03 October 2002 00:00
SPEECH BY PRIME MINISTER MIKHAIL KASYANOV AT 16TH SESSION OF RUSSIA'S FOREIGN INVESTMENT ADVISORY COUNCIL
Good afternoon, esteemed ladies and gentlemen.
I am glad to again greet you on behalf of the Russian Government at this regular, now sixteenth, session of the Foreign Investment Advisory Council.
I would like to share with you the Government's current vision on certain key problems which are in the focus of attention of Russian and foreign investors. Only two months ago we were not expecting Russia's 2002 economic growth to exceed 3.6 percent; today, however, it is clear that it will be not lower than 3.9 percent. Labor productivity continues to increase while the economy's resource intensity keeps decreasing.
We expect population incomes to grow in 2002 by about 7 percent and remain one of the key instruments of the continuing economic upturn. Inflation this year, as we presupposed, will not exceed 14 percent, which makes it possible to ensure its further and predictable reduction in 2003 by no less than two percentage points.
The State Duma has just passed next year's draft budget in a first reading. This evidences deputies' support for the Government's financial and economic policy, and the identity of approaches by executive and legislative authority to the main directions of economic development of the country.
The main principled aspects of the 2003 budget are as follows. First, noninterest expenses have been reduced in real terms, which will contribute to macroeconomic stability and provide a basis for lowering the tax burden in the future. Second, the resources are concentrated in the crucial sectors of reform for us, in particular, such as judicial and social reforms. Third, a large overall budget surplus is to be maintained, which in the indeterminate world economic conditions and with the peak of debt payments next year is called upon to serve as a dampening factor of the financial and economic policy.
Of exceptional importance is the tax reform consistently being pursued. In 2001 income tax was radically cut, in 2002 profit tax regulations were changed, and in 2003, as we have promised, turnover taxes, which restrain economic vigor, will be completely abolished. Simultaneously measures have been taken to simplify and reduce the taxation of small business, which is necessary for the stimulation of business activity in this most important sector of the national economy.
On the whole the tax load on the economy in the last few years has been reduced by more than 4 percent of GDP, including in 2003 - by 1 percent. The main direction of our work is to deepen and broaden the structural reforms connected, above all, with the raising of the efficacy in functioning of the institutions of the state.
Considerable efforts are being made in this direction to improve the work of our judicial system and particularly that of the arbitration courts. The State Duma passed in a third reading the new Arbitration Procedural Code providing more effective protection of the rights and interests of investors, including foreign.
Basic principles for administrative reform are being worked out. That reform is called upon to strengthen the executive power at all levels and ensure, at last, a clear delineation of functions, powers and financing among the levels of state administration and to eliminate the state's unnecessary interference in the economy.
Simultaneously our attention is focused on bolstering the institution of property rights. One of last year's most significant steps the Government believes was the creation of a possibility for a legal and large-scale introduction of a land resources turnover. Uniform rules, transparency and the irreversibility of privatization have been ensured thanks to the adoption of a new privatization law.
In the framework of criminal and administration law, actions have been taken to enhance the protection of intellectual property. Actions will be continued to liberalize the existing regime, including in the field of technical and currency regulation.
Carrying out structural reforms, the Government has been exerting considerable efforts to raise the attractiveness for investors of ever new spheres of the Russian economy.
These spheres are, first and foremost, the natural monopolies in the fields of railway transport, electric power production and the gas industry. The ensuring of nondiscriminatory infrastructure access, the development of competition in the sectors of production and sales, elimination of cross-subsidizing, achievement of transparency and the liberalization of the appropriate markets will make them more attractive targets for investment. Within the coming years we intend to create in Russia a free market of electricity, gas and railway transportation. The reformation of the natural monopolies is a complicated issue, giving rise at times to very emotional debates. But we are thoroughly elaborating all the related problems, carefully studying the various points of view and making full use of all the reasonable proposals. Jointly with the deputies of the State Duma and members of the Federation Council the Government has carried out some additional work on a package of electricity generating industry reform bills which will soon be considered by the Duma at a first reading.
It is no secret that a serious factor restraining the investment processes is still the weak level of development of the financial sector of the Russian economy. Already this fall the Government at its meetings will carefully examine the main aspects of its development.
Pension and insurance reforms are opening up considerable possibilities for effective investment. Last week the Government of Russia endorsed bills greatly enhancing the effectiveness and openness of the insurance system of our country.
Another major stride forward appears to be the start of the implementation of a joint strategy of the Government and the Bank of Russia that is opening the way for large-scale banking reform. Its chief objectives are to enhance the capitalization and reliability of the banking system of Russia and to increase market competition. In particular, necessary decisions will be taken to introduce a system of guaranteed deposits, which must raise the population's trust in the banking system. This is particularly important because it is private savings that must become the principal and most secure resource of the banking system in the coming years. We are also pinning great hopes on the switchover of Russian banks and enterprises to international accounting standards.
Over the recent period, as you know, the Code of Corporate Governance, aimed at improving business standards, has been elaborated and brought into force. Many Russian enterprises are already really ensuring the transparence of their activity on the level of international standards. It is insistently recommended that the organizers of the trade in securities should include in the rules of listing the requirements for disclosure by joint-stock companies of their observance of the provisions of the Code. Efforts are simultaneously being made to ensure the reliability of the stock-market infrastructure.
Esteemed ladies and gentlemen,
Despite a number of positive economic results obtained recently, today's rate of economic growth and its concentration in a limited circle of sectors of the economy, enterprises and regions, and most importantly the low rate of investment attraction arouse serious concern in the Government. Overall investment growth in January-August constituted only 2.4 percent, which cannot be recognized as a level sufficient for the successful development of our country.
Particularly striking is the situation with foreign investment. Although its overall volume grew in the first half of the current year by more than a quarter, this growth was achieved thanks to long-term and medium-term credits, the volume of which increased by 2.5 times. Whereas foreign direct investment, on the contrary, became reduced by more than a quarter. This state of affairs can only in part be explained by the world-wide decline of the investment process that is being observed at present.
Our meetings never bore an ostentatious character. Therefore within the framework of an upcoming discussion I count on a serious, frank and substantive talk about the reasons for the investment stagnation. It is very important for us to learn your opinion, what supplementary actions the Government should take to ensure a radical change of the investment situation and to establish conditions for continued modernization of the Russian economy and the creation of favorable conditions for its further sustainable growth.
Thank you for your attention.
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