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Vladimir Putin: Good afternoon, colleagues!

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I am ready to discuss very openly the issues we have repeatedly addressed at our meetings in Moscow, the issues connected with strengthening the vertical power structure and strengthening the state.

Let me note from the outset that it is high time we passed on from talking about the need to strengthen the state to actually doing it, because we have talked enough already. As you know, we are ready to join in the work to improve these proposals. The work is already underway, and we are prepared to listen and respond, and to make the necessary adjustments.

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I would like to reiterate my thesis that nobody seeks to weaken the regions politically, economically, organisationally and administratively. I would like to stress this again. We believe it would do harm rather than good. This level of government, the gubernatorial level, should remain strong if it is to live up to the challenges that it faces within the state. We should on no account swing to the other extreme. But it is imperative to stop further weakening of the federal government. We have witnessed it over the past years and now we see the results of this tendency.

I meet almost regularly with the same group of people in the Urals. I think this is absolutely justified, considering the importance of the region.

The position of the heads of the regions within the Urals Federal District will go a long way to determine not only the success of the government reform because that, as we see it, is only an instrument for meeting other national challenges. Overall, there are many challenges. First, addressing the economic problems. The Urals District is a really powerful industrial region and its potential has not yet been fully revealed. In the new situation a lot more can be accomplished because this district is the main “export shop” of the nation and it contains the regions that contribute the most to the federal budget.

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I would like to dwell on the relations between the budgets of different levels. The Government’s approach to the 2001 budget has become а permanent target of criticism. The main problem is the redistribution of tax revenues in favour of the federal budget. The position of the heads of regions is basically clear. It is always unpleasant to lose or give away something. But we are forgetting the other side of the issue: along with the money, the regions should live up to huge obligations to the federal centre, which very many of them have not fully coped with, to put it mildly.

In my opinion, in discussing the draft budget we should look not so much at the proportions in which tax revenues are distributed as at clear delimitation of expenditure between the budgets of different levels. And only then should we look at whether these expenditures match the revenues generated by the regions.

I think amendments to the Budget Code should proceed from this approach, because it takes into account the real state of affairs.

What has prompted these amendments? First, the diminishing obligations of the regions in funding the departmental benefits. I think we should go along with the Government because its philosophy of tackling these issues is sound. The federal budget covers this expenditure. Likewise, it is logical in terms of supporting the independence of law enforcement, military and other agencies from the local authorities. Let’s face it, we constantly say that the federal government as represented by the Defence Ministry, the Prosecutor’s Office, the law enforcement agencies generally, is not paying its way. There are debts all around. Why are they in debt? It means that the Finance Ministry does not provide them with the needed amount of financing. So, that should be guaranteed, and not just by handouts from the local administration, but through regular allocations out of the federal budget, as it should be done.

Moreover, the budget identifies clearly the spheres of financial responsibility of the regions in implementing laws in the social sphere. Money will be sent back to the regions for the sole purpose of ensuring equal social benefits throughout the country.

You are well aware that this is a crucial issue. It prompts arguments, open or implicit, every time we meet. Arguments arise over what contribution each region is making to the country’s economy, to the budget. And let us be honest, as a rule, the representatives of the regions which make net contributions to the budget present their special claims to the budgetary “cake.”

They have a certain logic in doing so. But the Governor of Kurgan, for example, will surely say that all this wealth was created by the whole people, wherever these people may be living now. So it is our duty to provide certain basic social guarantees equally to all the people, all the citizens of our country. This can only be an obligation of the federal Government. These obligations must be backed with funds.

Let me stress that by no means have all the regions fully or properly lived up to these obligations.

We had no other option but to “link” them to the federal Government in order to be directly responsible to the people. So we believe that the proposed redistribution of budgetary revenues carries an important political and social message.

Our objective is to ensure equal opportunities and guarantees to all the people, regardless of where they live – in the north, in the south, in the west or in the east of Russia. So far this is only a draft; the work on the budget continues.

Clearly, apart from general arguments the heads of regions have some concrete objections. I am absolutely convinced and I believe that the Government should listen to these substantive arguments. And I think the optimum decision will emerge from this discussion.

Thank you for your attention. Let’s proceed with our agenda.