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Finance Minister Alexei Kudrin on the state foreign borrowing and loans programme (to be examined by the Government this week):

Alexei Kudrin: In accordance with the Government work programme and the debt strategy that the Government approved at the beginning of this year, the Government is set to examine the amount of state borrowing, guarantees accorded and loans made to support Russian exports in 2007.

Total borrowing next year will come to 305.9 billion roubles on the domestic market. Repayment of planned debt will continue, of course. This means that we will have a balance of 225 billion roubles on the domestic market for federal budget expenditure and foreign debt payments. This is the balance that we will obtain through borrowing on the domestic market. This borrowing will also enable us to fulfil our obligations to the population, including to depositors in Sberbank. Next year, 48 billion roubles will be allocated to paying compensation to depositors in Sberbank. This year, 40 billion roubles are being spent on this item. In other words, we are increasing repayment of our obligations to depositors in Sberbank every year and new age groups are now starting to be covered by the repayment programme. As for the oldest age bracket, we are now beginning the second, repeat indexation of their deposits and are making additional payments. Depending on the federal budget’s possibilities over the coming years, we will perhaps be able to carry out another additional indexation of savings.

Coming to the foreign debt, next year will see the completion phase of credit lines from international financial organisations such as the World Bank. These credit lines come to a total of $763 million and give us the possibility not only to purchase equipment but also to complete a number of structural reforms in education and healthcare, improve the quality of service for the public and install modern software and data bases.

Furthermore, next year we will also end completely the process of receiving loans from foreign states. We will completely close the credit lines that we took out two-three years ago (at that time, when our foreign debt payments were at a peak, we accepted several small credit lines from foreign states). They will all close next year. Our total borrowing on foreign markets from international financial organisations and foreign states comes to $763 million, as I said, and this will subsequently be reduced to zero with each passing year.

Furthermore, state guarantees totalling 59 billion roubles will be made on the domestic market, above all for housing construction for a total of 17.5 billion roubles. We are also raising the amount of guarantees for infrastructure construction. This year we allocated 12.5 billion roubles to this item and we will raise this by five billion roubles. We will also raise the amount of guarantees to the Housing Mortgage Loans Agency for making mortgage loans to the public.

Regarding guarantees to support Russian exports, we will allocate $1 billion for export guarantees to Russian companies exporting their products. The first export support loans and guarantees were made at the end of last year. This year we will be spending approximately $500 million on this item and we will increase this figure to $1 billion next year.

Another important figure concerns not just guarantees but direct budget loans to support export, above all, for the construction of nuclear energy facilities in India, China, Vietnam, Bulgaria and other countries. These loans come to a total of $757 million.

Economic Development and Trade Minister German Gref on foreign investment in the Russian economy:

German Gref: The balance of payments for the first half of the year showed a negative inflow of foreign capital in the first quarter. The net inflow over the first half of the year came to $11 billion. Net inflow in the second quarter came to $16 billion minus $5 billion for the first quarter plus $11 billion.

Our estimates show that this money is distributed roughly half-and-half, that is, half of it is going into the financial sector and the banks, and roughly half is in the non-financial sector, in manufacturing companies. Over the first half of the year $14.1 billion in direct foreign investment entered the economy, and this half-year figure is higher than the figure for all of last year.

On legislative measures to implement demographic policy:

Vladimir Putin: We have begun taking the legislative measures we need in order to implement the policy decisions we have taken to address the demographic problem. The draft law has gone through the State Duma. How did work with the Duma deputies go in this area?

First Deputy Prime Minister Dmitry Medvedev: What we are talking about here are changes to the legislation on state benefits, above all, state benefits for women on childcare leave until the child reaches the age of 18 months. In accordance with the programme that you set out in the Presidential Address, these benefits will be increased as decided for the different categories of mothers.

Furthermore, the Government is working on several issues, in particular the question of introducing compensation for spending on children’s pre-school education and on minimum regulations for caring for children in guardian and adoptive families, on medical check-ups for orphans and children in all residential establishments belonging to all the different ministries, and on increasing the value of the childbirth voucher.

This is also part of the measures to implement the programme set out in the Presidential Address.

This week I also plan to hold a meeting on the most complicated legal and financial-organisational decisions regarding the basic maternity capital. There are a number of legal issues here that require us to take decisions.

Vladimir Putin: This work needs to be carried out together with the Duma deputies, given the budget process itself, on which financing depends. How much money is the draft budget allocating for these objectives next year?

Alexei Kudrin: A total of around 81 billion roubles, including state extra-budgetary funds.

On work in the defence industry:

Vladimir Putin (Addressing Deputy Prime Minister and Defence Minister Sergei Ivanov): The defence industry is a high-technology sector and the way we work in this sector has a considerable impact on high technology in civilian sectors of the economy. What are your impressions of the situation and what do you think we need to do to accelerate development in the necessary sectors as we have planned?

Sergei Ivanov: From July 5–7, I was in the Volga Federal District and I visited mostly aircraft-making companies that are part of the defence industry: the Kazan Aircaft Company, the Kazan Helicopter Plant and the Aviastar Plant in Ulyanovsk. Before that, as I informed you earlier, I visited the Novosibirsk Plant, which manufactures purely military aircraft. We have already commissioned SU-34 aircraft.

Regarding the Kazan Aircraft Group, like most companies, they manufacture both military and civilian aircraft and will continue to develop along this line. The plant is currently carrying out a far-reaching modernisation of the Tu-160 aircraft and is also working on the IL-214 long-haul aircraft. I think that we should maintain this plant’s business profile and support it at the current level.

Positive changes are underway at the Kazan Helicopter Plant regarding the development of new models based on modern avionics, apparatus and intellect. Series production of the MI-38 ‘Aksai’ helicopter has begun, and the same goes for the Ansat helicopter, already well-known to many. The Ansat is a light helicopter that can be used for a wide variety of military purposes – as a patrol helicopter for border guards and the Interior Ministry, and as a military helicopter for the Armed Forces. It can also be sold simply as a light helicopter for private use. It has a very good market. The Defence Ministry is buying three Ansat helicopters as training craft, together with simulator equipment for training students at the Syzran Helicopter Academy.

The Aviastar Plant in Ulyanovsk is modernising and repairing our super-heavy An-124 and Ruslan aircraft. There are no other such aircraft in the world and none will appear in the coming decade. The market for long-distance heavy freight transport is also very big. Of course, this aircraft remains of great interest for the Armed Forces. Aviastar also assembles the TU-204 aircraft. Ten of these aircraft have been ordered and are currently being assembled. In the future it could be possible to develop other types of wide-fuselage aircraft at the Aviastar Plant given that this was the most modern of our aircraft-making plants, built in the Soviet Union right at the end of the 1980s.

I think that these enterprises have good prospects for normal development and for developing new models, including for the civilian sector. That is as far as the situation in the aircraft and helicopter manufacturing sector is concerned. We need to pay constant attention to this sector because aviation technology is the engine that fuels development in a whole host of other industrial sectors, from materials and avionics to, most importantly, intellect.