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President Vladimir Putin: Good afternoon, dear gentlemen,

I am glad of this opportunity we have to meet here in St Petersburg. I hope that we will be able to have an open discussion of the broadest range of issues concerning economic relations between Russia and the United States.

Taking part in today’s meeting on the Russian side are also Mr Medvedev, chief of staff of the Presidential Executive Office, Mr Gref, our minister for economic development and trade, Mr Khristenko, who heads the Industry and Energy Ministry, and my aide for international relations, Mr Prikhodko.

It is clear today that our trade and economic relations have reached a certain qualitative milestone. It is our view that over the next three-four years we can take our relations to a principally new level of interaction. We think the foundations are already in place for us to be able to do this.

First of all, I would like to note that trade turnover between our countries rose by more than a third last year.

I would also like to draw your attention to the fact that Russian direct investment in the American economy is also on the rise. Of course, Russian investment has not yet reached the same scale as your investment in other countries, but it has already attained a figure of more than $1 billion. Russian investors in the U.S. economy include companies such as LUKoil, Norilsk Nickel and Severstal. I am also pleased to note that another of our companies, Sistema, is now entering the U.S. high-tech market.

These are just the first steps but they are very positive and I hope they will not be the last. In any case, the experience has been very positive and your Russian colleagues are being very well received by the American economy and the same is true at local level where people see that Russian capital is keeping old jobs alive and creating new ones. This, of course, helps to integrate our economies and this is also a very positive factor.

The legal and contractual foundation for our cooperation is strengthening consistently. Work is practically complete on drawing up a common action programme for the economy over the coming years and this matter is one of the key focuses for meetings at all levels, including at the highest level.

To say a few words about the economic situation in the Russian Federation: first of all, it is showing quite a high degree of stability. The country has a stable political and economic situation. We have achieved an economic growth rate of around seven percent a year over the last five years. Our economy grew by 5.4 percent over the first five months of 2005.

We hope that this will not be the final result for the year. We will be looking at how the agriculture sector does in the second half of the year and also at how the situation develops in the processing sectors. But the result we have at the present point in time is nonetheless higher than the average economic growth rate in the world.

I would like to point out several factors that have a determining influence on the main social and economic trends. Of course, the unprecedented high world oil prices are having an impact on both our economies. We realise that these prices assure us quite high and stable budget revenue, but at the same time they also create certain problems with sterilising the money supply and they contribute to rising inflation and making our national currency grow too strong – something that is not exactly positive for our exporters. In this sense, high oil prices are having a certain impact on our economic growth.

But the government is firmly committed to the policy it developed several years ago of maintaining macroeconomic indicators. To my regret, the government does not always manage to meet the target for reducing inflation, but nonetheless a downward trend is in evidence and we are consistently working to lower inflation from year to year in Russia.

At more than seven percent, the inflation rate is unfortunately still too high today. I hope the government will be able to reach the objectives it has set in this area.

At the same time, the petrodollars coming into our economy are boosting the Central Bank’s gold and currency reserves and we understand that this is having a generally stabilising effect on the situation in the country and the economy.

I would like to point out that when we began our work in 2000, the total gold and currency reserves our country had accumulated over all the previous years came to around $12 billion. Now they increase in some months by $3 billion-$4 billion and are close now to a total of $150 billion. The government is also directing some of this revenue we receive into a Stabilisation Fund. As we understand it, this is being done in order that the government be able to take more active steps to bring inflation down.

The state foreign debt has been cut by a third since 1999 because part of the increased revenue we are receiving is being used to pay off the foreign debt, including through payments made ahead of schedule. When we began our work to reduce the debt, it represented almost 60 percent of our GDP. Now it has been brought down to 18 percent of GDP.

Our foreign debt payments, including payments made ahead of schedule, pursue several objectives. Above all, we aim to bring down our debt servicing costs – costs that represent very large amounts equal to almost all our budget’s social spending for an entire year. By improving the indicators I just mentioned, that is, foreign debt as a share of GDP, we have finally resolved what I think is one of our primary objectives – that of holding inflation in check and taking excess money supply out of the economy. The main objective of our Stabilisation Fund is to increase our financial system’s resistance to possible future fluctuations on external markets.

Hydrocarbon extraction has slowed down slightly in our country, as it has in many other countries too. This is due to insufficient focus on investment activity, exploration, transportation and refining capacity. There is nothing unusual in this and it is not a specifically Russian problem. We all know that a similar situation can be observed throughout the entire world oil market at the moment.

I must say that our oil and gas companies are fully aware of this and we intend to provide them all the assistance we can, including by cutting red tape around decisions taken so that they can develop their activities more dynamically.

I want to stress that we will continue to increase our oil and gas production, increase our energy exports and expand our cooperation with leading world companies, including U.S. companies, in continental Russia, in the Barents Sea shelf, on Sakhalin and in other territories. We will work most actively in this area.

At the same time, however, the Russian economy is firmly set on a course of considerable diversification and consistent formation of qualitatively new innovation-based sources of growth.

Of course, the main task of any government is to improve the population’s quality of life and we, of course, intend to continue taking carefully planned steps to successfully modernise our education and health systems. We will also work consistently towards establishing and developing an affordable housing market.

We will continue our work to improve the investment climate in Russia. We plan to introduce tax incentives to encourage capital investment, research and development spending and accelerated amortisation. We will also take steps to eliminate excessive administration in carrying out tax inspections. All of these decisions have already been prepared and will be implemented.

We will continue to look for capital repatriation schemes that will be acceptable for society and effective for business. I think that many of our partners, including our foreign partners, could find Russia’s plans to develop high-tech production special economic zones with a favourable tax regime of particular interest.

We intend to formulate clear rules for our foreign partners regarding production sectors in which certain restrictions exist for reasons of national security. If any of you have any questions regarding the points I have just raised, my colleagues, Mr Gref and Mr Khristenko, will be happy to provide you with more details on our plans in these areas.

Of course, we will continue our process of institutional reform, above all by strengthening the judicial system and the banking sector. We will likewise continue working on strengthening property rights and improving the property rights protection system, including for intellectual property.

I hope that this will all lead us to a situation in a few years time where Russia will cease to be a net exporter of capital and become a net importer instead.

Russia is a dynamically growing large-capacity market. I am sure that we can provide investors, including yourselves, with good working conditions and impressive profits.

Cumulated U.S. investment in the Russian economy is not very high, thus far. The United States takes third place for overall investment in our economy and is in sixth place for total capital investment. This is not to mention that our countries’ scientific and technological potential, the diversity of our economic sectors, Russia’s large domestic market and immense wealth and natural resources allow us to make our work far broader and more effective.

Both Russia and the United States plan to support our business activity at the very highest administrative level. President Bush and I agreed on this and we discussed the need to create the required additional mechanisms. Towards the end of July this year, the “energy quartet”, as we have dubbed it, made up of our respective ministers Khristenko, Gref and Bodman and Gutierrez, are to present their report with concrete projects for supplying Russian liquefied gas to the United States, increasing Russian oil exports through developing new deposits and building up the required transportation infrastructure. As a result, the United States would be able to import 50 million tons of Russian oil a year without additional investment being made. We are convinced that this would be a serious factor for improving stability in the world economy, including in the U.S. economy.

Prospects for our cooperation in the high-tech sector are just as significant. Boeing, for example, is working together with Russian organisations on a project to create a new regional plane. Our engineers and designers are working on a sizeable number of orders for the Boeing 787 project.

On July 15 this year we will celebrate the 30th anniversary of the first Soyuz-Apollo flight. Close cooperation in the space sector is very promising for both countries.

An Innovation Council for High Technology has been set up on a joint initiative by President Bush and myself. This work is also very promising and interesting and I hope that you will take part in the council’s activities.

Finally, a few words on our bilateral trade. We think that we are still very far from realising our full potential in this area and hope that we will soon be able to at least double trade turnover between our two countries. As things stand at the moment, the United States’ monthly trade turnover with Canada and China is several times higher than its trade figure for the entire year with Russia.

I hope that the cooperation between our trade ministers will help bind our markets closer together. President Bush and I are expecting a report from them on an action plan at the end of the month.

The issue of our bilateral trade takes us directly to the question of restrictions and obstacles on the road to global interaction between our economies. I would just like to name a few of these obstacles.

First is the notorious Jackson-Vanik Amendment, which, strangely, is still in effect. I would just remind you that this amendment was passed during the Soviet period in connection with restrictions on Soviet Jews being able to emigrate to Israel. We understand that today these sorts of restrictions simply no longer exist.

Now there are attempts to link this amendment to all manner of different problems, in particular to cooperation in the agricultural sector, deliveries of poultry from the United States, for example, quotas for agricultural produce. It would be funny if it were not so sad. Even people, which we maintain very good relations with, people who fought during the Soviet years for the liberalisation of the Soviet system and the right to leave for Israel, are indignant that this issue has now taken such a turn. “It was not for chicken that we spent time in prison back then,” they say.

We realise that economic cooperation can give rise to issues in different areas and that instruments need to be found to settle them. But no issue should be taken to an extreme. True, the U.S. administration takes decisions every year that neutralise this amendment’s effect, but politically this does not improve the climate for economic cooperation between our countries.

The United States’ unilateral application of sanction measures against Russian space enterprises in the area of export controls and non-proliferation with regard to Iran is another serious obstacle, as are certain provisions of the law on non-proliferation with regard to Iran. This is despite the fact that our U.S. colleagues and ourselves have long since reached an understanding on this matter and we are in full agreement at political level regarding the question of Iran.

Our programmes with Iran are absolutely open and transparent and are under IAEA control. There is absolutely no misunderstanding regarding the question of Iran at the moment, no mutual reproaches or suspicions. They simply do not exist. But nonetheless, certain provisions of the law on non-proliferation are being enforced and are an obstacle for our economic ties.

Russia is the only country party to the Wassenar Agreement to find itself in the second-to-last group of countries for the strictness of export controls on fast computers. I think that IBM, for example, would be interested in removing this barrier to the company’s work in the large market that Russia represents.

In conclusion, I would like to thank Mr Weill for his idea of organising today’s meeting. I am sure that this is a useful initiative and I hope it will be informative and interesting for you. I think it is entirely possible that similar meetings could be organised in the United States with the participation of my friend, U.S. President Bush. I will definitely mention the idea to him, at any rate, at the upcoming G-8 summit and I hope it will meet with a positive reception. That is all I wanted to say by way of introduction. My colleagues and I are at your disposal and ready to answer all your questions. I hope that our meeting will be open and useful.