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President Vladimir Putin: Sergei Borisovich [Ivanov], you have had a number of meetings recently with the heads of big industrial enterprises and have held a series of meetings on developing the real sector of the economy. How do you assess the current situation and our upcoming plans?

Sergei Ivanov: I would assess the current state of economic growth as stable and positive. GDP increased by 7.8 percent over the first half of this year compared to the same period last year. I particularly want to note that growth in the real sector of the economy considerably outstrips the results for the economy overall. Growth is strongest of all in the processing sector, that is, the sector with high added value. Growth in this sector was up by 12.2 percent over the first half of 2007.

Now, if you permit, I would like to say a few words on individual sectors.

First of all, the machine-building and equipment sector posted an increase of 23.4 percent for the first half of 2007. This is three times higher than the overall increase in the economy.

Another important sector is that of construction equipment. In this sector production of bulldozers was up by 29 percent, cranes by 91 percent, excavators by 21 percent, and trucks (also much used in construction) by 35 percent (in this segment KamAZ, of course, is the recognised leader).

The next sector is transport machine building. Production of modern new locomotives rose by 2.7 percent in the first half of this year compared to the same period last year. The situation in the automobile industry is quite contradictory. As I said, there has been a big increase in the production of trucks, but the increase is much smaller in car manufacturing – only 9.5 percent. Car assembly plants that have opened with the participation of our foreign partners account for almost all the growth in car making. Production of Russian cars is all but stagnating. Perhaps the only optimistic news in this sector is that two of our big car makers, GAZ and AvtoVAZ, recently concluded an agreement to buy industrial platforms from Magna, and this will make it possible to get the production of Russian cars fully up and running here.

Another piece of good news is that production of electronic and optical goods and electronic equipment in general was up by 19.5 percent in the first half of the year. I think this is linked to the fact that the federal targeted programmes adopted at the end of last year and the beginning of this year have really started working. This concerns above all the federal targeted programme for developing the country’s technological base, the programme for reforming the military-industrial complex and the programme for developing electronics and components production. Indeed, production of radio electronics has shown impressive growth.

Another factor fuelling growth is the rapid rise in domestic consumer demand for household electronic goods. Production of washing machines was up by 40 percent in the first half of the year, fridges by 20 percent, and televisions by 62 percent. More and more people in the country now have the money to buy expensive household electronic goods, and this is a positive signal.

As far as other industrial sectors go, the figures are not as impressive. Metallurgy was up by 5 percent for the first half year, chemicals production up by 8.2 percent, and timber processing and production of timber products up by 7.5 percent. I think that this is a positive signal. Over these last six months the Government has made the long-waited decision to limit the export of round wood on the one hand and to introduce incentives (including for our foreign partners) to encourage timber processing plants and pulp and paper mills to step up their activities on our territory on the other hand.

Vladimir Putin: What is happening in the shipbuilding sector?

Sergei Ivanov: The shipbuilding sector presents a sad picture. Looking at military shipbuilding overall, the sector posted growth of 15.6 percent. This is double the increase posted by the processing sector and the economy overall. I would highlight two extremes here – aircraft manufacturing and shipbuilding. Aircraft manufacturing was up by 30 percent over the first half of the year – the most impressive result for the period. In actual figures this does not sound quite so impressive: we built 10 civilian aircraft and 35 helicopters over this period. But then again, not so long ago we were not even building this many aircraft. The United Aircraft Manufacturing Corporation, which was only created last year, has firm contracts for 430 aircraft today. This ensures long-term stability and will provide work for many enterprises and for related businesses. We are lagging somewhat in the shipbuilding sector. The United Shipbuilding Corporation was created on paper only very recently. I hope that the corporation will become fully organised and established during the second half of the year. Furthermore, the Government is to adopt a federal targeted programme for supporting civilian shipbuilding by the end of this year. Sectors such as aircraft manufacturing and shipbuilding are subject to inertia and we should not expect any dramatic change in the situation over the course of even a year, for this is not the way these sectors work.

Vladimir Putin: You and I agreed to examine the issue of engine manufacturing for the aircraft manufacturing sector…

Sergei Ivanov: The Government will be ready this month to present you with proposals for creating an aircraft engine-manufacturing holding and will present you with a detailed report on the outlook for the aircraft manufacturing sector’s development, because these are related issues. Furthermore, we have also prepared proposals on developing the manufacture of helicopters. Our domestic market needs modern helicopters and there are also good export opportunities for our helicopters. If you recall, helicopters, both military and dual-use, account for a sizeable share of our defence sales abroad.

The situation in other sectors, not just the defence sectors but also dual-use sectors, is quite good: the rocket and space sector, Rosatom, and our civil nuclear energy sector all showed growth of around 20 percent over the first half of the year.