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EAST-WEST-RESEARCH  April 2002

EAST-WEST-RESEARCH April 2002

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Subject:

Text of Putin's State of the Nation address 18 April 2002

From:

Andrew Jameson <[log in to unmask]>

Reply-To:

Andrew Jameson <[log in to unmask]>

Date:

Fri, 19 Apr 2002 12:03:14 +0100

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text/plain

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text/plain (912 lines)

Johnson's Russia List
#6195
19 April 2002

#2
BBC Monitoring
Full text of Putin annual State-of-the-Nation address to Russian parliament
Source: Russia TV, Moscow, in Russian 0800 gmt 18 Apr 02

In his annual state-of-the-nation address to the Russian parliament on 18
April, President Vladimir Putin focused largely on domestic topics and the
need to make Russia a world-class country. He emphasized the importance of
modernizing government and administration, the relationship between the
regions and the centre, the need to remove obstacles to small business, to
complete the restructuring of the natural monopolies, and to push ahead with
reforms of the legal system. He also stressed the importance of improving
public services and modernizing the health and housing sectors. Putin
touched only briefly on Chechnya, saying it is time for the republic to be
brought back fully into the national system of administration. Putin devoted
a significant part of his address to Russia's economic place in the world
and outlined his view of the role WTO membership could play. He made
relatively brief remarks on military reform, then devoted the last five
minutes of his address to Russia's commitment to the international struggle
against terrorism, describing the country as "one of the most reliable
guarantors of international stability" and its foreign and strategic policy
following 11 September as "pragmatic", and stressing the importance of the
CIS as a factor of stability. He spoke briefly of Russia's commitment to
continuing dialogue with Europe, the USA and NATO. The address was delivered
in the Kremlin's Marble Hall, at a special joint meeting of the two chambers
of the Federal Assembly. The following is the text of the address as relayed
live by Russia TV. Subheadings have been inserted editorially.

Hello, my friends, respected speakers of the chambers of the federal
assembly, respected deputies of the State Duma, members of the Federation
Council.

We have once more gathered in this hall in order to sum up the results of
the year, and set out the objectives for the coming period.

Our aims remain the same: to develop democracy in Russia; to establish a
civilized market and a law-based state; and most importantly, to raise the
standard of living of our people.

Russian people looking to the future with more confidence

We have made some achievements here, albeit small ones. Last year, economic
growth continued and we succeeded in creating new jobs. Unemployment fell by
700,000. Real incomes rose by almost 6 per cent.

A year ago we set ourselves a modest but extremely important task: to at
last bring the average pension in our country above the subsistence level
for pensioners. Today we can say that we have completed this task. People
look to tomorrow with more certainty. Many are starting to make long-term
plans for their lives, trying to get an education and new professions, and
it is clearly no accident that last year was a record for Russia in terms of
the number of students.

Following an entire era of deficit budgets, when we spent more that we
earned, for the second year in a row, the budget has shown a surplus.

We have made progress on developing a market infrastructure, on
strengthening guarantees for private property, mainly through improvements
to the body of legislation.

I would note the passing of the land and labour codes, the package of
pension and judicial reforms, the debureaucratization of the economy and the
improvement of the taxation system. Sections which are important to people
have appeared in the Civil Code, such as the section on inheritance. And
today, I would like to thank the Federal Assembly and the Russian
government, who have collaborated constructively throughout this intensive
period, and were very often effective partners.

Business climate improving

Against the backdrop of increasing political stability, the business climate
in the country is constantly improving. The horizons of state and corporate
planning have pushed forward. Entrepreneurs are now building their plans
based not on months, but on years. We are servicing our foreign debt on
time, and sometimes even ahead of time. The total capitalization of Russian
companies has more than doubled. Exports of non-raw materials have started
to grow. Over the course of the year, deliveries of cars and equipment
abroad have risen by a quarter. After a 10-year break, we have resumed
second place in the world in terms of volume of oil output, and first place
in terms of energy trade. And we need to manage the country's position in
the world for ourselves.

All of this is gradually changing attitudes to us in the world as well. The
improvement in our economic situation has been noted by international
ratings agencies, who have pushed up Russia's credit rating. Foreign banks
are increasing Russian shares in their investment portfolios. Our country is
gradually turning into a solid and predictable business partner. However, we
also need to admit something else: political stability and the favourable
economic climate have not been used in full for a qualitative improvement in
the lives of the country's citizens and for Russia to win a worthy place in
the world economic system.

Are we satified with what has been achieved? Our answer, of course, is no
and again no. There are no reasons whatsoever for us to be dizzy with
success. Russia's economic problems, which have been piling up in the course
of previous decades, decades of stagnation and crises, have not dissapeared.
Poverty, even though it has receded, just receded, still continues to
torture nearly 40 million of our citizens.

International economic competitiveness now the challenge

In terms of economic growth in recent years we have only managed not to fall
further behind other countries. In this connection I have to say that for a
fairly long time many politicians and citizens of the country were convinced
or were living with the illusions that the end of the period of military and
political confrontation in the world would almost automatically open up a
road to Russia for the world economic system, that it would throw wide open
its economic embrace.

Life has turned out to be far more complicated. Yes, the period of
confrontation has ended. With all the states in the world we are building -
I wish to stress this, with all states of the world - constructive, normal
relations.

However, I wish to draw attention to another thing: norms in the
international community, norms in the modern world, also mean harsh
competition - for markets, for investment, for political and economic
influence. And in the struggle - in this struggle - Russia has to be strong
and competititve.

Countries throughout the world now compete with one another in all areas of
the economy and politics, in terms of the taxation burden, the level of
security of the country and its citizens, in terms of the guarantees for
protection of ownership rights. They compete in terms of the attractiveness
of the business climate, the development of economic freedoms, in terms of
the quality of the institutions of the state and the effectiveness of the
judicial and legal system.

Competition has now assumed a genuinely global character. Owing to our
weaknesses we have had to yield to others our numerous niches in the world
markets, eagerly to be snapped up by others there and then. No one is
willing simply to return them to us and nor will anyone give them back, as
the situation in the oil, steel and air transport markets and those of other
goods and services testifies.

The conclusion is obvious: no one aims to be at loggerheads with anyone else
in the world today. No one wants it and no one needs it.

However, no one is waiting specifically for us and nor will anyone make a
special effort to come to our assistance. It is we ourselves who need to
fight for our own place in the economic sunlight.

Russia needs to aim for higher rate of growth

I have already said that Russia now needs more ambitious goals, a higher
rate of development. Our economic policy, the day-to-day work of our
institutions of state must be geared towards solving relevant tasks.

Moreover, these actions, this policy, should be understandable. They should
be understood and supported by the people. I am convinced that in order to
safeguard a dignified standard of life for our citizens and for Russia to
remain a significant and fully-fledged member of the world community and for
her to be a strong competitor, our economy must grow at a much faster rate,
for otherwise we shall lose all the time, whilst our opportunities in the
politics and economy of the world will shrink.

Is Russia ready for such a competitive struggle? Is she capable of ensuring
the necessary growth rates for this? In its forecast for the next few years
the government has set this rate at between 3.5 and 4.6 percent. What does
this tell us?

In the first place, it represents a de facto admission that the propitious
foreign economic conditions no longer ensure the necessary rate of economic
development and its competitiveness.

And the second thing: the government is not reckoning on higher rates of
growth.

Such a low assessment of Russia's capabilities doesn't help the cause.
Moreover, it doesn't imply active policies, and doesn't envisage measures
designed to make use of the capabilities of the Russian economy. I am
talking first and foremost of the potential we have in enterprise, in the
scientific and technical sphere, and in modern management technologies. I
consider that the main thing now is to create conditions in which the
citizens of Russia can earn money, earn it and, whilst deriving advantage
for themselves, invest it in the economy of their own country. But to
achieve this, it is essential to eliminate those things which still hamper
people's life and work. Above all, we must substantially change the actual
system by which state institutions operate. At the moment, the country's
colossal potential is being blocked by a cumbersome, infelxible and
ineffective state apparatus. For example, of almost 500,000 appeals made
during my television interview [at the end of 2001], almost three-quarters
were citizens' complaints against various forms of arbitrary administrative
behaviour.

Reiterates need for administrative reform

Dear members of the assembly, it has become commonplace to complain about
the Russian bureaucracy, which is large and unwieldy, and the claims against
it are absolutely well-founded. We repeat this very often. In the meantime,
strange though it is, there are no more bureaucratic structures in Russia
than in other countries, and sometimes there are actually fewer. What, then,
is the problem?

The main problem is not the number of these structures, but the fact that
their work is badly organized. The current functions of the state apparatus
have not been adapted to meet strategic objectives. And it is still
extremely rare for officials to know about modern management science.

I have already spoken of the necessity for administrative reform, the result
of which should be that we have a state that is equal to our times and the
goals our country has set itself. And the administrative apparatus should be
efficient, compact and functional. What do we have to do to bring this
about?

Well, first of all, we have to carry out a wholesale modernization of the
system of executive authority. Today the elements of the executive operate
in such a way that they continue to function like headquarters for branches
of the centralized national economy.

The privatization of enterprises has been accomplished to a significant
degree. However, the old habits of the command system have remained.
Ministries continue to direct their efforts to bringing enterprises and
organizations under their control in financial and administrative terms. As
a result of these administrative costs, it is extremely difficult to conduct
business in a civilized manner in this country.

By the way, it is the direct responsibility of the state to create the
conditions for the development of economic freedom, to create the strategic
reference points, to provide the population with good-quality public
services, and to effectively manage state property. In order to accomplish
this, the structures of executive authority should be built in a logical and
rational way. And the state apparatus should become a functional tool for
the implementation of economic policy. Reform of the civil service must be
carried out in close conjunction with the new principles for the work and
construction of the executive authority.

Secondly, we need effective and clear mechanisms for developing the way in
which executive decisions are taken. The system operating today is focused
not so much on content as on form.

Thirdly, we have at last to carry out an analysis of the state functions
being carried out today, and retain only those that are necessary. In last
year's address I set this as an instruction to the government, and I asked
them to begin preparations for administrative reform.

Obviously, carrying out an audit of state functions is not an easy task, and
takes a long time. There can be no cronyism here, cronyism which typically
ends in officials being eased from one part of the system to another.

But we have been talking for two years already about cutting down the
surplus functions of the state machinery. For quite understandable reasons
departments are clinging and will continue to cling to these functions. But
this is certainly no reason to postpone reforms. The chairman of the
government should submit well-grounded proposals on restructuring of the
system of executive authority.

To finish this subject I would like to note that the way the state apparatus
is organized at present, unfortunately, promotes corruption. It is not that
we are not trying to clamp down on it, I would like to stress that, but
corruption is a direct consequence of the restriction of economic freedoms.
Any administrative measure can be surmounted by a bribe. The higher the
barrier, the greater the bribe and the more highly-placed the official
taking it.

We must not wait until the administrative stability we have achieved turns
into administrative stagnation, due among other things to lack of
transparency in the state apparatus. To citizens, this remains a closed
book. We have to define, in a precise list, the information which state
bodies are obliged to make publicly accessible, and this list must be
endorsed by law. This is essential both for the development of civic society
and for the creation of a civilized entrepreneurial environment.

Time to move ahead with judicial reform

Esteemed colleagues: We have made a substantial step in modernization of the
judicial and legal system. The majority of necessary decrees, acts and laws
have been approved. Funding has been earmarked for their implementation. Now
it is necessary to fulfil precisely the decisions taken. I see it as a key
point that the changes affect not only how the courts are organized and how
they operate, but above all the procedures ensuring the protection of an
individual's rights and the availability of justice.

We need courts which are respected both inside and outside this country.
This is not just a political task, it is very much an economic one. I have
already said at the very start of my address that an efficient court system
is essential so that both Russian and foreign companies can have no doubts
about its authority and effectiveness.

In July this year a new criminal procedural code comes into force. The legal
and law-enforcement bodies will have to deal with a lot of organizational
matters to do with this to ensure that the law comes into full operation
from 1st July. I would ask the Federal Assembly to consider necessary
amendments to the criminal procedural code as a matter of urgency and bring
the law into force. This includes the provision giving the courts the power
of arrest.

Also in the pipeline is the civil procedural code of arbitration, the law on
arbitration tribunals, which is highly important both for citizens and for
the country's economy. I believe we also need to optimize the structure of
the courts of arbitration. At present, disputes are resolved and appeals
considered by one and the same court. This problem needs to be considered
carefully. We also need to have a clear distinction between the competence
of the courts of arbitration and general courts. The court system is quite
simply discredited, and many people are aware of this, by the fact that all
over the place one case can be heard in various courts, which then very
often reach diametrically opposed verdicts. This is a dead end.
Entrepreneurs and citizens are overloading the courts, which is not
conducive to developing a healthy business climate.

Legislation on the Prosecutor's Office of the Russian Federation also needs
to be brought into line with new legislation, with new acts of legislation
and legal provisions. Ultimately, it is extremely important for us to make
the criminal law and the penal system more humane.

Petty and less serious crimes now attract the same punishment as serious
crimes. The crime rate does not grow less because of that, but it only
serves to make people more violent.

The existing laws make it possible for the courts to adopt other, more
humane methods of punishment, other than deprivation of freedom. However,
they rarely avail themselves of this opportunity. I consider that the use of
punishment not involving deprivation of freedom - in cases where, naturally,
this is justified, where there are grounds for this - ought to become
widespread judicial practice.

Our main goal, something which we have spoken about many times and everyone
is well aware of, is to make punishment irreversible, rather than for it to
be too severe.

A stable legislative base represents one of the factors ensuring the
competitiveness of the Russian economy. It is true to say that the country's
legal system is in a formative stage. We now have to adopt many laws to
adapt ourselves faster to the changing economic and social conditions.
However, this must not serve as an excuse for the fact that laws that go on
the statute book all too often contradict one another and, once in force,
are not observed and are subject to constant changes, sometimes even before
they come into force.

The government has now elaborated a new package of amendments to the code of
tax laws. Very many proposed changes deserve support. However, I wish to
draw your attention to the fact that even the best intentions of the authors
should not become a reason for legal disregard or underestimation of
decisions being taken, all the more so because our tax laws already contain
examples of rules which were properly worked through and thought through.

Let us, for instance, recall the provision dealing with the 13-per-cent
income tax threshold. By taking this step we have significantly stimulated
business activity, filled the treasury's coffers and simplified the tax
system. Today I would like to say once again that these rules are not
subject to change.

Dealing with crime and extremism

One of the factors that makes life in our country difficult for people and
unwelcoming for foreigners is crime. The law-enforcement agencies have to
direct their efforts to defending people's rights; robustly combating
racketeering, official arbitrariness and corruption; and protecting owners'
rights.

The growth of extremism presents a serious threat to stability and public
safety in our country. We are talking above all here about those who
organize attacks under fascist and nationalist slogans and flags, beating
and killing people.

The police and public prosecutors often don't have sufficiently effective
means for bringing to book the organizers and instigators of these crimes.
In many cases all that happens is that the people who carry out the attacks
are brought to justice.

In fact, gangs of extremists essentially act like organized crime gangs and
should be prosecuted in the same way. A draft law on combating extremism
will be presented to the State Duma soon.

Reform of regional administration

Esteemed State Duma deputies and members of the Federation Council: Last
year we completed the organizational work needed for establishing the
federal districts. The federal authorities and the regions are now closer in
real terms. I think it is time for us to shift some federal functions to the
district level, move them closer to the regions, above all monitoring and
personnel issues, specifically in the areas of financial monitoring and
choosing candidates for posts in the regional divisions of federal bodies,
the number of which we must also think about.

Our key task remains to delineate areas of authority between the federal,
regional and local levels of authority. A year ago, from this platform, I
spoke of the need to put this matter in order. To date, proposals from the
bodies of power in the constituent parts of the federation and at local
government level have been collated and disseminated. A commission has been
set up for this purpose, and it is carrying out scrupulous analysis. It is
clear that the commission's task is not a simple one. But we expect results
from its work. They are needed in order to raise the effectiveness of state
policy, in order to stabilize interbudgetary relations, and in order to
bring greater clarity to the organization of Russian authority as a whole.

I would like to say a few words about the practice of concluding agreements
on the delineation of authority and powers between the centre and the
constituent parts of the Federation. The possibility of concluding these
agreements is provided for in the Russian constitution, and is legitimate.
At a famous moment in our history, they were in demand, and, I believe,
necessary. However, in practice, the very existence of such agreements often
leads to an actual inequality in relations between the constituent parts of
the federation. And in the final analysis, that also means between citizens,
who live in different territories in Russia. And what's more, in most cases,
the delineation of powers has only taken place on paper. Not for nothing
have 28 of the 42 existing agreements with constituent parts of the
federation been annulled. It goes without saying that in a state such as
Russia, regional specifics need to be taken into account, and of course the
need for agreements with individual regions can, of course, arise. But I
think that to conclude such agreements behind the backs of other constituent
parts of the federation, without any preliminary discussion and the securing
of a public consensus, is not right.

I think that all treaties on the delimitation of powers should have to go
through the procedure of being confirmed in federal law by you, colleagues,
so that everyone is aware of what preferences there are and why. The Federal
Assembly must take this decision with its eyes wide open.

Time to bring Chechnya back into the Russian fold

And now to the situation in Chechnya. The military phase of the conflict may
be considered closed. It is over thanks to the courage and heroism of
Russia's army and special units.

Only a year ago we were counting how many people we were up against, how
many bandits and terrorists there were - 2,000 or 3,000, 5,000 or 10,000.
Now we're not bothered about how many there are. What we need to know is
where they are.

There are still many social and economic problems in the republic itself.
Sorties by the bandits who are left continue to disturb the life of
civilians. This should not affect the rights of an entire people, however.
We cannot allow this. Everyone resident in Chechnya or originally from there
must feel they are full citizens of the Russian Federation.

The main task at the current stage is, therefore, to restore Russia's
political and legal space in Chechnya, to create effective legal
institutions and law-enforcement structures of Chechnya's own. And then, in
the long term, there will be free elections, a real system of republican
authority and an ordered economic life for the Chechen people.

Need to bring order to local government

Members of the Assembly: For a long time, the federal authorities paid
scarcely any attention to the problems of local government. In the end, this
has a direct impact on the living standards of the population in Russia's
towns and villages.

One source of the situation that has come about is the poor quality of the
legal basis for local government. The federal law "On local government" and
the corresponding documents in the constituent parts of the Russian
Federation accord only slightly with the real state of local government and
with one another.

One reason is lack of clarity in the division of powers with the regional
authorities, as well as uncertainty over exactly what should be the
responsibility of state bodies and what should come under local government
bodies.

In this connection, we need to specify in law the precise concept and a list
of local-level issues. Some of these will overlap with the work of federal
and regional state authorities. Others will require huge material support
and can only be dealt with successfully by working in conjunction with the
component parts [of the Russian Federation] and on occasion with direct
support from the federation.

Moreover, it is still a great problem for local government that they lack
their own income, but it is the local authorities that the public ask to
implement federal legislation, like that on veterans, to provide housing and
municipal facilities and to do very much else, too. I believe the federal
legislators need to determine a structure for local government, first and
foremost enshrining in law structures which have proved their viability in
practice. It would not be out of place to mention our experience from before
the revolution here. All these issues should be reflected in the new version
of the federal law on the general principles of local government in regional
legislation.

Finally, it is very important that local government should be allowed to
develop its own budget resources, through the development of small
businesses and efficient use of land and property. Here the state
authorities, taking account of the spending powers of local authorities,
could give them long-term statutory exemption from regulation taxes.

I wish to stress yet again that without a functioning local government,
effective organization of government as a whole is, I believe, impossible.
Furthermore, it is precisely here on the local level that there is huge
opportunity for public control over the authorities. We have to impose order
at this level, the lack of which the citizens of the country are talking and
writing about.

Entrepreneurial spirit needs fostering

Esteemed colleagues: I wish to dwell separately on the problems of small
business. I have just mentioned this in the section on local government.
This is important to the country as a whole. As you know, the government has
drafted amendments to the legislation on the taxation of small business. As
you work on them in the State Duma, I ask you to listen most carefully to
the views of entrepreneurial associations themselves, so that we do not
repeat what happened when the single social tax was introduced and the tax
burden on small business unfortunately only went up. This is not the first
occasion when serious revisions of original drafts take place as these
drafts make their way to the Duma, revisions which lead to distortion of the
basic idea.

We often say that a nascent business vitally needs the opportunity to get to
its feet. At the same time, ill-conceived or incomplete projects often floor
our businesses rather than help them to their feet. We must put a stop to
the pointless competition between the people and the authorities, when the
authorities conceive the laws and the people invent ways of getting round
them. People's creative activity must be steered not into so-called
optimization of tax dodges, but into the development of their own ventures,
based on use of those standards which you and I propose to them.

I would also like to add that while amendment of taxes is important, it is
only part of the problem. Business as a whole, and small business in
particular, have a huge number of complaints about unjustified
administrative pressure, above all by supervisory bodies and inspectorates.

The cost of inspections of this kind is very great, and sometimes absolutely
senseless. It is carried out as a formality. At the same time the losses
sustained from accidents, collapses, fires and so on are not decreasing.
You've paid for your safety certificate, go and burn to your heart's
content. But hundreds of thousands of people are working on inspecting
standards in this field . There are thousands of bodies accredited to do
this - that's no exaggeration - thousands of commercial bodies are making a
living out of inspections. The fines they apply, just like bribery, are a
huge burden, which oppresses business.

We need to change the law and sublegal acts to more precisely define and
bring order to the powers of inspection bodies, and where possible to
replace them with more effective measures giving responsibility to
businesses themselves. Of course we have to be very careful in doing this.

I think we need to expand the practice of underwriting insurance liability.
Insurance companies will be financially responsible for areas of insurance,
unlike officials, who risk at worst an official reprimand. I am convinced
that developing the insurance and underwriting system will lead not only to
an unavoidable fall in the number of inspection bodies but also to the
greater effectiveness of the very system of monitoring and inspection in the
country.

This will have a favourable effect on treasury revenue and on business
activity. Also, the government should ensure these kind of checks are kept
to a minimum. This practice already exists in some regions and works pretty
well. The government must institute a kind of moratorium on checks for small
business; for example, for at least the first three years after they are set
up. If necessary, we must change the law. Some solutions to the problem have
already been set down in earlier debureaucratization acts.

In this respect I also want to address myself to regional authorities. Your
support for small business today is absolutely vital. The decisions of the
federal authorities will start working properly only if there are real
actions in the territories of Russia.

Reform of natural monopolies

Respected colleagues: I have another very important topic, one of the most
important tasks. An issue closely related to economic growth is the
continuation of the restructuring of our largest companies, which are often
referred to as the natural monopolies.

Here there is great potential for the development of competition. Last year
after a period of lengthy discussion, programmes were approved for the
restructuring of a number of monopolies.

I would like to draw attention to the fact that the issue of proper - in
quotation marks - relations of the state to these monopolies is already,
unfortunately, being used as a pretext for putting up tariffs. Moreover, the
references made by monopolists to cost increases are far from being always
well-founded. More often than not they are not well-founded.

I would like to remind you that the restructuring of the monopolies sector
should be conducted in the interests of the country. Consumers of products
and services, citizens, municipalities of the state, should not suffer
during the modernization of these giants. The restructuring of the
monopolies is intended to lead to a reduction in costs, to an elimination of
non-production costs, and to the appearance of well-considered investment
programmes.

To this end, it is vital that in this year we move to the approval by the
government of the budgets of the infrastructure monopolies. Up until now we
have not even known what is going on there.

One more important issue: the management of state property. State
enterprises are still present in almost all sectors of the economy. But, for
example, out of almost ten thousand unitary state enterprises, today just a
small number operate effectively.

In 2001 around 400 state unitary enterprises were undergoing bankruptcy
proceedings.

We should also recall that we still don't know precisely the real size of
the state sector. The demilitarization of state property, that has been
spoken of on many occasions, is not yet complete. An inefficient state
sector will give our economy nothing but additional spending and more
problems. This doesn't mean it shouldn't exist. I'm talking about an
inefficient sector.

I think we need to take a clear decision as quickly as possible on the
assets that are to remain state or municipal property. As for bankruptcy,
order has to be imposed as a matter of urgency and particularly - this is
something for you - in legislation. The serial bankruptcy of enterprises has
already become a profitable business. We must come up with a market
mechanism for the bankruptcy and recovery of enterprises that would be
transparent and therefore not susceptible to corruption. I ask the Federal
Assembly not to draw out its consideration of the relevant draft laws.

A most important condition for dynamic economic development is an efficient
banking system, designed to accumulate financial resources and turn them
into investments. In this connection, we have to make up ground where
banking reform lags behind, strengthening banking supervision, ensuring the
transparency of banking operations and adopting measures to raise the banks'
level of capitalization.

Housing sector needs extension of mortgage system

Colleagues: One of the most urgent issues stemming from the lack of
competition and from monopolization of the service sector is the reform of
the housing and amenities sector. And this issue, in one area or another,
affects absolutely everyone.

On the one hand, the population is paying more and more. On the other hand,
quality is not improving, the quality of services is not improving. The
state is spending huge amounts on subsidies for the housing and municipal
sector, and yet, the returns from those have remained low. In some regions,
the Emergencies Ministry was forced to get involved in solving the crisis
relating to municipal problems, and the overwhelming majority of those
present in the hall know this, and not by hearsay or from television. It is
clear that the whole of the housing and municipal sector's system of
operations requires drastic changes. And at the same time costs for
maintaining technologically obsolete and extremely worn-out municipal
systems were built into the first draft plan for the reform of the housing
and municipal sector, costs for all the leaks, losses of supplies and simply
the costs of poor work on the part of municipal and housing enterprises.
However, the main aim of the reform is to improve the quality of services at
the same time as reducing the cost of their delivery. Only this sort of
approach can allay the fears of our citizens that the whole reform of the
municipal and housing sector will boil down to a naked increase in prices.

The main thing which remains to be done is to hand over to the citizens
themselves the right to allocate budget subsidies. Otherwise, the population
is bound to become consumers of services delivered by an inefficient and
costly sector. A monopoly in the municipal and housing sector does not give
citizens the opportunity to choose the necessary selection of housing and
municipal services in the market-place. In this regard, I would like to
remind the government, and regional leaders, that the objective of raising
payment levels must only be set at the same time as the development of
competition, at the same time as an audit of the costs of municipal
enterprises, and at the same time as granting citizens the right to
determine the range and volume of municipal and housing services. Only in
this case will consumers gain an incentive to save light and heating, and
energy providers an incentive to use energy-saving equipment, and to install
equipment to measure the consumption of resources.

Housing and municipal policy is first and foremost about giving citizens
access to housing. But so many of our citizens still endure difficult
housing conditions. At the same time, there have long ago existed in the
world institutions that seriously lighten the burden for citizens to resolve
problems of acquiring finance for housing. This is first and foremost
mortgage credit. Of course, the system depends on the overall development of
the level of the country's economy.

Low incomes among the population and high interest rates on the financial
markets, an undeveloped housing market and the huge prices for construction
- that is nowhere near a complete list of the problems which can and need to
be resolved with the help of the mortgage mechanism.

Some regions are already having their first successes with mortgage lending
on property. Around 40,000 mortgages have been granted, and in some parts of
the Russian Federation regional agencies issuing mortgages on property have
started to operate. I think that the development of the mortgage system
should become a sphere of priority attention for both the federal government
and the regional authorities.

Russia and the WTO

Esteemed colleagues, we need to take account, to take advantage of the new
state of the world economy. It is clear that for Russia there is no longer a
choice of whether or not to integrate into the world economic space. The
world market is already here and our market is part of the world system.

At the same time, there is acute discussion within this country of joining
the World Trade Organization. This is not a subject I could leave out. At
times this debate is so heated that it ends up with the opposing sides shot
down in flames. I don't think it has to end in being shot down in flames,
but it is an issue which requires careful examination.

I would like to point out that the WTO is not an absolute evil, nor an
absolute good. It is not a reward for good behaviour. The WTO is a tool.
Those who know how to use it become stronger. Those who don't know how, or
don't want to use it or learn how to, those who prefer to sit behind the
palisade of protectionist quotas and tariffs, they are doomed. Absolutely
doomed in strategic terms.

Our country is still excluded from the process of formulating the rules of
world trade. We already take part in world trade, but are kept out of making
the rules. This cuts off the Russian economy from world development and
makes us less competitive. Membership of the WTO will be an instrument for
protecting Russia's national interests on world markets and a strong
external stimulus for solving the problems that we have to solve anyway.

I am convinced that development of the Russian economy is only possible if
it is geared to the tough requirements of the world market, to winning its
own new niches in it. In this context, a properly considered architecture of
our participation in the WTO must consist of several elements.

First, talks within the WTO framework will not suffice on their own. We must
strengthen state structures which are supposed to help domestic producers
adapt to new conditions of work. We must audit the existing measures for
state support of entrepreneurship, expose programmes which are controversial
from the point of view of anti-dumping investigations and quickly bring them
into conformity with WTO requirements.

We must also - and this is fundamentally important - we must train personnel
with the relevant qualifications. In every country which belongs to the WTO
there are thousands of people working to make sure trade cooperation works
and to resolve trade disputes. But in the Russian state establishment there
are no more than several dozen civil servants working on this problem. Where
we need specialists, we don't have enough of them. And where we don't need
them, we have them in abundance. We need a permanent negotiating platform
for bringing the interests of Russian business, both supporters and
opponents of our membership of the WTO, to the notice of state power bodies.

We need to carry out a serious analysis of federal and regional economic
regimes. Because, you see, the legislation of the regions includes
regulations that make Russia extremely vulnerable to the ambitions of our
competitors.

The parliament has to take on a great deal of work in the programme to bring
our legislation, our legislative base, into line with the norms of the WTO.
Very important here are revision of the customs code, and legislation in the
sphere of technical regulations, of protective, anti-dumping and
compensation measures, and of intellectual property rights.

We cannot sit with our arms folded, we have to get a move on. And of course,
the authorities must continue consultations both with industrialists and,
without fail, with the trades unions. Everyone must take part in this
process, and everyone's opinions must be take into account.

Russia's technological expertise needs putting to proper use

Esteemed colleagues: Our economy is also as yet unreceptive to the
achievements of scientific and technological progress. A considerable
proportion of enterprises invest resources neither in the creation of new
technologies nor in the modernization of old ones. At the same time, there
is much demand abroad for Russian scientists, their scientific achievements
and high technologies. So these people are fully able to compete. And this
is confirmed by the fact that many foreign venture funds are at work in our
country. Whole scientific fields and schools are supported by grants from
global research centres and international concerns. But we ourselves are not
making proper use of the rich scientific and technological potential that
Russia possesses. There are very few fitting and long-term projects for it
in the economy. In this regard, the government should get to grips with
forms of state support for new technologies, and seek out approaches in line
with our resources, today's geography of the markets and types of economic
relationship. Of course, it would not make sense to restore the model of
scientific and technological progress of past years, one which is at the
same time a pompous and archaic model. We need decisions that are tied to
specific projects, and not to individual sectors.

We need to help Russian developers join the world venture market, the
capital market, which ensures efficiency in the sales of scientific products
and services. This work should be launched in those sectors of the world
market that our domestic producers can realistically occupy.

Finally, conditions should be created for the healthy commercialization of
applied science, and one of the ways is to set up joint ventures, both in
Russia and abroad.

Time to move to insurance-based health care

I would like to talk in particular about health-care, because this directly
affects us all, true, as a rule only when we encounter problems with our
health.

You are all very well aware of the figures concerning the health of the
Russian public. These are not reassuring. It has been said again and again
that the health-care system needs to be modernized. In last year's address,
I set the task of creating a legislative basis to complete the move over to
insurance-based payment for medical services, medical treatment. We have a
habit of putting off the most urgent matters. Unfortunately. And this task
has not been met.

Military reform

One of the undoubted priorities is the continuation of the military reform
and a move to a professional army, in conjunction with reducing the term of
call-up service. Society needs this reform, but above all the army itself
needs it.

The new system of manning and the reduction of the term of service for
conscripts cannot be achieved in just one year, and this is why this year
the Defence Ministry begins an experiment at selected military units, which
should in effect help perfect the entire mechanism of moving the manning of
the army and the navy on to the voluntary basis.

The results of the experiments will make it clear how soon we can move to a
shorter conscription term. I must stress that the term will be cut
significantly. We must not delay this reform, but rushing in this matter is
not permissible either. We will conduct the work in stages, taking into
account the country's financial abilities and our national security
interests.

In establishing a new type of army that is mobile and compact, we must
create dignified social conditions for servicemen and their families. The
state must not forget about those who have given years of their lives in
service of their country and are retiring from the armed forces. We have to
help them find their own place in the country's economic life.

Importance of October 2002 census

I would also remind you that the first state census in the 11 years of the
Russian Federation's existence will take place this October. The most
general results of this massive undertaking will be known at the end of the
year. They will give us well-grounded statistical evidence to clarify the
number and ethnic composition of the workforce, the number of forced
migrants, migrants, and so on.

Our country has great need of a universal and high-quality census. The state
cannot make well-founded administrative decisions without a real
understanding of the situation and information on the population's
composition. We cannot carry out the census effectively without effective
cooperation and coordination between the federal and regional authorities,
local-government bodies and the offices of the presidential representatives
on the spot.

I think that organizing and conducting a census is one of the priority tasks
and I ask the authorities at all levels to take an active part in preparing
for it and the citizens of our country to treat the census with an awareness
of its significance for the state.

Commitment to antiterrorist coalition and pragmatic foreign policy

Esteemed Assembly, today Russia is one of the most reliable guarantors of
international stability. Permit me to move on to this part of the message.
It was Russia's principled position which made it possible to form a durable
antiterrorist coalition. In the context of alliance relations, we, together
with the leadership of a number of CIS countries, took corresponding
decisions. For our state, which has long been confronted with terrorism,
there was no difficulty in deciding whether to support efforts to destroy
its lair or not - especially as these measures did indeed help to strengthen
security on the southern borders of our country and, to a considerable
extent, helped to improve the situation, as far as this was concerned, in
many countries of the CIS.

By joint efforts we managed to resolve a most important strategic task, to
eliminate the most dangerous centre of international terrorism in
Afghanistan, to put a stop to its negative impact on the situation in other
regions of the world, and to eliminate the threat posed to you and me from
there.

After 11 September last year, many, very many people in the world realized
that the Cold War had ended, realized that there are now different threats,
a different war, a war with international terrorism. The danger it poses is
obvious. It does not require fresh proof. I wish to point out that this also
applies in full to Russia. I stress that Russian foreign policy will
continue to be based on purely pragmatic criteria, stemming from our
opportunities and national interests - military-strategic, economic,
political interests - and also taking account of the interests of our
partners, above all in the CIS.

Cooperation with CIS is major priority

The Commonwealth of Independent States is a genuine factor in stability
across an extensive part of the world's territory, an influential group of
states with a wide range of objectives and interests. Work with the
countries of the CIS is Russia's main foreign policy priority. This priority
is linked, among other things, to the securing of competitive advantages on
world markets. The CIS countries have many opportunities to carry out
large-scale, joint, infrastructural, transport and energy projects. I am
sure that their implementation will increase the solidity of our
integration, and will provide new opportunities for the Russian economy, and
for others besides.

Many of the reserves of integration are hidden in humanitarian projects,
including scientific and educational projects. Russia has already increased
the number of students from CIS countries, and the government must examine
the possibility of increasing student numbers in the future, at least up to
1 per cent of those for whom the Russian state is currently paying.

Russia committed to active cooperation with EU, USA, NATO

I believe that I must once again make a firm statement today on our
priorities as far as Europe is concerned. In this regard, what is clear are
our logical positions and our numerous and concrete steps towards
integration with Europe. We will continue to work actively with the European
Union, designed to create a single economic space. Our most important
foreign policy aim is to secure strategic stability in the world. For this
reason we are taking part in the creation of a new security system,
maintaining a permanent dialogue with the United States of America and
working on changes to the quality of our relations with NATO. As a whole, I
would like to note that Russia is integrating actively into the world
community, and, despite the stiff competition which I have already
mentioned, it is very important for our country to be able to find allies,
and to be a reliable ally for others ourselves.

Russia must become world-class country

Esteemed deputies of the State Duma and members of the Federation Council: A
fundamental feature of the contemporary world is the internationalization of
the economy and society. In these conditions, best practice worldwide
becomes a most important criterion of success, best practice in everything,
in business, science, sport, in the rate of economic growth, in the quality
of the work of the state apparatus and the professionalism of the decisions
which we all take. Only then, when we not merely match up to this best
practice in the world, but create it ourselves, only then will we genuinely
have an opportunity to become rich and strong. We must make Russia a
prosperous and affluent country, so that living here is comfortable and
safe, so that people can work freely, earn a living for themselves and their
children without restriction and fear, so that they aspire to come to
Russia, rather than leave it - to bring up their children here, to build
their homes here.

Thank you for your attention. [applause]

********

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