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Vladimir Putin: Good afternoon,

First of all, I want to thank everyone who has gathered in this hall and is prepared for joint work. And, of course, I would like to thank everyone today who is prepared to support me at the upcoming Russian presidential elections.

I am often asked whether I will hold an election campaign, and if so, how I will hold it.

I am certain that the current head of state should not advertise himself – this should have been done over the last four years – and should not hold rallies or invent all kinds of fine-sounding stories. Stories that sound good, but are far removed from the reality of our lives.

At the same time, I believe that I am simply obliged to report to my voters and the entire country for what has been done over the last four years, and inform people about what I plan to do over the next four years if the citizens of Russia give me their trust on March 14.

It is this – the work that has been done and my plans for the future – that I would like to talk to you about today.

But before I talk about what has been done, let us recall the state that the country was in at the end of 1999 and beginning of 2000. And let us recall what reasons and factors influenced this state.

The shift to democracy and a market economy at the beginning of the 1990s was supported by the citizens of Russia in the most active and decisive manner, and they made a final and, I would like to stress this once more, irrevocable choice in favour of freedom. This was an enormous and genuine achievement of the Russian people, and I think one of the greatest achievements of our country in the 20th century.

But what was the price we had to pay for this? The destructive processes of the disintegration of statehood with the break-up of the Soviet Union affected – and this could and must have been foreseen – the Russian Federation itself.

Political speculations on people's natural desire for democracy, and serious errors in conducting economic and social reforms had very serious consequences. Almost a third of the country found itself below the poverty line. At the same time, there were mass cases of payment of pensions, benefits and salaries being delayed by many months. People were scared by the default, the sudden loss of all their cash deposits and all their savings, and no longer believed that the state could fulfil even the minimum of its social obligations.

The country was alarmed by strikes by miners, teachers and other public sector workers. Tax rates constantly increased, and fiscal policies were generally directed towards elementary survival.

Most major banks, as we know, went bankrupt, and after the 1998 crisis the credit system was virtually paralysed.

Furthermore, the country fell into a humiliating dependency on international financial organisations and various types of international financial speculators. Just think: Russia's foreign debt was almost 90% of GDP at the end of 1999.

All these circumstances, along with the default that had just been endured, did not make it possible to forget about the real possibility of new economic shocks.

The situation was aggravated by the fact that by that time, Russia had to a significant degree lost its independent position on the foreign stage. And the forces in the world that continued to live by the stereotypes of the ”cold war“, and despite their ”sweet“ speeches, that continued to regard Russia as a political rival, totally supported everything that could maintain this state in our country for as long as possible.

The situation in the sphere of domestic politics developed no less dramatically.

The constitution of the country and federal laws lost their supreme legal power in many regions. Regional parliaments passed laws that contradicted constitutional principles and federal norms. Federal documents were passed selectively, at regional leaders' discretion. And an unavoidable consequence of this ”competition“ was the authorities' abuse of power, from which people only suffered.

The fight for ”special“ financial and economic regimes was a constant item of bargain between regions and the federal centre. This reached the point that individual regions essentially moved outside the common legal and financial and fiscal system of the state, stopped paying taxes to the federal budget, and demanded the creation of their so-called own gold and currency reserves, their own energy and customs systems, and regional currency.

The outcome was economic inequality of the regions, and as a result economic inequality of citizens. And this became the norm. The common market of goods and services that had just come into being collapsed.

Separatist processes that had been brewing in Russia for several years did not get an adequate response from the government, but were actively supported by international extremist organisations, and finally, in the North Caucasus, took the most dangerous form – terrorism. This, of course, primarily concerns Chechnya.

After the signing of the Khasavyurt agreements, as a result of which Chechnya itself and the Chechen people were left to the mercy of fate, some may have thought that the nightmare of civil war was over. But this was not the case.

Sensing our weakness, and understanding the government's instability and the depressed moral state of society, in summer 1999 numerous groups of international terrorists went even further, as should have been expected. They went as far as to launch an open attack on Dagestan. They committed aggression in order to seize additional territories from Russia and take them into the zone of their criminal influence.

I think there is no need to explain how dangerous this was for the Caucasus and for Russia as a whole – especially considering the traditionally compact settlement of peoples in the south of Russia and of certain territories to the south of Russia. It is enough to look at the tragedy of the collapse of Yugoslavia to make all the necessary conclusions.

I would like to note that Russia was always a very complex state formation, and required careful, one could say professional, treatment. But unfortunately, by the end of the 1990s, and this needs to be admitted, it began to lose the main features of a single nation because of all the negative factors I have mentioned.

This is what we had to deal with. These are the conditions in which we had to simultaneously solve the most serious daily problems, and work on establishing new tendencies for long-term growth.

The government had to overcome obstacles almost constantly, to protect the integrity of the country in the war on separatism and international terrorism, and at the same time lay the foundations of our future.

And today I am simply obliged to thank everyone who stood up for the democratic achievements of the people in this difficult situation. Everyone who did not break under hard living conditions and situations, and who helped the country to its feet with their own efforts.

We are also obliged to remember and preserve in our memories all those people who, when the state was virtually unprepared to ensure the security of its citizens and protect the territorial integrity of the country, did their duty to the Motherland to the end.

They did their duty, as unfortunately has happened before in the history of our country, at the cost of their own lives.

Four years have gone by since then. Four years of intensive and difficult work. Of course, we would like to achieve more than the results we have today. But nevertheless a great deal has been done.

Above all, constitutional law and order has been restored in the country, and the vertical of federal executive power has been consolidated, and essentially rebuilt. The Russian Parliament has become a professionally working law-making body. The common legal space of the country has been restored.

Dangerous processes of degradation in state power, weakening of the army, the collapse of law-enforcement bodies and other power structures have been stopped. Fundamental changes are underway in the justice system.

The economic situation has also fundamentally changed. GDP has grown by almost 30%-29.9%, to be precise. The level of inflation has dropped three fold. It is no longer necessary to drastically increase tax rates to cover the minimum requirements of the state. And, as a result, the average Russian company is increasing its growth rates of production for the second year in a row. There are thousands of companies working effectively in the country today. Companies that work more effectively have begun to succeed on the market, and not companies that thrive on economically unjustifiable privileges and preferences.

This means that structural changes really have begun, even if they are difficult and slow. They are shown in the increase of investment in primary capital, and, what is particularly important, in the development of the domestic market and in the growth of domestic consumption.

I consider one of the fundamental achievements of the last few years to be the financial independence we have achieved and the stable rate of our national currency, the rouble.

The problem of paying our foreign debt has virtually been solved. Last year, as in previous years, we fulfilled all our financial obligations. In 2003 alone, we paid back $17 billion, and the country did not even feel this. Over these years, Russia has paid back $50 billion in foreign debt, including interest.

At the same time, the gold and currency reserves of the Central Bank are at their highest in the entire history of the country, including the Soviet period – over $84 billion.

We have greatly increased the investment attractiveness of Russia, and direct confirmation of this is that Russia has been awarded an investment rating.

These so far modest advancements in the economy, which are nevertheless evident and positive, have made it possible to take the first steps towards solving social problems and improving the living standard of Russian citizens.

In certain branches of production, and in some regions, we still encounter delays in payment of salary. But this problem is no longer nationwide, as it was in the past. Chronic non-payment of pensions and benefits are a thing of the past. The minimum wage has increased by four times in three years. Strikes as a mass phenomenon have disappeared in the country.

Since 2000, a positive dynamic has been achieved in all social indicators. I know that the Government is not always able to prevent economically unjustified price increases. But nevertheless, citizens' incomes are growing constantly. And this is confirmed by figures which are well-known, but which I will mention again, figures adjusted for inflation, and I want to stress this, figures that take into account price increase, currency fluctuations, and other factors.

The average pension has increased by almost 90% since 1999 in real terms. The real income of the population has increased over this period by one and a half times. Gradually, from year to year, salaries are increasing – they have almost doubled since 1999. I repeat: this concerns real income. The nominal, i.e. the absolute figures, are of course much higher.

Unemployment has decreased significantly, almost by a third. The number of people on incomes below the level of subsistence is still too high in Russia, but this figure has also decreased by a third.

The most important thing that I would like to highlight today is that uncertainty about the future is disappearing from our lives. Confusion and difficulties in making any long-term plans are also disappearing. It seems that at last the fear in society of the painful consequences of reforms has been overcome.

However, at the same time another thing should not be forgotten: at the same time, people justly make increasing demands for the state to work effectively. Their needs for a level and quality of life are increasing.

I would like to emphasise this: despite the scale of changes, we have only created a platform for a decisive turning point in the economic development of the country. A turning point that leads to a quality of life comparable with developed countries. And through this, to insure that Russia has an authority and influence that is worthy of our thousand-year history, our intellectual resources, and our opportunities for full participation in the international distribution of labour.

Dear colleagues,

I have listed what we have achieved so far. But have we really achieved as much as we could have? No, of course not. And can we feel satisfied with the results of our work? No, we cannot.

The main aim of everything we undertake is to raise peoples' quality of life. But we will see a radical achievement in the situation only once our economy has become so powerful that it no longer critically depends on outside economic factors or on the results of parliamentary and presidential elections. The Russian economy is growing fast today, but not yet fast enough. The government is not effective enough in the way it carries out its functions, or in terms of its officials' qualifications. The economic structure is still unbalanced and social spending is still not targeted specifically at the people who need it.

We are forced to admit that some of our closest neighbours and the East European countries have transformed their economies and societies more rapidly and decisively than we have. Much of what Russian specialists have come up with in the way of programmes for pension, housing and utilities, health, housing construction reform and reform in other sectors has not only been discussed in other countries but already put into practice.

Our economy is still very much dependent on exports of raw materials. Of course, our natural wealth is Russia's natural competitive advantage, and this is not something we should be afraid of saying. But an even greater natural competitive advantage is the great intellectual potential our country possesses. This potential should be turned into a driving force that will take the Russian economy further in high-technology and high-revenue sectors.

Building up a services market is proving a slow and difficult process. But it is precisely the services sector that accounts for the greatest share of GDP growth in developed countries. We, on the contrary, still have a state monopoly on services in the housing and utilities sector and other sectors that are of critical importance to our population. The result is that quality is low, while prices for these services keep growing, and so does the population's dissatisfaction. People end up paying twice, if not three times: first they pay taxes, they pay for the services, and then there are also bribes to pay.

The state's overbearing weight in the economy gives rise to a number of other negative consequences. Above all, state officials continue to carry out various functions – according all manner of permissions and licenses, performing inspection and supervisory functions – that taxpayers do not need and did not request. The result is stifled business initiative, corruption and abuse of power. I cannot help but repeat here that the effectiveness of the government still leaves a lot to be desired. Various reasonable proposals are made only to end up overlooked or bogged down in a bureaucratic morass of formalism and incompetence.

Administrative arbitrariness in the law enforcement system is another question. This creates an environment conducive to the various law enforcement agencies taking so-called ”extra-procedural“ action, that is, action that is not in accordance with the law.

But our citizens are not there to serve as a target for the punitive system's actions. The state, including its law enforcement and security services, is there to work for the people, to defend their rights, interests and property, not to mention their security and their lives.

It would be fitting to point out today that just two or three years ago, the insurgents who terrorised the North Caucasus did not imagine that our armed forces and anti-terrorism services would so rapidly raise their combat ability. They did not expect that our society would consolidate so decisively to defend the fundamental pillars of our statehood. For all their boasting and bravado they failed miserably and suffered a total defeat in open confrontation. Now, they resort to terrorist acts against civilians in an attempt to sow panic and fear and undermine confidence in the authorities. In this way they are seeking to break Russia's will in its struggle to strengthen democracy, freedom and its territorial integrity.

The Federal Security Service and the Ministry of Internal Affairs and other law enforcement and security agencies must continue their systematic work to liquidate terrorist networks. Effective operative work and development of tactics to prevent terrorist acts from taking place must receive particular attention.

Coming back to other current problems, I must note that transformation in the social sector is proceeding at an exceedingly slow pace. The delays in implementing health and education reform are preventing us from being able to fully guarantee the quality of services we offer in this sector. But much of the financial flows in these sectors are not in the open. We still do not have a developed medical insurance system, nor do we have competition on the medical services market.

As for education, this is currently the single greatest expense in the budget. We have a traditionally high quality of education, but standards are falling. We have to admit this fact. There are many reasons for this situation, including the emergence of a large number of higher educational establishments that do not meet quality standards but where it is easy for students to get accepted to study. The vast majority of graduates do not end up working in the areas for which they were trained. This means that the state is not taking a very rational approach to funding education and a lot of budget money is being wasted.

The housing problem requires particular attention. Housing shortages and poor quality housing give rise to a whole range of problems. These include lower ability to work, poor health, a low birth rate and other negative factors.

All these issues require our further work, and we must not delay in finding solutions for them as soon as we can.

The natural question is, where and how do we find new sources of growth? Above all, we can find them in new approaches to developing the country, consolidating society and the state, increasing the confidence the population and the authorities have in each other and encouraging a joint search for solutions to the major national tasks we have before us.

The Russian economy must decisively take its deserved place on the world market. For this we first need to develop our own national market.

We need to move more quickly to modernise production facilities that are fast becoming obsolete and build new facilities that will strengthen our competitiveness.

We need to stop throwing away our natural resources and we must bring order to the way they are used. To do this we need to systematise the legislative base by updating the water resources and forestry legislation and the laws on the use of natural mineral resources.

We need transparent conditions for access to natural resources and a fair system of payment for their use. Instead of the pseudo-tenders that are held now, where the main condition for winning is being close to the authorities, we should introduce a system of auctions. And instead of the current administrative approval system, we should introduce a system of full-fledged civil-law contracts with clear definitions of the rights and responsibilities of both business and the state. We need to complete modernisation in our railways sector, the electricity sector and the housing and utilities sector.

We have to finally complete the tax reforms we have begun. Above all, this means reducing the single social tax rate and simplifying tax administration. We need to bring order to property taxes and to taxation of the super profits made by raw materials exporters benefiting from high world commodities prices.

Once we have reduced the overall tax burden our tax system should finally achieve long-awaited stability. It should then be tied closely to inter-budgetary relations and the ongoing process of redistributing powers among the different levels of state power as rapidly as possible.

We must achieve a fully convertible rouble, all the more so as confidence is growing in the national currency.

We need to develop the country's financial system so as to give companies and individuals the opportunity to make use of all the benefits a developed financial services market can offer.

A policy aimed at encouraging people to save for their pensions is an essential part of developing and strengthening the financial system. People are already starting to realise that the size of their future pension will depend on their own contribution while they work, and that everyone has the opportunity to manage their own pension savings.

The state should not only encourage people to save for their pensions, it should also help them make these savings grow. This means putting in place financial incentives to encourage people to save for their pensions. I want to emphasise that this is a very important issue and that we will work on it very thoroughly and attentively.

As I already said, we absolutely must resolve the housing problem. World practice offers a number of solutions. One of the most promising is mortgage loans, another is long-term rent. We must also not forget the needs of people living in state housing. It is the authorities' duty to maintain this housing in decent condition.

I particularly want to mention mortgage loans. Even in developed countries few people can afford to pay the whole cost of housing all at once. Most people take out mortgages to buy housing and pay the cost off in instalments over 10–20 years. This system has now also begun to develop here, but the cost of borrowing and the conditions for getting the loan are such that mortgages are still inaccessible for most people. We need a comprehensive package of legislation that would really launch the development of an accessible housing market.

We cannot procrastinate over resolving these issues. The government should submit these bills during the spring parliamentary session.

We must also carry through to their conclusion the political transformations we have begun. In this respect, I would like to stress that our actions in this area will be as consistent as everything that we have undertaken over these last years to bring stability to the country.

Above all, we are implementing a programme to reform federal relations. Over the coming years we will complete the key transformations that are now taking place in local government. Every citizen will then have the real opportunity to demand the level and quality of service that each specific level of power is obliged to provide. And, of course, citizens will be able to directly influence the decisions that concern them. This is the aim of the laws that have already been approved and that are currently going through Parliament. For this to go ahead, we have to move quickly to complete work on the legal foundation and set out in law the principles of inter-budgetary relations.

We will act consistently to strengthen our political system both at federal and regional level. I am convinced that we need civilised political competition in order to develop our state. Influential, large political parties that have authority and enjoy the trust of our citizens should be the main stay of this work.

We must continue work to create a genuinely functioning civil society in our country. I especially want to say that creating a civil society is impossible without genuinely free and responsible media. But this freedom and responsibility require a legal and economic foundation to support them, and it is the state's obligation to create this foundation.

I firmly believe that only a developed civil society can truly protect democratic freedoms and guarantee the rights and freedoms of the citizen and the individual. Ultimately, only free people can ensure a growing economy and a prosperous state. In short, this is the alpha and omega of economic success and growth.

I would like to stress once more that the rights and freedoms of our people are the highest value that defines the sense and content of the state's work.

Finally, we will most certainly complete the transformations currently underway in the judicial system and the law enforcement agencies. I think this is a truly important area that is decisive for building up real democracy in the country and ensuring the constitutional rights and guarantees of our citizens.

In conclusion I would like to say the events of the early 1990s gave rise to great hopes and expectations among our people. This thirst for change led to a fundamental and dramatic change in our entire way of life. At times it seemed as though this flood of upheavals would never stop. Now we can see that the time of uncertainty and anxiety is over.

Now a new time has begun, a time of creating the conditions that will enable us to achieve a genuinely improved quality of life. This is not an easy task. It requires political will, an honest dialogue between society and the authorities and our combined, ongoing efforts.

We have to ask ourselves, will we be up to this challenge?

The results of recent years give us every ground to say that, yes, we do have the necessary strength in us.

And we will be up to the challenge, most definitely.