V. Putin answers to questions from St Petersburg International Economic Forum participants

MODERATOR (retranslated): Mr President, the St Petersburg International Economic Forum is being held in your hometown. I would like to ask the following question. You spoke at the G8 summit and also chaired a meeting of Business 20 in St Petersburg. Currently, there is a lot of talk about the EU-US trade alliance and about offshore taxation; there are also disagreements on Syria.

Ultimately, what will be your top priority for the G20 meeting in September? After all, there was no discussion about stimulating global growth. Are the G20’s priorities changing? Or do you mean some other priority? What issue is most important for you at the G20?

VLADIMIR PUTIN: I think Madame Federal Chancellor will confirm that during the G8 summit in the United Kingdom, we also discussed the two areas pertaining to the continuity of our work.

The first is continuing what our Mexican friends and partners achieved at the G20 summit in Los Cabos. After our meeting in the United Kingdom, we focused our attention on several aspects of developing the global economy, and one way or another, they will also be reflected in the agenda for the upcoming G20 summit in St Petersburg this September.

What did we discuss there? We talked about creating the best conditions for developing the global economy. What are they? They include taxation, which I spoke about today; they also include the fight against the global economy offshoring.

As we know, these were among the negative components that led to the financial and economic crises of 2008-2009. We talked about the need to do everything we can together to broaden the horizons for trade, in the sense that global trade has shrunk somewhat in the last year. We talked about harmonising positions on these and several other fundamental aspects of global economic development.

Naturally, we discussed the situation in each of our nations – in the United States, in Europe, in Russia. Each of the G8 leaders talked about what their administrations are doing domestically.

President Obama talked about how he is improving tax legislation with regard to threats stemming from offshoring. All this was a natural common area for joint work and discussing critical problems of mutual interest.

As for foreign policy issues such as Syria, there were other problems discussed as well, but I think Syria is the most pressing issue today, and this was an entirely open and engaged discussion. We once again confirmed our main joint concern and objective (indeed, it is reflected in the final declaration): ending violence as quickly as possible, creating conditions for renewing political dialogue between all opposing parties, bringing the two sides which are currently actively engaged in hostilities, including with the use of arms, to the negotiating table, agreeing to convoke the Geneva-2 conference as quickly as possible which will be based on the principles of the previous Geneva meeting, and impelling the conflicting sides to engage in dialogue and reach positive results.

Overall, I want to stress that the discussion on this issue, as well as other issues, was engaged and oriented toward partnership. Different participants in our discussion expressed differing opinions. But what made me happy was that in spite of the depth and difficulty of the problems under discussion, we always sought a way to find compromises, and were able to reach consensus on nearly every issue.

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MODERATOR: Mr President, I wanted to ask foreign policy questions a little later, but since you mentioned Syria, I want to ask the following.

Discussions will be held at Geneva-2, but Russia is currently providing arms to Assad’s regime. The United States chose the other side. And so, there are disagreements within the G8 on how to proceed tactically. Can Geneva-2 be held given these disagreements? One side is receiving arms from both you and Iran. The United States is taking the other position. What do you think about this?

VLADIMIR PUTIN: As far as arms deliveries are concerned, I already spoke about this at the press conference in the United Kingdom. I can simply repeat that the Russian Federation is not violating a single international principle of law. Russia is supplying arms to the incumbent and legitimate government of the Syrian Republic in line with international law, under open and transparent contacts.

As for the opposing side, let me draw your attention to the fact that it has been receiving arms from abroad for a long time. And we are not going to talk now about the origin of these types of arms. But it is clear that without supplies from abroad, the events happening today in Syria would simply not be possible. Money and arms are being channelled in, as are well-trained armed units, largely from foreign nations – not just from abroad, but mostly.

Meanwhile, in Europe and the international arena, within the UN framework, resolutions have been adopted establishing an arms embargo against non-governmental groups, particularly in the conflict zone. In this regard, there really are certain disagreements in the stances between, for example, ourselves and the United States. But I can tell you, it’s not just between Russia and the United States. The US and Russia are not alone in holding a position on this.

I want to assure you that all the G8 participants are self-sufficient states and their leaders are self-sufficient, world-class public officials. Each has their own opinion regarding the current problems not just in Syria but in other regions of the world as well. And when someone supposes that Russia is on one side and the US is on the other, this is inaccurate; it is a simplistic view of complicated global processes.

Basically, I can once again confirm what I said in the United Kingdom: it is hard for me to imagine why anyone would supply arms to those armed opposition groups in Syria, whose composition is not fully clear to us. If the United States and the US Secretary of State recognise one of the key Syrian opposition organisations, Jabjat al-Nusra, as a terrorist group and officially recognise its connection to Al-Qaeda, how can they supply arms to that opposition? Where will these arms eventually end up? What will be their role?

It is known that there are at least 600 individuals from Russia and Europe currently fighting with the opposition. Where do those arms go? We still do not have answers to these questions. And when we ask our partners these questions, they also cannot answer. So things are not as simple as you might like to imagine.

We feel that our position is justified and measured. We feel that only the Syrian people themselves can guarantee a long-term solution to all the problems that have accumulated there over many decades. And coming from the outside, we can only create the conditions for achieving these agreements.

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QUESTION (retranslated): We saw a very severe reaction after the US Federal Reserve made it clear that the bond purchasing policy may be adjusted by the end of 2013. There was a strong reaction in the markets all over the world, especially in emerging markets. What is the reaction of Russia and the new head of the Central Bank? What can Russia do to accelerate growth, especially given the concerns about the recent decision of the Federal Reserve?

VLADIMIR PUTIN: In my address, I have already spoken about what Russia can and should do to increase growth, so I don’t think I should go over all of that again.

Regarding the response to Mr Bernanke’s announcement, I can say, first, that statements of this kind are to be expected because the adjustment has to be made at some point. It is impossible to endlessly pump up the economy with liquidity without addressing the underlying problems since the situation cannot be improved if they remain.

What President Obama has managed to achieve with the budget gap is very good, it is certainly in his favour in the domestic political line-up and competition, and it is an economic victory. But it is probably wrong when the whole world is holding its breath in anticipation of problems from one budget gap to another. Some fundamental decisions must be adopted, so it was clear that the Federal Reserve would make this adjustment.   There is no surprise in it for us.

I think that this decision is a step in the right direction. We must gradually come out of the situation that was created over the past years. It is necessary to take steps to reduce the deficit of the US federal budget, to reduce debts and address many other problems.

President Obama spoke very openly about it at the G8 Summit. In general, I think this is a sensible decision. Don’t worry, the markets’ reaction is absolutely normal. I think that there will be adjustments, especially when the realisation comes that the recovery process has started in the US and global economies. This will benefit everyone in the end.

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VLADIMIR PUTIN: If you don’t mind, I would like to come back to the first part. It’s not only the financial markets that were affected by Mr Bernanke’s announcement; the price of gold fell as well. Why did this happen? I think it happened because there are expectations of the dollar growing against the yuan, the euro and some other regional currencies. This will bring about a change in the commodities market. We just have to take this into account in our current economic policy.

The question you asked the Federal Chancellor [about the Eurozone’s approach to addressing unemployment in the southern countries and economic growth] is relevant not only for the Eurozone, but also for Russia. I said in my address that we must find a balance that combines our most effective measures to address strategic challenges and current issues. That is more or less the same as solving the unemployment problem in the Eurozone’s southern countries and achieving overall economic growth.

These are similar challenges, although I am happy to note that the situation in Russia is better at the moment: the unemployment rate is 5.5%. Can you imagine that?  The unemployment rate is at the lowest point ever, just 5.5%. We have virtually no debts. The external debt of the Russian Federation is 2.5%. What is it in the United States? 114%, if I’m not mistaken, the Eurozone has just under 100%, and we have 2.5%. If you include the domestic debt, the figure will come to 10-11%.

Inflation is also nearly at the all time low, as I have already said, although it has gone up slightly. But I believe that the decision to slow down the growth of natural monopolies’ rates will deal a serious blow to inflation. Therefore, all the basic conditions for development are reasonable – I’m afraid to say good. But our problems are essentially comparable to the ones that the Federal Republic of Germany or other Eurozone countries have to address at the moment.

I agree with Madam Federal Chancellor, and she knows my position. I think our approach should be that before we invest something, put some honey or caviar in a barrel, we should first make sure that everything is in order, since these excellent goods are not going to disappear. You see, that’s the most important thing. And in Russia there is also a lot of work to be done.

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QUESTION (retranslated): Major technological changes are taking place in the oil and gas industry: there are new types of oil and gas that affect the energy balance and potentially the price. How will these factors affect the Russian economy and what strategies does Russia have in mind to cope with this situation?

VLADIMIR PUTIN: Changes always occur and the world adapts to them somehow, and so does our economy. I don’t see any major changes. The fact that shale gas has appeared in the US market is a factor in today’s economic life, particularly in the energy sector. But so far there have not been any fundamental changes. First, the cost of shale gas production is several times higher than conventional production.

Second, there are environmental factors. It is well known that in the areas where shale gas is extracted, the local residents get black slime flowing from their water taps. Also, such production requires the reservation of huge areas because the extraction is done by blowing up the deposits, one by one, further and further. Therefore, vast areas need to be withdrawn from economic circulation and suffer terrible damage.

I presume that the technology will improve, but at present the production of shale gas (which may be followed by shale oil, that is also possible, such production is also underway) gives the consumer the final price of $120 dollars per 1,000 cubic metres.

If we add to this the condensation, liquefaction and transportation, the price for the European market will be somewhere around $350-450 per 1,000 cubic metres. That is the same price at which Gazprom sells pipeline gas today to its major customers, including in Europe.

It may have certain advantages for the US market, at least today, but I don’t see any serious changes for the global gas energy market. This is one area we must tackle together, and I mentioned it in my meeting with the heads of energy companies: we must think about a fundamental change in technology in this area.

Now, if we manage to do this together, that will be a real breakthrough. We must proceed from the fact that low-cost energy resources will not be available, and we must start extracting the hard-to-recover reserves, which requires large initial investment and new technologies. That would be a new step in the development of the energy sector.


QUESTION (translated from Russian): Russia has earned respect for its budget discipline over the last decade. Now that economic growth has slowed down, how do you plan to stimulate growth? What will you do to maintain the budget discipline that you put in place?

VLADIMIR PUTIN: I already spoke about this in my address. Let me just note a few points in particular. First, we want to make a substantial reduction in inflation and lay the fundamental conditions for economic growth.

Second, we will improve the banking system and, as we carry out this work, we will continue bringing down interest rates and making it easier for companies of all different sizes to get loans.

We will lower administrative barriers, cut red tape, improve management quality, cut costs, and develop infrastructure.

The three projects I mentioned just before are only the tip of the iceberg. We will work in the Russian regions and in other areas. Of course this all requires resources. Let me say again that we will make the effort. These tasks might look to be mutually exclusive, but we will do our best to find a middle road that will let us maintain the fundamentals in place and at the same time give us the financing sources we need for carrying out other objectives, primarily the infrastructure projects I spoke about.

Finally, everyone is talking about investing in human capital today, improving education and healthcare. We have big programmes for working with the professionals and public groups in these fields too.

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QUESTION (translated from Russian): How can we go about actually implementing the four common spaces and free movement of goods? Is it possible to go back to 2005? Can we make the four common spaces reality for Russia and for the European Union?

VLADIMIR PUTIN: I don’t see why we need to go back to 2005. The Federal Chancellor hit the nail on the head when she spoke about Russia’s joining the WTO. When the two partners, Peter Mandelson and German Gref, settled all of those problems, the main aim was to ensure Russia’s accession to the World Trade Organisation. This goal was accomplished.

There are still many problems and differences, and I think this is only natural really. Of course we need to continue at the same time to harmonise our general principles in the areas such as humanitarian law and our understanding of human rights, common values, and how we guarantee them. There are still a lot of things to work on together, come to understand each other.

It’s very important therefore that we be attentive and respectful towards each other. These are fundamental principles. Russia is always ready to listen to its partners, make adjustments if need be too, but only if you don’t come with a lecturing tone and try to dictate your rules.

For my part, I have not seen this kind of thing lately, and it would seem to be not going on. It’s one thing what the media says, you get emotional people there, not always so well informed about what is actually going on, and they have all kinds of different views and assumptions about events.

When you look at it, it is our officials and governments that are to blame really, because if we gave the public full and timely information about events there would be not all these various guesses and assumptions.

As for the actual substance of our economic cooperation, yes, there is a lot of debate here too, but this is only natural. Each side is always trying through the dialogue process to find the best solutions to their own problems. Sellers want a higher price, and buyers want to get things cheaper. This is only natural. There is nothing surprising in this situation. Certainly, we have our differences, but we are finding solutions.

Russia has joined the WTO. The head of another international organisation, the OECD, is here today, our good friend, and we are working with him on Russia’s accession to this organisation. We are not trying to hurry things and will proceed calmly in this work. We understand if it doesn’t all happen overnight, and we realise that we need to work on harmonising our internal rules and laws and bring them into line with the OECD. We are going about this calmly and steadily. I won’t even try to name any specific date for our accession. This is not really the most important thing. The important thing is that we understand each other, hear what each other is saying, and continue making progress on this road.

We have our differences with the European Union over the third energy package. We have not yet managed to reach an agreement on the principles yet. But as the Federal Chancellor noted too, we built Nord Stream together with our European partners and it is up and running now. I think that we will keep working in just this way because this is in our fundamental mutual interests.

I gave some figures for [energy resource] consumption growth in China. Demand is growing in Japan too, and in other parts of Asia, and demand will increase in Europe too. True, Europe is going through some difficult times right now, but I am confident that the European economy’s foundations and the responsible attitudes of European leaders will get this vital part of the global economy and Russia’s biggest trade partner back on its feet. Russia’s trade with the European Union comes to more than $400 billion. We therefore continue to work towards the goals that we set several years ago.