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On the current macroeconomic situation (exceeding the planned targets for inflation and price rises).

President Vladimir Putin: Let’s begin with the macroeconomic indicators and everything directly related to them – inflation and price rises. Rising prices, especially for some foodstuffs, are becoming a cause for concern.

Economic Development and Trade Minister Elvira Nabiullina: Inflation in September was above the expected figure and came to 0.8 percent. Cumulated inflation for January-September comes to 7.5 percent, which is higher than last year’s figure (7.2 percent). Unfortunately, this means that we will end up exceeding our target figure of 8 percent for the year overall.

The main reason for the jump in prices in September was the sharp rise in prices for agricultural goods on world markets. This is the result of several factors. Above all, we are still seeing a steady increase in demand from the fast-growing economies of China and India, then there is the rise in demand for agricultural commodities for use in alternative fuel production – bio-energy, and then the reduction in subsidies, and in a number of cases the abolition of subsidies, is also having a big impact.

Vladimir Putin: In Europe?

Elvira Nabiullina: Yes, in Europe. This has led to a big jump in prices and, unfortunately, our economy is also feeling the effect.

Furthermore, the money supply increased quite rapidly over the first half year. This was linked to an inflow of capital and the increase in gold and currency reserves. In order to hold prices in check, the Government now plans to undertake a series of measures to regulate foreign trade and to fight local monopolies on regional markets (price rises have not been uniform throughout the different regions), and also to stimulate domestic agricultural production. In particular, we have submitted a draft resolution to increase duties on wheat and barley, and we are examining the issue of duties on milk and dairy products. We think that this could have an effect and could help us to rein in price increases on the domestic market.

Vladimir Putin: Viktor Alexeyevich, when do you plan to examine these issues?

Prime Minister Viktor Zubkov: I will hold a meeting on protecting the foodstuffs market today. The instructions to all the ministries and agencies are in effect ready. I think they can be issued today and work can start immediately.

Vladimir Putin: Make sure there are no delays.

On the situation on the international financial markets and their impact on the Russian economy

Vladimir Putin: What are we doing to ensure stability on the financial markets?

Finance Minister Alexei Kudrin: The world financial markets, above all in the United States and Europe, witnessed a crisis situation in the middle of this year, and this led European banks in particular to look for additional liquidity in order to carry out settlements on their markets, and this has had an impact on our market. Today, it is more difficult for Russian banks and businesses to borrow on foreign markets.

Vladimir Putin: This was something we talked about in Sochi, at the economic forum.

Alexei Kudrin: It has become harder to borrow, and the interest rates on loans for Russian companies on foreign markets have become higher. As a result, the outflow of capital from Russia in August and September was around $10.8 billion, which is not such a big or sensitive figure for us, given that our overall capital outflow will come to more than $50 billion this year. It is completely within our ability to fully neutralise this influence of the foreign markets.

Now, our companies and banks are showing demand for Russian roubles in order to maintain lending to the Russian economy or, if the need be, to carry out conversion and settlements with the foreign markets. In this case, Russia’s gold and currency reserves make it possible to carry out these operations.

In order to increase liquidity on the markets, the Central Bank has increased lending on REPO deals for Russian banks, expanded the list of collateral that our banks can present in order to obtain additional loans, and increased assets operations, in other words, buying a number of securities, above all state securities, on the market and in this way increasing the inflow of money into the economy.

The Central Bank also has additional reserves for carrying out additional intervention in roubles on the market. This is the Central Bank’s main function. The Bank has a constitutional duty to maintain liquidity on the Russian market.

Furthermore, the Government has conducted an inventory of the measures that could help to stabilise and normalise the situation on the markets. Above all, following the changes to this year’s budget and the allocation of capital to the development institutions, we could invest part of this capital on the Russian market.

The Federal Tax Service has conducted an inventory of all the applications for return of VAT, and we have taken measures to ensure that all applications from honest taxpayers will be dealt with rapidly, and this will make it possible to increase tax return payments to our companies by an additional 20 billion roubles.

Furthermore, investment projects carried out under the federal targeted programmes and state defence procurement programmes are traditionally completed in November and December, and this will support an increase in budget spending over these two months.

In this context, we are seeing a perfectly normal increase in the amount of money in banks’ correspondent accounts. The inter-bank lending rate, which is the indicator of liquidity on the market, has dropped to 6 percent over these last days, and this shows that there is enough liquidity today for banks to conduct normal business. We and the Central Bank are continuing to monitor the situation, but we have no reason to doubt that, as things stand today, the situation will remain stable.

Vladimir Putin: Are you aware of the views of the Presidential Executive Office’s experts on this issue?

Alexei Kudrin: Yes, I am.

Vladimir Putin: And what do you think?

Alexei Kudrin: The Presidential Executive Office’s experts draw attention to the fact that correct and comprehensive measures are being taken. But we also must be ready for other scenarios that are unfolding on foreign markets, above all, a greater than planned change in the exchange rate between the dollar and other currencies. We also need to be prepared for a deepening crisis affecting currency liquidity on foreign markets, which would also have an impact on our own market. Consequences on the foreign markets could involve a slowdown in world economic growth and perhaps a drop in energy prices and this could have an indirect effect on Russia’s exports and could impact on oil and gas prices.

We need to be prepared for these and more serious consequences on the foreign markets.

We have already discussed the measures to take and we are confident that a deepening of the crisis on foreign markets would not lead to any crisis situation on our own market.

It also needs to be noted that if changes in the exchange rates on the world markets do happen, this would mean that the dollar loses ground against the euro, but given that our gold and currency reserves are invested in different currencies and above all in securities denominated in these currencies, the overall balance of our securities would remain unchanged and we would not lose the funds that we currently invest on foreign markets.

Vladimir Putin: Viktor Alexeyevich [Zubkov], I want you, Kudrin, Nabiullina, Zhukov, the experts from the Presidential Executive Office, Dvorkovich, and the Chairman of the Central Bank, to make a time in my schedule so that we can discuss all of these problems in more detail soon.

On demographic trends and demographic policy

Vladimir Putin: I have received the demographic policy and demographic development concept for signature. Dmitry Anatolyevich, could you say a few words about it and share your assessment of the current demographic situation in the country in general.

First Deputy Prime Minister Dmitry Medvedev: I can say that we are seeing consolidation of the trends that began to emerge at the end of last year and beginning of this year. The figures we have received are quite good. More than 1 million babies were born over the period from January to August this year, and this is the highest figure in the last 15 years, the highest birth coefficient in the last 15 years. This means that the measures we began implementing after you formulated the demographic policy are working. What is especially pleasing is that these trends are not a fragmented phenomenon but cover the entire country. We are getting good results not only from the southern regions where the birth rate has traditionally been higher, but also from central regions, where the population growth figure has reached around 8–9 percent for this year.

We have a similar situation regarding the death rate. The death rate coefficient is at its lowest level in a decade and the overall number of deaths has dropped by around 5.5–6 percent. This gives us a natural population decline figure that is 27 percent lower than the figure for the same period last year. The concept that has been submitted to you for signature, and that was drafted by the Government on your instructions with the help of the experts from the Presidential Executive Office, is a long-term programme document covering the period through to 2025.