Esteemed deputies of the State Duma,
     Esteemed members of the Federation Council,
     Esteemed citizens of Russia,
     As I present the Address for the year 2001 I would like first to say a few words about the past year.
     The strategic task of the previous year was to strengthen the state.
     The state in the person of all institutes and all levels of government. It was obvious that without the solution of this key task we could not achieve successes either in the economy or in the social sphere. We set ourselves the aim to put in place a precisely functioning vertical of government, to achieve juridical discipline and an effective judiciary.
     And we should not retreat from this aim. It is precisely here that the mechanism of implementing state decisions is located, of effectively protecting the rights of our citizens.
     A really strong state also means a strong federation. Today it can already be said that the period of the disintegration of statehood is already behind us. The disintegration of the state, that was mentioned in the previous Address, has been stopped.
     We have done much last year to accomplish this, all of us. We drafted and adopted the federal package, the package of federal laws, reformed the Federation Council. The work of the plenipotentiary representatives in the federal districts has already produced the first results. The State Council has been formed and is actively working.
     Russia, at long last, has state symbols that are approved by law.
     All this was achieved against the background of a favorable economic situation. In 2000 the Russian economy demonstrated growth rates that it had not known for almost 30 years. Growth remains in some sectors of industry. Investment activity has intensified. Tax payments have grown. People at long last are being paid their wages and pensions on time. For the first time after many years.
     But these successes definitely cannot be qualified as sufficient.
     They can hardly satisfy us because the living standards of citizens remain extremely low. Russian entrepreneurs are still cautiously investing money in the economy of their own country, while officials, unfortunately, are continuing to stifle business, to restrain business initiative and activity.
     We still have serious risks, both economic and social ones. This is evidenced by the Russian cities which found themselves without heat and electricity this winter, by numerous breakdowns in the worn-down utility services. This is evidenced by the big technical catastrophes that continued to hound us throughout the past year. In recent months we are worried by the worsening of a number of key economic indices.
     Especially against the background of the unstable development of the world economy.
     So far we are only in a period of a relative economic stability. And it depends only on us if we are going to sustain the situation and ensure favorable conditions for our own development, for the growth of our people's prosperity, or if we are going to miss this unique chance. And this means that the necessary decisions will have to be taken after all, but already in different conditions, in conditions that will not be favorable ones for the country.
     The situation compels us to return again to an analysis of the situation in the country and the tasks confronting us, including those that I spoke about in this very hall last summer.
     *** It was clear already a year ago that the introduction of order in relations between the federal and regional levels of government is a mandatory condition of success in our strategic transformations, that the absence of a clear separation of powers and also of an effective mechanism of interaction between levels of government brings us to big economic and social losses.
     A consolidated and effective state power is needed by us also for the solution of pressing socio-economic problems, for the attainment of our tasks in the sphere of state security. I will list now only some of the priorities.
     The first task is to identify concrete and clear-cut powers of the Center and the subjects of the Federation within the framework of their joint competence, to separate them by means of federal laws, and I want to stress this particularly -- precisely by federal laws and first of all by federal laws, to separate the competence and powers of the federal Center and the regional level of government. Today we should minimize this field that is potentially fraught with conflict. We must precisely determine where the powers of the federal bodies should be and where the powers of the subjects of the Federation. Otherwise this situation will only generate new disputes, will be utilized by the opponents of the policy of strengthening the Federation.
     The second task. Order in the system of the territorial structures of the federal bodies of the executive branch of government. At present they are financially and organizationally weak, they duplicate the activities of regional bodies and are often not capable of carrying out even control functions. In the coming months government will have to determine the updated order of the establishment and the activity of the territorial bodies of federal ministries and agencies.
     Finally, the third task. And it is also of a political nature. I mean the introduction of order in interbudgetary relations. The clear-cut distribution of resources and tax payments is a matter of the responsibility and effective implementation of mutual obligations by various levels of government.
     Last year we redistributed tax revenues between the Center and regions. This stirred a lot of disputes. A lot of disputes. However this, and it's also a fact of life, reduced the gap between regions in terms of starting base and gave them additional opportunities for economic development.
     In addition, a new mechanism for issuing transfers has been put in place.
     However, it needs to be formalized legislatively, and therefore it will be necessary to review the activity of existing regional support funds. We need badly a transparentmechanism for the provision of subsidies and regional transfers from the budget.
     One of the most important parts of the country's budgetary system is municipal budgets. It is in municipal entities, primarily at the level of administrative entities, local government bodies often perform the functions of bodies of state power. They really do. This is where the fight between regional administrations and local government bodies, between mayors and regional leaders takes place. Mostly these are conflicts between budgets. As a result, budget funds are not always used effectively at all levels. This creates problems of economic and political instability in some regions of Russia.
     vFinally, special attention should be paid to the heavily subsidized subjects of the Russian Federation. The government should finish the preparation of appropriate documents and provide documents of regulatory and legal acts regarding the procedure for introducing, if need be, special financial management procedures in such territories.
     *** I will speak separately about the situation in the Chechen Republic.
     Today I call on representatives of all political forces, they are here in this room, all political forces in the country to show responsibility in settling the situation in the republic. We have been able to do it so far. We have been able not to speculate on blood and tragedy, not to gain political mileage and scores on this.
     Only recently we heard that the army was falling into decay and that we should not expect any noticeable results in the military field, and that we allegedly could not expect anything positive in the political field because we would not be able to find even one Chechen who would support the federal center's efforts to fight terrorists and restore constitutional order.
     But life itself has shown that both of these statements are wrong.
     Having fulfilled their main tasks, the army is leaving the republic.
     This is a serious result. However, we paid a high price to achieve it. This is why I think we can break the tradition of annual messages today and remember, which will be quite appropriate, our servicemen, Dagestani militiamen, Chechen policemen, all those who have given their lives to stop the disintegration of the state.
     The national television channels are broadcasting this meeting live to the entire country, and I am asking not only the people in this room but all those who are seeing and hearing us now to rise and observe a minute of silence in memory of our heroes.
     (A minute of silence.) Thank you.
     I also want to point out that we have no right to speak of either marking time in Chechnya or feeling euphoric from success. We cannot generate unjustified optimism and give promises that cannot be kept or encourage expectations that we will not be able to live up to.
     Yes, our tasks in the North Caucasus are changing now. In addition to the need to finish the destruction of sources of terrorism, the emphasis should be shifted toward the creation and strengthening of government bodies in the republic.
     We must start ensuring citizens' rights, the social rehabilitation of the population and solving economic problems in Chechnya in a serious and responsible manner.
     This will require professionalism and courage from all of us in order to both prevent acts of terrorism and to overcome the consequences of the crimes we failed to prevent. The threat of new crimes is still tremendous. I must say this today.
     But we will need as much persistence, patience and courage in the social and economic sphere. We will also need time, at least no less than the time during which the republic was brought to its current extreme condition. We must understand this clearly.
     *** Dear colleagues, Oone of the most important decisions adopted last year was the creation of federal districts. The activity of plenipotentiary representatives has brought federal power closer to regions noticeably.
     The plenipotentiary representatives have contributed actively to bringing regional legislation in line with federal laws. They play a key role in this, as do the Prosecutor General's Office and its regional structures. More than 3,500 regulatory acts adopted by subjects of the federation did not conform to the Constitution of Russia and federal laws. Four-fifths of them have been brought in compliance with it.
     However, we must remember that all-hands-on-deck work, no matter what the motives are, cannot be considered normal. This is why control over compliance with federal laws should be put on a regular basis by working closely with justice bodies, prosecutors and courts.
     I want once again to remind those who adopt laws and those who oversee compliance with them that we must not only stop interfering in federal jurisdiction, but also put an end to unjustified attempts by federal structures to interfere in the exclusive jurisdiction of regions. This is a very important thesis, and I fully agree with regional leaders on this.
     *** A key question of any government is people's confidence in the state. The degree of this confidence is directly determined by how the state protects its citizens from the lawlessness of racketeers, bandits and bribe-takers. Legislative and executive bodies, courts and law enforcement agencies have not done enough in this field. As a result, the rights and interests of citizens are violated, the authority of government as a whole is undermined. This is why this is a political problem.
     We need judicial reform badly now. The Russian judicial system lags behind life and helps little in carrying out economic reforms. Neither for businessmen nor for many people who are trying to restore their rights in a lawful way, our judiciary has become prompt, just and fair. Not always, but unfortunately sometimes it is true. Our arbitration practice also has a controversial and unclear legislative basis. Departmental norm- setting is one of the main brakes in the development of entrepreneurship.
     Government officials are used to acting according to instructions that often clash with laws that follow them. And yet, they are not canceled for years. This has been noted already hundreds of times but in practice there is no progress at all.
     The government, the ministries and agencies should at long last take radical measures in respect of departmental law-making, up to and including the total abolition of the corps of departmental acts in those cases when direct action federal laws have already been adopted.
     Today our legal framework, and I will return to this a bit later, and I will say more precisely what is the cause of this, I mean as regards officialdom, today our legal framework, on the one hand, is excessive, on the other hand, is incomplete. Too many laws, in fact, have been adopted.
     Many of them duplicate one another. But in a whole number of instances they do not fulfill the set task because they were adopted under the pressure of narrow group or departmental interests.
     In addition to this, it has been noted many times that any law must be backed organizationally and materially. But in practice we have a totally different picture. The Federal Assembly, unfortunately, continues to adopt laws the fulfillment of which requires a revision of the federal budget and the Pension Fund budget that were approved by the Federal Assembly itself. I regard such decisions, even if motivated by the best of intentions, as politically irresponsible ones. We ought to have systematized our legislation a long time ago. This will allow us not only to take into consideration new economic realities but also to preserve our traditional sectors that have been dangerously eroded in recent years.
     We have a maze of already adopted norms of a declaratory nature.
     Because they are of a contradictory nature this creates possibilities for arbitrariness and arbitrary choice, something that is not acceptable in such a sphere as legislation. We are actually standing at the dangerous line when a judge or some other implementor of the law may on his own volition select a norm that seems to him to be the most acceptable one.
     As a result, along with a shadow economy we are observing the creation of a sort of shadow judiciary. And as practice shows, on losing hope of finding justice in court citizens are looking for other far from legal moves and solutions. And quite often they see for themselves that by resorting to unlawful means they often manage to get a just solution.
     This undermines trust in the state.
     The situation is no better with procedural legislation, both civil and criminal law procedure. A lot of complaints are coming in over unjustified coercion and arbitrary acts in launching criminal cases, in the course of investigation and litigation. Preliminary investigation drags on for years. More than a million people are kept in places of deprivation of freedom and pretrial detention centers. Ponder this figure. And a substantial part of these people are isolated from society under articles of the Criminal Code which envisage other forms of punishment than custodial punishment. And moreover, the state is unable to provide these people with normal conditions and subsequent social rehabilitation.
     The result is the breakup of families, deteriorating health of the population and the moral climate in society. The problem has ceased to be a legal one and has emerged as a civil problem. Obviously, such application of law provides a lot of room for abuses in the sphere of ensuring the rights and freedoms of citizens. It creates a spawning ground for corruption among civil servants. And the roots of these problems lie both in ineffective law enforcement instruments and in the structure of our legislation.
     Therefore, several tasks have to be addressed within a short period of time. They include issues connected with the status of judges and the procedure of their appointment. I think that the qualification colleges should include not only judges but also other authoritative members of the legal community.
     Besides, the legal and civil processes should consistently implement the constitutional principles of adversarial and equal contest of the sides.
     Much improvement is needed in the legislation that regulates the fulfillment of court rulings. At present by no means all the court rulings are fulfilled in practice.
     It is high time we should put municipal legislation in order. It comes closest to the daily life of citizens and it is very inferior in quality, overloaded and often illogical. I think practicians and experts of local self-government, the public councils of cities and municipal entities should be brought into this because they have extensive theoretical and practical experience. We have enough such people.
     And finally, I consider it to be an important task of the state to improve the work of the law-enforcement bodies, including the Prosecutor's Office.
     *** Esteemed members of the State Duma and the Federation Council, The previous Address pointed to the danger of increasing economic lag. That danger persists and lies in wait for us today.
     Yes, from the results of the year 2000 we have impressive economic growth as I indicated in the beginning. Some increase of labor productivity, lower production costs. But a high rate of growth only over a period of one year is not enough. Indeed, at the end of last year growth slowed down. The conditions that ensure sustained growth, unfortunately, have not been created.
     The country still has an unfavorable business climate. The flight of capital exceeds 20 billion dollars a year. The total capitalization of the Russian stock market is about 50 billion dollars. Whereas the value of the major companies in Finland, our closest neighbor, is five times greater.
     Just compare the size of the two countries. Major Russian companies, the so-called blue chips cost many times less than similar foreign companies.
     Obviously unless we start acting today, including on the issue of structural reform, tomorrow we may enter a prolonged period of economic stagnation.
     We still live in an economy that depends on rent and not production. Our economic system has changed but little in essence. Most of the money is made by oil, gas and metals and other raw materials. The additional export revenue is either spent on current tasks or flow out of the country or at best is invested in the same extractive industries. Last year more than 60 percent of the total investments in industry went into the fuel and energy sector.
     It happened, among other things, because export revenues could not be effectively used in other Russian industries. The transfer of capital is deterred by high risks of breach of contract, the underdeveloped financial market infrastructure, limited incentives and lack of confidence.
     As a result, the structure of economy is not being modernized and the tilt of our economy towards the extraction of raw materials is even increasing. This means our growing dependence on the market factors in the short term.
     Another well-tried method of making money that still remains popular has been popular in Russia for ages. It is the assets of the state be it state property or the state budget. In other words, profits derived from distribution and in the process of distribution and redistribution of wealth are greater than the profits generated by the creation of wealth.
     This explains the long-running battle over the reform of monopolies. It is not accidental that the government and the Federal Assembly only manifest enthusiasm when budgetary revenue is divided up and enthusiasm wanes when it comes to making decisions that contribute to the generation of revenue.
     A kind of consensus has emerged. Many people are comfortable with the present point of equilibrium, or rather inaction, when some have got used to deriving financial incomes and others get political dividends out of this situation. That consensus is confused by many with stability.
     But nobody needs such stability. This is a way of perpetuating the flawed tradition based on waste of national resources. It is a way to economic and social stagnation.
     It can be avoided if one does not end attempts at structural transformations with the writing of concepts and programs. And the government should at long last demonstrate that this will no longer be current practice.
     I am convinced that the current state of affairs has arisen not only because of resistance to reform on the part of the bureaucratic apparatus although examples of this are many. But it has to do with the system of the work of the legislative and executive bodies. At present it is so organized as to impede and in many cases stop all transformations. The system is defending its rights to the so-called status rent. To put it in a more direct way, the right to bribes and kickbacks. This mode of existence of power poses a threat to society and the state.
     We should start preparation for the administrative reform, in the first place reform of the government, ministries and agencies and their territorial bodies and we should revise not only or largely their structure and staff charts but mainly the functions of government bodies.
     Repeated attempts to reduce the administrative apparatus through merger and separation of agencies have not made the government and its bodies any more compact or efficient. Suffice it to say that the number of workers in the government power and administration bodies has grown from 882,000 in 1993 to more than a million at present.
     This year the government has prepared a package of laws on de- bureaucratization and minimization of the state's administrative interference in the affairs of enterprises. We should work to further reduce the list of the types of activities subject to licensing. Even in its reduced form that list is still far too long.
     We must vigorously introduce order in other spheres as well where there is excessive government intervention. I want to emphasize the word excessive. I am referring to this alone. I am speaking about the presently excessive mandatory certification of output, about all sorts of permits, registrations, accreditations and other norms and rules that are not provided for by our legislation but are persistently introduced by all sorts of instructions.
     We must have no illusions. Only transparent relations between the state and entrepreneurs stipulated in a law on direct action can give a new impulse to the development of the Russian economy.
     *** Esteemed colleagues, Last year we started transformations in the budget sphere. We managed to adopt a non-deficit budget. But the very procedure of the passage, to be more correct, of pushing through the budget in the State Duma reminds us, and we all know this, of a bargaining. A bargaining, alas, in which both the government and the deputies take part. This bargaining is inevitable in the present procedure of adopting the budget.
     We must think about how to depart from this practice that has become customary.
     I believe that we could think about, and I call on you to think together with us about this, a transition to the forming of a budget consisting of two parts.
     The first should ensure the fulfillment of existing state obligations.
     Here parliament should have the right of either accepting or rejecting the government's proposal. But not to change parameters.
     The other part of the budget should be based on sources of revenue connected with favorable external economic conditions, the recent past being an example. This part can form a reserve to ensure a stable development of our economy in less favorable years and also to fulfill large-scale strategic tasks. Here there must be a discussion, there can be amendments and remarks.
     I believe that such a separation of the budget will make it possible to avoid an irrational use of additional budget revenue.
     Furthermore. A cardinal tax reform was one of the items of my election program. The first steps have been taken and we must move on.
     I will permit myself to move to another subject and I would like to remind you of my stand on the results of privatization. I am against a re- division of property. At the same time I do not put in doubt the aims and tasks that were set in the course of these transformations in the 1990s. At the same time I believe it necessary to listen to the questions that are being asked about how this was done. And these questions are being asked not only by the supporters of a plan economy, they are being asked by liberals as well. But a re-division of property may turn out to be even more harmful and dangerous for the economy and the social sphere of the country. Proceeding from our present realities it is necessary for this reason to ensure an effective utilization of these resources and a proper payment of money into the state treasury. This can be done only by using tax instruments.
     Our strategic priority today is a rational and fair taxing of natural resources, that is of Russia's main wealth, of real estate. We must have a steady reduction of the taxing of non-rent incomes, a final liquidation of turnover taxes.
     In the very near future the government will continue its discussion of these problems and as the Chairman of the Government has just reported to me in the course of three, at the most four weeks will submit the appropriate draft laws to parliament.
     We must also continue the customs reform. Measures have already been taken to simplify and reduce import tariffs. But this is not enough.
     We need a cardinal change of the system of customs administration. The main task of the year in this sphere is to adopt a new edition of the Customs Code. Moreover, as a law of direct action. Of course, the Code must also accord with the norms of the World Trade Organization, membership in which remains our priority. We must reach basic agreements with WTO member countries already by the end of this year.
     It is the task of parliament to bring Russian legislation in line with the norms and provisions of the World Trade Organization.
     Russia's integration in the world economy requires of us a civilized approach to the solution of the debt problem. We should draw lessons for the future from the present situation, we should borrow only then when we know exactly how to spend this money effectively and how to return it. We should not pass on the debt burden to our children and grandchildren. That is why the government should be very careful when taking decisions on new borrowing.
     In this connection I would like to say a few words about the decision of the government not to sign an agreement with the International Monetary Fund. On clearing on the whole the program of budgetary, monetary, credit and structural policy the government undertook to fulfill it without concluding a formal agreement with the IMF. I think the government is capable of controlling what it is doing, however it will have to prove it. Without any control by international financial organizations but within the framework of the program that has been prepared.
     Now about the business climate in the country. Unfortunately, ownership rights are still not protected properly. The quality of corporate management remains low. The property war continues even after court rulings. And these rulings are often based not on laws but on the pressure exerted by interested sides.
     We must protect the rights of scrupulous buyers of both immovable property and securities, any property. We are talking, of course, not only and not so much of the property of major corporations. We must guarantee the rights of all people, including small-scale owners, major owners, domestic investors and foreign investors. I think the government and the Federal Assembly should draw up appropriate legislative acts already this year.
     In addition it is necessary to step up the adoption of a new law on privatization, a law that will create clear and transparent rules for selling and buying state property and will allow us to stop political speculations about selling out Russia.
     Unfortunately, these speculations continue. From time to time, we hear demands that property should be taken away, confiscated, etc., etc.
     We have already gone through a period when the state owned everything, absolutely everything. We all know the result.
     I am convinced that the efficiency of the state is determined not so much by the amount of property it controls as by the effectiveness of political, legal and administrative mechanisms designed to ensure public interests in the country. I talked about this in the Tax Reform section.
     This also applies to such an important field as the defense and industrial complex. Already now private businesses meet almost half of its needs, including joint-stock companies in which the state has a share. I think the participation of non-state enterprises in defense research and production must be enhanced. Of course, this must be done in strict compliance with all existing requirements, through tenders for purchases for state needs.
     A few words about the land issue. Its resolution has been delayed.
     A rejection of attempts to fit all aspects of state regulation of land relations into the Land Code may offer a way out of this deadlock. The most important thing now is not to impede the development of the land market where it already exists, to make sure that the Code formalizes the most modern forms and methods of regulation of land relations and to recognize that there are already no restrictions on the civil turnover of non-agricultural land.
     The regulation of agricultural land turnover will require the adoption of a special federal law. Perhaps, we should give subjects of the federation the right to decide for themselves when they can start selling and buying agricultural land.
     The accessibility and the development of the transport and energy infrastructure and the transparency of their operation are extremely important for the country. We are about to reform our power industry, the gas supply system, railways and communications. It is obvious to everybody that we can no longer tolerate their financial non-transparency, growing costs and ineffective management. It is impossible to preserve large-scale cross subsidies. However, as we start transforming infrastructure monopolies, it is extremely important to assess economic and social consequences of this and to ensure the rights of owners and investors. It is very important. They constitute the basis of our economy.
     Another important question is capital export. I am sure if we create an acceptable business climate in the country, capital flight will stop. You can't keep capital under guard. It has to have a legal freedom of movement to go where it is more advantageous and effective.
     Strategically we can hold it only by creating favorable conditions and guaranteeing the freedom of entrepreneurship, within the framework of the law, of course. And this is why I think there is no need to hold on to ineffective restrictions in the currency sphere. It's pointless because they don't work anyway. I have already given you statistics. It's high time we reviewed the very principles of currency regulation to bring them closer to world standards.
     I think that existing restrictions on operations with capital and immovable property discriminate against the citizens of Russia compared to the citizens of other countries, restrict their freedom and undermine the competitiveness of Russian businesses.
     In all our activities we must pursue the principle of creating the most favorable climate for our own citizens. What is allowed to citizens of other countries in their own countries should not be prohibited to Russian citizens.
     Esteemed Assembly, The development of the country is determined not only by economic successes, but to a large extent by the spiritual and physical health of the nation, although, of course, all this is interconnected. The health of the people is directly connected not only with the condition of public health care, but also with the life people lead, with the ecology and the development of medical science. Health protection is a national problem in the modern world.
     Every year the government approves programs of state guarantees for free medical assistance. However, these programs are not properly financed in most regions. The shortage of funds is 30-40 percent of what is needed for these programs. And this gap is covered, let's face it, by patients who pay for medicines and medical services.
     The reorganization of the system of medical assistance has been very slow. The growing number of paid services leads to hidden commercialization of state and municipal hospitals and health-building institutions. The system of medical insurance that is supposed to compensate sick people for their expenses incurred by treatment is not effective. In fact, a hidden but almost legalized system of paid medical services was created within the network of medical institutions financed from the budget. This system is often characterized by lawlessness and total lack of social justice.
     The task we are facing this year is to create a legislative basis for finishing the transition to medical insurance. This must be done within the framework of a single system of medical and social insurance that gets sufficient funding. This should allow us to solve the problem of chronic shortages of funds, to provide state guarantees for the provision of basic medical services to the population in full, make free medical services more accessible to broad sections of the population and improve their quality, and to create a clear-cut legal and economic basis for paid medical services.
     Another important state priority is guaranteeing people a decent life in old age. The country's population is shrinking. The share of old people will over time increase further. The load on the able-bodied population will grow. We know all the forecasts in this sphere. However, the state is not able to do much to ensure a dignified living standard for pensioners today and in the future. Its resources today are barely enough to pay minimum pensions. Yes, we managed to improve the life of elderly people a little last year. A little. Pensions have been paid regularly, they have grown in real terms by about 28 percent. And it was the most significant growth in the last several years. This year we should make another step forward. We should make sure that the average pension exceeds the living minimum.
     But look at the modest tasks that we set ourselves.
     However if the current system is preserved, we won't be able to ensure a decent living standard for pensioners. So, we should immediately address the task of finalizing the mechanism of a transition to pension systems that are truly effective. People are ready for that.
     Opinion polls show that more than 60 percent of Russian citizens consider that the underlying principles of the pension system should be changed.
     To discuss the basic parameters of the transition to a new system we have set up a national council for pension reform. It should become an effective instrument in shaping policy in this key area, as well as in the shaping of bodies that will work out the new principles of pension legislation.
     Today none of those who work know exactly what pension they will be getting. This happens because the size of a pension is determined not by a person's contribution, but by pension deductions that will be made by future generations of workers. And there is no way of telling now how effectively they will work.
     We need to pass on to a transparent system of saving for old age.
     People should be sure that every ruble they have earned makes a difference to the size of their pensions. This will provide an added stimulus, including a stimulus for withdrawing wages from the shadow sector.
     Successful implementation of a pension reform is directly linked with labor relations. At present many people have limited opportunities of earning a living by legal means and therefore have to resort to all sorts of tricks bypassing ineffective limitations contained in labor and administrative legislation.
     To this day we have an antiquated Labor Code adopted back in 1971. The gap between present-day civil legislation which is essentially market-oriented, and the old Labor Code is widening. And it stimulates the development of shadow labor relations which are not under the control even of the trade unions.
     The deputies, the government and the trade unions have very different viewpoints on the Labor Code. We need a labor legislation that would protect the rights and interests of workers not on paper, but in reality, ensure the mobility of labor resources, and pave the way for structural transformations at enterprises. I very much hope that parliament will speed up its work on and adoption of Labor Code based on the government's draft.
     *** In the sphere of social services the need for efficiency and transparency is particularly great. Every citizen of our country should know exactly what he has the right to get from the federal authorities free, what he can get from the regional authorities and what he should purchase himself. And similarly the power bodies of all levels should have scopes of responsibility.
     In accordance with this principle we should pass on from cost estimate financing of organizations to financing on the basis of the state contract. And, equally important, to create conditions for competition between all, the state and non-state organizations, for the possibility of delivering social services.
     One sphere in which the operation of economic mechanisms should be expanded is education. About one-fourth of the country's population is constantly involved in education. On the one hand, this is much, but on the other hand, it is by no means enough. The rate of the development of the economy, science and information technologies calls for life-long education.
     I think the approach to education should change. In the era of globalization and new technologies this is not just the social sphere, it is investment in the future of the country, the future involving companies, non-governmental organizations and all citizens without exception.
     Everybody is interested in delivering high-quality education to our children.
     Education cannot be geared solely to the distribution of resources through the budget. Off-budget financing of education institutions, in other words, payment for education -- let us face it -- has in many ways become the norm. But this market is far from being transparent. It is an illegal market. School principles use it at their own peril. The professedly "free education" which is in fact education for a fee tends to corrupt the pupils and the teachers alike.
     We should clearly identify the area of free education by making access to such education fair and guaranteed, and the area of paid education by providing it with a legal framework.
     So, the task for this year is to develop state education standards.
     They should provide the basis for subsequent introduction of regulatory per capita financing of the education services rendered. Simultaneously, to improve the quality of education, it is necessary to form an independent system of attestation and monitoring the quality of education.
     And of course, an equally important task is to make education more accessible for students from low-income families by introducing targeted social stipends.
     Esteemed colleagues, One often hears that our science is in a sorry state. Let me say a few words about it. We hear that the main cause of this state of affairs is the meager state financing. That is true, but only partly true. Contrary to the widespread opinion, Russian science is not only alive but is developing, albeit not as fast as we would like it to.
     Much of its funding now comes from off-budget sources. During the past ten years their share in the total financing of science has increased from 5 to 50 percent. Russian science is working with an eye to the market and is interacting closely with domestic and foreign business.
     Many works of Russian scientists are quite competitive in the world markets.
     Obviously, fundamental science can and must have government support. Must have its support. But the state should commission research and development only to the extent of its real economic potential. So today it is necessary to clearly identify the priorities of state financing of areas of science. At the same time we must change the mechanism of this financing, including in the way that Russian scientific foundations have been doing this for a number of years now. They finance on a competitive basis precisely research and not research institutions.
     We must also overcome the incompleteness and extremely contradictory nature of the legal framework of science. The legal foundation of the management of sectoral science is extremely cumbersome, complicated, and confused. The legal framework of the activities of the Russian Academy of Sciences is also archaic. The system of protecting, defending and utilizing rights of intellectual property is not adequate. All these problems are waiting for their solution.
     Esteemed colleagues, When fulfilling economic and social tasks we must take into consideration not only the domestic political situation but also the strength of our international positions.
     Foreign policy is both an indicator and a substantial factor of the state of affairs inside a country. Here we should have no illusions. Not only the prestige of our country in the international arena but also the political and economic situation inside Russia itself depend on the competence, skill and effectiveness with which we use our diplomatic resource.
     I have said already more than once that Russia should base its foreign policy on the basis of a precise definition of national priorities, on the basis of pragmatism and economic effectiveness.
     Today our country is increasingly integrating into the world economy and for this reason in the foreign policy sphere we must learn to protect the economic interests of the state as a whole, the interests of a Russian enterprise and a Russian citizen. We must really ensure, if you want, a servicing of the interests of the Russian economy. And this means resisting discrimination against Russian commodity producers, this means guaranteeing a preservation and optimum use of Russian property abroad, this means accelerating preparatory work to joint the WTO. Of course, on acceptable terms. To put it concretely, we must work for Russia's competitiveness in all the meanings of this word.
     It is profitable to have a reliable reputation not only in the economy but also in politics. And that is why we must precisely fulfill our long- term obligations and accords, we must uphold the principles on which we are basing our ties with other countries. This is a balance of interests and this means mutually advantageous cooperation. Also respect and trust.
     Such approaches are much more productive than tough ideological dogmas. Those who subscribe to such approaches can be confident that in Russia they will always find an interested and predictable partner.
     It is fundamental for us that our foreign partners take into account and respect Russia's national interests.
     All this fully applies to the discussion of the problem of preserving strategic stability, disarmament, the expansion of NATO, the forming of the fundamentals of world order in the 21st century.
     It is not only historical closeness but also obvious practical considerations that dictate the need to step up our efforts in the CIS.
     Russia remains the nucleus of integration processes in the Commonwealth. And at the time of economic growth new possibilities open up for Russia here. We will continue our painstaking work to create the union state with Byelorussia.
     We will stimulate the further development of integration processes in the CIS as a whole. The signing of the treaty on the establishment of the Eurasian Economic Community is only the first important step. We are prepared to advance in that direction further.
     We are duty-bound to inject new energy into our relations with European and other international structures while preserving and developing everything of a positive nature that has been accumulated in previous years. Dynamic processes are now taking place in Europe, the role of big European organizations, of regional forums is being transformed. In this respect the importance of further efforts to develop relations with the European Union definitely increases. The course of integration with Europe is becoming one of the key directions of our foreign policy.
     We remain consistent also in our relations with NATO. These relations are regulated by the Founding Act on mutual relations, cooperation and security which was signed in 1997. We believe that the problem that we have is because this organization often ignores the opinion of the international community and the provisions of documents of international law when adopting its decisions. This is the cause of the main problem.
     That is why the future of our relations with the Alliance directly depends on the precision with which the provisions of the Founding Act and international law are going to be observed. First of all in matters of the use of force and the threat to use force. Our position is clear. The only organization empowered to authorize the use of force in international relations is the United Nations Security Council.
     Another problem that I am simply obliged to mention. I mean the protection of the rights and interests of Russian citizens, our compatriots abroad. Hundreds of people living and working outside of the country should be convinced that Russia will not abandon them if they find themselves in a difficult situation, will protect their personal rights, will protect their families, will protect them from arbitrariness and unlawful pressure, will help them uphold their personal and civil dignity. Nobody should be allowed to selectively exercise international human rights and freedoms depending on the cover of a passport. And in such instances our diplomats should become not only vigorous but also professionally tough and act assertively and effectively.
     Something that I want particularly to stress. Today all bodies of government should treat work on the foreign policy turf as something that is very sensitive and important. It should be remembered that the wellbeing of the country and Russian citizens will depend on how intelligently, subtly and effectively we are going to pursue our policy.
     And the position of our compatriots abroad will also depend on this. And not in the least turn our successes in our own internal affairs.
     *** Esteemed members of the Federation Council and deputies of the State Duma, The past decade was a stormy one for Russia. It can be said without any whatsoever exaggeration that it was a revolutionary decade for Russia. The year 2000 and the beginning of 2001 appear to be relatively calm ones against this background. The absence of political upheavals has become a reason for many people who have grown used to constant crises to predict structural and personnel changes.
     I would like to say clearly that we are not afraid of changes and should not be afraid of them. But any changes, political and administrative ones, should be justified by circumstances. Of course, public expectations and apprehensions do not grow out of thin air, they are based on the known logic that after a revolution there usually comes a counter-revolution, after a reform there comes a counter-reform and after that a search for those guilty of revolutionary excesses, and punishment.
     The more so that Russia's own historical experience abounds in such examples.
     But it seems to me that it is time to say firmly that this cycle is over. There will be neither a revolution nor a counter-revolution. A firm and economically substantiated state stability is a boon for Russia and its people. And it is long time to learn to live according to this normal human logic. It is high time to understand that prolonged and hard work lies ahead. Our main problems are far too deep and they cannot be solved at one stroke, but only by daily qualified work.
     But stability is not the same thing as stagnation under a bureaucracy. We will need bold and well-thought-out decisions, we will need skilled specialists among entrepreneurs and civil servants.
     In conclusion I would like to stress that after a turbulent decade of reform we are entering a period when our will, our qualifications and stamina will determine the long-term success of the whole nation.
     Measures of a transitional character have been exhausted. But for present political stability to be translated into economic prosperity, it is necessary to exert a lot of effort and spend years. Power in Russia should work to make a renunciation of democratic freedoms impossible and to make the economic course that has been charted irreversible. The authorities should work to guarantee a policy that improves the life of all the social strata in Russia, legality and a consistent line for improving the business environment.
     ddressing the Federal Assembly, the government, the regional and local authorities, I would like you to remember that we won't achieve tangible results if we do not remove the fears and the guarded attitude people have for the state. The root of many of our problems is the age-old mistrust of the state which has more than once deceived its citizens, the suspicion citizens feel for the state, a feature inherited from the past. In the absence of genuine civil equality and business partnership.
     Today I deliberately concentrated on problem issues, on shortcomings. I thought that an objective analysis of our own shortcomings would be much more useful than comforting speeches. But one might, of course, have pursued that thesis too. The year 2000 has demonstrated that we can work together. Now we all should learn to work effectively. And I urge all those who are in the service of the state to take this as their main and chief task. I would like to repeat, as their main and chief task.
     Thank you.