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Annual Address to the Federal Assembly of the Russian Federation
May 26, 2004
Moscow, the Kremlin

Vladimir PUTIN:

Good afternoon, esteemed members of the Federation Council and the State Duma,

Dear citizens of Russia,

I think that, as in past years, there is no need in this audience to talk about recent results. We have all worked hard together to achieve them.

I would like to note simply that over these last four years, we have traversed a difficult but very important path. Now, for the first time in a long time, Russia is politically and economically stable. It is also independent, both financially and in international affairs, and this is a good result in itself.

Our goals are very clear. We want high living standards and a safe, free and comfortable life for the country. We want a mature democracy and a developed civil society. We want to strengthen Russia's place in the world. But our main goal, I repeat, is to bring about a noticeable rise in our people's prosperity.

We have better knowledge today of our own potential and we know what resources we have at our disposal. We understand the obstacles we could face in reaching the goals we have set and we are actively modernising the state in order to make sure that its functions correspond to the present stage of Russia's development - that of achieving a real rise in living standards.

I would like to recall that over the last decade of the twentieth century, with its economy in a state of collapse and its positions on world markets weakened, Russia found itself having to simultaneously restore its statehood and create what for us was a new kind of economy, a market economy. Furthermore, it also had to defend its territorial integrity in the fight against international terrorism and stand up for the democratic achievements of its people.

Russia could be said to have passed through several stages since the beginning of the 1990s. The first stage involved dismantling the old economic system. It brought with it hardships and upheavals to the familiar way of life, acute political and social conflicts and was a very difficult time for our society.

The second stage was the time of clearing the debris resulting from demolishing the old edifice. At the same time, we managed to check the most dangerous tendencies in economic and political life. Not all the decisions taken over those years were long-term in nature. In many cases, the federal authorities were more than anything else reacting to the serious threats we faced.

In fact, we have only recently reached the third stage in modern Russia's development, the possibility to achieve more rapid development and resolve more ambitious national tasks. We now have the necessary experience and tools to set ourselves genuinely long-term objectives.

Our economy has grown at a good rate overall over the last four years. People's living standards have risen a little. There has been a 1.5-fold increase in real incomes, and I emphasise that we are talking about real incomes. The number of people with less than subsistence-level incomes has dropped by a third. The economic growth rate was 7.3 percent last year and was 8 percent over the first four months of this year.

But even so, we must ask ourselves the question, have we done all we could and have we made use of every opportunity for economic growth and social development? And are we happy with the current state of affairs?

No, and above all, we are not happy with living standards in the country.

I would remind you that during its lengthy economic crisis, Russia lost almost half of its economic potential. Over the last four years we have managed to compensate for around 40 percent of this drop. But despite our efforts, we have still not caught up to where we were in 1989. Only by maintaining high growth rates of the kind we have now will Russia avoid being relegated to the backwaters of the world economy.

We must grow faster than the rest of the world if we want to take the lead within today's complex rules of global competition. We must be ahead of other countries in our growth rate, in the quality of our goods and services and level of our education, science and culture. This is a question of our economic survival. It is a question of ensuring that Russia takes its deserved place in these changing international conditions.

I realise that this is a far from easy task, but we are up to it and we can resolve it only through our own efforts.

Whether or not we can become a society of truly free people - free both economically and politically - depends only on us. Reaching our priority national goals depends only on us. These goals are well-known: doubling our gross domestic product over the next decade, reducing poverty, increasing people's prosperity and modernising the armed forces.

Again I would like to say that today, for the first time in many years, we can make forecasts not just for a few months or even a year ahead, but for a decade ahead. Our achievements over recent years now give us the base we need to finally tackle those problems that can be resolved, but only so long as we have certain economic potential, political stability and an active civil society.

It is far from everyone in the world that wants to have to deal with an independent, strong and self-reliant Russia. Political, economic and information pressure have become weapons in the global competitive battle today. Our efforts to strengthen our state are sometimes deliberately interpreted as authoritarianism.

In this respect I want to say that there will be no going back on the fundamental principles of our politics. Commitment to democratic values is dictated by the will of our people and by the strategic interests of Russia itself. Russia's greatest competitive asset and the main source of its development is its people. Making our country strong and prosperous requires ensuring a normal life for all our people, those people who are producing quality goods and services, are enriching our national culture and building a new country.

In order to open up this potential, we must create the conditions for a safe life and reduce the crime rate in the country. We must improve the nation's health, prevent increase in drug use and resolve the problem of homeless children.

We must bring down the mortality rate, increase people's life expectancy and overcome the population decline. We could find ourselves already in the near future facing labour shortages and an increased social burden placed on the younger generation of the workforce.

As you know, previous addresses tended to focus on the general social and economic objectives facing us. Today I think I should, and can, break with this tradition and focus on the objectives that concern practically every citizen and every Russian family.

Our task now is to resolve the most pressing problems for our citizens. These are, above all, accessible and good-quality housing, education and healthcare. We now have the capacities we need to find effective solutions to these problems and I would like to look at them in more detail.

* * *

Dear colleagues,

One of the most pressing problems we face today is providing people with affordable housing. This remains a real problem for the majority of people in Russia.

People need decent housing for rest, for work and for starting a normal family. But even the current rise in incomes does not always allow people to buy housing and improve its quality. This is one of the causes of the low mobility that prevents people from moving around the country in search of suitable work.

It must be admitted that very many people still live in dilapidated and unsafe buildings and apartments. Not enough housing is being built and what is built often does not measure up to modern safety and quality standards. Only people with high incomes can afford to buy new housing. The fact that young families are unable to afford housing of their own affects their plans to have children, and it is still quite common to find several generations all having to share the same apartment.

The conclusion is clear. The old methods and approaches, which did not solve the problem earlier, simply do not work today. We should stop deceiving people, forcing them to wait for years and even decades in line for housing. We need to create the possibilities for the bulk of the working population to buy housing on the market, while at the same time ensuring that low-income groups have access to social housing.

The government, regional and local authorities should work towards having at least a third of the population (and not a tenth, as is currently the case) able to buy housing that meets modern standards by 2010. They will buy housing through their own savings and with the help of mortgage schemes.

This means that mortgage schemes must become long-term and affordable for people. In order to prevent the situation when increased demand for housing pushes up prices competitive conditions for housing construction need to be ensured.

What are the steps we need to take here? They are basically well-known. I will name them now.

First, we need to put in place financial mechanisms that will enable people to improve their housing conditions not just through their current earnings and their savings, but also through their future earnings. We need to develop clear legal conditions for long-term mortgage schemes, conditions that will apply to citizens and to the construction companies.

Mortgages should become an affordable solution for people in the middle income group. Of course, we should also develop other forms of financing such as having future homeowners buy a stake in a building's construction or take part in housing savings programmes. For all this to work, we also must ensure that we have an effectively functioning state system for registration of real estate rights, a credit history bureau and a developed market for mortgage securities. These are the things to be done.

Second, we need to put an end to the monopolies on the construction markets. Russia's people are not obliged to pay the cost of the administrative barriers created in the construction sector or to ensure the excess profits of monopolist construction companies. What is needed are measures to reduce construction time and the expenses involved - clear-cut rules of municipal land use and construction , simplified procedures for getting all the approvals needed for construction and preparation of the necessary engineering and utilities infrastructure.

Third, guaranteed ownership rights for honest buyers of real estate is a question of principle importance. Real estate deals should be handled through transparent, comprehensible and, also important, inexpensive procedures.

Finally, we must bring order to provision of social housing. Contracts of social renting must become available to those who really need it. Furthermore, we should come up with additional measures to provide targeted support to individual categories of people, in particular young families. Some steps have already been taken in this direction but it is far from sufficient so far. We must increase our efforts in this area.

* * *

Now, a few words about healthcare modernisation. This is not the first time we have discussed this subject, but transformations in this area are taking place at a sluggish rate and have not brought any significant results so far.

Russia lags behind many countries today in its basic healthcare situation. Life expectancy in Russia is 12 years lower than in the United States, eight years lower than in Poland and five years lower than in China. This is due above all to a high mortality rate among working-age people. Child mortality is decreasing but is still 1.5-2 times higher than in the developed countries.

One of the main reasons for this situation is the country's ineffective healthcare system. Throughout the entire system, the quality and accessibility of medical services continue to drop today, while costs keep rising.

Guarantees of free healthcare assistance are often declarative. People still do not know what they are entitled to for free and what they must pay for themselves. The people with the lowest incomes have found themselves in the most difficult situation of all. They are forced to spend a large share of their already modest incomes on medical treatment and even end up unable to afford basic medicines, which is absolutely unacceptable.

The main aim of modernising the Russian healthcare system is to ensure affordable and good-quality healthcare for broad sections of the population. This means above all that guaranteed free healthcare services should be clear and known to all. Medical treatment standards should be drawn up and approved for each type of illness, along with an obligatory list of treatment and diagnostic procedures and the minimum requirements for healthcare provision. These standards should be applied in every city, town and village in the Russian Federation, and patients should have to pay only for additional medical services and for extra comfort.

Having an itemised list of standards will make it possible to calculate the real cost of these services and move away from the system of funding medical establishments based on estimates of their demands, to funding based on the amount and quality of healthcare services they actually provide. Healthcare services should be paid for in accordance with the principles of compulsory medical insurance. At the same time, incentives should be created to encourage the development of voluntary medical insurance.

The government and the parliament must ensure the legal framework for compulsory medical insurance, state-guaranteed medical services, private medical practice and for provision of fee-paying services.

* * *

The next priority is to develop the Russian education system.

I want to emphasise that Russian education, with its fundamental approach to learning, held and still holds a leading place in the world. It would be absolutely unacceptable to lose this advantage. The global competitive environment demands of us that we strengthen the practical component of our higher education system. This means, above all, placing higher demands on professional education, professional in the broad sense of the word.

Professional education today is not firmly bound to the situation on the labour market and more than half of higher education graduates do not find work in the professions in which they got their degrees. More and more people are going into higher education, but at the same time the level of teaching is falling.

Compared to the Soviet period the number of people entering higher education has tripled and is now practically the same as the number of secondary school graduates. Who benefits from this situation? And even with this number of university graduates, we still face a shortage of desperately needed qualified specialists.

One of the most serious problems is the lack of access to quality education for low-income groups. College studies involve additional costs that not all people can afford. The drop in the number of student residences and the small student allowances mean that children from low-income families, especially from remote towns and villages, are cut off from getting quality education.

But the results of reforms in this sector should be evaluated by the quality of education, its accessibility and its relevance to the labour market's demands. In this respect I want to name the following target criteria.

First, secondary-school graduates, no matter what the financial situation of their families, should have the opportunity to enter higher education in accordance with their level of knowledge.

This will require an absolutely transparent and objective system of evaluating knowledge to enter college, reviving on large-scale preparatory departments at the universities, and targeted provision of student allowances. Young people who live far away from prestigious universities should have the opportunity to take these universities' entrance exams.

Second, we should aim at having the majority of graduates working in the professions for which they got degrees. Of course, this does not mean a return to the old system of allocating jobs from above to graduates. Rather, it is about forecasting the country's demand for the specialists it needs.

I think we could also consider a system where students can sign a contract under which they receive free education and then have to either work a certain amount of time in the professions for which they got degrees or else reimburse the money the state spent on their education. This system should begin with the professions in short supply today. I also think that it is in the interests of Russian business to take part in training the specialists the economy needs through making use of education loans. This practice already exists and we should make more active use of it.

Third, we need to introduce education standards that meet today's demands. Furthermore, the content of our education should measure up to the highest world standards. At the same time we must not forget about the areas in which we have built up our own achievements and we should ensure maximum development of these areas in which Russian education meets or even surpasses world requirements, and we do have such areas.

We must also go further in integrating education and research activities. Advancing research in universities and major academic centres should be a priority objective.

* * *

Dear colleagues,

Ensuring affordable and accessible healthcare and education and giving people the possibility of buying housing will help alleviate the problem of poverty. We currently have around 30 million people who earn less than the subsistence level. That is a huge figure, it being known that most of the poor people in this country are people of working age.

It is evident, that the state and the business community should direct their efforts at continuing to create jobs, especially in regions with persistent unemployment. They should also focus on developing small and medium-sized business and on effective use of targeted social assistance.

But only economic growth can provide a genuinely reliable foundation for long-term solutions to social problems, including the struggle against poverty.

As was said last year, we are entirely capable of doubling our economic potential over ten years. We can achieve this if we maintain average growth rates at least at the level we had over the first quarter of this year. Furthermore, if we maintain this kind of growth, we can hope to double our per capita GDP not in ten years time, but by 2010. The members of the government are also applauding - this means they agree.

An essential condition for ensuring a rapid rate of development is to complete the transformations currently taking place in many sectors of the economy and the social sphere.

* * *

Now I would like to say a few words on budget reform. The main principle of reform is to move from managing budget expenses to managing results. Overall, the government must develop a system for evaluating the plans and results of work of all the executive power bodies and only on this basis should it then sum up results, draw conclusions and make policy adjustments in each area.

Clearly set policy objectives and expected results should form the basis for the budget and its long-term planning. The independence the recipients of budget funds have in how they dispose of the allocated money should go hand in hand with responsibility for the results of their work.

I particularly want to emphasise that achieving an optimum level of state spending should be a basic principle of our economic policy. We do not have such a lot of money to spend. The government must above all carry out restructuring of the huge network of budget-funded institutions that sprout up all around the country and change procedures for their financing and in many cases even change their status.

This brings me to another very important issue. There are currently more than 35,000 federal state institutions in the country, many of which exercise control and supervision functions. These institutions often force their "services" - expert examinations, consultations and other - on business and individuals. This year, the government should revoke the powers of those institutions that are not part of the state management system. Moreover, state functions that have been declared superfluous should not be revived at regional and municipal level.

Steps also must be taken to bring order to state and municipal property. I have already said that each level of state power should only have the property that it needs to exercise its designated public functions, and no more than that. This should be kept in mind as ministries' functions are cut back further.

We should also be ready to introduce a new distribution of revenue collection powers and spending commitments between the different levels of the country's budget system. The regions and the municipalities should know exactly which functions they are supposed to exercise and which public services they are responsible for. And also, they need to know where the funding for these services will come from.

Finally, we need to clearly set and delimit each level of power's responsibilities for providing social assistance to the population. All the country's regions are directly concerned by the problems of ensuring affordable housing, education and healthcare. It would be only right then to actively involve them in drawing up the legal framework and the measures for practical implementation of the social programmes package, taking into account the division of powers between the different levels of state power.

All of these measures should result in a renewed system of inter-budget relations and increased independence and responsibility for the regions and the municipalities. I am aware of the regions' and municipalities' concerns regarding these questions. I hope that the government and the members of both houses of parliament will listen to these concerns, weigh up all the pros and cons and find solutions that are in keeping with the demands of the times and the economy.

* * *

Carrying out budget reform will in its turn make it possible to continue changes in the tax sphere. Over the last four years, serious steps have been made here. They have already begun to bring results - tax collection has increased, tax evasion has decreased, and the tax burden on the economy has dropped. But, of course, far from everything has been done.

And to move to an effective tax system, we need in the next two years to pass and implement a series of additional decrees.

How should the tax system look after reform is completed?

First, it should not be burdensome for business, neither by the level of tax rates, nor in the procedures of calculation and payment of taxes, regulation of tax checks and tax accounts.

Second, it should be fair for all economic agents. Taxation conditions should be equal for enterprises that work in the same sphere. Tax structure must exclude opportunities for tax evasion. Third, the tax system in Russian remains excessively oriented toward the fiscal function, to the detriment of other functions, above all the function of stimulating the growth of competitiveness. And here, the Russian tax system should become more favourable for investment and the development of business - more favourable than in competing countries. It should have itself sustainable competitive advantages.

To continue. The government has on several occasions raised the issue about the necessity to reduce the single social tax. We should bring a considerable percentage of work salaries out of the "shadows", protect the social rights of employees and stimulate citizens' concern for their own retirement pensions, thus reducing the burden on business.

Another problematic issue is value-added tax. Besides changing the procedure for levy of value-added tax, we need to further reduce tax rates, solve the issue of timely compensation of value-added tax on export operations, and in making capital investments, and also to finally put a stop to taxation of advance payments.

Finally, it is important to distinguish the lawful practice of tax optimization from cases of criminal tax avoidance.

I would like to stress that stability of budget and tax policy is a very important factor in the development of the economy. This stability, however, is not able to solve all the uncertainty of economic conditions in doing business. A balanced macroeconomic policy is needed. We need to continue what has been formed in the economy in recent years, namely a policy of gradually reducing inflation to 3% a year. And to create the necessary conditions to ensure full convertibility of the ruble over the next two years. We know about the laws passed in this sphere. We know that the Government and the Central Bank have set themselves this task. But they have made easier conditions for themselves - by 2007. It is quite possible to work faster now.

We should also create an effective system of using natural resources. We need transparent, non-corrupt conditions of access to them, for example, with the use of auctions. We need to move from administrative permits to full agreements - with a clear determination of the rights and responsibility of both the state and entrepreneurs. We need to ensure predictability and stability in these relations.

The system of resource payments also requires changes. It should provide equal conditions of competition both within the extractive sector, and between the extractive and processing industries. And it should also ensure rational use of natural resources.

I expect that the new Forestry codex and the Law on mining will answer all these questions.

* * *

Dear Assembly,

Among the most important tasks that the country faces, I would like to single out another one especially - the development of transport infrastructure. When we take into account the size of Russia and the geographic remoteness of certain territories from the political and economic centres of the country, I would say that the development of infrastructure is more than an economic task. Solving it will not just directly affect the state of affairs in the economy, but ensure the unity of the country as a whole - whether people feel they are citizens of a united, large nation, and whether they can make use of its advantages.

Today, the poor condition and low density of the road network, oil pipelines, the gas-transport system and the infrastructure of the power industry puts serious restrictions on the development of the Russian economy.

Factories cannot function normally if it is impossible to supply goods quickly and inexpensively. The undeveloped road and port infrastructure has already become an obstacle for export, as it is unable to cope with the growing volume of goods. And it is quite clear that with Russia's climatic conditions and extensive territory, infrastructural expenses make up a significant portion of the cost of many kinds of goods and services.

At the same time, a modern, well-developed transport infrastructure is capable of turning Russia's geographical features into a real competitive advantage for the country.

What needs to be done to achieve this? Above all, we need to unite the economic centres of the country, to provide economic subjects with unhindered access to regional and international markets, and at the same time to provide infrastructure services of a world standard.

The Government should find effective mechanisms of controlling quality and expenses in building new objects. In order to radically change the situation we need to create a competitive environment.

At the same time, the state must control the development of the country's infrastructure for a long time to come - I am convinced of this. Still, private investment will also make an important contribution to creating a branched transport infrastructure of high quality and reliability. However, for private capital, it is very important that the state have definite plans. From this viewpoint, the Government must announce its plans and projects, and the conditions to implement them. Such projects exist, and they need to be completed quickly. I will mention several of them.

For example, there are plans in the oil sector to diversify delivery of Russian oil. These plans are well-known. They involve expanding the capacity of the Baltic pipe system, opening the Western Siberia - Barents Sea pipelines, determining routes from oilfields in Eastern Siberia, bypassing the Bosporus and Dardanelle Straits, and integrating the Druzhba and Adriya oil pipelines.

However, this is not the first year that the Government has been unable to sort out its priorities. And a solution to this issue is, quite frankly, long overdue. I would note that the guidelines for passing the necessary decisions should be the realization of national tasks, and not the interests of individual companies.

As for the gas transport system, here we need first of all to develop the gas distribution network within the country - including expansion of the system to the east of Russia. In export, construction of the North European gas pipeline is most important. It will make it possible to diversify export flows, directly linking the networks of Russia and countries of the Baltic region with the total European gas network.

For Russia, modernization of roads is also important - not just roads that link the country's main economic centres, but also those used for transit. The basic network of roads needs to be gradually directed towards integration into the total European road network, and - through the Trans-Siberian corridor - into the road network of the Far East region. Another project is construction and reconstruction of highways in the North-South corridor. Something is already being done here, and this work needs to be continued.

These projects will make it possible to ensure inter-regional and transit flows on the main international transport routes. And, what is also important, to develop the territories which are next to these routes.

And finally, we have been talking about toll roads for a long time. I think that we need to begin realizing these projects on the main routes - of course, along with the existing free roads. The Government should determine a list of them very soon.

* * *

Undoubtedly, modernization of the army is a task of national importance. We need effective, well-equipped and modern Armed Forces for reliable protection of the country. So that we can easily solve internal socio-economic tasks.

We should secure our country from any forms of military and political pressure and potential foreign aggression. And thus modernizing the Russian Armed Forces remains a very important task, including equipping strategic nuclear forces with the most modern systems of strategic armaments. We have everything needed for this. And also, we need to equip other types of the Armed Forces with the appropriate tactical and operational weapons. I would like to note once more: an adequate quality of weapons is the characteristic that directly determines the degree of battle readiness of a modern army.

We are also beginning reform of social support guarantees for soldiers. A mortgage programme will be created for them. Three years after joining this programme, a soldier will be able to receive housing on mortgage conditions.

I also think that military education for training specialists in unique professions that are required by a modern army can also be provided at civil institutes of higher education.

I would like to stress: for successful modernization of the entire military system of the state, we need to know precisely how considerable sums of money - including those for housing, military medicine and education - are spent. Furthermore, the army and other law-enforcement institutions have an enormous amount of property. And this also needs to be accounted for and managed effectively. A transparent military economy is the necessary condition for reform.

All these steps should be targeted at increasing the prestige and attractiveness of military service.

I would like to remind the Defence Ministry and the Government as a whole: the volumes of funds spent, the interests of the country's defensive capacity, and also the important social parameters of reform make civil control over the effectiveness of changes in the army essential.

* * *

Dear colleagues,

The growth of the economy, political stability and the strengthening of the state have had a beneficial effect on Russia's international position. We have been able to a significant degree to make our foreign policy both dynamic and pragmatic.

It is clear that the scale of the tasks that the country faces has now changed substantially. And we need to make our foreign policy adequate to the goals and scope of the new stage of development. In other words, we need to use the tools of foreign policy for a more appreciable practical return in the economy, and in the realization of important national tasks.

Work on deepening integration in the Commonwealth of Independent States remains our priority, especially within the framework of the Common economic space, and the Eurasian economic community. This, without exaggeration, is one of the conditions of regional and international stability.

I am certain that the CIS should work effectively for the benefit of citizens of our countries. It should work by ensuring maximum openness of economies, and by removing barriers to mutual trade and information flows, business and social initiatives, and direct contact between people.

We are interested in further integration of the Russian economy into the international economy, including joining the WTO on conditions that are beneficial for us. Increasing competitiveness on international markets stimulates developed countries to increase support of their manufacturers and exports. The Russian Interior Ministry and the Government as a whole need to find more effective ways to increase Russian export, and to provide reliable protection of the interests of Russian companies abroad.

This approach is particularly important now, when the Russia and the EU are already immediate neighbours. The expansion of the European Union should not just bring us closer geographically, but also economically and spiritually. I am certain that this is a prerequisite of success, not just for Russian, but for all European business. This means new markets and new investment. Generally, it means new possibilities for the future of Greater Europe.

We will continue to develop political and economic dialogue with the U.S.A. and with such major partners as China, India and Japan, and we will work with other countries. Border and interregional cooperation are also a significant reserve of development of trade and economic, cultural and humanitarian ties.

It is clear that a necessary condition for solving these tasks is the effective security of Russia, and the inviolability of its borders. And an adequate response to the most serious threats of the 21st century - international terrorism, proliferation of weapons of mass destruction, regional conflicts - can only be provided by the united efforts of the international community, relying on the tools of the UN and international law.

Terrorism threatens the human rights and lives, destabilizes nations and entire regions of the world, and stands in the way of economic and social progress. And today, international terrorists continue to commit acts of violence and murder of peaceful citizens. They attempt to provoke chaos and destabilize the situation in various regions of the world. And Russia, unfortunately, is no exception here.

Despite such acts of provocation - including the recent political murder of the leader of Chechnya and the attempt to disrupt the work of legally elected bodies of power in the republic - our policy in fighting terror remains unchanged and consistent. No one and nothing will stop Russia on the path to consolidating democracy, and ensuring human rights and freedoms.

We will continue to work on developing internationally recognized instruments of law and collective mechanisms of neutralizing global threats. I consider the task of strengthening the anti-terrorist coalition to be one of the most important.

At the same time, I would like to note that no excuses about the necessity of fighting terrorism can be an argument for restricting human rights, or for creating unjustified difficulties in contact between people on the international stage.

To conclude the topic of foreign policy, I would like to stress: Russian society should see the practical results of our work in the international sphere. They are ensuring safety of the individual, increasing possibilities for enterprise, and effective protection of the rights of Russian nationals abroad. I expect that in cooperation with the Federal Assembly, we will be able to work even more productively in all the areas mentioned.

* * *

Dear deputies of the State Duma, members of the Federation Council,

Keeping to the strategic policy, continuing changes - those that have already been tested by the practice of the last four years - is the basis of our further stable development. At the same time, the only source and bearer of power in the Russian Federation is its multiethnic people. And only the people - through the institutions of the democratic state and civil society - have the right and are able to guarantee the stability of the moral and political foundations of the country's development for many years to come.

At the same time, we must make a critical assessment of the state of our democracy.

Is the political system in its present state a tool of real sovereignty of the people? And how productive is dialogue between the authorities and society?

It is clear that young Russian democracy has had considerable success in establishing itself. And those people who do not notice this success, or who do not want to notice it, are not quite honest. But our social system is still far from perfection. And it must be admitted: we are at the very beginning of the path.

Without a mature civil society, an effective solution to peoples' daily problems is impossible. The quality of their daily life directly depends on the quality of the social and political system. And here, of course, we still have many questions.

I would like to remind you: any power above all means great responsibility. It is unacceptable when civilised political competition is replaced with a self-interested fight for status revenue. When the financial side of the activity of political groups is still hidden from society. When election technologies and lobbyist services is primarily oriented towards the shadow sector. And all this takes place against the background of the dreary monotony of most party programmes.

I would like to say a few words about the role of non-political public organisations. In our country, there are thousands of public associations and unions that work constructively. But not all of the organisations are oriented towards standing up for people's real interests. For some of them, the priority is to receive financing from influential foreign foundations. Others serve dubious group and commercial interests. And the most serious problems of the country and its citizens remain unnoticed.

I must say that when violations of fundamental and basic human rights are concerned, when people's real interests are infringed upon, the voice of such organisations is often not even heard. And this is not surprising: they simply cannot bite the hand that feeds them. Of course, such examples cannot be grounds for us to make accusations against civil groups as a whole. I think that these problems are unavoidable, and of a temporary nature.

To reduce these problems and stimulate the further growth of institutions of civil society, we do not need to invent anything new. Our own experience and international experience has already proved the productiveness of an entire range of approaches. It is necessary to gradually transfer to the non-governmental sector functions which the state should not or is unable to perform effectively.

It is also worth using the experience of public boards that has been gained in a number of Russian regions. These permanent non-governmental organisations can provide independent examination of important normative documents. Documents that directly concern citizens' interests.

Political parties should also work more closely with public structures. Direct contact with people and society will help to improve the quality of people's representation at all levels. And parties should be interested in expanding their ranks, consolidating the material base, and the intellectual and staff potential. They should actively create groups in regional parliaments, and participate in the work of bodies of local self-administration.

Parties should increase their level of political culture, and learn the skills of inter-party dialogue and coalition activities. They should learn to come to power and leave it by the will of the people.

I will stress once more: any radical re-examination of economic policy, any restrictions on the rights and freedoms of citizens, a cardinal change in foreign policy guidelines - any divergence from the historic path chosen by Russia, a path that I even would say has been gained by suffering - may lead to irreversible consequences. And they must be absolutely ruled out.

* * *

Dear friends,

Today I have talked about the most important national tasks. I believe that creating a free society of free people in Russia is our most important task. But it is also the most difficult.

It is the most important task because people who are not free or independent are incapable of looking after themselves, their families, or their countries. It is the most difficult because freedom is not always valued and even more rarely used properly. Creative energy, enterprise, a sense of proportion and a will to victory cannot be introduced by decree, cannot be imported, and cannot be borrowed.

In aiming for a growth in citizens' prosperity, we will continue to maintain and stand up for the democratic achievements of the Russian people. We will consolidate the security of the state and strive for civilised solutions to key issues of world politics, founded on international law.

In this I count on the constructive cooperation of all branches and all levels of power.

I count on the support and solidarity of all citizens of Russia.

I count on their faith in themselves. In their abilities. In the success of our country.

Thank you for your attention.

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