Highlights From Russian President Vladimir Putin’s 13th Annual ‘Direct Line’ Q&A

Russian President Vladimir Putin answered a total of 90 questions on Thursday during his annual televised question and answer (Q&A) session, officially known as “The Direct Line with Vladimir Putin,” which lasted for 3 hours and 55 minutes, falling around 50 minutes short of his previous record.

Here are some of the highlights of President Putin’s 13th annual Q&A marathon televised from Moscow on Thursday (transcript courtesy of The Kremlin):

Maria Sittel: Good afternoon, Mr President. This has been a year when you had to take on a lot. You might say this has been a year of personal decisions for you. You had to make them quickly and accurately, and nobody could do it for you. This applies to the counter-sanctions, the diplomatic marathon in Minsk, and Crimea, of course.

The economic situation is also complicated. Given the external pressure, it also required your direct personal decisions. What are the results of the year? What have you managed to add up, what has been brought down maybe?

Vladimir Putin: This is a traditional question. I proceeded from the idea that you would ask this and this is something I would have to mention in any case. So I made some notes to make sure I do not invent things or get confused in the numbers. Actually, a lot of this has already been made public, but some figures are new and I am happy to share them with you and with the entire country.

You have already mentioned some of the results. This is the accession of Crimea and Sevastopol and the complicated foreign economic situation. Something we have said a lot about, but is worth mentioning now again, although it happened last year is our victory in the 2014 Olympics, the successful Sochi Winter Olympic Games. All this happened last year.

I would also mention the fact that we have come across certain external limitations, which in one way or another have had an impact on our growth rates, on our development, though on the whole we can now see that the ruble is gaining strength and the stock markets are on the rise. We have managed to avoid spiralling inflation.

Let us look at some specific figures. By the end of last year, Russia’s GDP has grown by 0.6 percent – a small growth, but it is growth nevertheless. Industrial production has gone up slightly more – by 1.7 percent, while the processing industry – by 2.1 percent. We have set a new record in oil production – 525 million tons, which is the highest in recent history. We also took in the largest grain crop in recent history – 105.3 million tons. Overall, agriculture demonstrated very good results with a 3.7 percent growth. We are also observing growth in the first quarter of this year, and this is good news.

There are positive dynamics in a number of other industries as well. Thus, the chemical industry has grown by 4.1 percent, the production of mineral fertilizers by 4.2, and so forth. At the same time, as you have justly noted, we do have some problems. The reduction of capital investment from small businesses was a negative signal. Thus, overall capital investment last year went down by 2.5 percent.

At the same time, housing construction has been doing very well. Our construction workers can be proud that they have also demonstrated record achievements in the entire history of the Russian state. Never before, neither in Soviet nor in post-Soviet times, and not in pre-Soviet either, I am sure, have we built so much housing – around 81 or even 82 million square meters.

We also managed to avoid a sharp hike in unemployment. It did grow last year, from about 5.3–5.4 in the middle of last year to 5.8 now, but we have managed to hold it back. I am certain we will get back to this today.

Meanwhile, the results of last year show an 11.4 percent growth in consumer prices. There is nothing good about this, of course, because this affects people’s living standards. However, in March the inflation rate has dropped. The population’s disposable income has gone down by 1 percent, while wages and salaries grew by 1.3 percent. As you may know, we have indexed pensions – both social and old age ones. Meanwhile economic uncertainty has led to a capital outflow. This is also something we need to keep in mind, but if there are questions about this, we can discuss it in greater detail. I see nothing disastrous here.

Despite the significant fluctuations on the financial market, Russia’s banking sector has demonstrated good dynamics. The portfolio of loans to the real sector of the economy has grown, and what is especially good is that the overall assets of Russian banks have grown to reach 77 trillion rubles and for the first time they exceed the nation’s GDP. This is a very good index, demonstrating the stability and reliability of the Russian banking system.

I have to say that both individuals and legal entities are now returning the money they withdrew or exchanged into hard currency at the end of last year. Thus, citizens’ deposits grew by 9.4 percent last year, while those of economic entities – by 40.6 percent, and they continue growing this year. In January, citizens’ deposits have added another 2.8 percent to reach over 19 trillion rubles, while those of organisations grew by 5.1 percent to a total of over 26 trillion rubles.

Overall, if we move on to budget issues, we concluded last year with a slight deficit of 0.5 percent and managed to prevent a spiralling into a major deficit. In other words, there is a deficit, and we envisaged a somewhat greater one this year of 3.7 percent, but it is quite reasonable.

One of the positive outcomes of 2014 was undoubtedly the positive demographics. The birth rate has gone up against a drop in the death rate. The average life span continues growing and this speaks of an overall positive tendency and public sentiment in general.

These, briefly, are the results of 2014 and the beginning of 2015.

Kirill Kleymenov: Mr President, the numbers you have provided mainly deal with macroeconomics and they are quite positive. However, if we consider the viewpoint of an ordinary person and judge by the questions we continue receiving on this live broadcast, the picture is not as rosy and there are quite a few problems. Let us consider the economy in detail, as this is the basis of everything.

I would like to begin with a question that was brought about by a recent publication. A participant in your meeting with entrepreneurs said you warned the businessmen at this meeting that the sanctions would not be lifted soon; that they should not expect this. First, let us set the record straight – did you have this conversation or not, and if you did, how do you see the situation.

Vladimir Putin: You did not listen to me attentively after all; you were thinking of the question you were going to ask and missed a few of the things I mentioned. I spoke of a number of positive developments, including those on a macroeconomic level, which are very important for further development. However, I also said the population’s incomes have gone down. Salaries have grown a little, but the overall incomes have dropped due to inflation of about 11.4 percent. I mentioned this as well.

As for sanctions, this conversation with entrepreneurs did take place, and I told them they should hardly expect a lifting of the sanctions because these are purely political matters, and for some of our partners I believe they have to do with their strategic interaction with Russia and with hindering our development.

Actually, I do not think this issue directly concerns Ukraine any longer, because the current goal is the implementation of the Minsk Agreements. We are doing everything possible toward this goal, but Kiev is taking its time, while the sanctions have not been lifted.

The point at issue is not the sanctions. What did I tell the business people? I told them that the issue is not limited to the sanctions, that we must find better ways to manage these processes at home, in our country and economy. And that very much depends on what we do.

We have talked about prices and wages, but what is the reason? It is clear that the reason is the pressure on the ruble, its depreciation. In turn, it is connected to oil prices. We know very well that, unfortunately, our economic development has been lop-sided for a long time, and this will be very difficult to change.

What have we been doing for the past years? Wages were growing at a priority pace, much faster than labour efficiency. And the currency rate adjustment was unavoidable – unavoidable – even in the absence of the sanctions.

In fact, the sanctions came in handy for the Government and the Central Bank, which can now blame the situation on the sanctions. But the sanctions are not the only reason. We must adjust our economic policy more professionally, consistently and quickly. It has now been adjusted.

Believe me, this is a very important decision, and both the markets and investors have responded to it. It will help improve our economy and create basic conditions for further development. So the sanctions, which are definitely contributing to our current problems, and which we will possibly discuss here if there are questions, the sanctions are not our biggest problem.

Kirill Kleymenov: But still, how long will all this last, meaning the sanctions? As long as in Iran? We know that Tehran has been living under sanctions for several decades.

Vladimir Putin: After all, Russia is not Iran. Russia is bigger; its economy is bigger and by the way much more diversified than Iran’s. Moreover, our energy policy is different from that of the Iranian authorities, and this is for a number of reasons, which I will not analyse or asses here. After all, Russia’s energy industry is much more market-based than in a number of oil and gas producing countries. So you cannot really compare the two countries.

As for how long we will have to endure the sanctions, I would put the question differently. This should not be about enduring anything – we must benefit from the situation with the sanctions to reach new development frontiers. Otherwise, we probably would not have done it. This goes for import substitution policies, which we are now forced to implement. We will move in this direction, and I hope that these efforts will foster the development of the high-tech sectors of the economy with higher growth rates than previously seen.

The Russian market was too crowded for domestic agricultural producers, especially after our country joined the WTO. But now we are able to clear it up. It is true that this had a negative impact in terms of food price inflation. So in this respect we will have to put up with it for some time, but domestic agricultural output will inevitably grow, and it will grow, especially on the back of the government support measures that are in place.

I am aware of the discontent among agricultural producers. They are probably in the studio and will have an opportunity to ask some questions. We will discuss it, but it should be noted that the support is there. Domestic production and food security are extremely important, and we will seek to ensure them. Would we have taken these counter actions or not without the sanctions? The answer is no. But now we are doing it.

Maria Sittel: It is true that Russia is a strong nation, and we can endure. Many text messages from the regions are coming to mind, in which farmers and producers are all saying that the key thing is to ensure that the sanctions are not lifted, because we are beginning to step up local production. So removing the sanctions now would be a disaster.

We will come back to this issue later. At the same time there are other questions. People are recalling your press conference from six months ago, during which you said that it would take two years for the economy to recover. Maybe it is time for you to adjust your forecast?

Vladimir Putin: Perhaps we will do it sooner. Given what we see right now – the strengthening of the ruble, market growth and other things – I think that perhaps this could happen sooner, but still, I believe, it will take about two years. Considering all the factors, we are forecasting a certain production decline later this year. But then, we assumed that the start of this year would see a considerable drop in production, but it did not.

I would like to tell you that industrial production in March of this year was 99.4 percent of what it was in March 2014, and in the first quarter of this year, 99.6 percent of the level recorded in the first quarter of 2014.

In practical terms, there has been no decline in production during the start of this year. Some growth is possible but it will be contingent on the key rate, the Government’s and the state’s economic policy, and many other factors. Still, we must do our best to keep up the positive dynamics that we are witnessing right now. It should be maintained and accelerated.

Kirill Kleymenov: We are living in an environment of sanctions and counter-sanctions. Don’t you feel that something could have been done differently?

Vladimir Putin: Perhaps there is always a chance to do something differently. I do not know if something would have been better. I think we took the best approach.

Kirill Kleymenov: Mr President, a very important question is whether we will have enough strength and resources?

Vladimir Putin: You know it is not even the matter of strength. As for resources, we certainly have a lot. The most important thing is human resources, people’s skills and willingness to work. I have had a lot of contact with people, and I know how they feel, particularly about the sanctions. But I do not want to show you the gestures – you can imagine what gestures come from ordinary people.

Our task – the task facing the President, the Government, the Central Bank, and the heads of the regions – is to get through this time with minimal loss. Can we make it or not? Yes we can, and it is not about being patient. We must use the situation to our benefit. And we can do this.

Maria Sittel: What other threats could Russia be faced with this year?

Vladimir Putin: You know, there are lots of unpredictable threats out there, but if we manage to maintain a stable political situation in the country and keep our people as united as we are now, we will be immune to any threats.

Kirill Kleymenov: Mr President, I would still like to focus on some negative issues. The crisis is still here. The Government came up with an action plan to overcome it, but frankly we have not seen any results so far. Sometimes, it seems that the key strategy boils down to our expecting oil prices to improve, and the oil money to start flowing into the budget, thus resolving all the problems.

Vladimir Putin: This is an overly critical assessment of the Government’s work. Of course, the Government should always be criticised, just like the President and the governors. Everyone needs critical feedback as a matter of fact. Generally, criticism helps to look at things from a different perspective, which is always good.

Still, adopting a socioeconomic stabilisation plan for our country under such circumstances is not an easy task and requires a highly professional approach. These things cannot be dealt with in an offhanded manner. You cannot just throw money at the problem thinking that we have an infinite supply of it.

So, it took the Government some time to sort things out and see what needed to be done and what it takes to accomplish it. However, the plan that I mentioned was adopted in late December, and it is now being implemented gradually.

Could it have been done faster? Probably yes, we could have moved faster. Nevertheless, this action plan has been thoroughly thought out, and I believe it adequately reflects the current state of our economy. What I mean is that, first, this is an ambitious plan with a budget of 2.3 trillion rubles, which is a lot. Of this amount, 900 billion rubles were used to directly support the banking system, which is, according to some experts, the lifeblood of our economy. No matter who criticises the Government or the Central Bank, it must be admitted that these actions are correct and justified, which can be corroborated by the previous 2008–2009 crisis.

Moreover, 250 billion has been allocated to the goods-and-services sector, also via banks, but in effect straight into the real sector of the economy. A decision has been made to boost the capitalisation of the United Aircraft Corporation, i.e., to inject 100 billion rubles into the aircraft manufacturing sector. Over 82 billion will be provided to support the labour market and 200 billion plus 30 billion in guarantees to the real sector and for the specific project.

The Central Bank has provided for an entire package of what I regard as timely and economically vital measures. As I said earlier, we indexed pensions at the beginning of the year. In other words, a number of decisions were made in the tax sphere that we will probably discuss later. There is a separate programme to support the agricultural sector. Also, in the domestic transit sector − say, rail transit – things have not been finalised there yet, but nevertheless, a decision has been made to introduce zero VAT on commuter rail services, reduce VAT on domestic air services by 10 percent, and so on. In other words, there is a package, a comprehensive set of measures, and they are beginning to work.

It is probably not quite fair to say that we are not seeing the results. I understand that prices are still what they are, although they started falling in March. This is also a fact – perhaps not in all regions, but it is evident on a countrywide level. The ruble has also stabilised and strengthened. So it would be unfair to say that there are no results. Perhaps there were greater expectations, but this is exactly why I say that we should face up to reality and choose the right direction to move in. I believe that the Government has made the right choice and we are moving down this path.

Kirill Kleymenov: But by all accounts, the strengthening of the ruble has different causes.

Vladimir Putin: Do you think so? What causes?

Kirill Kleymenov: First of all, oil prices have grown slightly and stabilised. And then there is also an element of speculation because funds are simply being converted into rubles, since ruble interest rates have significantly increased.

Vladimir Putin: But why have they increased? (Laughs)

Oil prices indeed have gone up a little, but this is directly connected – and experts are already seeing this – the strengthening of the ruble is connected to oil prices, but this strengthening is not directly related to this increase.

There are other factors involved, and I have already mentioned the main one. Experts see that we have passed the peak of the problems with the repayment of external loans by our banking and other enterprises in the real sector, and we have adjusted the national currency exchange rate. And nothing went bust, everything works.

Yes, we have some problems: inflation has gone up, unemployment has increased slightly, but not like in the Euro zone: it is over 11percent there and here it is, so far, just 5.8 percent. So, all this contributes to the shoring up of our national currency.