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President Vladimir Putin: Dear friends, colleagues

It gives me great pleasure to welcome you to Moscow.

I am thankful that you have come to Russia’s capital to discuss the problems facing the world economy and finances, and that such meetings can now take place in Moscow. This meeting coincides with a time when we are seeing positive trends in our economy, and this a noteworthy and pleasant coincidence.

I very much hope that both your specialists and our specialists from the Central Bank and the government’s economic section will take note of the ideas you have discussed and shared with each other over these two days. They will be useful in helping to determine the strategic steps we should take to resolve various problems here in Russia.

It would be a good thing in general if more meetings of this kind are held in Moscow. I for one would only welcome this. So I hope this is not the last time you will all meet like this here.

Once again, it is my pleasure to welcome you today.

Andrei Illarionov: Vladimir Vladimirovich, if you don’t object, I will introduce the meeting’s participants and then we can move on to the discussion

On the left is Professor Arnold Harberger, now a professor at the University of California in Los Angeles. He was professor of economics at Chicago University for many years and was dean of the economics faculty there.

Vladimir Putin: (addressing Arnold Harberger) Mr Illarionov has been exploiting you mercilessly of late. He told me this is your twelfth visit to Moscow, and I think this is just the beginning.

Andrei Illarionov: It’s not easy to exploit Professor Harberger, because in all his years of teaching and academic work he has taught thousands of students, many of whom have gone on to become prominent state officials, finance ministers, economy ministers, directors of central banks, prime ministers, and some have even become president of their countries. Probably no other professor in the world can boast such results. And it should be said that these people who have Professor Harberger and his colleagues to thank for their education have carried out a number of economic revolutions in countries where they have put the economic policies they learned about into practice.

Next is former New Zealand Finance Minister Ruth Richardson, who revolutionised finances in New Zealand and turned around the slowdown in economic development that the country had been experiencing. One of her achievements includes setting strict limits for inflation in New Zealand. At that time it was all but constitutionally ruled that inflation must not exceed two percent. When Ms Richardson left her post, the inflation rate was 0.2 per year.

Next is Jose Pinera, the “father” of Chilean pension reform and creator of the first private pension-based pension reform in the world. It is in part thanks to this reform that Chile began to experience rapid and sustainable economic growth starting in the early 1980s and has had an annual growth rate of 6 percent over the last 20 years. What’s interesting is that not only did Mr Pinera create this system, but that it has continued to work effectively even since he left the government. Dozens of other countries are now copying this model and are doing so with great success. The results have been good everywhere.

Mr Pinera has many unique talents. When he carried out pension reform he spoke for 20 minutes every week on Chilean radio and television, explaining to the people what these reforms were about and what they would involve. Many people did not have confidence in these reforms at first, but now 95 percent of Chilean workers have chosen the private system and are happy with their choice because their savings in this system have been growing every year for the last 20 years at a rate 10 percent higher then the inflation rate. No other system can offer anything even close to this result.

One country that has successfully implemented its own version of the reform developed by Mr Pinera is Kazakhstan. To Mr Pinera’s left is Grigory Alexandrovich Marchenko, former director of Kazakhstan’s Central Bank and now First Deputy Prime Minister of the country. Kazakhstan’s financial system was transformed under Mr Marchenko’s direction. Thanks to the work of Mr Marchenko and his colleagues, Kazakhstan is now on the road to sustainable and rapid economic growth.

To the left of Mr Marchenko is Yelena Leontieva, adviser to a number of governments in Lithuania. Mrs Leontieva is responsible for a whole package of various economic legislation that has helped Lithuania achieve very high growth rates, even compared to its close neighbours.

Then we have the author of Estonia’s brilliant economic liberalisation reform programme, former Prime Minister Mart Laar. Everyone knows Mart Laar well and I am just pointing out that he also came here to Moscow and spoke here. Next is President of the Caton Institute (USA) Edward Crane. He has spent many years tirelessly working to promote the ideas of freedom, liberalism and a free market economy. Fourteen years ago, the Caton Institute held a conference in Moscow on how to make the transition to a market economy. Mr Crane came here with his team, organised this conference and spoke at it.

Also here today is Daniel Yergin, chairman of the Cambridge Energy Research Associates and a brilliant analyst of energy and economic problems throughout the world.

And then there is Kakha Avtandilovich [Bendukidze], who is not only a businessman but also an active promoter of economic freedom.

Vladimir Putin: Ladies and gentlemen, we have an opportunity now to briefly share some thoughts on how your work went here and on your impressions of Moscow. I hope that you at least got a glimpse of our capital city. If not, then I would be happy to tell you a few interesting things about the city because I feel I can confidently call myself a Muscovite now. Moscow is developing, has become a large and beautiful city, and I very much want you not just to have the chance to work here but also to have an interesting time.

Of course, if you would like to share some of your thoughts and impressions on how the Russian economy is developing, I would be very happy to listen.

Jose Pinera: It is a great honour for me to be here. I know that you are a busy man and the fact that you have received us here and found time to discuss these questions with us says a lot about you and a lot about Russia.

I first came to Russia in April 2000. Russia was still going through a crisis period at that moment and I wrote at that time an article about how I viewed Russia’s future with optimism. I was criticised for this article, especially in the United States. The Americans were asking, “Who lost Russia?” and I replied, “No one lost Russia. Russia is not lost. It is a country with huge potential and huge opportunities for its future.” And I was right. I view Russia’s future with optimism. You had only just been elected President back then. Now four years have gone by and a lot has changed for the better in Russia and my confidence in its future has only grown stronger. With all due respect, I would like to look at two points concerning Russia.

First, I think that we in Chile have proven that a real patriot is someone who strives to ensure high economic growth in the country, annual growth rates of the order of seven, eight or nine percent for 10–20 years. In this way, the country’s economic might can be doubled in a decade and increased four-fold over the course of 20 years. This makes it possible to effectively create a completely new and powerful country over this period. I know that you support this idea and are seeking to initiate it here, and I support your steps in this direction.

Second, in order to achieve this kind of economic growth, it is essential to have complete market freedom. Not going only halfway, not 50 percent, but 100 percent freedom for all kinds of economic activities. Furthermore, clear and comprehensible pension reform should serve as a foundation for this 100-percent free and sustainable economic growth. The entire labour force should have a clear and precise idea of what is in their interests.

I have learned a certain amount about how you are going about pension reform in your country. It is happening and it is making progress, but the steps taken so far are very small and indecisive. In effect, you now have four pension systems, four levels. No radio, no television can adequately explain such a complicated system in a way that people will understand. The system should have only one level and there should be only one system.

Each worker should know that the deductions they pay into the system will go directly into their individual pension savings accounts throughout their entire working lives. If people work, say, 45 years, retiring at 60–65, then they will get a decent pension, a large sum, a very large sum. This system is a serious help in ensuring high and sustainable economic growth.

Vladimir Putin: Is the retirement age the same for men and women in Chile, or is it different?

Jose Pinera: It’s different. Men retire at 65 and women at 60.

Vladimir Putin: When were these retirement ages introduced?

Jose Pinera: These upper limits for retirement were introduced 60 years ago. Sixty or sixty-five is the age when people can retire and get a guaranteed pension if they paid the minimum contributions into the system. Of course, people can also retire at 55, 57 or 59, but then they will have to pay more into the system, sufficient to receive the pension they are entitled to. So, these retirement age limits are not compulsory and are not of primary importance.

The retirement age is most important for the poorest groups of the population who earn the lowest wages and pay minimal contributions into the pension system. Other people can choose the retirement age they can afford.

Vladimir Putin: How do you ensure economic equality for men and women if they have different retirement ages?

Jose Pinera: That’s a very difficult question.

Vladimir Putin: Let’s have a second speaker then (laughter in the room).

Jose Pinera: For a start, from an economic point of view, it was not our strict formal aim to ensure absolute equality between men and women as far as pensions go. The main thing that is absolutely the same for men and for women is that they both pay into their individual pension accounts and can make their own decisions about when to retire.

Then we have another question that comes up: women lead more upright and disciplined lives and tend to live longer. So we end up with a compromise: on the one hand they live longer (a plus), and on the other hand their pensions are not quite as big because they have not paid quite as much into the system (a minus). So it’s practically impossible to achieve strict equality here. Men and women are different socially and biologically, and this also concerns their working lives. So, it is impossible to ensure equality and this was not our aim.

Vladimir Putin: It would be better not to say that aloud. (laughter in the room).

But I will allow myself to make a couple of remarks.

First, I imagine that in Chile, in Russia and in other countries, women live longer than men, but not by a long time. Women live longer on average. What does this mean? It means that men depart this life more often while still of productive age. Once people retire, they tend to live a relatively similar number of years, so there is food for thought here. I know that Chile has made great progress in this area and in the economy, including when you were a minister, but as you said, this process has continued for almost 60 years, and over this time a great many decisions have been taken. What is perfectly clear is that this pension reform has, of course, a direct impact on the prosperity of the entire population and also on overall economic development. It is obvious that we should make every effort to take the best of the experience the world has to offer in this area in order to provide our own people with better pensions and make the pension system a part of economic growth. This is most certainly the case.

Andrei Illarionov: The pension system that Mr Marchenko put in place in Kazakhstan has been dubbed ”the nephew of Chilean pension reform.“ We could take a look at Kazakhstan now.

Grigory Marchenko: Our individual pension accounts system really is working well. We have a retirement age of 63 for men and 58 for women. The system was introduced over a period of six years, from 1997 to 2002. You are right about the difference in lifespan not always being so marked, but in Kazakhstan the average lifespan after retirement is 19 years for women and 11 years for men, so statistically, this is important. I agree with Mr Pinera that this kind of pension savings system is crucial for economic reform in general because, for example, developing a mortgage market without having a pension system that provides long-term savings is extremely difficult. People can take out mortgages in Kazakhstan now for 15 years at an average interest rate of 12.8 percent in tenge. In other words, the pension funds and the money they contain have made it possible to create a normal mortgage market. In this sense, an individual pension savings system is part of the overall financial system and it also plays a major part in ensuring that future pensioners will have decent pensions.

At a time when our economies are receiving a big inflow of petrodollars, it is of crucial importance that the finance system work effectively and redistribute this money to other sectors of the economy. Consolidation of the banking system is of prime importance in this respect. Aspects such as life insurance, the development of payment cards and the eventual development of annuity insurance are also important. For the lower middle class, we have launched a housing construction savings scheme like the one in Germany.

Natural monopolies reform is also a fundamental question. In our countries, the state is not quite ”right“. That is to say, there is not enough of it where it is needed, in sectors such as health and education, but where it is perhaps less needed, in the financial sector and so on, it is too present. Our main task then is to cut back the state presence in areas where the markets can take care of themselves, and at the same time, come up with reasonable programmes in areas such as health, education, social welfare and housing in order to make our countries both socially-focused and competitive, because this is not possible without normal health and education systems.

I would also like to continue the thought expressed by Mr Pinera: as you know, we doubled our GDP in dollar terms over four years, and if Russia achieves this objective, the whole region will stand to benefit. We very much hope that you will succeed in this undertaking because historically, Russia has always been a driving force for growth and we would all benefit greatly if you succeed.

Vladimir Putin: I have just one specific question. Does your individual pension accounts system allow people to use part of the funds before they retire if circumstances demand, say, if someone needs an urgent operation that will save their life?

Grigory Marchenko: That is a very good question. People can currently draw on the funds early if they reach the age of 55 and have made enough contributions into the system, or if they become disabled and their disability is confirmed by the relevant commission. But we are currently working on this and have a working group looking at this question. Several scenarios are possible. First, there is the idea of using these savings for buying housing (as is the case in Singapore). Under this scheme, a threshold is set and if someone has accumulated money in excess of this threshold, they can use the surplus funds to buy housing. The second scenario involves using pension funds for medical purposes. This is something necessary. But the important thing here is to ensure there are no abuses. Practice has shown us that people bribe the migration police, supposedly because they’re leaving for Russia or for other countries, in order to collect their pension savings early. So we need a reasonable balance. On the one hand, we need to consider people’s interests, and this should be our prime consideration, and on the other hand, we also have to ensure that these rights are not abused.