Johnson's Russia List
#6107
1 March 2002
davidjohnson@erols.com
A CDI Project
www.cdi.org
[Note from David Johnson:
1. Interfax: Russia: fugitive tycoon to show a film about explosions.
2. Interfax: Russian middle class families spend more on entertainment
than fitness.
3. AFP: Lenin remains could remain in mausoleum for another 100 years:
expert.
4. Izvestia: Maxim ZORIN and Alexander CHUIKOV, "PANKISI GORGE IS NO
WALK-OVER LIKE IN AFGHANISTAN"
5. Interfax: Kremlin spin doctor says US experts in Georgia no threat to
Russia.
6. Interfax: Breakaway Georgian region to seek close ties with Russia
if USA sends troops.
7. Luba Schwartzman: ORT Review.
8. Financial Times (UK) letter: Lord Robertson, Russia is not being invited
to join North Atlantic Council.
9. Reuters: Cash-strapped Russia regions aim to raise more debt.
10. gazeta.ru: Putin Supports Redistribution of Minerals Licences.
11. RFE/RL: Mark Baker, Debt Payback Accelerated, Investors Sense Sudden
Opportunity.
12. Moscow Times: Victoria Lavrentieva, Foreign Investment Up but
Inhibitions
Still High.
13. www.fednews.ru: REMARKS BY YEVGENY YASIN, DIRECTOR OF THE EXPERT
INSTITUTE
AT THE CONFERENCE "RUSSIA ON THE RISE", ORGANIZED BY THE AMERICAN CHAMBER OF
COMMERCE IN RUSSIA AND THE EXPERT INSTITUTE.
14. Parlamentskaya Gazeta: Dmitry Lvov, WHAT ECONOMIC REFORMS CAN
IMPROVE RUSSIANS' LIFE?
15. AP: World Communist HQ Model on Display.]
*******
#1
Russia: fugitive tycoon to show a film about explosions
Interfax
Moscow, 28 February: Russian business tycoon Boris Berezovskiy, who claims
that the 1999 apartment house bombings in Russia were staged by Russia's
Federal Security Service [FSB] security police, plans to show a film on 5
March about the explosions, a Russian political party announced today.
The film about apartment building bombings in Moscow and Volgodonsk and the
prevention of an apartment house explosion in Ryazan will be shown during a
planned news conference in London, the Liberal Russia party, co-chaired by
Berezovskiy, said in a release in Moscow.
The release said Liberal Russia is also planning rallies in several Russian
cities on 5 March, the 49th anniversary of the death of Soviet dictator Josef
Stalin.
The meetings, to take place in Moscow, St Petersburg, Perm, Rostov-on-Don,
Bryansk, Tambov and elsewhere, will demand "building a system of civil
control of the special services" and setting up a "public commission" to
investigate the 1999 bombings, which claimed nearly 300 lives, the release
said.
Berezovskiy is living abroad.
*******
#2
Russian middle class families spend more on entertainment than fitness
MOSCOW. Feb 28 (Interfax) - Families belonging to what is regarded as the
middle class in Russia spend somewhat less on their fitness than on
entertainment.
They spend less than $40 a month on going to swimming pools, fitness
centers, dentists etc, and over $40 on restaurants, theaters, cinemas and
hobbies.
The figures were reported to Interfax on Thursday by the monitoring.ru
independent group that in mid-February, together with Expert magazine,
conducted a representative poll of 1,600 representatives of this population
group in over 100 cities and towns in all the seven federal districts.
It was also discovered that while spending on health increases for couples
that have been married for over 12 years, spending on entertainment declines
significantly depending on the duration of the marriage.
It was also discovered that relatively well-off Russians with two college
degrees or a higher scientific degree spend 25% more on entertainment than
people with other educational levels.
********
#3
Lenin remains could remain in mausoleum for another 100 years: expert
AFP
February 28, 2002
The embalmed remains of Vladimir Lenin, which have been on display in a Red
Square mausoleum since 1924, will be presentable for at least another 100
years, a Russian expert revealed.
The mummified corpse of Soviet Communism's founding father "is in a very good
condition and could stay in the mausoleum for 100 years with the appropriate
care," said the deputy director of the Russian centre for bio-medical
technologies, Yury Denisov-Nikolsky.
The specialists of the centre "are doing all they can to preserve the remains
of the Guide of the International Proletariat for a long time", he told the
RIA-Novosti news agency Thursday.
The mausoleum was closed Thursday for six weeks "for preventative work,"
according to the Kremlin administration cited by the Interfax news agency.
This will consist of "examining Lenin's corpse," Denisov-Nikolsky said.
The debate over the future of Lenin's remains has quietened down since
Russian President Vladimir Putin said he was opposed to attempts by liberals
to remove Lenin from his symbolic resting-place just under the Kremlin walls
and bury him.
The Communists are fiercely opposed to the initiative.
A recent poll showed that 66 percent of people in Russia viewed Lenin's role
in the history of their country as positive.
*******
#4
Izvestia
No. 35
28 February 2002
[translation from RIA Novosti for personal use only]
"PANKISI GORGE IS NO WALK-OVER LIKE IN AFGHANISTAN"
Maxim ZORIN, Alexander CHUIKOV
According to Izvestia's data, a small US commando unit is
already conducting reconnaissance of terrain in Georgia's
Akhmeta district on the approaches to the Pankisi Gorge in
order to prepare a special operation in Pankisi. There are
grounds to believe that a joint US-Georgian operation will be
launched in the near future, say, during a summit of CIS heads
of state in Kazakhstan. It will be announced that it is being
conducted against terrorists hiding in the gorge. However, it
will mainly be spearheaded against the warlords who do not
support Ruslan (Khamzat) Gelayev, a source in Russian secret
service told Izvestia. "Foreign sponsors want to have in the
Pankisi Gorge only one 'governor-general', capable of
maintaining relative order and obediently fulfilling their
tasks," stressed the source.
Possibly, yesterday's statements by the Abkhaz leaders
that part of militants are being transferred to the Kodori
Gorge, which is comparatively safe for them, are connected with
this.
Gelayev's band was transferred there last autumn.
Even a joint operation will hardly bring full victory,
though. In the words of colonel-general Arkady Baskayev, a
member of the State Duma Security Committee and former
commander of the Moscow district of Interior Ministry troops,
"the Americans will see what Chechen militants are and perhaps
do something. Although I seriously doubt this, because it is
difficult even for local residents to operate there - this is a
mountain range which is difficult of access."
"This is no walk-over like in Afghanistan, as they think
it to be. It is not clear whom to detain and whom to eliminate.
If there were serious information about bin Laden's
whereabouts, a specific operation could be conducted, but I
doubt that they have such information. In other words, the most
important thing is that their aims and tasks are unclear.
Today, a very difficult and complex military operation needs to
be conducted there.
Georgian troops are not prepared for this," stressed Baskayev.
"They might try to do something with the hands of Americans,
but I think that such an operation has no prospects." Since
his election, Georgian president Eduard Shevardnadze has been
accepting the military and financial assistance of the United
States. Say, in 1999, the country with a population of five
million received nearly $150 million in aid from Washington, or
almost a third of the Georgian budget. Washington is interested
in Georgia first of all because geographically it is a transit
country for the shipment of oil and gas from Central Asia.
*******
#5
Kremlin spin doctor says US experts in Georgia no threat to Russia
Interfax
Moscow, 28 February: The deployment of American military consultants in
Georgia presents no threat to Russia, head of the Effective Policy Foundation
Gleb Pavlovskiy told Interfax on Thursday [28 February].
"The threat lies in destabilization in the Black Sea region, which is under
way in Georgia and is latent in Abkhazia, the Crimea and Moldova," he said.
Russia underestimates the benefit of American efforts in the regions, "in
which we would not be able to hold operations of the same effectiveness, both
for political and financial reasons", Pavlovskiy said. "Bearing in mind that
the Pankisi gorge has been a real danger to our troops since the late 1990's,
we are interested in eliminating that threat, the more so that it presently
has a huge destabilizing influence on Chechnya."
"America is taking military action on a territory that is obviously
unfriendly to us [the Pankisi gorge - Interfax]. In that sense, it relieves
us of the need to strike," the political scientist said.
The United States and Georgia should coordinate their actions with Russia, he
noted. "We should not allow terrorists being forced out of the Pankisi gorge
into the territory of Abkhazia and the Black Sea. That would be a real
catastrophe," he said.
*******
#6
Breakaway Georgian region to seek close ties with Russia if USA sends troops
Interfax
Sukhumi, 27 February: If the US military influence in Georgia increases,
Sukhumi is prepared to officially apply to Russia to set up associated
relations, Abkhaz Prime Minister Anri Jergenia told Interfax today.
Abkhaz President Vladislav Ardzinba, the parliament chairman, the foreign
minister and prime minister have already made this view known, Jergenia said.
"If we sensed a favourable response for these proposals, we would send an
official request to Russia," he said. "The people of Abkhazia have
traditionally sought the closest possible relations with Russia," Jergenia
said.
Jergenia was unaware of an alleged understanding between the United States
and Russia under which the two countries have divided the Caucasus region
into spheres of influence. In particular, some experts assert that the United
States is to deploy its units in Pankisi gorge for fighting terrorism, while
Russia is to have a freer hand in Abkhazia and South Ossetia. "Nobody has
told us anything of the kind. Georgia is a sovereign country and thus has the
right to pursue a pro-US policy. Likewise, Abkhazia is a sovereign country
which has every right to establish the closest possible relations with
Russia," he said.
*******
#7
ORT Review
www.ortv.ru
Compiled by Luba Schwartzman (luba7@bu.edu)
Research fellow at the Institute for the Study of Conflict, Ideology and
Policy at Boston University
HEADLINES,
Thursday, February 28, 2002
- Russian Deputy Prime Minister Valentina Matvienko declared that Larisa
Lazutina was wrongly disqualified in the Salt Lake City Winter Games and
suggested that the Russian skier still receive a monetary award from the
Russian government. Russia gives $50,000 to gold-medal winners, $15,000
for silver medals and $10,000 for bronze.
- Tatarstan's new constitution has been accepted in the first reading; 325
changes were made to 122 articles and 42 articles were. Activists
picketed the Republic's State Council building in protest of the fact that
Tatarstan will no longer be called a "subject of international law." The
changes were made in compliance with a Constitutional Court order that the
Republic's Constitution be brought in line with the Federal Constitution
of the Russian Federation.
- FSB (Federal Security Service) Director Nikolai Patrushev refuted
reports that Russia and the US have carved the Caucasus -- Georgia,
Abkhazia and North Ossetia in particular -- into spheres of influence.
- Russian Foreign Minister Igor Ivanov appeared on the Vremya evening news
show and affirmed that Russia has no secret agreements with the US
concerning the situation in the Caucasus.
- In Chechnya, a special service operation was conducted to shut down
small unauthorized oil refineries. According to the FSB, there are about
a thousand such "samovars" in the republic. The local health ministry
reports that the waste by-products of these mini-factories contains about
30 different carcinogens.
- Aleksandr Lyaginov, a soldier in the Zheleznovodsk border troops
division deserted his post last night. He has turned himself in to the
police and explained that he ran away because of the hazing.
- Borislav Milosevic, the former Yugoslav ambassador to Russia and
Slobodan Milosevic's older brother, announced that a number of Russian
politicians -- including Russian Chamber of Commerce and Industry head
Yevgeny Primakov and State Duma Deputy Nikolai Ryzhkov-- are willing to
testify [in favor of Milosevic] at the Hague.
- The US State Department has threatened to impose sanctions on Belarus
for violating UN sanctions and selling arms to "rogue states." Pavel
Latushko, the press secretary of the Belarusian Foreign Ministry announced
that Belarus has not, does not, and will not sell weapons in violation of
UN sanctions and that his ministry has received no documents supporting
the accusations.
- Ten of the CIS (Commonwealth of Independent States) presidents are
meeting in Alma-Ata. Russian-Georgian relations, the fight against
terrorism, the situation on the Commonwealth's southern borders and in
Afghanistan are on the agenda. The presidents will probably also consider
the heating-energy complex and migration within the Commonwealth. They
will then take some time off from discussing political problems to ski and
go bowling. Azerbaijani President Heidar Aliev is not able to attend, as
he is recovering from a recent operation.
- A group of American military experts has arrived in Yerevan to discuss
US-Armenian military cooperation. The US would provide Armenia with $4.5
million in military aid.
- US State Department Spokesman Richard Boucher announced that US-Georgian
cooperation in the fight against terrorism will benefit all of the
countries, including Russia.
- US Secretary of State Colin Powell discussed US-Georgian cooperation in
the fight against terrorism with Russian Foreign Minister Igor Ivanov to
ease Russian worries about the impending posting of American soldiers to
Georgia.
- Abkhazia's vice president, Valery Arshba, announced that the Abkhaz
government will have a telephone consultation with North Ossetian
President Eduard Kokoev in connection with the increased US influence in
Georgia.
- Georgian President Edvard Shevarnadze announced that the presence of US
special forces will fortify Georgia's borders and help reinforce its
sovereignty. He added that attempts to improve relations with Russia were
unproductive.
- Russian Prime Minister Mikhail Kasyanov said that reform of the energy
and electricity spheres was discussed at today's Cabinet meeting.
- Russian President Vladimir Putin met with Finnish Prime Minister Paavo
Lipponen before flying out to Alma-Ata for the CIS Summit. He pointed out
that he will always find time to meet with Finnish leaders. Finland is
one of Russia's primary trading and economic partners. Prime Minister
Lipponen is also the head of the Committee on Finnish involvement in the
celebrations of St. Petersburg's 300th anniversary. He will visit
Vladimir and Suzdal during his three days in Russia.
- State Duma Foreign Affairs Committee Chairman Dmitry Rogozin announced
that, at its 5 March meeting, his committee will discuss the necessity of
an Abkhaz declaration of independence. Representatives from the power
organs, the General Headquarters, intelligence and border services, and
the Foreign Ministry have been invited.
- It was six years ago today that Russia became a member of the Council of
Europe.
- A nationwide emergency telephone service will become operational in
Russia in the near future.
- An operation to save about 150 fishermen from an ice floe near Sakhalin
has been completed successfully.
*******
#8
Financial Times (UK)
28 February 2002
LETTERS TO THE EDITOR: Russia is not being invited to join North Atlantic
Council
From Lord Robertson of Port Ellen.
Sir, On February 25 you published an article headlined "Nato woos Russia with
offer of closer relations".
The article states that "under the terms of the deal, Russia will have equal
status with the alliance's 19 countries turning the North Atlantic Council,
Nato's political decision-making arm, into a forum of 20".
This statement is wrong. Russia is not being invited to join the North
Atlantic Council, nor is Nato transforming the NAC - its core decision-making
body where only members have a voice - into something new or different to
include Russia.
We are working on proposals for a new forum "of 20" in which to co-operate
with Russia - but this would be a separate body from the NAC. So to suggest
that Russia will have an equal status with Nato members in the North Atlantic
Council is completely inaccurate.
This clarification is important, otherwise readers may be led to conclude
that Russia may become a de facto member of Nato and that the NAC is about to
lose its autonomy. Neither is the case.
George Robertson, Secretary-General, Nato, B-1110 Brussels, Belgium
*******
#9
Cash-strapped Russia regions aim to raise more debt
By Artyom Danielyan
MOSCOW, Feb 28 (Reuters) - It might not be on the scale of the U.S. municipal
debt market, but officials and analysts said on Thursday that regions across
Russia planned to give domestic debt markets a fillip in 2002 with new
issues.
Although sub-sovereign bonds from the likes of the Tomsk, Omsk and Komi
regions are unlikely to appeal to foreign investors, they will deepen the
domestic debt market and show the regions are overcoming the financial
meltdown of 1998.
"We can say that in general the regions have started to issue rouble bonds
more actively and it is partially thanks to their recovery from the shock of
1998," Deputy Finance Minister Bella Zlatkis told Reuters.
Most of Russia's regions lag far behind Moscow and St Petersburg, the
country's two biggest cities, both in general levels of development and in
the revenues their local authorities can raise.
They also have the legacy of a series of debts called agrobonds from the 1998
crisis, on which they subsequently mostly defaulted. Russia as a whole
managed to keep current on its foreign debt after 1998, but defaulted on
domestic paper.
But the regions want to tap domestic markets to fill their coffers and get
cash for investment. They are barred from issuing Eurobonds, except to
refinance existing debt. Eurobonds and bank loans are also dearer than rouble
debt.
But at least 10 more regions including Murmansk, the Komi Republic, Irktusk
and Tomsk have already announced issue plans for 2002 and a further 10 are
expected to come to the market.
In 2001, 12 regions issued bonds for 500 million roubles ($16.2 million)
while two billion roubles is expected this year.
FOREIGN INVESTORS WARY
But despite the expected rise in issues, liquidity on the secondary market is
expected to remain thin unless yields are pitched higher than the anaemic
return on government GKO t-bills and OFZ bonds, which are only at or
sometimes under inflation.
"What foreign investors demand is liquidity. If a system of market makers for
regional debt is set up than everything should be good," Yelena Kolchina,
chief analyst at ING Barings said.
"Naturally, investors still have bad memories of all these defaults on
agrobonds but now risks for Russia and its regions are revised. Fiscal
discipline has improved in Russia and investors realise it," Kolchina said.
Agrobonds were securitised debts by the regions to the Finance Ministry which
were built up for deliveries of goods in 1996. The regions serviced this debt
only reluctantly as they thought it was imposed unfairly and defaulted on it
in 1998.
Both analysts said the days of fiscal irresponsibility and haphazard
hand-to-mouth planning were beginning to end for the regions, to be replaced
by a more systematic approach. Such developments could encourage interest in
their debt.
An analyst at the AVK financial company, Dilara Sharifullina, said many
regions had stopped using debt revenues for financing their current needs,
like they used to do before 1998 crisis, but invest money in real economy.
"We may conclude that the regions will not make the same mistake they did in
1998," she said.
*******
#10
gazeta.ru
February 27, 2002
Putin Supports Redistribution of Minerals Licences
The presidium of the State Council under the chairmanship of President Putin
has approved a document entitled "about the basic directions of state policy
in the sphere of raw materials and exploitation of natural resources". The
most intriguing excerpt from the document was written by Putin himself and is
as follows: "It is essential to understand why the major Russian oil
companies are not investing means into research and development of new oil
fields."
According to Vladimir Putin, "Russia has vast resources, but we do not use
them effectively and zealously."
There are many reasons, most of which have common characteristics. For
example, a lack of coordination and discord between various state bodies and
mining and extracting companies often make the latter reluctant to fulfil
their functions and to invest in research and development of new resources.
President Putin's comments on the issue appear to be a direct reproach of the
oil majors and therefore could have far reaching consequences.
Not only the negligent mining and extraction companies are to blame for the
situation. According to the document submitted to the presidium of the state
council, the tax system does not encourage the effective and optimal
exploitation of mineral resources or the exploitation of discovered reserves,
and imperfections in the law exasperate the messy relations between the
state, local government and the mining and extraction companies.
The State Council working group set up to address the problem initially came
up with the proposal to strengthen state control over the sphere. However, it
transpired that the members of the group had varying ideas about such
controls.
The head of the working group, the governor of the Khanty Mansiisk region
Alexander Filipenka considers that a single a single organ is required to
oversee the mineral sector, a committee answerable to the president for
example.
According to Filipenka, the situation should not arise whereby state agencies
such as the ministry of finance or the ministry of economy can block
proposals from the regions, including proposals on taxation.
However, the minister of natural resources Vitaly Artiukhov sensed a direct
threat to his ministry from Filipenka's proposal and objected: "A committee
would mean general unaccountability." Instead Artiukhov proposed that
activities in the sphere should be coordinated by a vice-minister or at least
the ministry of economic development and trade.
The members of the presidium did however manage to agree that a state plan is
required to manage the country's natural resources. Vitaly Artiukhov
explained that the state leadership should calculate the balances in order to
understand what is happening with the natural resources and then draw up a
plan of how to exploit them. The government will prepare a 20-year energy
strategy plan with long-term balance sheets.
Governor Filipenko explained the plan in more practical terms: "Now the
(federal) centre will send us an order -- 'how much can you extract?' But I
would far prefer that they told us 'You must extract 350 thousand tons of oil
of which 250 thousand tons is yours!'"
The rector of the Mountain Institute in St. Petersburg Vladimir Litvinenko
also stressed the need for a state plan for the mineral sector. "All
countries have used the experience of the USSR in mineral extraction but we
on the contrary have rejected it," Litvienko claimed.
Vitaly Atiukhov pointed out that the working group had "conducted a full
inventory of the licences and it turns out that all of the significant
reserves have been allocated." The working group was unanimous that the
licensing regulations should be made much stricter. Litvienko claimed that of
the 57 thousand licences, only 15% are working. The conclusion was that many
of those licences could be forcibly taken from the idle owners and allocated
to more productive entities.
President Putin made it clear that the first subjects of that process could
be the oil companies and supported the suggestion that licences should only
be granted to the companies who actually extract the minerals themselves and
that licences must be withdrawn from companies that contract other
enterprises to carry out extraction.
According to Artiukhov, that process has actually begun. "13 thousand
licences, that's a half of the overall amount, have had to be annulled."
*******
#11
Russia: Debt Payback Accelerated, Investors Sense Sudden Opportunity
By Mark Baker
Suddenly, Russia is in vogue among international investors. After threatening
to default on its debt in 2001, the country has reversed course and is now
making regular debt payments -- and even pre-paying some obligations.
Investors are noticing, and Russian dollar-denominated bonds are among the
hottest international investments. RFE/RL correspondent Mark Baker spoke to
analysts, who said better tax collection and an oil price windfall have
brought about the dramatic improvements. But they also questioned how long it
will last.
Prague, 28 February 2002 (RFE/RL) -- Russia is paying down its foreign debt,
and Russian government bonds, once pariahs on international markets, are now
the darlings of bond traders.
Economists and analysts said this reflects a drastic improvement in the
Russian budget and rising oil prices and also a new, more positive attitude
on the part of Russian financial officials.
Letitia Rydjeski, a bond analyst at ATON Capital in Moscow, said the Russian
Finance Ministry has adopted what she calls a more prudent strategy for
paying off debt after stunning the capital markets last year by threatening
to suspend its debt payments.
She said Russia is already pre-paying part of the massive $19 billion in
obligations that come due in 2003, after facing debt payments of about $13
billion this year.
"[The Finance Ministry] has tried to pay down some of [next year's debt], and
they've probably paid down 3 billion [dollars] of that, so instead of owing
19 [billion dollars] next year, they owe 16 [billion dollars] next year.
That's the best [figure] to anyone's knowledge."
Russian Prime Minister Mikhail Kasyanov recently confirmed the country's
overall financial improvements, announcing that Russia's total foreign debt
to governments and banks fell to about $138 billion by the end of 2001, from
$157 billion a year earlier. He said debt-service payments dropped to 20
percent of the country's gross domestic product (GDP) from 30 percent
previously and implied that the policy of pre-paying debt will continue.
The situation is a far cry from last spring, when Kasyanov shocked
international capital markets by saying Russia would suspend some debt
payments. The move was sharply criticized by Germany, traditionally Russia's
biggest foreign lender. Russia eventually backed down.
Since then, finance officials -- benefiting from two windfalls -- have
radically changed their attitude.
One windfall is a jump in tax receipts, which rose some 40 percent in 2001
from the previous year. Konrad Reuss, a managing director with Standard &
Poor's Corporation in London, cited favorable changes to Russia's tax laws,
which simplified the system and broadened the tax base.
"We saw a substantial cut in personal income taxes. The whole tax system was
simplified. Rates were brought down. The base for collection was broadened,"
Reuss said. "This kind of streamlining, the simplification, the broadening of
the tax base, the bringing down of tax rates -- which obviously makes it less
interesting for both individuals and [corporations] to go into tax avoidance
-- all that together did result in better collection."
Reuss continued: "With the kind of reform momentum we have seen -- and these
reforms are now being implemented -- we are seeing a change of quality of
economic growth. Which means, going forward, Russia will not be as sensitive
as it used to be to changes in the oil price. And in the future, we will see
economic growth really more on a broader base than just economic growth
driven by the oil and gas sector."
In the shorter term, in the event oil prices fall, officials have established
a reserve fund to be used for debt payments. Analysts said any future default
is highly unlikely.
*******
#12
Moscow Times
February 28, 2002
Foreign Investment Up but Inhibitions Still High
By Victoria Lavrentieva
Staff Writer
[charts not here]
A stable political environment, a new Tax Code and a 13 percent personal
income-tax rate that is among the lowest in the world, a new corporate
governance code, labor and land codes, a start in reforming the natural
monopolies and long-awaited programs to restructure the pension and banking
systems. There are positive signs aplenty, yet all this is not enough to make
Russia attractive for significant foreign investment.
Foreign investment in the first three quarters of last year was up 23 percent
compared with January-September 2000, reaching $9.7 billion, according to the
Economic Development and Trade Ministry, which plans to release annual
figures in March. But it is already obvious that although the overall trend
is positive, the shift in the structure of investments is discouraging and
overall numbers remain very low by any terms.
The share of foreign direct investment, or FDI, has been steadily declining
since 1997 and in 2001 amounted to only $2.9 billion -- just over half the
all-time high of $5.3 billion recorded four years ago. According to official
statistics, portfolio investments have remained almost unchanged for the last
five years, at an average of $300 million per year.
"Foreign direct investments are still very low in Russia as compared to other
countries, both in terms of percentage of GDP and per capita," said Christof
R?hl, the World Bank's chief economist for Russia. "The reason why
investments are not growing is that people are still suspicious about Russia;
the business environment is still insecure."
According to the European Bank for Reconstruction and Development's
Transition report, accumulated FDI in Russia last year reached $69 per
capita. Other former Eastern bloc countries fared better, with the Czech
Republic in the lead with $2,102 per capita. Bulgaria had $404 per capita and
Romania $301.
"This means that all the Russian government's efforts are just not enough,
and even more needs to be done," said Sergei Afontsev of the Russian-European
Center for Economic Policy.
"Investors are afraid of losing their money again," R?hl said. "They also
know that up-front costs for business are very high in the absence of bank
credits."
In line with R?hl's comments, the amount of "other types" of investment,
which include foreign bank loans and other financial obligations, increased
40 percent last year.
"This is not a good sign, as this money is mainly short-term and doesn't
involve equity investments," Afontsev said. "Also, this is more evidence that
the Russian banking sector is not financing the needs of the Russian
economy."
Food or Oil?
To minimize risks, Russian and foreign companies alike prefer to commit their
resources to the fast-growing retail and food sectors.
According to the Economic Development and Trade Ministry's Investment Policy
Department, out of $9.7 billion invested into Russia in January-September
last year, $4.4 billion -- almost half -- went to the food sector, retail
trade, catering and restaurants.
"While the overall amount of foreign investments in Russia is unbelievably
low, food processing takes money from production sectors," said Peter Westin,
chief economist with the Aton brokerage.
Foreign investments in oil and gas last year were just a fraction of those in
food and retail, reaching only $591 million.
In ferrous metals the situation is slightly better, with $827 million
invested, but this is still relatively low.
"Investments in core industries are still considered to be very risky, while
food processing is less risky, more liquid and pays back more quickly,"
Westin said. "Also, the required investments are considerably lower than in
core sectors, such as oil and gas and metals, which are still waiting for
production sharing agreements."
RECEP's Afontsev said investors tend to take a short-term approach.
"No one is thinking long-term when investing in Russia," Afontsev said. "The
general approach is to put your money in and quickly get it back."
Russian Money Returns
While foreign companies still prefer to think twice before committing any
investments to Russia, Russian money is coming back from tax havens abroad.
In the first nine months of last year, Cyprus and Switzerland invested $1.8
billion and $952 million, respectively, into various sectors of the Russian
economy -- mainly food and retail, but also metals and oil.
"Cyprus and Switzerland represent former Russian money, so it can't be
actually considered foreign investments," said Alexei Moiseyev, an economist
with Renaissance Capital.
This is true in many other cases as well. For example, Russian money may be
hiding under the name of, say, Belize in the construction sector, Panama in
agriculture and Barbados in the financial sector.
"It wouldn't be a big mistake to suppose that under all those names we can
see Russian money coming back," said Afontsev of RECEP.
"It is a good sign that Russian money is now invested into Russia and more
domestic capital is coming back into the country," said Moiseyev. "But we
should not forget about capital flight, which still remains quite
significant."
Capital outflow has been declining during the last three years but still
exceeds the volumes of foreign investments -- meaning that the final balance
is negative. According to the Central Bank, registered capital outflows
reached $10.2 billion in the first three quarters of 2001, which is $500
million more than was invested into Russia in the same period.
According to the World Bank's R?hl, "you need to have in mind not only
inflows of capital, but also outflows. Russia is still an exporter of money
and the trend remains unchanged."
Germany and the United States remain the leaders in accumulated volumes of
investment in Russia, having invested $5.9 billion and $5.5 billion,
respectively.
According to the American Chamber of Commerce in Russia, one of the major
U.S. investments here last year was a $350 million joint project signed by
car makers General Motors and AvtoVAZ.
As for others, petroleum companies are leading in terms of their exposure to
Russia. To date, British Petroleum has committed $1.5 billion to Russia while
rival Chevron has invested $800 million and Conaco $600 million.
Boeing is also among the leaders, with $1.3 billion committed to Russian
projects, along with United Technologies at $500 million.
Total investments by Coca-Cola in Russia last year reached $750 million, and
rival Pepsi has accumulated investments of $600 million.
Among Europeans, Swedish IKEA was the story of the year. Last year, the
company invested about $200 million in Russia through its German subsidiary,
and it plans to invest a further $250 million in 2002 and 2003.
According to the Delegation of German Enterprises, the largest German retail
chain, Metro AG, invested $25 million in its first complex in Moscow. AVA AG
of Germany began construction of a 40 million Deutsche mark ($17.8 million at
the current rate) megastore in the Moscow region, and German
building-materials company Knauf increased the number of its plants in Russia
to 17.
Westin said most of these investments were concentrated in highly populated
areas, such as Moscow and St. Petersburg, where spending power is highest.
"According to IKEA research, spending power in Moscow shops is the same as in
Stockholm," Westin added.
Hope for the Future
Analysts disagree on whether Russia is suffering now due to the lack of
investments, given the huge current account surplus. But looking to the
future, they all agree that investment is one of the key growth factors that
Russia can hardly live without.
"The most important thing about direct investments is that they bring with
them technology, help to build distribution and transportation networks,"
Aton's Westin said.
Afontsev from RECEP agreed. "Small investments in food and retail sectors
bring no technological progress with them," Afontsev said. "In order for that
to happen, Russia needs significant direct investments from leading
international industrial corporations," he added.
And for that to happen, Russia needs to show improvement in many aspects from
law enforcement to customs reform and, finally, to join the World Trade
Organization.
"One of the constant pains of foreign investors in Russia is everything
concerned with international transactions," R?hl said. "Without customs
reform, they are thinking three times before they do something that involves
crossing the border."
R?hl added that Russia would be a good place to produce things for
re-exporting, "but this does not take place now."
Moiseyev said Russia can expect an inflow of foreign investment only when
foreign companies can more easily export produced goods out of Russia.
"Customs problems are the key in this respect," Moiseyev said.
"I doubt that customs procedures will ever be perfect in Russia, but at least
they should become clear. WTO accession can serve as a major stimulus for
improvement in this direction," he added.
*******
#13
TITLE: REMARKS BY YEVGENY YASIN, DIRECTOR OF THE EXPERT INSTITUTE
AT THE CONFERENCE "RUSSIA ON THE RISE", ORGANIZED BY THE
AMERICAN CHAMBER OF COMMERCE IN RUSSIA AND THE EXPERT
INSTITUTE
[RADISSON SLAVYANSKAYA HOTEL, 9:00, FEBRUARY 26, 2002]
SOURCE: FEDERAL NEWS SERVICE (http://www.fednews.ru/)
Somers: It is now my distinct privilege and pleasure to
introduce Evgeny Yasin, director of the Expert Institute, perhaps
the most renowned think tank on economics in Russia. He's also
associate supervisor of the Higher School of Economic Policy and
Economics. As many of you know, he was minister of the economy
from 1994 to 1998 for the Russian Federation and is one of the most
independent-minded economists in Russia or anywhere.
I distinctly remember in the mid '90s seeing in The New York
Times buried somewhere on page 22 a small article reporting that
the minister of economy seriously questioned the fundamentals of
Russian economic development, and during those years he gave
numerous warnings both to the Russian government as well as to
international investors that the Russian economy was built on
something less than fundamental. And, in fact, I think we can say
he actually predicted what happened in August 1998; he may have
been off by a month or so.
I think it's perhaps interesting that in 1997 he retained his
position as minister, but he was called minister without portfolio,
which perhaps suggested the government did not want to lose him but
was becoming weary with his what turned out to be accurate
criticism.
It is now my great pleasure to introduce to you one of the
outstanding economists in the world, Evgeny Yasin.
Yasin: Thank you Mr. Chairman. I will briefly describe the
changes that occurred in the Russian economy of late. First, I
would like to draw your attention to the fact that two years ago we
released the first report on "Investment climate in Russia," which
was very pessimistic and contained critical assessments. We focused
on and we said that it was not possible to rapidly change the
investment climate in Russia but that it was necessary to make the
investor feel that today it is better than yesterday and that
tomorrow it will be better than today.
Today I can say that upon expiry of three years after the 1998
crisis, we have Russia which is one of the most attractive of the
developing markets in the world.
I will give you some data. The growth of the Russian economy
by the gross domestic product amounted to 5.1 percent last year.
This was one of the best results in the world which was subject to
depression in that year.
Here are some other data. In 1998 Russia's foreign exchange
reserves amounted to 11 billion dollars, and they reached 36.5
billion in 2001. In 1998, 60 percent of the sales were in the form
of barter, while the figure for 2001 was 13 percent. The current
accounts operations of the BOP were close to zero in 1998, while at
present it is 40 billion. In 1998 Russia's debt was 158 billion
dollars or around 60 percent of the GDP. Now is it 137.8 billion,
and the GDP registered a real growth of 20 percent.
The Russian banking system is getting capitalized very
rapidly. Last year the growth was 38.3 percent. Lending to the real
economy is up 37.9 percent. In 1998 foreign investment was less
than two billion dollars. Last year, based on the results of three
quarter years, it was 9.7 billion dollars. Of that figure, direct
investment was on the order of 4.5 billion dollars. I think it is
quite a serious performance scored thanks to the situation and
thanks to the reforms conducted in Russia during ten years and
thanks to the efforts of President Putin and the Russian
government. These measures have in recent years endured a political
stabilization and establishment of more favorable conditions for
investment, for business activity. And I would say with
satisfaction that the slogan we suggested three years ago is being
implemented.
Indeed, we still have very many problems, we cannot say that
everything is already quite good in our country, but we can say
that today it is better than yesterday and tomorrow it will be
better than it is today. This is precisely what is creating quite
a favorable situation for working in Russia. This is true, of
course, in the first place, of US business.
I would also like to draw your attention to the institutional
changes that are occurring at the present time, to the economic
changes carried out by the Russian government. A mere listing of
the reforms and the changes accomplished over the past three years
is quite impressive.
The tax reform has substantially cut the tax burden in Russia.
The flat scale of the income tax has stimulated an active process
of legalizing the economy and getting it out "of the shadows".
Suffice it to say that last year, when labor productivity grew 3
percent, the wages increased 19 percent. It may seem surprising to
the American guests who have not been working in Russia for a long
time, but to us it means that a large number of Russian enterprises
are beginning to pay the wages openly and are becoming
transparent.
I would also mention the passage of the Land Code and that
land has become, so to say, the object of agricultural turnover. I
would also mention the Labor Code, the amendments to the Law on
joint-stock companies which have been significantly strengthened by
the position of the minority shareholders and which protect the
rights of the shareholders; the Law on bankruptcy which rules out
the possibility of abuses aimed at taking over the property; these
are also deregulation laws that have substantially improved the
situation for small and medium-sized businesses; and a number of
other legislative acts already adopted or in the process of
discussion.
I would like to draw your attention to the fact that all these
legislative acts are the result of the public consensus.
Increasingly prevalent in Russia is the approach whereby the
reforms are becoming societally acceptable, recognized by society.
This is a very important result since in the previous decade many
major reforms had to be carried out largely in a situation of
conflict with the public opinion.
I would only like to say that there is now at work a very
important process whereby the Russian technical and business
standards are being harmonized with the international ones, and
that today the index of correspondence of the Russian standards to
the international is 40 percent. I will remind you that in France
the indicator is 45 percent and in Britain it is 80 percent. We are
to carry out a number of serious reforms of which the most
important ones are the judicial and the military reforms.
I would also like to draw your attention to one important
thing that occurred on the Russian stock exchange. Over all these
years from the start of the market reforms, the stock exchange in
Russia responded more to the developments in New York than to
events in the Russian economy. We now see a different picture.
Although the situation is complex on the US and European markets,
and many indexes are falling or have been falling for over a long
period, the Russian stock exchange responds more to the growth of
the Russian economy and is thus demonstrating the beginning of its
independence.
I would not like to be understood by you only in this rosy,
upbeat way. I would like to say that the year 2002 will not be a
bad one but it will be less spectacular than 2001 and 2000
especially, which was the most successful year of the three. I
expect the GDP growth in 2002 to reach from 2 to 4 percent,
inflation -- on the order of 16 percent, 2 percent below last
year's, and there will be the growth of investment, outpacing the
economic growth, somewhere at the level of 5-6 percent. And I would
like you to consider the fact that this is normal development. It
is not deterioration because the year 2000 was simply a stroke of
luck for us, whereas the year 1998 was our bad luck. It means that
I do not expect any special fluctuations in the current year.
Nevertheless, I would like to point out quite a number of
serious problems we still face and we still have to work to
eliminate. One such problem is the fact that in Russia there still
is quite a substantial non-market sector and we need to work to
liquidate it. And although, according to our research, the
non-market sector in industry has been liquidated, it persists in
the sector of natural monopolies. It continues to exist in the
housing and utility sector. It is affecting the incomes of people,
who continue to get a host of benefits and are paid less than the
labor wage, the monetary remuneration of labor.
I would also point out that we still have no equal conditions
of competition and that too big a role in the economy is played by
informal links and there are still problems of protecting the
property and problems of corporate management.
I would also like to say that our financial system is
extremely weak for handling the tasks of modernizing that our
country will have to get down to in the near future. This is also
true of banks. Despite the good indicator that I cited above, we
still have to consider that the loan investments in the economy
account for roughly 16 percent of the GDP a year. This is 4-5 times
less than the normal level and at the same time it is an important
reserve of development.
Responding to the intervention by Mr. Ambassador, I would like
to point out that the further development of the Russian economy is
increasingly dependent on cooperation and reciprocal links with
other countries, above all with the developed industrialized
nations. At issue here is not already assistance, but rather mutual
trade, and reciprocal exchanges. As to Russia's entry into the WTO,
I a profoundly convinced that this is no longer a question of the
West teaching us good standards. To a large degree or may be to a
decisive degree, this is a question of commercial interests.
I recently visited Turin to attend a meeting of Russian and
European industrialists and there we acquainted ourselves with the
appeal from the organization of European entrepreneurs who asked
the European commission not to let Russia into the WTO but not
because it has poor standards of financial reporting, but because
it would create competition on the European markets. This is a very
important point because the general policy line of the United
States and the European countries and Russia is to build an open
economy. So, the arguments now put forward appear to be less and
less convincing to me. At any rate, I can say this about the
discussion as to whether or not Russia is a market economy. I have
carefully acquainted myself with the criteria offered in this sense
and I tend to regard as very, very doubtful the judgments that
Russia is still a country with a non-market economy. I stress this
because earlier I said that we had a big non-market sector -- this
is true, but that is a different thing. I can say that in any
economy, there is more or less such a sector. And it seems to me
that in the future we will have to work hard so that Russia could
feel an equal attitude to it like that to all other partners in the
world market.
I think that now is a good time to work in Russia. WE will
continue to work to resolve our problems. We understand these
problems well. We don't believe that we have already caught God by
the beard. We do not regard ourselves a prosperous country, a
country developed in all respects. We are only making the first
steps on the road to modernizing an getting out of the
transformation crisis.
May be now one is in order to recall that 10 years ago Russia
was still a communist country and then, for a short time, the world
was euphoric over our getting out of that situation. For Russia,
the last decade was a historic event, exceptional for its
importance. I don't think we ought to forget this. Thank you.
Somers: Thank you, Mr. Yasin, for your intervention.
********
#14
Parlamentskaya Gazeta
No. 34
2002
[translation from RIA Novosti for personal use only]
WHAT ECONOMIC REFORMS CAN IMPROVE RUSSIANS' LIFE?
Dmitry LVOV, member of the Russian Academy of Sciences
and secretary of the Academy's Economics Department
Academician Dmitry LVOV describes himself as a liberal in
economics, yet his views of reforms carried out in Russia over
the last decade differ in many respects from those of other
liberals. In an interview given to Parlamentskaya Gazeta
correspondent Vladimir PRAVOTOROV, Lvov spoke about what should
be done for liberal reforms to improve - not in word but in
deed - the life of the majority of the Russian population.
Question: The West has lately been applauding Russia for
revising its economic growth forecasts, making them more
optimistic, whereas a majority of large industrialised
countries are expecting a decline in their economies. Western
analysts think that Russians' incomes are growing fast, that
consumption is enjoying a real boom, and that enterprises have
begun to make investments after almost ten years of living on
what was left from the Soviet times. What do you think of these
estimates?
Answer: It's nice to hear good words about Russia. The
last two to three years have really seen a change for the
better in Russia's political and economic development. At the
same time, late last year one could see an obvious downward
tendency in economic growth and a growing inflation rate.
Unpredictable changes in the situation on the world oil market
were among the factors in these developments.
Of course, it is nice to earn surplus profits from trade
in fuel and raw materials. Unfortunately, the larger part of
this money either fails to make it into the national budget and
is taken to the West, or is spent on the development of the
fuel/energy sector. As a result, the raw material sector
accounts for an ever growing part of Russia's exports, while
the share of machine-building products or new technologies in
them has sharply decreased. The main indicator of that is the
channelling of the bulk of investments into the fuel/energy
sector and partially the service sector. This factor is of
decisive importance not only for today but also for the future
of Russia and its economy. We are turning more and more into a
fuel/raw material appendage of Western countries, softening
blows of global ecological and raw material crises and,
simultaneously, becoming more and more dependent on the state
of Western economies, finance, food supplies, supplies of
modern technologies, etc. There are many areas in which we
depend on the West, directly or indirectly.
Both Paris and London are apparently satisfied with the way the
Russian economy is developing.
Question: Yes, but the Russian press seems not worried
over such a course of events, either. It keeps saying that
Russia is integrating into the international community and the
world economy. This is a natural and global process.
Answer: This position is either political slyness or
naivety, failure to understand that the country is more and
more falling into a trap and losing its freedom. Will Russia
become independent in determining its own destiny this year or
in the next few years? I have not yet see any favourable
prospects.
Question: But you, too, point to the marked growth of
Russia's gross domestic product and industrial production and
to the emergence of advanced technologies in some industries.
Answer: These growth rates are not enough to achieve
economic performance shown even in the times of "stagnant
socialism," not to mention developed Western countries. It is
quite probable, though, that economic development will slow
down considerably as a result of the price war declared by the
OPEC on the West. The OPEC's demand that Russia reduce its oil
exports by 200,000 to 300,000 barrels is a very painful issue
for the Russian economy.
Question: What do you, one of the leading economists in
Russia, think Russia should do in its conflict with the OPEC?
Should it or not reduce oil production?
Answer: It must build it up - but do it, first of all, for
the development of domestic production and solution of social
and household problems. What's the use of the power
engineering, oil and gas industries if people in Arctic areas,
the Far East and even central Russia do not have enough
heating? If energy and transport tariff hikes have made it
impossible for many families scattered around Russia to meet
each other? The Russian economy has so far been developing at a
slow rate and in the wrong direction.
Question: Your criticism is directed against politicians
and business people. And what has Russia's economic science
done to work out an optimum economic development strategy?
Answer: In the late 1980s-early 1990s, when it became
clear that the national economy was plunging into chaos, a
group of scientists led by Academician Leonid Abalkin drew up a
government programme of economic reforms. Unfortunately,
political upheavals ruined the plans, and the country was
subjected to a "shock therapy." In the late 1990s, the Abalkin
group came out with a comprehensive programme for state
regulation in conditions of a market economy.
Other Russian scientists, too, among them corresponding
members of the Russian Academy of Sciences Polterovich and
Glazyev, suggested productive ideas for overcoming the economic
crisis in the country. However, the government for some reason
preferred recommendations of U.S. economists and IMF advisers.
The outcome of their advice is well-known. Perhaps, it
would not be worth speaking about it today if liberal reformers
did not hush up the essence, the main idea of our reform, which
was raising salaries and wages. It is only on this basis that
measures to liberalise the economy and to reform property
relations could play a positive role.
Question: Can these plans be fulfilled now that production
has decreased by 50 percent and the economic management system
is in confusion?
Answer: It would be difficult to return to the original
plans, yet it would be the only way out. In my conviction, this
is the guiding principle and the main target for the near
future.
Question: And how do you think these plans could be
carried out? Where can the state find enough money to boost
salaries, develop science, education and advanced technologies,
protect the environment, raise pensions, and so on?
Answer: It must, above all, revise the practice,
established in the course of the hasty privatisation reform, of
owning what Russia has been given by God - natural wealth,
seas, land and forests. These are the main wealth of Russia and
its people. It is the Russian people that must own them. Russia
has no equals in the world as regards the amount of this
wealth. The value of this wealth will constantly grow. It must
be the main source of Russia's income. Rent for using this
wealth must be paid to the state which must be the titular
owner of its land and natural resources. This is a colossal and
main resource of Russia's growth, which could form Russia's
second budget aimed at developing science and education and
meeting other social needs.
In short, a transition to a predominantly rent-based
system of forming Russia's aggregate income will bring it
economic and social benefits.
Question: Do you think your resolute reliance on rental
income should be made part of a general strategy of a
breakthrough to join the world's most developed and socially
oriented states?
Answer: Of course. This is dictated by economic expediency
and moral considerations. I have repeatedly said that, unlike
many other countries, in Russia the main contribution to the
growth of undistributed (net) profits in the national economy
is made not by income from work and even not by capital but
rent.
Rent accounts for no less than 75 percent of net profits. The
work content is 15 times less, and the capital content is four
times less. In other words, almost everything earned by Russia
today is none other than rent for using its natural resources.
Judge for yourself. If undistributed income stands at 60
to 80 billion dollars, rents account for 45 to 60 billion
dollars.
It is by this amount that budget income differs from the actual
amount earned in the economy but not covered by official
statistics. This income forms illegal financial flows which
make their way through holes in the state's pocket into the
shadow economy, offshore zones and criminal structures. This
prompts the conclusion that a large part of Russia's rental
income has been privatised. But this income does not come from
"the work of human hands."
This utterly immoral action destroys people's ideas of a
social world and justice, expressed in the people's holy
legends.
Denying equal access for all to what has been given to Russia
by God is a grave sin.
Until we atone for this sin, we will never ensure a worthy
future for our country and its people.
Question: The idea of rent and national dividend, put
forward in your latest book The Development Economy, will
undoubtedly attract the attention of specialists and the public
at large. But what about the five to seven percent of Russians
who have appropriated it?
Answer: Russia needs the will of a man vested with power.
In modern Russia this man is the President.
*******
#15
World Communist HQ Model on Display
February 28, 2002
By CARL HARTMAN
WASHINGTON (AP) - A model of what was to have been the immense headquarters
of world communism - twice the height of the Eiffel Tower, spanning the broad
Neva River at St. Petersburg, Russia - goes on display Thursday at the
Smithsonian's Hirshhorn Museum.
It's part of ``Metropolis in the Machine Age,'' an exhibit picturing artists'
reaction to the development of the skyscraper. The project for the
headquarters, designed by the great Soviet architect Vladimir Tatlin, dates
from 1920, before Josef Stalin took over the Bolshevik revolution and
futurist art fell into disfavor.
Unlike the Eiffel Tower, which houses only a restaurant, the ``Monument to
the Third International'' was to contain offices in huge rotating segments
and a broadcasting station.
``Tatlin's building would have an open structure of triangles, diagonals,
arcs and spirals - as well as motion and light - to symbolize perpetual
progress in the new utopia,'' said a statement by the Hirshhorn.
One critic has written that the peculiar angle of the model, which appears
leaning to one side, was caused by the designer aiming it at the star
Polaris. That, the critic said, was so the heavens would seem to revolve
around the center of world as the communists hoped to create with their
movement.
The building could not have been built with materials and technology
available to the Soviets at the time, said co-curator Valerie Fletcher.
Each segment was to have rotated at a different speed, but the original model
needed demonstrators to push them by hand, she said. The eight-foot model
shown at the Hirshhorn was reconstructed by the museum with fiberglass and
plastic and equipped with a motor and electric light.
The exhibit will be on view through Sept. 2. Admission is free.
On the Net: Hirshhorn: http://hirshhorn.si.edu
*******
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