Putin mulls over modern financial crisis while reading Russian history
Q: Thank you so much for your time… Our viewers have so much they would like to know from you… Let's start with Davos. You are heading there for WEF. What is the message you will be bringing to the global elite.
Putin: I've been in Davos many times, back in the time of my work in St. Petersburg – maybe four or five times. It's a good place for unofficial contacts – not only with partners and government officials, but also with business companies. Today, we are going through an unusual period, due to the scale of the international financial crisis and its complex character. I think that the history of international economic relations has not seen anything of this kind.
So, joint work at such forums is very much required, in my view. And everyone is speaking of uniting efforts aimed at overcoming the challenges the world economy and the financial system are facing.
What are the most crucial problems to discuss? I won't elaborate on everything I am going to speak about in Davos, but there are certain things that can be mentioned now. When we speak about combining efforts and working out certain rules for everyone, what does it have to be about, from Russia's point of view? It's primarily about working out common standards for the world economy, including its national sectors.
EU countries have worked out certain rules for themselves and are trying to follow them. I mean the budget deficit, for instance. You must know about certain agreements, benchmarks and so on. However, there are no such rules in the world at large. But they could play a stabilising role.
Secondly, now, under the current conditions of globalisation, interdependence is so great that all countries could be interested in that and even have the right to that. For instance, the Russian Federation has nearly 50 per cent of its gold-and-currency reserves as part of the U.S. economy, and we are not indifferent to the U.S. budget deficit forecasts for 2009. And it's just one example.
There are also other parameters we could co-ordinate, or at least consider. We are fully aware that there can be no absolute agreements in the world, as it has been done in the European Union. However, some framework agreements are possible, in spite of varying development levels of the countries and their economies.
Then we can speak about a certain unification of the world financial markets. We all know that, unfortunately, there are no unified rules on the world markets so far. The rules in New York are different from the rules in London, while Hong-Kong or Hamburg have rules of their own. It's obvious that it's impossible to achieve full unification.
But what have we seen during the previous years? We've seen competition between these markets. What can it lead to? To attracting IPOs and placing other securities. Unfortunately, this resulted in a certain loosening of discipline. Any securities issued on one regional exchange are free to circulate all over the world.
It's something worth paying attention to. At least, it's high time to start speaking about it.
At the same time, there are other issues concerning regional reserve currencies. A multi-polar economy is widely discussed today. What it means is, first and foremost, the creation of other reserve currencies than the dollar and the euro. Here in Russia, we are fully aware that announcing a new reserve or regional currencies may not mean anything.
What is important is the level of economic development and diversification. At the same time, it's quite possible to speak about regional foundations that could serve as a prototype for a unified economic policy in a particular region.
Today, I've once again heard about the idea of creating a single currency in Latin America. Specialists speak about the Yuan as a possible regional currency for Asia. Many Arab states have returned to the possibility of having a single currency. Again, it's a long-running process that may last 15 to 20 or even 25 years.
As for foundations that would encourage development, it's possible right now. At the moment, we're eyeing the possibility of creating a small but efficient foundation as part of the Eurasian Economic Community. Russia and Kazakhstan, who are both members in the organization, are now negotiating about investing into it, while also using limited resources from other countries, to use these funds for the purposes of development. We, I mean the Russian delegation in Davos, are planning to discuss all this with our colleagues.
Q: You will be speaking with Wen Jiabao, the premier of China… And the subject of your talk is post-crisis world. Up until now Russia has now been viewed either as a financial power-house or as a world diversified economy. What is Russia's role going to be in post-crisis world? Why do you believe the global elite will be receptive to the message coming from a country which has not been at the centre of the financial world until now?
Putin: We'll just be expressing our point of view. We don't expect everyone to listen to our proposals and agree instantly. But Russia, just as other developing markets, is playing a more and more important role in the global economy. It's a fact that everybody knows to be true.
That's why the leaders of the world's leading economies are saying today that elite clubs like the G8 are becoming too restricted for making global decisions. And the decisions made by these elite clubs can no longer claim to be universal.
Q: Do you agree with that?
Putin: Yes, of course. You've mentioned Russia, but there's also Brazil, China, India, South Africa and other dynamically developing markets and economies. They also have bright prospects. It's true that we've only recently set the goal of diversifying our economy. On the whole, I think we're on the right track, and we're reaching our goals already. I'm sure it will continue in the future, too. In this regard, the global financial crisis is even helpful to us, since it makes us act in a more rational way. It makes us apply new technologies, like in energy saving. It makes us think of optimizing production and providing additional personnel training and re-training. All this makes us think about leaving this time of crisis as a more mature country with better prospects for development. As for relations with our neighbours, like China, these contacts are especially important.
For one thing, we have an enormous common border, and secondly, a rapidly growing sales turnover, which has a tendency towards diversification.
And then, as the global economy recovers, our natural advantages will also be able to shine in a new light. I mean the natural resources sector – oil, gas, metals and other spheres which are traditional for Russia. Even here, we'd like to go over to more technologically advanced ways of production. This is also an additional step in the country's post-crisis development.
Q: When does that post-crisis period begin?
Putin: Well, that's what I wanted to ask you. You've got the analysts, and the opportunity to talk to the leaders of many world economies.
According to our estimates, we may begin to see positive tendencies in early 2010. In some sectors of the economy, we're hoping to see the light at the end of the tunnel in the middle of this year.
Q: When you interview me, I'll tell you my opinion on this.
Putin: All right, so be it.
Q: There is a new administration in the United States… What should the Obama administration do towards Russia, what would you like to see and what in your opinion is non-negotiable
Putin: What is non-negotiable is any infringement on our sovereignty. This is not something that can be discussed with other states. What we would like to see is an honest, partner-like dialogue based on the principles of the international law, when interests of both Russia and the United States are taken into account.
Q: Is there a signal that Obama could send to Russia right away to show that we've turned the page on prior relations which according to many were at the worst since the Cold War.
Putin: I don't feel like I have the right to give any recommendations to the newly elected President of the United States. He knows better what he wants to do, what he considers important. But what we have heard in recent weeks or maybe months, gives reasons to be somewhat optimistic.
We've seen certain signals regarding the anti-missile defense. We've also noticed that in Obama's circles there are talks about not rushing things, and the need for further analysis. We welcome such statements.
More than that, I would like to remind that we want to keep the development of such systems on the agenda, but we want to do it together. If you remember, we suggested having three parties – the Untied States, Europe and Russia. But this meant having equal access to creating the system and equal access to managing them, which is very important, along with estimating real threats. Today, no matter what happens and what people say, these plans only involve one party.
And no matter how much they pat Europe, United States are doing it single-handedly. On the European territory, in the European segment, but they're still alone. And that is a fact, and experts know very well what it means. We get some positive signals in regard to NATO expansion. There are talks among Obama's team that there may be different ways to ensure security of Georgia and Ukraine. They don't necessarily need to join NATO today. We welcome that and are ready to take part in any discussion about finding the best way of ensuring international security. Limitation and non-proliferation of weapons of mass destruction, as well as the war on terror, are the traditional venues of co-operation between Russia and United States. In fact, we have been able to agree on all the problems in our relations with U.S. that you've mentioned – such as Iran and war on terror, and in some of these issues we have had some very productive, fruitful co-operation.
We don't want these issues to be forgotten and fade to the background.
And now, of course, we are talking about economic co-operation.
Joining the WTO is still on our agenda. We will continue talks with our American partners, and we hope they will support Russia in joining the WTO on standard and acceptable terms.
Q: A bit of a painful subject – the gas dispute between Russia and Ukraine which resulted in the gas supply being shut down to some 20 countries in Europe. The Europeans said they felt hostage in this situation. Was it worth the wave of criticism that Russia had to endure to achieve the deal that was reached, and do you believe this 10 year deal is really going to hold or we could face the same situation in future?
Putin: Europeans are still hostages of the world order which has been installed after the WWII. What has happened to Ukraine in the past years is largely due to the efforts of the previous U.S. administration, and the European Union which has supported them. When people are allowed to come to power as the result of street riots, violating the constitution, this means the country where these things happen, and its people, are about to see some very turbulent events in domestic politics, in the long run. It was Ukraine's domestic politics situation which prevented us from reaching a final agreement on the gas issue. This is the way things are. In the end of 2008, we've managed to reach an agreement on signing gas contracts, and, surprising as it may sound to you, on the terms suggested by the Ukrainian side. We've agreed to their terms, and when we did that, they refused. It happened purely due to the issues of domestic politics. Both Russia and Europe became hostages of this domestic politics problem. The best proof of what I've just said is the latest attempts to review these agreements on the presidential level.
Was this agreement worth all these efforts? I think it was. At some point, you have to go over to normal, civilized market relations.
Russia and our European partners, who receive transit gas through Ukraine, are interested in this, and, curiously enough, so is Ukraine.
First, it strengthens its sovereignty. You cannot strengthen your sovereignty and be dependent on other countries in a sphere as important as energy. You have to go over to market relations, and it had to be done a long time ago. Finally, under today's conditions, when prices for both oil and gas are plummeting – you know that gas prices are formed five or six months later than the world oil prices – this is the ideal period for Ukraine to switch over to the market price level. There may not be a better time. At the end of this year, gas prices will be calculated in accordance with the current oil prices, and that means they will be low enough.
I think we had to go through that stage to level out the situation on the energy market – namely, the gas market – and create stable conditions for the future.
Q: Let's talk about the issue of foreign investment in Russia… According to at least one estimate some $US 270 billion have left Russia since the beginning of August, that during was the Georgia conflict and then following on with the global financial crisis. We had issues in the last six months TNK-BP, SHELL etc. There is a question of Russia's reliability as a cooperate partner. How important is it to you for foreign investment to play a big role in Russia's economy. Do you want foreign investment back? What are you planning to do to achieve that?
Putin: You've mentioned the events in the Caucasus and put it next to what happened to TNK BP and Shell. It seems you've put it all together and mixed it up, although these are all different things. What took place in the Caucasus was the result of the Georgian army's attack on peacekeepers, and attempts to force a small nation – the Ossetians – into submission and put them under Georgian influence. The Russian Federation has fulfilled its obligations under the international agreements – the obligations before its peacekeepers and the peoples of the Caucasus. This is also to remind that Russia is ready to protect its interests and its sovereignty, and its right to follow the international laws worked out collectively – and I'd like to stress that – by the international community. We will continue to do so in the future, and we'd very much like these rules to be universal – both for Europe, meaning Kosovo, and in the South Caucasus, meaning, in this case, the small republics of Abkhazia and South Ossetia. We all need to act according to a common set of rules, instead of thinking up variants that would bring us benefits here or there, and not acting randomly, because this leads to chaos.
Now, concerning foreign investment… Precisely because we believe that we have to act on the international arena using common rules, foreign investors may count on Russia protecting this approach anywhere. For us, it is universal. We will rely on following the legal norms. In the end, it is the best guarantee of stability and reliability. We believe foreign investment is very important, and, strange as it may seem, direct foreign investment into Russia was almost three times higher in 2008 than in 2007, in spite of the crisis. Two-and-a-half times higher, to be precise. There was an outflow of capital which you've mentioned, but it's mostly connected to the so-called speculative capital, or portfolio investment. It always aims at getting a quick income, so it's easy come, easy go for the economy. The money drained because of another factor – the lack of liquidity in financial institutions in the U.S., Western Europe and other markets. There was a liquidity deficit, which started leeching out investment from the developing economies. Russia was not an exception, and we don't think it's something to be afraid of.
What is important, and what I'd like to draw your attention to, and the attention of potential investors as well, is that in this case, the outflow of capital resulted in an inflow of trust. We did not limit the outflow of capital, and we do not plan to do so in the future. The Russian economy is open. On July 1 2007, we introduced rules making the financial market fully liberal, and we're maintaining this regime it in spite of all difficulties. We'll treat foreign investors just as Russian investors – as our own. We protect their interests – if they follow the laws of the country they work in. Only recently, we've made a number of decisions which mostly have to do with protecting investors – first and foremost, foreign investors. For instance, we've discussed the lowering of rates for cargo trucks, for the benefit of our transport carriers. But we didn't do this, because the governor of the Kaluga region has raised the question about taking into account the interests of Volvo – the company which had invested a lot of resources into the production of trucks. They had their own financial plan and they needed to gain profit from their investment.
We thought this claim was reasonable. It was the same with other auto manufacturers. But that's not all. During the past years, there has been a lot of direct investment into electric energy. During the times of economic growth, we had plans for a growth of tariffs. We had to resort to cutting tariff growth rates in gas, railroad transportation and some other spheres, but we didn't touch electric energy. We wanted to let investors preserve their money. We thought that it wouldn't be very important for the population, since electric energy only makes up for 10 per cent of payments, but, thinking over all these factors, we took into account the interests of foreign investors. We're planning to act this way in the future.
Q: Mr. President, you presided over eight years of economic growth. This year, for the first time since 1998, Russia may find itself in a recession. Are you worried about your legacy?
Putin: Russia is not experiencing economic difficulties on its own. This is something that everyone can see and understand. Russia has become a part of the global economy. This is not bad, but today's events are the retribution for it. I can assure you that it's true. I am sure of it myself, just as the Russian citizens who see it and know it.
In this regard, I'd like to say that it was the well-balanced, sensible policy of the previous years which have made Russia, and the Russian economy, very different from what it was back in 1998. That's why we can afford to take a mild approach to the national currency rates. That's why we can still fulfill all our social responsibilities which we've taken on earlier, during the period of economic growth.
These are, above all, social benefits and raising salaries in the public sector – primarily, the federal public sector, although the regions are doing their best to keep up. It also includes pensions, benefits for the military and so on. This is not like it was ten years ago, when we were caught off guard and broke. Today, the situation is different, although we have problems, and are speaking of it honestly and openly to the people. Still, I hope the 'safety cushion' which we've managed to create will allow us to go smoothly through these turbulent times in the global – and I'd like to stress this – global economy. But there's an opportunity which it gives us – as one of the options for tackling the crisis and taking post-crisis measures – it's the re-training of personnel. We now have the resources to invest into this sphere. This step has been approved, and we've already allocated 43.7 billion roubles for this purpose. We're also working with the regions to create all the necessary programs, and we are starting to invest resources at this point. So, if we keep up the same responsible approach that we've had over the previous years, this, in the long run, can result in a better-structured economy, which will be helpful.
At the same time, the state has to see to its social responsibilities, and, thankfully, we have enough resources to do this.
Q: The way things are going with this restructuring, there may be very few billionaires left in Russia soon. Will that be a good thing?
Putin: I don't know why, but there seems to be a general opinion that I'm a 'billionaire slayer'. But it's wrong. It was never my goal to stamp out billionaires. What I did try was to make everyone live in accordance with the rules, which are also known as laws. These rules are normally adopted in a legal manner, through parliament. All citizens have to follow these rules and laws. Should a person manage to gain considerable amounts of money and property while acting in accordance with the law – well, God bless him.
We're now on the premises of ACRON, [a Russian company group producing fertilizers]. The company's owners have managed to keep the number of jobs under these harsh conditions – they've hardly fired anyone – and they're developing the social sphere, as well. Salaries here are good for this part of the country, and the whole country, too – more than 21,000 roubles. They've created a well developed infrastructure and sports facilities. I've been told today that out of the 5,000 employees, 3,000 have taken up sports. The company's owners are very well-off people, but if these people are working in the production sector, and also have a sense of social responsibility, then we're going to support them.
Q: The stock markets in Russia are way down. The rouble is losing a lot of ground against the dollar and euro. Companies are facing major debt and reserves are draining. Together with that, oil is under $US 50 a barrel. Recent surveys say that Russians are more worried than any other nation in the big countries about losing their jobs. If you're going to avoid recession, new anti-crisis measures will be necessary. What will they be?
Putin: It's true that the world financial crisis has seriously affected Russia. The industry sectors which have been actively developing in the recent years were hit hardest – metals industry, banking, retail and other sectors. We're still optimistic, and believe that both the global and the Russian economy will slowly get back on their feet. As for the rate of the rouble and the national reserves – we didn't do what other countries did. We didn't wallop the national currency overnight. We did it smoothly and carefully. We consciously started spending our gold and currency reserves, to let the economy, and the Russian citizens, realize what was happening, so that they could look at their funds and make a decision – whether to stay with the rouble or switch over to euro, dollar or real estate, and so on. We did it nice and easy. The recent decisions made by the Central Bank, on weakening the rouble, were, to a certain extent, very much sought-after by the economy. Again, the management of the enterprise where we are at the moment was looking forward to this moment. They were on the profit margin, and now they've started getting revenues.
This, of course, is not only true for companies producing fertilizers, like this one. It's also true for other export-oriented enterprises. And their activity, in the end, is about preserving jobs.
The majority of Russian citizens are using the rouble, and for them, preserving jobs, salaries etc. is the top priority. And, by preserving enterprises, we're maintaining budget revenues on different levels – local, regional and federal. We're also sticking to our financial responsibilities – it's all interconnected. The Central Bank's balanced approach to the national currency and its cooperation with the government in fighting inflation, keeping the budget deficit on an economically reasonable level – this is all part of a single complex of measures. The other complex of measures is more special – it has to do with lightening the tax burden. Here, we've resorted to changing the depreciation charges from 10 to 30 per cent, which gives companies more resources. We've lowered the corporate tax from 24 to 20 per cent, we've allowed the Russian regions to cut taxes for medium and small enterprises from 15 to 5 per cent, and made a number of decisions aimed at de-capitalizing the country's financial system.
We've ensured the liquidity of all Russian banks and created the system for painless bank consolidation and the government's intervention in the country's financial institutions. All this, together with the system for rapid response to the changing situation on the labour market, gives me the right to say that the state and government are quickly responding to the current events, and we're hoping for a positive effect.
Q: In terms of consolidation in the economy, would you support consolidation in the metals industry?
Putin: I've mentioned consolidation in banking. It has long been popular in Russia. If you look at the number of banks in Russia, and any developed economy, there are too many of them. But we're not going to force it – I'm still speaking about banking, because this is also very important. Regional banks know their clients better. They have an individual approach to every enterprise. Many regional companies are used to working with regional banks. That's why we're not going to artificially consolidate and merge them. We will also support the banking community on the regional level. As for the real sector of the economy, it all has to come naturally. We will only do it where and when it's necessary to improve the competitiveness of Russian companies.
Q: Do you believe that's true in the case of metals industry?
Putin: I don't know – I'll have to think about it. First, there are no final decisions here. Second, what you're speaking about was suggested by the owners of these companies. But you know that if you get two poor people together, it won't be a richer family. So it all depends on the specifics. Where there can be any positive synergy from consolidation – say, when one party has mineral resources, the second has financial possibilities, and the third has access to the markets – it will be in demand. You don't need a lot of brains to combine debts with debts, and it won't bring any results. That's why we'll keep a balanced, careful approach to this problem. Once again, the main goal here is to increase competitiveness.
Q: You have a lot of fans and a lot of detractors, but everyone can probably agree that you're one of the most charismatic, colorful and fascinating people on the world stage right now. So I'd like to ask you several quick questions about you and what you love, if you don't mind.
Q: What book are you reading now?
Putin: At the moment, I'm reading Karamzin's 'Russian History'.
Q: What leader in history do you most respect and love?
Putin: Peter the Great and Catherine II. I think they were the ones who did the most for Russia's development.
Q: What was the last movie you saw?
Putin: It was a movie after Dickens's 'Oliver Twist'.
Q: The old version?
Putin: The old version.
Q: Why is that?
Putin: Well… I just wanted to watch some serious movie.
Q: What's the funnest part of your job? Not funniest, but funnest.
Putin: I'm not working in a circus, you know. There's not much fun in my job. Well, you got me. I haven't found anything that would be fun. No, I don't think there's anything fun about my job. The funniest thing was your question.
Q: What frustrates you most about your job?
Putin: No, there's nothing that frustrates me. Sometimes, I get tired because of the heavy workload, but I can't remember feeling baffled. I always try to find a way out of any situation. You can always find it. And that's the most interesting part.
Q: What's the best advice you ever got, and from whom?
Putin: It has to be my mom. Don't ask for anything, and never complain.
Q: What keeps you up at night?
Putin: I'll be honest about it. It's also the emotional overload. Sometimes, it's hard to fall asleep, hard to overcome this emotional tension. Here, sport can help.
Q: What's your main fault?
Putin: I always trust people.
Q: What's you guilty pleasure? I can say, for example, that I eat too much chocolate.
Putin: If we stay in the food line, I like ice-cream. I've loved it since I was a kid, lots of it.
Q: What are the words you live by?
Putin: Go forward.
Q: Describe your perfect day.
Putin: They're all good for me. They're all filled with interesting things that I do. It's an interesting job and I really like it. It has a very large scale, and a lot depends on my work. If things go well, when I can see that people's lives are getting better – that's my main reward.
Q: What talent would you most like to have?
Q: Can you picture yourself in retirement?
Putin: It's hard to imagine right now. I think I'd take up state law research.
Q: How would you like to be remembered by history?
Putin: History will have its own say.
Q: Thank you very much.
Putin: My pleasure.