№1(12)(2013)

Interview with Dmitry Medvedev

”LIGHTNING THAT STRIKES TWICE”

Dmitry Anatolyevich, you have been at the head of the Russian government for over six months now. Are there regrets that you've only been President for four years?

– The way I feel is, President’s job is extremely interesting, yet its ultimate in terms of power, as there is no one above the President, he is ultimately responsible for what is going on in the country.  The job of Head of Government is also very interesting and multi-faceted, so in terms of realizing my potential both are quite exciting.

We may say that the government has been formed and the team of professionals has proven themselves in their work. Are you satisfied with the team you are now leading?

– This will probably come as no surprise, but let me tell you this simple thing: this was my choice. The second thing is that, out of the candidates for government posts that I submitted to President Putin, he approved 100%. There are no people on my team that got there by any other way.

I can’t say am completely satisfied, because one is fully satisfied when having achieved the result. But I will admit that the government consists of the candidates I have suggested. I believe that the government does have great potential: on the one hand it has 75% of newcomers, on the other – every one of them has experience of working in the bodies of institutional power. This is important, because I myself had certain illusions when I was starting working for the government. I was a successful young man of 34. I believed that if I had success in business and can run board meetings, running a governmental body would be no different. And I was sorely mistaken; it is quite a different cup of tea!

We may speak already of the first results of your work. Compared to previously defined priority areas, which issues have been already dealt with, which still require the solution?

– If I was going to say, having been the Prime Minister for six months, that we have dealt with most of our pressing issues that would have been ridiculous. A vital prerequisite for successful functioning of the government is that it should really come together as a team of like-minded people. Over the past half-year I as a Chairman of the Government, same as my colleagues, have been trying to establish the joint platform for our work, and in this regard we have been successful. But it doesn’t mean that now everybody in the government is painted with the same brush, and there are no differing opinions. It is only normal that Cabinet members have different views upon this or that issue.

And as to our objectives, after the President signed relevant decrees, I arranged the meeting for all Cabinet members and said: We are facing quite practical task. The first thing we need to do is to adopt government programs. I have always maintained that the budget should be created using a program approach. Our second task is approval of budget for 2013, as well as for the three-year term. Third – social development, finding ways to increase payments to certain categories of citizens, in accordance with earlier decisions. Fourth – reforming state services. Fifth – work with experts on the grounds of “Open government”. Sixth – privatization. Seventh – quick implementing roadmap measures of national entrepreneurial initiative on improvement of the investment climate.

I can’t be the judge of where we have achieved success and where not. I can only say that we have seen progress in these areas.

What new tasks do you charge the government with and yourself?

– Our goal is to make the economy healthy, modern and competitive, for people to have a better and more prosperous life with higher living standards. These are the goals of any government, even in the times of crisis.

Are you saying the crisis hasn’t passed yet?

– The current situation is not really a crisis, but it can be described as pre-stormy, so to speak. Certainly, this factor has affected our efforts in the past six months.

One of the important dilemmas to be resolved by the Russian government in the near future is the feasibility of creating a financial “megaregulator” and consolidation of financial controls. What solution the government will most probably go for? How do you envision the situation is going to unfold?

– The solution is still in the works. But I can share with you my thoughts on the matter, though it is not a final concept. We have a number of institutions affecting the situation in the financial market, of which the Central Bank is the strongest. The CB is an autonomous system. The idea to invest all the powers onto the CB is not totally meaningless. Ideal controlling bodies simply do not exist, and there’s always the human factor, yet speaking of the corruption, the CB is considerably more transparent and open system, compared to many other state bodies.

But, again, it is not a final solution. That is why I ordered to analyze all options – from strengthening the existing structure that regulates financial markets to giving respective powers fully to the Central Bank.

Improvement of the investment climate is a priority direction in the development of Russia today. Can you speak of any achievements in this regard, and what does the government undertake to attract foreign capital?

– Churchill once said that a nation’s reputation is most accurately defined by the amount that this nation can borrow. Today, obviously, we speak not only of debts, and the reputation of any country is seen through the size of the capital it is capable of borrowing.

To answer your question, I will give specific numbers. In 2007 only 8% of foreign companies believed Russia was making any sort of progress in attracting foreign investment, today we speak of over a third of foreign companies. Last year we had $53 billion direct investment – 122% against 2010. It should be noted that for the first time in eight years Russia has improved its position on the World Bank rating: in tax administration we rose by 41 points, which is the most considerable progress among participating nations, as well as a not bad result for Russia.

On the other hand, we understand that a lot is to be done yet, the work on improvement of the business climate. The paramount objectives involve decreased administrative barriers and increased efficiency of government structures, as well as overall trust in the decisions by executive bodies and courts.

In the past few years a series of decisions were passed on simplifying the procedure of control over foreign investors and investment; we have simplified the procedure of consideration of relevant addresses, reduced the list of activities of so-called strategic importance, and eased foreign funds’ access to certain economy sectors.

Which industries will benefit most from foreign funds and bring mutual profitability?

– There is a popular stereotype that, I believe, you know as well: when comes to Russia, you must invest into oil, natural gas and other natural resources. On the other hand, people today come to realize that this is not entirely correct, yet the stereotype prevails. Russia has long-term investment prospects that other countries don’t have. In this regard I would like to point to three things.

The first thing to look into is infrastructure project. Russia has always been meant to be the center of transport communications, engage in logistic activities. Today we see many infrastructure projects being developed in the Far East and Siberia.

Another highly important aspect is privatization. We plan to sell the stock of a number of enterprises, big and important ones, some of them have already been sold over the past few months. By the way, one of the biggest recent transactions in the financial market – our Sberbank’s IPO – has gone quite well. The participants were reputable investment funds that haven’t previously invested into the Sberbank or Russia as a whole.

The third thing I have to point out is growing consumer market, everything related to the middle class and its development. I mean retail commerce, housing industry, medical services, telecommunications. It is not by accident that 40% of foreign businesses see this as a competitive advantage of our country and prime consideration when making an investment.

Let’s dwell on the topic of privatization a little. For years you have consistently supported this process, opposing the development of the public sector. What is this process ultimately about and can we speak of its successful implementation?

– I have previously said that this is not merely a mechanism of alienation of state property and a way to replenish the budget – this is a matter of ideology, if you will, a vector of economic policy. Undoubtedly, a private entrepreneur and private owner as a whole should be more interested in developing their business. We have been working in this area, I believe, not without success. This year market situation will send to the budget about 300 billion RUR from privatization of the federal property.

I will admit that, despite current macroeconomic complications and other circumstances, during this period we sold shares of several large enterprises (for the first time in a while), including giving to private owners 7.6% of the Sberbank in September that brought us income of over $5.2 billion. This is one of the biggest deals in alienation of state property over the past 10 years; it involved various funds, portfolio investors that never before invested into the Sberbank or Russia in general. This is, in the least, an indirect indicator of trust in our economy an processes it is going through.

Which structures are in charge of privatization bidding and what are the criteria for their selection?

– I find it expedient to entrust the mission of setting up such bidding to professional bodies – investment banks that are selected on a competitive basis. This is a generally effective approach, and it brought a fairly good final price on several objects. We need to keep moving in this direction – get rid of excess property. Our privatization target in 2013 is 380 billion RUR. Of course – I’ve said it before and I’ll say it again – we need to look realistically at the financial markets, quality investors, degree of readiness of enterprises being privatized to work in new conditions and not to substitute privatization with sale of shares to other state-owned companies.

What pace of privatization can we speak of today? What are the factors slowing it down?

– Speaking about privatization, we should, first of all, look at the situation in the markets – this is our variable number one. Number two is a justified need to withdraw or get rid of excessive mass of public property.

Today we see obviously insufficient pace of privatization of unitary state enterprises, which is due to ill-prepared objects of federal property and, unfortunately, lack of title documents. This problem persists around the country – we simply cannot find proof of ownership of right to land, buildings. That’s how everything was maintained back in the day, and then we lost some, too. So this should be taken into consideration: documents are to be executed, replaced, or else, in some situations we need to decide they are not necessary whatsoever.

Today many European countries, trying to combat public deficit, are introducing wealth tax – this trend touched Ukraine, too. While raising taxation rate for the rich is yet under discussion, the draft law on taxation of real estate is an object of constant heated debate in the Parliament: will it become effective, who will it concern first of all, will it bring expected results?

– Yes, we are aware of this dispute. I want to stress that this is primarily up to Ukrainian leaders and the people, but from where I am standing, when it comes to taxes it is advisable to be reasonably conservative in order not to weaken the overall structure, especially amid crisis. Here’s an example from our turf: over ten years ago we decided to switch to the so-called flat taxation scale. Today any citizen of our country – very rich and not rich alike – pays tax on a single 13% rate. This idea is being criticized, saying that there are oligarchs, the rich – let them pay more. This is fair. But, on the other hand, it is in our interest to prevent, at least with the help of a tax rate, the capital from leaving the country and going “shady” – I am speaking of the so-called “gray” payments that are still widespread in Europe, too.

We know that, for instance, in Greece the major portion of the salary – judging from the data that we had and have – is paid “in the envelope”. We had the same problem. But when we changed the taxation rate, most payments became legal. Is that a bad thing? So when changing the tax system it is necessary to think of the implications, prevent the capital from going abroad.

Does this mean that the Russians need not worry about the wealth tax at all?

– I’m not saying that our taxation system is set in stone, some sort of dogma. Certainly, it is going to change. We are contemplating the existing system, as well as its future, but the truth lies somewhere between these two extremes, like between Scylla and Charybdis. In any case I think amid crisis it is better not to shake the fiscal system too much – that is my personal opinion.

Dmitry Anatolievich, another question: can authorities influence courts in Russia?

– Can they in Ukraine?

Not, theoretically.

– Same in our country. This is a very accurate answer: not, theoretically. Certainly, we have the right to express our position but I believe that the further away is the power (and I mean any power: executive, legislative, even the President) from courts, the stronger our judicial power will be.

Indeed. As regards the Yukos case, do you not think Mr Khodorkovsky has been behind bars for too long already?

– You see, any person imprisoned is worth pity, because it is heavy punishment. On the other, there is a measure of liability set by the court. Speaking of the Khodorkovsky/Lebedev case, the court has determined the sentence within the law. Whether it is long or short, it is a complicated question, as any single day in prison is a long and hard day. And yet, it is a court decision. When I was President, I said many times that there is a court decision, and everybody must oblige. There is a possibility of appeal. As far as I understand, this procedure has been initiated and the second appeal is still in process. And besides, there is always right to pardon that the convicted has not used. Had they submitted a suit for pardon to the President, it would have been the President’s decision whether or not to pardon them. I never received any such plea.

Does this mean that he has an option that he is not fully using?

– In this respect, certainly – same as any other convicted person. If they are found guilty, they may suit for pardon. I received such suits – some were rejected, some approved. I believe it is quite all right.

Let’s step away from politics and economy. You have always supported innovation; try to be in step with the time, use latest technology, gadgets. With your personal website and blog, participation in online forums, can you call yourself an active Internet user?

– Is there any doubt yet? I have been an active web user for quite some time, even before going into public service, back when the Internet was something exotic. I am convinced that, if a person wants to keep pace with the mainstream human development, they must know and use this technology.

The Internet has so many faces. It is an exciting brand new communicative environment, live interaction, albeit virtual. This is probably the peculiarity of online communication: live interaction within a virtual medium. That’s why I think we must promote establishing contacts with online audiences, for state officials not to avoid using the web, answer the questions coming from this corner.

Do you have web resources of choice?

– I don’t visit forums that often, though sometimes I do check out what is being discussed, what the users write, what their opinions are. I go to news websites almost every day, and sometimes to educational, too. Besides, as part of our work, we have several internet products used for controlling purposes. I was telling once about one of them – website for monitoring national projects.

In conclusion I would like to ask you about your further political ambitions – do you plan on returning to the Kremlin?

– If I have enough strength and health, if our people trust me with such mission in future, I am not entirely eliminating this possibility. But it will depend on so many factors. I’ve said before, you should never eliminate possibility, like they say, never say never. Even more so, this lightning has stricken once before, and this is exactly the kind of lightning that may strike twice.