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Excerpts from the transcript of the State Council meeting

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President of Russia Vladimir Putin: Good afternoon, colleagues, friends,

Today we are going to talk about a key objective of the regional government: the creation of a good environment for entrepreneurship. The national business initiative is currently being implemented at the federal level. Its aim is to remove administrative barriers in collaboration with the business community and improve legislation and administrative institutions.

All of us understand that when an investor comes to a particular region, he faces certain challenges, solves his problems with certain people who can find a thousand explanations for their inaction and underhanded dealings.

For instance, the money and time it takes to complete similar administrative procedures varies significantly from region to region. For example, if you want to register property, you will need 19 days in Kaluga and 60 days in Yakutsk; getting connected to the power grid takes 123 days in Saratov and 360 days in Yekaterinburg; getting a construction permit (by the way, we are far behind all OECD countries in this area) takes 150 days in Surgut and 448 days in Tver.

It boggles the mind. What this means in practice is that in some regions the authorities are doing nothing for the development of business, or worse – they are destroying the business environment, whereas other regions are taking steps to create good conditions for business.

I want to emphasise that the choice always lies with the region’s head, whose role, without any exaggeration, is decisive.

”A key objective of the regional government is the creation of a good environment for entrepreneurship. The national business initiative is currently being implemented at the federal level. Its aim is to remove administrative barriers in collaboration with the business community and improve legislation and administrative institutions.“

The governor’s integrity is a vital component of the regional investment climate, as well as the governor’s ability to get his subordinates to foster fair competition.

The governor must find the time for personal interaction with investors, and if necessary assign a deputy who will be responsible for support of specific projects. This practice is effective. I know that you have been to Kaluga, where you had a look at how the local authorities work.

In just a short time, this subsidised region that has no energy resources of its own, has managed to become a leader in economic growth and in terms of attracting foreign investment.

The experience of the Kaluga Region, as well as some other successful regions, of which there are many – Belgorod, Lipetsk, Tomsk – has been used to form the basis for a regional standard of improving the investment climate [Standard of The Executive Authorities of the Russian Federation to Promote a Favourable Investment Climate in the Region]. It has been tested in several regions and from January 2013 the Standard will become a blueprint for all Russian regions.

Certainly, regions require some methodological assistance. I ask the Government and the Agency for Strategic Initiatives to get involved in this work.

Colleagues, it is clear that the Standard specifies only the basic, the minimum requirements. The regions must be motivated to do more. We have already taken steps to improve intergovernmental relations. However, problems still remain.

According to regional officials, a significant portion of revenues from the operation of new businesses does not reach their budgets. At the same time, the subsidies from the federal budget are reduced. This is a wrong practice.

This means that it continues to be more productive to go to the Finance Ministry and beg for subsidies from the federal budget than to work on attracting investors. This situation must be reversed. I ask the Finance Ministry, together with members of the State Council to discuss the issue once again and submit concrete proposals.

Let me emphasise that both the regions and municipalities must be self-sufficient. We have talked about this on many occasions and in different formats. If local authorities are encouraged to support business, everyone stands to benefit, the entire region. Therefore, as we agreed, we should transfer the revenues from the special tax regime for small and medium businesses to the municipal level.

Naturally, regions and municipalities must use all of the additional revenues first of all for development, creation of infrastructure, improving amenities, investing in human resources, healthcare and education. If a region has a high standard of living, if it attracts the best professionals, the most talented and best-trained people, the investors will go there too.

”The governor’s integrity is a vital component of the regional investment climate, as well as the governor’s ability to get his subordinates to foster fair competition.“

By the way, human potential is developed in schools, and we are devoting special attention to this level of education, upgrading the resource base and raising teachers’ salaries.

Undoubtedly, it is essential to restore the best school traditions, including the role schools play in teaching moral values. I have repeatedly spoken about the proposal to return to school uniforms. It should not be the same everywhere, but we must make sure that all the children feel comfortable at school, regardless of their ethnic background and religion, or their parents’ income. I ask you to think about it again.

As for teachers’ salaries, as you know I held a big news conference recently, and the journalists pointed out that things don’t always look the same in real life as they do in reports. I would like to ask the relevant agencies, including the Education Ministry, to pay special attention to this issue and to investigate what actually happens in practice.

Moreover, as I already said, we will be broadening the regions’ financial independence which certainly will entail strict control and high expectations. A regional governor should bepolitically responsible for the business climate quality, ensuring which is a test in management ability to be passed.

The best and most effective regional governors and their teams must become the core of the national pool of high-potential managers.

The next important issue is that we often hear from governors about problems with the regional divisions of federal ministries and agencies. I would like to remind you in this regard of the following matters.

First of all, at our previous State Council meeting in July of this year, we agreed that governors would gain the right to submit suggestions on disciplinary liability for heads of such regional divisions for improper performance of their duties. A respective Presidential Executive Order will be signed within the next few days.

Second, in my Address to the Federal Assembly, I already spoke about the need to further optimise the functions — first and foremost monitoring and supervision — of government bodies. The ministries and agencies should come up with organisational solutions to the functions of their local subdivisions, eliminate excessive bureaucracy, be guided by common sense, and give up clearly unnecessary powers. I am asking you not to take too long on these decisions.

Now regarding the law enforcement agencies performance, I want to draw attention again to the fact that it is unacceptable for them to be involved in business disputes. To timely uncover such facts, I instruct the Ministry of the Interior, the Prosecutor General’s Office and the Investigative Committee to closely communicate with the business community.

Overall, we have to ensure a rapid, unobstructed, and most importantly, public examination of the complaints by entrepreneurs regarding unfounded actions by authorities.

”Regions and municipalities must use all of the additional revenues first of all for development, creation of infrastructure, improving amenities, investing in human resources, healthcare and education. If a region has a high standard of living, if it attracts the best professionals, the most talented and best-trained people, the investors will go there too.“

Following the same logic, I am asking the State Duma deputies to carefully review the draft law on the Commissioner for Entrepreneurs’ Rights in preparation for a second reading.

For their part, the federal constituent entities are to provide all the necessary support in organising regional public reception offices of the Commissioner for Entrepreneurs’ Rights.

Colleagues, we have to launch a real competition for attracting investors and investments, so that every region strives to offer not merely good, but the best possible conditions for conducting business. Only then can we count on our nation to be successful in the global competition for direct investments, which we are in dire need of.

In working with investors, we must coordinate the efforts of federal agencies, development institutions and regional management teams. In short, it is imperative to build a comprehensive system for attracting investments to Russia’s regions, increasing the efficacy of special economic zones and industrial parks. I expect corresponding suggestions from both the Government and the Agency for Strategic Initiatives.

I already noted in my Address to the Federal Assembly that first and foremost, we should show investors the potential of our regions. They must clearly see how infrastructure will be developed, the government support measures that will be taken, and the tax benefits available in particular regions. They should see where plans are underway for developing industrial clusters and what kind of personnel will be trained by education centres to implement the proposed projects. This information should be accessible online and form the basis of the investment maps in Russia’s regions.

I also want to stress the importance of your personal work with each individual who wants to invest his or her capital in Russia. The mechanism for interacting with potential investors should be established at both a federal and regional level. Here, we need to look at the best global practices; they exist and they are well known. They are not some sort of secret.

In conclusion, I will stress again that we must provide businesses – both domestic and foreign – the necessary assistance and support, demonstrating the advantages of our regions, so that investors ultimately choose Russia.

Let’s move on to discussing the suggested topics.

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As for the law you have mentioned, I have already voiced my opinion on this matter. It has probably been forwarded to me from the Council of Federation. I see no reason not to sign it, although I still have to see the final version and consider all the details.

What has given rise to criticism in Russia are the actions of US authorities, who deny us any access to the adopted children, behave in a defiant and arrogant manner, and make decisions that our experts believe are legally unfounded with regard to the individuals who have clearly committed offenses against their adopted children. Moreover, there is another reason that I have not mentioned before and would like to discuss with you now.

There are many places around the world that have higher living standards than our country. Does that mean that we should send off our children to those places? Maybe we should all move there? It would be good to take stock of international practices, and not only contemporary ones. International practices speak volumes.

For example, the standard of living in Israel is not the highest in the world; it is not the worst and not the best, but there is a safety problem. I am not saying just now who is right and who is wrong – that it is a separate major topic. So what is the situation there? Do Israelis send their children to other countries, even orphaned and abandoned children? Over the centuries, the spiritual and state leaders did not send anyone anywhere. They do all they can to fight for their national identity, their language and culture.

We have some worthy examples in our country as well, in the Caucasus, for example. Take Chechnya, which has passed through a period of great tribulations in the recent past. Many people died, and there were other tragedies as well. But Chechnya has no abandoned children – even those who were orphaned were taken in by their relatives.

”In working with investors, we must coordinate the efforts of federal agencies, development institutions and regional management teams. It is imperative to build a comprehensive system for attracting investments to Russia’s regions, increasing the efficacy of special economic zones and industrial parks.“

This is something we should pay attention to. This does not mean that the Russian people do not have the same internal motivations. That is not the case but a large nation, which has the self-awareness of a great nation, has a different attitude to such matters. It seems that our resources are limitless, but that is not true. There may come a certain time and once we step over the line, we will not be able to stop the destruction process.

Therefore, we must treat such matters with the utmost consideration and care. We must certainly support the proposals to do everything possible within our own country to ensure a decent future for all our children, including abandoned or orphaned children.

In this regard, I intend to sign the law you have mentioned, as well as the Presidential Executive Order on amending the procedure for providing care to abandoned and orphaned children, especially those in particularly difficult situations due to medical conditions. In this connection, State Duma deputies should consider ways to improve the legislation, and many issues can be addressed by the Government. This is a national challenge.

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As for the gas issue, it is true that we have huge reserves in the east of Russia. Yakutia has 10.4 trillion cubic metres of proven and perspective gas reserves. Chayanda, which you just mentioned, has 1.2 trillion of proven C1 and C2 reserves. This is a global scale deposit.

The idea is to build a pipeline from Yakutia to Khabarovsk and on to Vladivostok. Gazprom, the Economic Development Ministry and the Energy Ministry are proceeding from the assumption that this will mainly be a product for domestic consumption.

The gas can partly be exports, including through liquefaction, for which we would build a gas liquefaction plant, but mainly it would satisfy domestic demand. This is a very good investment.

In the future it is planned to connect the eastern and western gas pipeline systems to be able to direct flows from Western Siberia to the Pacific coast, including for export, and if a need arises, from the east to the west, including to our traditional customers in Western Europe.

This major infrastructure project is the beginning of a large gas programme for Siberia and the Far East.

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It is worth giving some thought to the subject of introducing a flexible exchange rate of the national currency. This system has some advantages as well as certain drawbacks, which is that keeping the exchange rate within a certain band, even if it is quite broad, entails certain risks in the event of sudden changes in the international economic environment. Then, our products and our currency will become a natural barrier to maintain economic stability.

We faced that situation during the 2008–2009 crisis when we were forced to maintain the exchange rate at any cost to avoid derailing the social sphere This encouraged financial speculation, and we knew that it would but we made a deliberate decision because the exchange rate policy of the previous years had left us no alternative. We lost around $150 billion as a result.

The central bank pursues the floating exchange rate policy, which always softens the effect of the world markets on our main exports. However, we could hold a discussion on this subject.

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Let me just remind you what was going on there during the crisis. We could not afford to dramatically change the exchange rate because our businesses had taken out loans in different financial institutions, including foreign ones. That is the first point.

If we had changed the exchange rate dramatically, most of them would have gone under. The people were also not prepared to start using another currency, and we had promised that we would not allow a replay of 1998. Our challenge was to give the opportunity to both sides to adapt to the changes and to survive this period with minimal losses.

That is why we had to maintain a stable exchange rate. The financial speculators, in the best sense of the word, not the criminals but those who work in the market and understand what the next step would be, they were able to foresee our actions and proceeded from that in their operations. They put us in a situation where we were forced to lose those billions, as I said. We do not regret it because as a result we were able to maintain economic stability and support the people, and later we were able to recover the resources we lost. 

However, if we want to completely switch to a floating exchange rate, we must change the structure of the economy. We are making progress in this area, and the Central Bank has responded by expanding the corridor. I hope we will come to a situation where we will have a free floating exchange rate.

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About capital outflows. Our debates do not usually name all the dimensions of this issue. The outflow of capital in our environment is not the same as direct capital flight. First, much of this capital is taken into account in our statistics, including when Russian companies invest abroad. Sberbank, for example, has acquired two major financial institutions, one in Eastern Europe and another in Turkey. This investment is included in the outflow figure, but it is in fact expansion into foreign markets. Many of our large companies are doing the same. This is the first point.

Second. We were just talking about the measures the Central Bank is adopting. Some colleagues have mentioned that the Central Bank does not engage in intervention and it does not buy foreign currency, or only in small quantities. Meanwhile, the trade surplus this year will be around $175 billion, and the market naturally regulates the inflow and outflow of foreign currency in order to prevent a negative impact on the economy.

Therefore, we must do our best to create optimal conditions for capital, including our own and foreign capital. That is why we have met here today and are discussing this matter. I hope that when Russian and foreign businesses choose a site for investment, they will choose Russia if we succeed in improving the investment climate.

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I think the importance of the topic that brought us together today is clear to all of you. I want to revisit to what was said here by some of our colleagues. Of all the investments made throughout the world this year and last, if I remember correctly, the total global investment amounts to somewhere between 1.5 and 2 trillion dollars, and either way, we get about 3 percent of it. Of course, it’s not a lot. It speaks to the fact that creating optimal conditions for businesses and their day-to-day work in our country is critical to attracting direct investments, and that should be one of our key goals, if we want to develop the economy and ensure that it grows rapidly.

Naturally, we all fully understand that our joint efforts depend on how these problems and issues are resolved in the Russian Federation’s regions. As one of our colleagues said earlier, nobody is going to fully and entirely shift all the responsibility for creating an investment climate to the regions. Nobody is going to do that. But it is also clear that the conditions for attracting investments in various regions vary quite drastically from one another, and that is not how it should be.

I agree with our colleagues who note that the geographical conditions in certain regions do not allow them to work as efficiently as, say, Kaluga or Ulyanovsk regions. This is true. And overall, there are thousands of conditions that are entirely different. Proximity to Moscow, the development of transport and other infrastructure – these are significant competitive advantages, if we are talking about competition within the country. No doubt, we should take them into account and we will do so even if we focus on increasing the Gross Regional Product, which is a good and proper indicator in determining the quality and efficacy of the work by regional teams and their leaders – in other words, you, friends and colleagues.

We will certainly take objective conditions into account, but this, Gross Regional Product growth, should be one of the most important indicators in the efficacy of your work. I think that we can complete this official part of our meeting by recognising the importance of this task standing before us.

I want to wish you all a happy New Year. In preparing our final document we will certainly take note of the suggestions you voiced today during our discussion.

Thank you very much.