PRESIDENT VLADIMIR PUTIN: Good afternoon, dear colleagues!

We have gathered here today in order to discuss the problems facing Russia's southern regions. I propose that we focus our attention on two problems - problems that we keep returning to constantly - social and economic development in the southern regions, and the security issue.

You know that the federal authorities provide the Southern Federal District with considerable financial support. Indeed, its volume has increased 3.5 times in per capita terms over the last four years. A number of projects aimed at developing the regional and social infrastructure are now underway. But despite this increased federal aid, the gap between the Southern Federal District's economic indicators and the average national indicators is not getting any less.

The region's potential clearly does not correspond to its economic and social state of affairs. The district's natural competitive advantages - and they do exist, as we have discussed many times -- and its great human potential are not being used effectively. The district's gross regional product is less than half the Russian national average today, and people's incomes are 1.5 times lower.

The unemployment rate is still high. I do emphasise, however, that we are talking about average indicators here. The different regions that make up the Southern Federal District have different situations. Some, despite the various problems they face, are finding solutions and developing their own resources, actively attracting investment and encouraging business activity. Others, unfortunately, are in a worse situation and many rely exclusively on the federal budget. But, as I said, even the considerable increase in federal support is not enough to ensure sustainable economic growth and resolve the acute social problems the region faces.

In this respect, the biggest priority for the federal and regional authorities is to put in place the conditions for rapid economic growth within the southern regions. Achieving this goal depends to a very great extent on effective, responsible and well-organised cooperation between the federal and regional authorities.

One of the most acute problems facing the district is the rigidity, over-organisation and regulation and excessive administrative intervention in business life in many of its regions. The local markets are in the grip of monopolies and are essentially closed to anyone coming in from outside, and the local authorities are often used as an instrument for unfair competition, and, in other words, become corrupted. We know that this problem is not specific to the southern regions and affects the entire country, but I would like to draw particular attention to the situation in the south.

The practice of granting individual tax breaks and other privileges is widespread, as is unjustified preferential treatment in the allocation of contracts, financial and material resources. As a rule it is the interests of individual civil servants or of clans that are behind these practices. This administrative arbitrariness undermines people's belief in the possibility of opening their own business and successfully pursuing an honest business. It is enough to say that the number of small and medium-sized enterprises is lower in the Southern Federal District than on average in the rest of the country, and five of the southern regions have seen a noticeable drop in the number of such businesses.

Bureaucratic pressure pushes business life into the shadows, resulting in unpaid taxes, falling revenue for regional budgets and, as a consequence, a lower level of social protection for citizens.

I am absolutely convinced that our work on improving the system of inter-budgetary relations and the division of powers should create incentives for the regional and local authorities - incentives to develop the regional economy and to show more independence and initiative. But at the same time we need to ensure a mechanism for the political and legal responsibility of the regional and local authorities for the final result of their work in economic development, in developing their regions' taxation base and in resolving social problems.

It would be unfair to blame only the shortcomings in the regional authorities' work for the current situation. There are, for example, problems with the development and implementation of federal targeted programmes. I agree with many of my colleagues here today on this point. We have discussed it many times. We are lacking a set of clear rules, rules that follow a single logic, for allocating federal investment. This sometimes leads to a chaotic dispersal of resources between different agencies and regions.

It is important that we draw up clear and transparent rules for providing financial aid to the regions and municipalities and that we also establish clear responsibility at all the different levels of authority for the quality of investment projects and, most importantly, for their implementation, for the end result.

I wanted to touch on another important issue that I mentioned at the start of our meeting. It is clear that the economic and social situation in the south of Russia, more than any other part of the country, depends on being able to guarantee public security. The continued activity by terrorist groups and other extremist groups is seriously destabilising the situation in the region with the result that investment attractiveness has fallen and people do not feel properly protected. Organised crime, corruption and the growing drugs trade are all major sources of financial support for terrorists.

I would point out the Southern federal District has the greatest concentration of law enforcement officers not only in Russia but also in Europe and North America: there are 1,200 law enforcement officers for every 100,000 inhabitants. At the same time, there are a lot of questions regarding how effectively the law enforcement agencies are used and what results are gained from budget spending on law enforcement activity. The number of law enforcement personnel is growing all the time, sometimes, I think, to the detriment of the quality and professional training of officers. The lack of clear limits of authority and duplication of work dilute the sense of personal responsibility for the law enforcement services and their heads. Instead of carrying out their primary functions, the law enforcement agencies exercise functions not part of their duties and sometimes carry out unjustified intervention in economic life.

The conclusion is clear: we need to take serious measures to increase the results of the law enforcement agencies' work, not just throughout the country as a whole, but in the Southern Federal District in particular. I count on cooperation by the federal and regional authorities in this work.

I have no doubt that you will raise these and other issues and problems in your speeches. I would like to hear your concrete proposals on the subjects I have mentioned.