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Vladimir Putin: Good afternoon,

It gives me great pleasure to see that the Davos Economic Forum is gradually looking more and more towards Moscow, is holding regular events here and has a permanent base here. I thank you for your warm words about Russia and I welcome with all my heart this representative forum of politicians and businesspeople to Moscow.

This forum’s work is devoted to an analysis of Russia’s economic prospects and competitiveness. Many today are interested in this subject, and I was pleased to hear the organisers speak of the interest and note the changed atmosphere regarding Russia today. We are seeing some positive trends, and we are pleased to be able to say this. We are also interested in having a fruitful discussion. The authority of the Davos Economic Forum has made us all the more interested in seeing practical results and business consequences.

Today, all the conditions are in place for Russia to become a full member of the community of economically developed countries, the countries that successfully compete on world markets while at the same time working towards international economic integration and cooperation.

I must say that over recent years the Russian economy has seen consistent, sustainable and intensive growth, and many facts point to this.

Some figures will have already been heard here, and will be heard again, too. But I will allow myself to repeat them nevertheless. Investment activity rose by around 12 percent over the last six months. The inflation rate has decreased. Inflation is still quite high here compared to the developed economies, but the downward trend is clear and positive. We, in any case, are striving towards the objectives we have set for ourselves.

GDP rose by 6.9 percent over the first six months of this year and industrial output was up by 6.8 percent. I would also like to point out the policy being followed by the Russian Government. This policy is reflected in concrete figures – the federal budget ran a primary budget surplus of 2.9 percent over the first six months of this year.

Our stock market is growing rapidly. Russian companies are borrowing actively on foreign markets, including through placing their securities abroad.

The international community has raised its assessment of investment opportunities in our country. Russia’s credit rating has been rising steadily over the last few years and there is every reason to hope that Russia will soon have an investment grade credit rating.

It is clear that successful economic development requires the state to become more effective. This is a task of prime importance, and I must say here that we are still finding it a difficult task.

We are trying to move away from unjustified state regulation and excessive intervention in the economy. This is a difficult process for a country that lived under a planned economy for 80 years. The state apparatus has the urge to tell everyone what to do in its blood, and as soon as decisions are taken at federal level to limit economic intervention, dozens, hundreds and even thousands of people appear at lower levels to introduce more and more new rules making it possible to “improve and correct” things and keep telling everyone what to do.

But despite these difficulties, we are aware of how important it is to resolve this task and have begun administrative reform. One of the main aims of this reform is to make the state apparatus more attuned to the needs of society, the economy and business. We will draw up and introduce administrative regulations that will bring greater transparency to the state agencies and the decision-making process.

At the Forum’s last session in Moscow, we talked in detail about tax reform. I am sure that many of you here today know this, but I shall nonetheless repeat that from the beginning of 2004, we will reduce the value added tax rate from 20 percent to 18 percent. This is just one step towards further improvement of the tax system and reduction of the tax burden on the economy.

We have plans for other measures of this kind and impact. We plan to cut the single social tax rate, for example.

The priority for our policies is to achieve full integration of our country into the world economic system. We hope that Russia’s accession to the World Trade Organisation will ultimately encourage the development of our national economy.

Your Forum has already held an active discussion on the possibilities and prospects for sustainable Russian GDP growth. I know that many different points of view were expressed, and that some controversial and critical comments were made. I am pleased that this is so, pleased that there is discussion on this subject. I am pleased that this subject is stirring the business community and forcing our society to think about the most promising roads we can take in our development. It is a useful subject to debate.

I must add that Russian society itself is even more actively involved in discussing this subject now. The reason for this is simple and understandable. People’s living standards and the historical prospects for Russia itself depend on GDP growth.

Analysts say that Russia’s economic growth is mostly based on rapid development of the country’s raw materials sector.

Of course, Russia is a wealthy country, and we perhaps have not even learned yet how to make use of this wealth properly. We are only learning now. But despite all the importance of the raw materials sector to us, we are concentrating more and more on developing science-intensive sectors. We will continue to make every effort to create the conditions and incentives for investment in high-technology sectors. At the same time, we are working on creating the necessary legislative basis and improving our level of corporate culture.

We also believe it very important to establish modern institutions for protecting intellectual property rights.

We see one of our main tasks as being to achieve rapid development in our processing and service sectors. We are carrying out a number of measures to diversify our economy and attract investment to the processing industry.

Let’s stop and think. We often say ourselves and hear from our partners the criticism that Russia is a country too much focused on raw materials exports. But when was Russia ever any other kind of country? When was this? Under the tsars Russia exported honey, meerschaum and back-bands, and then it began exporting oil from Baku. It was the same during the Soviet years. Unfortunately, these trends continue today.

I think that this is perhaps the first time we have set ourselves such an ambitious objective – to use new technology to develop our processing industries.

Yes, we know that in the Soviet years the country lived through collectivisation and industrialisation, but this industrialisation had a domestic focus and did not really help to integrate the country into the world economy. On the contrary, the Soviet Union isolated itself.

We have different aims, and they are larger in scale and more complicated. But we are full of determination to achieve our aims.

In this respect, we very much need to create a system for insuring export contracts in the processing sector.

Russia still faces the important challenge of carrying out structural reform of the natural monopolies. We have already approved the basic laws for the electricity and railways sectors. Not only have these laws been passed, the process is now underway, both in the energy and the transport sectors. Active work is now underway on creating the Russian Railways Company.

As you know, there is active and sometimes heated debate on how best to reform the gas sector. I hope that the Government will soon arrive at decisions that are acceptable both for the sector itself and the economy as a whole.

In the services sector, we believe it is highly important to create a full-fledged system of insurance-based healthcare and to improve our education system. Russia faces the same problems as does any economy going through a period of transition and there is nothing new here. The conditions, and unfortunately often the ways of work, carry on from the past, while at the same time the market becomes more and more a part of daily life, leading to the various contradictions that we know emerging. The number of unofficially fee-paying services increases but the quality of service does not improve. We plan to resolve this problem by following the well-known principle that money goes for the user of the service. We will do this in education, in healthcare, and in other sectors, too.

I think that these objectives I have listed will give you an idea of the scale and intensiveness of the transformations we have undertaken, and also of the difficulties that we still have to overcome and those that we have already successfully overcome, for they also exist.

In conclusion, I would like to say that the Russian economy has immense potential. This lies not just in its natural resources, but also in the education level of its people and its advanced science.

Supporting our economic prospects are the stable political system and the development of our civil society.

The state is striving to provide more effective protection for the economic and social interests of its citizens and to involve all of society in resolving the ambitious national tasks that we face.

I think there’s no need to repeat that economic progress is what provides the foundation for resolving all these tasks, and that rapid economic growth is the key to successfully achieving our objectives. This is what we will strive towards by uniting our efforts within the country and doing all we can to pursue positive work with everyone who wants to work in Russia.

Thank you for your attention.