unemployment has fallen. The number of citizens whose wages are below the poverty line has dropped by 10%. All that combined improved Russia’s credit rating, and we have paid back the part of the debt we had planned to pay.

On the whole it can safely be said that the country has grown richer and that the material status of the overwhelming number of citizens has improved, if only slightly. I think that is the main result.

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Sergey Brilev: Anna Shmakova from Moscow asks: “Are you sure that the information about the state of affairs in the country that you receive as the head of state and use to make decisions is accurate and objective?”

Vladimir Putin: I have a habit of drawing information not from one source, but from several sources. And of course, when you make comparisons you see some inaccuracies here, some distortions there… But when you compare information from various sources you end up with a fairly objective picture. So I can say with confidence that not only I, but also the Government have an objective picture of the situation in the country.

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Question: I have a question about reforming the housing and utilities sector. It has been declared, but we see no real change at the local level. I for one don’t see any… The rates are going up and there are plans to make us pay 100% of all the rates, but the conditions do not change. Waste is not removed, central heating is poor and there is no hot water. My question is how can the housing and utilities sector be made responsible for its obligations to the citizens, the tenants?

Vladimir Putin: Thank you for your question, Alexander. It is one of the traditional questions and the reason is clear. The problem has come to a head. And you are quite right that there are no real changes evident.

Indeed, we talk a lot about the need to reform the housing and utilities sector, but there has been no progress and reform seems to have stalled. That is true, and I will explain why.

It has been impossible to do anything because the federal and other government structures owe the housing and utilities sector a staggering 25 billion roubles. How can you talk about reform if there is no money in the system? We had to first clear these financial logjams.

As of today the arrears stand at about 2.5 billion roubles. That in effect means only the current payments. This year we put the sum of 13.7 billion roubles in the 2003 budget in order to enable the Federation and all the other levels of government to pay all the money they need to pay into the system.

But there is yet another problem: you know that there are a lot of people in our country who enjoy various fringe benefits. During the period of time when the economy and the political sphere were “battering” each other and both were in a sorry state, we churned out so many laws and regulations that you can’t even imagine how many people are entitled to benefits and do not pay anything or pay only 50% of the housing and utilities rates. There are 85 million of them. They are not only disabled persons and World War II veterans or people who have served in conflict zones, they include all labour veterans in the regions, and also members of their families. Which brings us back to the same problem. If there is no money in the system it is hard to speak about reforming it.

And finally, another and also a very important problem. An overwhelming majority of our citizens live modestly and have low incomes. Any rash action in this sphere hits the population very hard. That is why the Government proceeds so cautiously and even gingerly.

This year a very liberal law has been passed. Without hurting anyone it in fact transfers some powers from the federal level, the so-called “federal mandate”, to the regional level in the Russian Federation. The federal budget has also earmarked money to support the most needy part of the population, above all intellectuals working in the rural areas.

And last and perhaps most important. It is necessary to gradually, very carefully, but steadfastly create a competitive market environment and pay government money to organisations in the housing and utilities sector not for the mere fact that they exist, but for the quality of services they provide for the population. This takes time and we will follow the path. But I agree with you that we should move vigorously.

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Yekaterina Andreyeva: The telephone is of course a popular means of communication, but before we went on the air we received many questions over the Internet. I have chosen the following question. It is from Yevgeny Aktanov who lives in Irkutsk. “During a similar TV Q&A session last year a schoolboy from the town of Ust-Kut in the Irkutsk Region rang you up and said that he could not go to school because it had no heating.” You probably remember it. “Now, writes Yevgeny Aktanov, the situation has grown still worse. The former Mayor was then sacked, but two weeks ago an 82-year-old veteran died from exposure to cold in his flat in Ust-Kut. My question is, “Does the government have to shout orders from above every year for at least something to be done about it?”

Vladimir Putin: This brings us back to one of the earlier questions, the housing and utilities and the relationship between the population and the local authorities. I know about it and I won’t conceal the fact that I got the first information about it from the news on TV. Later, of course, additional information was provided.

The tragedy that happened in Ust-Kut involved the death of an elderly man who suffered from ischemic heart disease. Of course, the incident must be investigated and a criminal case has been opened.

All the circumstances will be cleared up as part of that criminal investigation, including why he had not been hospitalized in a timely manner since he was sick. But the fact remains: the problem is that people do freeze to death. The reason is very trite: they were building a boiler room or even two boiler rooms, but they were never finished. It is of course a clear case… I don’t know how to describe it because not only the local authorities, but I think the Governor of the Irkutsk Region, Boris Govorin, should have paid particular attention to it. How did it come to pass that entire communities in such high latitudes entered the winter in such a state? That matter needs to be looked into separately.

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Question (Chelyabinsk): Psychiatrist and substance abuse specialist Yuri Valiyev.

The number of drug addicts and drug users in the region is growing. Practically every day some of them die from overdoses and drug users commit many crimes. I would like to know how we can help the parents of those children, who cannot get them into rehabilitation because they avoid it. Is there a system of compulsory treatment for drug addicts? And is it not time to pass legislation to impose harsher punishment for drug dealers? The threat of punishment is a great deterrent to crime. Thank you.

Vladimir Putin: Thank you for your question.

Of course, I think that we could well impose harsher punishment for this type of crime, the spread of narcotics. But we all understand that this is absolutely not enough. The problem originates not on our territory, but in other countries. Narcotics come here from Afghanistan and from many other countries, but mainly from Afghanistan. And the bad news is that the opium crop this year has reached a record high and huge amounts of narcotics have been stockpiled in Afghanistan.

So, our main task is to put a barrier on the border. We have a large group of border troops protecting the border between Tajikistan and Afghanistan. Unfortunately, not everything works, but we have been spending a lot of money to solve the border problem.

The law enforcement bodies dealing with this problem must upgrade their work. The relevant administrative decisions have been taken this year. The Russian Interior Ministry has set up a committee to address this problem, whose head will report directly to the Minister of the Interior. But even that of course is not enough.

You are a specialist and you surely know that we have only 5,500 such specialists in our country and many of them obviously deal not only with drug addicts but, for example, with alcoholics and so on. As for compulsory treatment, that system existed in the Soviet Union. But it has now been practically dismantled. It applies both to drug addicts and alcoholics. I think it gives us ample food for thought.

And the last thing. We should seek to reduce demand… We should work with young people. This is a multifaceted and very challenging job which must be done by the state and by the citizens, with the state playing the leading role, of course. It is a complicated problem and I agree that it merits particular attention.

Question: My name is Vladimir Goryachev. Militants in the Chechen Republic, shouting “Allah Akbar!” kill civilians: women, children and old folks and they use Islam as a cover. How are we supposed to feel about Islam?

Vladimir Putin: It’s a sharp question. Of course, today not only our country, but many other countries in the world face the problem of terrorism, and terrorists often use Islamic slogans. But I must tell you that this is also a problem that has been dumped on us from outside. These are either religious fanatics or people who use Islamic slogans only as a cover, but in fact do what they are ordered to do for money. They are just ordinary mercenaries and bandits. In China they say that such people “are ready to call any woman who has milk their mother”. These are people who have no roots.

They are simply bandits. And you know it has nothing to do with religion. Any religion, especially a world religion, such as Islam or Christianity, is based on the principles of humanism and love of man. And there have been extremes in any religion. Suffice it to recall what the Inquisition did in the Middle Ages in the name of Christ. It is a huge and indisputable advantage of our country that over the centuries, over more than a thousand years, a balance has emerged between Christianity and Judaism, between Christians and Muslims. It is a great advantage of our multi-faith and multinational country. The aim of the militants and terrorists is to sow discord between the peoples and faiths in the Russian Federation. We should on no account give them such a chance. We share something that is the supreme value for normal civilised modern man: we have a common Homeland. We are all fellow countrymen and we should treat each other as members of one family, as brothers and sisters.

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Question (the village of Ovsyanka): I am Fyodor Nikiforov and I live in Ovsyanka. This is my question. Mr Chubais is carrying out a reform of RAO UES. But isn’t it going to be the same as with vouchers? How did it happen? How did some people buy up everything so cheaply and where is all that property? Why does our own government allow such things to happen?

The people in Ovsyanka are complaining that the electricity rates are very high. What will happen next? We don’t know. All the residents of Ovsyanka, young and old, took part in building the hydroelectric power plant. My question is: what to do about Chubais’s reform? What will be the outcome? Thank you.

Vladimir Putin: Thank you for your question. I am glad to have a chance to talk with you and your fellow villagers in Ovsyanka. A lot has been done in this community thanks to the personal contribution of a great Russian writer. We are well aware of it and I think, even regardless of your question, it is our duty to preserve what was created there in its time.

Now for the immediate topic that you have raised. It worries me too. And I don’t want to see assets sold cheaply. That is why the deputies of the State Duma are approaching this issue so thoroughly. You can see how many arguments there are over the issue and how opinions clash.

One thing is clear; the current situation is unsatisfactory, as you have said yourself. The prices are very high and in some regions the housing and utilities sphere faces serious problems practically all over the country. It is connected with power, central heating and so on. We should create conditions in the power industry to attract private capital in order to expand the operation and increase the number of thermal power plants.

As regards the sell-off, the draft documents are currently the stumbling block. Not a single of these documents has been passed yet. The situation is as follows. First, nuclear power facilities are not for sale or privatisation. As regards hydroelectric power plants, the draft documents do not envisage a reduction of the government’s stake in them.

Finally, the most important and the most sensitive part of this operation is distribution, running the industry and power transmission over long distances, considering that we are such a vast country. That too will remain in the government’s hands.

We are talking about a small sector of heat generation, the thermal power plants. We should attract both domestic and foreign investments into that sector. Of course, it should be done according to a single plan and it should be balanced and realistic.

I would like to note that at present practically the whole population pays 100% of the cost of electricity and the tariffs are constantly growing. Our households are getting enough power by comparison with industry. I stress, not by comparison with their incomes, but by comparison with industry. They pay less for power supply than the country’s economy. In other countries, it is the other way around. And it is clear why: because it is more expensive to bring power to the households, you have to build additional networks and install transformers and so on. None of this needs to be done for industrial enterprises. And yet in this country they pay higher rates and that is why households get cheaper power. We must gradually level this situation out. But it should be done only in proportion to the growing incomes of the population. And secondly, I repeat, we must create a situation and market conditions that would stabilise the tariffs and prices and ultimately bring them down.

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Kirill Kleimenov: Oksana Borzova asks why wages for public sector employees cannot be adjusted for inflation, specifically the salaries of nursery and school teachers, in the same way as they have been adjusted for pensioners. That was a call from the Ivanovo Region.

Vladimir Putin: I must say that the budget stipulates such indexations. They will be carried out, but that is not the whole problem. I think we should change the system of payment. We should dissociate payment in these spheres from the single wage scale which treats people equally regardless of the region where they live. I think that system has outlived itself. For example, a teacher in the Far North has a salary of 5,000 roubles and the oilmen in the region are paid 5, 7, or 10 times more. A teacher cannot live on such a salary in the north. But in another place, in a farming region, a teacher may have the same salary, 5,000 roubles, but the people around him are not even paid 2,000 roubles. Such discrepancies can and must be rectified.

The Government has been instructed to prepare corresponding proposals. It is working out the rules that will structure this work on the sectoral principle, as was the case in Soviet times.

Question (the village of Tolbazy): … I am a member of an agricultural cooperative and a veteran of the Afghan war. I would like to know what is happening in Chechnya, perhaps it is time to start negotiations?

And another thing. You have spoken about a Pan-Islamic state on Russian territory. Is that possible?

Vladimir Putin: First, about the situation in Chechnya and possible negotiations. Better a bad peace than a good quarrel. We have always proceeded on that basis. And of course, negotiations always pave the way to settlement.

The question is, with whom to negotiate and about what? Who are we up against in Chechnya? Let it be said that there are some people whom we describe as separatists who have sought to break the Chechen Republic away from the Russian Federation. We have already had talks with them. In 1996 we met all their demands. In fact, we had agreed to the independence of Chechnya by signing the Khasavyurt Agreement. We all know what it led to, the attack on Dagestan and the expansion of aggression.

Are we supposed to negotiate with them again? Negotiate on what? We had already agreed with them on everything. We had given them everything. What is there to discuss with them? Or shall we just slightly reprimand them for the mischief that they had done? And according to some estimates ethnic cleansing there claimed up to 30,000 lives, perhaps even more. They have misbehaved a little bit and are we supposed to let them go on “practicing”?

No, we have had enough. It won’t happen again. With whom can we negotiate? There are international terrorists there who work for money and just plain bandits. It is impossible to agree on anything with terrorists and bandits.

But still I would like to tell you that last year we tried to negotiate with Maskhadov’s representative. We invited him to Moscow. Nothing happened. They simply vanished.

But it makes no sense to build up the federal troops there because there are no large-scale military actions, the army has fulfilled its task and what is needed is something else. The political process must be developed there so that people take power into their hands, so that they have a legal basis, so that there is a constitution of the Chechen Republic and legitimate bodies of power elected on the basis of that constitution enjoy the trust of the people and assume the responsibility for the fate of that republic.

And the second part of your question is about the Islamic state on Russian territory.

I think this is a crazy idea. It is no different from the idea of world domination which the Nazis used as a cover when perpetrating their crimes. What is the difference? The Nazis did it on the racial and ethnic principle, and here the key factor is religion. And not only the Islamic factor, to use the current expression, but the radical Islamic factor. Not only Christians or representatives of other religions are the enemies of these people, but even the Muslims who do not share their views. They seek to create a Caliphate not only on the territory of the Russian Federation; they want to build a world Caliphate. I repeat, that is not much different from the idea of world domination advanced by Hitler and his henchmen. These are criminal elements. And one should take a tough and consistent stand when talking with them.

Why have they turned their attention to Russia?

First, because there are large Muslim enclaves and they believe that they can deceive their population. And second, until recently, certainly in the early and mid-1990s, Russia was thought to be an easy prey: the state was weakened and the first step towards implementing the plan could be taken there.

They have no chance.

Question: The people of Tolbazy are undeterred by the cold, and here is one question from Venera Yermolayeva, the head of the village council. Good morning, Vladimir Vladimirovich. My question is what to expect with regard to pensions? Most importantly, will the accumulative part of the pensions remain intact? I am sure they will dip into it…

Vladimir Putin: You know, it is a very important and interesting question that worries millions of people.

What will happen to pensions? Pensions will grow. There will be several adjustments next year. The average pension today is 1496 rubles, and next year pensions should grow to 1690 rubles, perhaps a little more if the Government raises the minimum wage. In that case the Pension Fund will react in the autumn of next year and the pension may grow to 1700. In general, pensions will grow.

Secondly, next year people will get a real feel of how the contributory system of pensions works. They will see how much money they have saved and the question will arise, what to do with that money. It is no idle question. You have asked about how safe that accumulated part is. It’s a very important question. I must tell you that of course the law will protect everyone from common theft. It is a well-drafted law and it envisages all possible protection from elementary stealing. You can place your savings in government pension funds and if you do so, the government will offer you several so-called packages, that is, instruments such as securities in which you can invest your money and the government will be fully responsible for the safety of these assets. You will be able to put your money in private pension funds. I think the interest rate in them will be higher, but the economic risks will also be higher. Ultimately, it is up to you.

Sergey Brilev: With your permission, I will read a question from the Internet: “Does Chechnya need a referendum and a new constitution? Maskhadov has been popularly elected too. Why not introduce a state of emergency if our soldiers and policemen get killed there every day? By the way, the idea has been debated in political circles. Perhaps we have been too liberal. And when will conscripts in Chechnya be replaced by professional soldiers under contract? Quite a handful of questions. Perhaps you could start with the state of emergency?

Vladimir Putin: As regards the state of emergency, I don’t think there is a need for that today. Crimes area committed, terrorist acts are committed, I agree. Attacks are covertly launched but, I repeat, there are no large-scale hostilities there. There is no one to fight on a large scale. But the situation is complicated. People do get killed. Do they need the constitution, legitimate power bodies and so on? Of course they do. Maskhadov was elected on the crest of a euphoria which in many parts of the Russian Federation was described as a “parade of sovereignties”. We are aware of how the situation in Chechnya has progressed. A lot has happened there. Under that criminal regime local people were publicly executed in the squares. And I am not speaking about the atrocities perpetrated against the members of the federal services and soldiers and so on. It was a criminal regime which was elected in its time at gunpoint, under the pressure of militants and international terrorists. We are well aware of what happened next. They quickly lost control over the republic and a very different lot stood behind them who proceeded to use the Chechens to attempt to achieve their goals which have nothing to do with the interests of the Chechen people. The creation of the much-touted world Caliphate, which we have mentioned – this was the goal of the Maskhadov regime. Otherwise there would have been no attack on Dagestan.

To put an end to the situation that has taken shape there today we must gradually transfer power to the hands of the Chechen people. That is impossible to do without a legal framework, without a constitution. It is impossible to elect legitimate bodies of power, it is impossible to elect a president, the head of the republic, and it is impossible to elect the republic’s parliament.

Unless we do it, we will constantly face the situation that we have there today. It is a complicated process, but legitimisation of the situation in Chechnya, followed by normalisation of the economy and the social sphere are impossible without political processes.

Regarding conscripts and professionals in the army, the Defence Ministry and the Ministry of the Interior are working vigorously on that problem. As you know, an experiment is underway in the Pskov Division. The second phase of the experiment will be the deployment and permanent stationing of the 42nd Division in the Chechen Republic. The same will happen to the brigade of the interior troops which will also be permanently stationed in Chechnya.

I think that work will be largely completed by the spring-summer of 2004. As regards the special units operating in Chechnya, 80% of them are already recruited under contract. I think the number of contract servicemen will increase there too.

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Question (Vladikavkaz): My name is Alexei Tminov and I am a school teacher. I have a question. The Russian Government has introduced the so-called migration quotas, 500,000 for the whole country. Is that realistic? Millions of foreigners live in Russia, and it means that some of them will pay bribes and engage in illegal business. The money will settle in the pockets of government officials and not in the treasury. Is that right?

Vladimir Putin: Good question. The answer is obvious: it is not right. And I think that the law that has been passed, the Law on Citizenship and the legislation on immigration, meets the interests of the country. That sphere must be put in order after all. But the supporting legislation and some other provisions that have been passed as a follow-up to this law fail to address the realities. You are absolutely right, Alexei. 500,000 migrants, given that we have millions of foreigners many of whom have lived here for many years is absolutely unrealistic and it does not meet the country’s needs.

I recently met with the heads of human rights groups and they too drew attention to this. And I agree, they have a point. The law was passed in order to restore order and not to shut the doors of the Russian Federation for the people that our economy needs. Many countries that experience demographic problems pursue consistent policies of attracting people to their countries. But they know where to use them and who should be invited in terms of age, occupation, etc. It is better if these people are of reproductive age, that is, are capable of having children in the country which they have chosen as their permanent place of residence.

In general, Russia is interested in that too. But we are not only interested in that. We are in a better position than many other countries because there is an obvious reservoir where we can “scoop up” human resources for Russia. It consists of people with our mentality for whom Russian is practically their native tongue and who have shared cultural and frequently religious roots with us. This reservoir is the republics of the former Soviet Union. And we must of course do everything to attract these people to the Russian Federation. What you have mentioned is not right and needs to be corrected.

Question: Vikor Konyaev, a native of Vladikavkaz, Russian, a World War II veteran and holder of the Order of Glory.

My question is as follows. The ethnic policy in Ossetia is very sound. I think it should be the same everywhere. But when we watch television we see that it is not the same. An old man from Azerbaijan was killed in Moscow. In the republics of the Volga area some acts of violence were committed against our Orthodox churches. They wanted to demolish an Orthodox Church. How do you regard and how will you treat the people who do such things? How do you propose to pursue the interethnic policy in our country? We hear a lot and we know a lot about ethnic policy. I think you have enough power to address this issue.

Vladimir Putin: You are an experienced and wise man. And it is not by chance that you have raised the problem that is key to our state. Because in such a multiethnic country as Russia preserving interethnic peace and maintaining the state of affairs that has existed here for centuries, as I have mentioned, is very important for preserving our state. It is an extremely important national task.

True, we do sometimes see manifestations of xenophobia and hate crimes. This cannot be tolerated. The authorities must react vigorously.

You have referred to the attack on people from the Caucasus in market places in Moscow. I can tell you that all the participants and instigators of these disturbances, which resulted in some deaths, have been charged. There are five of them and they have all been given long prison sentences.

But I absolutely agree with you that the state must act consistently and never let even the smallest episode pass unnoticed. The same applies to the manifestations of anti-Semitism, anti-Russian sentiments, negative attitudes towards the people from the Caucasus and so on. We must all understand, as I have said, that we are one family. And what matters is not only the position of the head of state, the government and the parliament. What matters is the attitude of the public and the position of people like you – labour veterans, war veterans, people who command well-deserved respect in our society, is very important.

* * *

Question (Bor): Good morning. My name is Sergei Korshak. I am a history teacher in the city of Bor. And, fittingly, I have a historical-political question. There are reports, not very many, but still, there are reports about the enlargement of regions through mergers, saying that these new entities will be headed by the current presidential envoys. How much truth is in all this and what should I tell my students? Thank you.

Vladimir Putin: Sergei Nikolayevich, there is no truth in these reports. We do not have the opportunity and most important, the wish to enlarge the regions and to appoint the heads of these regions, at least I have no wish to do so. We have left this historical problem behind us. For good or bad, the heads of regions are elected by direct secret ballot. This is what the Constitution says and it should remain so.

Secondly, as regards the regions and their enlargement. The law stipulates how it can be done. It can be done only through the expression of the will of the people who live in the territories.

My personal opinion is that some regions are like nested “matryoshka dolls”, a tiny region within a region and so on, and they constantly squabble over scopes of authority and jurisdictions. It often causes damage to the people who live in that territory. They divide up budget revenue, government powers, etc. I think that in such cases enlargement of regions through a merger could be an option. But, I repeat, it is up to the people who live there. In some cases some local and regional laws stipulate that the issue can be solved only in a referendum. Other local laws say that the issue can be decided by the deputies of the local parliaments and the regional legislatures.

That is the only way. But even if it does happen in the new entities, in the new regions created in this way, the heads of these regions will naturally be elected by the population.

* * *

Question (Vladikavkaz): Captain Kukushkin. Comrade Supreme Commander-in-Chief. This year there have been some changes in the salaries of servicemen, but financial problems still remain. Are further changes in the salaries of professional servicemen being planned?

Vladimir Putin: Good afternoon, Captain.

First of all, I would like to ask you and your other commanders – if they have such an opportunity – to convey my best wishes to my friend, the President of the Republic of Tajikistan, Emomali Rakhmonov.

I hope that the relations between the republic’s leaders and the command of your division are the same as they were before, that is marked by a high level of cooperation.

Secondly, as regards the salaries of servicemen. Such decisions were taken last year and you know the results. There were many doubts about the pros and cons of raising salaries while simultaneously abolishing some fringe benefits, above all regarding housing and utilities rates, and there were fears that the government would fail to meet its obligations; that there would be slip-ups. We know that it has not happened. And we have met all the targets set.

At the same time the material wellbeing of our army and our servicemen – the volunteers, conscripts and especially officers – needs to be improved. Next year adjustments will be made in accordance with earlier decisions. First the salaries for military rank will be raised in January, and in the middle of the year there will be another 11% raise across the board. On average, the increase will amount to 20% for all the categories of servicemen. Considering that inflation will be about 12%, it should be a tangible increase.

But that is only one problem that worries servicemen. The second problem is housing. The amount of money allocated for this purpose for retiring servicemen will be the same as in 2002.

For the first time, the 2003 budget will earmark money for building housing for servicemen. This used to be done in former times, but then all that was forgotten and no money has been allocated. So, I repeat, the 2003 budget earmarks money for these purposes for the first time in years. And of course we will further pursue the experiment of increasing the number of servicemen under contract. And we will gradually raise the salaries for all groups of servicemen.

Question: Comrade Supreme Commander-in-Chief. In 1994, I was awarded the title of Hero of the Russian Federation for serving on the Tajik-Afghan border. Neither I nor my family have Russian citizenship. Could you help me? Warrant-officer Oleg Kozlov, 201st Division.

Vladimir Putin: Oleg, have you filed for citizenship?

O.Kozlov: Several times.

Vladimir Putin: I am sorry to hear that you have still not been granted Russian citizenship. I think that is unacceptable. If a Hero of Russia wants to be a citizen of Russia and cannot obtain citizenship that is, of course, inadmissible. Under the Law on Citizenship, under the Constitution of the Russian Federation, the President has special powers in this sphere and I promise you that the issue will be resolved within the next week.

Sergey Brilev: But setting aside your broadest powers on these matters, the Law on Citizenship perhaps needs to be amended because we have received a similar request over the Internet. I’ll read it: “I was born in Dushanbe, and I fought in Chechnya. I suffered from shell shock and was wounded in August 1995. I hold the Medal for Valour, the Order of Courage and the Medal for Distinctive Service in Protecting Public Order. I currently live in St Petersburg and cannot acquire Russian citizenship. Please look into my case,” writes Rodionov, a serviceman of the Interior Ministry. It looks as if it is not a unique case.

Vladimir Putin: Yes, the problem has to do with improvements in the Law on Citizenship that we discussed at the start of our meeting today.

I did not want to say it then, but in the context of the questions put by the military and in the context of your question I will express my own opinion. I think it would be appropriate to change the law to allow the people who want to serve in the Armed Forces of the Russian Federation to obtain Russian citizenship under a fast track procedure after they complete their service or while they are still serving. That is what many countries do. I think Russia could follow that path.

* * *

Question: Mikhail Balabanov, the city of Omsk. Good morning, Vladimir Vladimirovich. They say that there are twice as many generals in the Russian Army as there were in the Soviet. My question is, could that number be cut by half? If it is possible, it must be done. By the way, I know that you are keen on sports. Perhaps we should introduce a “Putin standard”? I don’t think that half of our generals can do 10 pull-ups. Perhaps we should follow the NATO example? If you fail the fitness test you have to resign.

Vladimir Putin: As regards generals, it is true that in the early and mid-1990s the number of generals in the Russian Army was equal and perhaps higher than the number of generals in the Soviet Army. Then there were 3,000 generals, more precisely, over 2800. But today there are 1490 of them, if I am not mistaken, less than one and a half thousand. So, your proposal has already been fulfilled: the number of generals has been cut by half.

I think certain standards can and must be introduced. What is important is not only the number of generals, but the way they perform their duties. Many of them to this day – although there have been some positive changes lately – prefer to serve in large cities or in Moscow. The personnel services of the Defence Ministry have taken a tougher position and have in fact restored the former system. An officer must move about to have the experience of serving in various regions of the Russian Federation.

As for fitness standards, of course, it would be great if all could meet these standards. By the way, the army has them, only I am not sure that all the generals meet them. But frankly, I doubt that our soldiers and conscripts – young people, warrant officers, sergeants and officers – can fully meet that standard. And it applies not only to the army. It is the question of how society and the state regard the issue of physical culture and sports. Recently, we have tried to pay more and more attention to it. I hope it will bring positive results.

* * *

Question (Stavropol): Director-General of close-end joint-stock company Rus, Budyonnovsky District.

We are villagers – 46% of the people in the Stavropol Region, which is the breadbasket of Russia, are rural residents and we are absolutely sure that you are aware of the host of problems that the countryside faces.

We believe that there is one problem which, if solved, could help to solve other problems. I mean grain. During the past three years we practically doubled the gross grain harvest. This year in the Stavropol Region we have had the biggest crop in the last 100 years, 6.3 million tons, of which 5 million tons is excellent food wheat. And what is the result? There are no sales, no money.

We know that you have repeatedly instructed the Government to solve these problems. And my first question is, are you aware that the problem of the agricultural producers has not been addressed?

And the second question. Can farmers hope that the Russian Government will address in practical terms the problem of grain prices and the sale of the grain which farmers have in huge quantities? Thank you.

Vladimir Putin: Your question belongs in a very important sphere, agriculture. As you quite rightly noted, many of our citizens live in rural areas. It is not just a sector of production, it is a way of life. Russia evolved as a peasant country. And it is of course a very important branch of the country’s economy.

You have said that you have brought in a harvest of 6.3 million tons. It is a brilliant result. I want to congratulate not only all those who have worked in the agricultural sector in the Stavropol Region, but all agricultural workers on their outstanding results in this field because the yields per hectare are higher than even in the Soviet times.

We remember that in those times we purchased grain from abroad, mainly from North America. Today we sell grain. According to the Ministry of Agriculture, we have already sold 9 million tonnes. Last year we sold 5 million tonnes, and this year we have already sold 9. Thanks to these sales, the country will get about a billion dollars. By the way, these sales are effective because the internal grain price is about $60 per ton, much lower than the export price ($100–110), so everybody tries to sell.

And of course, the internal price is very important for the farmers, who are having problems because they have to pay back the loans they obtained during the season. You have a point, we have discussed it many times, including with your Governor when I visited the Stavropol Region. It is true that I have issued directives to the Government which under the circumstances could be of only one kind. We could only use one instrument: interventions in the grain market. I have to tell you that this year twice as much money has been allocated for the purpose than last year. Last year we allocated 3 billion and this year we raised it to 6 billion. Half of that money has been spent on interventions. And grain prices have practically stabilised.

However, there are other options that might have been more effective, for example, rather than making these interventions the proceeds from which usually go to the middleman organisations, we could pay and issue loans directly to farmers against the future harvest at reduced interest. That is what they do in other places, for example in North America. The Government sets a fixed price for the future harvest and thus regulates the situation. When a person pays back the loan, the final settlement is made – if the prices are lower than those fixed earlier, the government is paying him extra, and if they are higher, he gladly sells his produce and repays all the money to the government.

But the current situation is that there are still not enough credit resources for everyone, although I still think that this is the road to follow. However, I think you would agree with me that the Government is steadfastly improving this sphere of the economy. We have a fairly easy taxation system for farmers and that amounts to an indirect subsidy of that sector.

Secondly, you know that every year farmers get easy-term loans “against the future harvest” and part of that loan is paid by the state.

Finally, this year we introduced a system of five-year loans against basic assets. The state will pay two thirds of the interest.

And a federal targeted programme of agricultural development has been adopted. For the first time it is supported with funds. It happened after one of my trips to a farming region in the country. It is the first time that money has been allocated. It will mostly be spent on water and gas supply and to develop the road network.

To this must be added the imposition of quotas on imports. This is probably not the best, not the most market-oriented solution, but it is justified in our context. The Government is ready to take that step, too. And all that combined gives grounds for hope that agriculture in Russia will develop effectively.

Yekaterina Andreyeva: We are waiting for another question.

Question: Anna Kotova. Mr Putin, During the last six months you twice visited our village Barsukovskaya in the wake of the flood. Thank you very much on the behalf of all the residents for the assistance, and thanks also to the Government. I have already given a place to live. But my question is, are you sure that all the residents will receive decent housing? And the main question that worries me is what can be done to prevent such a disaster, such a flood from happening again?

Vladimir Putin: Let me start where you’ve left off. Of course, a whole system of irrigation measures is needed. The corresponding services must be improved. In recent years they have performed poorly. We must dredge the rivers and so on.

At the same time you know that this year the same problems confronted some highly developed rich countries in Europe, in particular Germany. Look what happened in Saxony, in Dresden and so on. But of course, negative consequences should be reduced by taking the proper measures, by introducing warning services. The Ministry for Emergencies must do more in some situations, and the same goes for local services. Such a system of measures is being worked out.

As regards the first part of your question about restoring housing. I must tell you that no other country has carried out such a large amount of work to bring relief to the population. It is not done anywhere else. I think, however, that it is a reasonable thing to do in this country because many of our citizens have very small incomes. They are unable to restore their lost property and houses. This year the federal budget initially allocated 6.5 billion roubles to restore damaged housing. The regions then requested 3.5 billion roubles more. After a relevant audit, it turned out that 1.4 billion would suffice. On the whole, considering the direct compensations to the households for their lost property, the federal budget has already spent 12 billion roubles for the purpose.

Am I confident that the money will reach everyone and that all the houses will be restored? I would like to hope that it will be so. That is the job that I do and that is the job the people who work with me here do. Perhaps there may be some irregularities. If you know about them please send your information and thoughts about it to the corresponding regional bodies and to us here in Moscow. We will respond without fail.

Question: We are returning to questions from the Internet. Here is an interesting question: “Whatever they may say in Moscow about streamlining the rules for small business, bureaucracy here is invincible. If you want to do business you have to pay bribes. We entrepreneurs are a class enemy for government servants. So they scare us with audits and pressure in order to extort bribes from us. Can anything be done about it?

Vladimir Putin: That is one of the key questions today. Administration must be transparent, clear, understandable and efficient. We must do everything to get rid of red tape in the economy. The steps that have been made in that direction are right moves, but so far they are insufficient. I absolutely agree with that. We must continue to work in that direction, eliminating unreasonable interference of the state in the economy while strengthening its regulatory functions where the state must be present under the law. I would say more: while getting rid of excessive regulation we must in the future adopt a procedure whereby a government agency would have to justify the need for any new regulations, and do so publicly, with the scrutiny of civil society.

* * *

Question (Dubna): Dmitry Kazakov, Ph.D. (Physics and Mathematics).

Our Government seems to have forgotten about science. Many of our scientific achievements are used abroad but not in Russia. Our best scientists are leaving. When will our beloved Government turn its attention to Russian science?

Vladimir Putin: You have said that the best scientists are leaving. It means that our science and our education are capable of offering a high quality and highly competitive product in the world market of human resources. It shows that our education and science are on a fairly high level. But that the drain of highly skilled human resources is a problem cannot be denied.

However, your question is much broader and deeper and it has to do not only with highly skilled personnel. In modern conditions, in the modern economy key factors of production development include capital, high technologies, information and personnel. All these production factors move quickly around the world to concentrate in the regions where they can be used most effectively. No considerations, no administrative measures or even punishment can hold them within the national boundaries if such conditions have not been created there.

So, I repeat, your question goes much deeper. We must speak not only about science. We must create conditions for these key production factors. We see not only personnel but capital drifting away from us. We speak a lot, and you surely hear a lot about the problem of the outflow of capital. It has the same cause. True, the flight of capital diminished greatly in 2002. I don’t remember the exact figure but I think last year it was around 18 billion. This year it is 11.6 billion. The same is true of human resources.

Of course, the government must act effectively and work consistently to create the necessary conditions. The economy must be less bureaucratic, salaries must grow, the equipment base should be created and improved and so on. In 2003, the federal budget allocations for science will be about 24% more than this year, and centres for the joint use of costly equipment will be created under the auspices of the Academy of Sciences. We should make better use of higher educational institutions where science also plays a major role. We discussed these problems in considerable detail at a recent congress of rectors of Russian universities. On the whole, the tasks are clear. It is a challenge and it cannot be met with one fell swoop, but of course, it must be met if we want to be an effectively developing country and have good prospects for such development.

Question: My name is Nadezhda Smirnova and I am in charge of all the preschool childcare centres in our city.

How could it happen that terrorists could penetrate into the theatre centre at Dubrovka? How could it have happened at all? Will anyone be punished? And because we all worry about the safety of our children and all the people in our city, what is the safety situation? How can we be calm after what has happened?

Vladimir Putin: Of course, safety is one of the key issues for any country, and especially for our country. Insuring the safety of our citizens is a national priority. But we must be honest and we must understand what is happening.

In effect, the international terrorism, which I have mentioned and which is mixed with religious extremism, has declared war on us in order to annex large territories of Russia. But I am sure that that would not be the end of it. They will seek to destabilise the situation in the Russian regions where there are Muslim enclaves.

I repeat, we will never tolerate it. One of their aims is to undermine the unity of our society, to scare the Government and ordinary citizens. We should on no account succumb to such sentiments. But we must be clearly aware of the extent of the danger these forces represent.

As regards the tragedy at Dubrovka, we know that there are three million out-of-towners in Moscow every day according to the census. A huge number of vehicles enter the city. You know, I have met with veterans and State Duma deputies have been telling me about their meetings with veterans who also ask the question: “How could terrorists have been allowed to enter into the very heart of the country, Moscow? During the war, we did not allow all sorts of militants and spies to operate in Moscow.” But that was wartime. The city was under a blockade. There were certain rules, and an organisation called “Smersh” (“Death to Spies”) was out on Moscow’s streets. They could shoot you on the spot. Obviously, today, considering the number of visitors to the capital, we cannot use such methods. Very different forces and means must be used. Criminals must be stopped early on, at the stage when they are conceiving their plans. Let’s face it, we must have informers in their criminal environment.

Of course, this system has never been implemented in this country, nor in many other countries. We had committed the bulk of our resources to confronting each other: Russia and the Soviet Union versus the US, the US versus the Soviet Union, the Warsaw Pact versus NATO and NATO versus the Warsaw Pact. But in the current negative milieu we do not have enough sources of information. Information is inaccurate and vague. That is why we are creating a common cause with other countries in an anti-terrorist coalition in order to help each other to counter these threats. We will build up these efforts. And of course, the issue of security will always be high on the agenda. It is one of the Government’s priorities.

* * *

Question (Kaliningrad): My name is Olga. I would like to congratulate you on the approaching New Year. I think I will be expressing the concern of the majority of the people of Kaliningrad when I ask you what will happen to the Kaliningrad Region and how will its people live after our closest neighbours become members of the European Union?

Vladimir Putin: Olga, you know I am sure that all the people of Kaliningrad have watched the discussion between Russia and the European Union. It was no easy task. I must tell you honestly, I still don’t understand why it had to be so difficult. What we have bargained for with our partners is an elementary thing, absolutely elementary – to ensure the free travel for Russian citizens from one part of their territory to another. It fully accords with all the basic international human rights principles and in no way violates the established rules of the European Union – the Shengen principles and so on. On the whole we have arrived at a solution which I think is quite acceptable for both sides.

I am not going to expand on this subject, but I will simply tell you what the practical outcome of our talks was. We asked our colleagues to make sure that the citizens of Russia who travel to Kaliningrad and back to other territories of the Russian Federation do not have to apply to various institutions and obtain some kind of papers, above all visas. We settled on the following: as before, a Russian citizen only has to buy a railway ticket. The information should automatically be fed into the computer networks of Lithuania, which of course has the right to look at who passes through its territory. If they detect some undesirable individuals, some criminal elements, we would be only too glad because it would help us in our joint efforts to fight crime. True, we have to agree on the technicalities with our Lithuanian partners.

A person who travels by train will receive a document attesting that he or she has crossed the border. When leaving the territory of Lithuania that document will be taken away from him/her. It was an issue of principle for us to make sure that the document is issued to a Russian citizen on the train free of charge.

I must say that to our great surprise during their last meeting in Brussels, our partners deleted that provision from the corresponding document. We talked with them and we agreed that these documents would be issued by the Lithuanian side, and if it incurs the costs of printing them, issuing them and so on, the cost would be compensated to Lithuania by the European Union.

As for traveling by road, as you know, you already have to obtain visas. We have agreed on a simplified procedure: a multiple document will be issued that is similar to a visa, but is in fact not a visa. On the whole, I think it is quite an acceptable solution: it does not make the situation worse for Russian citizens. I very much hope that the development of our relations with the European Union will in time lead to all the restrictions for all Russian citizens moving from Russian territory to that of the European Union being lifted. However, the Russian Federation will also have to do a lot of work for that.

Question: Hello. My name is Sergei. I have a question. We often hear from television that some of our policemen have links with the criminal world. I think the reason is low salaries. I would like to know what is in store for our law enforcement system. Thank you.

Vladimir Putin: Regarding the links between police and the crime world. Yes, it is a problem. I must say that it exists in all countries, but perhaps it is more acute in our country. We are talking not only about corrupt policemen, but about the problem of corruption in principle. The way out is not tighter control of their activities, the way out is to change their functions. That applies perhaps more than anything else to the state regulation of the economy. I have already spoken about it. We must determine the scale of the state, meaning not its territory but the size of the bureaucratic apparatus and have another hard look at its functions. Of course, that directly affects the police. We must think about the functions and tasks that face the Interior Ministry. We have done much during the past year to improve legislation: some fundamental laws have been passed, some codes, etc. I very much hope that as these come into force, the activities of the law enforcement agencies will change, but of course, they will still be in need of improvement.

As regards salaries, police salaries will be raised simultaneously with the salaries of servicemen and, like in the case of the army, it is unlikely to solve all the problems in this sphere. Salaries will remain pretty low, but that is all the state has been able to offer today, and it is a serious step forward. We will move on in that direction.

And finally, within the law enforcement sphere supervision of officials of various ranks must be tightened. I can tell you that in the last year and a half alone more than 130 generals and many heads and deputy heads of regional bodies have been dismissed from the central apparatus. I think about 150 deputies have been dismissed. About 6000 people, 5900 or so, have been disciplined and in the first ten months of this year more than 1000 criminal cases against policemen have been opened. But I would like to warn you that we should on no account proceed by organising “purges”. We must understand and be mindful of the fact that the majority of policemen are decent people who honestly do their duty and who bear an immense responsibility for the situation in the country. Very often people’s perception of the whole state greatly depends on how the policemen treat citizens. So, they bear a double responsibility.

* * *

Question: Hello, I am Igor Anokhin from Moscow and am 35 years old. I have been confined to a wheel chair for the last five years and I have confronted problems of which I was previously unaware. It is only thanks to my family and friends that I can leave my flat, but I know many young people who haven’t left home for months. Many building entrances and streets do not have elementary ramps and there are no lifts in the metro and at train stations, and I am not even speaking about our social rehabilitation.

It is for a reason that they say a society should be judged by the way it treats its old folks, children and disabled. When will our country address the problem of disabled people in the same way as civilized countries?

Vladimir Putin: You know, I recently met with the heads of disabled peoples’ organisations. And we discussed all these problems on the International Day of Disabled People. I think the main task is to provide disabled people with work because that is the key factor that makes a person feel like a fully-fledged member of society despite his or her handicaps. Society must change its attitude towards the disabled. For example, we have outstanding paraplegic athletes who achieve fantastic results that the country can be proud of. Unfortunately few people know about them. By the way, that was also a subject of our discussion.

And the problem of movement for disabled people and adapting the environment to their needs is very important. So some things must be taken into account and are already included in the so-called technical specifications (SNiPs), the building standards. Today they include the requirement that the needs of disabled people must be taken into account in planning and building public buildings. It is a difficult task. I fully agree with you. We should assess society by the way the state and society treat the disabled.

* * *

Question: Good morning, my name is Anatoly Kokin. I am a schoolboy from St Petersburg. I have a question about the Union between Russia and Belarus. Why does Russia need to unite with Belarus? Won’t that Union impede the economic and political development of Russia? Thank you.

Vladimir Putin: That’s a fundamental question, to be sure. I am glad you are interested in it. It is good that young people in Russia pay attention to such issues.

I think you would agree with me that the Belarusian and Russian peoples are fraternal peoples in the full sense of the word. If I were to use that word to describe relations with any of our neighbours, it applies above all to Belarusians. So on each conceivable count the Belarusians and Russians are sister peoples in the full sense of the word. Number one.

Number two. Cooperation in the economic sphere is a significant bond between us. Back in the Soviet times the Belarusian economy was, as they used to say, and indeed, is still the case today, an assembly shop for the Soviet Union, for the Soviet economy. In general it is inhabited by talented people who can produce high quality goods that are quite marketable and they are marketed in the Russian Federation and abroad. We are interested in this cooperation.

And finally, of course, it would strengthen Russia. Unification with Belarus would move the Russian Federation in the direction of Europe in terms of territory and democracy. Europe is our main economic partner; it already accounts for more than 35% of our trade and will account for 50% after enlargement.

It makes sense in every way. The issue is that the form and methods of such unification should benefit both the Belarusian and Russian peoples. From that point of view you are absolutely right, these processes must not impede the economic and social-political development of either Russia or Belarus because we must respect its sovereignty and the choice of the Belarusian people. I mean above all, the choice of the forms and methods of our integration. We will proceed very carefully, I repeat, guided by the principles I have just mentioned.

Yekaterina Andreyeva: We would like to thank all the cities that took part in our programme and all their residents for their questions. Unfortunately, we can cover only so much ground, but in the time allotted to us we have taken two questions from every city. Mr Putin, I remember that last year when we were preparing to go on the air you selected some questions yourself. Have you selected any today?

Vladimir Putin: Yes, I have and I would be glad to answer them.

* * *

Tamara Popova, Perm Region: “Why doesn’t the country produce consumer goods? I want domestically produced goods.

I too want them, dear Tamara. Of course, Russia does produce consumer goods but I have to draw your attention to the following: the higher the real incomes of our population, the more our people tend to buy imported goods because as a rule, they are cheaper and of better quality.

What needs to be done for the domestic economy, the domestic industry, to produce more goods of better quality and at lower prices? We must create conditions for production. As I have said, we should attract the key modern production factors to Russia: capital, technology, information and skilled labour. That is a wide range of measures to change the situation in the economy as a whole. The challenge can be met only by comprehensive measures. There is no “magic pill”.

And here is an interesting question, I think. I am sure it’s a question many people are asking. It comes from Yevgeny Yumatov in Moscow. “Do you think there will ever come a time in the Russian Federation when prices will not go up every year, like it was in the USSR?”

Yevgeny is right. Prices did not grow as rapidly in the USSR as we see them growing in Russia today. But it does not mean that there was no inflation. You perhaps remember that in the late 1980s even detergents, soap, not to speak about sausages and meat products, were rationed. What did that mean? It meant that goods were washed out of the shops. And the necessary goods that could be of any use had to be bought, as Arkady Raikin used to say, “through the back door” and at a very different price. That was inflation pure and simple. So, I don’t think it makes sense to return to the situation in which our economy was in Soviet times.

As for inflation today, the Government and the Central Bank must pursue a balanced macroeconomic policy to stabilise the national currencies which in turn would stabilise the economy. Something is being done. In 1998, inflation was at 85%, in 1999, 36%, in 2000 – 21%, last year – 18.6% and this year – 15%, and next year’s the projected estimate is still lower. I hope it will be around 12%. Our economy is living through a difficult period in its development. What is needed is structural change and stabilisation, both political and economic. And then prices won’t go up so rapidly. Having said that, prices tend to grow in developed and stable economies too.

Berta Zateyeva, St Petersburg. “Can we see a repeat of the default in 2003?”

No. And I will tell you why. It is obvious. In 1998, our debt amounted to about 130% of the GDP. Today it is a mere 40% of the GDP, that is, we have cut it drastically. In 2003, it will account for just 35% of the GDP. I might tell you that in developed European countries, the members of the European Union, the threshold is 60%, much higher than in Russia today. On that count we do not only meet EU criteria, but exceed them, we have achieved an even better situation.

Besides, the 2003 budget envisages all the expenditure items. You remember that people outside the country and we ourselves used to ask, what will happen to us in 2003? The year would see the peak of our foreign debts payments. We have to pay 17 billion. How would the economy react? What would happen in the social sphere? Today it can be safely said that the budget stipulates all the expenditures connected with servicing foreign debt and with other expenses. Everything is stipulated in the budget and everything will be fulfilled.

By the way, this is the result of our sustained and positive work during the past two years. And finally we have a margin of strength in the shape of the constantly growing reserves of the Russian Central Bank. They are approaching an impressive $50 billion mark. To be more exact, over $47 billion, and the overall trend is upward. So no defaults await us in 2003 or after, I hope.

G.F. Markova, a pensioner from the Novgorod Region. This is a sensitive question, that’s why I picked it and I think I have to say something about it. “Will the bank deposits of the 1989–91 be paid back to the people? Money had been deposited with the Savings Bank. The compensation issued in 2001 was much less than it should have been after the change in the rouble.”

I repeat, it is a very sensitive question that worries millions of people in this country. What happened, what had been done to people in the early 1990s seems absurd. And yet, unfortunately, it happened. What can we do today? It is my duty to tell you about it. If we try to pay back all these debts, we will bring the economy down and the consequences could be even more serious for the country than in the early 1990s. Of course, we cannot afford doing that, but we are obliged to pay this money back. What is the situation, what is the trend and what are the rates? In 1999 and 2000, the budget earmarked 2.5 billion roubles for this purpose, in 2001 — 5.6 billion, in 2002 — 16.7 billion and in 2003 – 21.1 billion roubles. We will continue to build up the pace of repayments until we have paid up the entire sum. The payments will be larger the faster the Russian economy grows.

Next question. Anna Shaginyan, the Republic of North Ossetia-Alania: “I am 106 years old, I have a pension of 1200 rubles. Why such a small pension?”

First of all, I wish you all the best in the New Year and the best of health. As to why the pension is small, I think it is hard to answer this question without looking at the relevant documents on the basis of which it is paid.

I promise you that I will give instructions to the social services and to the Pension Fund. They will look into your case and if there are any grounds at all for raising it, that will be done.

Demid Mitrofanov, Rostov Region. “Do you think that Russia could in time become a constitutional monarchy?”

My first impulse is to say that everything is possible in Russia, even an absolute monarchy, but that is not a correct answer. Seriously speaking, the answer must be no, because Russia cannot be diverted from its democratic path of development.

As regards the constitutional monarchy it does fit in quite well with the democratic institutions in some Western countries.

You don’t even have to turn your gaze to the East; it is enough to look at our European Union neighbours: Denmark, the Netherlands, Britain and Spain are all constitutional monarchies. Is it possible in Russia? I don’t think so and I will tell you why. In all these countries the monarch, the head of state, is vested with strictly ceremonial powers. Real power is in the hands of the Government which is formed by the parliamentary majority. Unfortunately, our country has not yet created a sustainable multiparty system. And I find it hard to imagine how, in this context, the core of the executive branch will be formed.

I think that for such a complicated, large country with as many religions and as many ethnicities as the Russian Federation, executive power must be in the hands of the head of state, at least at this phase in the development of our country. And of course, the head of state can only be democratically elected by universal secret ballot for a certain term.

Another question: “When will the programme of loans to young families to buy housing be considered?”

I am sure it is the question that interests very many people. Such a programme is to be implemented in 2003. The sum allocated is not too large, but it is not negligible, half a billion roubles. The Government has to decide on the procedure and identify the groups of young families on whom the money will be spent.

Here is a curious question. Maxim Polyakov, Moscow: “Why can’t we legitimise buying the right not to serve in the army. In that case the money would go to the Government and not to the bribe-taking officials?”

That is true, but I think it is not a good practice because that would aggravate an absolutely inadmissible stratification of our citizens in financial terms. It would underscore the growing gap in incomes between different strata of the population. In that case, only people from low-income families would serve in the army and the rich could always buy their way out of it. I don’t think that is right.

Yekaterina Andreyeva: We have also availed ourselves of this opportunity and selected a few questions.

The first question. Alexei Popov from Yekaterinburg: “The US is not using its oil resources and is keeping them as a strategic reserve. We sell our reserves right and left. Question: Is it not high time we stopped exporting our energy reserves or at least reduced their export?”

Vladimir Putin: This is not quite so.

It is not quite accurate because the US produces substantial quantities of oil and energy and it is using them. Yes, they form government reserves, and some of the oil they buy abroad is also pumped into national reserves. The American economy is much larger than the Russian one, and it does not have such huge reserves as Russia. Our economy is smaller and our reserves are more plentiful.

So I think it would be wrong not to use this natural advantage of our economy. It is another question that the approach should be rational and the system of the use of subsoil resources must improve. The state must get a larger part of the revenues of oil companies which often have superprofits. That is true.

Sergey Brilev: I have a question here from the Tyumen Region. A schoolgirl asks: “Do people need inviolability of privacy? That is from Mysina in the Tyumen Region.

Vladimir Putin: If we are building a democratic society, and I take it that we all want to improve the system of democratic institutions in Russia – privacy is a cornerstone. Forgive me for using a cliché, but I think it is a cornerstone in the building of democracy. There is no doubt about it.

Yekaterina Andreyeva: Dmitry Masyakin, the city of Shakhtinsk: “Can you forgive insults and does it come easily to you?”

Vladimir Putin: I can forgive insults, but with difficulty.

Yekaterina Andreyeva: Here is another question. Mr Foss from Moscow. By the way, I picked that question because I also would like to ask it: “Why does Vladimir Putin wear his wrist watch on his right hand? Are you left-handed?”

Vladimir Putin: It’s just a habit. No, I am not left-handed. I like my watch to dangle around my wrist. And the winder, if it is on the left hand always rubs against my hand, which hurts. That is the whole secret, as simple as that, nothing unusual about it.

Yekaterina Andreyeva: It’s all that simple.

Sergey Brilev: I would like to ask a question on behalf of the two of us and both of our channels. What do you expect from 2003?

Vladimir Putin: That is a massive question.

I think 2003 should see the strengthening of the Russian state as regards our legal and economic system. Elections for the parliament of the Russian Federation are to be held in 2003, at the end of the year. And I very much hope that the new Duma will be at least as efficient, at least as responsible as the present.

I must give credit to the deputies of the current Duma. They have done a huge amount of work and will do more before the year is out to improve the legal framework of the country’s development. I hope, by the way, that during the pre-election battles they will resist the temptation of passing resolutions and laws that may sound grand from the point of view of the voters but are hard to put into practice from the point of view of the economy. In other words, I hope they will steer clear of populism.

But speaking about the economy, we face great challenges. Oddly enough, the first is improving the performance of the state, as we mentioned today. Government performance must be much more efficient. We must comprehend the scale of our state. I do not mean the size of its territory – that is clear.

We must determine the scale and the functions of government at the local level and at the regional and federal levels. The jurisdictions must finally be delimited and every level of government must have well-defined rights, obligations and budgets. We should at long last launch the administrative reform, which I wrote about in my annual address this year and towards which the Government has so far done little. I have just received a report containing the Government’s proposals on the issue. I hope it will all be put into practice.

Finally, we should improve the legal framework, above all in the economic sphere. We should improve tax legislation and cut taxes. Last year I said more than once that cutting taxes is the simplest thing to do. That is so. But in 2002 we got a rough idea of how that sphere is functioning. And now the Government is in a position to take further steps to reduce the tax burden.

But that is not enough. The tax system must be more transparent, understandable and efficient in terms of its administration. Undoubtedly a system of revenue payments must be developed, and the revenue must go into the government earnings.

Our legislation must stimulate the development of the new economy, that is, an economy based on information technologies, on knowledge, an economy of the 21st century. We must take serious steps to restructure the natural or structural monopolies. We must create a market environment there, attract investments, including private investments. That applies especially to the energy sector and to the railways. In the former case a law has been passed, in the latter it is being vigorously discussed in the Russian parliament.

I very much hope that all of this combined will contribute or at least give a push to changing the structure of the Russian economy, to ensuring an acceptable rate of growth and as a result to raising the living standards for Russian citizens.

And the last thing.

I very much hope that 2003 will bring us more sunny, clear and cheerful days and fewer cloudy and sad ones.

In conclusion I would like to thank everyone who has called during the preparation for our joint event today.

Of course, it is impossible to answer all the calls, but none of these calls will be wasted because they will all be analysed and studied. This is the best source of information about what worries the citizens of the Russian Federation in the outgoing year of 2002 and the coming year of 2003.