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Annual Address to the Federal Assembly of the Russian Federation
May 16, 2003
Moscow, the Kremlin

President Vladimir PUTIN:

Esteemed colleagues, deputies of the State Duma, members of the Federation Council, citizens of Russia!

Today, in accordance with the Constitution, I have come to report to you on the state of the nation. I would like to begin with a brief summing up of the situation.

Last year's results are in many ways a continuation of the work begun three years ago. Over these last three years not only have we worked hard to clear the mountain of problems that life itself forces us to tackle practically on a daily basis, we have also achieved some positive results.

Now we must take the next step and focus all our decisions and all our action on ensuring that in a not too far off future, Russia will take its recognised place among the ranks of the truly strong, economically advanced and influential nations. This is an entirely new challenge we must take up, and it represents an entirely new stage in our country's development. We could not take up this challenge earlier because we faced a great number of more urgent problems that we had to tackle first. But now we have this new opportunity in our hands and we must use it.

Russia must become and will become a country with a flourishing civil society and stable democracy, a country that fully guarantees human rights and civil and political freedoms.

Russia must become and will become a country with a competitive market economy, a country that gives reliable protection to property rights and provides the economic freedoms that allow its people to work honestly and make money without fear and limitations.

Russia will be a strong country, a country with modern, well-equipped and mobile Armed Forces able to defend our nation and its allies and protect the national interests of our state and its citizens.

Through all of this, we will create the conditions for people to enjoy a decent life and enable Russia to take its place as an equal in the community of most developed nations.

Not only will people feel proud of such a country, they will strive to multiply its wealth. They will remember and respect our great history.

This is our strategic objective.

But if we are to achieve this objective, we must consolidate, we must mobilise our intellectual forces and unite the efforts of the state authorities, civil society and all the people of this land.

We must set out a programme of clear and comprehensible objectives that we will use to achieve the consolidation we need if we are to resolve the major national problems we face.

Why do I think this of such vital importance?

Our entire historical experience shows that a country like Russia can live and develop within its existing borders only if it is a strong nation. All of the periods during which Russia has been weakened, whether politically or economically, have always and inexorably brought to the fore the threat of the country's collapse.

Yes, certain of our achievements over these last years make it possible to speak of stabilisation. Some people even have the impression that all our problems have now been solved, that Russia now has a perfectly bright and predictable future ahead of it, and that everything now is just a question of whether the economy should grow by four or by six percent a year, and of how much we should spend.

I would like to say that this is not the case. We face serious threats. Our economic foundation has become more solid, but it is still not stable enough and still very weak. Our political system remains insufficiently developed and our state apparatus is not very effective. Most sectors of our economy are not competitive. Meanwhile, our population continues to fall and the fight against poverty is progressing far too slowly. The international situation remains complicated and competition in the world economy is as intense as ever.

All around us are countries with highly developed economies. We need to look in the face the fact that these countries push Russia out of promising world markets when they have the chance. And their obvious economic advantages serve as fuel for their growing geopolitical ambitions.

The proliferation of nuclear weapons continues in our world today. Terrorism threatens the world and endangers the security of our citizens. Certain countries sometimes use their strong and well-armed national armies to increase their zones of strategic influence rather than fighting these evils we all face.

Can Russia have any real hope of standing up to these threats if our society is splintered into little groups and if we all busy ourselves only with the narrow interests of our particular group? And if instead of becoming a thing of the past parasitic moods are only growing? And what is helping feed these moods but a bureaucracy that instead of trying to look after and build up our national wealth often happily lets it get frittered away.

It is my conviction that without consolidation at the least around basic national values and objectives, we will not be able to withstand these threats.

I would like to recall that throughout our history Russia and its people have accomplished and continue to accomplish a truly historical feat, a great work performed in the name of our country's integrity and in the name of bringing it peace and a stable life. Maintaining a state spread over such a vast territory and preserving a unique community of peoples while keeping up a strong presence on the international stage is not just an immense labour, it is also a task that has cost our people untold victims and sacrifice.

Such has been Russia's historic fate over these thousand and more years. Such has been the way Russia has continuously emerged as a strong nation. It is our duty never to forget this, and we should remember it now, too, as we examine the threats we face today and the main challenges to which we must rise.

The results we have achieved through our common efforts over these last three years show that we can rise to these challenges. Yes, we have already managed to deal with a good many of our problems, including some that only recently seemed impossible to resolve.

We have finally re-established the unity of our country, in law and in fact. We have reinforced state authority and brought federal power closer to the regions. Having re-established a common legal space, we were able to turn our attention to the division of powers between the federal and regional authorities. There is still a lot do here, but at least we are now hard at work on this issue. We have begun work on building up effective local authorities that have the financial resources to do their jobs. I choose my words carefully here, as we have only just begun addressing this task.

The adoption of the third part of the Russian Civil Code marked an important stage in our work on codifying our laws. The new Labour Code has also been passed. Modernised legislation and ongoing dialogue with trade unions and employers are now beginning to shape a civilised labour market.

We have made great strides towards creating a genuinely independent court system. We have adopted the new Criminal Procedural, Civil Procedural and Arbitration Procedural Codes, thereby assuring additional guarantees for human rights.

We have improved the electoral system. We now have the conditions we need for the development of a real civil society, and also for the establishment of genuinely strong political parties.

We have made considerable headway in tax reform and have begun military reform. We have managed to make progress on the complex issue of reforming land relations, a matter that had been at a standstill. I would just like to remind you that for a whole decade this question was a serious economic obstacle on the road to democracy and the market.

We have taken the first steps towards reforming the pension system, the infrastructure monopolies and the housing and utilities sector.

Together we have overcome an absolutely unacceptable situation in which certain parts of the country had for all intents and purposes placed themselves beyond the scope of federal jurisdiction. The supremacy of the Russian Constitution and federal laws, as well as the obligation to pay taxes to the national treasury have now become the norm for all the regions of the Russian Federation.

I would like here to add a few important remarks on a subject that is sensitive for all of us. Last year's address spoke of the need to reintegrate the Chechen Republic into the country's political and legal space, of the need for free elections and the establishment of effectively functioning regional authorities in the republic. Frankly speaking, few people believed in these words at that time. Now a year has gone by and reality has proven to us that together we can achieve a great deal. Once again I would like to thank everyone who supported this policy we have pursued and who took an active part in it. And I of course wish to thank all those who helped organise the referendum on the constitution in Chechnya itself.

I wish to express particular thanks to the people of Chechnya today. I thank them for their courage, for the fact that they did not let themselves be intimidated in the past and will not let themselves be intimidated today, and for that wisdom that is so inherent in people who are simple and yet always so sensitive to the truth. People in Chechnya felt in their hearts their responsibility and where their human interest lies. And finally, the referendum showed that the Chechen people rightfully considers itself an inalienable part of the united multi-ethnic community of peoples that make up Russia.

It is true that we have had to pay a high price to restore Russia's territorial integrity, and we bow our heads in memory of our fallen soldiers and of the Chechen civilians who lost their lives, in memory of all those who at the price of their lives did not allow this country to be torn apart and did their duty right to the end.

The constitutional referendum marked the end of these troubled times in Chechnya, these years during which bandits grabbed power in the republic and the people found themselves literally thrown back into a medieval world in which they lost even their most basic human rights. These were times when public executions became regular events on the streets of Chechen towns and villages, when thousands of people became living goods in the hands of slave traders, and when neither schools nor institutes nor hospitals functioned.

All of this is over now.

But we still a great deal of work to do before life in Chechnya returns completely to normal. Now, on a democratic basis and in accordance with the constitution approved by the referendum, the Chechen people must elect a president and parliament for their republic and establish local government. We must draw up and sign an agreement on the division of powers between the federal and the Chechen authorities, and of course we must get the Chechen economy working again.

We also have to transfer the organisation of law enforcement in Chechnya to the republic's own police force. Also, as part of the ongoing process of political regulation, we are working together with you, esteemed colleagues, on preparing the ground for an amnesty that will pave the way back to peaceful life for those who for various reasons did not lay down their arms earlier, but who now wish to do so.

We will face difficult conditions as we carry out this work. It is clear that what remains of the bandits will attempt to intimidate the people of Chechnya through threats, murders and terrorist acts and will try to disrupt and prevent the political regulation process that is gathering steam and moving ahead. We see today that the terrorist acts committed by these bandits are more and more often targeting the civilian population, ordinary people.

But we will see our work through to the end and the people of Chechnya will live a normal life worthy of a human being.

Respected Assembly,

Three years ago we identified the biggest threats to Russia as being demographic decline, economic weakness and a state that did not function effectively.

Have we made headway with solving these problems? Yes and no. We have had some successes, but there have also been some serious failures. Let us take an honest look at this today.

One of the most serious threats we identified was the decrease in the Russian population due above all to a falling birth rate and rising mortality rate.

The mortality rate has continued to rise over recent years. It has increased by 10 percent over the last three years. Life expectancy, meanwhile, has continued to fall. Statistics paint the unhappy truth, showing us that life expectancy fell from 67 years in 1999 to 64 years in 2002. The reasons for this low life expectancy include high levels of illness and deaths from accidents, poisoning and injuries. The spread of new epidemics including drug addiction and AIDS is only making the situation worse.

On the positive side, the birth rate rose by 18 percent over the last three years, while infant mortality decreased by 21 percent and is now lower than at any other time in our history.

At a recent meeting of the State Council we examined a whole range of issues related to speeding up the move to a system of medical insurance-based healthcare. I think this will considerably improve the financial situation in our healthcare system. During the second half of the year we will work through the organisational questions in 16 regions in the country, and from next year we will introduce medical insurance for pensioners throughout the entire country. I very much hope that this will provide some real support for our senior citizens.

According to preliminary data from last year's national census, the Russian population now numbers more than 145 million people. This is almost two million more than what ongoing statistics showed, but it is two million less than in 1989.

What do these figures tell us?

First, they show that our population is still falling, even if at a slower rate than what statistics had suggested.

Second, though the birth rate has risen somewhat, additions to our population have come not so much from births as from legal migration. Over the last decade, around 7 million people have immigrated to Russia, mostly from the Commonwealth of Independent States countries.

This is a significant result and it shows that despite the many problems we face, Russia remains an attractive country for millions of people looking to live and work here.

Another of the serious issues that was named three years ago was the increasing globalisation of the economy and of public international life in general in the modern world. No country today, no matter how big and how wealthy, can develop successfully in isolation from the rest of the world. On the contrary, the biggest success comes to those countries that consciously use their energy and intelligence to integrate themselves into the world economy.

We have taken some big steps forward on the road to international integration over the last three years.

Above all, Russia was invited in June last year to become a full member of the G-8 group of the world's most highly developed nations. Together with our partners in this group we work on safeguarding our own national interests and on finding solutions to the common problems that affect all of us in the modern world. One important example of this cooperation is the global partnership on non-proliferation of weapons of mass destruction. Programs to dismantle, treat and process these weapons will help us improve the environmental situation in a number of Russian regions.

I would like to note that our credit rating today is the highest it has been so far in new Russian history. A number of Russian companies have now joined the ranks of major European and world corporations. Some of these companies have, for the first time in the last 90 years, begun serious expansion into world markets, becoming visible players on the international economic stage and real rivals for foreign firms.

We have also made a lot of progress towards joining the World Trade Organisation.

Finally, Russia's economic weakness was named as a real strategic challenge for the country three years ago.

How far have we come since then in addressing that challenge?

There have been positive changes over this period. Economic growth has continued. Gross domestic product rose by 20 percent over these three years. Investment in fixed capital increased by more than 30 percent. Our exports increased by more than a quarter in physical volume, and exports of cars, equipment, and means of transport rose by more than 70 percent in physical volume terms. Overall, this is a decent result.

For the first time in the last fifty years, Russia went from importing grain to exporting it. Since 1999, exports of Russian foodstuffs have tripled.

Exports of oil, petroleum products and gas rose by 18 percent, and Russia today is one of the world's biggest energy exporters.

Information technologies have developed at a fast pace. The new economy is on the increase in Russia with its output growing at a rate of 20-30 percent a year. The number of people in the country with telephones has gone up considerably, and the number of mobile phone users has doubled every year and has now reached almost 18 million. Estimates show that around 10 million people in Russia use the Internet.

These figures show that it is possible for us to achieve balanced economic growth based on both traditional sectors and modern technologies.

This growing economic potential has brought improvements to the lives of tens of millions of people. Thanks to this economic growth, almost four million people have left the ranks of the unemployed and found new jobs over these last years. The new opportunities to work and earn a living have also meant there have been fewer and not such large-scale strikes. Almost 900,000 people took part in strikes in 1997, while in 2002 that figure was down to less than 5,000. And this result has been achieved at a time when trade unions are becoming more, not less active.

Real personal incomes have increased by 32 percent. Three years ago, the average pension came to 70 percent of the survival minimum set for pensioners, while last year it reached the survival minimum level.

Finally, per capita consumption rose by almost a third over the last three years. Last year's per capita consumption result was not just higher than that of the crisis year 1998, or than that of pre-crisis 1997, but was higher than at any time in Russian history.

Of course, this list of dry figures might seem not very comprehensible, but I am sure that you understand what these figures mean. These results represent considerable resources that have become genuinely accessible for millions of our citizens. These resources have helped improve people's living standards, given them better healthcare and made it possible to find solutions for the complex social problems the country faces.

But at the same time, despite these positive changes, we are forced to admit that the economic results we have achieved are still very, very modest.

First, we still have a quarter of our citizens with incomes below the survival minimum. A quarter of the country's population!

Second, our economic growth is still very unstable. In 2000, industrial output rose throughout the whole year, but in 2002, it showed an increase only for a total of six months and as a result, unemployment began to rise.

Third, the economic growth rate is slowing down. In 2000, we enjoyed growth of 10 percent, but by last year the growth rate had slowed down to only slightly more than 4 percent. A lower growth rate inevitably also slows down the rate of social development and prevents us from resolving many of the other problems we face.

We also must recognise that Russia owes its economic growth above all to the favourable world economic situation over recent years. An unprecedented improvement in foreign trade conditions for our economy gave Russia considerable economic advantages and brought in significant additional revenue. Part of this money was spent on improving living standards for the population. Part of it was invested in the Russian economy, and part of it went towards servicing our state foreign debt. We have reduced this debt by a quarter. Finally, these additional revenues also helped us build up our reserves, those of the Finance Ministry, the Central Bank, and the Central Bank's own gold and currency reserves that have now reached a record figure of $61 billion after totalling only $11 billion three years ago.

I think it is clear that without these revenues, without this favourable foreign economic situation, our social and economic development results would have been a lot more modest. And we must not forget that this kind of favourable economic situation cannot and will not last forever.

In this respect I would like to draw your attention to another problem. The state's total annual social spending commitments now come to 6.5 trillion roubles. This is almost double the country's consolidated budget. Over the years, the executive and the legislative authorities have promised people far more than the Russian economy can actually deliver. What's more, populist slogans and empty promises that mislead people and cheat their hopes are becoming more common. Unfortunately, some politicians are trying to add to them today, too.

These kinds of empty promises do not just deceive people's hopes; they have a negative impact on our whole ongoing economic policy and they create conflicts and distortions in inter-budgetary relations. It cannot be otherwise if state expenditure is growing at a faster pace than the economy itself.

Esteemed members of both houses of the Federal Assembly and respected heads of the regions, I think it high time that we put an end to this kind of policy. The state cannot, must not and does not have the right to deceive its own people. If we have made a promise to the people, then we must deliver on that promise. Otherwise it is better not to make such promises in the first place.

And one last matter, the state-regulated tariffs for the goods and services of the infrastructure monopolies are rising at a faster rate than are prices in the unregulated sector of the Russian economy. As a result, economic resource distribution is becoming skewed in favour of these monopolies, which account for an ever-increasing share in the economy. But these monopolies are inefficient, and their expansion is putting a stranglehold on competitive sectors of our economy. The government must take a firmer line on this question, for if this situation continues it will lead to stagnation.

The conclusions we can draw from all I have just said are clear. There are some positive trends and results, but we have not made as full use as we could have of the favourable foreign trade situation and stable political environment to achieve our strategic aims.

Esteemed deputies,

Esteemed members of the Federal Assembly,

The last three years have shown us what we really can achieve if we work together towards a common goal.

These three years have shown us that Russia does not have to be fated to suffer crises and decay, and that the Russian people is full of talent, initiative and enterprising spirit, that our people know how to work, that they deserve a better life, and that they can achieve this better life if only we do not get in their way. At the very least we must not get in the way, and it would better still if we help.

I think that our ultimate goal should be to return Russia to its place among the prosperous, developed, strong and respected nations.

But this will only be possible when Russia gains economic power and when it no longer depends on the favours of the international financial organisations or on the unpredictable ups and downs of the foreign trade situation.

We can achieve this kind of Russia only through sustainable and rapid growth, growth drawing on all factors, internal and external, traditional and modern, Russian and foreign.

And finally, sustainable and rapid growth is only possible if we produce competitive goods. Everything we have must be competitive -- goods and services, technology and ideas, business and the state itself, private companies and state agencies, entrepreneurs and civil servants, students and teachers, science and culture.

But some people make an opposition between economic growth and reforms. They say it is dangerous to keep pushing economic growth, and that it is more important to carry out structural reforms. I would like to express my point of view on this question, which is that this opposition between growth and reform is debatable, to say the least. We do not need reforms purely for the sake of reform. We do not need a permanent revolution.

It is clear that private initiative, both from Russian business and from foreign companies working in Russia, is the driving force of economic growth. It is also clear that Russian business must itself become modern, enterprising, flexible and mobile. It must become the worthy successor to the great traditions of Russian entrepreneurship, and some added patriotism would not go amiss.

Again I repeat, our country's success depends to a great extent on the successes of our businesspeople.

Finally, there can be no opposition between a policy of pursuing economic growth and a social welfare policy. I would like to emphasise that we need economic growth above all in order to improve the living standards of our people. The solution to a whole range of vital problems depends directly on economic growth. This includes a quality diet, well-built and comfortable housing and reliable electricity and hot water supply. It also includes a good education and modern healthcare, protection from accidents and natural disasters, and finally, a longer life expectancy.

We have said that intense competition is an inherent part of the modern world. And so our ability to compete and our readiness to fight for resources and influence directly determines the situation within the country and Russia's authority in international affairs.

This approach to the future of our development was heard and understood in Russian society.

Virtually all influential political forces and Russian citizens agree that making our country genuinely competitive should be our top priority. Now we should aim to ensure that this goal is also an inherent part of the way our state, regional and local authorities carry out their practical work.

But the Russian bureaucracy has proved itself poorly prepared to develop and implement the decisions our country needs today. At the same time, it has proved itself good at obtaining benefits and revenues through use of its powers and position. I spoke about this last year.

We also talked about the problem of the ineffectiveness of the state three years ago, and stressed the fact that weakness of the state will cancel out the effects of economic and other reforms.

The Russian bureaucracy today still has enormous power. But the quantity of power it has does not correspond to the quality. I must stress that to a large degree, this power has its source in nothing more than the superfluous functions of state bodies. Also, despite the enormous number of officials, the country has a severe personnel shortage. There is a shortage at all levels and in all structures of power, a shortage of modern managers and effective people. This is the background against which we must carry out the administrative reform that is vital to the country.

As you know, the Government has carried out an inventory of the functions of ministries and departments. There are approximately 5,000 of them. What this inventory revealed, however, was that almost every department thinks its functions should not be reduced, but broadened, and at the expense of other adjoining departments.

While the complexity of the task is understandable, and there are many difficulties, administrative reform has nevertheless dragged on for too long.

Evidently, the Government needs help. Obviously, an additional political impulse is needed. Of course, it will be given.

I think that the bureaucracy does not need to be convinced to become less greedy; it needs to be restricted by directive. The functions of state agencies must be radically reduced. Of course, this should be calculated very carefully. Otherwise, it seems we will not be able to solve this problem. We should base ourselves in this work on the inventory, which the governmental commission is now completing, and we should work in coordination with a series of decisions on division of powers between the different levels of authority, and on providing them with financial independence.

At the same time, we must establish an effective working mechanism for dispute resolution between citizens and the state by improving administrative procedures and the corresponding legal framework.

A few words on our socio-economic priorities. We often hear that the Russian economy does not need quality improvements and upheavals, and that there is no need for major national projects that provide serious step-by-step gains. We are told that it is quite enough to be consistent in pursuing the policies we already have, even if they do not bring the high growth rates that we all expect.

I would like to say that if we take this kind of stand and shy away from making responsible choices (and we are not talking here of the kind of mammoth projects that were typical of the stagnation period) we will not be able to make swift and meaningful progress. But I think that the problem of making a real choice between sources of growth only arises if there is a specific task that must be solved.

This task does exist, and is quite realistic, although also extremely complicated.

Over the next decade, we must at least double our country's gross domestic product. Doubling the GDP is a systematic task, and naturally a large-scale one. It requires profound analysis and specification of existing approaches to economic policies. But what we need above all else is once again the consolidation of political forces and society, the consolidation of all the authorities, a union of our best intellectual forces, the support of our social and political structures and the co-operation of parliament and the government. We need to search together for the best ways to solve this truly strategic and vitally important historical task for Russia.

I am certain that Russia already has all the conditions to organise and carry out such tasks. The possibilities exist for truly embarking on the large-scale construction of a modern and strong economy and eventually building a state that will be competitive in every sense of the word.

Another major task that we must solve together is achieving total convertibility of the rouble, both domestic and foreign convertibility for major as well as short-term transactions. I would remind you that Russia once had one of the strongest and most respected currencies in the world. The value of the "golden rouble" was equal to the value of the nation itself.

To say it straight, Russia needs a rouble that will circulate freely on international markets. It needs a strong and reliable link with the international economic system.

And Russia, now a full member of the G-8 group of most developed states in the world, is of course obliged to achieve this goal.

Achieving this objective will be a great step towards Russia's real integration in the world economy. And for the ordinary citizens of our country, it will mean in practice that when they travel outside Russia, it will be enough for them to take their passport and Russian roubles.

Our tax policies should remain based on the primary principles of simple procedures for tax calculation, the enforcement of legal norms such as equal treatment of all those subject to taxation, and a sensible level of taxes.

A few words on this topic. Tax reforms in Russia are unfortunately becoming a constant and ongoing process. Yes, the measures proposed by the Government to reduce the tax burden are of course a move in the right direction. But the frequency of amendments to tax legislation clearly exceeds the allowable level. Let us put it bluntly - this reflects the quality of work. It shows the quality is low. It makes it difficult for everyone to plan their lives - the state, entrepreneurs and citizens.

Now the Government has for the first time moved from yearly planning to medium-term planning in tax policies. Recently, a program was approved for tax amendments for the next three years. This is of course a correct, important and necessary step.

Now we need to move on and develop the outlines of a tax system that will exist in Russia for many years.

I would like to mention another very important matter that affects an enormous number of people - the problem of citizenship.

Currently, over a million people who came to Russia after the collapse of the Soviet Union and before the new law on citizenship was passed have found themselves in an extremely difficult situation. We recently discussed this subject with the leaders of the State Duma factions.

These people who came to Russia have lived and worked in this country, taken part in its political life, and many of them have served in the Russian army. And now they are persons without citizenship in their own country.

The laws passed last year were designed to bring order to migration flows and make them transparent. What we have ended up with does not help to solve these tasks, but rather creates serious problems for a large number of people. I consider it our duty to fix this situation. I agree with the faction leaders on this issue. Let us think about this and make the appropriate amendments.

We do not need bans and obstacles; we need an effective immigration policy. One that is advantageous for the country and convenient for people, particularly for residents of the Commonwealth of Independent States. For people who are close to us and with whom we have a good understanding, and with whom we share the same language. These are people of our common Russian culture.

Esteemed colleagues!

Russia strives to support and will continue to support friendly, good neighbourly relations with all countries, and will work together with them to solve common problems and protect common interests.

The main task of Russian foreign policy is to advance and safeguard our national interests. Here, the basic principle remains observance of the provisions of international law.

The events of the last year have once more shown that in looking after our national interests, both effective diplomacy and a reliable defence potential are equally important to Russia.

In the modern world, relations between nations are to a large degree determined by the existence of serious real and potential threats on an international scale. These threats include international terrorism, proliferation of weapons of mass destruction, regional and territorial conflicts, and the drug threat.

At the same time, it is extremely important that if a certain threat intensifies - for the international community as a whole or for an individual country - that an understandable, transparent and universally acknowledged decision-making mechanism exists. Undoubtedly, the most important such mechanism we have is the United Nations and its Security Council.

Yes, decisions at the Security Council are not always easy to make. And sometimes they are not made at all. It can happen that the initiators of a certain resolution simply do not have enough arguments to convince the other parties that they are right. Decisions by the UN, naturally, are not always to everybody's liking. But the international community does not have any other such mechanism, and especially not one as universal, and so we need to protect the mechanism we have.

Of course, it is vital to modernise and increase the effectiveness of international organisations. And Russia is open to discuss such issues.

I think that such policies regarding international affairs are civilised and correct. These policies are not directed against anyone or for anyone. This is our position. It is a position of principle. And we will continue to hold to it in the future.

Russia was one of the first countries to confront the major threat of international terrorism. As we all know, quite recently it threatened the very territorial integrity of the Russian Federation. After the notorious tragedies caused by terrorist acts, the world formed an anti-terrorist coalition. This coalition was set up with active participation and in cooperation with the United States of America, and other countries. The operations in Afghanistan were an example of just how effective this coalition can be combating the threat of terrorism.

Russia values the anti-terrorist coalition. We value it as a tool to coordinate intergovernmental efforts in fighting this evil. Furthermore, successful co-operation within the coalition and within the framework of international law may become a good example of consolidation of civilised nations in fighting common threats.

I repeat again, it is in Russia's interest to have a stable and predictable world order. Only this can provide global and regional stability, and political and economic progress as a whole. It will assist the international war on poverty, one of the biggest challenges we face.

Our undoubted priority in foreign policy remains strengthening relations with the countries of the Commonwealth of Independent States. These countries are our closest neighbours. We are united by centuries of historical, cultural and economic ties. The interdependence of our development is also obvious. Among other things, tens of millions of Russians live in these countries.

And to put it directly, we see the CIS area as the sphere of our strategic interests. We also assume that for CIS states, Russia is within the zone of their national interests. And our country wants to see stability and economic progress in the CIS area.

I want to stress that the economic integration process taking place in the CIS is bound up with the integration of our countries into the world economy, and will help us carry out this integration more dynamically and in conditions that are more advantageous for all our partners. And we will consistently increase co-operation within a Eurasian economic community that works more and more effectively.

Furthermore, events in the world confirm that our choice to create the Collective Security Agreement Organisation is correct and timely. In direct proximity to us, there are several sources of real, not imaginary threats - terrorism, trans-national crime, and drug trafficking. Together with our partners in the Collective Security Agreement Organisation, we must provide stability and security over a significant part of the area of the former Soviet Union.

An important element of our foreign policy is growing closer and becoming truly integrated into Europe. Of course, this is a complex and lengthy process. But this is our historical choice. It has been made. It is gradually being realised, at the present stage through initiating bilateral relations, developing strategic partnership with the European Union, and active participation in the work of the Council of Europe.

Together - in the interests of the citizens of Russia - we have found a political compromise on the problem of transit between the Kaliningrad Oblast and the rest of the territory of the Russian Federation.

It is also obvious that our interests, and the interests of "Greater Europe" require that serious steps be made towards each other. This is in the interests of citizens, business, cultural and scientific societies both in European countries and in the Russian Federation. Our proposals for helping to develop these common European integration processes are well known and focus on ensuring the free movement of citizens, and creating a single economic space.

This is not going to happen overnight. To achieve these goals, we will have to travel a complex and rather long path. But the dynamics of the integration processes at work in Europe make it possible for us to say that these plans are absolutely realistic. And they are actively supported by a great number of our partners in the European Union.

I would now like to discuss the modernisation of our country's military.

The key issues in military reform include modernising arms and equipment, improving the way the Armed Forces is recruited and formed, and improving its actual organisation.

A strong, professional and well-equipped army is essential for the prosperous and peaceful development of the country. This army should be capable of defending Russia and its allies, and also of co-operating effectively with the armed forces of other countries in fighting common threats.

In accordance with the plans we have agreed on, we will continue to move towards a professional army, air force and navy. This transformation process will be completed in 2007. Interior Ministry and Border Guards forces will also move over to professional service.

In plain and understandable language (this is not the only consequence, but it is a very important one), this means the following: in dangerous areas and local conflicts, if Russia should, God forbid, encounter these challenges, only trained and professional units will take part.

I would also like to note that our Armed Forces will very soon move over to having a professional body of non-commissioned officers.

From 2008, compulsory military service should be reduced to one year. New recruits will spend the first six months learning military skills at specialised military institutions. They will then have the choice of serving for another six months in line units or moving over to contract professional service. People who have served for three years under contract should receive a number of benefits, including the right to higher education at government expense.

We have also decided to accept citizens from CIS countries for professional service in the Russian army. After a three-year contract service, they will receive the right to take Russian citizenship through a simplified procedure.

Much of the above requires legislative authorisation. In this matter, I count on your support - on the support of the Federal Assembly.

In the upcoming period, we must equip the Armed Forces with modern weaponry. As you know, a corresponding program to update equipment has been developed and approved, and will undoubtedly be carried out.

A serious part of reforms to the armed forces will be consolidation and modernisation of our nuclear deterrent forces.

As far as practical implementation of our plans go, I can inform you that work is also underway on creating new types of Russian weaponry, new generation weaponry. This includes what specialists have classified as strategic weapons. These weapons will ensure the defence capabilities of Russia and its allies in the long-term perspective.

I repeat: the country needs an efficient army, an army with an intelligent officer corps and a highly qualified young command staff, an army with soldiers who truly have the desire and readiness to serve their Homeland.

Esteemed deputies,

Esteemed members of the Federation Council,

Russia's development prospects and the solution to many of our problems will to a large degree be determined by the results of the main political event of the year - the elections to the State Duma. I cannot ignore this very important event in the life of the country. It is an important step in the formation of our democracy.

In recent years, relations between the executive and legislative branches have significantly improved. Instead of conflict, we have constructive cooperation based on substantial exchange of opinion and balanced criticism. We have interaction.

I see the most important sign of the cultural recovery of our society as being the solidarity shown by politicians on issues such as the war on international terrorism, preserving the territorial integrity of the country and supporting our foreign policy efforts. I can say without exaggeration that I am truly grateful to these political figures of our country. And they are political figures of the most varied political orientation.

I would also like to thank the representatives of all deputy organisations for their active collective work.

At the same time, certain features of our national political life also cause concern. Above all, procedures for financing political parties are still "a deep dark secret" for voters. The market for election campaign and other political technologies is to a significant degree currently one of the sectors of the shadow economy. I hope that very soon our collective work will ensure a greater transparency of party life, and give people more objective information. And as a result, more chances to make the right choice.

The lack of transparency of financial operations on the political stage are often accompanied by an incoherence of ideological position, and sometimes, quite frankly, a certain political insincerity. I will explain what I mean: sometimes deputies who are supposed to be liberals and supporters of progressive economic theories in practice vote for bills that are ruinous for the state budget. And they know what they are doing. And deputies who are not afraid of publicly calling entrepreneurs nothing but "robbers" and "blood-letters" shamelessly lobby the interests of large companies.

Parliamentary parties are a part of the state political machine, and at the same time they are a part of civil society. I would say that they are the most influential part, and so the most responsible. We are all interested in furthering interaction of party structures with the regions and with citizens and public organisations.

It is clear that active contact with the people cannot and must not be limited to pre-election debates and election campaigns. Only a daily link between the state and society, which can and must be provided by the large parties, can protect the government from making serious political errors.

We often talk of the greatness of Russia. But a great Russia is not just a great state. It is above all a modern, developed society, which does not just arise by itself.

A truly developed civil society only emerges when the functions of the state machine are radically reduced, and distrust between various social groups is overcome.

But most importantly, this will only become possible if we can achieve the kind of national unity we need to examine and address the strategic tasks our country faces. This national unity is impossible to achieve without the active participation of political parties.

I consider the upcoming elections to the State Duma as another step in the development of our multi-party system, the development of a greater openness of intentions, greater effectiveness of actions, and greater responsibility before the people of Russia.

A strong and responsible government based on the consolidation of society is vital to preserve the country. Without strong power, it will also be impossible to move forward into the future.

I would like to stress once again that we are facing serious problems and threats. And we need to be clever and strong to survive in the bitter competitive struggle in the world.

But we must not merely survive. We must possess significant economic, intellectual, moral and military advantages. Only in this way will we maintain our position among the greatest powers on the planet.

And I consider that our most important tasks, which I have already mentioned today and which I repeat, are the following:

to double the gross domestic product;

to overcome poverty;

to modernise the Armed Forces.

I think that our society is capable of achieving these results in the period up to 2010. I consider the basis for achieving these goals to be a consolidation of public forces, the solid foundation of the Constitution of the Russian Federation and guaranteed rights and freedoms of our citizens.

I call on everyone who considers the above tasks to be a priority for the country to mobilise their intellectual forces, develop common approaches and agree on a program of action.

I have already said that I support the general policy to strengthen the role of parties in public life. And taking into account the results of the upcoming elections to the State Duma, I think it will be possible to form a professional, effective government, supported by a parliamentary majority.

To conclude my address, I would like to say that unification of our efforts is possible, if the main political forces take civil responsibility for collective work.

I am certain that Russia will rise to a height that is worthy of its potential.

The consolidation of all our intellectual, authoritative and moral resources will allow Russia to achieve the greatest goals.

Great goals worthy of a great people.

Let us wish one another success.

Thank you very much for your attention.

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