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Dmitry Medvedev. Raising Living Standards for the Russian

01.01.70

How would you define the fundamental goal of the national projects?

The goal is very simple to raise living standards for people in Russia. We chose the four sectors of providing quality healthcare, and education, access to affordable housing, and developing agriculture, because how things look in those areas has the biggest impact on how people feel about their lives. Together they affect 100 percent of the population.

Where have you encountered the biggest challenges?

There are more complex projects, lets be frank, and less ambitious ones though that doesnt mean any of the goals are insignificant. Housing is rightly seen as most complex, because in comparable countries such as the U.S. it took decades to complete similar programmes. Americas programme to provide affordable mortgages lasted from the 1940s until the 1960s. Frankly, I dont think our housing programme will be any shorter. But in the short term we ought to be able to achieve some real changes, and make mortgages much more accessible to people. Total outstanding mortgages, we hope, will reach $3.5 billion by the year-end. Thats decent but still too little. In the long run it should be many times higher.

To what extent is the investment, $7 billion this year, going into raising wages, or into real structural changes?

Its not simply about raising wages, though we need to do that. The projects will succeed only if theyre accompanied by modernisation of the relevant sectors. In healthcare, for example, its proposed that resources going to primary care doctors, those in general practice, should not simply raise wages, but help attract more highly-qualified people to the local level, where theyre needed.

What do you say to critics who suggest that while a lot of work is going into the national projects, liberal economic reforms have virtually stopped?

The economic reform programme has not stopped, but is being consistently carried out. In six years, we have achieved a large part of the economic projects and structural reforms talked about in the 1990s. We adopted the new tax law which significantly lowered the total tax burden and tax rates. We have one of the worlds lowest income tax rates a 13 percent flat rate. Untransparent tax breaks and burdensome taxes have been abolished. In 2007 we hope to fully liberalise currency transactions, a vital precondition for making the rouble convertible. Making the rouble a hard currency is one of the states aims. Were also passing important laws, like the law on foreign investment in so-called strategic sectors, so that foreign businesses know in which sectors the state will attach particular conditions to investment. On the other hand, were preparing the so-called capital amnesty law, allowing the return of capital taken out of the country on payment of 13 per cent income tax. This all shows theres been no change of economic course.

But the state seems to be playing a much bigger role in the economy, with state companies buying up private ones.

I dont believe were seeing any significant increase in the states participation in business. True, in a number of cases, the state, or state-controlled companies, increased their presence in several sectors. Above all were talking about the energy sector. But these are not new companies; were not talking about nationalisation but about buying appropriate assets on the market. Many oil companies have done this. As for Gazprom, the states acquisition of [a controlling stake] was linked to the need to liberalise the market for the rest of Gazproms shares, which investors had spoken about for a long time. This was carried out last year, along with the abolition of the so-called ring fence [which restricted foreigners rights to own shares]. As a result, Gazproms capitalisation has gone from $10bn, when I became chairman, to $200bn, putting Gazprom among the worlds 10 biggest companies. Thats good for Gazprom and for the whole Russian stock market.

Why did Gazprom have to turn off gas to Ukraine in January?

There should have been no need to turn anything off. What we needed to do was ensure a transition to market relations with our partner, Ukraine. President [Victor] Yushchenko was the first to speak about this when he suggested moving to full openness and 100 per cent cash payments at European prices. We agreed with that approach. Thats the civilised way of developing market relations, and that, ultimately, is what we did. The agreements we signed are based on the prices most European countries pay for energy. Though the price we agreed, $230 per thousand cu metres, is still lower that those within Europe, where spot prices can exceed $1,000/tcm.

But all this raised questions in European countries about Russias reliability as an energy supplier.

Those questions should not have arisen. Firstly, because in January Russia fulfilled all its obligations under its long-term contracts with European energy consumers. Secondly, as far as I know, all European governments and big energy companies recognise Gazproms right to operate according to normal market relationships. In fact we were often criticised for subsidising other countries economies by supplying energy on non-market conditions.

Everything done in January was aimed at guaranteeing normal, competitive conditions which ultimately should benefit energy users in Europe. And I think Russia, in its G8 presidency this year, as the worlds biggest energy power, has already presented some important initiatives on energy security to leaders of the G8 countries. The decisions that will be taken [at the G8 summit] will help us guarantee that security.

Expert opinion

Halter Marek

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Le College de France
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Mika Ohbayashi

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Bill Pace

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Peter I. Hajnal

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Peter I. Hajnal
Toronto University, G8 Research Group