MOSCOW— President Vladimir Putin could put it like this: “It’s the economy, comrade.”
Russia is enjoying a turn in the economic limelight this year. In September, he hosts a G20 summit in St. Petersburg, where President Obama will be a much-sought guest despite regular outbreaks of anti-Americanism here.
The Russians were eager for Obama to arrive early for meetings with Putin, and the two presidents also plan to meet at the beginning of next week on the sidelines of the G8 meeting in Northern Ireland. At the end of the week, Putin speaks at the St. Petersburg International Economic Forum (SPIEF), a Davoslike event meant to discuss global economic issues while luring investors to Russia.
Russia and the United States have well-publicized differences — over Syria, missile defense and U.S. support of democracy. Both agree, however, that economic ties should be fully developed. The United States has made that a policy priority, helping to usher Russia into the World Trade Organization and granting it Permanent Normal Trade Relations.
This week, Putin answered written questions about economic issues from Russia’s RIA Novosti News Agency, which shared its translation of the transcript with The Washington Post.
— Kathy Lally
Q: You are going to the G8 summit not only as the head of one of the member states, but also as the leader of the country presiding in the G20 this year. In your opinion, is the G8 format still viable? Would you like to propose to your colleagues to divide the issues between the G20 and the G8, focusing the former on economic issues and the latter on political ones? Could you right now define the general vector of the agenda which will be proposed by Russia during its presidency in the G8 next year?
A: You are right, at the Lough Erne summit, Russia acts in a special capacity: not only as the current president of the Group of 20, but also as the future president of the Group of Eight. Therefore, we have a special responsibility: We will have to coordinate the activities of the two forums this year, and in 2014 we will continue the work begun by our British colleagues at the same high level.
In my opinion, which is shared by our partners, the G8 is quite viable. Russia is actively participating in that club; it is thanks to us that not only developed Western states, but also fast-growing countries, which play an increasingly prominent role in global politics and economy, have a voice there.
Discussions held within the framework of the G8 are characterized by depth and trust, which allows [us] to constructively solve many issues, even the most acute political ones. For example, in Lough Erne we plan to talk about the situation in Syria, the Middle East and North Africa, Afghanistan and so on. We expect that the results of this discussion will be useful.
One more characteristic feature of the G8 is that it traditionally pays great attention to promoting international development, first of all in Africa, provides assistance to underdeveloped countries. By the way, the concept of such assistance is significantly changing today. The G8 is engaged in direct dialogue and interaction with these states; the G8 looks for key problems and works on joint action programs to solve them.
In particular, at this year’s summit`, at the suggestion of the British presidency, we will talk about improving taxation systems and increasing the efficiency of public administration, as well as eliminating barriers to international and regional trade. It should be noted that it is important to involve the unused or hidden internal resources of developing countries to the maximum extent in all these areas. We consider that this will increase the volume of national budgets, improve the quality of public institutions.
Regarding the division of economic and political issues between the G20 and the G8, I think that each of these formats has its “added value,” and it would be wrong and inappropriate to artificially separate them on the basis of political and economic issues. We will try to prove that in 2014 when we will host the G8 summit in Sochi.
The specific agenda of our presidency is still being developed. Now I can say that we will focus on searching for responses to new security threats, including at the global level.
Q: The issue of reforming the International Monetary Fund has been already discussed for several years by both G8 meetings and G20 meetings. However, these discussions came to nothing due to unwillingness of the “founding fathers” of the fund to share power and influence. In your judgment, isn’t it time to take some more radical steps, for instance, to dissolve the IMF, start from scratch and establish a new organization taking into account modern financial and political realities?
A: The IMF needs a thorough reform. This view is shared by all the shareholders of the fund. The problem is that the IMF frequently fails to keep pace with the rapidly changing situation in global financial markets, first of all, when making efficient and timely decisions. Their implementation leaves much to be desired as well. A good example is the global financial crisis, which the IMF system failed to prevent.
I believe it is a wrong approach to think that the new councils, funds and other international institutions will become a panacea for all the problems. It is important, drawing upon the unique experience of cooperation within the IMF, to take further action to improve its work. It is necessary to raise the issue of the fund’s overall reorganization, its adjusting to current economic realities. And here it is most important to revise the IMF quota and voting system, to enhance the role of developing countries, including our BRICS [Brazil, Russia, India, China, South Africa] partners.
It is true that negotiations on these tracks are not going smoothly. I would say that they have actually come to a standstill since 2010. We will make maximum efforts to persuade our partners to reach a compromise and find mutually acceptable solutions in the run-up to the G20 Summit in St. Petersburg.
I would like to stress that changes in the IMF represent only a part of the reform of the global financial architecture. Its other priorities include lending and public debt management policy, as well as enhanced collaboration between regional financial mechanisms and the IMF.
Q: Increasing transparency of the world economy and abandoning the active use of offshore zones was declared by Great Britain to be one of the priorities of its presidency in the G8. What tools for deoffshorization of the world economy will be proposed by Russia? In this regard, will Russia make a proposal at the summit to examine the problem of the British Virgin Islands, which are under the jurisdiction of Great Britain, more thoroughly?
A: Deoffshorization is an important condition for eliminating structural imbalances in the world economy. It is an open secret that it is in offshore zones that considerable amounts of speculative and sometimes blatantly criminal capital are accumulated. And the countries and territories where it is registered often have very little understanding of the owners and origin of this money. Sudden emergence and uncontrolled movement of these funds extremely negatively affect the world financial system.
The outflow of capitals to offshore zones reduces tax base, decreases tax revenue and threatens with the loss of fiscal sovereignty of the countries. Against such a background, it is difficult to talk about building a fair taxation system. We have all seen how not long ago the head of Apple answered the awkward questions of senators about the fact that his company keeps tens of billions of dollars earned in the United States outside the American tax boundaries.
The fight against tax evasion through offshore zones is a very difficult and laborious task. To that end, it is important to use not only national, but also international regulatory tools.
As one of the deoffshorization measures, Russia proposes to conclude bilateral agreements with offshore and low-tax jurisdictions. Such documents should be aimed at countering illegal schemes of minimizing taxation, involve the exchange of tax information and implementation of universal recommendations developed within the framework of the OECD [Organization for Economic Cooperation and Development].
Strengthening international cooperation on tax issues has become a priority for the G20 after the onset of the world financial crisis. The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes is engaged in active and useful work. It assesses the legislation of the member states of this forum in order to identify whether it complies with international standards on disclosure of information.
Regarding the situation with offshore zones on the territories under the jurisdiction of Great Britain, the host of the G8 summit, David Cameron, was among those who drew attention to this problem. The British prime minister has been consistently working to increase transparency in taxation (including the issues of tax evasion and aggressive optimization) not only in the world as a whole, but also at home. I hope that his call to enhance interaction on exchanging tax information and facilitating access of supervisory authorities to the data on ultimate beneficiaries will be heard.
Q: Another priority announced by Great Britain for its presidency is the revitalization of international trade. How urgent is the problem of trade barriers, in your opinion? How reasonable are the efforts of the states with radically different economic environments to find a common ground for their countries in order to revitalize international trade?
A: The development of international trade is one of the key sources of economic growth. Which is why we cannot help being concerned about the negative trend of growth rates in the world trade declining to 2 percent in 2012. Estimates for this year (3.3 percent growth) do not seem very optimistic either.
This means that in spite of the crisis we should focus our joint efforts on developing trade and not on introducing protectionist measures. Protectionist lobbies within some countries have become more active which is the evidence that this threat persists.
It was in the spirit of joint actions that we proposed to our G20 partners to extend the moratorium on protectionist measures in trade and continue monitoring the implementation of such measures.
In this respect, I would like to emphasize that we consider the WTO to be the foundation on which the whole system of rules in the world trade is based. Unfortunately, we can see that there is certain stagnation right now within the WTO. However, this is not the reason to tear this structure down. We need to work to strengthen and develop it. We are actively trying to persuade our partners to conclude as soon as possible the Doha Round that has already been going on for 12 years. We hope that some progress will be made in this matter during the ministerial meeting scheduled for this December.
Now about the differences in the economic environments of the countries. They necessitate the establishment of common and understandable-to-everybody market “rules of the game” in trade, which would allow to avoid biased approaches and protectionist barriers. The WTO [World Trade Organization] creates a common legal framework and provides effective leverage against offenders. All this serves to make the world trade predictable and stable and ensure its more rapid development.
At the same time we have to look at the issue of liberalization of trade and investment in a broader perspective. Integrated associations are becoming ever more important, and free trade zones are being established. We are actively promoting the project of the Eurasian Economic Union that includes Kazakhstan and Belarus. This is a good example of barriers really lifted and trade revitalized. It is important that integration agreements correspond to the WTO requirements and regulations. We ensure this within our Customs Union, even though Kazakhstan and Belarus have not yet joined the organization.
Q: Russia has been a WTO member for a year now. One of the arguments in favor of the WTO accession was our intention to assure that Russia plays by the “rules of the game,” same as for the rest of the world. In your opinion, was this goal achieved?
A: Last year we completed the WTO accession. Our domestic legislation and hundreds of tariff lines were agreed on and brought in line with WTO rules in the course of a long and uneasy negotiation process. This does not mean that after Russia’s accession to the WTO, rapid changes and new “rules of the game” will be introduced. We have been using the WTO norms and standards for quite a long time now. And the fact that all WTO members approved Russia’s accession to the organization confirms that Russian economy is ready for the new working conditions.
Russia’s accession to the WTO allows it to fully participate in development and improvement of international trade rules. We are yet to learn how to take full advantage of the acceptable instruments to support domestic producers, resolve trade disputes and protect Russian goods in foreign markets.
Russia has one of the highest legislative transparency standards among WTO participants, as well as detailed external trade regulations. Of course, some claim that Russia does not fully comply with its WTO obligations. However, I would like to stress that we can make the same claims regarding our partners. We believe that Russian goods are unreasonably denied access to the domestic markets of mineral fertilizers, chemicals, petrochemicals and automotive fuel, as well as to pipe and metal industry in a number of countries. Nevertheless, it is a normal working process: the U.S., China, India, the EU and other international trade participants are settling the same disputes.
I would like to point out once again that we must take full advantage of WTO instruments to protect our trade and economic interests and prevent our partners from using unfair competitive practices. Moreover, WTO membership is a good stimulus for higher efficiency of Russian companies and radical modernization of the entire national economy.
Q: One of the issues to be discussed at the coming SPIEF is whether the welfare state can be economically competitive in the modern world. In your view, does the European model of the welfare state have a future? Does it bother you that Russia can repeat the path of Europe that is affected by economic inefficiency?
A: I think the question is incorrect. How can we link economic efficiency of a state, its competitiveness with the renunciation of all its social obligations? One of the main functions of the state is to take care of its population and ensure its social protection. A potential refusal from this function would endanger the existence of the institution of state as such.
The problem has a different nature, which was clearly shown by the crisis in certain European countries. The key word here is inefficiency. It is not the social policy that leads to the consequences Europe is facing today, but rather living beyond the means, losing control of the general economic situation and structural distortions. Moreover, many European countries are witnessing a rise of dependency mentality, when not working is often much more beneficial than working. This type of mentality endangers not only the economy but also the moral basics of the society. It is not a secret that many citizens of less developed countries come to Europe intentionally to live on social welfare.
For Russia, such approach is unacceptable. A social state is not something that we simply want. It is a necessity. We are working on striking a balance between decent salaries in the budgetary field, an appropriate pension system, quality public services, including medical and educational services, and a reasonable budgetary policy and measures to stimulate the economy. Otherwise, people cannot be confident in the future, cannot trust the government, while it is essential for stable economic growth and national development. We can easily recall such a situation in the 1990s when many social obligations were not fulfilled and poverty was growing at a threatening pace.
We made our choice long ago. We will not renounce our social obligations. Today, the main economy stimulating factors in our country are income growth, consumer spending growth and growth of bank lending. The government allocates large funds for raising employment, creating jobs and implementing employment programs. And the real wage is constantly growing. Pensions and social benefits are adjusted in time; the pension system as a whole is modernized. As a result, for the first four months of 2013 the unemployment rate in Russia remained rather low — 5.7 percent.
We pay a lot of attention to improving the demographic situation and developing the health-care system. We are implementing the corresponding projects and programs.
As for Europe, we see that leading European countries carry out structural reforms to raise the competitiveness of their economies, and fight unemployment. At the same time, due to stronger coordination between budgetary and economic policies, the approach to budgetary discipline is getting more flexible. And these countries recorded their obligations in the EU strategy of social and economic development up to 2020. Therefore, we should not reject the European social model.
Q: This year the SPIEF traditionally provides an opportunity to focus on the issues of sustainable economic growth and Russia’s role in global affairs. What does Russia see as new sources of global economic growth, and what will Russia use itself as catalysts for changes?
A: Today, it is important to evaluate the internal reserves of each country carefully and look for new sources of growth there. First of all, it is essential to improve public administration, develop human capital and competition, as well as increase investments in social sector, education, science and infrastructure. These are the keys to economic growth, innovative technology and job creation.
Therefore, the issue of financing long-term investments has been put at the top of agenda under Russia’s G20 presidency this year. Before the summit in St. Petersburg we are going to propose specific actions aimed at creating conditions for enhancing investment in real economy and increasing the number of effective tools for co-financing investment projects.
Booming international trade is yet another significant source of growth. Modern situation clearly illustrates that certain states or groups of states, whatever large they are, have reached their potential in regulating economies and financial systems. We need to adopt a unifying agenda. Global challenges and threats can only be countered through consolidated efforts of all states.
Further progressive and sustainable economic growth, apparently, requires harmonization of economic policies on a global scale, transformation of international monetary and financial system and financial regulation and supervision system, promotion of investments, higher level of confidence and enhancement of transparency, and predictability of markets, including the energy ones.
Such work has already begun. It is important to accomplish it and to complement steps taken with full-fledged universal agreements. Russia, which has assumed the G20 presidency for this year, will actively promote such agenda at the forthcoming summit in St. Petersburg.