CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S MARIA BARTIROMO SITS DOWN WITH RUSSIAN PRESIDENT DMITRY MEDVEDEV TODAY ON CNBC'S "CLOSING BELL WITH MARIA BARTIROMO"
Following are excerpts from a CNBC EXCLUSIVE interview with Russian President Dmitry Medvedev today on CNBC's "Closing Bell with Maria Bartiromo."
All references must be sourced to CNBC's "Closing Bell with Maria Bartiromo."
MARIA BARTIROMO, host: Mr. President, thank you for joining us. We just saw a sharp contraction in GDP in Russia. I saw your comments about where the economy has gone. Can you give us a status check in terms of where this economy is right now from this downturn?
President DMITRY MEDVEDEV: The Russian economy, first of all, I would like to start with this point, and I should say that it has indeed suffered from the international financial crisis, and by no means less than other countries. And there are objective and subjective reasons for this which are connected with our situation. Indeed, we have been touched upon by the economic downturn and the slowdown in the GDP which we forecast this year will be 6 or even 6-plus percentage points on some items such as, for instance, the industrial output, it might be up to 14 percent over the several months. But at the same time, we cannot but mention some other alarming points such as the growing number of unemployed persons, and there are about two million, 200 registered unemployed. But in fact, this year is higher because simply some people did not get registered on the markets. And according to the international systems of estimates, the unemployment rate can be about six million people, which is from 6 to 8 percent of economically active population of the country. This is indeed a difficult figure the government has to react to. However, there are some other difficulties such as the ruble exchange rate. We had to weaken the ruble's interest rates due to the--of the foreign currency. We have some inflation issues also. However, I have to say that over the recent past, all those negative tendencies have at least stopped and so now I believe we are at the stage we need to--where we need to understand what should be next. And that is true not only about Russia, but also about the world economy in general. What was of problems to us, the first instance is the current structure of the Russian economy. This is no secret that the Russian economy has always been and is still export-oriented, and this commodity component in exports has caused difficulty as a result. Because the oil prices have changed, the natural gas prices have changed. So significant commodities, export commodities, for instances metals and metal products have depreciated also significantly, which is a significant article in our exports. That is why to a certain extent we are now hostages of the structure of the economy which was created for major ...(unintelligible)...in this country. And here the main objective, the objective for the future is to change the structure of the economy. I cannot evaluate the situation is a dramatic one. But in--it is a complex situation, to some extent it is simpler, to some extent it is more difficult in other--in the other countries. However, in general it is only average as in other countries who are touched on by the crisis.
BARTIROMO: So can you talk to us a little about how you will continue to diversify the economy and how you will react to this decline. Give us the status, for example, of the stabilization fund that you and former President Putin so wisely set up before the recession.
Pres. MEDVEDEV: We'll adjust. This is the main object, which is to overcome the consequences of the crisis which exist and to create a new architecture of the economy. We have dedicated quite a lot of time to create a basis for a modern economy in our country. But the level of diversification is still very low, extremely low. I should say even that the current situation, that the current state of affairs can make us not satisfied--cannot make us satisfied. We have so far failed to create a highly technological or technology-intensive economy. We are much dependent on exports of commodities and raw materials. We have a weak innovative component in the economy. We do not have this translation of innovations into the economy. And as a result, this means that the objective of diversification is the utmost priority to our country. And of course we're going to tackle this. But in order to work over that, we need to create a new structure, a new architecture. And speaking about our stabilization fund, then in these we have spent quite a lot of effort and time in order to make such goods stock and to have this reserves which now are deleted by billions of US dollars. Totally, there have been, all in all, about $600 billion US in that fund which we had available. Some of that--of those funds have already been used, but still there's some is ample in order to resorb--resolve numerous issues. But of course we cannot be developing using only the old reserves. That is why when strengthening the golden currency reserves and the currency component to that, we still keep thinking about the diversification of the economy and general creation of new production facilities, creating of high technology and innovative economy. This is the top priority at the moment.
BARTIROMO: It has been really an unbelievable moment in time around the world, and it's a moment where we are questioning some of the things that we thought were givens; the solvency of the banks, whether or not the US dollar is the reserve currency for the world. How do you think the dollar will fare coming out of the--of the recession? Do you--do you see it changing in terms of the reserve currency longer term?
Pres. MEDVEDEV: This is a topic which is of concern to us also, because the whole world is dependent on the health of the dollar. And despite there are other currencies such as the euro, the British pounds or yen, a--the--much depends, of course, on the health of the dollar. And we have our own point of view on this, which I, by the way, outlined already a year ago during, by the way, the St. Petersburg Economic Forum. My idea is that at the moment the world needs the larger number of reserve currencies, and it is not because the dollar is bad or the euro is not sufficient. But the situation is that the current environment requires that we need to have more reserve currencies where people could be investing, where banks could be investing and to whichthe states could be investing also. And this we understand would be--could be an exclusion. For instance, one of the first problems appeared in the US economies, and probably had the US government responded in a different way to the problems which existed there in the US economy, the downturn would have been not so deep, probably. But the thing is that since there has been change in the US economy, the attitude towards dollar has changed also. And I believe that the objective for us for the coming future is to create a larger number of reserve currencies. And I expect as a regional reserve currency the ruble could be also used, especially that we have a space and environment of countries with whom we are connected due to our history, due to our inter-relation and intertwining of the economies, and I suppose that ruble could at certain stage become one of the regional reserve countries. But at that we do not deny a possibility of creating a so-called supranational currency. Especially that during--that--in the statement of the G-20 in London it was mentioned in particular that the International Monetary Fund is going to issue different types of notes and bonds, which will be invested by--into the states and some of the instruments. Such as GRs in fact are an image for some initial stage of such a supranational currency. This means only that we would need some universal means of payments, which could set our grounds for the international system--economic system. I do not think that the positions of the dollar would be shattered by that, but I believe that what is important is that the dollar and other reserve country--currencies and, I suppose, also in some situation, the ruble, could have a link, perhaps some other conditions such as some special rights or some special currency unit which could be used in order to cover for such crisis situation. This is the idea which is expressed by us and our Chinese colleagues are supportive of that. I believe it's quite productive. We were not specially discussing it during the G-20 summit in London. We have agreed that it is something to be discussed in future. In particular, this was decided not to create additional instability in the markets. But I believe that this will have to be done in any case. And in fact, the future of the international currency system is in creating the modern rules of the game. And speaking about such rules of the game, it has--I should say that recently it has been said that there's too little of regulating, that there should be more regulator decisions taken. I believe it is not--the thing is not about that. It is not about creating some new, additional conventions regarding regulating the international financial and economic relations. What is important is that--such international commitments and conventions would be more effective and enforceable so that we would be more understandable. We do not need more regulation, we need more effective regulation. That is why when we're contemplating over the Bretton Woods economic and financial system and its future, then our country is not proposing that this should be crossed out. But we believe that it should be modified and upgraded in such a way so that it will be in tune with the needs of the 21st century, so that will be a larger number successful--of successful economies, a larger number of reserve regional currencies. And we would like to see a situation when the decisions of the future of the financial system would be taken not in one particular place or location, but a different form or platform where the key economic players meet. In this situation we have to admit that the Bretton Woods situation was, first of all, designed for several countries--the United States, Great Britain, and to a lesser extent it was created for the benefit of the European countries. We need to create now a more universal and more applicable framework which would include the US understanding of the economic system, the British understanding and use the European, Russian, Chinese, Indian and only in such a situation we can be certain that the modern regulation would be effective. If that is not done, then we will have to overcome the consequences of a new economic crisis in five years, in 10 years, since we understand that everything is cyclic in the economy, and crisis will be taking place now and then. But the matter is how influential a crisis can be on a situation in the world, and I believe this is very important especially in the context of the future of economic currencies.
BARTIROMO: You make a very important point, Mr. President, because we had a regulatory structure in place beforehand. But let me ask you about something that you just touched on, and that is the idea about the response to what we have seen, particularly in the United States. Do you expect global inflation in commodities, of course, in the US if the US dollar currency weakens and we see interest rates rise to monetize US debt? Would you expect that we would see global inflation as a result of the movement in the dollar and interest rates?
Pres. MEDVEDEV: I would not exclude a possibility of global inflation, especially in the light of those issues you have enumerated. We ourselves, and I mean Russia, are in a difficult situation compared to other countries speaking about inflation. Unfortunately, we could not conquer the inflation before the crisis. It was--it used to be at level of about 8 percent per annum. After we had to go into the partial weakening of the ruble, some processes have sped up and the general mass of the money in the economy has grown and the inflation pressure has grown. And we were forecasting about 13 percent of inflation for this year, which is of course beyond the framework of reason. And this tells negatively on liquidity. It tells negatively on the reporting and registering policies of the banks' interest rates and those interest rates which people can get from the banks or companies can borrow at. At this--there are some 18 percentage points or 18 interest rates per annum at level--this is level at which you can borrow money from a bank now. Nobody wants to borrow it just now. But the inflow of money from abroad, from Europe or US due to the crisis, has slowed down. That is why our important objective is to significantly reduce the inflation. But those processes which you have mentioned, the process connected with the dollar situation and the need to resolve numerous problems in the US economy in particular in supporting large manufacturers, I believe that we have to expect a decision to nationalize the GM, the General Motors. And we are speaking here about tens of billions of US dollars. And the general program of supporting the economy in fact is worth trillions of dollars in aggregate figures and supported by--in connection with the decisions taken by other countries. All this can result in situation--in a situation when the fiscal mass, the monetary mass will be growing. And this will lead to a situation and additional printing of money and additional money, which require--would be required. That is why here that would have negative effects on the economy. That is why it would be better to avoid such a situation. I, in the first instance, told you about the situation about the inflation in Russia and then outlined the situation in the world. By the way, over the recent months, the past months we had a slowdown of inflation and we can expect that by the end of the year inflation might be lower than we were predicting. But in fact, this is still very high. Because in the past we were targeting and setting some targets for inflation in order not to have it more than 5 or 6 percent. But of course it is not going to fit into this framework this year. But it is very important to manage inflation not only in Russia, but also globally. That is why I believe that the general threat of the speeding up of inflation process in the world is present, and it can result in different areas, in particular in problems in the banking sector.
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