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President of Russia Dmitry Medvedev: Good afternoon, once again, colleagues,

This expanded meeting of the State Council Presidium has been called to examine ways in which we can make state support measures for the real sector of the economy more effective. This is something that all of us – you, as the regional leaders, business representatives, as company owners and managers, and the Russian Federation Government – have been working on constantly of late. We face a difficult situation. The crisis is continuing and has not reached a peak yet (or you could say that we have not yet hit the bottom). We are all aware of this, not only here but also in the other countries affected by the crisis. This situation obliges us to come back to these problems again and again.

We will discuss today the effectiveness of the decisions made so far, but I think we also need to look at the future too.

Of course, our number one priority right now is to come through the crisis period with as little pain as possible. But at the same time, we cannot afford to keep an outdated economic structure that no longer suits modern demands. Despite the difficulties we face today, we have to take steps here and now to diversify the economy, develop infrastructure and bolster the financial system. Why? Because when we do come out the other side of the crisis (and it will end, this is obvious), we need to build up a new economic foundation so that, given the cyclical nature of economic development, when the next crisis wave swells in who knows exactly how many years – 7, 10, 12, 15 – it will not hit us so hard.

Thus, the measures that we are looking at today are also measures for the future in many respects. We need to refocus our economy and come up with projects ready for implementation. What we need are real projects, and not just targeted support for individual enterprises, which is important too and is something we have not been particular successful at so far.

The Government-approved anti-crisis plan focused primarily on financial measures, action in the financial sector and in certain sectors of the economy. I remind you that 325 billion roubles [around $9 billion] have already been earmarked in the budget for carrying out this programme. This includes support for defence industry enterprises, automotive industry enterprises, airlines, and subsidised interest rates for exporters of industrial goods and the agribusiness and fishing industries.

Among other important measures, funds have also been earmarked for increasing unemployment benefits, job creation, and small business development. Money will likewise be allocated – around 300 billion roubles [$8.3 billion] for providing state guarantees for loans made by Russian banks to organisations.

Life is always moving on. This plan was drafted following my instruction last November, and now anti-crisis measures adopted at the end of last year or this year are being added to it. There are plans to make a serious increase to the inter-budgetary transfers to the regions, compensate Russian Railways’ falling earnings, and increase the capital of some of the defence industry enterprises. We also plan to allocate additional funds for increasing the capital of Vnesheconombank [Bank for Development and Foreign Economic Affairs] and Vneshtorgbank [VTB Bank], and also for according subordinated loans from the National Prosperity Fund. Suppliers of Russian-made goods will be accorded a temporary preferential benefit of 15 percent of the starting price of public procurement contracts, and it is possible that this figure could be subsequently increased.

We are working on a number of other important measures too today, including additional support for housing construction so as to maintain the amount of new housing coming onto the market at least at the level it reached last year. This is all the more important when we consider the multiplier effect of housing construction. As far I know, no one in any country disputes the need to support this sector. For all the differences in their particular circumstances, practically all countries affected by the crisis see investment in the housing sector as one of the most effective ways to fight the crisis.

We need to provide our metals, chemicals and timber processing industries with orders for construction materials. These decisions are all steps in the right direction, but we realise full well that their effectiveness still leaves a lot to be desired, and in some areas there are quite simply no mechanisms in place for actually implementing them.

Reports of problems are coming in from all the regions and a lot of companies: most companies still have no access to loans; for understandable reasons, interest rates are still at 20 percent or more and loans are made for not more than a year. Companies can only dream of getting loans for the medium and long term. Companies’ shares have fallen in value, but banks, of course, demand 100-percent collateral provisions. We have discussed this problem many times in this grouping, with the Russian Federation Government, and with business community members. One of the solutions that we came up with was to provide state support in the form of guarantees covering up to 50 percent of the loan. But the rules for providing these state guarantees were approved only a few days ago. We are working too slowly, far too slowly for a crisis situation.

We are not making use of mechanisms such as tax investment credits, deferred interest payments or payment of interest in instalments. Public procurement has an important part to play in a crisis situation, but there are big delays in placing public procurement orders for federal needs, including defence procurement. As far I know, contracts are expected to be signed only in the second quarter of this year, and advance payments will therefore be made only in the third quarter. Meanwhile, the power supply has already been cut off at some defence enterprises due to electricity bills not being paid. These are not macroeconomic problems, not the result of the global financial crisis, but of our slow and poor-quality work. This is an issue we will discuss separately.

Another subject I wanted to mention is that of supporting demand for Russian-made goods. The investment programmes of natural monopoly companies, state corporations, and big joint-stock companies with state participation can and should be adjusted so as to increase purchases of Russian-made equipment. This includes the purchase of new equipment rather than complete overhaul of old equipment, and the conclusion of long-term contracts with Russian suppliers and sub-contractors. I will not name the particular enterprise in question, but at one place I visited not long ago, I discovered to my amazement that our colleagues, state agencies and state clients, prefer to place orders for expensive repair work rather than buy new equipment. This is the wrong approach if we want to save our country’s industry.

Projects aimed at replacing imports (especially in the low-price segment) are particularly needed in small towns. I am thinking here of agricultural processing, light industry and small processing companies. A lot today depends on ensuring a balance between the anti-crisis actions at all different levels of government: federal, regional and municipal. There needs to be a full and proper exchange of information, well structured information that can be used rapidly and effectively and will not lead to mutually incompatible decisions or duplication of efforts, hasty actions and so on.

We have already agreed that anti-crisis headquarters headed by the regional governors should be set up in each region. I want to say again that this is the top priority for the regional heads right now. The regions also need to take part in carrying out the programmes to re-profile industrial facilities. Facilities not being used due to the crisis can be converted for more effective, high-technology production. In this respect, we need to make maximum efforts to support the development of small and medium business. There is no need for me to try to persuade you because you know yourselves how important this is. Over these last few days, when I was in the Far East, and now here in Siberia, I see that practically everywhere the regional heads realise that creating new jobs through small business development is an obvious priority. I want you to keep up this work. The only real long-term solution to unemployment is to create new jobs in the small business sector, and this solution is the most dignified and positive for the large numbers of people who face the prospect of losing their jobs.

Summing up what I have said, I want to focus your attention on four points that need particular attention.

First, developing and implementing mechanisms to support cornerstone enterprises at regional and municipal level.

Second, restructuring the network of regional budget-funded establishments, including by having some of them cease being budget-funded – reorganising them as autonomous institutions where possible.

Third, carrying out energy-conservation measures in the public sector and modernising the housing and utilities infrastructure.

Fourth, full implementation of the programme to resettle people from housing no longer fit for habitation. This is a very important social measure and it will also help support the construction sector and concentrate attention on infrastructure projects.

I will end on the same note with which I began. Despite the difficulties the crisis has brought, we cannot afford to renounce the strategic projects aimed at making Russia’s economy more competitive. Ultimately, these projects aim at overcoming the crisis and raising our national prosperity and people’s incomes. These remain our top priorities for the years ahead, and we need to prepare for this right now.

I say once again that we must do everything we can to ensure that we emerge from this crisis not weakened, but mobilised, ready for the moment when we will be able to carry out large-scale investment, and optimise our economic structure. For all its problems, the crisis also gives us new opportunities. The question is one of cost. The cost that we will pay depends on coordinated work between the authorities, business and the public.

* * *

I would like to say a few words in response to what the two ministers said before we go on with our work.

I think that no one disputes the importance of the need to develop domestic demand. Countries that have found the key to developing domestic demand, or where domestic demand is quite high for objective reasons, have suffered the least.

There are some clear examples. Take the cases of China and India. The Chinese economy is export-oriented just as much as the Russian economy and it faces the same problems. The scale is huge and of course the Chinese economy’s impact on the world is such that all economies will feel the effects of these problems. But the consequences are pretty much the same. The Indian economy, on the other hand, is for now in a completely different situation. I say ‘for now’, because no one knows just how long the crisis will last and what consequences it will have. But whatever the case, India has been quite active in reorienting its export capability, which is not so large perhaps given the scale of the country, to the domestic market, and they are not having any particular problems.

I say this not to complain about the lot life has dealt us, but simply to state the conclusion that begs to be made today, namely that what we need to work on over these coming years and decades is developing domestic demand. This used to be a somewhat abstract slogan, words we spoke as a kind of ritual phrase without fully understanding just how vital this is in different situations, and now the crisis has shown us that this really is vital for Russia.

Regarding the list [of enterprises in need of support], this is clearly something we will come back to. I was among those who insisted right from the start on the need to draw up this list, because it was the subject of debate (how many companies do we have on it now – 294?). We should not underestimate what has been done, but at the same time we should not turn this list into some kind of fetish object, because we all know that we need to support projects aimed at the future and not take general steps to simply allocate support to individual enterprises. This is all the more so as we realise that some of these enterprises really do need support – and they will get it – and some are not in such need, and they should consider themselves fortunate, and then there are some that are on the list simply because they are good at lobbying. I am not saying this as a reproach. I am just making the point that the companies on the list are in different situations. It would be ridiculous to think that all we have to do is find the money to support these 294 companies and all our economic problems will be solved. This is not the instrument that will enable us to maintain the real sector of the economy.

Another subject mentioned by our colleagues was the correlation between the effectiveness of decisions taken and their speed. I fully agree with what Elvira Sakhipzadovna [Minister for Economic Development Nabiullina] said. In today’s situation, speed becomes a lot more important. We could spend a long time working on some supernatural measure and end up simply ruining what remains. Say we have an idea, and the main actors in the discussion – the Government, the regions, the business community – give it their backing; we need to implement it straight away. If we spend months working on it there won’t be any result worth speaking of.

We started talking about providing state guarantees for loans back in October. I remember how the minister came to me and I said, “There is this proposed measure of state guarantee, but the Finance Ministry seems to have its doubts about it”. Then the Finance Ministry said, “Probably in this situation we should make use of this measure”. Now it is the middle of February and this mechanism has still not begun work. Meanwhile, we have limited financing, limited access to financing right now. We really do have a crisis of confidence, like in other countries. For completely understandable reasons banks are afraid to lend to the real sector of the economy. They also have responsibilities of their own. This could have been one of our more understandable and effective measures. It is not some kind of supernatural measure, and we could have been carrying it out for 2.5–3 months already, but instead we are still just talking about it!

* * *

Dear colleagues, one of the key moments, the point of this meeting and this kind of large gathering, is, a I saw it, and indeed still see it, is that the Government needs to meet with governors regularly, at a high level. Yes, you come to the Government, talk to ministers, leave your letters, achieve certain things, and that is all good. But we still need to listen to each other, really listen, to understand what motivates the Government to take the decisions it does on the one hand, and on the other hand the Government must, in such a summarised form, listen to the basic problems the governors describe. And it seems to me that this is what has happened today, because we have listened to speeches in general terms about what needs to be done, as well as conceptual speeches and speeches addressing quite specific and practical issues. After all this very format was conceived because several governors simply openly told me face to face “You know, we do talk to Government, but always in such a way that we are somehow talking at cross purposes. Sometimes we make suggestions, but they are not listened to.”

That is why I think, that in this situation, we have a duty to hold such meetings as this as often as possible. That doesn’t mean that we will start working on something new immediately, but we should at the very least hear each other out on the key issues, and try, of course, to make decisions based on the outcome of such talks.

Now, in relation to what has been said. I generally think that many useful things were said by the ministers in their speeches, and I will not comment on them, in general, they were quite obvious.

In his speech Georgy Valentinovich (Boos, the Governor of the Kaliningrad region) spoke about the necessity of debureaucratisation of power. This is absolutely correct, and I totally agree. It is always desirable that the authorities minimise the amount of red tape, but especially so in a crisis period. But there is only one thing I can add, and that is that the regions themselves are not without fault. In this sense the matter should not be presented as if it were only the federal authorities which suffered from an overfed bureaucracy, while all was well in the regions. It is not so, as you all very well know. Even the most successful regions have their problems.

That is why the crisis is the best moment to get rid of inefficient managers, including those in the civil service. Look over there, across the road, and you'll see that even now a queue is forming of the very best experts, and we need to use them. But this is a moment of truth for the governors as well – that is for sure. And I hope that you understand this. There can be no complacency here.

<…>

Arkady Vladimirovich (Dvorkovich, Aide to the President) just now spoke about how we must start working on several projects. And I fully support what was said in relation to residential construction, not only in Arkady Vladimirovich's speech, but also in other presentations, as all my governor colleagues have mentioned this. In general I would like to say that in the end there is something more important to us than the budget deficit figures, although of course it is better if the budget is in the black or at least if any deficit is minimized. A more important thing is maintaining healthy trends in the economy, for example keeping up a good level of housing construction has a considerable multiplier effect. That one percent that we add will not cause any disaster in the macroeconomic indicators, and so there is no need for us to frighten each other here. The Government should not be a hostage to ghouls often of its own creation.

<…>

Now regarding state guarantees. Indeed, the decision was made at long last. We have earmarked a total of 300 billion rubles for this, it's a big sum of money, but not huge, and so we need to measure our appetites here, but in key areas such as aircraft construction, for example, which is a key area for us, state guarantees of significant volume should be offered, for sure.

<…>

And there is another topic that was raised today somewhat timorously, but it is something the governors repeatedly asked me about, and so I will raise it now. Not because I am offering any decision, but because the Ministry of Finance is taking a very hard line on it, and I respect that, but nothing more than that. So, in relation to budgetary loans, you should closely look again into the possibility of renewing the norms of the Budget Code in relation to budget loans, but probably, only for donor regions. In any case this question requires a detailed answer, not one such as: we tried that, it was all bad, we have closed the chapter. Now is the time for unconventional decisions.

Colleagues, I think that sadly this will not be our last meeting on this topic, because the situation is so complicated. And we must meet regularly and discuss the widest possible range of questions.

Thank you.