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President Vladimir Putin: Good afternoon, colleagues.

Last week, the defence minister and I, along with military specialists, took part in practical operations to put the Topol-M missile system on military duty. We then visited the Plesetsk Cosmodrome. This was not simply a chance to see what is happening in these areas, but rather a tour of inspection, because it was important for me to see what progress has been made in carrying out objectives set three, four or five years ago. I would like to thank the Government because I know that the ministers responsible for the economic side of things, and the other cabinet members, have been giving their full attention to these instructions of several years previous. I have already had the chance to congratulate the engineers, workers, technical experts and military personnel on attaining the objectives that we set, but the Government also deserves credit for its purposeful and consistent work. Not only were funds made available on time for carrying out these tasks but, as I saw, the necessary administrative support has also been provided, both for defence projects and for the civilian space sector.

I would like to note that although much has been accomplished, there is still a lot to do, above all for the people working in this area. We need to look very closely at what we can do to resolve the social issues facing people in the space sector, including those living and working in the closed town of Mirny. We need to draw up a separate development plan for this town. Everything there was built back in the 1960s and 1970s, and though the authorities keep it all in more or less decent shape, it is all old now and in need of modernisation, but this a task that the regional authorities, and all the more so the local authorities, cannot fully address on their own, and they will require your help to resolve this problem.

I ask the Prime Minister to put this matter under his supervision and draft a social development programme for the Plesetsk Cosmodrome and the town of Mirny as soon as possible.

Prime Minister Mikhail Fradkov: Yes.

Vladimir Putin: Regarding Baikonur and the other possibilities at our disposal, we examined everything thoroughly at the meeting with the permanent members of the Security Council on Saturday. A draft decision has been drawn up. I ask you to give your full attention to the creation of a general programme for the Russian space sector’s work over the next 30–40 years. Space is an area that requires long-term planning. The numbers and the programmes in the different areas are all there, and what is needed now is to bring it all together and draw up a clear vision of what our country plans to do in this crucial sector over the next decade.

(Addressing Economic Development and Trade Minister German Gref) German Oskarovich, you have the results for November. Go ahead, please.

German Gref: We have summarised the economic development results for November. GDP growth stood at 7.8 percent in November, representing an increase of 0.4 percent for the month. This gives us overall GDP growth of 6.8 for the 11 months of this year so far. We think that depending on the results for December, we will have overall GDP growth of between 6.9 and 7 percent for the year.

Vladimir Putin: What was the forecast at the beginning of the year?

GERMAN GREF We forecast growth of 6.3 percent.

Vladimir Putin: And now we have a figure of 6.8 percent. But the final result for this year will be calculated only at the beginning of next year?

German Gref: We will have the final figures around March, but we are already planning for a figure of 6.9 percent as things stand today, and on December 15 we completed our preliminary forecasts for the next three years – 2007, 2008 and 2009 – balanced all the figures and sent them to the Finance Ministry given that the budget process has got off to an early start. Based on the results of these last eleven months we have forecast the economic situation for the next three years, and we predict the economy will grow at a slightly faster rate than we had initially planned.

Industrial output growth increased by 3 percent in November and the overall increase for the 11 months of the year so far was 4.1 percent. Wages rose by 14.6 percent in November and by 13.3 percent for the 11-month period as a whole. The retail sector posted very rapid growth – up 13.9 percent in October and November and up 12.8 percent over the year as a whole so far. We have also seen a growth spurt in investment over the last part of the year with an increase of 15.2 percent. November 2005 was also a very good month as far as investment growth went, with an increase of around 14 percent, but even with that high base growth, we still saw an increase of 15.2 percent. Investment grew by 12.9 percent overall over these 11 months.

Vladimir Putin: Is that more than last year?

German Gref: Yes, it’s more. Last year we had investment growth of exactly 11 percent for the first 11 months of the year. Investment is growing fastest in the construction sector, which posted an increase of 24 percent in October and 21.5 percent in November.

That’s a brief summary of the month’s results. Now we only have December remaining. Inflation was at 0.3 percentage points for the first 11 days of December. So far, we are keeping to plan and will be able to remain within our target parameter of 9 percent.

Vladimir Putin: Good.

What decisions have been made regarding Vneshtorgbank?

German Gref: We plan to discuss the question of an additional initial public offering by Vneshtorgbank at a Cabinet meeting. The plan is to place an issue of additional shares for a total of between 90 billion and 120 billion roubles on the open market. This share issue would have two purposes.

First, Vneshtorgbank has acquired banks in the past and a part of this issue would need to be spent on consolidating these banks’ shares into a single Vneshtorgbank share. The other part of the revenue generated by the issue would be used to capitalise the bank in order to ensure its sustainable development and ability to provide credits in the years following 2007.

Currently, 99 percent of Vneshtorgbank’s charter capital is in state hands. After the IPO, around 20–22 percent would be placed on the market and the state share would decrease to 78–80 percent.

Vladimir Putin: Which trading floors are you considering for the IPO?

German Gref: We will carry it out on two trading floors. Depending on domestic market capacity part of the issue will be placed on Russia’s domestic market and the other part we plan to place most likely on the London Stock Exchange.

Vladimir Putin: Will Russian citizens be able to buy these shares?

German Gref: Absolutely. We are planning the Vneshtorgbank and Sberbank IPOs in such a way as to make the minimal share price affordable for Russian citizens.

Next year, according to preliminary plans, electricity generating companies will also carry out IPOs for a total of around 250 billion roubles and Vneshtorgbank for around 120 billion roubles. The savings bank, Sberbank, is also planning an additional share issue. This will be the biggest issue in a decade.

Vladimir Putin: The Rosneft IPO showed that our citizens are eager to buy liquid securities issued by Russian companies, and Sberbank and Vneshtorgbank are certainly of this number. We need to make it technologically possible to give people the chance to buy these shares.

German Gref: We want to make it a principle of these share issues that in the event of over-subscription priority would go to private individuals.

Vladimir Putin: That’s the right approach.

(Addressing Finance Minister Alexei Kudrin) Alexei Leonidovich, how is work going on the three-year budget?

Alexei Kudrin: A meeting chaired by Deputy Prime Minister Alexander Zhukov took place last week and approved the timetable for preparing the three-year budget. This timetable sets the deadlines for drafting all the forecasts, their main characteristics and parameters, and for settling all the issues regarding taxation policy, debt policy, privatisation and federal targeted programmes. We have agreed on clear deadlines for preparing this three-year budget.

The Government will approve the three-year budget’s main outlines at a sitting of the Budget Commission on March 15. On April 20, according to the timetable, the Government will examine the final draft budget and on April 30 will submit it to the parliament as the three-year budget for 2008–2010.

Vladimir Putin: Good.

I ask all of you and every agency to work in consolidated fashion and ensure that everything is completed within the agreed deadlines.

(Addressing Foreign Minister Sergei Lavrov) Sergei Viktorovich, could you please tell us about your visits to Brazil and Argentina?

Sergei Lavrov: On your instructions, I went to Argentina and Brazil and met with the Argentine and Brazilian Presidents, Nestor Kirchner and Luiz Inacio Lula da Silva, and with both countries’ foreign ministers. Also present at the meetings in Brazil were the ministers of defence, energy, the economy and agriculture.

Our main task was to examine progress with implementing the agreements that you reached earlier with these countries’ leaders, and with implementing the decisions reached during Mikhail Yefimovich Fradkov’s visit to these countries last spring. In both countries we signed joint declarations on deepening our cooperation in international affairs, including in international organisations and the United Nations, and on rapprochement between Russia and the regional groupings in Latin America.

Acting on the objective that you and Brazilian President Lula da Silva set to create a technology alliance, we signed an agreement on protection of technology used in cooperation in the peaceful use of outer space. This will enable us to move forward with the projects to modernise a Brazilian launch vehicle, speed up preparations for the launch of Brazilian micro-satellites and work on developing a Brazilian space launch site. The plan is, once this work has been completed, that we will work together with the Brazilians to carry out commercial space launches for third countries.

Vladimir Putin: How long is it now that we’ve been working with them on this space agreement?

Sergei Lavrov: More than a year. It was just last week that the Government made the decision to sign the agreement.

Furthermore, we exchanged instruments of ratification for the extradition agreement with the Brazilians. This will enable us to work together more actively on combating potential terrorist threats, organised crime and drugs trafficking.

Both Brazil and Argentina are very interested in seeing Russia become involved in major regional projects such as the transcontinental gas pipeline and the plans for modernising the continent’s railways.

Overall, as President Lula da Silva said, South America’s objective is to achieve what North America accomplished in the nineteenth century, that is, to unite the continent in economic and infrastructure terms. As I said, Brazil is very interested in seeing leading Russian companies take part in different aspects of this work.

Finally, I also met with the foreign ministers of the MERCOSUR member countries and we signed a document on creating a mechanism for political contacts between Russia and MERCOSUR. All the partners are very interested in having us draw up an economic agreement with them once we have completed accession procedures to the World Trade Organisation.

Vladimir Putin: Good.

(Addressing Deputy Prime Minister and Defence Minister Sergei Ivanov) Sergei Borisovich, the Military-Industrial Commission is set to meet?

Sergei Ivanov: Yes, we are going to hold a meeting in enlarged format today. We will have the heads of the federal agencies taking part, of course, but they will be joined this time by regional heads, many regional governors, directors of the leading defence industry enterprises, some of the personnel, engineers and technical specialists from these enterprises, and also banking and business representatives.

We have just one issue on the agenda, but it is one I consider very important, namely, what role the defence industry can play in developing the national economy. We will also draw up recommendations on increasing the defence industry’s role in furthering innovative work in high-technology sectors.

This is linked to the fact that the defence industry has shown good growth over the last year. German Oskarovich [Gref] has given the general figures. I can tell you that the defence industry posted an increase in output of more than 6 percent this year, and that is against a background of an increase of no more than 4 percent in the machine-building sector as a whole. In other words, the defence industry’s growth is now outstripping growth in the machine-building sector overall.

The issue that we want to examine at this meeting is how to ensure that the latest developments in high technology enter the civil economy, because over these last years, we have established a number of successful defence-industry holdings, and although their primary focus is on military production, of course, they are increasingly also producing competitive equipment and technology for civil use. Civil production accounts for 30–40 percent of overall output at some successful defence enterprises. We want to examine above all now how we can use military technology in the civilian sectors of the economy and, vice-versa, how we can, as sometimes happens now, use civilian technology such as IT technology in the defence sector.

I also wanted to inform you that the Defence Ministry has made a final decision and issued all the necessary documents removing certain restrictions on obtaining and using geographical surveying information. The government agencies responsible for economic matters have been asking the military agencies to do this for a number of years now. Today the restrictions regarding the precise location of geographical sites have been lifted. Previously maximum precision was 30 metres, but this restriction has been lifted, as has that regarding linear resolution of images obtained using aerial remote earth probes. Previously linear resolution better than two metres was prohibited, but this restriction has also been lifted. As a result, this enables us to make open large-scale topographical maps and this enables consumers to make use of space navigational systems’ apparatus on a completely legal basis.

Finally, this enables our citizens and our economy to obtain and use aerial surveying data no matter what the resolution, and this is very important for cadastres and for various civilian purposes, including for drivers. We have already discussed this with the Transport Ministry today and agreed on how we will proceed further. This is all linked to the creation of the GLONASS system and to ensuring that we can launch GLONASS without any restrictions for consumers.

Vladimir Putin: How is work on GLONASS going?

Sergei Ivanov: We examine this issue regularly at the Military-Industrial Commission’s meetings. So far, everything is going according to plan. We have already got the civilian-commercial component connected now to the general segment of the project. We have appointed a chief designer for the overall GLONASS system and he has made a report. We are fully aware that without commercial profits and without integrating GLONASS into the economy, the system simply will not be effective. We do need certain parts of the system for military purposes, of course, but this is far from what the entire project is about.

Vladimir Putin: We need to make the system accessible for our citizens.

Sergei Ivanov: Yes, citizens must have access.

Vladimir Putin: It must be open not only to economic actors but also to our citizens.

Sergei Ivanov: Yes, ordinary people.

Vladimir Putin: Only then will the system be clearly economically efficient and profitable.

Sergei Ivanov: Yes, then it will be profitable.

Vladimir Putin: We need to ensure that the service is set at a price our citizens can afford.

Sergei Ivanov: Yes, it must be competitive.

Vladimir Putin: As you know, the fourth part of the Civil Code, which concerns intellectual property, has now been adopted. This completes work on the Civil Code. This was a big undertaking and it is a big event in the country’s life. I would like to congratulate everyone who worked on the Code and express my gratitude. This marks an important stage in improving Russia’s legislation.