Speech by President Vladimir Putin at a Meeting with Confidants Lomonosov Moscow State University, Moscow, February 12, 2004

Dear friends,

First of all, I would like to thank all those gathered in this hall and who are ready to work together with us. And, of course, I would like to thank everyone who is ready to support me in the upcoming elections of the President of Russian.

I am often asked, will I conduct an election campaign and if so, how?

I am sure that an incumbent head of state should not engage in self-promotion, I should have been doing it during the previous four years, staging rallies, composing all sorts of fine fairy-tales, fine, but greatly removed from our real life. At the same time, I think I am duty-bound to report to my constituency and the entire country for what has been done during the past four years and to report to people what I am going to do in the next four years if on March 14 the citizens of Russia express their trust in me.

So, it is about the work accomplished and the plans for the future that I would like to talk about today.

"The Authorities Had Actually on a Permanent Basis to Sort out the Current Set of Problems…"

But first, before saying what has been accomplished, let us recall the condition in which the country was at the end of 1999 and early 2000 and what factors contributed to that state.

The transition to democracy and the market economy in the early 1990s was most actively and resolutely backed by the citizens of Russia who made a final and, let me stress again, irreversible choice in favor of freedom. It was a great and real achievement of the Russian people, I think it was one of the greatest achievements of our country in the 20th century.

But what price did we have to pay for that? Destructive processes of statehood degradation that began when the Soviet Union fell apart had spread, and this could have and should have been foreseen, to the Russian Federation itself.

Political speculation on the people's natural strive for democracy, serious mistakes during economic and social reforms had very grave consequences. Basically one-third of the country's population happened to be living in poverty. Pensions, allowances and wages were delayed for months everywhere. People were frightened by the default, by the overnight loss of all bank deposits and all of their savings. They did not believe any more that the state would be able to fulfill even minimal social obligations.

The country was swept by strikes of coal miners, teachers and other public sector workers. Tax rates were growing all the time but the overall fiscal policy was designed to ensure elementary survival.

As we know, most major banks went bankrupt. After the 1998 crisis the credit system was practically paralysed.

Moreover, the country fell into humiliating dependency on international financial organizations and different international financial speculators. Just think about this. As of the end of 1999, Russia's foreign debt was almost 90 percent of the GDP. All these circumstances, coupled with the recently experienced default, kept alive worries about the possibility of further economic upheavals.

The situation was compounded by the fact that by that time Russia had to a large extent lost its independent position in the international arena. Although the forces in the world that continued to be in thrall of the Cold War cliches and in spite of sweet talk continued to see Russia as their political rival, did everything to prolong that state of our country.

The situation in the internal political sphere was developing in an equally dramatic way. The Constitution of the country and the federal laws ceased to be treated in many regions as the supreme legal enactments. The regional parliaments passed laws that ran counter to the constitutional principles and federal norms. Federal laws were invoked selectively and in a discretionary manner, so to speak. An inevitable consequence of such "competition" was arbitrary rule of authorities that spelled nothing but suffering for common people. The scramble for special financial and economic regimes became a permanent subject of bargaining between the regions and the federal center. It came to pass that some regions found themselves outside the single legal and monetary and fiscal system of the state. They stopped deducting taxes to the federal budget, they claimed the right to establish their own "gold and currency reserves" and their own energy and customs systems and regional currencies.

The result was economic inequality of the regions, and as a consequence, economic inequality of citizens. And that was becoming a norm. The emerging market of goods and services was being destroyed.

Separatist process that had been brewing in Russia for several years did not meet with an adequate response from the authorities, but were actively supported by international extremist organizations and ultimately developed, in the North Caucasus, in the most dangerous form -- terrorism. At issue in the first place here is of course Chechnya.

After the signing of Khasavyurt agreements, as a result of which Chechnya itself and the entire Chechen people were left to their own devices, some might seem to think that the nightmare of a civil war was over. But nothing of the kind.

Feeling our weakness, understanding the instability of the authorities and the dire moral plight in which society found itself, in the summer of 1999 the numerous gangs of international terrorists went ahead, as was to be expected, and further. They grew so brazen that they embarked on an open invasion of Dagestan, essentially they committed an aggression with the aim of cutting away from Russia and drawing into the area of its criminal influence our additional territories.

How dangerous it was for the Caucasus, for Russia as a whole, especially considering the traditional compact pattern of settlement of the peoples of the South of Russia and certain territories adjacent to the Southern Russia needs no explanation, I think. Suffice it to take a look at the tragedy involved in the disintegration of Yugoslavia in order to draw all the necessary conclusions.

I will point out that Russia has always been quite a complex state entity. It required a careful, I would say professional attitude. But regrettably toward the end of the 1990s -- and this has to be admitted -- under the impact of all the above-listed negative factors Russia began to lose the main characteristics of a united state.

This is what we came to face, the conditions in which we needed simultaneously to deal with the daily and most acute problems and to work in order to lay the ground work for the new and long-term growth tendencies. The authorities had actually on a permanent basis to sort out the current sets of problems, to protect the integrity of the country in the struggle with separatism and international terrorism and in the process also to lay the foundations for our future.

And today it is my duty to say the words of appreciation to all those who in this difficult situation upheld the democratic gains of the people, who did not buckle under in the face of life's adversities and situation and by their own work helped the country to stand on its feet.

We must also remember and retain memories of those who, in a context when the state was practically unprepared to ensure the security of its citizens and protect their own territorial integrity, fulfilled their duty to their Motherland to the end. And they did so, as happened more than once in the history of our country, at the cost of their own lives.

"Four Years of Intense and Difficult Work"

Four years have passed since then, four years of intense and difficult work. Of course, we would have liked to have achieved more than the results that we have today. But a great deal has been done.

First of all, constitutional law and order has been restored in the country. The vertical federal executive power structure has been strengthened and in fact built anew. The Russian parliament became a professional law-making body. The common legal space has been restored in the country.

Dangerous processes of the degradation of government power, the weakening of the army and destruction of the law enforcement bodies and other power structures have been stopped. Changes in the judiciary system are underway that are essentially of a cardinal nature.

The economic situation has changes in a fundamental way. The growth of the GDP since 1999 has amounted to almost 30 percent (29.9). Inflation rate has fallen by three times. There is no longer a need for massive increases of tax rates in order to cover the minimal demands of the state. And as a result, for the second year in a row medium-sized companies have been increasing their production. There are thousands of enterprises today in the country that work effectively. In the market, those who work more effectively are beginning to prevail, and not those who are doing well for themselves by using economically unjustified preferences and benefits.

This means that structural reforms have begun even though they are hard and slow. They have resulted in the growth of investments in fixed capital and, which is very important, in the development of the domestic market, in greater internal consumption.

One of the fundamental achievements of the last few years is I think the financial independence we have acquired and the stability of the national currency, the rouble.

The problem of foreign debt payments has been practically solved. Last year, just like in the years before that, we fulfilled all of our financial obligations. In 2003 alone we paid $17 billion, and the country did not even notice that. Russia's total foreign debt payments, including interest, over these years amounted to $50 billion.

At the same time the foreign exchange reserves of the Central Bank are at their record high in the history of the country, including its Soviet period, at more than $84 billion.

We have increased Russia's investment attractiveness considerably. Direct proof of that was the decision to upgrade Russia's rating to the investment one.

These modest but obvious positive changes in the economy have allowed us to take the first steps to solve social problems and improve the quality of life of our citizens.

In some industries and regions there are still wage delays. But they no longer occur on a national scale as they did before. Chronic nonpayment of pensions and allowances is history now. The minimal wage has been raised four times in three years. Strikes have stopped to be a mass phenomenon in the country.

Since the year 2000 all major social indicators have been showing positive dynamics. I know that the Government cannot always prevent economically unjustified price rises. But the incomes of citizens grow faster. This is borne out by figures that are well known but let me repeat them once again, figures minus inflation and I want to stress this, taking into account the growth in prices, currency fluctuations and other factors.

The average pensions in real terms increased by almost 90 percent since 1999. The real disposable incomes of the population have grown by half in the same period. Real wages have been growing year in and year out. Since 1999 they have almost doubled. Let me repeat that we are talking about the growth of real incomes. The nominal, that is absolute indicators are, of course, much higher.

Unemployment has gone down by almost a third. The number of people with incomes below the living minimum is still very high, but it, too, has dropped by a third.

The main thing that I would like to underline is that going away from our life is the uncertainty, the lack of clarity that has made it impossible to plan ahead. The fear of the painful consequences of reforms has at last been overcome in our society.

But one should also be mindful of other things. Simultaneously, people are presenting legitimate claims to the effectiveness of the performance of the state and their expectations regarding the standard and quality of life are growing.

I would like to stress, that in spite of the scale change, we have merely created a jumping-off ground for a dramatic change in the country's economic development; a change that would bring about a quality of life comparable to that of developed countries, and, consequently, an authority and an influence of Russia worthy of our thousand-year-old history, our intellectual resources and our potential contributing to the world division of labor.

"The Main Aim of Any Actions of Ours Is to Improve the Quality of Life of People"

Esteemed colleagues,

I have told you about what we have managed to do. But have we done everything that we could have done? Of course not. Can we be satisfied with the results of our work? No, we can't.

The main aim of any actions of ours is to improve the quality of life in this country. But a dramatic improvement will only come when our economy becomes so powerful that it will not be critically dependent on external economic factors, nor on the results of the next parliamentary election or elections of the head of state.

In meantime, the rate of growth of the Russian economy is high, but not high enough. The state apparatus in terms of its functions and in terms of the skills of the employees is inefficient. The structure of the economy is still unbalanced. Social commitments are still not targeted.

One also has to admit that some of the closest neighbors of Russia, the countries of Eastern Europe, have implemented transformations with greater speed and determination. And they did not just discuss but apply much of what has been suggested by Russian experts in terms of the reform of the pension system, the housing and utilities sector, health service, housing construction and other spheres. They have been putting it into practice.

Our economy is still geared heavily to the production of raw materials. Of course, the national wealth is a national competitive advantage of Russia and one should not be ashamed of this. But another natural advantage, the high intellectual potential of the nation is much larger. And it must be used to propel the Russian economy into high technology and lucrative spheres.

The market of services is taking a long time to be formed. And yet it is this market that makes the main contribution to the growth of the GDP in the developed countries. Over here, on the contrary, the state still holds the monopoly on the services in such vital spheres for citizens as the housing and utilities sectors, and some others. As a result, the quality of services is low, their cost is growing and simultaneously the legitimate discontent of citizens is increasing. A person, in fact, has to pay twice, and sometimes thrice. First the taxes, then the services, and then bribes.

Excessive presence of the state in the economy leads to some other negative factors. Above all, bureaucrats on behalf of the state continue to perform a lot of services that have not been ordered by and that are not necessary for the taxpayers. They are permission-based, licensed, supervisory and other functions. One consequence of this has been the strangulation of business initiative, bribery and abuses of power. I cannot fail to stress again that the effectiveness of the state apparatus so far leaves something to be desired. Many reasonable proposals are talked into nothingness and get bogged down in the bureaucratic quagmire of formal approach and lack of competence.

One special issue is the administrative arbitrariness of law-enforcement system. There is still the potential for the so-called "non-procedural" actions, not provided by the law, of officials of different organs and services.

In the meantime citizens are not the object to apply the punitive machinery. The state, including its power structures, must first and foremost work for the citizens, protect them and their rights, interests and property, to say nothing about protecting their security and life itself.

Today it would be in order to issue a reminder, namely, that two or three years ago the bandits that operated in North Caucasus, did not expect such a rapid increase in the combat potential of our Armed Forces and the specialized units combating terrorism. Such a consolidation of society to defend the fundamental pillars of our statehood had not been expected. And despite the many boasting statements they suffered complete failure and complete defeat in an open confrontation. And today, resorting to terrorist acts against innocent citizens, against peaceful population they are trying to sow panic, fear, mistrust of authority and in this way to break the will of the people of Russia in the struggle for consolidating democracy, freedom and territorial integrity of our country.

The FSB, the Interior Ministry and other power structures need to continue conducting systemic work to liquidate the terrorist network. And special attention should be given to the effectiveness of operational activities, to developing tactics capable of forestall the threats of terrorist acts.

Getting back to some other current problems, I must say that transformations are proceeding very slowly in the social sphere. Delaying the reforms in health care, education still prevents us from safeguarding to the maximum extent the appropriate quality of these services. A substantial part of the financial flows of these sectors remains in the shade. We still have no developed system of medical insurance. There is no competition on the market of medical services.

As regards education, now it is the largest share of state budget expenditure. Our quality has been high, traditionally high but it is going down, and this must also be admitted. The reasons are many, including the appearance of a significant number of higher education institutions not meeting the appropriate quality standards, where it is easy to enter even with low enrollment marks. The overwhelming majority of graduates of higher education establishments do not agree to work according to their specialization and that means that the state does not deal with the problem closely and a significant part of the budget funds is spent with no result.

The problems of housing require special attention. The lack or poor quality of housing generate quite a number of negative consequences. These are the reduction in labor activity and the poor health of people and low birth rates as well as other negative factors.

All these questions require further study and they have to be resolved in the near future, without delay.

"Where and How to Look for the New Sources of Growth?"

Naturally, the question arises as to where and how to look for the new sources of growth? Above all, it is in the new approaches to the development of the country, in consolidating the society and the authorities, in a greater trust for each other and the joint quest for solutions to major nation-wide tasks.

The Russian economy must firmly occupy a worthy place in the world markets. For this it is above all necessary to develop our national and domestic market.

It is necessary to more rapidly modernize outdated production and establish that which strengthens the competitiveness of the country.

An end must be put to the wasteful use of the national natural resources and to introduce order in using them. And this needs to be done on a systemic legal base through updating the water and forest legislation and the acts on the use of subsurface resources.

We need transparent terms of access to natural resources and a fair payment for using them instead of existing pseudo contests where the main condition for victory is a businessman's closeness to authorities. We have to introduce auctions, and the administrative licensing system must be replaced with full-fledged civil contracts that will clearly determine the rights and duties of the state and business.

We must complete the modernization of railways, power industry, and the housing and communal sector.

Finally we should complete the tax reform and first of all reduce the unified social tax and simplify tax administration, as well as streamline property taxes, the taxation of super profits received by the exporters of raw materials if world prices stay high.

After we have reduced the combined tax burden, our tax system should at last gain long-sought stability. We will then have to dovetail it in the shortest period of time to interbudgetary relations and ongoing redistribution of powers between different levels of government. It is necessary to make the ruble fully convertible, especially since confidence in the national currency is growing.

We must develop the country's financial system so that enterprises and citizens could reap the benefits of the developed market of financial services.

A policy encouraging citizens' pension savings should become a necessary element of the development and strengthening of the financial system. People are already beginning to understand the size of the pension will at last depend on their own input and that every citizen can manage his pension savings.

The state must not only secure these savings but also help increase them. Therefore, the task is to create mechanisms of financial incentives for pension insurance. I would like to stress that this is an extremely important issue and we will work on it carefully and thoroughly.

As I have already said, one of our important objectives is to solve the housing problem. The world knows several ways to solve it. One of the most promising ones is housing mortgage credits. The other one is long-term lease. We must not forget the needs of those who use social housing. Maintaining it in normal condition and developing it is a duty of authorities.

I will dwell specially on housing mortgage credits. Even in industrialized countries one can hardly buy housing at once at its full price. Usually housing is bought with a credit that is then repaid within 10-20 years. Now we have such a possibility too. However the price and terms of a credit are such that it still remains off limits to most people. There must be a comprehensive package of laws that would launch a market of affordable housing.

Delays in the resolution of these issues are unacceptable. The government must submit this package during the current spring session.

"Only a Free Person Is Capable of Ensuring Economic Growth and the Prosperity of the State"

Dear friends,

We must also complete the program of our political reforms. I want to stress that our efforts in this field will be consistent, just as everything else that we have been doing for stabilization in the last several years.

First of all, we are carrying out a reform of federative relations. And we will complete by the end of the year key reorganizations at the level of self-government. Every citizen will not only know but he will actually have an opportunity to demand the level and quality of services that relevant authorities must offer him. And he will certainly be able to directly influence the adoption of decisions that concern him. The package of laws that has been adopted and will be adopted by the parliament seeks to solve this question. To this end, we will have to finish building a legal framework and formalize the principle of interbudgetary relations in the near future.

We will consistently strengthen our political system at the federal and regional levels. I am convinced that in order to ensure onward development of the state and society we will vitally need civilized political competition. This work should be based on influential, large political parties, parties that command authority and trust of the citizens of our country.

We must continue work to form a fully-fledged and vital civil society. Let me note especially that it is unthinkable without genuinely free and responsible mass media. But such freedom and such responsibility must have the necessary legal and economic base and it is the duty of the state to create it.

I am convinced that only a developed civil society can ensure immutable democratic freedoms, guarantee human and civil rights and ultimately only a free person is capable of ensuring economic growth and the prosperity of the state. In short, these are the alfa and omega of economic success and economic growth.

Let me stress again that freedoms and the rights of citizens is the highest value that constitutes the meaning and content of the work of the state.

And the last thing. We are determined to follow through with the transformations in the judicial system and the law enforcement bodies. I think this is of fundamental importance, it is an area that is crucial for the emergence of real democracy in the country and for ensuring the constitutional rights and guarantees to citizens.

In conclusion, I would like to say that the developments in the early 1990s, have engendered great hopes and expectations among our people. The thirst for change led to a fundamental and dramatic change of the whole way of life in our country. It seemed at times that the string of upheavals will never end. Today we feel that the time of uncertainty and anxious expectations is gone.

A new period has begun, a period of work to create conditions for a transition to a basically better quality of life. This is no easy task. It calls for political will, an honest dialogue between the authorities and society and our unstinting joint efforts.

Of course, one may ask, will we be able to meet this challenge?

The results of the past years give every ground for saying, yes, we are up to it and we will do it, by all means.