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President Vladimir Putin: Distinguished members of the Federal Assembly,

Citizens of Russia,

The addresses of the last years have set out our main socio-economic policy priorities for the coming decade. Our efforts today focus precisely on the areas that directly determine the quality of life for our citizens. We are carrying out national projects in the areas of healthcare, education, agriculture and housing construction. As you know, the problems in these areas have accumulated not just over a period of years but over entire decades. These are very sensitive issues for people’s lives. We have had to build up considerable strength and resources in order to finally be able to address these problems and focus our efforts on resolving them.

A number of laws were passed in order to implement the proposals set out in the Annual Address for last year (2005). These were laws designed to improve our political system, in particular, the law on the Public Chamber, the law on parliamentary investigations and the law giving the party winning the majority in regional elections the right to take part in the process of selecting the regional governor. We likewise adopted a decision that improves relations between the federal, regional and local authorities.

In other words, we have concentrated over these last years on ironing out the imbalances that had arisen in our system of state organisation and in the social sphere.

Now, as we plan the continued development of our state and political system, we must also take into account the current situation in society. In this respect I note what has become a characteristic feature of our country’s political life, namely, low levels of public trust in some of the institutions of state power and in big business. The reasons for this situation are understandable.

The changes of the early 1990s were a time of great hopes for millions of people, but neither the authorities nor business fulfilled these hopes. Moreover, some members of these groups pursued their own personal enrichment in a way such as had never been seen before in our country’s history, at the expense of the majority of our citizens and in disregard for the norms of law and morality.

“In the working out of a great national program which seeks the primary good of the greater number, it is true that the toes of some people are being stepped on and are going to be stepped on. But these toes belong to the comparative few who seek to retain or to gain position or riches or both by some short cut which is harmful to the greater good.”

These are fine words and it is a pity that it was not I who thought them up. It was Franklin Delano Roosevelt, the President of the United States of America, in 1934.

These words were spoken as the country was emerging from the great depression. Many countries have faced similar problems, just as we are today, and many have found worthy ways to overcome them.

At the foundation of these solutions was a clear understanding that the state’s authority should not be based on excessive permissiveness, but on the ability to pass just and fair laws and firmly ensure their enforcement.

We will continue, of course, to work on raising the prestige of the civil service, and we will continue to support Russian business. But be it a businessman with a billion-dollar fortune or a civil servant of any rank, they all must know that the state will not turn a blind eye to their doings if they attempt to gain illegal profit out of creating special relations with each other.

I make this point now because, despite all the efforts we have made, we have still not yet managed to remove one of the greatest obstacles facing our development, that of corruption. It is my view that social responsibility must lie at the foundation of the work of civil servants and business, and they must understand that the source of Russia’s wellbeing and prosperity is the people of this country.

It is the state’s duty to ensure that this principle is reflected in deed and not just in word. I believe that this is one of the priority tasks we face today and that we cannot resolve this task unless we ensure the rights and liberties of our citizens, organise the state itself effectively and develop democracy and civil society.

We have spoken on many occasions of the need to achieve high economic growth as an absolute priority for our country. The annual address for 2003 set for the first time the goal of doubling gross domestic product within a decade. The calculation is not hard to make: to achieve this goal our economy needs to grow at a rate of just over seven percent a year.

On the surface we look to be keeping to our objectives and have had average economic growth of around seven percent for the past three years, but I want to stress that if we do not address certain issues, do not improve our basic macroeconomic indicators, do not ensure the necessary level of economic freedom, do not create equal conditions for competition and do not strengthen property rights, we will be unlikely to achieve our stated economic goals within the set deadline.

We have already begun taking concrete steps to change the structure of our economy and, as we have discussed a great deal, to give it a more innovative quality. I think that the government is moving in the right direction in this regard but I would like to make the following points.

First, state investment is necessary, of course, but it is not the only means of achieving our objectives. Second, it is not the volume of investment that is important so much as an ability to choose the right priorities while at the same time ensuring that we continue following the responsible economic policy we set five years ago.

After a long period during which we ran a budget deficit and faced sharp fluctuations of the rouble’s exchange rate, the situation today is changing dramatically. We must maintain this financial stability that has been achieved as one of the basic conditions for increasing people’s trust in the state and for encouraging entrepreneurs to invest money in business development.

Today’s situation allows us to make a calmer and more sober assessment of the threats that Russia encounters as part of the world system, threats that represent a danger for our internal development and for our country’s international interests.

We can make a more detailed examination of our place in the world economy. In a context of intensive competition, scientific and technological advantages are the defining factors for a country’s economic development. Unfortunately, a large part of the technological equipment used by Russian industry today lags not just years but decades behind the most advanced technology the world can offer. Even allowing for the climate conditions in Russia, our energy use is many times less efficient than that of our direct competitors.

Yes, we know that this is the legacy of the way our economy and our industry developed during the Soviet period, but it is not enough just to know. We have to take concrete steps to change the situation. We must take serious measures to encourage investment in production infrastructure and innovative development while at the same time maintaining the financial stability we have achieved. Russia must realise its full potential in high-tech sectors such as modern energy technology, transport and communications, space and aircraft building. Our country must become a major exporter of intellectual services.

Of course, we hope for increased entrepreneurial initiative in all sectors of the economy and we will ensure all the necessary conditions for this to happen. But a real leap forward in the areas that I just mentioned, all areas in which our country has traditionally been strong, gives us the opportunity to use them as an engine for growth. This is a real opportunity to change the structure of our entire economy and establish for ourselves a worthy place in the international division of labour.

We already feel confident in the mining and extraction sector. Our companies in this sector are very competitive. Gazprom, for example, has just become the third biggest company in the world in terms of capitalisation, while at the same time maintaining quite low tariffs for Russian consumers. This result did not just come about all on its own, but is the result of carefully planned action by the state.

But we cannot pat ourselves on the back and stop here. We need to put in place the conditions for more rapid technological modernisation in the energy sector. We need to develop modern refining and processing facilities, build up our transport capacity and develop new and promising markets. And in doing all of this we need to ensure both our own internal development needs and fulfil all of our obligations to our traditional partners.

We must also take steps to develop nuclear energy, a nuclear energy sector based on safe, new-generation reactors. We need to consolidate Russia’s position on the world markets for nuclear energy sector technology and equipment and make full use here of our knowledge, experience, advanced technology, and of course, international cooperation. Restructuring in the nuclear energy industry itself also aims at enabling us to achieve these goals. We must, of course, also focus work on promising new directions in energy – hydrogen and thermonuclear energy.

We must also take action to make our energy consumption radically more efficient. This demand is not just a whim for a country rich in energy resources, but is an issue for our competitiveness in the context of integration into the world economy. It is an issue of the environmental security and quality of life for our people.

I believe that only in this way can we ensure that Russia maintains a leading and stable position on energy markets in the long term. And in this way, Russia will be able to play a positive part in forming a common European energy strategy.

Our country has an advantageous geographical location and we must make use of this factor to realise our potential in the very promising area of modern transport and communications. The key decision in this respect is comprehensive and interlinked development of all types of transport and communications.

I note in this regard that concession mechanisms create new opportunities for carrying out such projects, and we should start making use of them very soon.

The reorganisation of important sectors such as aircraft- and shipbuilding has been dragging on for an unjustifiably long time. The government must take rapid steps to finally complete work on establishing holdings in these sectors.

It is also extremely important for us to make the right choices in our development priorities for the space industry. We must not forget that the development of outer space is Russia’s protective shield, gives us the possibility of detecting global natural cataclysms at an early stage and is a testing ground for new materials and technology. These and other objectives all require considerable investment to modernise facilities producing equipment for the space industry and to develop the infrastructure on the ground.

Russia has the potential to become one of the leaders in the field of nanotechnology. This sector represents one of the most promising directions for energy conservation and for developing new elements, medical technology and robotics. I believe we must take rapid steps to draw up and adopt an effective programme in this field.

I hope too that the implementation of the government’s and the Russian Academy of Sciences’ joint plans to modernise the science sector will not be no more than a formality but will bring genuine results and provide our country’s economy with promising new scientific developments.

Overall, what we need today is an innovative environment that will get new knowledge flowing. To do this we need to create the necessary infrastructure: technology incubators, technology parks, venture funds, investment funds. We are already doing this. We need to establish favourable tax conditions for financing innovative activities.

I believe too that the state should also facilitate the purchase of modern technology abroad. In this respect we have also taken some steps, first of all, of course, in order to modernise priority branches of industry. In this respect I ask you to analyse the possibilities for channelling resources into the capital of the financial institutions involved in leasing, lending and providing insurance for these types of contracts.

Reliable protection of intellectual property rights remains an essential condition for developing new technology. We must guarantee the protection of copyright within our country – this is also our duty to our foreign partners. And we must also ensure greater protection for the interests of Russian copyright holders abroad.

Dear colleagues,

Russia today needs unhindered access for its goods on international markets. We consider this an issue of more rational participation in the international division of labour and a question of making full use of the benefits offered by integration into the world economy. It is precisely for this reason that we are continuing our negotiations on accession to the World Trade Organisation based only on conditions that fully take into consideration Russia’s economic interests.

It is clear today that our economy is already more open than the economies of many of the members of this esteemed organisation. The negotiations on Russia’s accession to the WTO must not become a bargaining chip on issues that have nothing to do with this organisation’s activities.

In my address for 2003 I set the goal of making the rouble convertible. An outline of the steps to take was set out and I must say that these steps are being taken. I propose today that we speed up the removal of the remaining restrictions and complete this work by July 1 of this year.

But making the rouble genuinely convertible depends in great part on its attractiveness as an instrument for settlements and savings. In this respect we still have a great deal of work to do. In particular, the rouble must become a more universal means for carrying out international settlements and should gradually expand its zone of influence.

To this end we need to organise markets on Russian territory for trading oil, gas and other goods, markets that carry out their transactions in roubles. Our goods are traded on world markets, but why are they not traded here in Russia? The government should speed up work on settling these issues.

As I said before, our growing economic possibilities have enabled us to allocate additional money to the social sphere – investment in our people’s prosperity and in Russia’s future.

The goal of the Affordable Housing project, for example, is to lower interest rates on mortgage loans over a period of two years and almost triple the total mortgage loans made, bringing them to a total of 260 billion roubles.

Another of our national projects allocates considerable resources to the development of agriculture. Work has already begun on programmes to build housing for young higher education graduates in rural areas. We are also developing a system for making loans available to co-operative retailers, small individual land cultivation and large-scale agricultural production enterprises. We are facilitating the purchase of the new technology and high-quality agricultural equipment that is so essential for our rural areas.

Now for a few words on the aims and measures set out in the Education national project. Russia needs a competitive education system otherwise we will end up facing the real threat of having our quality of education not measure up to modern demands. Above all, we need to support the higher education establishments that are carrying out innovative programmes, including by buying the latest Russian and foreign-made equipment and technology.

The government must bring order to the curriculum of vocatonal education schools. This is something that should be done through work together with the business community and social services sector, for whom these institutions are training specialists in the first place.

We need to create a system of objective and independent external control over the quality of the education received, and we need to engage in broad-based and open dialogue with the public to establish an objective rating of universities.

We should not be afraid to expand the financial independence of education institutions, including schools, at the same time raising their responsibility for the quality of every aspect of the learning process and for the final result.

I support our business community’s initiative of financing major universities through special development funds and through the formation of an education loans system. In this respect we need to look at improving the legislation in order to create incentives for such spending and ensure the necessary guarantees. I deliberately have not used the term state guarantees, but there must be guarantees of some kind, and the government can organise this work and put in place the required mechanisms.

Our fourth national project has been started in the area of healthcare and is aimed at improving primary healthcare and prevention and at improving access to high-tech medical services. I want to emphasise at the same time that the money allocated to the national projects accounts for only around 5–7 percent of total state spending in these sectors.

The government and the regional and local authorities must work systematically together on modernising these four sectors and making more effective use of the considerable resources that we already have. If properly organised, all of this work should improve the quality of service in healthcare and education and also make it possible to considerably increase wages for all groups working in these sectors, not only those who are receiving additional payments as part of the priority projects.

Furthermore, starting this year, a large part of the federal budget spending will be focused on the final result. The regional authorities also must begin this work. I deliberately draw the regional authorities’ attention to this point. The government has already taken the first steps in this direction but in the regions nothing is happening.

We must also continue the process of devolution of powers. In particular, the regions should be given part of the investment funds from the federal budget, which are essentially already being used today to finance municipal powers.

It is high time to stop overseeing the construction of schools, bathhouses and sewerage systems from Moscow.

And now for the most important matter. What is most important for our country? The Defence Ministry knows what is most important. Indeed, what I want to talk about is love, women, children. I want to talk about the family, about the most acute problem facing our country today – the demographic problem.

The economic and social development issues our country faces today are closely interlinked to one simple question: who we are doing this all for? You know that our country’s population is declining by an average of almost 700,000 people a year. We have raised this issue on many occasions but have for the most part done very little to address it. Resolving this problem requires us to take the following steps.

First, we need to lower the death rate. Second, we need an effective migration policy. And third, we need to increase the birth rate.

The government just recently adopted a programme for improving road safety. Adopting a programme is easy, now we need to implement it. I take this opportunity to draw the government’s attention to delays and unjustified red tape involved in carrying out these kinds of tasks. I spoke about this issue in last year’s address, and the programme has only just now been prepared.

I am certain that other issues raised in last year’s address are also not always being resolved in the way they should be.

We are taking measures to prevent the import and production of bootleg alcohol. The national Healthcare project is rightly focusing on the detection, prevention and treatment of cardiovascular disease and other illnesses that are high causes of death among our population.

Regarding migration policy, our priority remains to attract our compatriots from abroad. In this regard we need to encourage skilled migration to our country, encourage educated and law-abiding people to come to Russia. People coming to our country must treat our culture and national traditions with respect.

But no amount of migration will resolve our demographic problems if we do not also put in place the conditions and incentives for encouraging the birth rate to rise here in our own country. We cannot resolve this problem unless we adopt effective support programmes for mothers, children and families.

Even the small increase in the birth rate and the drop in infant mortality we have seen of late are not so much the result of concerted effort in this area as of the general improvement in the country’s socio-economic outlook. It is good to see this improvement, but it is not enough.

The work we have carried out on social projects over these last years has laid a good base, including for resolving the demographic problem, but it is still inadmissibly insufficient, and you know why. The situation in this area is critical.

Distinguished members of the Federal Assembly, you will soon begin work on the budget for 2007, the year of elections to the State Duma. Understandably, the budget adoption process will be determined in large part by your desire to do as much as you can for your voters. But if we really want to do something useful and necessary for our citizens, I propose that you lay aside political ambitions and don’t disperse resources, and that we concentrate on resolving the most vital problems the country faces, one of which is the demographic problem, or, as Solzhenitsyn put it, the issue of ‘conserving the people’ in the broad sense. All the more so as there is public consensus that we must first of all address this key problem affecting our country.

I am sure that if you do this you will reap the gratitude of millions of mothers, young families and all the people of our country.

What am I talking about specifically? I propose a programme to encourage childbirth. In particular, I propose measures to support young families and support women who decide to give birth and raise children. Our aim should be at the least to encourage families to have a second child.

What stops young families, women, from making such a decision today, especially when we’re talking of having a second or third child? The answers are well known. They include low incomes, inadequate housing conditions, doubts as to their own ability to ensure the child a decent level of healthcare and education, and – let’s be honest – sometimes doubts as to whether they will even be able to feed the child.

Women planning to have a child face the choice of either giving birth and losing their jobs, or not giving birth. This is a very difficult choice. The programme to encourage childbirth should include a whole series of administrative, financial and social support measures for young families. All of these measures are equally important but nothing will bring results unless the necessary material support is provided.

What should we be doing today? I think that we need to significantly increase the childcare benefits for children under the age of one-and-a-half.

Last year we increased this benefit from 500 roubles to 700 roubles. I know that many deputies actively supported this decision. I propose that we increase the childcare benefit for the first child from 700 roubles to 1,500 roubles a month, and that we increase the benefit for the second child to 3,000 roubles a month.

Women who had jobs but then take maternity leave and child care leave until it is one-and-a-half should receive from the state not less than 40 percent of their previous wage. We realise that we will have to set an upper threshold from which this sum is counted. I hope that the government will work together with the deputies to set this threshold. Whatever the case, the total benefit should not be lower than what a woman who did not previously work would receive, that is to say, 1,500 roubles and 3,000 roubles respectively.

Another problem is getting women back into the workforce again. In this respect I propose introducing compensation for the expenses families pay for pre-school childcare. Compensation for the first child would come to 20 percent of expenses, for the second 50 percent, and for the third 70 percent of the average amount the parents actually pay for the pre-school childcare facility.

I draw your attention to the fact that I said that compensation would be for the expenses the parents actually pay and not for the costs for the childcare facility. The regional leaders understand what I am talking about. It is up to the regional and local authorities to ensure that there are enough kindergartens and nurseries to cover demand.

We also need to work together with the regions to develop a programme providing financial incentives for placing orphans and children whose parents are unable to care for them in family care. We currently have some 200,000 children living in children’s homes and orphanages. In reality the number of orphans is far higher, but around 200,000 of them are in children’s homes. It seems to me that foreigners are adopting more of our children than we ourselves are. I propose that we double the benefit paid to guardians or foster parents of children and make it at least 4,000 roubles a month. I also propose considerably increasing the wage paid to foster parents from 1,000–1,500 roubles a month to 2,500 roubles a month. And we should also increase the one-off payment made to families taking in children, regardless of the form chosen for placing the child with a family, to 8,000 roubles, that is, equal to the one-off payment made for giving birth to a child.

I instruct the government to work together with the regions to create a mechanism that will make it possible to reduce the number of children in institutions. We likewise need to take care of the health of future mothers and newborn babies and bring down the infant mortality and disability rates.

I propose that we increase the value of the childbirth certificates that were introduced last year and have worked well so far. I propose that we increase their value from 2,000 roubles to 3,000 roubles for pregnancy centres and from 5,000 roubles to 7,000 roubles for maternity homes.

This additional money should be used for buying the necessary medicines for women and providing a higher quality of medical services. This must take into account the views of the patients themselves, the women, and I stress this point. We need to develop such a mechanism. This is not difficult to do.

We also need to move rapidly to adopt a programme to create a network of perinatal centres and ensure that maternity homes have all the necessary equipment, special transport and other technology they need.

Finally, and most effective in my view, is a measure to ensure material support. I think that the state has a duty to help women who have given birth to a second child and end up out of the workplace for a long time, losing their skills. I think that, unfortunately, women in this situation often end up in a dependent and frankly even degraded position within the family. We should not be shy about discussing these issues openly and we must do so if we want to resolve these problems. If the state is genuinely interested in increasing the birth rate, it must support women who decide to have a second child. The state should provide such women with an initial maternity capital that will raise their social status and help to resolve future problems. Mothers could make use of this capital in different ways: put it towards improving their housing situation, for example, by investing it in buying a house, making use of a mortgage loan or other loan scheme once the child is three years old, or putting it towards the children’s education, or, if they wish, putting it into the individual account part of their own old-age pension.

Experts say that these kinds of state support measures should total at least 250,000 roubles, and this sum should be indexed to annual inflation, of course.

The question arises of what to do with the families who already have at least two children. This is an important question and I am sure that the deputies will come to a carefully thought-through decision in this respect.

Of course, carrying out all of these plans will require a lot of work and an immense amount of money. I ask you to work out the obligations the state would increasingly bear in this case over the years and give the programme a timeframe of at least 10 years at the end of which the state can decide on future action depending on the economic and demographic situation in the country.

Finally, the money needed to begin implementing these measures should be allocated in the budget for next year. This mechanism should be launched starting on January 1, 2007. I also ask you to work together with the government on the implementation procedures for carrying out this programme I have proposed.

Concluding on this subject, I note that we cannot resolve the problem of the low birth rate without changing the attitudes within our society to families and family values. Academician Likhachev once wrote that “love for one’s homeland, for one’s country, starts with love for one’s family”. We need to restore these time-honoured values of love and care for family and home.

While concentrating on raising the birth rate and supporting young families, we must also not forget about the older generation. These are people who have devoted their entire lives to their country, who laboured for their country and who, if necessary, rose to its defence. We must do all that we can to ensure them a decent life.

As you know, we have raised pensions on a number of occasions over recent years, and ahead of the planned timeframe. Next year we will again raise pensions by almost 20 percent overall. The state is allocating considerable money to providing social benefits and guarantees for pensioners and veterans. We need to continue our programme for providing state-funded housing for pensioners and veterans, including through using additional funds that are part of the Affordable Housing project. I ask you to continue focusing on this work as a key priority.

Distinguished deputies and members of the Federation Council,

In order to calmly and confidently resolve all the issues I have mentioned, issues of peaceful life, we need convincing responses to the national security threats that we face. The world is changing rapidly and a large number of new problems have arisen, problems that our country has found itself facing. These threats are less predictable than before and just how dangerous they are has not yet been fully gauged and realised. Overall, we see that conflict zones are expanding in the world and, what is especially dangerous is that they are spreading into the area of our vital interests.

The terrorist threat remains very real. Local conflicts remain a fertile breeding ground for terrorists, a source of their arms and a field upon which they can test their strength in practice. These conflicts often arise on ethnic grounds, often with inter-religious conflict thrown in, which is artificially fomented and manipulated by extremists of all shades.

I know that there are those out there who would like to see Russia become so mired in these problems that it will not be able to resolve its own problems and achieve full development.

The proliferation of weapons of mass destruction also represents a serious danger. If these weapons were to fall into the hands of terrorists, and they pursue this aim, the consequences would be simply disastrous.

I stress that we unambiguously support strengthening the non-proliferation regime, without any exceptions, on the basis of international law. We know that strong-arm methods rarely achieve the desired result and that their consequences can even be more terrible than the original threat.

I would like to raise another important issue today. Disarmament was an important part of international politics for decades. Our country made an immense contribution to maintaining strategic stability in the world. But with the acute threat of international terrorism now on everyone’s minds the key disarmament issues are all but off the international agenda, and yet it is too early to speak of an end to the arms race.

What’s more, the arms race has entered a new spiral today with the achievement of new levels of technology that raise the danger of the emergence of a whole arsenal of so-called destabilising weapons.

There are still no clear guarantees that weapons, including nuclear weapons, will not be deployed in outer space. There is the potential threat of the creation and proliferation of small capacity nuclear charges. Furthermore, the media and expert circles are already discussing plans to use intercontinental ballistic missiles to carry non-nuclear warheads. The launch of such a missile could provoke an inappropriate response from one of the nuclear powers, could provoke a full-scale counterattack using strategic nuclear forces.

And meanwhile far from everyone in the world has abandoned the old bloc mentality and the prejudices inherited from the era of global confrontation despite the great changes that have taken place. This is also a great hindrance in working together to find suitable responses to the common problems we face.

Taking into account all of the above, Russia’s military and foreign policy doctrines must also provide responses to the issues of today, namely, how to work together with our partners in current conditions, to fight effectively not just terrorism but also the proliferation of nuclear, chemical and bacteriological weapons, how to settle the local conflicts in the world today and how to overcome the other new challenges we face. Finally, we need to make very clear that the key responsibility for countering all of these threats and ensuring global security will lie with the world’s leading powers, the countries that possess nuclear weapons and powerful levers of military and political influence. This is why the issue of modernising Russia’s Armed Forces is extremely important today and is of such concern to Russian society.

The addresses of recent years have all dealt with various national security problems. Today I want to look more closely at the current state of the Russian Armed Forces and their development prospects.

These days we are honouring our veterans and congratulating them on Victory Day. One of the biggest lessons of World War II is the importance of maintaining the combat readiness of the armed forces. I point out that our defence spending as a share of GDP is comparable or slightly less than in the other nuclear powers, France or Britain, for example. In terms of absolute figures, and we all know that in the end it is absolute figures that count, our defence spending is half that of the countries I mentioned, and bears no comparison at all with the defence spending figures in the United States. Their defence budget in absolute figures is almost 25 times bigger than Russia’s. This is what in defence is referred to as ‘their home – their fortress’. And good on them, I say. Well done!

But this means that we also need to build our home and make it strong and well protected. We see, after all, what is going on in the world. The wolf knows who to eat, as the saying goes. It knows who to eat and is not about to listen to anyone, it seems.

How quickly all the pathos of the need to fight for human rights and democracy is laid aside the moment the need to realise one’s own interests comes to the fore. In the name of one’s own interests everything is possible, it turns out, and there are no limits. But though we realise the full seriousness of this problem, we must not repeat the mistakes of the Soviet Union, the mistakes of the Cold War era, neither in politics nor in defence strategy. We must not resolve our defence issues at the expense of economic and social development. This is a dead end road that ultimately leaves a country’s reserves exhausted. There is no future in it.

Of course, the question arises whether we can reliably ensure our security in a situation of such disparity with the other leading powers. Of course we can, and I will say how now. I propose that we look at this issue in more detail.

A few years ago the structure of the country’s armed forces was not in keeping with the reality of today’s situation. The armed forces were no longer receiving any modern equipment. Not a single new ship was built between 1996 and 2000 and only 40 new items of military equipment were commissioned by the armed forces. The troops carried out military exercises on maps, only on maps, the navy never left the docks and the air force never got to fly. When the need arose to counter a large-scale attack by international terrorists in the North Caucasus in 1999, the problems in the armed forces became painfully evident.

I remember very clearly a conversation I had with the chief of General Staff at that time. He is probably present here today. In order to effectively repel the terrorists we needed to put together a group of at least 65,000 men, but the combat ready units in the entire army came to only 55,000 men, and they were scattered throughout the entire country. Our armed forces came to a total of 1,400,000 men but there wasn’t enough men to fight. This is how kids who had never seen combat before were sent in to fight. I will not forget this ever. And it is our task today to make sure that this never happens again.

The situation in the armed forces today has changed dramatically. We have created a modern structure for the armed forces and the different units are now receiving modern, new arms and equipment, arms and equipment that will form the basis of our defence through to 2020. This year saw the start of mass defence equipment procurement for the Defence Ministry’s needs.

Naval shipbuilding has got underway again and we are now building new vessels of practically all types. The Russian Navy will soon commission two new nuclear submarines carrying strategic weapons. They will be equipped with the new Bulava missile system, which together with the Topol-M system will form the backbone of our strategic deterrent force. I emphasise that these are the first nuclear submarines to be completed in modern Russia. We had not built a single vessel of this type since 1990.

Five Strategic Missile regiments have already received silo-based Topol-M missiles, and one of our missile divisions will also receive the mobile version of the Topol-M system this year.

Another important indicator over recent years is that intensive combat and operational training is being conducted among the troops. Dozens of field exercises and long-distance sea voyages have been organised. One just finished today.

The result of these changes has been to boost combat spirit and improve the morale of soldiers and officers. We know examples of what it is no exaggeration to call mass heroism among military servicemen and law enforcement personnel.

The changes in the structure of the military budget are also an indicator of change. Defence spending has increased from year to year. An ever greater share of this money is going precisely into improving the quality of the armed forces. Over the coming years we must reach the goal of having at least half of the defence budget being spent on development. Every budget rouble must be spent carefully and for the designated purpose.

I have long since raised the issue of the need to establish a unified procurement and supply system for arms, military equipment and rear support. The government must settle this issue by the end of the year and complete this work and then establish a federal civilian agency with the according powers. I very much hope that this will also have a positive impact on overcoming corruption in the armed forces.

Now I would like to name the main demands regarding the missions our armed forces must be ready fulfil. Over the next five years we will have to significantly increase the number of modern long range aircraft, submarines and launch systems in our strategic nuclear forces.

Work is already underway today on creating unique high-precision weapons systems and manoeuvrable combat units that will have an unpredictable flight trajectory for the potential opponent. Along with the means for overcoming anti-missile defences that we already have, these new types of arms will enable us to maintain what is definitely one of the most important guarantees of lasting peace, namely, the strategic balance of forces.

We must take into account the plans and development vectors of other countries’ armed forces, and we must keep ourselves informed on promising developments, but we should not go after quantity and simply throw our money to the wind. Our responses must be based on intellectual superiority. They will be asymmetrical, not as costly, but they will unquestionably make our nuclear triad more reliable and effective.

Modern Russia needs an army that has every possibility for making an adequate response to all the modern threats we face. We need armed forces able to simultaneously fight in global, regional and — if necessary — also in several local conflicts. We need armed forces that guarantee Russia’s security and territorial integrity no matter what the scenario.

Another important demand is that the armed forces be professional and mobile. I particularly note that we have made the necessary personnel cutbacks over the last five years. The process of bringing the size of the armed forces down to an optimum 1 million servicemen will not require further special cutbacks but will be reached as officers who have served their time take their retirement. This scaling down will be achieved only through cutting back the bureaucratic apparatus. The combat units will not be affected by any more cutbacks.

Changes will also be made to the military command system and the mobilisation system will be improved. By 2008, professional servicemen should account for two thirds of the armed forces. All of this will enable us to reduce compulsory military service to one year.

Once the permanently combat-ready units are all manned by contract servicemen, we must also, starting 2009, begin filling posts for sergeants, master sergeants, and for above-water craft crews on principle of contract service.

The armed forces units stationed in Chechnya are all manned by contract servicemen. As from January 1, 2007, the Interior Ministry troops in Chechnya will also all be contract servicemen. In other words, we will no longer use conscript servicemen at all in anti-terrorist operations.

By 2011 our general purpose forces should include around 600 permanently combat-ready units. A much larger number of such units will be created in fighter plane units and military aviation, in the air defence forces, communications, radio-electronic reconnaissance and electronic warfare units. If need be, we will be able to quickly put into place mobile and self-sufficient units in any potentially dangerous area. Professionally trained units and permanently combat-ready units will form the backbone of these forces.

Service in the Russian Armed Forces should be modern and genuinely prestigious. People serving their motherland should have a high social and material status and benefit from solid social guarantees.

By 2010 we should have definitively resolved the issue of permanent housing for servicemen and by 2012 we should have resolved the issue of service housing.

We also plan a number of wage rises for the military over the coming years. At the same time we are developing the healthcare and insurance system for servicemen. Finally, the issue of increasing discipline among the troops is an equally important task. The political problems of the transition period and the lack of funding meant that the army was essentially just taking what it could get to fulfil its personnel needs, and this also led to worse conditions of service and a drop in the level of combat preparedness.

A huge number of young men of conscript age today suffer from chronic diseases and have problems with drinking, smoking and sometimes drugs as well. I think that in our schools we need not just to educate our young people but also see to their physical and patriotic development. We need to restore the system of pre-conscription military training and help develop military sports. The government should adopt the appropriate programme in this area.

The regional authorities should not just be seriously concerned with meeting conscription figures but are also responsible for ensuring that the recruits satisfy quality requirements, and they should carry out preparatory work in close contact with the armed forces themselves.

Administrative measures alone are not enough to really change the situation. We need to realise that the armed forces are part of ourselves, part of our society, and that service in their ranks is of immense importance for the country and for the entire Russian people.

Reflecting on the basic principles on which the Russian state should be built, the well known Russian thinker Ivan Ilyin said that the calling of soldier is a high and honourable title and that the soldier “represents the national unity of the people, the will of the Russian state, strength and honour”. We must always be ready to repel potential aggression from outside and to counter international terrorist attack. We must be able to respond to attempts from any quarters to put foreign policy pressure on Russia, including with the aim of strengthening one’s own position at our expense.

We also need to make clear that the stronger our armed forces are, the lesser the temptation for anyone to put such pressure on us, no matter under what pretext this is done.

Dear colleagues,

Russia’s modern foreign policy is based on the principles of pragmatism, predictability and the supremacy of international law. I would like to say a few words today about the state of relations and prospects for cooperation with our main partners, and above all, about relations with our nearest neighbours, with the countries of the CIS.

The debate on the very need for and future of the Commonwealth of Independent States still continues to this day and we all have an interest in working on reform of the CIS.

The CIS clearly helped us to get through the period of putting in place partnership relations between the newly formed young states without any great losses and played a positive part in containing regional conflicts in the post-Soviet area.

I stress that it was Russia that helped defuse the tension in many of these conflicts. We will continue to carry out our peacekeeping mission in all responsibility.

The CIS experience has also given rise to several productive economic cooperation initiatives. The Union State with Belarus, the Eurasian Economic Community and the Common Economic Space are all developing in parallel today, based on the shared interests of the partners involved. Together we are resolving the problems that no one else will settle for us. We see in practice that multilateral partnership enables us to do this at much less cost and far more effectively.

The CIS has provided a good basis for the formation of the Collective Security Treaty Organisation that brings together countries genuinely interested in close military and political cooperation.

Finally, without diminishing the importance of the other aspects of reform in any way, I note the particularly promising project of strengthening our common humanitarian space, which has not just a rich historical and human foundation but now offers new social and economic opportunities. Throughout the CIS a difficult but active search for optimum cooperation models is underway. Russia states clearly and firmly that the end result we want from this search is the creation of an optimum economic system that would ensure the effective development of each of its participants.

I repeat that our relations with our closest neighbours were and remain a most important part of the Russian Federation’s foreign policy.

I would like to say a few words briefly about our cooperation with our other partners.

Our biggest partner is the European Union. Our ongoing dialogue with the EU creates favourable conditions for mutually beneficial economic ties and for developing scientific, cultural, educational and other exchanges. Our joint work on implementing the concept of the common spaces is an important part of the development of Europe as a whole.

Of great importance for us and for the entire international system are our relations with the United States of America, with the People’s Republic of China, with India, and also with the fast-growing countries of the Asia-Pacific Region, Latin America and Africa. We are willing to take new steps to expand the areas and framework of our cooperation with these countries, increase cooperation in ensuring global and regional security, develop mutual trade and investment and expand cultural and educational ties.

I wish to stress that at this time of globalisation when a new international architecture is in the process of formation, the role of the United Nations Organisation has taken on new importance. This is the most representative and universal international forum and it remains the backbone of the modern world order. It is clear that the foundations of this global organisation were laid during an entirely different era and that reform is indisputably necessary.

Russia, which is taking an active part in this work, sees two points of being of principle importance.

First, reform should make the UN’s work more effective. Second, reform should have the broad support of a maximum number of the UN’s member states. Without consensus in the UN it will be very difficult to ensure harmony in the world. The UN system should be the regulator that enables us to work together to draw up a new code of behaviour in the international arena, a code of behaviour that meets the challenges of our times and that we are so in need of today in this globalising world.

Distinguished members of the Federal Assembly,

Citizens of Russia,

In conclusion I would like to say once more that today’s address, like previous addresses, sets out the basic directions of our domestic and foreign policy for the coming decades. They are designed for the long term and are not dictated by fluctuations of the moment.

Previous addresses have focused on construction of our political system, improving the state power system and local self-government, have examined in detail the modernisation of our social sphere and have set new economic goals.

Today I have set out our vision of what place we want to hold in the international division of labour and the new architecture of international relations. I have also examined in detail what we can do to resolve the complex demographic problem we face and to develop our armed forces.

The steps proposed are very concrete. Russia has immense development opportunities and huge potential that we need to put to full use in order to better the lives of our people.

Without question we realise the full scale of the work at hand. I am sure that we will be up to the task.

Thank you for your attention.