EXCLUSIVE: Russia Has Successfully Passed a Stress Test: Medvedev Happy With Robustness of Economy

The President has met the outgoing Russian government. What is the result of its six-year tenure? And what's next?

- Hello, Mr. Medvedev.

- Good afternoon.

- Time is going by fast. It seems like 2012 when you first chaired the government, was just yesterday but six years have passed. Looking back, how would you assess the government's work and probably yours.

 

I probably shouldn't be making assessments but as for those six years, it was a special period for our country. The government's work was unprecedented. First of all, it was the longest governmental tenure since 1991. Secondly, the Government was working in unprecedented conditions, shaped, on the one hand, by the 2008 financial crisis, and, on the other hand, unfavorable changes in the global economy and on the oil and gas market, as well as the sanctions imposed in 2014. All of this taken together formed a group of 'shocks', as the economists put it, of a kind which our country has never encountered in its recent history. Even if we compare it with the 1998 crisis, which was also very rough, it's safe to say that back then, our country had access to all financial markets. Some countries even tried to help us out during that difficult time. But in 2014 and later on, we were left to our own devices. We had no access to international funding, and sanctions were imposed on Russian companies and individuals. The situation has been compounded by the price of oil and gas, which are our main export items. In those conditions, it was crucial for us to not fail public social obligations, and guarantees.

- Was there such a temptation?

- It's not about temptations, but strict economic laws. Had we failed to ensure the overall economic stability, we would have had to take extremely unpopular measures. But we managed to avoid this. We've discussed it multiple times. Such difficulties mobilize the best qualities of our country and our people as well as the opportunities that had been held back. When the country is beleaguered by external forces, when the very structure of the country's economy is imperfect, it's vital to prevent the imbalance of the economy and normal economic life. We've successfully passed the stress test. We endured. The economy and the social sphere are developing.

One of the most obvious indicators is the unemployment rate, which is only 5% in Russia. To see what the prime minister is talking about look at the chart showing the past 20 years starting from 1998 when the notorious default of the national debt took place followed by growth, growth, growth. We're more interested in the past 10 years starting from the global financial crisis when the Russian economy contracted by 8%, and afterwards grew. But 2014 saw a dramatic fall in oil prices. Yet, the past six years saw a growth rate of 5%. This chart shows inflation decreasing from thousands of percent in the 90's to the current 2.5%. This is the lowest figure in the modern history of Russia.

- Why is this important? It's not only about food prices in stores, but also the opportunity for businesses to get loans. If we take an important indicator such as the mortgage rate, it is for the first time under 10%.

Having promised to later talk about the sanctions, I thought that, when speaking about industries, the prime minister would start with agriculture. But instead, he spoke about related fields. For example, the agricultural boom spurred the production of combines, tractors, and other agricultural machinery. Now, domestic agricultural machinery manufacturing is growing at a rate of 300%. It's obvious what it is spurred on by.

- We had an unprecedented harvest, the biggest in our country’s history – and this is if we look at the Russian Empire, the Soviet Union and the Russian Federation in the present borders – 135 million tons. We are the world’s largest wheat exporter.

- That was unbelievable 25 years ago.

- Of course! I remember the Soviet period, when, despite the huge size of the land…

- And on every corner hung the slogan: "The Soviet Communist Party; bringing the Food Program to life!"

- Wheat came from Canada and Argentina for some reason. Now, we're the ones supplying wheat.

At the same time, the prime minister says that some information is very new to him.

- I was surprised to find out that certain types of our agricultural machinery are supplied to the EU countries. Previously, we used to buy everything from them.

- EU means European Union, not Eurasian?

- European Union, of course.

But Medvedev is already moving on to another topic. On the one hand, Russia managed to keep top positions in its traditional industries. We are still the world's largest gas exporter, second largest oil exporter, the biggest coal exporter. But that is raw materials, which, however, still need to be extracted and delivered. As for manufacturing industries, the production of train cars and locomotives has revived, with the impressive growth of 200%.

- I recently addressed the Duma, and my colleagues always ask to give the examples of imports being phased-out. Here it is.

Russian weapons are now even being supplied to a NATO members state, Turkey. Although, our own Armed Forces are the top priority. Defense procurement, which used to be only 70-75%, fulfilled by domestic producers is now fulfilled by more than 90%.

But the prime minister again switched to the topic of civilian products: production of pharmaceutical drugs, pharmacology. The domestic production of so-called vital and essential drugs has increased 80, 85%.

- In any case, drugs produced domestically by us are more affordable for our citizens. Clearly, figures can be interpreted differently, but still. Speaking this group of drugs, last year prices for vital drugs didn't go up because they are produced in Russia. Prices for some even went down by 1-2%, which isn't much, but still important.

Conversing about quality of life begins with facts. The life expectancy in Russia has reached 73 years.

- I will not remind you of the figures we had 10-15 years ago. They were quite sad.

- If you somehow meet with Obama, remind him of it. Remember his 2014 speech about Russia where he used figures from 15 years ago?

- Yes, but he doesn't often visit Russia. He actually promised us that our economy would be torn to shreds. He can come look at these shreds. We have entered the category of countries with relatively advanced medicine. We understand that it's not perfect. But we will be taking actions to further improve it. In addition to the medicine itself, but also wages, benefits, everything that the state must provide.

- Medicine included too.

- Yes. Look. I remember 2007 when we started to work on national projects. About 100,000 high-tech medical operations took place in our country. I mean complicated surgeries. In fact, matters of life and death.

- 100,000 about 10 years ago?

- Yes, about 10 years ago. Now there are a million of them. It's a tenfold growth.

The prime minister singles out remote medicine and perinatal centers which look more like spaceships.

- In practically all regions of the Russian Federation. Women are used to it, and it's great. It actually boosts the birth rate. A demographic pitfall was predicted for us. Nevertheless, we've seen growth over the past years.

Concluding the topic of quality of life, we touched upon income levels. The promised increase in salaries has been fulfilled. For the first time the minimum wage is equal to the living wage. But this is for the work force. But there are also senior citizens, who are growing in number.

- Let me ask you a general question? After six years, do you think the system can last as it is now?

- Yes, the system is viable. The pension system, like any pension system, isn't perfect. We've adjusted it. Nevertheless, it is transparent. The system works. Once again, I emphasize that it is not perfect. It will need to be adjusted in the future. It still needs to be adjusted. The most important thing is to provide it with money. It's a critical task for any government, both now and in future. There are difficulties. It's no secret that in 2016 we had to refuse one cost of living increase. But in 2017 we paid 5,000 rubles to everyone who lost that increase. Nevertheless, we had such a problem. Nowadays, budget obligations cover the index linking. Moreover, now the increase rate exceeds the inflation rate. The Presidential Address said that the cost of living adjustment rate must exceed the rate of inflation.

- What about age?

- As for age, you see, anyway, the state will have to take a decision on this matter. It will be taken based on a combination of factors, carefully, so as to not imbalance the pension system, on one hand, and, on the other hand, to not create negative sentiments among people or a sense of insecurity.

Medvedev offers to remember the time after the Russian Civil War and collectivization. In the 30's the life expectancy was about 40 years. Then the present thresholds were established: 55 was the retirement age for women and 60 years for men, few people lived up to this.

- Thank God, life has changed. Thus, we have reason to revisit this issue. Again, the decisions to be taken must be weighed, discussed with experts, and create a comfortable atmosphere for their implementation in the future.

- According to your remarks, discussions have started, but not consultations. We're still talking about the future.

- Consultations, of course, are going on, and we never concealed this. And discussions have been going on for many years. These issues have been quite seriously studied. We're about to start to discuss this at the legislative level.

We still had to talk about the sanctions. But I couldn't help but ask an abstract and ideological, but interesting question. Has the government been a "good shepherd" or even "overseer" of the economy over the past six years? This is Medvedev's reply.

- If the government become doctrinaire, like, we are liberals, and they are socialists, we'll do this, we won't do that, this government is likely to either collapse or fail. Of course, the market is based on the private initiative. It's always there. Though, this does not mean that the state should lose some important levers because after sanctions were imposed on our country and the situation on the energy market changed, we were forced to make quick decisions more often. I haven't mentioned the automotive industry which has also seen considerable growth. If we hadn't launched special programs to support the car industry at some point, I don't know where it would be now. This is government intervention, of course.

Concluding the review of the outgoing government's tenure, we note, firstly, that it preserved the flat income tax, and secondly, counter-sanctions imposed on European and American food products. At the end, we returned to external factors. Here's a short, but important excerpt about the US's latest sanctions.

- It's disgraceful! And boorish. This is tantamount to a non-competitive fight against Russian companies. The companies against which the sanctions have been introduced, some of them are very large and others hold first or second place in the world in some industries, for example, in aluminum. This means that the Americans are protecting their market. This is protectionism. They are fighting against China and Europe, and they are also fighting Russian companies under the pretext that we are misbehaving.

- Whatever the nature of these sanctions, we all know that countermeasures have been taken. I mean both asymmetric and symmetrical answers. Which are tactics, so to speak. Is there any strategy for the country's development in this obviously different world which now has sanctions wars among other things?

- Yes, as you know, this situation has encouraged us to rethink our views on Russia’s place in the world. Firstly, the policy of restricting and containing Russia is a strategy. Our international partners will continue to pursue it regardless of the name of our country. They did this with regard to the Russian Empire, and they did this many times in regard to the Soviet Union, and Russia. Therefore, we must adapt to it. Phasing-out imports, the development of our economy, and the improvement of our social institutions are the only responses we can make. There is no other alternative. This is why we proceed from the assumption that sanctions will remain in place for a long time, that, most importantly, we're aware of this and we have developed retaliatory measures to respond to such pressure.

The government is preparing a review regarding the Duma's counter-sanction bill. What is this review about?

- In no case should we harm ourselves. Even if we're annoyed, and they're behaving boorishly, we still mustn't harm ourselves. Second, the response must be painful. Why deal half-hearted blows that will not bring any result?

The PM suggests more elaborate actions than enacting automatic industry-wide counter-sanctions. They should be specifically against individuals.

- They take decisions against our individuals simply because they do not like them, and we should have the right to do the same. Another thing which I think is important, which is also discussed by legislators, is that all these sanctions are clearly spearheaded against Russia’s interests. In essence, they aim to destroy our social and political system and to harm our economy as well as individuals. In this case, the enforcement of these sanctions by our citizens should be considered an offense. Nobody should comply with these American sanctions, and violators should be liable administratively or criminally.

- That's tough.

- We have no option.

- An off-topic question. Is the WTO still alive amid all these developments?

- As for the WTO, there is no alternative to this international trade organization, no matter what some countries and national leaders do. It has many problems and inconsistencies, and the Doha Round of trade negotiations, sanctions, paternalism appear to be endless. But without the WTO international trade would be completely unregulated.

- How will the companies that came under the latest American sanctions be supported?

- These are big companies, that is why state should support them. We should definitely provide assistance to manufacturing entities.

- Creating jobs, as you've said.

- Yes, of course. We need to preserve jobs so that tens of thousands of people around the country, if we look at the recent sanctions list, do not lose their jobs and so that these companies can continue to develop. This is the logic of our support.

- Before the interview, I made up a list of questions. You're answering them without any computer or teleprompter. But you still remember all of the figures about livestock, farming, agricultural tractors, sanctions.

- Agricultural machinery manufacturing.

- Excuse me. I had an exam in economic geography long ago. I passed, by the way. What does it feel like to keep this huge economy in your head?

- Well, it's a big, but interesting mission. So, if you work in government some time, you too will also know all of these figures by heart.

- Of course, it's good to have a Medal for Bravery, but in some other way than by working in the federal government.

- Indeed, it's not the easiest work.

- Six years have passed, but are you ready to continue working?

- Of course, I'm not ready to retire yet. I am ready to work and will work where I can be of maximum service to my country.

- Thank you, for now, Mr. Medvedev.

See the full interview with Dmitry Medvedev on Sunday at 3 p.m. Moscow time on Rossiya 24. We'll have the details on taxes, specific industries and all the rest.