25 September 2002 00:00
SPEECH OF RUSSIAN PRIME MINISTER MIKHAIL KASYANOV AT TO THE RUSSIA: SUSTAINABLE GROWTH CONFERENCE, SEPTEMBER 23, 2002
On September 23 Chairman of the Government of the Russian Federation Mikhail Kasyanov addressed the Russia: Sustainable Growth conference, organized by the Brunswick UBS Warburg company.
Following is the text of the speech.
Esteemed ladies and gentlemen,
I am glad to be able to again welcome you to autumn Moscow. The past year has shown how little actually separates Russia and the Western world and how much do we have in common. I must say that the attitude to Russia in the world has undergone positive changes over the last year.
Russia is now regarded not just as the "little Soviet Union," but as a new democratic and market state which in its policies is guided by firm and well-considered principles. True, our stands do not always concur with those of our partners, but we substantiate our point of view and know how to listen to the arguments of others. And the fact that Russia has become a full-fledged member of the Big Eight reflects the acknowledgement of the role which our country plays in world processes now.
This, undoubtedly, concerns the economic field too. We all spoke for a very long time about the potential of Russia - be it natural riches or human capital. However only now the real possibilities are in evidence for the realization of this potential in the interests of the world economy as a whole.
G8 member status puts also a higher bar of requirements to our economic policy. Many tasks, which we spoke of here last year, are being successfully tackled. I won't be tiring you with a latest-performance report and figures - you'll hear plenty of them yet, and then you know them very professionally.
I would like to share with you today's vision of the government with regard to certain key problems, which are the focus of attention of Russian and foreign investors.
The growth of the Russian economy is continuing - today we can firmly expect to achieve a level of 4 percent for the year. The main aim of the government today is to ensure that this growth rests on a sound foundation and creates prerequisites for more rapid economic development in the future.
Perhaps the main worry for us at present is the slow growth of fixed capital investment. The reserve of unutilized capacities since 1998 has been drawn on completely, and those capacities in the majority are physically and morally depreciated. Moreover, investments grew by only 2.5 percent over the first eight months of the year, a rate extremely small for Russian industry, which needs to renew itself swiftly to raise labor productivity and competitiveness.
We see three basic directions for solving that problem.
The first is to create more comfortable conditions for the activity of business, and so for investments as well. Macroeconomic stability has already become practically routine, but there is one more element - inflation - the rate of which is unacceptably high. We are confident that we will be able to bring down inflation to 14 percent this year, and next we'll make fresh strides to get it further reduced through a well-considered budget and monetary policy and the employment jointly with the Bank of Russia of market mechanisms for sterilization.
Practically under any scenarios the year 2003 with its peak of debt payments has ceased to arouse apprehensions.
Efforts in the field of judicial reform, improved bankruptcy procedures, transformation in the land sphere, accession to the WTO - must step by step eliminate the other factors of uncertainty still frightening investors away.
We are concluding an important stage of tax reform, having advanced considerably farther than previously stated. But that still isn't enough.
The steady budget surplus is our great achievement after many years of fiscal reverses. But surplus is not an aim in itself; it's a means for hedging market risks. From the experience of other countries it is well known that the habit of budgetary excesses is probably no less dangerous than a shortage of funds. As interest payments diminish with passage through debt peaks, and the level of noninterest expenses lowers thanks to a review of the excessive functions and powers of the state, we will be able to shift to a new, lower level of requirement in budget revenues and, consequently, to a new stage of reduction of the tax burden.
It is no secret that one most significant barrier to investment activity is unreasonable intervention by the state in the economy, its direct presence in economic activity. We are currently working to make more precise the powers of the various levels of authority. We do not intend to slow down privatization, as a result of which the commercial presence of the state in the economy will be reduced, but sharply defined and transparent regulation must remain where that is indeed necessary.
A second direction is, of course, the financial sector, the low development level of which is already really restraining the investment process. We will soon devote the most serious attention to developing the internal financial market and raising the variety and quality of market instruments. Until the end of the year, government meetings will consider issues pertaining to insurance business, the progress in pension reform, transformation in the banking sector, including deposit guaranteeing, and the stock market.
To raise the liquidity of the government securities market for the year 2003 we have more than doubled the initially planned volume of a net issue, to almost 50 billion rubles. The creation of a full yield curve of government instruments will make it possible to form clear benchmark interest rates for other credit operations in the economy. The Central Bank is finishing preparations for the launching of a full-scale market of repo business. In addition, mortgage instruments guaranteed by the state will appear in the market next year. All of this will enable raising the significance of the real value of money in the economy and shifting to more subtle instruments of regulating economic processes with the aid of interest rates.
We intend to continue to reduce the participation of the state in the financial market. The government intends to sell the stakes it owns in most financial organizations and will make every effort to minimize the distortions brought by them into markets.
The government concurs with the Bank of Russia in understanding the basic guidelines for banking reform and they are ready to work energetically in this direction. The move, beginning in 2004, to international financial accounting standards, the increase of the real capitalization of banking organizations, the creation of a competitive environment must all really contribute to building on the role of banks in the transformation of savings.
We treat with understanding the striving of Russian structures to attract resources in foreign markets, which at this moment provide the best conditions of financing. Guided by a desire to create a more adequate yield benchmark for corporate issues, the government may soon adopt a decision to return to international capital markets via the issuance of Eurobonds.
At the same time there grows the contradiction between requirements in the investment of national savings and the accessibility of appropriate high-quality instruments. Just the development of the accumulatory pension system and of the system of nonstate pension funds in the near future will form the offer of financial resources in amounts which our market so far is not ready to digest.
In this connection good possibilities are emerging for the business of financial intermediation. We will support in every way the development of this sector of the economy by toughening regulation to enhance the reliability and transparency of its infrastructure.
Finally, the third element of the investment process, where far from everything depends on the government, is more vigorous efforts by the business community itself. In my opinion, so far a considerable part of it lacks, unfortunately, a keen desire to look now not even into tomorrow, but into the day after tomorrow. Global competition for capital, resources, ideas and markets is becoming tougher, and Russia is already in full measure involved in this competition. The window of opportunity is short-lived - many of the current competitive advantages of Russian enterprises may quickly disappear. Comfortable existence today by no means guarantees market survival in the near future.
Strategic thinking not in the last place presupposes fostering closer contacts with potential investors, and ensuring the transparency and predictability of business operations. And I am glad that many Russian enterprises, including those participating in this conference, are already advancing along this road, demonstrating openness on the level of international standards and readiness for cooperation and the consideration of investors' interests. This ultimately ought to change the situation with foreign investments, which so far, unfortunately, is far from ideal.
Esteemed ladies and gentlemen,
In its turn, the Russian government is also ready to think strategically, more particularly to inform you honestly about our problems and to share its plans for resolving them. I suppose this kind of exchange of views, feedback is useful both for you and for us all. Therefore I wish you interesting communication in the course of this conference and successful investments in Russia.
Thank you for your attention.
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