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Question: Mr President, thank you very much for giving us your time. This is our first interview with the President of Russia.

Mr President, please tell us, what do you know about Chile?

President Vladimir Putin: I know that it is an active, developing country, which has always had great respect and sympathy for Russia. My colleague, the President of Chile, told me about this several times, and invited me to visit your country, and I am very glad to have the opportunity to go there.

Question: You are coming to Chile on an official visit. It would be interesting to hear how you would like Russia to be seen by the Chilean people.

Mr Putin: I would like for them to have an objective picture, for Chilean society, business and political circles to see Russia as a reliable, solid partner on the international stage and in the economic sphere, a partner that shares fundamental concepts of building a democratic, balanced world system.

I would like for people in Chile to learn more about our country, for people to see our country as an interesting world power, the country they would be curious to visit, and come to know its people, history, art and culture.

Question: You began answering the last question by saying that you would like there to be an objective view of Russia. Does this mean that you think that over the past few decades, the view of Russia has not been objective?

Mr Putin: For various reasons, it was not objective, of course. The world was divided into two parts. It was bipolar. There was a war between blocs, and the two opponents in this world-scale conflict tried to paint quite a negative picture of each other. Of course, we have not completely overcome these tendencies, as the world lived in the conditions of a cold war for decades. I think that this does not yet allow us to look at each other objectively. Although I believe that we are on the right path, and sooner or later this will happen. It would be good if it happened soon.

Question: And is the APEC part of this path?

Mr Putin: Yes, of course. Russia joined this organisation quite recently. A large part of our territory is in the Asia and Pacific region, and so many of our interests are connected with it. I would remind you that despite the breakup of the Soviet Union, Russia is still the largest country in the world. We have many partners in Asia and in the Pacific region. Our position is that activating our contacts with partners in this region of the world will help the development of Siberia and the Far East of the Russian Federation. Our partners in Asia and the Pacific region also require the energy resources of Russia. We feel that they are interested in Russia taking part in regulating many complex problems of world politics, including those that apply to the problems of the region.

Question: You are about to visit Chile and take part in the APEC meetings, and then you plan to continue your journey with a visit to Brazil. As far as I know, this is your second official visit to Latin America.

Mr Putin: Yes, that is correct. I have been in two countries of Latin America – Mexico and Cuba.

Question: As I far as I know, besides contacts in the framework of the APEC, during your visit to Latin America there will be discussions of possibilities for cooperation between business circles of our countries. I understand that you will be accompanied on your visit by a representative delegation of Russian business circles.

Mr Putin: Yes, that is correct. We would like to activate our business and economic contacts. Today the volume of our trade turnover is at an unacceptably low level, in my opinion. It is less than $100 million. This is almost zero, and I consider it to be zero. At the same time, the Russian economy and the Chilean economy are developing at quite fast rates. Here it is possible not just to discuss increasing and diversifying trade turnover, but also a search for other areas of cooperation, above all economic cooperation, of course.

Some traditional goods of Chilean export are gradually finding a place on our market – fruit, wine, and some other goods, but so far this is merely symbolic. On our part, we could provide products from processing industries, energy machine building, cooperation in areas of high technology, ecology, and so on.

Question: They say that in Russia, rules are not always clear and that they are not always observed. What would you like to say to Chilean business community so that they could invest confidently in Russia’s economy?

For example, some Chilean business people invest their money in developing the real-estate sector in Miami, and their investment has quite an important role in this region.

Mr Putin: As you know, the Russian economy is going through a very serious phase of changes. It is only just becoming a real market economy. This process is naturally not a simple one. It is accompanied by the formation of a legal system.

One of the main tasks that we face today is to strengthen the legal basis, and make our legislation stable. But I must say that I do not think that in Russia today we are dealing with an unstable situation. In fact the opposite is true, the economy is growing stably.

Question: And rules?

Mr Putin: I must say that rules have also stabilised. Our task is for laws to become effective, so that the state can guarantee they will be implemented. But perhaps not everyone likes to observe the law. We know that in any sphere of public life, including in the economy, there are always people who want to get around the law to solve their problems. I hope that we are able to avoid this situation. I think that economic growth (6–8% yearly over the past five years) would have also been impossible without conditions of stable development.

You gave a good example of investing in the U.S. real-estate sector. I wonder what the returns from this investment are. I am certain that returns from investments in certain sectors of the Russian economy are much higher, and the chance to receive this profit has always been the best advertisement for making investments.

Question: But at the same time, there are economic laws or economic rules which say that the greater the risk, the greater the returns. Does this mean that the risk in Russia is high?

Mr Putin: To answer this question, one needs to look at Russia’s rating and how it changes according to the world’s leading agency. The rating is constantly increasing. The principal foundation of the Russian economy is being strengthened.

I have already said that over the past five year, our yearly economic growth has been around 6–8%. The government that I led in 1999 began its activity in conditions of very high inflation. Many Latin American countries know what this means. In 1999, inflation in Russia was 36.5%. This year it will also be high, but the trend towards a constant decrease is clear. I think that this year we will reach the level of just over 10% inflation.

When I was the Prime Minister in 1999, the gold and foreign currency reserves of the Central Bank were just over $12 billion. They are now over $107 billion, and at the end of this year they are nearing the $117-$120 mark. Furthermore, the Government has created a stabilisation fund, in some countries this is called the fund of future generations, and it will contain about $20 billion.

We are able to maintain a stable situation on the labour market. Unemployment is gradually dropping, and now it comes to about 7% of the economically active population of the country. If one remembers that real earnings of the population grow every year by about 11%, then it becomes clear that all this creates quite a stable social situation. This also shows that the country has a healthy economic life.

Investment in primary capital will grow by about 11–12% this year. We are gradually reducing the tax burden. We have problems that concern the necessity of diversifying our economy. We understand this, and we will gradually solve this problem. And we will do this carefully, without violating the macro-economic figures reached in recent years, and will try to reduce the level of state involvement in spheres of the economy where its presence is not justified. This is not easy for a country which had a planned economy for decades. But we know that we must take this path, and we will continue to go further along it.

Question: You mentioned the diversification of the economy. As far I understand, the good economic figures that you mentioned, growth of the economy, earnings and others, have in recent years been largely connected with high oil prices. Speaking of the diversification the economy, you probably meant that the process of necessary economic reforms has not yet been completed. In your opinion, how much time will be needed to complete this process, given that there are companies with a large portion of state involvement, and the country does not have a sufficiently developed strong private sector?

Mr Putin: The foreign economic situation, of course, has a certain positive effect on positive economic figures in Russia, but firstly it also creates certain problems in supporting macroeconomic figures on a high level, and secondly, it is not the only reason for changes for the better in the Russian economy. I think that one of the main reasons is the balanced and well-thought out economic policies of the Government.

We could use the enormous flow of so-called oil dollars. If the Central Bank and the Government did not follow a policy of sterilising this flow, then we would not have these macroeconomic figures. This is the first point.

Secondly, despite the considerable flow of these funds, no country ever has enough money. And it would be possible to conduct economic and social policy in such a way that the state budget did not have a profit, as we have done over the last four years, but at a deficit. This would also be possible. But we do not allow this. I assure you, it is not easy to reduce state expenses. There are social issues, medicine, education, defence – the state always needs a lot of money. It is not an easy task to reduce expenses. The government is capable of keeping within the bounds of common sense and the requirements of the modern economy.

Of course, if there are certain areas that are developing actively, and there is a favourable situation for them on international markets, then capital goes where the returns are greater. But we are trying to organise the tax system in such a way as to create if not preferences, then favourable conditions for the development of other processing and high-technology areas of the economy. And from next year, the according mechanisms will function.

I could give you many more arguments. Of course, there is criticism of the Government’s activity, and it is often quite correct, pointing out flaws or indecisiveness of the Government at certain times, but these are all aspects of their work, which on the whole do not change the positive picture of the development of Russia and its economy.

Question: Please tell us, within what timeframe do you expect to normalise the economic situation in Russia, and complete the period of reforms?

Mr Putin: I think that we are already witnesses to this situation of normalisation and stability . The task is to improve mechanisms of development and reach more important goals. This process is never completed. But I think that the most important thing for us is to solve social tasks on this basis – to increase the living standard of our citizens, to achieve a situation whereby our citizens enjoy average European standards of living. But this, of course, will take a long time. But the most important thing, that pleases me, is that the correct direction for progress has been chosen, and we intend to move further on this road.

Question: Your words on additional funds coming into the budget from oil export reminded me of a speech by the Chilean minister for the copper industry. He could be proud, because the reasoning that you used was essentially the same.

Mr Putin: I am glad to hear it.

Question: With your permission, I would like to return to two topics – oil and politics. For Russia to maintain its leading position in oil production and export, it is necessary to attract major foreign investors and to look for and develop oil fields. The country depends on these investments. From your point of view, how is this connected with the agenda of the APEC?

Mr Putin: Who told you that Russia strongly depends on capital investments in this area of the national economy? We are in favour of attracting investments in any sector of the Russian economy, including the energy sector. They may be Russian investors or foreign investors. It is not important for us. Currently, Russian companies have sufficient volumes of capital to support the necessary level of investments in the country’s economy. But there are still areas, including energy, which require risky investments in oil fields where surveying has not yet been completed. Here, of course, both Russian and foreign interested structures need to join efforts. And many of our partners, including foreign partners, are already investing these funds.

If we are speaking with reference to APEC, then in the Far East, in Sakhalin, for example, investments come to dozens of billions of dollars.

It seems to me Russia even as of today occupies one of the leading positions in the world. But Russia’s capabilities and potential are still unappreciated. In several months last year and this year, volumes of oil production in Russia were higher than in Saudi Arabia. However, this does not mean that we must constantly support such high figures. Volumes of oil production, their delivery to international markets and price formation are closely connected.

Russia is a responsible partner for the international economy as a whole, I would say, because we are in favour of fair price formation.

We are not interested in prices going sky high, because in the final analysis this may damage our own economy. So we always find a common language with our partners, and try to ensure that prices on the international raw energy market are fair.

But it is not our fault that in the Middle East, in Iraq and Venezuela, the situation remains unstable and difficult.

We did not create this situation. There was a tornado in the Gulf of Mexico … . We can only be happy about the economic growth in China and India, and their growing needs for raw energy.

Certain people are trying to profit on the problems surrounding the Russian company YUKOS. At the same time, I would like to note that all Russian companies, including YUKOS, increased production and delivery of oil to foreign markets throughout this year.

And we will continue to pursue this balanced policy, and will work with OPEC. But we are not members of this organisation, and I think that things will remain this way. We believe that Russia must be independent in developing its own energy policy.

Question: Observers are not always able to define where Russia stands ideologically. You said that the policies in your country were close to the policies followed by Chilean President Ricardo Lagos. Nevertheless, it is probably not correct to say that Russia is a socialist country or is going in this direction.

Mr Putin: Of course not. I think that we should use general accepted concepts, but it is necessary to move away from stereotypes. I have met President Lagos twice, at the APEC summits, incidentally, and then he made a visit to Moscow in 2002. He made a very good impression on me – he is an excellent specialist and a reliable partner. It is not important to me that he represents the socialist party. For me, it is important that in practice, Chile and Russia have the same position on many international issues. We can see Chile’s independent policies in the UN Security Council, where your country is now a non-permanent member of the Security Council. And this independent position on key problems of the modern world naturally raises Chile’s authority on the international stage.

The Chilean government are following economic policies that are quite liberal, but at the same time socially oriented, and this impresses us. So we have many points of contact, and this gives us reason to believe that in future relations between our countries will develop positively.

Question: I would like to add something to my colleague’s question, and change it a little. There is little doubt that you and your Government are guided by democratic principles in your actions. But recently some critics have said that you are moving towards authoritarianism. What would you say to these critics?

Mr Putin: I would say that this is complete rubbish. Of course, any actions designed to make the state function more effectively are regarded with great suspicion. This is understandable. We have an expression: “If once you get scalded by milk, then you’ll start blowing on water.”

The history of Russia over the past few decades has been quite difficult. Every state looks for the most acceptable form for democratic institutions to function: in some countries, heads of regions are appointed, in others they are elected, in some countries the President is elected by direct secret vote, like in Russia, and in others he is elected by a system of electors, like in the United States. In some countries, parliamentary deputies are elected from the party alone, in others they are elected in single-mandate districts, or there is a mixed system.

Naturally, every country strives for these institutions to function effectively. We need to create conditions under which the country is not prone to the danger of disintegration, where freedom and powers of the regions do not lead to separatism, but where the state functions effectively and ensures freedom of its citizens, and at the same time solves social problems effectively.

These democratic institutions should be founded on historical experience, on traditions and at the level of development of democratic institutions and institutions of civil society.

For example, I have proposed to hold elections of parliamentary deputies by party lists, on a representative principle. One of the reasons for this is to initiate, to encourage the development of a truly functional multi-party system. Until a multi-party system is realised, people will choose between more charming and less charming people, and not between political views and plans for developing the country and region.

Russia is looking for the most optimal system of organising society, the most optimal means to apply commonly accepted institutions of democracy in the country. At the same time, we must of course take into account traditions, the level of development of civil society, the enormous territory and the colossal number of different peoples with their own way of life who live in the Russian Federation. The main principles and main tools of democracy will not merely be used, they will continue to be further introduced on the territory of the Russian Federation. Our society cannot exist in any other way.

A return to any totalitarian system is absolutely out of the question. Democracy cannot be interpreted as complete permissiveness. A free market cannot be interpreted as the right to rob the state and national riches. We will build democracy, not anarchy.

Question: Your mention of tradition is very important. With all due respect, I must say that democracy is not in Russia’s traditions.

Mr Putin: But this is also what I meant.

How can you imagine elections, for example of regional heads by the party principle, if there are no parties there? Besides the Communist party, unfortunately, no other organisational force exists here yet, in the direct sense of this word.

Of course, if there was no civil society under the Tsars or under communism, we have been striving to create these institutions over the last 12 years. But still, you must agree that against the backdrop of Russia’s 1000-year history, this is an insignificant period of time. We need to continue work on strengthening these institutions. We will persevere in doing this.

When I talked about traditions, I also meant several quite specific things. For example, in some regions of the Russian Federation, the higher bodies of power and administration were rotated according to ethnic principle, as was the case in Lebanon at one time, for example.

In a single republic in the Caucasus, which has less than 2 million people, there are about 100 ethnic groups. And in recent years, despite direct elections, constant agreements were made behind the scenes, moving representatives of various ethnic groups from position to position. It is of course possible to ignore this, but it is better if everything is done transparently and clearly.

Thank you very much for your attention. All the best.