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S.V.Mironyuk: Vladimir Vladimirovich, let me present the participants in the Valdai discussion club, which meets in Russia and is meeting with you for the third year in a row now. The club brings together leading political analysts, experts and the heads of research institutes from different countries, working on issues related to Russia and to a large extent involved in shaping the agenda related to Russia and the image of Russia in the countries where they work.

This year, the Valdai discussion club has chosen the subject ‘Global Energy – the Role and Place of Russia’ as the theme of its panel discussions. This choice of subject is not just chance. It was, after all, one of the key issues at the G8 summit. We thought that we could develop the issue and gain a greater understanding of the energy question and Russia’s role in this area.

You already know many of those present today. But we also have new participants. This year we have been joined by participants from Italy and Canada, and by Professor Feng from China.

We made some changes to the way the club works this year. We have not only held discussions but also travelled to Khanty-Mansiisk Region. We saw how oil is extracted there, met with Gazprom officials and visited gas facilities. We met with officials from Rosatom and discussed the issue of nuclear energy in Russia. We also met with representatives of Transneft. In other words, we have tried to get information on Russia’s involvement in the global energy agenda from the widest possible range of sources.

Next year, we plan to travel to Kazan in order to understand the dialogue between civilisations underway in Russia and see firsthand the complexities of religious issues by studying the example of what is happening in one individual region.

President Vladimir Putin: First of all, I wish you all a sincere welcome. This is indeed our third meeting. I am very pleased that such an influential group of people is interested in what is happening in Russia. I hope that your meetings with colleagues, your visits to Russian regions and the opportunities you have to get to know the different sectors of the Russian economy will give you a better understanding of what is happening here and help you to see how Russia is developing, where it is heading and what can be expected of it in the coming years and decades. I hope that all of this will help you to inform the political circles in your own countries and to do so in as objective and open fashion as possible. For our part, we want you to know that it is our desire to work completely openly.

I think it is indeed not just chance that you have decided to address energy issues this year. We discussed precisely these issues at the G8 summit in St Petersburg in July. This is one of the most important issues on the agenda today and will remain so in the medium term, given that fossil fuels will continue to be the principal energy source over the coming 30–40 years and perhaps even longer, and will, along with nuclear energy, be our main means of meeting our energy needs.

Energy, oil and gas, have always been a sensitive issue in world politics. This is all the more true today given the situation in the Middle East, the situation with the Iranian nuclear programme. All of this only aggravates and exacerbates the energy problems the world faces.

In this context, the world clearly has an interest in ensuring stable energy supplies from Russia. The entire international community has an interest in seeing Russia undergo stable, consistent and dynamic development and remain a reliable partner for its counteragents in the world economy. This is also our objective and it is completely in keeping with our interests. Although we may have differences on this or that international issue, we also have a great deal in common. We share many common interests. This is what should unite us in our joint work to put in place the conditions for harmonious development in the world in order to make our world more secure, reliable, stable and predictable.

It may sound not very modest, but I think that to a considerable extent your work in the Valdai Club is chiefly devoted to resolving this very task, or at the least helping to resolve it.

For my part, it will be my pleasure to help make your work in this area in Russia a success. But for that to happen, it is important to eat well and on time. (Laughter). So let’s begin lunch and then continue our discussion. Let’s give our friends the chefs a chance to work first, and then we will be able to tackle more actively the issues of interest to us.

Thank you very much.

S.V.Mironyuk: Vladimir Vladimirovich, on behalf of the participants in the Valdai Club, I would like to ask Mr de Monbrial, director of the French Foreign Policy Institute, to say a few words and share his impressions.

T. de Monbrial: Mr President, with the first course now being served, I would like to thank you for your hospitality on behalf of all my colleagues, the founders and first participants in the club, and I would like to thank you for finding the time to meet with us. We are grateful for this.

Some of us remember that we first met two years ago in this very room. We met then in tragic circumstances because this at the time of the tragedy in Beslan. You said then at the beginning that you would not be able to spend more than half an hour with us, but in the end you spent three hours with us and we had a very substantial discussion on a wide range of issues. Many of us went away from that meeting very impressed. We did not agree on everything, of course, but we were very impressed by the way you set out the issues and by your readiness to answer all of our questions and discuss them with us.

Last year we held a more relaxed meeting and discussion in the Kremlin. The meeting took place in more favourable circumstances and we touched on a very wide range of issues, including complex and sensitive questions such as the future of Ukraine, some domestic policy issues and your own future. You did not say very much then about your own future. Perhaps today you could say a bit more. (Laughter). Today we are meeting after several very interesting days in Khanty-Mansiisk Region, where we learned a lot.

I would like to add that, as you know, not all those present today are journalists. Also present are academics and scholars. Many of those here today are experts on Russia, and many of them – this is not my personal case – know your language and can speak Russian.

I think it is very important for the expert community to have the chance to get to know your country not just through reading books and visiting from time to time, but also through meetings such as the Valdai Club holds with the participation of the Russian Government and your own participation. I am certain that such meetings can make a big contribution to developing the trust that is what is most lacking today in relations between Russia and the West. I am very concerned by the fact that many of the problems we encounter today, much of the misunderstanding we face, is mostly due to a lack of trust. I am absolutely certain that meetings such as these can do a lot to help resolve this problem.

In conclusion, I would like to say, and I am sure that many of my colleagues would agree, that we have held an exchange of views with the Russian participants and our discussions have been deeper, friendlier and freer than in the past. There was more formality, more of an exchange of opposing statements, at the first meeting, while now we are seeing a genuine exchange of views. I personally am very optimistic about the club’s future.

With your permission, I would also like to thank Svetlana Mironyuk on behalf of us all. And I once again would like to thank you personally, Mr President.

S.V.Mironyuk: Dear colleagues, if anyone else wants to say something, you have the floor.

A.Giddens: London School of Economics.

I think a lot more time will be spent discussing my question than seemed the case at first. My question is above all about oil. Many thought that oil reserves would run out a lot earlier. But now there is another issue on the agenda, that of climate change, and we are having to deal it with right now, not in the future. This, it seems, will lead to new technological developments and advances in the world.

I would like to know, would it be wise for Russia to stay on the sidelines of these new technological advances in the energy sector? And also, where does Russia see its place in this search for new energy opportunities and the development of new energy sources?

Vladimir Putin: We are already working in this direction. Our Academy of Sciences and private enterprise are working in this area. When it comes to renewable energy sources, we are working on hydrogen energy in particular. One of our biggest private companies, Interros, is working together with the Academy of Sciences and also with foreign specialists, including from the United States, and is investing a great deal of money in hydrogen energy research.

We are not just letting events pass us by. What’s more, our view is that Russia can play an important role on the world energy market not just today but also in the medium term, even once the world moves away from consumption of fossil fuels.

We are currently planning the development of our nuclear energy sector. Unlike in France, where nuclear energy accounts for 80 percent, I think, of energy production, Russia gets only 16 percent of its energy from nuclear energy.

We have prepared and are now implementing a programme to support and develop the nuclear energy industry. We want to raise the share of nuclear energy in our energy production to 20–25 percent over the coming 15–20 years.

Some kinds of renewable energy would not be very effective in Russia, solar energy, for example, at least with development in this sector at its current level. Russia is a northern country after all, and so this is not the most effective solution for us, though it is being developed actively in the south. Hydro-energy is an area in which we are working actively. We estimate that our hydro-energy potential is a little less than that of the People’s Republic of China, but it still puts us in second place in the world and we will not only support but also develop hydro-energy.

In short, we will not restrict ourselves only to fossil fuels. On the contrary, we will make use of the favourable situation on the market today to take active steps to develop other kinds of energy. We understand the need to do this and we will certainly work in this direction.

S.V.Mironyuk: Let me make a little adjustment. How about we eat first and then begin asking questions, because otherwise it is not very convenient for everyone. It’s hard for you to try to take notes with your plates in the way, and it’s not convenient for the President either. It seems to me he is not even getting the chance to eat but is just watching how the dishes are being served and then taken away again.

So I propose that if someone has some comments to make, some impressions to share, this is fine, but let’s leave the questions until after lunch is over.

Thank you.

Z.Sokoloff: Excuse me, I don’t have a question, just a request.

Would you agree to have us all have a photo taken together after our meeting?

Vladimir Putin: That’s the easiest request of all to fulfil.

A.Cohen: Vladimir Vladimirovich, I would like to comment on the impressions made by your speech at the Civil Society G8. I was at the Civil Society G8. I think you were there for around an hour-and-a-half or two hours. I called it the ‘canonisation of Putin’ when you came and spoke on practically any political issue without any notes. That made a big impression, the way that you talked about all these different subjects, from human rights to the international situation and global development.

S.V.Mironyuk: Here’s a chance to ask a question while the next dish is being served. You can ask a question that does not require a lengthy answer. (Laughter).

A.Stent: Angela Stent, professor at Georgetown University in Washington DC.

We had a very interesting trip to Khanty-Mansiisk and held interesting discussions with energy companies. The two phrases that came up over and over again were ‘energy superpower’ and ‘energy security’. I know that these issues were discussed at the G8. Could you say how you view this definition of Russia as an energy superpower and what the concept of energy security means for Russia?

Vladimir Putin: I would prefer to move away from the terminology of the past. Superpower was the word we used during the Cold War. This whole idea of power, superpower, why should we keep using it now? We have huge potential in the energy sector. Indeed, our potential is still underestimated. Even we ourselves have not fully estimated it yet. As for the international energy community, the world economy, they are certainly underestimating it. The question is what use we make of these immense resources. We have already noted one aspect of this question, namely that it makes best sense for Russia not just to produce and sell its energy resources, and not just to make use of the favourable situation on the world market to help us to address our social problems, but also to make use of our resources to develop our economy, develop the high-technology sectors and high-tech industry. This also concerns the energy industry itself. In other words, we cannot content ourselves with just extracting and selling fossil fuels, we also need to make use of these resources to develop nuclear energy, hydrogen energy and other areas, renewable energy sources, hydro-energy, and this is precisely what we intend to do.

If you’ve noticed, I have never referred to Russia as an energy superpower. But we do have greater possibilities than almost any other country in the world. This is an obvious fact. Everyone should understand that these are, above all, our national resources, and should not start looking at them as their own. But at the same time, we have always behaved responsibly with regard to these resources and we will continue to do so. We intend taking part in drawing up common rules for this sector of the world economy, and we will implement these rules that we have drawn up together. But these rules must be fair and they must take into consideration all the different aspects of energy security. This covers energy production, transportation and also consumption. Although my colleagues were a little opposed to the idea at first, in the end, and I am grateful to my colleagues for this, everyone agreed with the principle that energy security means not just security for the consumers but also for the producers.

To give you a simple example, if we take gas, and I am sure we will come back again to this type of fuel, we have been selling it on the basis of long-term contracts. You take it and pay for it. But the problem we have encountered is that the contracts are for fixed volumes of gas, and then at some later point we get told by the buyers that they don’t need it anymore. This damages our security as producers. All of these aspects must be taken into account. Our partners, especially in Western Europe, insist that we ratify the Energy Charter, or rather, that we ratify the addendum to it. We have refused to do this. There are many reasons for this decision, but one lies clear on the surface. It has become a political slogan to get Russia to ratify the charter, but has anyone actually stopped to think about what consequences this would have?

When we sit down to look at these issues together our partners do start to think about the actual problems involved. They want to liberalise energy transport in Europe, and this means that each section of the transport network will be able to be bought or rented out. The excess profits in the sector would then shift from the producer to the person controlling the pipelines in the middle, the person between the consumers and ourselves, the producer. This would lead to massive speculation which would not at all benefit the final consumers in Europe. It would not bring down energy prices. The prices would remain the same, but the margin, the excess profit, would go to those controlling this or that section of the transport network. The calls for us to sign the energy charter cool off somewhat once we actually sit down together and examine all these issues. That is the first point I wanted to make.

Second, we say that cooperation should be exclusively on a fair basis. If they want something from us, if they want us to let them into the very heart of our economy today, the energy production and transport infrastructure, then we want to know what we would get in return. We are told that we get the same in return, but Europe does not have the kind of energy production we have, and it does not have the kind of mainline pipeline systems we do. We therefore have to find some kind of equivalent. We are not against this idea. But let us first settle on an equivalent and reach an agreement on what we would gain access to.

Finally, to take another aspect of the issue, energy is ultimately important for everyone, whether in Europe, America, Russia or any country. But for Russia energy is of key importance. Another area of key importance for our country is advanced technology, and yet we are still facing restrictions on our access to this technology. The COCOM list has been abolished, but the State Department continues to impose restrictions on the exchange of advanced technology, drawing up long lists that still exist to this day. And Russia finds its access to this technology restricted by administrative measures.

Finally, in the energy sector itself, speaking of equality, there is still an issue on which we have not reached an agreement with our European partners. This issue concerns creating equal conditions for supplying nuclear fuel to the market. There are still restrictions in place today and the necessary decisions have not been taken. We are not going into any sort of hysterics over this issue. But among those opposed to taking a final decision are our friends in France, because they are the suppliers of nuclear fuel to the European market. As I said, we are not getting hysterical over the issue, but when we see how much fuss is made about Russia’s refusal to ratify the Energy Charter and its addendum, we find this difficult to understand. Do what we agreed on first yourselves.

They don’t want to take these steps themselves but they demand that we do it. This makes us unhappy, but this does not mean that we are trying to portray ourselves as some kind of superpower and trying to impose conditions on others. This is not the case. What we want are equal relations, and then all of our partners would be energy powers just as we are. We don’t need any kind of superpower status. What’s more, I think that this status, this idea, is being deliberately stirred up in the public awareness and in the media as an attempt to revive echoes of the ‘evil Soviet Union’ and to portray today’s Russia in this light, and this is something I consider unacceptable.

Enjoy your meal. (Laughter).

B.Lo: Thank you very much, Mr President, for meeting with us today for the third time. We are really very grateful to you. My name is Bobo Lo and I am head of the Russia and Eurasia Programme at Chatham House in London.

My question concerns Russian policy in Southeast Asia. Russian policy has made great advances in Asia of late. But I would be interested to hear from you how you see the future in a decade’s time? What role and place do you see for Russia in the Asia-Pacific region? And in particular, how do you see future relations with China and Japan?

Thank you.

Vladimir Putin: As has been said so many times already, economic activity is gradually shifting from the Atlantic Ocean region to the Pacific region. Going by the growth rates in the region and the outlook for the future, according to the experts, this is a real process that cannot be stopped. This is a process that will develop and increase.

In this sense Russia has its own unique advantages because it is also part of the Pacific region and these countries are our neighbours and partners.

Regarding Japan, we would like to settle all disputes, including territorial disputes. We do not want these issues to remain frozen. We sincerely want to find a solution that would be acceptable for both countries and we need to work together to find a way out.

I have the impression, particularly following my most recent contacts with Prime Minister Koizumi and other Japanese colleagues, that they too share this understanding. Previously it looked to us as if some kind of internal political game was being played in Japan. Every time they had elections, they’d start making a lot of fuss around this issue. We said that if this is the way they want to play, we can do the same. We can also wave our samurai sword around a bit when needed and then put it away again and resume our calm and friendly talks. We said that if they want to resolve the issue, let’s do it calmly and without any aggressive rhetoric. I think that they understand this need and that we have begun looking for a solution now. This will not be an easy process and it won’t happen overnight, but it is possible. That is what I wanted to say on this issue.

Our economic ties with Japan have been developing well, especially over the recent period. As you know, major Japanese companies are now investing in Russia. Two Japanese automobile giants, Toyota and Nissan, have announced the construction of a plant in St Petersburg. The Japanese are also working more actively in the Russian Far East. They are interested in our energy resources and want to cooperate in a variety of other sectors too, including in the timber processing sector. We will work together with them in all these areas. And, as I said, we will look for a solution to our territorial dispute and find a way to conclude a peace treaty.

Our relations with China are probably better now than they have ever been. Even when we used to sing the song, ‘Russians and Chinese are friends forever’, our relations were not as close as they are today, because this was all more about propaganda back then, and as we know, there was tension and dissatisfaction beneath the surface, even between the communist party leaders.

This is no longer the case today. I think that our relations with China today are better than at any other point in our history because there is no double bottom here. Our relations are pragmatic ties between good neighbours and I think that they can continue for a long time yet. Our relations are not dictated by opportunism but by the political balance in the world and global development trends, and these trends are such, in my view, that they will make it imperative to maintain a high level and quality of relations for a long time to come.

We have common political interests and we also have common economic interests. Our economic interests cover a wide range of sectors: the processing sectors, timber processing, for example, space exploration, military-technical cooperation and, of course, the energy sector.

Looking at the Asia-Pacific region as a whole, and Southeast Asia, there are many interesting players, good partners for us, countries with highly developed economies. There is no need for me to name them all as you know them already. There are fast-developing countries such as Thailand, home to 65 million people and a sizeable regional power. We have good relations with the different political forces and with our economic partners there. Our relations with Indonesia are developing well. We are always looking for new opportunities to diversify our ties with the other countries in this region.

We plan to continue taking part in international organisations such as APEC and in other regional organisations. But we are in no hurry. I read somewhere that they are afraid to let us in and do not want us there for now. We are in no hurry. There is no rush. This will all happen in its own good time. These international forums are a good instrument for maintaining contacts and we will work in them in the capacity that we and our partners consider acceptable today.

Coming to energy, your principle theme, I can tell you that the Asian countries currently account for only 3 percent of our energy exports. We plan to increase the share of our energy exports to Asia to around 30 percent of our total energy exports over the next 10–15 years.

Regarding gas, we will develop gas production in Eastern Siberia, on Sakhalin and in the Far East. As you know, we have announced the construction of two gas pipelines, one from Western Siberia and one from Eastern Siberia. We will carry out both these projects. I cannot give the specific timetable right now, but the work is already underway. Prospecting work has begun and the specialists are working out the pipeline routes in Western Siberia and Eastern Siberia. I think that these projects are entirely feasible and have good prospects.

I would like to finish answering this question, as our colleague has just clarified it by asking whether the plans I have mentioned can really be carried out in practice.

I think our plans in the energy sector are entirely feasible. First of all, as you know, we have already begun building an oil pipeline to the Pacific coast. This pipeline will have capacity of 50 million-80 million tons a year. This is not just a plan. Work has already begun on this project and 250 kilometres have already been built in two months. The pipeline will bypass Lake Baikal, remaining outside its water collection zone. We will resolve the environmental issues involved and will build the pipeline to its terminus at Skovorodino, which is around 100–150 kilometres from the Russian-Chinese border.

At the same time, we are already working with our Chinese partners on the conditions and means for laying a pipeline from Skovorodino to the Chinese border and onwards. From Skovorodino oil will be transported by rail for now to the Pacific coast.

But work is already underway on making a final decision on the Pacific coast terminus for the pipeline and the location of the oil terminal. This will be the second stage of the project, but it will also be carried out. Why are we not doing it immediately? Only because we want this second stage of the project to be just as economically feasible and profitable as the first stage. This means that we first have to carry out additional studies in Eastern Siberia and connect new deposits to the pipeline system. These deposits have already been identified, but we want to carry out some further studies first. A number of our companies are involved in this work, including Surgutneftegaz, Rosneft and several others. They are carrying out this work and it will all go ahead, as will the gas pipeline projects in Western and Eastern Siberia.

Also, let’s not forget that Asian companies are working in the Russian Far East. We have an Indian partner working on Sakhalin. And the energy produced by our Western partners, our American and European partners, is also destined in large part for sale on the Asian markets. This also goes for liquefied natural gas. I don’t remember the exact volumes, but I know that contracts have already been signed. I think the Japanese have already signed a contract for the supply of LNG from Sakhalin.

A.Lieven: Mr President, thank you for inviting us. I am a British citizen and work at the New America Foundation in Washington. I would like to discuss the Russian budget. You have used your deficit-free budget and primary budget surplus to pay off international debts in particular. But there is clearly also pressure and real need in Russia to use this budget surplus for other purposes too. You mentioned the need to develop alternative energy sources, for example. You have also spoken about the need to take action to address the demographic crisis in Russia. There is a great need to rebuild social infrastructure, especially in rural areas, and to develop the health and education systems. And then there is demand from the population, of course, to use this money directly to raise pensions and wages.

I have two questions in this respect. What are your own priorities in this area? And how does your administration intend implementing these priorities over the coming years?

And a second, related, question: how much money do you think you can inject now into the economy without the risk of triggering a new spiral of inflation?

Thank you.

Vladimir Putin: It will be my pleasure to answer your question, but first of all, Mr Gromov would like to introduce the man who prepared our lunch today. This is our distinguished colleague from Italy. (Applause).

Our chef’s name is Mirko. Everything was delicious, thank you. Thank you to you too, Arkady.

Mirko: Thank you (Applause).

Vladimir Putin: Now, concerning the budget, our economic policy and my own priorities, my own priorities are based on the principle that the level of spending should not exceed economic growth in percentage terms, and should be closely pegged to labour productivity growth in the country.

We are fully aware of the requirements for a healthy and effectively developing economy today. Of course, high revenue, including from the favourable world economic situation, creates the temptation to spend more money. But we will carry out a balanced economic policy and not give in to temptations of this sort. As you know, we are channelling additional revenue into the Government Stabilisation Fund. The Government and the Central Bank are both focused on bringing inflation down to an acceptable level for our economy. Inflation is still high at the moment, but it is nonetheless decreasing from year to year. I think that this year we will manage to bring it down to 9 percent. We will have to wait and see, but I think we will meet this target. In two or three years, I hope that we will have an inflation rate of no more than 4–6 percent.

Spending on healthcare, education and other social spending will increase, but this increased spending will be funded not by petrodollars but by economic growth and the healthy revenue it generates.

Last year we made decisions on what we have called the National Projects. We gave them this name just so as to make it easier to organise and manage them and help us to concentrate financial, administrative and political resources on resolving old problems that remain very important for us today. These are problems in precisely the areas you mentioned: healthcare, demographics and education. By way of exception, we also included one economic sector, agriculture, in the national project programme. We did so only because almost 40 million people in our country are in one way or another involved in agriculture and for many people this is not just an economic sector but is their destiny and their life. Agriculture is a specific case within the national economy and this is why we have made it part of the national project programme. But our decision to help develop this sector is in no way about wasting financial resources and petrodollars. Rather, it is about developing market mechanisms to stimulate growth in the sector. This will concern, above all, developing the livestock and cattle industry and making loans available to the sector.

We are not following the example of some European countries and are not subsidising agriculture exports. We are not closing off our agriculture market as some of our partners have done.

But we do live in the real world and we will carry out a balanced trade, tariff and customs policy. In cases where it does not contradict our own economic interests and the interests of our consumers, we will make use of customs regulation. But we have no intention of closing off our market and shutting others out of our economy, because ultimately this would have a negative impact on the consumers of these products.

I hope that this answers your question. If you think I have missed something out, you can add to your question. But I think what I have said answers your question.

S.Feng: Feng Shaolei, from the Centre for Russian Studies in Shanghai.

My first question is about the Shanghai Cooperation Organisation. I know that this body is highly reputed as an international organisation. How do you see the organisation’s future, the prospects for cooperation between its members and its relations with other countries and regions?

And second, before I came here, my colleagues at our university said that no Chinese university had yet had the opportunity of inviting the Russian President to come and speak. I would therefore like to take this opportunity to let you know that we very much desire to see you visit our university.

Thank you.

Vladimir Putin: Before I turn to your question, I would just like to add a few words to what I said on the previous question. We intend to use the favourable situation today not just to resolve social problems, although we will certainly be concentrating on addressing these issues and have drawn up entire programmes for this purpose, but we will also make use of the opportunities the current situation gives us to diversify the Russian economy. You have no doubt heard about our programme to create high-technology zones and about our plans to work within the existing tax system to gradually shift the tax burden to the energy sector, so that we can free high-technology sectors of the economy from excessive taxes. This is one way in which we intend to put the current favourable situation to use.

The second is infrastructure development. We need to develop our roads, communications, bridges, airports, ports, and we will invest state money in this development.

Now for your question on how I see the Shanghai Cooperation Organisation.

I will say something now that I have probably never said to anyone before. (Lively stir in the room). This will be a revelation. (Laughter). Honestly, this is the truth.

We did not plan for the Shanghai Cooperation Organisation to develop this much and gain the reputation it has today. The organisation was established in order to resolve the utilitarian question of settling the borders between China and its neighbours after the collapse of the Soviet Union. Since the Soviet times, there was never a settled border between Russia as it existed within the Soviet Union and China. In general, the border issue had never been settled at any time in our history. When the Soviet Union collapsed, these problems were handed on to the small and quite vulnerable countries that found themselves on the border of China. This includes Tajikistan, Kyrgyzstan and so on, and then there was also Russia itself.

We began holding talks with China on the border issue back in the Soviet times. These talks went on for 40 years. Two years ago, we finally completed this work and signed final documents settling the border issues.

You know, I always try to avoid excessively emotional language or sweeping statements, but it is no exaggeration to say that this agreement really was a historic event in Russian-Chinese relations. Incidentally, this leads me to think that we can also solve our issues with Japan, no matter how complex they may be. In the case of our border with China, we both accepted to make compromises, compromises that were acceptable for both sides. We did this because both countries truly wanted to close this chapter in our relations and lay the foundation for good-neighbourly relations in the long term, and that is precisely what we have achieved.

As the Shanghai Cooperation Organisation began to function and achieved its first successes, and it did indeed play a significant role in settling the border issues between China and the former Soviet republics, the organisation began to grow of its own accord, and that is the revelation I wanted to make. And the second revelation is that this was unexpected for me too. I was asking myself why this was happening. After all, to be honest, I know that somewhere within the depths of various political administrations and intelligence services there are people thinking that the Russians and the Chinese are up to something here, that they’ve got some kind of secret mechanism and are planning something. It seems surprising, but it was simply that this organisation turned out to be an instrument the world needed. This explains why other countries are showing such interest in its work and express the wish to take part in it, whether as observers or full members. It’s simply that after the collapse of the bipolar world, there was a real need for the emergence of centres of influence and power. This is simply an objective reality.

Of course, when we see these developments, we react accordingly, but we did not plan this from the outset.

I think that the Shanghai Cooperation Organisation has very good prospects. We have no plans to turn it into some kind of military-political bloc. It is an open organisation. Of course, we do have to take into consideration the complex balance of power in Asia and the contradictions that exist between different countries. We do not want to burden the organisation with these contradictions. This is why we are taking a responsible and careful approach to the question of the organisation’s enlargement. The organisation’s activities are not directed against anyone. Our work is not in opposition to anyone but is in the interests of the countries taking part, be they members or observers. This is something natural for countries that are neighbours, countries that share common borders.

True, the organisation, according to its charter, is not purely regional, but in practice this is how its positions itself. I think, however, that as the organisation comes to discuss and work on the resolution of a growing number of issues, its influence and importance in the world will increase.

Regarding the university, thank you very much for the invitation. Shanghai is a wonderful city, one of the world’s great cities. It simply amazes me with its rapid growth. I visited the city when I was deputy mayor of St Petersburg, because St Petersburg and Shanghai are twin cities. I had the chance to compare Shanghai in 1994–1995 and Shanghai today. I have seen the immense changes taking place and they really are amazing. We are very happy for you and we congratulate our friends in China on their success in developing this city.

I have visited Beijing University, and, all going well, I would be happy to visit Shanghai University.

Thank you very much for the invitation.

S.Feng: Thank you very much.

K.Kapchan: Kapchan, director of the Eurasia Group.

I would like to note that in academic circles in Washington and, I think, around the world, there is a certain lack of understanding of Russian policy with regard to Iran and the threat it represents, that is, the current energy crisis, the nuclear crisis. Could you please clarify Russia’s position so that we can understand your policy better? In particular, is Russia opposed to Iran having a small uranium enrichment programme?

My second question: if Russia is opposed to Iran pursuing a national uranium enrichment programme, then would it be willing to support a UN Security Council decision to impose soft sanctions against Iran?

Thank you.

Vladimir Putin: I have spoken many times on this subject but I am willing to do again now. Russia is against the spread of weapons of mass destruction, including nuclear weapons, in the world. In this respect, we have called on our Iranian partners to renounce their uranium enrichment programme.

The Iranian nuclear issue is only part of the global problem of the so-called threshold states, countries that want to develop nuclear energy for peaceful purposes. This problem is not limited to Iran but is global in scale. In this context, the international community has several concerns regarding the proliferation or non-proliferation of nuclear weapons.

First is that it is very difficult to control the enrichment of uranium needed for the nuclear energy industry and the subsequent additional enrichment to produce military-grade nuclear fuel. If a country is carrying out enrichment, it is very difficult to control the threshold separating enriched uranium from military-grade nuclear fuel. This is understandably an area of concern. I will say now what we can do to address this concern.

The second main concern is that spent nuclear fuel from nuclear power plants could be used to manufacture military-grade nuclear fuel. This is why we have proposed the creation of international nuclear enrichment and processing centres in order to ensure all countries wishing to develop nuclear energy democratic assess to their services. This would give any country unrestricted access to enriched nuclear fuel without them having the full nuclear fuel cycle on their own territory, and they would then be able to send the spent nuclear fuel to these centres for processing. We think that if a country genuinely want to develop nuclear energy for peaceful purposes this would be sufficient.

Regarding Iran, it is a specific case and I have been quite up front about this to our Iranian partners. We must take into consideration that Iran also has the right to develop advanced technology, and in this sense it is no different to Brazil or South Africa. But we also have to keep in mind that neither Brazil nor South Africa proclaim the goal of another state’s destruction and write it into their constitutions, while Iran’s leaders, unfortunately, declare it publicly, which is not in the interests of world security nor of Iran’s own foreign policy. That is the first point.

Second, we should not forget what part of the world Iran is in. It is, after all, located in the very volatile Middle East region. This is why we have always called for it to accept certain self-restriction in order to calm the international community’s concerns. But this should not amount to infringement of the right of Iran and its people to have nuclear technology.

Regarding sanctions, I think that we should reflect together with our partners, including from the group of six, and hold additional consultations with the Iranians before imposing any kind of sanctions. It would be better if we managed to avoid having to impose sanctions of any kind.

H.Carrere D’Encausse: Academie Francaise.

I would like to thank you, Mr President, for the time you have given us and for the open nature of your answers. This is very important for us.

If you have no objection, I would like to ask a question concerning domestic issues in Russia and in Central Asia. We all know that in Russia, like in the West, there is a serious demographic problem because birth rates are low and there is a high rate of quite early death. This can lead to labour shortages and at the same time we see an aging population. I read that you are taking very serious measures to try to raise the birth rate. I would like to know what you view as the solution to this problem. And what do you think can be done in the future to improve the situation? This is not easy, after all. If people are not born, they won’t be able to have children. This is an issue being addressed in France and many other countries too.

But there is also the issue of Central Asia. I read that you have been receiving a large flow of people from Central Asia of late. Central Asia has high birth rates and too much surplus labour. These people coming into Russia represent an addition to the labour force. To what extent can this be something that brings Russia and Central Asia closer together? How important is it and what contribution can it make to the work force in Russia?

And finally, how does the Russian population view this inflow of people from countries that wanted independence and are now only too eager to come to Russia?

Thank you.

Vladimir Putin: This really is a common problem. You have raised several issues: demography, labour force needs, migration.

Regarding the demographic situation and the problems that go with it, our priority now is to tackle the situation by raising the birth rate inside the country. This is the main focus for our work.

How do we propose improving the situation? I spoke in quite some detail about this in my Annual Address to the Federal Assembly earlier this year. We propose increasing a number of social benefits, above all for women, providing support for the first and second child, paying women additional childcare allowances until the child is 18 months old, and paying additional benefits to people who decide to adopt a child. We are putting in place a whole system of measures aimed at encouraging people to have children and strengthening the family.

The second aspect of what we are doing concentrates on helping women re-enter the workforce so that they can maintain their skills and qualifications.

Everything changes so fast in the world today and if women spend 2–3 years outside the workforce they lose their qualifications and find it hard to get back into work. We understand this and, though we realise we cannot change the situation overnight, we will try to develop a network of pre-school childcare centres, kindergartens and nurseries, so that women can resume active work more rapidly.

We are introducing the ‘Maternity Capital’, a sum of 250,000 roubles – not a large sum by western European standards. We calculate that one square metre of housing costs on average $500 in the Russian regions. Housing is the most pressing problem for families today and the most pressing financial issue. The Maternity Capital will give women the chance to make their contribution to resolving the housing issue. Or they can add this capital to the individual-account part of their pension, or they can choose to spend it later on their children’s education when the time comes to choose a school or university.

All of this together, along with measures of a moral nature aimed at strengthening the family, can help to encourage a higher birth rate, we think. Of course, some here are sceptical, and I listen to their opinions too. Some say that in France, for example, or in other countries in Western Europe, child benefits are even higher, people get even more money, but there has been no effect. I think that these measures could have an effect in our country, however, because the average Russian has less money than the average European, and so the benefits that Europeans receive as a percentage of their overall income are less than they would be here in Russia where people generally have lower incomes. I think that in Russia, especially in the regions, these financial benefits could be a considerable incentive. So that is our first priority, to encourage people to have children.

The second priority is to reduce the death rate. You said we have a high death rate and this is true. The average life expectancy is lower in Russia. But if you take a closer look at the statistics, you will see that Russians who reach pension age tend to live just as long as do people in the West. Our high death rate is due to the fact that a lot of people, mostly men in the 25–50 age group, die from causes such as alcoholism, drinking bad quality alcohol, road accidents, work-related accidents and so on. These problems can be resolved through a variety of means, including administrative means and financial intervention in certain sectors to improve the situation in this or that area. This is the second priority for work to improve the situation within the country.

The third solution for resolving the labour shortage problem is, of course, migration. I have nothing new to say on this matter. You already know this situation well in your own countries. I think that Russia should take in as many immigrants as it is able to assimilate. If the number is greater, this could lead to interethnic and inter-religious tension.

But we are not faced with as acute a situation in this sense as European countries. For all the talk of the collapse of the Soviet Union and these newly independent countries, Russia has developed psychologically as a multiethnic and multi-religious state over a period of more than 1000 years. The average Russian knows, of course, that these Central Asian and Trans-Caucasus countries are independent states, but does not view them as foreign. The peoples of these countries share our culture and are fluent in Russian or have very good knowledge of the language.

Without naming any names, I would just say that I have spoken with some of my European colleagues and I know that there are thousands of immigrants who have lived in their new homes for decades and still do not speak, say, Spanish or Italian. The assimilation process is not working. But here, they are assimilated before they even arrive. (Laughter).

We do need to also take into consideration the local people’s interests, of course. Ignoring these interests, whether here in Russia or in your countries, would only serve as a pretext for fuelling the rise of various extremist organisations.

Charles Grant: Centre for European Reform, London.

My questions concern the European Union, and I have both a specific question and a general question. The general question is the following: is it in Russia’s national interests that the EU develops as a cohesive organisation with a strong foreign policy? Or would it be better for Russia that European countries remain divided so that you could adopt a policy against a given country and play one country against another?

And a specific question: can Russia and the EU settle the frozen conflicts in Transdnistria, South Ossetia and Transcaucasia? And if Kosovo were to soon become independent, would this facilitate or hinder the settlement of these frozen conflicts?

Vladimir Putin: First and foremost we are interested in Europe becoming a strong state or even a quasi-state with which we can negotiate and cooperate in the long- and medium-term. It is difficult for us to entertain a dialogue with the EU if it has no precise, clear structures and while Europe is still in the process of taking shape. The Chairman changes every six months, but of course that is natural. We know about the difficult relations between the European Commission and the national governments or, in any case, difficulties in various areas in which they are active. For that reason it would be a blessing for us. We are absolutely not preparing to and never have tried to manipulate any internal procedures within the EU with a view to attaining something. And moreover, if this took place and if Europe started to speak with a common voice and became a strong state formation then it seems to me that this would create the conditions to facilitate the stable development of peaceful international relations. In turn, this would act as a good base for the new architecture of international relations.

But your second question is not in any way connected with the first. How is it connected with the first? If monolithic Europe remains divided then we are still ready to work with all our partners both at the level of nation states and with the EU as a whole in order to settle any difficult, pressing or conflictual situations, wherever these might arise. This also concerns the territory of the former Soviet Union, without exceptions. This is Nagorno-Karabakh, Abkhazia, South Ossetia and Transdnistria. We are not always able to coordinate our activities and this damages security in Europe. For example, this occurred during the settlement of the conflict in Transdnistria when we were just a step away from finding a settlement. And the fears of our western – American and European – partners prevented us from attaining a settlement, destroyed these agreements and put everything back to zero. I consider this to be a major error in European diplomacy.

With respect to Kosovo, we have Resolution 1244 and nobody has abolished it. It is inadmissible to manipulate public opinion and to neglect the resolutions that the Security Council has adopted.

Moreover, it is obvious that our actions in this field must be coordinated and decisions must be taken based on the interests of all participants in this process. And they must be universal. It is inadmissible to apply one rule to Kosovo and another to Abkhazia and South Ossetia. How does the situation in Kosovo differ from that in Abkhazia or in South Ossetia? It does not. And everyone sitting at this table knows this perfectly well. I do not know how you will interpret this and present it to the media and how this will all be prepared. But I am confident that each of you sitting here knows perfectly well that I am right. And as soon as we begin to manipulate public opinion or try to do so we will face the following problems. People will feel deceived. Both in southern Europe and in Transcaucasia. Such a policy cannot be an ethical one and does not have a future.

Marshall Goldman: Mr President, I think that probably none of our world leaders could engage in such a free discussion and I would like to congratulate you on this. And I would like to ask you a question that I have been asking over the past three years. I am referring to people within the Presidential Executive Office in the Kremlin many of whom – and perhaps the majority of whom – have two jobs. One job within the Kremlin, shall we say, as a minister and the other in some corporation or business. As far as I know this is perhaps the only country in the world that allows such part-time practices to take place, because work in the Kremlin is a full day’s work and, shall we say, work in Rosneft or some other company is not a full day’s work. Allow me to ask one specific question: I have trouble understanding the way that Mr Sechin can be objective in reference to a company, any company, except Rosneft. For example, how can he be objective and just with respect to Sibneft or other companies? Every year the number of people in your Administration who hold two positions increases. I am very interested in seeing effective work and we constantly hear criticisms with respect to corruption and abuse of power.

Thank you.

Vladimir Putin: Before answering you, I would like to make one more comment. I am very apprehensive whether to say this or not, but I will formulate it all very carefully. In Kosovo’s case we must think again about what will happen in the future if Kosovo’s independence is recognized and given a legal status. What will happen in this region of the world in the future? What will happen?

They told us that everything would be all right in Iraq. And already today in Iraqi Kurdistan only Kurdish flags and not Iraqi flags are flying. Have you thought about what will happen in this region of the world, in Europe? We must think about this.

And now with respect to the last question. The people you mentioned are engaged in a widespread practice and it is common not only among the employees of the Presidential Executive Office but also among cabinet members. But this practice does not consist in having people work simultaneously for the Kremlin or for the government of the Russian Federation and for some other companies. This is not how they work and I would ask you to inform everybody who is interested in this problem about this. These people only represent the state’s interests in a given company where the state holds a certain number of shares. They represent the state’s interests in that company. And no employee of the Presidential Executive Office needs to be objective or subjective in relation to other enterprises, companies or corporations. He is not judging them, he is simply representing state interests in the board of directors and in this respect there is nothing here that goes against any of our legislation. These employees do not manage the company and do not manage its resources. Rather they manage the state’s shares – those that I just referred to – on the state’s behalf. And since there are also other companies in which the state has a significant number of shares, other people represent the state’s interests there. And they do not need to struggle amongst themselves. So actually I have nothing to add to this. I do not know what it is that bothers people in this respect. Who should represent the state’s interests concerning the state’s shares? Of course we could develop a system in which independent experts and lawyers represent the state’s interests. This is certainly possible. We shall probably evolve towards this at some point. For now I consider that this is not realistic because at present lawyers and independent managers would at once start to engage in their own private business.

As you know this is similar to the situation within the courts of the United States where criminal prosecution of the people who were commissioned by the American government to work on privatization in Russia is either underway or has already been completed. It was uncovered that they were a) employees of the CIA and b) made a profit from doing so. I do not remember their names but this has all been reported in the media. And judicial proceedings are underway for, I think, two people. Moreover, some decisions have even been made.

For that reason it is natural that the state’s shares should be represented by civil servants.

Alexander Rahr: Vladimir Vladimirovich, in two days we will celebrate a terrible anniversary, that of September 11. Let me remind that following these terrible events in America you were the first to call President Bush and offer your cooperation. But you did yet another thing that many that have forgotten; I am referring to your speech in Germany, in the Reichstag, in which you offered something else: joint efforts by Europeans and Russians to modernise Siberia. From my point of view – and I might be a bit provocative when I say this – the German business community believed you and concluded what were the first really historical contracts in Tomsk. Other Europeans are very cautious. I would even say that in 2006 we saw new friction and even conflicts between Russia and the EU: they started talking about strengthening GUAM, Russia started to look more to Asia, and they started talking about energy-oriented NATO approach. My question is the following: why do you think this is occurring? Is it a product of a historical hostility to Russia, a misunderstanding, a shortage of information, or old prejudices? Even we are puzzled about this. Or is it simply the EU that is really creating its own liberal Europe and does not understand what is happening in Russia? And in connection with this I have one very last question: what can Germany do, what would you advise Ms. Merkel – who is going to act as head of the EU next year – to do with respect to these relations?

Vladimir Putin: I shall begin with the last question. I don’t consider that I have the right to advise the Chancellor of the Federal Republic of Germany. The German leadership should determine national priorities and I hope that they do this in the best possible way. Regarding our mutual energy relations with our European partners, I think that there are several points worth making.

The first concerns competition in the political and economic spheres in Europe. Some of our partners consider that developing economic relations, including energy relations, with Europe will strengthen Russian-European relations. And they probably consider that this is not in their interests and therefore try and prevent this. The same thing occurred when certain people tried to prevent constructing a gas pipeline between Germany and the Soviet Union. And in this respect nothing has changed. There is nothing new here. To do this today is a little bit more difficult because Russia does not represent a so-called evil empire. But, nevertheless, today there are certain similar attempts taking place. And not only from the outside, but even more from within. And this is quite effective when one takes into account the strong potential that competing political forces have in Europe. They have a good, internal powerful potential within Europe itself. And both political structures and the media use these forces effectively. This is the only way that I can explain the truly contrived problem of the North European Gas Pipeline. This pipeline is not bothering anybody, harming anybody or damaging anybody else’s interests. It is not taking anything away from anybody. By laying this pipeline along the bottom of the Baltic Sea we are not taking anything away from anybody, we are not taking any deliveries away from anybody. We are only speaking about the fact that in the future we are going to send the 60 billion cubic metres that have been contracted for and perhaps even more along this new route. We are not removing any pressure from the pipeline system that runs through Poland or through Ukraine. Everything will remain as it was. And experts know and understand this perfectly well – they are only pretending that they do not notice this. And, I repeat, I consider that this is done exclusively for political reasons.

But I am very much surprised by the fact that within, shall we say, this same Germany, there are political forces that pretend that they do not understand this. Because the struggle against the North European Pipeline is a struggle against German interests and the German economy. Because this pipeline constitutes a direct link between the Russian pipeline system and the European pipeline system. The really direct link free of economic, political or environmental risks related to transit countries. I repeat that since there are no interests that are being infringed upon, the struggle against this project can only take on a political character. And I am deeply convinced that this is the case.

It seems to me that serious people understand this and that the German government has adopted quite a pragmatic position to defend its country’s interests, and done so despite the difficult internal political situation, especially during the preelection campaign. And both the former leadership and the present Chancellor Angela Merkel support this project. And we have many joint plans with leading German companies such as BASF, EON and others. We are going to implement these plans.

We are also going to work in the south of Europe and develop our relations with Turkey, Greece, Bulgaria and Hungary. We also have large-scale plans with Hungary to construct gas pipeline systems and perhaps run them through Greece to Italy. We are not afraid of any other alternative routes such as NABUKKO and all the others. If natural resources exist, well, then start of there and let there be additional routes, additional deliveries. The world market is very sensitive to these issues. We will always have where to send our raw materials, there is no doubt about this. I already said that we want to increase our oil export portfolio to Asian countries to thirty percent. And this is also true regarding gas exports. And we will certainly do this.

The same applies to our relations with Ukraine. Nobody wants to take on the load of subsidising another country’s economy by three to five billion USD a year. Nobody wants to but for some reason everybody insists that we do so. And we did so for 15 years. 15 years! If we say this to people, no one believes us. Well, all right, the Soviet Union broke up. World market prices exist. Take it, buy it. Incur a debt. Incidentally, we did not simply change the prices for Ukraine overnight. We negotiated over many years but did not achieve any results. We were forced to do so, we had no easy way out – they weren’t listening to us and didn’t really want to reach an agreement. Then, thank God, we were able to agree. During this time an international company came to gas checkpoints and established the volumes that were being taken from us to Ukraine, and the volumes that were leaving Ukrainian territory. Everything was clear and simple, you know, like an orange. No, something was kept silent, something was left unsaid. Why? For political reasons. Because our European and American partners decided to support the orange revolution even against the Constitution. And they supported it. First of all, the political result was very problematic and we see how the situation is developing in Ukraine. Second, if you already provided support and want to continue to provide support then pay the bill. (Laughter). But you want to have political gains and want us to pay for them. But in general this simply won’t do. And you neither want to pay nor to look at things as they are in reality.

We have settled this process and resolved this problem. And as to Europe – and I have already spoken about this many times – if you look at Europe, at the European metallurgical industry, then you will see that it is becoming an absolutely uncompetitive environment. If, shall we say, Mittal Steel, which bought Krivorozhstal in Ukraine, receives Russian gas for 50 USD per thousand cubic metres why should German producers pay 250 to 260 USD? This simply is not in the national interests of European countries. Of course this is political decision by our western European and American partners, this is one-sided approach, it is harmful and erroneous. But it seems to me that all the same, despite all the scandals, we have come out of this situation. I consider that our work has resulted in a major advantage for our European partners. I have already spoken about this and will say it again in front of this audience.

What happened before? Every year we concluded a contract with our Ukrainian partners concerning gas deliveries to Ukraine and, according to the prices we set for Ukraine, they agreed on transporting gas to Europe. And our European consumers always depended on how we agreed and if we would agree at all with our Ukrainian partners. This took place over the course of fifteen years. European consumers don’t even know this but they were always within a hair’s breadth of danger because our negotiations with Ukrainians always were very rigid and difficult and Europeans were always dependent on them. What have we done now? We have separated the two issues. One issue is the delivery of energy resources to Ukraine and the other is transporting them to Europe. And we concluded a five-year transport agreement with Ukraine to ensure that European consumers receive stable deliveries of Russian energy resources. This is a huge step towards ensuring energy security in Europe. It is strange that no one pays attention to this, as if they did not know this. But they know it and yet all remain silent.

I think that this new situation is to the credit of President Yushchenko. He was right when he made this decision. He proved himself to be a serious, responsible politician who did not get bogged down in details and made Ukraine into a responsible, stable player on this market, a country that is both serious and respected.

We have now a difficult situation because the Central Asian gas for Ukraine is either finished or coming to an end in the near future and Turkmenistan does not want to compromise. We are talking to Ukrainians about this issue and our contacts are pragmatic and very friendly. Together we are thinking about how to solve this problem.

Piotr Dutkiewicz: Director of the Institute of European and Russian Studies, Ottawa, Canada.

Mr President, we are still full of impressions of Khanty-Mansiysk and not only of the level of infrastructural development but also of the people that we met there and who we felt were very worthy. Thank you for this trip.

Vladimir Putin: I apologise but I didn’t even know that you were there. But you’re welcome anyways. It is pleasant to be associated with a good result.

(Laughter).

Piotr Dutkiewicz: Send us there more often even if you don’t know about it.

Vladimir Putin: We will send you, we will send you. (Laughter). There is no problem. Here they love to send people somewhere where they will not bother anyone.

Piotr Dutkiewicz: But this is not exactly what we are looking for.

Please excuse this somewhat pretentious question but I would simply like to ask you your opinion. Which do you think are the three most important things you have achieved during your time in the Kremlin? Which three things did you not have enough time to do or were not able to do? And what are three pieces of advice that you would give your successor when you have your first meeting with him?

Vladimir Putin: On this account we have an old joke. When the head of a company or — let’s take a bigger picture — of a region, leaves his position, he gives his successor three envelopes and tells him the following: ‘Open the first envelope now, the second in two years, and the third just before you leave your position’. Upon opening the first envelope he reads: ‘Blame it all on me’. In two years he opens the second envelope which reads: ‘Promise everything’. And when he has six months left he opens the third envelope and reads: ‘Prepare three envelopes’. (Laughter). This story is relevant because our colleague has asked me to formulate three things three times right now.

I am not ready to state all of the most important things in all three spheres. But it is very obvious that we were able to strengthen Russian statehood. It seems to me that there is a great deal that can still be done in this field: to administratively and morally strengthen Russian statehood and establish more or less capable power and economic agencies.

The second achievement concerns the restoration of the Russian economy. We mentioned basic economic indicators. When I started working Russia’s gold and currency reserves amounted to 12 billion USD. Just this year they grew by 80 billion and total around 275 or 280 billion USD, I think. We had hyperinflation. And though it remains high I think that this year we will achieve nine percent. And before it was 30 or more and even went off the scale, up to unknown levels.

We constantly held out our hand to all international financial organisations for credits. As you know, today we are not financing our main activities with money obtained from credit and we are also repaying our debts ahead of schedule. And just recently we paid back 22 billion USD that we owed. Now the ratio of our foreign debt to GDP is one of the best in Europe. On average over the last three years the economy has grown by seven percent. In the first six or seven months of 2006 it grew by 7.4 percent.

40 million Russian citizens lived below the poverty line. Today there is still quite a lot of poverty. But it is no longer 40 percent of citizens – I think it is somewhere around 20 percent. The number has been halved. And I think that before the end of 2008 this indicator will approach the general European level.

We have minimal unemployment, quite simply minimal unemployment. And I think that we have learned to be quite pragmatic, but not confrontational, when defending our interests in the international arena. In other words we strengthened the Russian Federation’s international position.

If asked to state briefly and from the top of my head, these are three basic things that I would classify as positive.

What would I have liked to do and what is still incomplete? I have already referred to lowering the number of citizens below the poverty line as an advantage but, at the same time, there are still large numbers of poor people. The average income is still too low. However, we understand that in order to maintain macroeconomic stability and the rate of economic growth we cannot lessen the numbers of poor people in a way that is harmful to macroeconomic stability. This is the first and most important thing.

The second is the fight against corruption. I think that this is one of the very significant negative things that we have to continue to fight against.

And the third – something we have already talked about with Mrs D’Encausse – is demography.

What must we do in the near future? Incidentally, it is impossible to talk about such things with certainty and I am very much at risk when I do so. But nevertheless I will talk about things on a general level. We need to continue developing our country’s political system. We need to establish a truly multiparty system, develop self-management and improve relations between the federal centre, the regions and the municipalities so that each level takes responsibility upon itself and is able to accomplish the tasks incumbent to it. And of course we must continue to diversify the economy and thereby create the conditions that will help us resolve social problems.

Jan Carnogursky: I am the former Prime Minister of Slovakia.

Mr President, last year at this meeting I asked you whether Basayev would be captured or killed. It happened. Allow me to congratulate you on destroying this killer of women and children.

But today I have a different question. I would like to return to the Kosovo question. The media often writes about how even in 2006 we must define Kosovo’s status, that is proclaim Kosovo’s independence. My question is the following: when a given Security Council resolution proposes that Kosovo be taken away from Serbia, would Russia use its veto against such a resolution?

Vladimir Putin: I do not know now whether we are moving towards any resolution or how this resolution would be. But I can tell you one thing: we will aspire to ensure that international legal rules apply to all regions of the world, and I have already said so here. This is the first thing.

And the second. Of course we are going to be guided by the opinions of the participants in the European dialogue, including Serbia. And if the suggestion on offer is unacceptable to us, then we do not exclude the right to use our veto. We have such a right and it does not exist just to lay in an old chest and get dusty. It is a real policy tool, an extreme measure, but we do not exclude using it in the event that a resolution would contradict our sense of how international relations should be carried out or be detrimental to our interests.

Shigeki Hakamada: University Professor, Tokyo.

I would like to ask one more question about Russian-Japanese relations.

I am very happy that you said that both economic and cultural relations between Japan and Russia are developing quite quickly. To a certain degree we can say that there is a boom of Japanese culture in Russia.

Vladimir Putin: True.

Shigeki Hakamada: Everyone is reading Haruki Murakami …

Earlier here you said that in order to resolve a serious territorial issue we first must strengthen economic and cultural ties and then it would be much easier to solve this problem. And now we have worked a great deal to do so. Now we have good economic and cultural relations. But it is unfortunate that lately attitudes towards the territorial issue have become more rigid here. You yourself have a very positive attitude towards this issue, something I heard both last year and today, and for that reason I am very happy. However, a different example is that of the head of the International Committee of the State Duma, Kosachev, who recently said that Russia does not consider there to be a territorial issue. The Japanese government was quick to criticize this position. How can you explain this position?

Thank you.

Vladimir Putin: I do not consider that attitudes towards this problem have become more rigid. On the contrary, we have agreed to discuss this problem and we are doing so. At the time, the Soviet Union refused to discuss this question after 1956. In 1956, I will remind, we signed a Joint Declaration where Article 9 reads as follows (please take it and read it): the Soviet Union agrees to transfer two islands to Japan following the conclusion of a peace treaty. Do you understand? In other words first a peace treaty and then a transfer of islands. There is nothing written in the declaration about the conditions for doing so – to rent or to have forever, for a fee or for free – and nothing is written about under whose sovereignty these islands will be. True, there is nothing about that there. When I read this the first time I did not even know that every word there matters. But there is nothing superfluous there – every word has been thought through. This is the case and the Japanese party agreed to this. Moreover, the Supreme Council of the USSR and the Japanese parliament ratified this declaration. We did not propose it. The Japanese party formulated this proposal. And you ratified this and then refused to implement it.

Afterwards they asked us to return to this Declaration. And they asked me the question: ‘Are you ready to return to the Declaration or not?’ And I answered: ‘Yes, let’s return to it’. But after going back to the Declaration the Japanese party took a harder line and said: ‘It is good that you have returned to the Declaration but right from the beginning we want all four islands and then a peace treaty’. But this is not simply a return to the Declaration. Something else entirely is written there. So it is not the Russian party that is toughening its position but the Japanese party.

But I do not think that we should discuss this issue together now. Let’s first let experts deal with it, experts within our foreign ministries. I would like to emphasise something else. Of course it is true that developing our humanitarian, economic and cultural ties will establish a good background. But I do not consider that this is some kind of exchange: give us economic, humanitarian and cultural ties and we will give you a soft negotiating position on the islands. I think that Russia is just as interested in developing economic, cultural and humanitarian relations as Japan is. It is a mutual interest. And of course by developing these relations we create a favourable atmosphere for resolving the most difficult problems. I repeat once again that I have the impression, especially as a result of my latest contacts – my last trip to Japan and my latest contacts with Mr Prime Minister, including in St Petersburg – that the Japanese side really wants to solve this sensitive and important problem and not instrumentalise it for internal political issues. And I recognize that they want to look together with us to find ways to resolve this problem.

And I think that this is possible. Together with China we found the possibility of resolving this and found compromise solutions and results.

I think that if we think about this, and if experts think about this, then they will find ways to satisfy both parties and even if the solution is a compromise then we must be ready to make compromises.

Timothy Colton: Davis Center for Russian and Eurasian studies, Harvard University.

Mr President, I would like to ask you about a term that appeared in internal political discussions over the past year in Russia, namely the term sovereign democracy.

Recently someone in the United States wrote an article about this term and in this article there were 35 different possible definitions of democracy – with a dash, a hyphen and so on. It seems to me that it is some kind of political slogan. And what is interesting is that apparently there are certain disagreements concerning these terms within your own government. We do not know how deeply these divergences run but in any event, it is a topic that has been widely discussed in the press.

How do you understand this problem: what is sovereign democracy? Is it a model to which Russia aspires and does it exist at all at the present time? Does the term imply protecting Russia from foreign influence or perhaps something deeper? We would be interested to listen to your thoughts on this issue.

Thank you.

Vladimir Putin: I don’t think that I am capable to undertake a detailed analysis here. Of course sovereignty and democracy are concepts that refer to two different phenomena. Sovereignty is the country’s external aspect, its position in the world and its ability to carry out an independent internal and foreign policy without intervention from outside.

Democracy is a way of organizing society and the state. It is entirely directed within a country. For this reason sovereignty and democracy are different things. Along with this, today we have an international setting, a globalised world, in which borders continue to disappear and become transparent. It is easy to see and observe that, unfortunately, the countries which have been able to, shall we say, resolve their economic problems, countries who, in practice, enjoy a monopoly in the international media (and the media is extremely important in the modern world as a whole, in politics, in economics), these countries often use all these modern methods associated with globalisation in their national interests. They use them to ensure that their nation obtains concrete advantages in the international economic and political arenas. This is an obvious fact. Obvious to us, in any case.

Otherwise there would be no such opposition within Europe to Russia’s energy cooperation with our European partners. This provides the foundation for some of our experts and political scientists to argue about the term sovereign democracy.

Of course these different concepts, concepts from different spheres, are purely theoretical but in today’s global world and in my opinion, this issue has prompted a discussion. I do not interfere with this discussion. I do not consider it to be a harmful discussion. And if people disagree on this issue and if certain ideas appear during these arguments and discussions, ideas that could be used in practice in both our national and foreign policy, then we are no worse off.

Michael Stuermer: Mr President, yesterday we had the opportunity to visit a monastery. I would like to give you some examples. As I waited for the others to arrive I waited near a sacred spring. A group of newly-conscripted young recruits in uniform approached and they were in uniform but loosened up a little bit, and behaved quite freely. They all drank from this spring and all washed in it. A little later two wedding parties arrived and did the same thing. Young people with their young friends.

This is concrete evidence, real-life examples. But they testify to a deeper meaning. I would like to listen to your opinion on the role religion plays in Russia, in post-Soviet Russia, and in a post-materialistic Russia. In other words, if Russia was once materialistic, it is now post-materialistic, and what stablising role has religion played?

To tell you the truth, I was very encouraged by seeing all this especially with respect to the newly-wed couples. I hope that they have children and that this will help assuage some of your worries. But I also liked the soldiers, the servicemen. Do you consider that Russia’s future lies in them?

Vladimir Putin: As a matter of fact, Russia has always been a very pious country, a very religious country. My father’s family lived close to Moscow, I think about 120 or 130 kilometres away from Moscow. And colleagues looked in the archives and traced this family’s history back to 1680, I think, sometime at the end of the 17th century. And do you know how they calculated this? Through church records and mainly through so-called records of confession. When people come to confession every week.

Imagine, a family lived for more than 300 years in one village and went to church every week. I have never really reflected on this before, on how sedentary and yet how stable society was at that time and in Russia in particular. For 300 years and in one village they went to one church.

Moreover, do you know what I found most interesting. The notes on these confession sheets. The priest made a schedule by hand of who was at confession and further on listed their surnames. Still further on were lists of who was absent from confession. (Laughter). To be honest, yes, it is surprising. But it was the next list that amazed me most: ‘The reasons for absence from confession’. (Laughter). Can you imagine? It is simply surprising.

And what did confession consist in, in those days, especially for peasants? They had to come in at the end of every week to confess to the priest, to give him an honest account of what they had done, the sins they had committed. So during the week it was necessary to think twice about you were doing because on Sunday you have to go to the priest and report on this. And this is a small society. Everything takes place in one small village, everyone knows one another.

The church has always played a huge role in Russia. It was a state institution. At the same time, it acted as a moral school and even the administrative factor could be considered essential.

In Russia the moral component has always been very important for the society and the state’s well-being. There is no institution in the modern world other than the church, and not only the Orthodox Church, that can fill this spiritual vacuum.

And for that reason I consider that we first and foremost owe a great deal to our traditional faiths. The church had incurred big losses from the state – the Orthodox Church, Judaism and Islam – and today these losses have still not been compensated. I am convinced that the state must support the church.

Along with this Russia is a secular state and will remain so. In our country the state is separate from the church and vice versa. And of course we do not intend to change this situation. We consider that freedom of worship is a fundamental freedom that must be consistently guaranteed by the state. We are working towards this goal.

Andrew Kuchins: I am going to try to ask a question in Russian. I hope that my attempt will not be your torture.

Vladimir Putin: That is something from comrade Beria’s vocabulary. (Laughter).

Andrew Kuchins: You know, when they showed me an apartment here in Moscow they showed me Beria’s former apartment and I said: ‘Thank you but no, I don’t need that’.

I spoke with my son last night on the telephone and told him that tomorrow I would meet with President Putin. He is 11 years old. And he asked me to ask you the following question: ‘Who did you vote for in the fourth year, for Bush or for Kerry?’ I told him that: ‘Probably, Putin voted for Putin’.

I want to ask you a question about Russian-American relations. I am worried about our relations and their long-term development prospects. I had the opportunity to meet with President Bush. Marshall Goldman and several others were also there. I know that President Bush is worried about the increase of anti-Americanism in Russia and especially among young people. Of course, anti-Americanism is increasing in many countries in the world.

I lived in Moscow for two and a half years and when I came back to the States at the end of last year I was also very upset with the biased and negative image that Russia has in the American media.

But my question refers to the representation of the USA in Russian media, especially on Russian national television. When I lived here for two and a half years I often watched television and it left a strong impression on me. If Russian national television had been my only source of information I would have concluded that the USA is a hostile country and perhaps even an enemy.

But I know that this is not your policy and that you support improving our relations and making them more constructive. And during our meeting I told our President this in a very frank and direct way.

But it seems to me that there is a certain contradiction between the image of the USA as presented on Russian television and Russia’s foreign policy. Can you explain to me why this exists and how we can correct or improve the situation?

Vladimir Putin: I can. The media reflects the realities of the present life and mood of Russian society. And independently of whether or not the media is state-owned or independent, if it doesn’t reflect society’s mood then it will not be interesting and people won’t trust the media. And they say what people want to hear. The media reflects real life. And the Russian government’s foreign policy is pragmatic and designed to improve Russian-American relations.

While the press does not need to look at the future of international relations, international life and Russian-American relations it is part of my task to do so. For that reason there is really a marked difference between the mood among society, in the media and our concrete policies. I am only chagrined and confused by those who, unlike you, sometimes pretend not to notice the fact that we are increasing our efforts to not only maintain but also to improve Russian-American relations.

I think that our colleagues’ main problem is that they are not inclined to search for compromises. They almost always insist that we accept certain decisions that they consider optimal. But of course this does not happen 100 percent of the time. Sometimes we engage in joint work and in these cases, as a rule, we are able to achieve viable results.

I would very much like for this practice to take hold in our relations with our American partners. This will only happen in the event that they acknowledge our national interests and take them into consideration.

I repeat that we don’t intend to work against American interests, nor do we intend to neglect our own interests in favour of our partners’ interests.

I repeat that this work will be effective if they acknowledge our national interests.

We have really developed very good relations with President Bush. And without any undue exaggeration I think that this is a very important factor in intergovernmental relations. Recently this element became even more obvious because there are a lot of various small problems. In any case, we value this. It seems to me that President Bush also values this. We shall continue to rely on this in the future. And of course we are going to expand this base.

For instance, in accordance with American legislation we wanted to conclude contracts with various lobbying groups that officially operate in Congress. You know what they told us? And this is normal, this is in accordance with American laws. But the people we contacted told us that state department employees did not support such relations with Russian partners. That is strange. It is true that in direct dialogue with our American colleagues they did not admit this. They said: ‘No, that can’t be true, we did not do this’. But this means that someone – either the representatives of the lobbies or of the state department – is giving us the wrong information.

But such trifles prevent us from establishing a constructive dialogue. Why should this be possible for all other countries and not for Russia? We are not doing this underground, with the help of the FSB or the Foreign Intelligence Service. We are doing this openly and as it should be done with a view to engaging in a meaningful dialogue with legislators. What is wrong here? They say: ‘No, that is not possible’. Why is it impossible? It is a trifle, a detail. It is simply evidence of how they automatically applied the presumption of the Soviet Union’s guilt to Russia. This is not right, it is harmful and it bothers us.

For example, I believe that Europe will grow to become a political entity and that European statehood will be strengthened, and that both will inevitably occur because they are product of life’s basic needs and global economic development. During these processes political forces in the United States that are interested in the existence of a strong viable Russia and in developing intergovernmental ties will also grow. We will put emphasis on precisely this part of American society and of the American political establishment.

Thank you.

Thierry de Montbrial: About Russia’s internal situation. First, what is a vertical system of authority? Will establishing a top-down system allow governors to develop their own programmes of activity?

Second, last year you told us that you will not stand for a third term. You have repeated this many times. Of course the issue has already been known for a long time. And of course there are people in the Duma and in other places who are asking you to stay on for a third term in the country’s interests. These are my questions.

Vladimir Putin: Do you support these requests or not?

Thierry de Montbrial: No, the issue is not what I think but the fact that perhaps 85 percent of Russian citizens would not be in favour of your carrying on. But 15 percent will remain your supporters in the third term. Perhaps I would vote for a third term.

Vladimir Putin: As far as I know, public opinion polls show that the overwhelming majority of citizens would like there to be stability in the country, and for nothing to change.

But I have already spoken about this and shall repeat that I have nothing to add here. I do not believe that any one person can provide stability, but rather that it is society and the state’s general situation that must ensure stability. And this situation depends to a large degree on how much we observe the constitution.

And if I say that all are equal before the law then I have no right to make exceptions for myself. This undermines the interior moral obligations for executing policy both inside and outside of the country. It is destabilizing. It is very important. That is the first thing.

The second. It is impossible to make the destiny of such a huge country depend on the fate of any one person.

As to decentralization or centralization of authority. You know that in Russia for some reason our colleagues always see only one side of the coin and they only see centralization. Yes, we really have changed the way the heads of the regions come to power and I consider that we were right to do so because, as I have already explained, our political system is not developed enough and a truly multiparty system does not yet exist. For these reasons the regional level of authority started to be formed according to clan principles and authorities in the national republics started to be formed according to national and ethnic clan principles, and often according to a given group’s economic interests.

I repeat that in instances where civil society is not sufficiently developed then all of this can prove quite pernicious for the country. This is the first thing.

The second is that, along with this, I do not want call upon anything, I simply want to draw your attention to the fact that the process does not consist in designating a person, it consists in proposing a person. And the regional parliament must vote for the person that the President proposes. And it has already happened to me that deputies of parliament firmly and clearly declared to the administration: ‘We know that you want to propose a certain candidate. We are not going to vote for him. You can dismiss us’. Especially when term was coming to an end. And these cases already occurred within our country’s political life.

And I was required to search for people who would be viewed as a compromise. And I found them. But I am very happy that this happened. It means that the system functionsas it was thought to be, the system works. This is the first thing.

The second. Along with this we have now started forming parliament according to party lists. Previously this was 50:50 – that is, 50 percent in accordance with party lists, and 50 percent from single mandate districts. This implies that without the necessary financing and political support for parties, in practice 50 percent of parliament was formed according to governors’ decrees.

But even if the President now has more powers with respect to bringing the governors to power, I have voluntarily reduced the President’s ability to influence the composition of 50 percent of the lower chamber of parliament. This percentage started to be formed in accordance with party lists and not according to governors’ wishes as was done previously. That is the second thing.

And the third. In parallel with this reduction of governors’ authority we made yet another step that is very important towards consolidating the Russian state, a step to which no one pays attention and yet it is a major event in a country’s life. This measure consists in developing the municipal system. We have increased the number of municipalities several times over, given them huge powers, and allocated them major financial resources. As a whole this amounts to a revolutionary event in the country’s life. Such an event is taking place in this country for the first time.

And incidentally, if we talk about what has been done, then this represents one of the most significant steps. And it has simply not been completed yet. But we are already actively working on this. This has already been accomplished in many regions. This will be completed in the near future.

So the notorious vertical authority that you talk about, and often in a negative way, consists not only in constructing vertical power structures but also in redistributing power between the federal centre, the regions and the municipalities. As a matter of fact, for Russia this amounts to searching for optimal ways to organise the state so that each of its components is able to effectively solve the problems that are legally incumbent to it.

Of course all of this is developing in a dynamic and quite a free way. I see only the positive aspects. I think that we are searching for an optimal situation that applies to huge country such as Russia, huge in the sense of area, population (all the same we amount to 145 million people), ethnic and religious structures.

You should examine what happens in several other countries, for example in the Federal Republic of Germany. They recently adopted a law there, a law that they had been afraid of adopting earlier. See, Mr Rahr is smiling – he knows what I am referring to just as Germany’s other representatives probably know as well.

Redistributing the powers between the federal centre and the Lander. And a whole range of powers that the Lander previously had were transmitted to the federal centre. The Bundesrat, the upper chamber of parliament, now has lost the power to block decisions on a number of topics. And why did they give away these powers? In exchange for the ability to determine when to close and to open stores. This is what German democrats have now thought up. And already for a long time in Russia these decisions have been taken by someone in the lower levels of government.

It is not necessary to take one of these accepted measures out of context – we must look at everything in its entirety. I think that if we look at the decisions that have been made within their context, then they are well-founded and balanced.

Thank you very much. And see you at our following meetings. (Applause).