Speech at 12th Petersburg International Economic Forum 2008-06-07 12:00:00 St Peterburg President of Russia Dmitry Medvedev: Good afternoon ladies and gentlemen, dear friends! Once again I would like to welcome you sincerely to the Saint Petersburg Economic Forum. For more than a decade now this international gathering has drawn the attention of delegations from around the world. And the presence here of well-known politicians, businessmen and experts indicates not only the growing interest in the Forum itself but also a clear desire for mutual cooperation. And, of course, I am particularly pleased to see my colleagues here, the leaders of the Commonwealth of Independent States, along with other heads of state and government. Despite your busy schedules you have found the time to come to the Forum in Saint Petersburg, and we are deeply grateful to you for having done so. Today, our focus will be on changes in the global financial system and in commodity and food markets, as well as the relations between the economies of various countries. Here I would include relations between those former leaders of world development that have fallen back and the new players who are contributing to the accelerated pace of economic growth. In the opinion of many leading experts, what we are seeing in the world today is the impact of many years of increased globalisation and the desire of individual countries to protect their economic sovereignty. This has been accompanied by countries' desires to maximise benefits for their citizens without sharing those benefits with their neighbours. In fact, this represents a growing economic selfishness. It is true that in one sense this is a natural feature of economic activity. As one of our great theatre directors, Georgy Tovstonogov, once remarked, ”the higher the fence, the better the neighbour“. In this sense, economic selfishness does not represent any serious threat to development in general, but on the other hand its manifestations are often accompanied by much more rigid ideological positions. In what can be described as economic nationalism, political considerations trump pragmatic interests. I do not think in the present crisis period such a strategy is the best solution for the problems that have become apparent. We can no longer choose whether to live in a global world or not. The modern world is already global. And in such circumstances mistakes made by individual countries and, more importantly, the consequences of economic selfishness have an immediate effect on the situation throughout the global economy. As you know, 2007 was one of the worst years in the last decade for global financial markets. And if we are to believe the experts, we may be in for times that will be as difficult as the Great Depression of the 1930s. The way that major financial companies underestimated risk and the aggressive fiscal policies in the world's largest economy led to losses not only in corporations. Unfortunately, the majority of the world’s population lost and these losses have been definitely felt not only in underdeveloped economies but also in the most advanced ones. The general pace of world economic growth has slowed drastically. According to some projections, the current crisis could expand to become one of the most severe in world history, when the growth rate in some countries were declining by more than 5 per cent for a number of years. As a result questions are being asked about ideas for market regulation that have evolved over decades. Let's be frank: we now hear that the very nature of the market economy leads to inequality, environmental destruction and periodic crises. This is simply not true, but of course we must all draw lessons from what has happened. And we should reflect on something else as well: what lessons can be learned from the current crisis concerning new ”safety belts“ for national economies, and what opportunities do they provide for sustainable development? For example, Russia has not yet carried out a number of reforms that have proved to be quite popular in the world today and has thereby managed to avoid some serious mistakes. We gobbled up our budget deficit and balance of payments deficit back in 1998. The development of the financial and housing sectors in our country is still in the fairly early stages and thus the magnitude of the risks faced by other countries is simply not such a problem for us. At the same time this hardly exempts us from having to draw the right conclusions, so that Russia doesn't end up suffering similar shocks. Moreover, Russia today is a global player. We must recognise its responsibility for the destiny of the world and we want to participate in shaping the new rules of the game, not because of any so-called imperial ambitions, but simply because we have both the requisite capacity and resources. I note that the crises taking place before our eyes — the financial crisis, rising prices for natural resources and food, as well as a number of global catastrophes — have clearly demonstrated that the current system of global governance is not equipped to meet the challenges it faces. There is a kind of institutional vacuum at the level of international governmental agencies responsible for solving the specific problems that are today the most acute. This has shown how illusory it is to suppose that a single country, even if it is the most powerful, can assume the role of global government. Global governance institutions responsible for financial policy in effect do not have ways of influencing the strategies of those involved in the markets. Could it have been otherwise in a situation where the main blow fell on the world market's principal shareholder? This is more a rhetorical question. In fact, it was the disconnect between the formal role played by the United States of America in the world economic system and its actual capabilities that was one of the main reasons for the current crisis. No matter how large the American market is and no matter how reliable its financial system is, it cannot serve as a substitute for global commodity and financial markets. In any case, this simply confirms the necessity of reforming the global financial structure. There have been extensive discussions about the areas in which such reforms should be effected. And we already have the basic elements of a modern globalised regulatory system. Allow me to identify what I think its three most important elements are. First of all the streamlining of these regulatory institutions. We need better coordination between the authorities responsible for different market segments, both internationally and nationally. And I think that the regulatory institutions should take into account the interests of all countries, regardless of their level of development. Another area for modernisation is to create conditions for adequate assessment of those participating in the market, as well as evaluation of various financial instruments. We have discussed new systems for objective information disclosure, enhancing the role of rating agencies, making oversight requirements more effective and establishing more understandable and more transparent accounting standards. And, finally, in the framework of modernisation, we need to create an effective system of incentives for rational behavior. I mean behavior based on a balanced assessment of risk and possibilities. Everyone likes to receive bonuses. But such bonuses should be paid only for achieving stable results. Russia's role in the global financial and commodity markets allows us to participate actively in the discussion of concrete solutions to these problems. I think that Russia would be a convenient place to initiate such a discussion. In this connection I propose that this year we hold an international conference with the heads of major financial companies, leading financial analysts and academics. What's more, this sort of discussion could be conducted on a permanent basis. Politicians could use the approaches it elaborated to help them with their decision making. The transformation of Moscow into a powerful global financial center and the transformation of the ruble into one of the leading regional reserve currencies are the key ingredients to ensure the competitiveness of our financial system. To facilitate these things an action plan will be adopted in the very near future. Another priority is the greater integration of Russia into world capital markets. We have already achieved some success in attracting capital. And now we have begun to stimulate investment by Russian companies abroad. We need this to ensure our competitiveness in world markets, and to implement a serious technological surge. I would particularly like to point out that our investment is neither speculative nor aggressive in nature. Recent examples clearly show that our companies not only seek to maintain jobs when entering markets but also work to create new ones. By the way, we raised this topic during my last visit to the Federal Republic of Germany. I want to underline that Russian companies are typically driven by pragmatic considerations. I am confident that their actions will be transparent, based on the interests of partners and in accordance with international law and national legislation. Dear colleagues, one of the clearest examples of economic selfishness is the reaction of a number of national authorities to the rapid increase in food prices. The world has been confronted with this situation for the past year. The reasons for this are obvious. There was the increased demand for food and the expanding production of bio fuels against the backdrop of higher oil prices. And, of course, short-term problems with the harvest affecting leading world producers. Increasing desire worldwide to protect the interests of national agricultural producers lead to a spike in prices. This system works with subsidies, governmental and non-tariff measures designed to protect domestic markets – all of these are well known – but they also been unable to prevent the crisis. And, finally, for the first time the crisis in the markets became systemic, because of the development of complex financial instruments and secured assets in commodities. The drop in the value of the dollar as a means of saving led to the explosive growth of investment in such instruments. It suddenly became clear that there was just not enough liquidity in the world or relatively reliable sites for investors to put their money. The most obvious answer to the crisis would be a combination of measures to stimulate agricultural production and to adjust national energy strategies. However, such a policy would inevitably run into opposition from those who seek to profit from the problems that have been created. Therefore, the reaction of most state governments was easy to predict. Agricultural export restrictions followed, along with an increase in measures to stimulate the production of genetically modified foods, without adequate consumer information or a discussion of the hazards involved. In our opinion, such actions are capable of stablising the situation in domestic markets only for a short time. In the long run, such measures can only aggravate the global crisis. It is clear that simple pragmatism does not allow any of the countries to be the first in abandoning safeguards that they have imposed. And the only way out of the prevailing situation can only be concerted, collective action. We are ready for constructive and co-ordinated action to overcome the food crisis. After that we would like to develop effective anti-crisis programmes. Even a hundred years ago, Russia was one of the largest suppliers of wheat in the world. Output growth in Russia is beneficial not only to us but also to the global food market. What is also beneficial is the use of energy sources such as hydro and nuclear fuel organised on the basis of sound technologies. We expect that our partners will agree with such a strategy. And we believe that it is indispensable to continue an intensive dialogue in order to create a new, more efficient structure of world food and agricultural trade policies. It should involve politicians and specialists with very different profiles. One of the possible sites for such work might be designated institutions of the United Nations. Distinguished colleagues, ladies and gentlemen, Russia has proposed at the G8 summit in St Petersburg and is intent on pursuing the idea of energy security. The central notion is the mutual responsibility of producers and consumers of energy resources, as well as the responsibility of transit countries for reliability and stability of energy supplies. Our partners have agreed that this is only possible when using the entire spectrum of renewable energy sources and encouraging the maximum market integration, as well as the formation of a favourable investment regime and transparent system of market access. In practice, however, emphasis was placed solely on expanding production of bio fuels. And now we know what the consequences of that were. In this connection, Russia's policy will take its commitments fully into account. Important steps in this direction have become the large-scale efforts to attract private investment into the Russian electricity sector, the creation of new capacity for the transportation of energy resources, the decision to liberalise the gas market and lower taxation in the oil sector. In the medium term we will see the results of these measures. I want to emphasise that such steps will not only strengthen the Russian fuel and energy complex but also contribute to the stability of global energy markets. And in the near future the discussion of these topics will be taken up again at the G8 summit in Japan. World development trends lead me to my principal conclusion: today every country, working individually and together, has an opportunity to enjoy the maximum benefits of globalisation. And this chance does not mean centralising in order to ensure an equitable distribution of wealth, but rather a determination on the part of participants in the world market to concentrate on developing human potential. Technological progress should lead to an increase in productivity, an improvement in the environmental situation and the creation of opportunities for healthy lifestyles. Both government and business must benefit from participating in the development of lifelong education systems and the establishment and modernisation of transport infrastructure, facilitating people's mobility and providing incentives for innovation. These priorities are laid out in the so-called concept of four I's, that we have begun to implement in order to reach our long-term development goals. These all involve an emphasis on improving the everyday lives of people in our society and guaranteeing the Russia's leadership in the world. The four I's are well known: Institutions, Infrastructure, Investment and Innovation. And on tomorrow's agenda for the Forum we have added to this list a fifth element: Intelligence. I am sure that this is not the last I, especially given the huge potential of the information society and the use of Internet technologies. The foundation of this work was laid during the previous years, and we have recently taken decisions for the first time concerning the realisation of a new phase of our strategy. By this I mean fighting corruption, strengthening the judiciary in our country and ensuring the rule of law. New initiatives to reduce administrative barriers for entrepreneurship are also appearing. We are preparing comprehensive measures to develop the network of federal universities that should be numbered among the world's leading academic and educational institutions. I have no doubt that the 12th Petersburg forum will contribute to the development of new ideas both for Russia's successful development and that of the international community in general. It has become trendy to say: we all want to win and in Russian history there are quite a few such victories. But we have been waiting too long for new bright victories: in the economy, technology, and social development. In fields which are important for our citizens. In recent years, there were not so many such victories, but over the past few weeks we celebrated long-awaited sporting successes. But only the athletes know at what price these victories are achieved. That price consists in serious work. It is obvious that victories do not come by themselves. Today, we are able to do everything so that our victory is as great as possible. And we must strive to do this. But we must not forget Winston Churchill's famous aphorism that the problems of victory are more agreeable than the problems of defeat, but they are no less difficult.