OREANDA-NEWS. July 21, 2009. Vladimir Putin's introductory remarks:  Good afternoon, colleagues. Today we are to look at questions on the long-term development of the network of budget-funded entities, which includes federal public institutions providing citizens with vital social services. Here I am referring to higher educational institutions, medical centres, theatres and museums, and also to state agencies and other organisations which carry out administrative functions, providing defence and security, working in science and agriculture.

This is not a new problem for the state. We have been deeply involved in this since 2003. At that time, we carried out a detailed analysis of federal institutions' functions and objectives, and worked out the criteria to take reasonable decisions on the institutions' future.

I believe that, for the past five years, we have been successful in setting up the network of budget-funded entities and have introduced a basic degree of order. The legislative framework has been greatly modernised; in particular, a law on independent institutions and amendments to the Fiscal Code have been passed.

The goal of these entities has been the adoption of modern mechanisms for funding and management, whereby budgetary funds pay only for concrete services that are provided, and where resources are spent, and priorities for the development of particular institutions are established in accordance with transparent procedures and involving the participation of representatives from all interested parties: regulatory bodies, workforces, and service users.

Nonetheless, today this process of modernising the network of budget-funded entities is still far from completion, while the pace of change does not correspond to those objectives that we set ourselves.

Despite cutbacks in recent years, the total number of federal institutions is still 25,000. This is a great amount. It is either very difficult or impossible to manage them effectively and to monitor the results of their activity. Modern, results-oriented methods of financing have been established in law; they are correctly formulated, accurately described, but for the time being their practical application remains weak. And there are many institutions that use these methods to acquire budgetary resources, without safeguarding the quality of the services provided to the public, the effectiveness of their activity, or the effectiveness of the budget expenditure.

Therefore, it is vital to greatly accelerate the restructuring of the network of federal institutions - in essence, to give this work a "second wind."

I think that in order to resolve this, we could in future move to a significant expansion of the rights that federal authorities have in managing those institutions that fall within their purview. It is vital that those in charge are given the opportunity to decide independently which institutions are indeed vital to government functions and authority, and where it is simpler and cheaper for those services to be purchased on the market, through state purchasing mechanisms.

At the same time, optimising the structure of those institutions that fall under the auspices of these agencies should not lead to a cut in budgetary financing for any programmes. Rather, the funds saved must be distributed among the government agencies and used in the long term for specifically targeted projects.

Let me remind you that at the end of last year we took a decision, and from December 1 we raised the fund for the payment of wages in the federal budget-funded institutions by 30%. This has given us the opportunity, from the start of this year, to move to wholesale changes in this area: in particular, heads of budget-funded public institutions were given the rights to regulate a significant number of issues linked to wages.

We had a lot of doubts about this; there were many different expert opinions. Nonetheless, the decision was taken, it is being implemented, and the analysis of information received indicates that the new system of transferring from a unified wage scheme to, I repeat, a new scheme of labour payments, is not experiencing any setbacks. On the contrary, it is working effectively, and in several cases it makes it possible to increase wages.

Today, we are fully able to take another step forward, to extend the powers that the heads of enterprises have, giving them rights to spend "miscellaneous expenses". I suggest that we discuss this further today.

In practice, of course, the functions and ways of financing institutions differ greatly from one institution to the other, precisely because each one carries out very different functions; they fulfil different objectives and interact with people on different levels. For example, about 1,000 federal institutions do not receive any budgetary funds at all. Their activity is 100% funded by those services provided to businesses and members of the public. For 4,000 institutions, extra-budgetary resources account for 40%, or more, of their income, and there are also those that are fully budget-funded due to the nature of their work, in view of which they can not and should not be engaged in profit-making activities.

That is why budgetary financing mechanisms must become more flexible, and the degree of independence that individual institutions have must be directly dependent on their sphere of activity.

Nonetheless, I would like to repeat: today we must take a decision on the future expansion of the rights that heads of budget-funded institutions have on the allocation of resources at their disposal, resources, as we say, that they have in their hands.