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President of Russia Dmitry Medvedev: Last Monday, the government delivered its report to the State Duma for the first time. What do you think of it?

Also, as the first quarter of the year is over by now, please report on respective budgetary performance.

I know the government anti-crisis plan is now being finalised. Will there be any amendments to it following the report by the government to the State Duma? In general terms, are there any new ideas to be considered or any steps to be made about the plan, such as forwarding it for expert consideration or for business community review?

Deputy Prime Minister and Finance Minister Alexei Kudrin: On Monday, the State Duma discussed the anti-crisis programme and reviewed amendments to the 2009 budget in its first reading.

In the first reading of the new budget, the State Duma agreed to the proposed criteria thus allowing a federal budget deficit for the year at 7.4 percent of the estimated GDP. The suggestions on budgetary amendments to be introduced are being now submitted by various regions of the Russian Federation, as well as by the State Duma committees and the political parties represented in the Duma.

It should be noted, some suggested adjustments are of certain interest, therefore they will be incorporated in both the government anti-crisis programme and the budget.

As far as the Duma initiated amendments are concerned, we agreed to specifically identify the purposes of a federal government facility of 150 billion roubles [about 4.5 billion dollars] to be extended to the territories of the Russian Federation at a preferential interest rate.

A suggestion we are inclined to accept requires that 25 billion roubles of the above facility may only be spent by the local governments on roads construction and renovation. Such a provision will ensure that financial allocations to the Russian territories intended for road networks maintenance and development may remain at a very high level, as it had been initially envisaged. The suggestion has been also supported by respective ministries.

Another suggestion was put forward in the report delivered by Prime Minister Putin. It was suggested to expand government support for mortgages. It has been decided that through the originally intended banks’ capitalisation growth, some additional funding may be used to a further 20 billion roubles capitalisation of the Agency for Housing Mortgage Lending. The Agency will also be granted a 40 billion roubles loan to be extended by the National Welfare Fund. Thus, the current year budget provision for housing construction will total over 500 billion roubles, being more than double of the respective 2008 funding.

Dmitry Medvedev: Do you feel the money will be made good use of?

Alexei Kudrin: Yes, I do.

I should also say that by now the government anti-crisis programme has incorporated the instructions you gave regarding the specific issues concerning the persons with disabilities, as well as other instructions given at the meeting of the Presidential Council for the Disabled.

Dmitry Medvedev: As I understand, the draft amendment to the Law On the Federal Budget does include my suggestions made in line with my previously stated intention to guarantee provision of apartments to the Great Patriotic War veterans. I see, some of the draft law items have been modified. Is it correct?

Alexei Kudrin: It is correct. Further to your instructions, it is envisaged that additional 35 billion roubles will be allotted for the purpose from the federal funds.

Dmitry Medvedev: The 35 billion roubles in question, is it a part of the overall housing construction support package set at 500 billion roubles, or is it a separate budget item?

Alexei Kudrin: It is part of the overall package. The 500 billion roubles are to be allocated to finance all aspects of the housing support, including housing construction for military officers, Chernobyl victims, individuals moving from the decaying settlements in the Extreme North, or talented young specialists. The package includes mortgages provision and subsidising as well.

Within the anti-crisis programme, certain measures have been structured for the public healthcare and culture support.

Dmitry Medvedev: Are you looking at me as though you think I am going to criticise you for being concerned with culture? On the contrary, that is good.

Alexei Kudrin: Well, when Prime Minister Putin addressed the State Duma, he rightfully noted that the anti-crisis programme had failed to properly cover cultural aspects. It is essential to keep discounted entrance ticket prices at institutions of culture for certain individuals, to ensure bonus payments to respective employees, actors, artists, and other people of culture.

Dmitry Medvedev: That is indeed important. I spoke recently to a colleague of yours and we identified a problem. It turns out, that some museums which are most popular and frequently visited by the public, have sharply increased their ticket prices without any reason whatsoever, without being in any way influenced by floating exchange rates, inflation, or anything of that sort. I put forward a request for the situation to be sorted out, and so it was and ticket prices went down. Still, the institutions of culture do need government support to withstand the crisis.

Alexei Kudrin: Of course, we are aware of these problems.

[Further, Finance Minister reported on the anti-crisis adjustments to the federal budget in regard to education, social policies, and development of various advanced sectors that may gain new opportunities during a crisis, such as residential construction, food, and consumer industries, pharmaceutical and motor industries, domestic tourism, and public health care.]

I would also like to mention that at the moment we sum up the results of the first quarter of this crisis year to get reliable data for evaluating further outlook. I should say the situation is complicated and as compared to the first quarter of 2008, respective revenues decreased by 473 billion roubles, i.e. by 24.5 percent. That roughly coincides with our estimates for the year.

Dmitry Medvedev: So, there was a roughly one quarter drop.

Alexei Kudrin: Currently, it is one quarter. We are forecasting a drop by 28 percent for the entire year. Of course, there is a great deal of ambiguity, given the situation both in the global markets and in Russia. Nevertheless, we have kept increasing government spending, which rose by 447 billion roubles, or 33.6 percent, compared to last year’s first quarter. The government has financed many anti-crisis measures to support some sectors, including national system of pensions, Russian territories, military industries, automotive industry, etc.

By the end of the first quarter, the overall budget deficit reached 50 billion roubles and merely accounts for 0.1 percent. Still, over the course of the year, we expect it to rise to the anticipated 7.4 percent.

Dmitry Medvedev: So in your view, the deficit as such will appear somewhat later?

Alexei Kudrin: We will see it grow over the second, third, and fourth quarters, because that is when major government spending will take place.

Dmitry Medvedev: As it has always been.

Alexei Kudrin: That is why the government has had a number of meetings to schedule accelerated contracts making. On the whole, the first quarter factor was with us this year as well. It took too long to make some major contracts relating to construction, investments by many ministries, and military contracts, in those matters we were holding back, but that was due to budget adjustment.

At this time, all ministries are well aware of all their spending parameters, they now make contracts, and the goal is to compensate for the first quarter delay, to catch up on many investment projects during the remaining three quarters, and to meet the criteria for the year.

The government spending is to reach the record 9.7 trillion roubles [about 290 billion dollars] figure. Such financial allocations will make a good support to the territories of Russia.

Dmitry Medvedev: In regard to holding back, as you put it, it is, of course, unfortunate that this happened. It is sad there is always a bad start in the first quarter. It is not only true for this year, but also happened last year, and the year before that. We need to break this cycle which is particularly dangerous during a period of crisis, because although it may be easy to catch up during a normal year, it is a serious concern when today many companies of the military industry still do not have contracts awarded under the government purchase orders.

They complain that because of lack of government orders they have to attract loans. These days, loans are given at understandably high interest rates. Of course, this complicates things for them, therefore the setback must be brought to speed as quickly as possible.

Alexei Kudrin: The measures to this end have already been identified. Accordingly, [First Deputy Prime Minister] Igor Shuvalov’s Commission on Increasing Stability in the Russian Economy has already given relevant instructions and so all the ministries have put together their deadlines for contracts signing, works performance and financial allocations.

Dmitry Medvedev: Very well, thank you.