Since winning a second term as Russian President on 14 March 2004,  Vladimir Putin has worked to bolster Russia's role as a vital economic power and key partner within the international community. H.E. Alexander Avdeev, former First Deputy Foreign Minister and  Ambassador of the Federation of Russia to France since March 2002, discusses this all important project and its stakes for Russia.

The Diplomatic Letter: Mr. Ambassador, since claiming 72% of the vote in the presidential elections of 14 March 2004, President Vladimir Putin has focused his efforts on speeding up the country’s economic development. In light of the great headway made since 1999, what are the key challenges the new Russian government must overcome in the coming years?

H.E. Alexander Avdeev: The President of the Russian Federation, Vladimir Putin, clearly set out the objectives our country will pursue in his message to the Federal Assembly. They include doubling Russia’s economic potential over the next ten years, reducing poverty, and ensuring greater prosperity. The government has made spurring rapid economic growth a top priority, along with bolstering Russian’s economic position around the globe and in turn raising the standard of living inside our own country. In order to reach these goals, Russia will promote stronger industrial production, provide assistance to SMEs, simplify its tax code, and set up the necessary infrastructures.
At the macroeconomic level, we must steadily cut back inflation, at a rate of 3% a year. Changes will also be made in Russia’s health and education sectors and  finance and banking systems, as well as in our housing policy. We will also push forward with reforming our tax and retirement systems. Finally, Russia’s armed forces will be modernized.

T.D.L.:  Russia posted strong economic growth in 2003, bolstered by high oil prices and consistently strong domestic demand. As the Russian government pushes forward with its program of wide-reaching structural reforms, has it set a timetable for launching administrative reforms and streamlining the country’s tax and financial systems? What is it doing to give local industries and small and medium-sized enterprises (SMEs) a bigger role in spurring Russia’s development?

H.E.A.A.: The Russian economy has shown very dynamic growth in recent years, expanding at a rate of 7.3% in 2003, and 7.4% in the first eight months of 2004. If Russia can keep up the pace, it will soon have the world’s second strongest growth rate, behind China and ahead of the United States, Japan, and the countries of the EU. Russia has managed to achieve macroeconomic stability and curb inflation, while increasing budgetary revenue and stabilizing its national currency. What’s more, the Russian Central Bank has increased its gold and currency reserves, which now total some USD 90 billion. Bolstered by these advances, we are now determined to reduce the country’s foreign debt by making payments on its international bonds on time, or even in advance.
We have also taken steps to reduce our economy’s dependance on the fluctuating price of oil and other raw materials on international markets, which is indeed very great. Russia’s high-tech sector is also expanding very rapidly.  A stabilization fund aimed at offsetting eventual fluctuations in the price of raw materials has also been created, and is expected to have accumulated more than 500 billion rubles (some USD 16 billion) by late 2005.
Tax reforms will also play a key role in Russia’s economic development. We have already cut the personal income tax to a record low of 13%, and introduced a flat-rate regressive social tax. We have reduced the corporate tax and abolished the sales tax. These measures have improved tax collection, reduced fraud, and eased the tax burden weighing down the economy.
It is going to be a long time, however, before the impact of these reforms makes itself felt. We will have to move through several new stages in the coming years, in order to make the tax system simpler and thus fairer, and to improve our tax authorities. We plan, for instance, to cut VAT and to change the tax collection system, as well as lowering the flat social tax. When these reforms are complete, the tax system will no longer be a burden for the business world. It will be fair and equitable for all economic players, and will help make the national economy all the more competitive. The government plans to make considerable changes in the banking and finance sectors as well.
You do well to mention the deep-reaching reform of the Russian government. The goal is to create a clear and transparent system linking all government bodies, the powers of which will be greatly restricted. Ministers and other leaders will, in consequence, be held more accountable for the actual results of their work.
President Vladimir Putin’s recent proposals are designed to ensure that both the Federation and its bodies are involved in setting up executive power at the regional level. In light of the growing terrorist threat, we are putting special focus on financing and equipping the structures in charge of maintaining order, and ensuring their activities are coordinated even more effectively.
As concerns boosting Russia’s small and medium-sized enterprises, the current administration is working to reduce government interference and make it easier for these businesses to obtain financing and reduce their tax burden. The Russian government has proposed overhauling state subsidies to small businesses, for instance, and will help to create more SMEs in the high-tech sector.

T.D.L.:  Russia needs to attract even greater foreign investment. Is it taking specific steps to open up the country’s economy and improve the overall business climate? Russia recently signed a new agrément with the European Union. What else must be done before it is in a position to join the World Trade Organization?

H.E.A.A.: Foreign investments have been pouring into the Russian economy in recent years. Direct foreign investments totaled USD 4 billion in 2002, jumping to USD 6.8 billion in 2003. That figure is expected to rise to roughly USD 8 billion for 2004 (in the first quarter, they were already 35% higher than the same period last year). The overall volume of foreign capital investment is also on the rise, and I hope to see this trend continue in years to come. We are obviously not fully satisfied with these figures, but the most important thing is that we are seeing a clear upward trend.
Russia can offer foreign investors a wide range of advantages: wide economic potential, a large domestic market, a qualified labor force, and a high technological level in a wide variety of cutting-edge industries. All these factors, coupled by enduring political and economic stability and an improved legal framework, should foster a steady rise in investments in the Russian economy.
Furthermore, the agreements Russia signed with the European Union on WTO accession are of key importance. Russia is indeed determined to become a full-fledged player in the international economic system, which includes joining the WTO under fair conditions. We would like to complete the negotiations as quickly as possible, and have every intention of doing whatever we can to speed them up. That said, we will only naturally continue to defend our own national interests, first and foremost.

T.D.L.:  Dismissing suggestions he is an authoritarian leader, President Putin underscored the state’s preeminent role in the economic development process in his speech to the Russian Parliament on 26 March 2004. Given the negative reaction to the Yukos scandal, would you describe the relationship between the political and business worlds in Russia?  
 
H.E.A.A.: Russian leaders have repeatedly stated that the “Yukos scandal,” as it is being called, will not prompt us to alter our economic strategy or the outcome of the privatizations carried out in Russia. Nothing along those lines is under consideration. Russian authorities do plan to continue cracking down, implacably, on financial offenses, tax fraud, and corruption.

T.D.L.: Russia is facing great social challenges right now. What steps are government officials taking to fight poverty more effectively and overcome the problems raised by Russia’s demographic decline?

H.E.A.A.: As I have already mentioned, creating conditions that foster higher incomes and reduced poverty is a key priority for Russian leaders. The expansion of the Russian economy is helping to do exactly this. The government is focusing its efforts on steadily enlarging the job market, expanding SMEs, and ensuring that targeted social assistance measures are truly effective. As just one example, the government has proposed replacing an impersonal system that grants welfare benefits to certain population segments, with a system wherein all eligible parties receive equal financial assistance.
We are also laying special emphasis on raising the standard of living of Russians who work in subsidized social sectors, including teachers, doctors, and scientists. Retirement pensions are being steadily increased. The ongoing reforms of the health care and education systems, along with the creation of an affordable housing supply, should help allay the problem of poverty and turn around this negative demographic trend.

T.D.L.:  Five years after the start of the war, the situation in Chechnya has yet to be stabilized. In light of the recent upsurge in terrorist attacks, the assassination of Chechen President Akhmad Kadyrov and the tragedy in Beslan, how do you explain the ongoing instability in the region? Under what conditions would Russia consider opening negotiations with Chechen separatists?

H.E.A.A.: Russia remains very much alive to the problem of Chechnya. The fate and suffering of human beings who are our fellow citizens are at stake here. Many Russians are being targeted by terrorists, not only in Chechnya but in other areas of Russia as well.
It has been clear, from the start, that the problem must be solved through political means. In the 2003 referendum, an overwhelming majority of voters said they wanted Chechnya to remain in the Russian Federation. The Chechen people themselves chose peace and order in 2003, by approving the new Constitution of the Republic, electing their new president, and moving forward to rebuild the republican bodies that wield executive and legislative power.
Unfortunately, various forces are not pleased with these changes. They are absolutely determined to make Chechnya, along with the rest of the Northern Caucasus, into a permanent seat of tension, by transforming it into a strategic base for international terrorism. We have already seen a similar scenario unfold in Afghanistan.
The negotiations of which you spoke have already been underway for quite some time, with the Chechen people’s representatives. No one is ignorant of the fact that Chechnya’s legitimately elected president, Akhmat Kadyrov, who was killed by terrorists, fought for some time alongside the separatists. Why is it that so many Westerners, when they talk about negotiations,  only consider “negotiations with Aslan Maskhadov,” and stubbornly overlook his government’s deeds and its role in planning and carrying out attacks?
Let me just remind you of the economic collapse, the total destruction of the social sector, the public executions, the hostage takings for ransom, especially of foreigners, the attacks organized inside Russia, and, finally, the armed invasion of neighboring Daghestan in view of forcibly incorporating it into Chechnya. Aslan Maskhadov, whom some still consider the legitimate president of the Chechen Republic, was accused of violating the constitution and betraying the state, and was officially ousted from office by his own parliament. Then just last summer, as Chechnya was gearing up for elections, Aslan Maskhadov made death threats via the media against Akhmat Kadyrov’s successor, whoever he might be. Doesn’t that remind you of the Taliban’s “democratic opposition” to elections in Afghanistan?
The tragedy that unfolded in Beslan in September 2004 showed us, once again, that these criminals are ready to do anything to achieve their ends, without taking anything else into account, not even the lives of children. They receive financial backing from international terrorists networks, and are bent on sowing interethnic hate between the peoples of the Caucasus, sparking a fratricidal war in the region. Patriots do not hide behind mercenaries. Rioters do not wage war on children.
International terrorism has become a problem worldwide. It recognizes no borders or nationalities. It rejects universal values, in particular the right to life and liberty. September 2001 in New York, September 2004 in Beslan, the endless attacks in Iraq and Afghanistan: they are all links in the same chain. The only way to overcome this evil is to join hands and fight it together. Making concessions to terrorists is inadmissible, since terrorists see them as a sign of weakness that only encourages them to fight on and thus puts more innocent lives at danger.

T.D.L.:  After distancing itself in the 1990s from the former Soviet republics in Central Asia and the Caucasus, Moscow is now working to boost its ties with these nations. How do you plan to strengthen the Eurasian Economic Community (EAEC) and move towards real regional integration, with trade ties between EAEC member states continuing to stagnate?

H.E.A.A.: Strengthening integration within the Eurasian Economic Community (EAEC) – which brings together Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan – is one of Russia’s top foreign policy goals. The EAEC is working to create a Customs Union, and is laying the groundwork for a Common Single Economic Space. The EAEC Inter-State Council met in Astana this past June 18. EAEC heads of state took stock of the current situation, and considered possible arenas of cooperation in future years, with special focus on new economic opportunities and the tasks that lie ahead.
An entire series of new factors have indeed come into play.
Firstly, the EAEC has gained a considerable amount of international prestige. It has been granted observer status in the UN General Assembly, and several influential regional and international organizations have expressed interest in establishing ties with the organization.
Secondly, all EAEC member countries are in a phase of economic expansion. Their national economies are posting stable economic growth, with investment activity and trade showing dynamic upgrowth. Their social development indicators are also on the rise.
Thirdly, one of the driving forces behind this accelerated development is the efficient use of resources and integration capabilities. It is important that we  do not let ourselves fall behind, taking full account of global pro-integration trends and continuing to push forward at a steady pace. Last year EAEC member countries signed a base agreement called “Priority Lines of EAEC Development in 2002-2006 and the Coming Years.” It lays out a general framework, of sorts, for building stronger regional integration in the short and medium term. We are currently working on an agreement for cooperation on the stock market, as well as a treaty that will ensure EAEC legislation has the proper status.
This last agreement is particularly important. This is, in fact, the first time the EAEC has put together the necessary conditions to enact supranational legislation that permits direct action.

T.D.L.:  Already one of the world’s leading oil exporters, Russia is looking to further boost its capacity and diversify its markets. Could you summarize the government’s strategy for promoting and optimizing this strategic sector? Are China and the United States destined to become your country’s top energy partners? Will the opening of the Baku-Tbilissi-Ceyhan pipeline undermine Russia’s position as the main  path for transiting oil from the Caspian and Central Asia in coming years? Has the surge of terrorists attacks against oil facilities in Saudi Arabia and Iraq had an impact on the international market or your country’s market position?

H.E.A.A.: Russia’s plans to diversify the transmission network for its energy products are well known. It is focusing primarily on increasing the capacity of the Baltic Pipeline System, putting the pipelines that link Western Siberia to the Barents Sea into operation, and laying out the delivery paths for hydrocarbons from Eastern Siberia.
There are also plans to build a gas pipeline to Northern Europe that will diversify export flows by directly linking Russia and the Baltic Sea states to the European gas network.
As regards China and the United States, we can certainly imagine them becoming ever more important energy partners for Russia.
Furthermore, we do not see the Baku-Tbilissi-Ceyhan pipeline as competition for Russian pipelines. Our pipelines are already busy enough, and it is highly unlikely this situation will change significantly anytime in the near future.
As far as the terrorist attacks in Saudi Arabia and Iraq are concerned, our position is well known. Russia resolutely condemns all forms and acts of terrorism. In this particular case, the terrorist attacks are harming not only the countries targeted, but are also making international oil markets far more uneasy and unpredictable.

T.D.L.:  Vladimir Putin stepped forward to support the American president after the September 11th attacks, opening a new chapter in U.S.-Russian relations. In what areas have joint U.S.-Russian efforts to fight terrorism been the most productive?

H.E.A.A.: Russia learned what international terrorism really means well before the events of September 11th, 2001, to its great misfortune. It has forcefully called upon the international community to close ranks against this threat. A good many strides have already been made in this direction, both at the bilateral and multilateral level, working within the UN and the G8, and through Russia’s cooperation with NATO. And yet three years after September 11th, there is still an urgent need to strengthen widespread cooperation against terrorism, as was made all too clear by the unprecedented hostage tragedy in Beslan.
Cooperating in the fight against terrorism is a key component in our current relations with the United States. As the presidents of both countries underscored in their statement on counter terrorism, we are not merely partners in this battle, we are allies. As early as 2000, our two presidents acted on a Russian initiative and ordered the creation of a bilateral working group to counter the terrorist threat in Afghanistan. In May 2002, the working group’s mandate was further extended, as it widened its discussions and began identifying new cooperation opportunities for the international antiterrorism coalition. Our relevant public services are conducting a very frank and professional dialogue on the full range of issues that fall within counterterrorism cooperation, including efforts to cut off terrorist financing, prevent new attacks, and keep terrorists from getting their hands on weapons of massive destruction. Our countries also exchange views on their assessment of the terrorist threat in various regions. With regard to Afghanistan, for instance, the working group is considering vital issues such as how to end the production and trafficking of narcotics in this country.  
The US-Russia Working Group has been set up in full compliance with the UN Charter and international law. This includes cooperation within the framework of the UN Security Council’s Counter-Terrorism Committee and coordination between the CTC and international, regional, and sub-regional bodies. In fact, the Franco-Russian Working Group follows the very same model.
It is time to make «double standards» for terrorists a thing of the past. Standing up together against terrorism, in this way, will enable us to make tangible strides toward wiping out this evil from the 21st century.

T.D.L.: Have the Iraq crisis and the creation of a “Paris-Berlin-Moscow axis” in February 2003 altered the  face of Russia’s new foreign policy? What role would your country like to play in helping rebuild Iraq?  Does it have a role to play in the Middle East, working within the “Partnership for Progress and a Common Future with the Region of the Broader Middle East and North Africa” launched at the annual G8 summit last June?

H.E.A.A.: First of all, I would like to clarify the context in which the idea of a  “Paris-Berlin-Moscow” axis came into being. Russia has no desire to create a “Paris-Berlin-Moscow” axis. Our country, along with its partners, considers it more as a dialogue shaped by the strong similarities in the way we see the world’s major problems being resolved. First, we share a desire to create a system of international relations founded on the principles of international law, with the UN and the UN Security Council playing a decisive role. Holding three-way meetings does not constitute a closed club, or even a counterweight to our relations with other states.
Russia is fully aware of the need to respond collectively to terrorism, which is why our country is interested in enhancing cooperation with all interested states, both at the bilateral and multilateral levels. Our counterterrorism cooperation with France and Germany can be seen a good example of how to make this happen.
We have had very fruitful economic ties with Iraq for several decades in a variety of areas, such as electric energy, irrigation, water, oil, etc. Russian companies have amassed extensive work experience in this country. We have also trained numerous Iraqi experts. Russia is hence fully ready to play an active and significant role in the rebuilding of Iraq. The most important thing is ensuring that the principles of impartiality, transparency, and free competition are respected in this effort. Russia will be able to send its specialists back into Iraq as soon as the required level of security has been guaranteed.
The G8’s idea to help democratize the countries of the Middle East is another step in the right direction. However, as Russia decides to what extent it will participate in these efforts, we will keep one principle in mind: this initiative, and the instruments created to carry it through, must not be used to interfere in other countries’ internal affairs. Russia has always maintained an independent foreign policy as concerns the Middle East. It will continue to do so in future, by working with its traditional partners and enhancing its ties with the member countries of the Organization of the Islamic Conference.

T.D.L.:  Despite its structural problems, Russia has become a key player on the international stage, as confirmed by President Vladimir Putin’s participation in ceremonies commemorating the Allied landing in Normandy. How do you feel about this acknowledgment of your country's’ role in helping liberate Europe from the Nazis?

H.E.A.A.: We see it as a sign of historical justice. People may think whatever they like of the Soviet Union’s heritage, but there can be absolutely no doubt that the USSR – of which Russia is the rightful heir – played a key role in the victory over Nazism during World War Two. Our victories in Stalingrad and the Kursk salient turned around the war, opening the way for the defeat of our common enemy. No one is entitled to forget that Russia paid a heavy toll – some 26 million citizens – to ensure the victory over fascism. We therefore believe there was every reason for the President of Russia to take part in the Normandy commemorations. We are grateful to the leaders of France, and especially to President Jacques Chirac for extending the invitation. Russia’s participation also underscored the obvious fact that our country remains a key factor to the stability and security of Europe and to the world as a whole. The threats facing our world at this time cannot be overcome without working in partenariaux with Russia.

T.D.L.:  The EU’s newest member states took part in their first EU-Russia Summit on 21 May 2004, with five of them recently joining the ranks of the North Atlantic Treaty Organization as well. Has the European enlargement process had a direct impact on Russia’s ties with the countries of East Europe and with the EU as a whole? Bolstered by the crea-tion of “common spaces” of cooperation in the summer of 2003, President Vladimir Putin has called for an “economic and spiritual rapprochement” between the EU and Russia. What concrete steps could be taken to this end? As a member of the Euro-Atlantic Council, what is Russia doing to strengthen its ties with NATO and enhance the interoperability between these two partners?

H.E.A.A.: Our mutual ties with the European Union and NATO number among Russia’s top foreign policy priorities. As a European country with a special responsibility for the continent’s stability and security, Russia is determined to develop a rich and varied partnership with these two organizations, based on equal rights and mutual recognition of the other’s interests. These ties are of growing importance to Russia, and on a broader level to all CIS member countries. We believe that the integration processes pushing forward on both sides of the European continent will help us create a common European space of security and prosperity, free of any new dividing lines.
This is the spirit behind our cooperation with the European Union, which is based on the Partnership and Cooperation Agreement signed in 1994. A new cooperation philosophy was adopted in May 2003, at the Russia-EU summit in Saint Petersburg. This moved us into a higher phase in the drive to bolster our partnership. Our efforts are now focused on creating common European spaces in the economic sphere, in the internal and external security arenas, in science and technologies, as well as in the cultural arena. This process holds great interest for both parties, as it will help create a strong and united Europe that can act more effectively on the international stage within Europe, and can put forward viable solutions to the threats and challenges of our times.
The creation of common spaces requires the elimination of obstacles to commercial exchanges and investments, the establishment of scientific, technical and cultural ties, and free contact between human beings all across the European continent. To that end, we will lay out identical judicial bases for effectively resolving the internal and external security problems shared by all European countries. This will allow us to work with our EU partners to put together concrete action plans, or “road maps,” for building these common spaces. We hope to see the strides we have made in this direction firmed up at the Russia-EU summit in The Hague on 11 November of this year.
We were not alarmed by the idea of seeing the countries of Central Europe and the Baltic states join the European Union. We did, however, have very legitimate and rational concerns, since it was going to change our relations with our traditional trade partners. We had to keep the Kaliningrad region alive, since it was cut off from the “Great Russia” by the territory of a new EU member. We were also concerned about the situation of Russian-speaking minorities in Latvia and Estonia.  After holding talks on these issues, Russia and the EU issued a joint statement that set out mutually acceptable solutions. A statement alone, however, is clearly not enough. The agreements we have reached must be carried out fully, and at the right time. They concern primarily the transit of goods from Kaliningrad, energy cooperation, the issue of visas, and the defense of human rights as well as minority rights, in particular the right to be educated in one’s native language and the right to become a citizen of the country where one was born and lives.
Russia and NATO both understand the danger of the new geopolitical situation, and the importance of combining their efforts to counter these new threats, starting with terrorism, the proliferation of weapons of mass destruction, and regional crises. This has prompted the two partners to open up a brand-new dimension in their relations, as confirmed in the statement issued by Russia and NATO member states in Rome in 2002. Russia is now cooperating with the Alliance in these arenas, within the framework of the Russia-NATO Council of “twenty,” as it is called. All of the participants have equal footing in the council. We believe we have established a high level of cooperation with NATO, especially in the fight against international terrorism, in preventing the spread of weapons of mass destruction and their vectors. Russia has confirmed its intention to participate in naval training exercises in the Mediterranean, as part of “Operation Active Endeavor.” We are still working on creating a non-strategic collective antimissile defense system, and have heightened the operational compatibility between Russian and NATO armed forces. We are also studying the questions raised by Russia joining the Status of Forces Agreement (SOFA) at the end of the year.
Russia will continue to dynamically bolster its ties with the European Union as well as the North Atlantic Alliance, without ever forgetting its own national interests. We lay special focus on putting an end to «double standards» on vital issues such as the battle against international terrorism, respect for the rights of national minorities, and the implementation of the Conventional Armed Forces in Europe Treaty (CFE), an accord vital to European security. Russia and its CIS partners – Ukraine, Belarus, and Kazakhstan – have ratified this agreement. We hope that the other members of the CFE Treaty will follow our example.

T.D.L.:  President Jacques Chirac was the first foreigner to visit the space center in Krasnoznamensk, on 3 April 2004, offering further proof of the highly trustful ties between Russia and France. In view of the former French Foreign Minister’s proposals for strengthening dialogue and cooperation between Russia and the EU, is France important to Russian foreign policy? Does it have a key role to play in the Russia-EU rapprochement process?

H.E.A.A.: You do well to mention the high degree of trust in current Franco-Russian relations, at every level, starting with the great trust between the leaders of our two countries. The Russian and French presidents deserve a great deal of the credit for this. This mutual trust is also conditioned by our countries’ proximity, their shared stances on a wide range of issues, and the long-standing ties between Russia and France, which have been characterized by deep mutual appreciation. It is hence only natural that your country is a leading reference in Russia’s foreign policy system. Our political dialogue is pushing actively forward, as our economic ties pick up speed. We have also good reason to be particularly proud of our cultural ties.
We see France as an advocate for strengthening ties between Russia and the European Union. French leaders understand full well that this process is our only option, and are playing a very active role in it. We are extremely grateful for this, as strong Russia-EU ties are a precondition for building a strong Pan-European partnership.