“We have adopted other decisions that should encourage people to abide by the law, because corruption is not only a set of violations and crimes but also a mindset – can or can’t I do something unlawful?”
Question (via interpreter): Thank you for accepting the invitation to speak with us. We know that the market situation is changing, but something needs to be done to accelerate growth. What kind of measures are being taken at the government level to revive the flagging economy?
Dmitry Medvedev: Strictly speaking, we are already taking such measures. They are designed to stimulate economic growth to the extent to which we are able to influence economic growth at all. Of course, the problems in the world economy and in European economies are clear. Russia is an export economy, so this inevitably affects our economic development. Our GDP growth target for this year was initially 3%, or perhaps a bit higher. But actual growth is unlikely to exceed 2%. This may seem quite good given that a number of European economies are in recession, but to us it’s not enough because our economic base is not as strong as other countries. And to be able to develop, we need to grow at a faster pace.
What are we planning to do? We have a set of measures, for there is no silver bullet to speed up growth – not that we know of, at least. Our Chinese partners seem to know, but we don’t. There’s a set of measures we have to take. What kind of measures? To begin with, we are now trying to exert more influence on business lending. A number of decisions have been made to help Russian companies get loans on better terms, and the implementation of those decisions will begin before long, hopefully.
In recent years, we have seen inflation decline steadily, but unfortunately, there has not been a proportional decrease in interest rates, for objective and subjective reasons. The important thing now is to make sure that Russian companies can access decent loans at decent interest rates. This is our primary task. Another high priority is changing the structure of the Russian economy as a whole. This is what the Open Innovations forum, where we are meeting, is all about – putting Russian industry on an innovative footing. This is an ambitious and complex challenge. Earlier today, I focused on what we lacked. It seems like everything’s fine on the face of it. We have an educated workforce, the business community understands that there can be no progress unless serious investments are made to encourage innovation, and there is even a system of incentives in place; but these things don’t work if used one at a time. This is why it is very important that the need to pay for innovative ideas and make use of them in practice should be realised not only by small businesses – it is not necessary to convince small businesses of that – but also by Big Business which is used to working the way it is usually done and benefitting from sheer amounts of output. Many already do understand this, though.
Earlier this year, I took part in the launch of a number of new, quite significant innovative projects, financed by both private and publicly owned businesses. This is an equally important area of focus – one that could help us accelerate economic growth somewhat.
The Government has on the whole approved a package of measures expected to improve indicators and encourage economic growth. But let me return to a point I made at the beginning: there’s no silver bullet or a single and unique method to revive economic growth. Otherwise we would have used it a long time ago, as would our partners in Europe and elsewhere in the world.
Before you ask, let me say that I don’t think there is a dilemma between stable development and fiscal consolidation, which was widely discussed at the G20 and, before that, at the G8. I don’t think there is any such dilemma. Long-term economic development is impossible without fiscal consolidation and macro-economic stability. Perhaps we could make some progress without it, but it would be short-lived. Real, steady development is only possible with fiscal consolidation, accurate accounting of what the government can afford to spend on different areas of importance, and a stable financial environment, with inflation and unemployment under control, along with foreign and domestic debt.
Question: What kind of consolidation do you have in mind?
Dmitry Medvedev: One we routinely discuss at most summit meetings: the need to live within one’s means, to prevent the budget deficit from growing too much and to control it within generally accepted parameters. I’d like to remind you that all the G20 countries pledged to stay within the agreed upon budget deficit parameters. I can assure you that Russia honours its commitments. Our budget deficit is actually hovering around zero. The situation was more complicated during the crisis, but since then we have balanced our budget and have been working to keep it deficit-free, which cannot be said about many European or other countries. I believe this is a matter of responsible economic policies: to ensure a normal balance of revenue and expenditures and an inflow of investment, at least for a predictable period, in order to guarantee macroeconomic stability, while doing what we have been discussing for a long time, that is, targeting inflation and setting the inflation rate as a key indicator of the country’s development.
You mentioned privatisation, which is an important subject in this country, considering its past history. We carried out a large-scale privatisation programme in the 1990s. Some industries are wholly privately owned; I mean the light industry, trade, a considerable part of the industry that produces machinery and mechanisms, the automotive industry, and several other sectors. However, the government has retained ownership in a lot of property, and the main goal of our new privatisation programme is to attract effective owners.
Another goal is related to the current economic situation: privatisation should bring in revenue. So we’re trying to sell high for the benefit of the federal budget. But this doesn’t mean that we should sit on our hands, waiting five or ten years for the best price. No, we must choose the most opportune moment. This is why we continue to implement this policy. Last year, we sold large stakes in Sberbank, and this year we sold some government-owned shares of VTB Bank and have launched the sale of a stake in Russia’s largest diamond producing company, Alrosa. There have been smaller transactions, but the overall indicator is that the process is underway. But we’ll only act in accordance with market conditions.
Question: I know that you have been fighting corruption. Have you made any progress in this war? What is the current status of this issue?
Dmitry Medvedev: It would be best if the situation in this area were assessed by those who are watching our development, including the public and foreign investors. But I will say that I think: Yes, we have made progress on this path. Why do I say this? First, over the past five years we’ve created a modern legal framework and legal basis for fighting corruption. We didn’t have that before; there was much talk, but no legal infrastructure. And we keep improving our legislation, including criminal laws and laws for civil servants. And lastly, we have introduced a new system of reporting – income declarations for civil servants, which is basic in other modern countries, but we didn’t have them.
We have introduced partial monitoring of civil servants’ large transactions and expenditures. This provision may not be applied everywhere, but we really need to do this, given the scale of corruption. We have adopted other decisions that should encourage people to abide by the law, because corruption is not only a set of violations and crimes but also a mindset – can or can’t I [do something unlawful]? Why is it believed that the level of corruption in Russia and many other countries is so high? Because many people say to themselves: Yes I can do it because I won’t get caught and because everyone else does it anyway.
The majority of people in countries with low levels of corruption (every country has some corruption, but the level is low in some) answer this question as follows: No, I can’t, and not only because it’s scary but also because it’s indecent, and it can get me in a fix. The task of stimulating compliance with the law is no less important than calling corrupt officials to account, even though thousands of officials have been tried as criminals or fired for this reason. This is an important element in the fight against corruption. So I believe that we have made progress in this area, though it would be premature to speak about any major achievements. This opinion is also based on other people’s views, including the business community. Some forms of corruption that were widespread in 1990s and even the early 2000s have disappeared: officials no longer extort money for some things which they are obliged to do, or demand part of someone’s business for their assistance. However, new forms of corruption have appeared which we must fight. This is why I believe that we have made progress with this.
And this has been acknowledged in consolidated indexes such as the ease of doing business index, where we have risen considerably this year, which makes me happy. Of course, Russia is not even in the top 20 in that ranking, but it has risen by more than 20 positions, which means, at the very least, that we are moving in the right direction.
Question: Mr Prime Minister, I’d like to ask you a question about Ukraine, if I may?
Dmitry Medvedev: Yes, of course.
Question: Have they paid the bills?
Dmitry Medvedev: No, they haven’t.
Question: What will come next?
Dmitry Medvedev: If they don’t pay up, we’ll demand advance payment under the existing contract, which reads that if the customer does not provide payment by a certain deadline we can request a prepayment for subsequent deliveries. Gazprom CEO Mr Miller explained this to me, and I believe that this is an acceptable practice and it is in keeping with the contract we have signed with Ukraine. If they pay up, we won’t do that. But you can’t put off the deadline ad infinitum, no matter what our colleagues in Ukraine might say. We know about their economic problems, but they still have to pay, especially because we have granted them loans and financed gas transit, that is, made an advance payment worth billions of dollars for gas transit. They could use these funds to pay for the gas they have consumed.
Question: Will you reduce gas shipments to Ukraine and hence to Europe?
Dmitry Medvedev: No, I don’t believe the situation is that alarming. All our agreements are valid, including the two contracts which we signed with Ukraine after the gas conflict a few years ago. I don’t expect any problems in this regard. I hope that our partners in Ukraine are aware of this, too. We are acting within the legal framework, but you should pay for what you buy. This is a normal practice in all countries. They must pay up.
Question: Yes, quite so. What about the general situation regarding Ukraine’s relationship with the EU? How do you see it?
Dmitry Medvedev: See, even you are asking these questions in connection with other developments. But there is no connection, because you must pay irrespective of your country being a member of any alliance, be it the Customs Union or the European Union or NATO. You must pay, notwithstanding. This is normal practice, and it is not connected with our Ukrainian friends’ intentions regarding the EU. If they have chosen this path, let them go by it, as we’ve said more than once. It is Ukraine’s sovereign choice, but they should not regret it if it turns out that they don’t receive the expected dividends and advantages and lose the advantages they currently enjoy, because, frankly speaking, we have a special, exclusive relationship with them.
This relationship includes a number of privileges and incentives approved for Ukrainian exports to Russia. But if they join some other customs union and create a free trade area with the European Union, they will have to work with different rules. We are bound to take this into consideration. We’re not against Ukraine joining any other organisation: they are free to do so, but if that union or association has different rules we will have to take this into account. We are not forcing it to join the union of Russia, Kazakhstan and Belarus. We have no hidden interests, but they will have to choose which would be more beneficial for them.
Until recently, they said that they were neither here nor there. This is also a stance. But now they have taken a decision (at least this is what their leaders have told me) and intend to sign the corresponding agreement. This is a stance, too, and we respect it, but they should know that in this case their relations with us will also change. For example, they have asked us for loans many times. If they have such advanced relations with the EU, which is all right, because we also have good relations with the EU, they should borrow from Brussels. I believe that this would be appropriate, and we are not jealous at all. You see, we have very good relations with the EU, and our bilateral trade is much bigger than between Ukraine and the EU – it is worth $400 billion dollars annually. Only the United States and China probably have bigger trade. So Russia is also an exclusive partner. But the volume of trade and investment is one thing, and a decision to comply with the legal framework of a certain integration association is something else again. No offense meant, but we need to analyse the situation and count our money.
Question: I have a short question on foreign policy. Could you shed some light on the latest developments in Syria? And could you also comment on the upcoming talks and how opposition groups would be involved in this process?
Dmitry Medvedev: I am somewhat surprised to be able to say that the current situation in Syria is not some kind of a worst-case scenario. Not long ago, almost everyone thought a military strike was inevitable, and that, to be honest, a full-blown civil war would flare up. Everyone also realised that outside forces would end up getting involved in the conflict. We believed this was improper and dangerous not only for Syria and a very delicate Syrian society, which is quite diverse and includes different religious denominations and other groups, but also for the world at large. I am saying this because, to be frank, nothing good has resulted from what had been happening in Libya. The resolution on no-fly zone was followed by a foreign intervention and now the Libyan statehood is virtually nonexistent. Recently, we were forced to evacuate our embassy there. What kind of a state is it that cannot ensure the basic security of diplomats? This is a different story, but the scenario was unacceptable from the beginning.
When I was still President, I said that it was impossible to permit such developments in Syria. Unfortunately, the Syrian government was unable to reach an agreement with the opposition, and the current situation is now quite complicated. But, at least a peaceful directory has been found for this process. I mean the fate of chemical weapons, among other things. Indeed, the negotiations are underway. From what I see they are proceeding smoothly because nobody is trying to slam the door. To my mind, President Assad and the other Syrian leaders understand the danger of this approach, as hopefully do numerous components of the opposition, because it’s not some kind of a civilised opposition in the European sense of the word. We realise that this is an extremely heterogeneous group of people, including the government’s political opponents, extremists and just plain criminals. Therefore it is very important that this process should get on track. In my opinion, Russia’s responsible stance and the initiative of President Putin, along with the response of President Obama, created pretty good chances for this. I think everyone breathed a sigh of relief, including the US establishment, which is also important. Right now, the main thing is not to slop the situation. It is very important to convince the groups with vested interests and the influential institutions in Syria to sit to the negotiating table. Because, with respect to a Syrian settlement in the broad sense of the word, we realise that it is impossible to resolve the issue in Washington D.C., Moscow, Brussels or anywhere else. This is a Syrian domestic process, and everyone, including the Alawites, the Druze minority, Christians, Sunni and Shia Muslims, should reach a consensus. In that case, we will probably see this crisis blow over and mankind will breathe a sigh of relief.
Question: When do you expect the conference to take place? Will it be held in November, December or… ?
Dmitry Medvedev: I wouldn’t like to forestall the events. Hopefully the conference will be convened before the year is out, but we understand, of course, that all the parties involved have only limited influence. Let me say it again: to a large extent, this depends on the Syrian side’s position. We are trying to convince them to do this, and I hope that everyone who is dealing with various Syrian circles one way or another will also do the same.
Question: How can President Assad’s current hold on power influence the conclusion of some agreement?
Dmitry Medvedev: You see, I believe what we occasionally hear in this sense, I mean proposals to remove President Assad from power as a prerequisite to reaching an agreement, these proposals are unrealistic as long as President Assad remains in power. He is not a madman, and he should receive some guarantees, or at least some proposals concerning the development of a political dialogue in Syria itself, possible elections and his personal fate. As you might expect, when he thinks about the fate of President Mubarak or the fate of Col. Muammar Gaddafi, the leader of the Libyan revolution, he is unlikely to feel elated. This is why it’s impossible to simply tell him to get lost and then get together and come to terms on everything. This is a process, a difficult process, and everyone, including the opposition leaders and, of course, the government of Syria, must compromise.
Question: It is being said in Europe that the United States is spying on its European allies. Do you think this situation will become normalised? What can the Europeans do to forgive the Americans?
Dmitry Medvedev: No one likes being spied on, so the European leaders’ grudge is very understandable. I hear they tried to tap my telephones as well when I attended summits as president. You know, when they say this is common practice, everyone understands there is interest in the activities of foreign leaders and foreign countries, and that’s what secret services are for, but I don’t suppose this should be done in such a blatant and cynical manner. The situation you are talking about has simply exposed the problem, so Europe’s leaders took offense. Once again, I perfectly understand their feelings. Can this situation be resolved? I think so. Although, frankly, simple reassurances won’t work here. What can be said in this situation? “We’re sorry, we won’t do it again?” Or, “we won’t try to tap your phones anymore?” No one is going to believe that.
Question: One more question. I would like to ask you something about the Olympics. Everyone is looking forward to the Games. How are the preparations progressing? I’ve heard of a lot of security concerns. What’s being done to strengthen security during the Games?
Dmitry Medvedev: We are certainly taking steps to ensure security. We know that such events always pose a challenge, and it is the host country’s responsibility to ensure full security. So we are making every effort to this end, because you know that there are actual threats to security in Russia. Everyone is sweating, the secret services, and the government: the whole country is working hard to ensure absolute security during the Olympics. I’m sure we’ll be able to do it, but we certainly need to take a series of decisions to see that the Games proceed without a hitch, and be a remarkable and impressive sporting event. The Olympics will be held in a very interesting place. Sochi is located in a subtropical region, but it will host the Winter Games. This is an interesting combination in itself. To be honest, when this idea was only taking shape, it sounded extraordinary even to me because I had never skied in Sochi before. But Sochi’s bid was selected, and I’m confident that these will be landmark Games. We also used this as a reason to build a new sport and tourist environment. We invite you to vacation in Sochi and to support the athletes.
Question: Thank you! Thank you for sparing time for this interview. Thanks again.