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EAST-WEST-RESEARCH  July 2003

EAST-WEST-RESEARCH July 2003

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Subject:

Small town development: Putin in Staraya Ladoga

From:

Andrew Jameson <[log in to unmask]>

Reply-To:

Andrew Jameson <[log in to unmask]>

Date:

Sun, 20 Jul 2003 21:03:04 +0100

Content-Type:

text/plain

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Johnson's Russia List
#7257
20 July 2003
[log in to unmask]
A CDI Project
www.cdi.org

#16
PRESIDENT.KREMLIN.RU
Official web site for the President of the Russian Federation
[log in to unmask]
July 17, 2003

Introductory words at the meeting on problems of developing small towns in
Russia

President Vladimir Putin:

Good day esteemed colleagues,

First of all, I would like to congratulate the residents of Staraya Ladoga
with their town's anniversary and I wish you all the very best.

We had a very interesting tour of the museum here today, and then visited
the fortress. One of the people involved in supporting Staraya Ladoga and
studying its past said that these monuments are part of our historical
memory. Unfortunately, our historical memory is very short, we don't give
it enough attention, and I think that this is also part of the root of our
problems. If we don't know our history well, then it will be hard for us to
map out the road for our development. This is the way it has always been,
and the way it always will be.

But judging by what is happening here in Staraya Ladoga, there are positive
trends at work. There are people who understand how important this
historical memory is and are dedicating their lives to its service, and I
think it would be right here for me to say a few words of gratitude for the
work they are doing. I hope that the governor, the regional authorities and
those of Staraya Ladoga itself will give them their direct assistance. And
as authorised presidential representative, Valentina Ivanovna [Matviyenko]
will also give this issue her attention.

Now we have a chance to talk about the problems that you are dealing with
in your daily work. Above all, I would like to hear your opinions about the
life and work of Russian small towns today based on your own experience.
This is keeping in mind that the law on municipalities is currently being
examined, and that the federal government is working actively on creating
the financial foundations for the development of municipalities.

First of all, I would like to say that the changes to the law aim at
decentralising management in areas where this is justified and where it
should lead to more effective management. Management will only become
effective, however, if municipalities gain not just new responsibilities,
but also new rights. This also means ensuring that municipalities have the
necessary financing for the tasks they must deal with today and for their
added responsibilities they will take on in accordance with the new law.

The municipalities have a great deal of responsibility, and you know this
as well as I do. They have been loaded up with many problems over previous
decades, in particular, housing and utilities management, and also
healthcare to a large extent, but they have not received sufficient
financing to be able to meet all these commitments.

The government is now working on changes to the Tax and Budget Codes that
would improve municipal finances, and looking at Staraya Ladoga, I can say
that it is precisely these municipalities that are the guardians and
bearers of our history and our bygone days.

These small towns are home to a large part of our country's population.
Almost half our population lives in small and medium-sized towns, and the
well-being of our country depends to a great extent on how life is
organised in these municipalities.

I would like to return to the new law and draw your attention to one very
important point that we have already discussed more than once before. I
would not want this point to go unnoticed. One of the main reasons for
changing the legislation is not just to divide powers and responsibilities
between the local, regional and federal authorities, but also to ensure
that each level of power has the financing needed for its tasks, and to
create conditions that will prevent the authorities at a higher-standing
level from passing on responsibilities and problems to lower-standing
authorities without providing for the necessary financing. Once the new
laws are approved and come into force, the way of doing things that has
existed up until now should come to an end.

That is what I wanted to say first of all, but I would be very happy to
hear your views and listen to the problems that concern you above all. Then
we can have an informal exchange of views afterwards and discuss everything.

*******

#17
PRESIDENT.KREMLIN.RU
Official web site for the President of the Russian Federation
[log in to unmask]

Staraya Ladoga
July 17, 2003
Excerpts from a meeting on problems of developing small towns of Russia

On problems of work places in the regions

In small and medium-sized towns and municipalities, one of the ways to
solve this problem is reducing bureaucracy, and creating the necessary
conditions for the development of small and medium-sized business.

On problems of housing and communal services

People pay a lot of money, but the level of services provided remains low.
Insufficient financing over many years has led to disorder in the system.
But the problem is also in the organisation of the work of housing and
communal services themselves. There are enormous subsidies, and they
continue to increase, but work does not get any better. This shows an
incorrect organisation of work.

The same goes for the reduction in the number of employees. Every five to
seven years, large-scale reduction of staff in various budget institutions
can be held. But they increase because it is easier to create work places.
This is simply budgetary free-loading. Instead of working on creating
productive places, which would truly serve the population, and create a
product, it is easier to employ people, feeding them with a low wage from
the budget. And the result is ineffective administrators, because they
receive minimal amounts of money, for which they cannot be bothered
working. In this way, we create poverty.

The nature of the Housing and Communal Services sector needs to be changed.
Consumer of the services needs to receive this money directly from the
state, and adding some money of their own, they will also be able to select
companies that provide good services on the market. And then this market
will develop.

A clear programme of action is required in the Housing and Communal
Services sector. Simply raising tariffs does not solve anything. And they
cannot be raised any further now, because the income of people in small
towns and villages does not allow this to be done. It is pointless to raise
tariffs, because people do not have any way of paying them.

But as far as writing off debts before the budget is concerned, this is not
a very good method from an economic point of view, given that there is
complete obstruction here. We will see how enterprises which owe money can
clear their balances. Because it is very difficult, or almost impossible,
to begin a new life with these debts, fines and penalty fees. But
conditions should be created so that these debts and fines are not
reproduced, and that the industry becomes effective and self-supporting,
and even profitable. It is clear that this industry needs to be put into a
viable state.

On town-forming enterprises and bodies of power

The approach in this situation should be universal. Putting an excessive
burden of the social sphere on enterprises is a dead end. Towns and
municipalities themselves should think about this and take care of it
themselves. But they should have sources. One of these sources is a
prosperous enterprise. So taxes to the budget need to be agreed on. And in
such a way that both city and municipal authorities, and entrepreneurs
understand what the results will be in the next five to ten years. But it
would be even better to know what it will be in three years. Then
enterprises will prosper, then their balance will be clear. And if an
enterprise contains a lot of social objects, this will pave the way to
corruption, because it is not clear who pays for what. There will be
crossed subsidising, and a complete mass. But it should be transparent.
There needs to be optimisation of work, money should be paid to the
municipality, which in its turn should hire effective administrators in the
areas of health, education and pre-school education, so that this money is
spent effectively. But as money is spent ineffectively, there is general
chaos.

On problems of small business

There is excessive control functions of state bodies, and unjustified
interference in the affairs of small enterprises ?" it is very difficult
to overcome administrative barriers, to receive a permit for registration
for any type of activity. And this is directly linked with the sluggishness
of federal, regional, and local authorities.

And at a local level -- I ask the local heads to forgive me for saying this
-- there are even more administrative barriers than at a federal level. It
is very difficult to overcome them. There is extortion at every step. And
for some reason, local heads think that in this way they better contribute
to the budget. But in fact they make things worse, because they crush small
business, don't allow it to develop, which means that in the final analysis
they don't receive all the money they could ?" legal money into their
budget for solving social issues.

So our common goal at federal, regional and local levels is to reduce
bureaucracy wherever possible. There must be a stop to commanding, and
requiring permission for everything.

As for access to services of natural monopolies, this is the second, most
important part of the problem. It is one of the most major problems. This
involves transport and supply of gas and electricity. It is very difficult
to receive access to these services, and sometimes it is virtually
impossible. Many problems and issues arise. In any case, here it is clear
what needs to be done. And the Government plans to make certain steps in
this direction.

On this topic, I would like if not to argue, then to express doubts about
credit. Of course, we have something to think about here. We cannot assume
that credit will be without appropriate guarantees, including material and
financial guarantees from the receiver of credit. But it is not always
justified to count on state guarantees. In cases when a municipality of
region is interested in a certain type of activity, they should, of course,
provide such guarantees. If they want for a certain type of production to
be developed, for people to be employed -- then it is better to make this
business independent. This has always been justified, because where state
guarantees appear, the quality of economic functions decreases, validity
decreases, and the result is often a disaster. Where there are no state
guarantees, work is tougher, but more effective, and there is less swindling.

On health problems in small towns of Russia

As concerns federal health programmes, in my opinion they should be of a
systematic and methodical nature, and not be directed solely to technical
re-equipment. Because today a lot of funds are spent in regional and
municipal budgets on expensive foreign equipment. If we are talking about
the most effective way to spend this money, then we should not talk about
the federal programme, but about co-ordination with the Health Ministry in
working with regional authorities and municipalities.

As for staff, this problem does exist. Perhaps it would also make to sense
to return to a system of assignment. This decision is not easy, but it is
quite possible.

On income tax

I agree that tax from individuals is best collected from the place of
residence, as is the practice in most countries. The existing system of
collecting income task is left over from the Soviet past. The problem is
only in effectively organising administration in collecting this tax. It is
thought that it is easier to collect a tax from people at enterprises. And
on the contrary, with the lack of proper registering of people at the
moment, financiers are concerned that if this tax is collected according to
place of residence there will be major losses, people will avoid paying
taxes, and we will be unable to simply collect it into the budget.
Nevertheless, the Government is thinking about this problem. I suggest that
sooner or later we will move to this system. And if we are able to do this,
then many problems of municipalities will be solved, if not completely,
then at least financial provision will become more reliable. And the
interest in creating additional work places will grow even more.

As for loans to the Housing and Municipal Services sector, we will
definitely return to this. I will try to encourage this decision as
effectively as possible.

As for access to cheap energy resources in the form of natural gas, of
course it would be desirable for this to be accessible to as many consumers
as possible. There is also another solution -- lowering production
expenses, improving quality of work etc. And as we know, gas in Russia is
produced and delivered to customers at a cost that is less than its actual
production and delivery. Essentially, we are raising the economy of the
country thanks to one company -- Gazprom. This cannot go on forever, sooner
or later we will also exhaust Gazprom. So this type of energy resources
will be slowly evened out, and the advantages that we have today will be
lost at a certain moment. And the heads of production should start thinking
now about re-equipment of their production, about lowering energy output
etc. I think that we should keep this cheap resource primarily for the
population, for domestic consumers, and the economy should remember in good
time that this will run out at some stage.

The tax system should be flexible and directed towards attracting funds and
investments into the economy. This does not always work, but the
appropriate structures are working on this. The next steps in reform have
also been planned. And a decision has already been made to reduce
value-added tax. In 2005 it is planned to reduce the single social tax.
Perhaps we will make further reductions if we change the system of
administration. Perhaps this reduction will be quite significant. We have
just discussed this with the heads of a trilateral committee, and I have
met with the Social Bloc of the Government. Some good plans have been drawn
up. It is premature to talk about these yet, but there are ideas, and it is
fully possible to realise them. At any rate, some of the issues which we
discussed two or three days ago will be realised.

*******

#18
PRESIDENT.KREMLIN.RU
Official web site for the President of the Russian Federation
[log in to unmask]

Staraya Ladoga
July 17, 2003
Final speech at the meeting on problems of the development of small towns
of Russia

President Vladimir Putin:

In summing up our meeting, I would like to talk about the strengthening of
several structures. In both schools and health care, there is only one goal
-- to create centres where the quality of services provided to the
population is better. It is clear that this should all be very flexible and
correspond to local conditions.

Another very important issue is drug addiction. As you remembered
yourselves, a special committee has been created, and I expect that it will
work more and more effectively, and there will be a clearance of certain
obstacles, including staff obstacles. I agree that this is an important
issue, but it is difficult for me to agree with the thesis that the former
structures which worked effectively do not work any more, and the new ones
are not fully functioning. If the former structures had worked effectively,
we would not have the problem of drug addiction. The problem is in fact
that they did not work effectively. And all around us, unfortunately, we
can see not just poor work, but a merging with the structures which they
were supposed to fight against.

The new committee has greater authority, a greater staff potential, and
will be well-equipped technically. We will hope that it will earn money
effectively. But this is not enough. A system of preventive measures is
needed, a system of joint work with health institutes, with study
institutes etc. This involves a whole complex of different work.

Specialists in the most diverse fields are gathered here, and I would
really like to hear your opinion not just about current affairs, but also
about how you envisage development in the spheres where you work. I mean
the decisions proposed at state level, above all in the legislative sphere
from the standpoint of laws on restricting authority, and on a new quality
of municipalities, and on proposed solutions in the financial sphere. I
mean amendments to the tax and budget code.

And a word on the comments you made. We will, of course, formulate the
according instructions with our colleagues, and they will be delegated
further to both the Government and to the Presidential Administration.

I would also like to return to what the head of the municipal formation of
Novaya Ladoga said. He put it well when he said that patriotism should be
founded on our history. Generally, I think that if we are talking about a
kind of unifying ideology, for such a complex, federatively composed,
ethnically and religiously diverse country as Russia, one of the most
important unifying factors should be general Russian patriotism. And of
course, one of the foundations of this is our history. Here, in Staraya
Ladoga, this is given sufficient attention. In the country as a whole, it
is so far not given enough attention. Unfortunately, it is often not enough
to make this patriotism well-founded and viable.

It is not enough for us to remember how handsome, talented and great we
were. We need to be like this today. We need for the living standard of our
population today to be raised, so that people feel the results of our work
on both a federal level and at the level of the President and Government;
at both regional and federal level. In this sense, a lot depends on us. And
only in this case the foundation that we have talked about now --
patriotism -- will be viable. Only if we and all the citizens of Russia
will be proud of our country today.

Thank you very much.

*******

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