15 June 2007
Vladimir Putin on Russia's Economy
Today, the protectionism the WTO was set up to combat is often implemented by the developed economies that founded the organisation. It is in these economies that we see the greatest concentration of state support for business. It is not coincidence that a parallel system of regional alliances and agreements is taking shape, essentially giving the global market a new structure.
Vladimir Putin on Russia's Economy
Speech at the XI St Petersburg International Economic Forum Saint Petersburg
June 10, 2007
PRESIDENT VLADIMIR PUTIN: Good afternoon colleagues, ladies and gentlemen. It is my pleasure to welcome you here to the St Petersburg Economic Forum. It is a great honour for us to play host on this occasion to heads of state and government and top managers from the world’s biggest corporations. As one of the participants and organisers of today’s event put it, those present here today represent, figuratively speaking, ‘more than half the world’s GDP’. I would like to note too that traditionally, the economic and political leaders attending this international forum discuss not only economic issues but also take the opportunity to discuss and formulate positions on vital strategic issues and questions of truly global significance.
The world is changing literally before our very eyes. Countries that seemed hopelessly backward only yesterday are becoming the world’s fastest growing economies today. Fifty years ago, the G7 countries accounted for 60 percent of the world’s GDP, but today this situation has been reversed and 60 percent of the world’s GDP is now produced outside the G7 countries. The developing countries are more and more active in establishing niches for themselves not just in the trade of goods but also of services. New players, including in the high-technology and science-intensive sectors, are bringing greater competition to the market. At the same time, the development imbalances in the global economy and the growing gap between rich and poor countries are having an ever more tangible impact. This is an issue we have discussed on past occasions and one that we just discussed at the G8 summit in Heiligendamm.
It is my conviction that just saying the usual words about fair distribution of resources and investment is not enough. If we want to achieve sustainable development we need to create a new architecture of international economic relations based on trust and mutually beneficial integration. We cannot ignore the importance of healthy competition, but at the same time, we need to move towards forming common and interdependent interests and ties.
We believe that this is the direction in which relations within the Commonwealth of Independent States should develop. The CIS countries are becoming increasingly integrated in global processes and are becoming influential participants in international economic relations.
Issues of mutual trust are now coming to the forefront in international economic relations.
In an open economy, most countries depend on international trade and on how stable and sustainable are their exports and imports.
Economic partners can feel a sense of security only when they have reliable and predictable relations and when buyers and sellers guarantee fulfilment of their respective commitments. I stress that Russia will work actively to help form an infrastructure of trust in the global and regional economy. In this respect I would like to say a few words about the trends on energy markets.
The energy sector today is witnessing the emergence not only of major new consumers such as China and India, but also of new producers in the Eurasian region, significant players such as Kazakhstan, Turkmenistan, Azerbaijan and Uzbekistan. These countries have become independent suppliers of fossil fuels to the world market. At the same time, the policy pursued by traditional consumers is far from unambiguous. We understand their desire to ensure energy independence and to diversify energy sources, but the policies they follow have a direct impact on the interests of supplier countries. As one of the guarantors of energy security in the world, Russia cannot turn a blind eye to these problems, and this is why we support the idea of a strategic dialogue between energy consumers, suppliers, and transit countries. I am sure that all sides would benefit from such a dialogue. The new steps we are taking aim to ensure energy security for the entire Eurasian continent. This is true also of the projects which we are planning and which we are carrying out together our neighbours and partners in this sector – Turkmenistan, Kazakhstan and Uzbekistan.
Above all, of course, we are talking about the production and supply of fossil fuels – oil and gas. This encompasses the construction of the Northwest Gas Pipeline and Burgas-Alexandropoulis oil pipeline. Given increasing energy demand in the Asia-Pacific region, Russia is also increasing supplies in this direction too.
We will also carry out projects in the transport, telecommunications and logistics sectors. These are projects that will link the countries of Europe and Asia. We plan to modernise existing transport corridors and create new international transport corridors joining Europe to Central Asia and the Far East. We have also announced plans to build a second section of the Volga-Don Canal and give the Caspian Sea countries access to the world’s oceans. I know that my friend and colleague President Nursultan Nazarbayev has his own vision in this area and I am sure that he will speak about it today.
Countries’ investment policy forms another aspect of the interwoven nature of mutual interests. We see how the doctrine of investment freedom is giving way to completely different approaches in the developed countries. Foreign investment, it turns out, is not always seen as beneficial, and sometimes sectors such as infrastructure, telecommunications and energy close their doors to foreign participation.
Russia, on the contrary, seeks to give foreign investors the most favourable conditions possible. We are constantly improving our system of property rights protection, including intellectual property rights. Our economy is open to foreign investment, including in infrastructure and in the electricity sector.
Russia’s electricity generation companies have begun offering their shares to the public this year. Foreign investors are carrying out major projects in industry, construction, retail and the banking sector in Russia.
Direct foreign investment in the Russian economy showed a 2.5-fold increase compared with last year. Total accumulated foreign investment in Russia now exceeds $150 billion. As I have said on many occasions now, aside from all our other difficulties, we also faced the problem of capital flight from the Russian Federation.
Last year, for the first time, we had a net capital inflow of $41 billion, and this figure has already passed the $60-billion mark for the first four months of this year and continues to rise. Incidentally, the investment process has finally become a ‘two-way street’ for Russia.
As I said, total accumulated foreign investment in Russia now comes to around $150 billion, but, according to data from international economic organisations, Russian investment abroad has now reached a figure of $138 billion, and our own data puts it at not less than $140 billion. We want to continue to expand Russian investment abroad and we are interested in exchanging assets with international partners under mutually beneficial conditions. This is the road Russian companies are now taking. We have positive experience of such partnerships with our colleagues from Germany and other European countries. Our projects with Italian companies are the latest example in this area.
It is my conviction that Russia could become home to financial centres and the decision-making centres of new global corporations. We passed a law this year completely freeing from taxation dividends received from strategic investment inside the country and abroad. I hope that both Russian and foreign investors will make use of this exemption we are offering. We hope to see just as favourable, understanding and liberal an attitude from our partners. In cases where problems do arise, the balance between national interests and the need for foreign investment should be found exclusively by working together in a spirit of constructive dialogue.
The new architecture of economic relations implies a principally new approach to the work of international organisations. It has become increasingly apparent of late that the existing organisations are not always up to the measure in regulating global international relations and the global market. Organisations originally designed with only a small number of active players in mind sometimes look archaic, undemocratic and unwieldy in today’s conditions. They are far from taking into consideration the balance of force that has emerged in the world today. This means that the old decision-making methods do not always work. The World Trade Organisation and the Doha round of trade negotiations, which are proceeding with great difficulty, to put it mildly, provide a clear example in this respect.
Today, the protectionism the WTO was set up to combat is often implemented by the developed economies that founded the organisation. It is in these economies that we see the greatest concentration of state support for business. It is not coincidence that a parallel system of regional alliances and agreements is taking shape, essentially giving the global market a new structure. And the trade liberalisation process is now taking place more and more through these new agreements. It is worth thinking about creating regional Eurasian free trade institutions in order to encourage trade and investment. These institutions could of course draw on and use the positive experience of the World Trade Organisation.
The international financial organisations are also in need of serious restructuring and modernisation. They were established at a time when the world looked very different and are having difficulty adapting to the new situation of stable economic growth in the majority of developing countries and growing markets. An international financial system based around just one or two currencies and a limited number of financial centres no longer reflects the global economy’s strategic demands. Fluctuations in these currencies’ exchange rates have a negative impact on the financial reserves of entire countries and on the development of different economic sectors around the entire world.
There can be only one answer to this challenge and that is the emergence of several reserve currencies and several financial centres. This is why we need to start work today to create the conditions for diversifying the world financial system’s assets.
Russia will continue carrying out its policy aimed at making its national currency, the rouble, and its financial market and banking system more attractive. The issue of settling payments for goods exports from Russia in roubles will also be a question we will need to look at, but this of course should apply to cases when it would be in both the suppliers’ and the buyers’ advantage.
Ladies and Gentlemen,
History has convincingly shown on enough occasions that the situation in Russia in many ways determines the situation in the surrounding countries in the Eurasian region. This is a subject we have discussed many times with our colleagues from the Commonwealth of Independent States. Russia’s temporary weakening inevitably led to instability in the region as a whole. Our country lived through a series of dramatic upheavals in the twentieth century, but at the same time it also built up serious potential. Our scientific, education and industrial experience are not just contributing now to development in Russia itself but are also giving a development boost to new states and strengthening new players in the global economy. We are very pleased to see this and are ready to do everything possible to encourage this process. At the forum last year, the concept of what were called ‘idea-countries’
was put forward. Russia is just such a country, a country that seeks to build a fair and just society based above all on moral values, a country that analyses thoroughly the strategic processes in the world and is committed to strengthening trust between peoples and states.
It is our firm conviction that the engine of development in the new millennium is people, their culture, education and abilities. We support the free exchange of ideas, technology and innovation. I repeat that the doors in Russia are open for carrying out the most ambitious joint projects. We hope that through partnership and working together we can make the Eurasian continent truly an area of peace, trust and cooperation.