Dmitry Medvedev gave an interview to Sergei Brilev’s programme Vesti v Subbotu
Sergei Brilev: Good afternoon, Dmitry Anatolyevich.
Dmitry Medvedev: Good afternoon, Sergei Borisovich.
Sergei Brilev: Congratulations on your two years in office.
Dmitry Medvedev: Thanks a lot.
Sergei Brilev: I know you limit your ministers to 15 minutes in their remarks, but two years is quite a bit of time. Looking back, how do you assess the balance between positive and negative in the Government’s work during your first two years in office?
Dmitry Medvedev: You know, I’d say that all of us have been working tirelessly for the past two years, because the Government is a machine. It’s true that for the past two years the Government has been working diligently, and so it’s difficult for me to say if the balance is net-positive. I can only say that the country is developing. Despite current economic problems, we recorded growth last year. It wasn’t high, but it was still growth – GDP grew by 1.3%. We have low unemployment, which is, of course, the result of the consolidated work of all branches of government and business. The relationship between the main macroeconomic indicators is not bad. We are keeping inflation in check, and our debt-to-GDP ratio is decent. In short, the Government has done its job.
Of course, there are certain challenges. There are things that we should address in a more swift and proactive manner. I can tell you directly that I’m not satisfied with the current state of affairs in the housing and utilities sector. It’s not that we aren't doing anything. We were really committed to passing resolutions and following up on all decisions. But the problems that have accumulated up until now are so huge, that we should probably move forward even more quickly. It is true, however, that utility bills are rising, sometimes even exceeding the inflation rate, which is not supposed to be happening. We are forced to call those responsible for such hikes to order.
Sergei Brilev: Do I understand correctly that this is one of your top priorities for the foreseeable future?
Dmitry Medvedev: Certainly. I believe it to be a priority for the authorities in general, and as the top executive body, the Government is expected to lead in this effort.
Sergei Brilev: Mr Medvedev, all prerequisites for ensuring high economic growth rates are in place, but the economy is nevertheless growing at a modest rate of 1.5%. Although agriculture boasts a growth rate of 6%, which is great, overall we are far behind previous years in terms of economic growth. The President publicly praised the Government for its efforts. However, Bloomberg recently cited Russia as the worst place to invest among the world's biggest economies.
So where does the truth lie?
Dmitry Medvedev: The truth naturally lies with the President.
As for various opinions, we have received all sorts of feedback. The situation is indeed not easy, and not because of certain political problems. It is really complicated. I will remind you of what has been happening over the past years. There was a crisis in 2008, and it took us a long time to recover. And the consequences are still felt in the global economy and international finance. It is not completely over because there are always problems. Only recently, Europe was in recession. In the US the economy stabilised pretty slowly, although now there is some growth. We, too, have our own issues, our “birthmarks.” These include structural problems with the Russian economy, which still remain. Our dependence on raw materials, productivity issues (unfortunately, our productivity is not the best in the world), business climate issues, the quality of institutions, including governance – all these problems persist and need to be dealt with. Therefore, I believe that we generally maintain our positions, but unfortunately, there is not enough progress. The vast majority of the problems are our own problems that exist within the Russian economy. The Government must tackle them rather than just keep saying how hard it is and that the global economy is in a poor state, although it is all true, of course. Plus, there are some sanctions. But the Government must work on its goals and basically build a new Russian economy.
It was for a reason that we have launched industrial modernisation and high-tech programmes – we wanted to get rid of the current dependence on oil and gas exports. That said, we remain one of the world’s biggest energy suppliers.
Sergei Brilev: Today, you held a meeting with a number of Government members on several cuts in the federal budget. Some state programmes are now questionable. Won’t this impede the programme of industrial modernisation in the non-energy sector?
Dmitry Medvedev: Well, of course, it is better not to cut anything. This is not the best time for us and it is really a pity to reduce some allocations, but we have to do this. However, we don’t reduce anything in the social sphere and this is the presidential, and naturally, the Government’s instructions. We’ll pay all salaries, pensions and allowances in full, adjusted for inflation and on time. But we have to cut down certain programmes because we haven’t achieved the growth we expected.
Sergei Brilev: Maybe this will encourage the government machine and business to step up their operation.
Dmitry Medvedev: No doubt, this is an impetus just as all kinds of restrictions – both internal and external. Thus, Europe and America have closed their lending markets to us, regrettably, but for us this is an additional incentive to develop our own banking system. We’re being threatened with a ban on a number of sensitive technologies. This should motivate us to engage in import substitution.
Sergei Brilev: In that case, let’s talk a little more about sanctions. In principle, rank-and-file Russians have not been affected by the sanctions imposed on the rich and famous. It’s clear that some industry specific sanctions are possible, and if they concern oil and gas, everyone will be harmed. But there are also hidden sanctions. Refusal to attend the St Petersburg International Economic Forum is not a sanction, but it is a clear hint. What do you think about these sanctions? Are they dangerous or not?
Dmitry Medvedev: This is a bad story. I don’t think anyone needs it, but primarily not those who adopt the sanctions and those against whom they are directed.
In my opinion, this is a loud echo of the cold war or, properly speaking, a rudiment of the old confrontation mentality. But from a practical point of view, these sanctions will not do anyone any good.
So far, the effect of the sanctions on the Russian economy has been minimal, if there has been any effect at all. They keep threatening us to introduce sanctions against industries, for example, mechanical engineering and energy. We all know what this means: a threat to some of Russia’s export capabilities.
I’d like to remind you that our trade with the EU amounts to about $400 billion. EU countries and companies have invested a great deal in the Russian economy on behalf of the states and businesses of the European Union, so these relationships are being hit hardest. Who is this helping? I believe no one, because these sanctions are clearly damaging business interests, primarily European businesses. I have heard some of my high-ranking friends and colleagues say that the sanctions are not a big deal, and even though our businesses may suffer, it will give us an opportunity to show our solidarity. Frankly, this sounds a lot like the solidarity showed in the old socialist bloc. Our economic relations would take a hit, and we would be forced to either pay up or refuse to cooperate. A number of Western countries are talking about solidarity. And if this solidarity comes at the expense of their own businesses, so be it. Clearly, we won’t benefit from it either.
In any case, since this is an interview with a major Russian media company and a leading channel, I’d like to point out that the interests of Russian citizens, our taxpayers (I’m referring to social benefits and other commitments) will not be affected in any way. We will honour all our obligations, even if we have to impose certain restrictions. Clearly, this is no picnic for the economy.
Sergei Brilev: Mr Medvedev, to continue on the theme of sanctions. I want to say something that may raise a few eyebrows, but I think some of these sanctions are good or useful because they forced us to do what we should have done 10 years ago. We are rightly proud of the rouble being a currency much more convertible than the Chinese yuan. But it is unclear to me why we have been trading oil and gas for dollars and Euros all of these years without trying to involve the rouble.
Dmitry Medvedev: Of course, we tried. There was probably not much progress. We tried but you are right – trading for roubles is our absolute priority, which, by the way, should eventually turn the rouble from a convertible into a reserve currency.
Sergei Brilev: To the top rank.
Dmitry Medvedev: Yes, to the top rank, and make it a currency in which it is beneficial to deposit national currencies and make savings. The more we sell of our products, of course, including oil, gas, and machinery, defence products, for roubles, the more we will support the quality of our currency. Why did we always promote the idea of Russia and, for example, Moscow as a financial centre? This objective has not been taken off the agenda yet, by the way, although it has proved quite difficult. But you are right saying that for us it is a certain motivation.
The same concerns, for example, import substitution. It is one thing when all markets are open. The lazy ones decide to spend this very reserve currency, dollars and Euros, while the ones that are not lazy work on developing their own economy. We have been lazy for quite a long time. Is there money? There is money. Do we receive currency earnings? We do. It is easier to buy than to develop an industry. I’m talking about the vision of the businesses and perhaps the Government that does not stimulate sufficiently these processes.
Soon we might end up having to do this by ourselves. This doesn’t mean that the Iron Curtain will be redrawn or that we’ll develop an isolated, domestic-oriented economy that won’t depend on anyone else. Such economies do not exist anymore; even the most isolated economies still depend on the global circumstances. But we must have a self-sufficient economy -- no doubt about that.
Sergei Brilev: I’ve just been looking at the equipment in this hall. I can hardly imagine a microphone of Russian make in the assembly hall of the German Government and vice versa. This is the impetus.
Dmitry Medvedev: There are sophisticated types of equipment where we’re regrettably lagging behind, but we can make such products. Moreover, there are bright examples of this. When I got involved with some social projects, we were buying all of our medical equipment abroad. Now this market already occupies a considerable segment. I’ve recently held a meeting of the council presidium on national projects, and it appears that we are already buying a third, if not half of certain types of medical equipment at home.
Sergei Brilev: So this is not a utopia? Did this started long before various sanctions?
Dmitry Medvedev: It’s not a utopia at all. I’m referring to high quality equipment and high technology, for instance, monitoring and measuring instruments that are used for conducting very sophisticated diagnostics. We are making them ourselves.
Sergei Brilev: To conclude the issue of sanctions, they were useful because the idea of a national payment system has suddenly started to be translated into life. That said, the Visa and MasterCard story is still sad. If these card payment systems want to continue to operate in Russia, how much will it cost them? Two days worth of transactions as a security deposit? They claim that this is more than their annual revenue. As far as I know, the State Duma is discussing the possibility of lowering this deposit. As the leader of United Russia, what would you recommend your fellow party members in the State Duma?
Dmitry Medvedev: Sorry, but I can’t stop thinking about this conflict. I’d like to say a few things. First, it is clear that our respected partners from the international card payment systems, which operate throughout the world and are quite convenient – 90% of payment cards in the world are Visa and MasterCard, and Russians use them too – have made a mistake. They placed themselves on the front lines of all kinds of political disputes. They should focus on their business instead. They will probably tell us that they couldn’t ignore the decision of the US administration, and this might be true. But I know that any decisions or sanctions are usually discussed beforehand. Some parties speak up in defence of their interests, which is easy to understand, and in this case no sanctions are imposed. But there are others who don’t protect their business.
Sergei Brilev: Like Austria’s Magna, which has simply refused to adhere to the sanctions, and that’s that.
Dmitry Medvedev: There are many other examples. This situation is even more unfortunate, since it is not about a foreign company working with a Russian company. The interests of a huge number of people who are linked to international payment systems via their banks are at stake. With this in mind, we asked ourselves whether these systems are reliable. I believe that other countries should also give this some thought. China has its own experience in this respect, although it is now starting to work with these systems. But other countries should think about the interests of card users in case a foreign government somewhere gets an itch to do something. This is one side of the story.
The other side of the story is that the Russian payment system has to be well prepared. Remember that I was the one who spearheaded the law, which has been amended recently, to develop a Russian payment system. This does not mean that the new system development will phase out foreign payment methods, God forbid. All we want is to have guarantees.
There is yet another side to this story, which is the standing of the most popular international payment cards. Make no mistake, no one is talking about banning them. On the contrary, we believe that they should stay in Russia. But the companies should learn from this experience. These payment systems are convenient and people are used to them. We just have to learn to work together and refrain from such actions. The relevant law has been approved, but I hope that we will be able to build normal, productive relationships as a result of talks or certain adjustments, so that no one has to lose out. That said, I believe that our partners should also learn from this.
Sergei Brilev: On to domestic issues, which just recently were international issues: that is, Crimea. Some people feel that they are being deprived, with so much money going to Crimea. Is it worth this money? The Minister of Crimean Affairs voiced an idea to make Crimea not just a special economic zone, but a special economic zone governed by the English law. It seems to be a very unusual legal construct.
Dmitry Medvedev: No, it's actually a common legal construct, but first let’s focus on the emotions that our people are experiencing.
Of course, everyone wants to have lots of money, everywhere, but please keep in mind that Crimea and Sevastopol are now ordinary Russian regions, on the one hand. On the other hand, they are not so ordinary, because they are extremely underfunded. You and I have been to Crimea previously. The sad part is that the former Ukrainian authorities didn’t invest into it. I was driving a car. There were no lanterns anywhere in inhabited locations. So our duty now is to help our new regions.
We hope that later on vast numbers of people from other areas will come to Crimea for vacation. This is really the gem of the Black Sea. So, you know, I think we shouldn’t stint money on it. Importantly, we haven’t shut down any programmes. I often read that bloggers and even analysts write that they’ve whipped off our money and given it to Crimea. This is absolutely untrue. We simply have reserves that we didn’t plan to spend and the bill is footed by our internal reserves. In other words, not a single rouble that was supposed to be spent on some territory has been withdrawn from it for the sake of Crimea. All decisions made on other territories will be carried out in full.
Of course, we’ll have to invest in Crimea. Since it became independent and joined Russia we’ve transferred about 70 billion roubles (55 billion and 13 billion) to help it breathe like others. This money is spent not only on a variety of investment projects: on development, infrastructure, roads, communications, but also on increasing the wages of public sector workers there to the level of our regions. And our wages are quite high.
As for the English law, in a number of cases in special economic zones some of its rulings are used. But I will remind you that we have another goal set by the President, by the way, in his address, and it is absolutely fair for our legal system. The goal is to become less dependent on offshore jurisdictions and make our jurisdiction much more attractive for our business. This means that we must popularise our law everywhere and encourage our companies to be guided by our law even when dealing with foreign companies. This is the number one goal, including in special economic zones. Of course, we can’t rule out the possibility of applying foreign laws to relations between Russian and foreign companies if some foreign companies make it a major condition for closing a deal with our companies. We can’t do anything about this.
Sergei Brilev: In this respect, the English law is partially incorporated in the law of the Republic of Crimea.
Dmitry Medvedev: It is common practice, but we are not going to incorporate anything yet. For now, it is just an idea how to attract foreign investors.
Sergei Brilev: Mr Medvedev, are you concerned that it will be a clumsy three-tier structure: the federal Government, the regional authorities and the ministries for Crimea, the North Caucasus and the Far East? There have been cases in the Far East when the federal government was not willing to share its powers with the Ministry for the Development of the Russian Far East, which provoked personnel problems and bureaucratic envy. Would this make the system of regional “sub-ministries” unwieldy?
Dmitry Medvedev: You know, the government is not Mendeleev’s Periodic Table of Elements, where all elements sit in their proper squares and where development proceeds in strict compliance with the law which Dmitri Mendeleev allegedly saw in a dream, which is not a fact. The government is a living organism, and its structure should be flexible, if not mobile. Why have we created these ministries? We sensed – by the way, we discussed this possibility with the President when we were forming the Government – that we lacked a regional component and that the Ministry of Regional Development was unable to tackle all of the tasks set to it. We needed ministries that would focus on the issues of a given region. Otherwise, we could limit ourselves to a very simple structure that would only consist of the Ministry of Finance and the Ministry of Economic Development. But this is not an optimal system, and hence we need people who would take care of, say, Crimea or the Far East, and now the Caucasus, around the clock seven days a week. These should be people who know much more about their region than anyone else. And closer to the site. Their main offices must be located there. But their powers will have to be divided between other agencies, which is indeed not always easy. It took some time. We have just found a more or less suitable model. Therefore, I think that it is for our benefit. We’ll see, of course, how the involved ministries will handle it. I assume that they must be efficient but compact. They must not be inflated ministries employing thousands of people but only having a staff of 150-200 people.
Sergei Brilev: Mr Medvedev, just recently, you gave an interview to my colleague from Bloomberg TV, and the correspondent asked (I quote) a seemingly simple question: Can you guarantee that the Lugansk Region, the Donetsk Region, won't become part of Russia, and will remain part of the territorial integrity of Ukraine? And you replied (I quote): First, we don’t have to guarantee anything to anyone, because we never took on any commitments concerning this. You are probably aware that in the next 24 hours, the foreign media increasingly commented on this response and even accused you of ignoring, despite being a lawyer, the Budapest Memorandum, under which Russia, the US and the UK – in response to the withdrawal of the Soviet weapons from Ukraine – guaranteed Ukraine’s territorial integrity and sovereignty.
Dmitry Medvedev: I see. This is a profound legal issue. Of course, I’m aware of the Budapest Memorandum. I’ve read it. To give you some background on this issue, it should be noted that the memorandum resulted from a single event – Ukraine giving up its nuclear weapons (1994). The memorandum was signed by the leading nuclear powers and Ukraine. What was it about? Ukraine agrees to give up its nuclear arsenal, but if some third power threatens Ukraine, the guarantor states, the United States and Russia, are supposed to step in for Ukraine. Neither Russia nor any other state can guarantee the territorial integrity of another country through any documents. Only the country in question, its people and government can guarantee territorial integrity. And what if a country decides to split into two states? Should the guarantors be told: “Listen, they’ve decided to divide the country, so go ahead and use force. They’ve taken all these decisions, and you have to honour the documents you signed...”
I would like to reiterate that the guarantees provided by the Russian Federation were about threats to Ukraine’s sovereignty. What happened in Crimea is a whole other story, since it was the people who identified as an autonomous part of the country, who initiated a referendum and voted to leave Ukraine.
Listen, this is an entirely different story. There are many such cases in the world when states are divided but some commitments are assumed and documents signed nonetheless. So these reproaches are groundless. The Russian Federation honours its obligations but not a single state in the world, and this is my last point, can guarantee the territorial integrity of another state – this is a legal absurdity. Let those who are making such remarks read the Budapest Memorandum more attentively.
Sergei Brilev: I’m addressing you both as the Prime Minister and as the former Chairman of the Gazprom Board of Directors. It transpires that talks with the Chinese started under your control a decade ago. Now they are over and the sides have signed a mega contract for 30 years. Obviously, the signing of this contract was closely watched in Europe, which was trying to guess how it would change the gas balance. Where are we heading with Europe in the current circumstances when nothing is certain with Ukraine?
Dmitry Medvedev: With Europe, we are heading towards our happy future. Everything is fine with Europe.
We have really made progress in our gas relations with Europe. We sometimes argue over some issues. In the past, we changed our name when the Soviet Union collapsed and we became the Russian Federation. But our gas ties with Europe are unbreakable. We highly value these relationships, it is a large and a truly important market. But it does not mean that we will remain in the same place for the rest of our lives. Russia is developing and growing. We still have enough gas, thank God, therefore we can look for other markets, and there is nothing wrong with that. The European Union is always talking about diversifying gas imports even though only a third of supplies comes from Russia. However, they want to diversify and they are free to do so. We, on our part, want to diversify our exports. This is what the talks were about. In other words, the Asian-Pacific market is currently the largest or the most rapidly growing. Perhaps it will become the largest for Russia. And we have the resources for this. Therefore I believe that it is a great success that we have finally agreed on this with our Chinese colleagues and signed an agreement. We are thus working for more stability not only in the light of our relationships with the EU but simply in terms of our position on the global energy market. We are looking in both directions and are standing firmly on both feet.
Sergei Brilev: This is your favourite image: the two-headed eagle that looks in both directions. Should Europe think twice, considering Russia’s breakthrough in gas relations with China?
Dmitry Medvedev: At the least, Europeans should understand that long-term relations are a valuable thing. We value them, and I hope that our European friends value them too. They're always tossing around different ideas: one country is willing to provide gas, then another makes the same offer, and some have even suggested bringing liquefied natural gas from across the ocean. But the economy is a very pragmatic thing: you should sit down to calculate how much a thousand cubic metres of different kinds of gas would cost, and see whether the European economy is able to support this cost. This is all you have to do. It is an absolutely practical issue.
Sergei Brilev: So, will American gas cost 40% more than Russian gas?
Dmitry Medvedev: Yes, it is 40% or even 50% more expensive. Moreover, you need to establish proper supply lines. I can understand the Americans: there is nothing shameful about looking for new markets. But why should Europeans harm themselves?
Sergei Brilev: How much does Ukraine have to pay to get out of the current deadlock?
Dmitry Medvedev: Sergei, they must pay everything, because agreements must be kept. I like this phrase and will quote it in Latin: Pacta sunt servanda, which means “agreements must be kept.” The debt payment schedule can be discussed, but they need to start paying. Today, I read again... One of their senior executives said: “Yes, we will pay, but first they must change the price.” What is this, blackmail? Show us that you are prepared to pay, all the more so since you have the money, pay some of your debt, and then we’ll talk about our future cooperation. That’s the way to go. But they say, “No, first reinstate the discounted price, and then we might pay our debt.” That’s no good, that's just plain rude.
Sergei Brilev: Do you think dealing with Ukraine will be less complicated after the elections?
Dmitry Medvedev: I don’t think so, because every country pursues its own policy. A country in such a difficult position as Ukraine cannot conduct a straightforward policy. Its policy is fairly tortuous and depends on the alignment of political forces in the country and the disastrous state of the Ukrainian economy…
Sergei Brilev: …which is unlikely to change following the elections.
Dmitry Medvedev: There will be no change whatsoever.
Sergei Brilev: So we need to practice patience with Ukraine?
Dmitry Medvedev: Of course, that’s all we can do. The Ukrainian people are close to us, and they find themselves in a difficult situation right now. They’ve just had bad luck with leaders recently. They need political stabilisation after which Ukraine will return to the path of normal, modern development.
Sergei Brilev: Thank you, Mr Medvedev.
Dmitry Medvedev: Thank you, Sergei.