CNBC News Releases


Jennifer Dauble

BARTIROMO: I want to ask you about foreign capital and how you can get foreign capital, encourage it to come back to the country. But first, let me stop at GM, you mentioned it. What is your reaction to a Russian group acquiring the Opel brand? Do you think that this brand will do well here? What are you--what are you thinking about post the GM bankruptcy and this most recent acquisition?

Pres. MEDVEDEV: Well, the crisis hit real production very severely in Russia and Europe and the--in the US. The industries have been suffered a lot due to the crisis. We are here, the government, to provide aid to them and hopefully understand why the US government wants to try and save their major producers. We are in the same position here in Russia. We want to save our national corporations as well. The scale of the problem is, of course, much less than in the US. But again, we are spending billions of dollars here to save them. It's a very difficult problem for the national economy. And the consequences could be very grave. But we need to understand what our exit strategy, speaking of the crisis, should be. We are trying to decide and see whether we have hit the bottom of the crisis or not. And secondly, how are we to move further from there. There are a number of proposals in that regard and several scenarios. One of them, the most favorite--favorable is a graph like the--shaped like letter V, drop then rise. But that could be a different scenario; and L-shaped graph, a drop and then very slow recovery. But there also could be a third scenario, a W-shaped graph. It could go down, go up, go down again. And the end strategy, I think, is the most important at the moment. Why am I mentioning it here? Because we are in the process of defining how to help our national producers. We are looking at international experience, we are looking at what the US government is doing. They're buying out shares of the failed producers, including the GM. But what to do with these shares of those failed companies? It's not realistic to have them in--as government property. We need to resell them to a new owner with--who would take a company with such huge debts. We have the same problems in many countries. You also mentioned Opel. The company is in a very difficult situation. A consortium with the participation of a Russian bank, of Canadian company Magnum, bought out certain shares. But that's only one company and one attempt to save it. But there are many of them. We should look at the broader picture. We need to save not only the car manufacturers, but also the metallurgic companies, to save our strategic assets, as we call them. Sometimes we need to act not according to what market economy rules, but according to taking other actions as well. And if we talk about major companies on which survival of neighborhoods depends, we need--we are thinking of providing them with very attractive loans, sometimes with a very low percentage--interest rate, as low as a zero percent. But again, this is only one of the solutions. And we need to think of the future, how our economy will look after the crisis, after all those actions have been taken, when the government has become one of the shareholders. And the international economic system will change after the crisis, there's no doubt about that. And we want to get out of the crisis as soon as possible according to the....(unintelligible)...scenario. But it takes lots of thinking, lots of planning, and that's what I'm going to talk about during St. Petersburg Economic Forum.

BARTIROMO: And many people are watching--many people are watching the move into oil and gas of late and wondering if that is connected to the beginning of demand increasing around the world. What is your reaction to the most recent move in oil? Do you think it's sustainable, do you think that it is based on demand changes around the world, or is this a technical move? Knowing, of course, that we went all the way to $147 last summer and then down to $32 in January.

Pres. MEDVEDEV: Well, I would sincerely like to hope that the growing prices for oil and gas are the signals of the improvement in the economy. I closely follow the changes in the prices, and what we have now, something between 60 and $70 US per barrel. These are the prices of 2006. And at that time we thought that the prices were very high. Today I believe that these prices are fair, bearing in mind that the crisis peaked last year hitting almost $150 US. But what are the reasons for the current price growth? There are a couple of views on that. The first one is an optimistic one. The optimists think that the current situation with the oil and gas price reflect the fundamental situation and fundamental changes in the world economy, including in the US economy. The money that has been put into the economy, the support programs launched by the US government, by Europe, by China, by Russia, finally gave results and the economy is recovering, and the growing prices just demonstrate that. But there are also pessimists, and they have their own opinion. They believe that the current growth in prices is just a random event; it to a certain degree is a result of the support programs by the governments, but they will not be as high as they now for long. A new wave of depression will hit us soon, and the prices for oil and gas will go down and the economy will continue spiraling down as well. I personally would like to believe that these positive changes in the oil and gas price is the result of our efforts, that our efforts at last are bearing fruit. And what is happening in our country give me reason to believe and to be moderately optimistic. The prices for oil are up, the industrial production, it has stabilized at a certain level. The unemployment level is remaining stable for quite some time. I do want to believe that this is something that happened because of our efforts and not of some coincidence. But during the...

BARTIROMO: Knowing what you know now after what we have all been through in terms of the sharp economic slowdown, will you be using the oil riches in a different way? Will you be prioritizing differently in terms of the economy here in Russia? You've got to operate this economy, lead this economy regardless of what's happening in the markets, so any of those scenarios may happen and you have to deploy that capital. How will you do it?

Pres. MEDVEDEV: We haven't mentioned that during our conversation. But I have to say that crisis is not only a dramatic event in our lives. but it also a chance that destiny gave us and we need to use this chance. I already mentioned that I'm not happy with the structure of Russian economy. And it's true, it's an outdated, obsolete structure. It's dependent on raw materials. It neglects innovations to a large extent. I believe that we should have started investing into innovations much earlier, to join the leading innovative economists of the world. But the crisis is now with us and it gives us a chance to change the structure of our economy. And all the extra revenues that we may have selling oil and gas now should be channeled to achieve two goals. One is to maintain our social security programs; old age pensions, benefit payments, medical services, education. That should always remain a priority for the government. Our medical and health care service, education have always in the hands of the government, and it will remain as such for some time. And secondly, the extra revenues from export of raw materials should be used to radically change the structure of our economy. They should be invested not only into the expansion of our oil producing sector, but to the related areas as well; petrochemistry, etc. And most importantly, into the new technologies, bio technologies, green economy. That's what I mean, energy efficiency, energy savings. These are the issues that are in the forefront for us. And if we manage to successfully balance our social obligations with the need to modernize our economy, then in the result we will have achieved that goal, having a new economy.

BARTIROMO: So what will the best and most important assets of Russia be in 10 years? No doubt oil, still, but other.

Pres. MEDVEDEV: Well, in our country we like to believe and think that our national citizens of our country are very creative in their approach. And in addition to those who work in the raw material sector, we want to have a strong involvement of people, strong employment in the innovative sectors. We want to have a smart economy in the largest sense of the word. And we should not be too greedy about it. We should spare generously our money on these sectors, on energy efficiency, on biotechnology, different kinds of green technologies, again. If we are successful in that, then we have a totally different structure of the economy. And in 10 years I want to see Russia's economy not only as raw materials powerhouse, but an economy with lots of different others areas where we have competitive advantage and strength in modern technologies, in communications, exactly what other countries are striving to do at the moment. But again, we would want to preserve our energy sector potential, the machine-building sector which has been created during Soviet times. But -it needs investment, and those investments will come.

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