12 February 2004 19:01
Putin: Russia now stable and ready to complete its reforms
Russian President Vladimir Putin told an audience of supporters of his 2004 election campaign that he had inherited a
poor economic and political situation in 1999, but had overcome this legacy in his first four years in office. He said
the economy was generally doing well, and he was committed to reducing the overall tax burden on businesses and favoured
a mortgage system to improve people's housing conditions. He said the security forces must improve their tactics as
they fight terrorism. He concluded by saying that Russia was emerging from a "time of uncertainty and anxious
expectation" and had the capacity to complete political and legal reforms. The following is the text of
Putin's address at Moscow State University on 12 February broadcast live by state-owned Russia TV; subheadings
inserted editorially:
[Presenter] We are going live to Moscow State University, where President Vladimir Putin is about to speak.
Incumbent president's record should speak for itself
[Putin] Good afternoon, dear friends. First of all, I would like to thank all of you who have come to this auditorium
and are prepared to work with us. Of course, I would like to thank everyone who is ready to support me during the
election of the President of Russia. I am often asked whether I am going to conduct an election campaign and, if so, how
I intend to do it. I am sure that it is not proper for an incumbent head of state to engage in self-advertisement -
there were chances to do this in the past four years [if I'd wanted to]- or in political rallies, or in concocting
all sorts of nice fairy-tales which may be beautiful but are distant from our reality. At the same time, I believe that
I am obliged to report to my electorate and to the whole country on what has been done during the past four years and to
tell people about what I intend to do in the next four years, if Russian citizens give me their [vote of] confidence on
14 March. This is what I am going to talk about today - the work done and the plans for the future.
Economy was in a mess in 1999
Before speaking about what has been done, let us recall the state the country was in back in late 1999 and early
2000, and what causes and factors had a bearing on that condition. The transition to democracy and a market economy in
the early 1990s was supported in the most active and resolute way by Russian citizens who made a final and - I want to
stress it - irreversible choice in favour of freedom. It was a great and real achievement of the Russian people; I think
it was one of the greatest achievements of our country in the 20th century.
But what price did we have to pay for it? The destructive process of ruining the state system during the
disintegration of the Soviet Union spread - which could and should have been foreseen - to the Russian Federation
proper. Political speculation on the people's natural yearning for democracy, and serious errors in conducting
economic and social reforms had resulted in very grave consequences. One third of Russia's population found
themselves beyond the subsistence level. Wage arrears, as well as pensions and allowances arrears stretching over many
months became a widespread phenomenon. People were frightened by the [1998] default, by having lost overnight all their
bank savings and all their investments. They had stopped believing that the state would ever be able to provide even a
minimum of social guarantees. The country was shaken by the strikes of miners, teachers and other state sector workers.
Tax rates were continuously growing and fiscal policy on the whole was aimed at elementary survival. The majority of
large banks went bankrupt, as we know, and, after the 1998 crisis, the credit system was practically paralysed.
Moreover, the county became humiliatingly dependent on world financial organizations and all sorts of international
financial profiteers. Think about it - Russia's external debt in terms of GDP by the end of 1999 was 90 per cent.
All this on top of the recent [1998] default meant that people could not ignore the real possibility of fresh economic
calamities. The situation was aggravated by the fact that by this time Russia to a considerable degree had lost its
independent position on the international arena. The world forces that continued to live by cold war stereotypes and,
despite their sweet talk, continued to view Russia as a political opponent of theirs, did their best to support
everything that could keep Russia in such a condition as long as possible.
Political chaos in 1999
The development of the situation in the domestic political sphere was no less dramatic. In many regions, the Russian
Constitution and federal laws had lost their qualities of being the supreme legal force. Regional parliaments had
adopted laws which went against constitutional principles and federal norms. Federal acts were being applied selectively
at regions' own discretion, so to speak. The inevitable result of this so-called competition [between levels of
power] was arbitrariness by the [various] authorities and people suffered as a result.
A fight for special financial and economic regimes became a constant issue of bargaining between the regions and the
federal centre. It got to the point that some regions effectively were outside the state's single legal and
financial fiscal system. They stopped sending taxes to the federal budget and demanded a right to set up their own gold
and currency reserves, their own energy and customs systems, and their own regional currencies. The result was economic
inequality of regions which led to economic inequality of citizens. And this became the norm.
The nascent common market of goods and services was being destroyed.
Second Chechnya conflict sparked by terrorism
Separatist processes that had been ripening in Russia for several years had not been adequately rebuffed by the
authorities but were actively supported by international extremist organizations. And in the end they took the most
serious form: terrorism in the North Caucasus.
Of course, first and foremost, I mean Chechnya. After the signing of the Khasavyurt agreements [31 August 1996] - as
a result of which the whole of Chechnya and its people were thrown at the mercy of fate - some people might have thought
that the nightmare of the civil war was over. Little did they know.
Perceiving our weakness and realizing all the indiscipline of the authorities and the dispirited moral state of
society, multiple gangs of international terrorists in the summer of 1999 did what might have been expected and made
further advances. They were brazen enough to openly attack Dagestan.
In fact, they committed an act of aggression in order to annex more territories from Russia and to add them to the
zone of their criminal influence.
I don't believe it is necessary to explain how dangerous it was for the Caucasus and the whole of Russia,
considering the traditionally compact settlement of peoples in Russia's south and adjacent regions. I think that
further explanation is superfluous. It is enough to look at the tragedy of the disintegration of Yugoslavia to draw all
the necessary conclusions.
I will note that Russia has always been a complex state territory and has always demanded a careful - I would say
even professional - approach. Unfortunately, by the end of the 1990s, under the load of all the abovementioned negative
factors, it must be noted that Russia had started to lose the basic indicators of being a single state.
This is what we encountered and these were the conditions under which we had simultaneously to resolve urgent
everyday problems as well as to keep working on establishing new long-term growth trends.
All the time the authorities had to deal with backlogs of work, and had to defend the state's integrity in
fights with separatism and international terrorism, thereby laying the foundation for our future.
Russia "back on its feet"
Today, I simply have to thank all of those people who - in this difficult situation - stood up for the democratic
gains of people, who were not broken by the difficult living conditions and situations, and who by their work helped the
country to get back on its feet.
We also have to remember and keep thinking about those who - in conditions where the state wasn't quite ready to
provide security for its people and to protect its territorial integrity - fulfilled their duty to the motherland in
full.
Unfortunately, as has often happened in the history of our country, they paid for this with their lives.
Four years have passed. These four years have been years of intensive and difficult work. Of course, I would like to
have seen greater results than what we have achieved. Yet much has already been done. Firstly, constitutional law and
order has been re-established in our country. The vertical of federal executive power has been reinforced and in fact
constructed anew. The Russian parliament has become a professional law-making body. The single legal space of the
country has been restored.
The dangerous processes of the degradation of state authority, of the weakening of the army, and of the destruction
of the law-enforcement agencies and other power structures have been stopped. Fundamental changes in the legal system
are under way.
Economy picking up
The economic situation has changed radically, too. Since 1999 the growth in GDP has been almost 30 per cent - 29.9,
to be precise - and inflation has decreased by two-thirds.
There is no need now excessively to raise tax rates to provide the minimum needs of the state. As a result, the
output of medium-sized companies is up for the second year in a row. There are many thousands of efficiently working
enterprises in the country now.
Those who work more effectively are winning markets, rather than those who make it rich quick on a basis of
economically unjustified privileges and preferences. This means that structural reforms are under way, even if they are
proceeding slowly and with difficulty. They are evident in an increase in investment in fixed capital and, most
importantly, in the development of the domestic market and in an increase in domestic consumption. I believe that the
attainment by Russia of financial independence and of a stable rate for the national currency, the rouble, marks one of
the fundamental achievements of the past few years.
The problem of paying off the foreign debt has been practically resolved. We paid all our liabilities last year, just
as in the few years before that. We paid off 17 bn [US] dollars in 2003 alone, and the country did not even feel the
effects of that. Over the last few years, Russia has paid off a total of 50 bn dollars in foreign debt, including
interest. At the same time, the gold and currency reserves of the Central Bank have reached a record level of over 84 bn
dollars - a record for the entire history of the country, including its Soviet period.
We have boosted many times over Russia's investment attractiveness. The increase in Russia's investment
rating is direct proof of this. These modest but clearly positive advances in the economy have made it possible to take
the first steps in resolving social problems and in improving the living standards of our citizens.
We still face a problem of wage arrears in some production sectors and regions. The problem is not general the way it
used to. The times of chronic non-payment of pensions and allowances are behind us. The minimum wage has been raised
four times over the last three years. Strikes, as a mass-scale phenomenon, have disappeared from our country. Since
2000, we have achieved positive dynamics for all basic social indices.
Salaries rising faster than prices
I know the government has not always succeeded in preventing economically unjustified rises in prices. However,
citizens' incomes are outstripping price rises. Well-known figures confirm this. But I shall cite them again,
moreover, with figures with inflation deducted, and with fluctuations in prices and in the currency rate deducted. Thus,
the average pension rate in real terms has increased by nearly 90 per cent since 1999. The real incomes of the
population have increased by 150 per cent over the same period. Real wages are growing consistently year in, year out.
They have practically doubled since 1999. I would like to repeat that I am speaking about an increase in real incomes.
The nominal - or absolute - indices are naturally much higher.
The rate of unemployment has fallen considerably, by nearly a third. The number of people who have incomes lower than
the subsistence wage is still too high, but it has fallen by a third. Today I would like to emphasize the main thing:
uncertain prospects, vagueness and any lack of opportunity to draw up long-term plans are disappearing from our lives.
Finally, the public seems to have overcome any fear that there may be painful consequences to the reforms.
However, another thing must not be forgotten. People justifiably are increasing their demands for the state to work
effectively. Their demands for a better quality of life are growing. I would like to stress that, despite the whole
scale of the changes, we have only created a basis for a decisive turnaround in the economic development of our country,
a turnaround that will lead to a quality of life comparable to that in developed countries. And this will bring
Russia's authority and influence to a level worthy of our millennium-long history, worthy of our intellectual
resources and worthy of our potential to be fully involved in the world distribution of labour.
Russian economy still too focused on raw material sector
Respected colleagues, I have enumerated what we have managed to achieve. But have we done everything that we might
have? Certainly not. Can we be satisfied with the results of our work? No, we cannot be satisfied.
The prime objective of any of our actions is to improve the quality of life for people. But a radical improvement
will not come about until our economy becomes so robust that it is not critically dependent on either external economic
factors or on the results of the next election of the parliament or the head of state.
The rate of growth in the Russian economy today is fast, but not fast enough. The efficiency of the state apparatus,
both in the sense of its functions and in the qualifications of civil servants, is poor. The structure of the economy is
not balanced yet. Social commitments are still not [sufficiently] targeted.
It must also be acknowledged that some of Russia's closest neighbours - the countries of Eastern Europe - have
carried out their reforms both more rapidly and more decisively. Importantly, much of what Russian experts have come up
with for the reform of the pension system, public services, health care, housing development and other spheres had
already been discussed by other countries, and had been implemented by them and put into practice.
Our economy still is clearly geared toward raw material sectors. Certainly, natural resources provide Russia with a
clear competitive advantage. And this is not something to be shy about. But the high intellectual potential of the
nation is an equally important, and indeed more important clear advantage of ours. And this must be used to carry the
Russian economy into the high-technology sphere which is so profitable.
State bureaucracy stifling progress
The market for services is developing slowly and with difficulty. That is precisely the market that makes the
greatest input into the GDP growth of developed countries. In this country, on the contrary, a state monopoly largely
persists in respect of the provision of services in spheres that are significant to citizens, such as utilities and some
others. As a result, the quality of services is poor, the charges for them are growing and so is the legitimate
discontent of citizens. An individual essentially pays twice, if not thrice: first taxes, then bills for public services
and, on top of that, bribes. The redundant presence of the state in the economy has the consequence of a host of other
negative factors. Most importantly, the bureaucrat continues to perform - in the name of the state - a multitude of
functions that never were demanded and are not needed by the taxpayer: permits, licences, monitoring, and so forth. And
the consequence of this is suppression of business initiative; bribery; and abuse of power.
I must reiterate that the effectiveness of the state apparatus still leaves much to be desired. Many reasonable
proposals cannot make it through the endless talk and delays, and sink into a bureaucratic quagmire of formalities and
incompetence.
A particular case is the administrative arbitrariness in the law-enforcement system. Here too, a base remains for
what might be extra-procedural actions, that is, actions by members of various bodies and services not provided for by
law. And citizens should not be the object of coercion by a punitive machinery. The state, including its law-enforcement
structure, must in the first instance work for the citizens, protect them, protect their rights and property interests,
and defend their security and lives.
Russia better equipped to fight terrorism
Today it will be relevant to recall, and I have already recently spoken about it, that two-three years ago the
bandits operating in the North Caucasus just did not expect that the combat capability of our armed forces and special
antiterrorist sub-units would grow so fast. They did not expect such consolidation of society in relation to the
protection of the basic foundation of our statehood. Despite their many boastful statements, they then suffered a total
fiasco and were completely defeated in open confrontation.
Today, by means of terrorist attacks against civilians, they want to spread panic, fear and distrust towards the
authorities and, thereby, to break the will of the Russian people in the fight to strengthen democracy, freedom and the
territorial integrity of our country.
The Federal Security Service, the Interior Ministry and other power-wielding agencies should continue systematic work
aimed at eliminating the terrorist network. Special attention should be paid to the effectiveness of operations work,
and to creating tactics which will enable us to prevent terrorist threats.
Social, health and education reforms taking too long
Now I will speak about other current problems. I must say that social reforms are being implemented very slowly.
Reforms in the health and education sectors are dragging out, and this means we are still unable to ensure in full
volume proper quality of these services.
A significant part of the financial flows in these sectors remains in the shade. We still do not have a developed
medical insurance system. There is no competition on the market of medical services.
As for education, it is the biggest item of expenditure in the state budget today. The quality of education is
traditionally high, but it is declining. We must admit it. There are many reasons for that, including the emergence of
many higher educational institutions that do not meet the standards for quality of education and where it is easy to
enter with low grades. The overwhelming majority of university graduates do not work in the professions they trained
for. This means that the state is not dealing with the problem in detail and that a significant part of budget funds is
being wasted.
The housing problem requires special attention. The lack of it or poor quality of housing leads to a whole range of
negative consequences. These are: a decline in productivity at work, poor health, low birth rates and other negative
factors. All these issues require further attention. They should be resolved as soon as possible, without delay.
Overall tax burden must be reduced
Of course, a question arises: where and how should we seek fresh sources of growth? First of all, they should be
sought in fresh approaches to the country's development, in consolidation between society and the authorities, in
increased trust for each other, and in a joint search for a solution to these major all-national tasks.
The Russian economy must firmly occupy a worthy place in the international market. To do so, it is necessary, first
of all, to actively develop our own domestic market. We should modernize faster old enterprises and create enterprises
that reinforce the country's competitiveness.
We should put an end to the embezzlement of the national mineral resources and introduce order in the way they are
used. It is important that this should be done on a systematic legal basis, by revising laws on forestry and water
resources, and by revising statutes regulating the use of mineral resources.
We need transparent conditions of access to mineral resources and fair fees for using them. Instead of the current
pseudo-tenders, where the closeness of entrepreneurs to the authorities has become the main condition for victory, a new
type of tenders should be introduced. The administrative system for granting permits should be replaced with proper
civil-law agreements where there is a clear definition of the rights and obligations of the state and business.
Modernization of the rail sector, the electricity sector and the housing and utilities sector must be completed.
We must, finally, complete the tax reform which we started and, in the first instance, settle the matter of reducing
the single social tax and simplifying tax administration. We should tidy up the system of property taxes, and resolve
the matters related to taxing the excess profits of those exporting raw materials when world prices are high. After we
have succeeded in reducing the overall tax burden, our tax system should finally attain long-awaited stability. And in
the very short term, it will be need to be closely linked to the relationships between budgets, and to the ongoing
processes of redistribution of powers between various levels of government.
The issue of full convertibility of the rouble needs to be resolved, particularly as confidence in the national
currency is growing.
Commitment to mortgage system
We must develop the country's financial system, so that both enterprises and citizens can finally enjoy the
benefits of a well-developed market for financial services. One necessary element in the development and consolidation
of the financial system should be a policy of stimulating citizens' pension savings. People are increasingly aware
that the size of their pensions will be dependent on their own labour input and that every citizen is able to take
control of their pension savings. Furthermore, not only must the state underwrite these savings; it must also help build
them up.
Therefore, the task is to set up mechanisms that will provide financial incentives for the pension insurance system.
I would like to stress that the issue is very serious and should be thoroughly and thoughtfully followed by us.
As I have already said, our paramount task is to resolve the housing problem. World practice knows several ways of
doing this. Mortgages is one of the most efficient means. Another is long-term leases. We have no right to forget the
needs of those living in public-funded housing. It is the authorities' duty today to keep public-funded housing in
a normal conditions and to develop it.
I would like to focus your attention on mortgages. Even in the most developed countries, it is not very realistic to
expect people to pay in full for a house on the spot. As a rule, people buy their home on a loan that is paid back over
10 or 20 years. Such an opportunity has appeared now in Russia. However, the cost of servicing the loan and the strings
attached to it are such that the majority of our citizens still cannot afford it. We need a whole package of laws to
kick-start an affordable housing market. Dragging this issue out is inadmissible. The government must submit such a
package of laws during this spring session [of the State Duma].
"Time of uncertainty and anxious expectation is over"
Dear friends! We must also see through our political reform programme. I would like to stress that our actions in
this area will be as consistent as what we have done for stabilization in the country over recent years.
In the first place, we are implementing a reform of relations within the federation. We shall complete soon the key
transformations currently under way at local government level. Every citizen will not just know, but will have a
possibility to demand a definite level and quality of services from authorities at specific levels. Naturally, he will
directly influence the decision-making processes affecting him. That is the way the package of laws - those already
passed and those being passed by parliament - is being structured.
In order to do this, in the immediate future we must complete the creation of a legal basis to enshrine in law the
principles governing relationships between budgets. We shall be consistent in strengthening our political system, both
at the federal level and in the regions. I am convinced that we are in dire need of civilized political competition in
order for there to be forward development of the state and society . Influential and major political parties - parties
that enjoy the authority and trust of the citizens of our counties - should become a main plank in this work.
We should continue the work to form a vital and fully-fledged civil society. I would like to note that this is not
feasible without truly free and responsible media. However, such freedom and such responsibility should have the
relevant economic and legal basis, and it is the duty of the state to create this. I am sure that only a developed civil
society can ensure the stability of democratic freedoms and guarantees of human rights. In the long run, only a free
person can deliver economic growth and prosperity for the state. In short, this is the alpha and omega of the economic
success and economic growth.
I would like to stress once again that the rights and freedom of citizens form the paramount value, which determines
the meaning and the content of the state's work.
And, finally, we shall do all in our power to complete the reforms currently under way in the judicial system, in the
law-enforcement bodies. I believe that this area is of key importance and will be decisive in establishing genuine
democracy in our country, and in providing constitutional rights and guarantees to people.
In conclusion, I would like to say the following. The events of the early 1990s gave birth to great hopes and
expectations among our people. A thirst for change has led to a fundamental and dramatic turning-point in our entire way
of life. It seemed sometimes that the chain of shocks would never end. We sense today that the time of uncertainty and
anxious expectation is over. A new time has come, a time to create conditions for passage to a better quality of life in
principle. This task is not an easy one. It will require both political will and an honest dialogue between the
authorities and the public. And it will require constant joint efforts.
The question clearly is whether we shall succeed in this work. The results of the last years give every grounds to
say: Yes, this is within our powers and we can do it. We definitely will do it.
Thank you for your attention.
[RTR Russia TV] |
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