Magazine article Business Credit

International Hot Spots-Russia

Magazine article Business Credit

International Hot Spots-Russia

Article excerpt

One needs to go back to before the beginning of Russia's transition, right after the fall of the Iron Curtain, to find a year in which the economy performed as creditably as in 2000. Real GDP grew by 6.7 percent in the second quarter, year-onyear, after an expansion by 8.4 percent in January-March. This rendered the gain for the first six months an impressive 7.5 percent, against a contraction of 0.7 percent in the like period of 1999. Industrial production in January-August was up 10.0 percent.While until recently companies used to plan for only one or two years ahead and sought to squeeze out as much cash as possible (to bank it abroad and invest minimal assets), many enterprises now have a planning horizon of four to five years, which-not coincidentally-covers the duration of President Putin's first term in office.

Liquidity in the economy has been improving as the monetary base has expanded strongly while inflation slowed to 18.7 percent in August from 121.0 percent a year earlier.The banking sector is still in deplorable condition. Small and medium-sized private companies still find it next to impossible to get loans. But the draft budget for 2001, the first to be based on the new tax code that was approved by Parliament during the summer, is also the first to have made it through the Duma's first reading on the first try.The household plan is based on the conservative assumptions that real GDP growth will be 4.0 percent next year, inflation at 12.0 percent, and the average world market price for oil USD 21.00-21.50 per barrel.

Thanks to win"ll earnings from energy exports, foreign trade scored a surplus of USD 33.3 billion in January-July and is headed for a black entry of close to USD 50 billion this year. Capital flight has slowed drastically, to USD 200-USD 300 million a month from USD I billion in the early part of 2000. Official hard-currency reserves have grown to USD 25.3 billion from USD 11.6 billion a year ago. A deal reducing and restructuring USD 32 billion in old Soviet debt to London Club commercial lenders was implemented in August when creditors forgave 36.5 percent of the IOUs and exchanged the remainder for eurobonds maturing in 2030 and 2010.A similar rescheduling of USD 42 billion in Paris Club obligations will depend on Russia's first getting a new stamp of approval from the IMF. But, since Moscow has been paying off debts to the Fund and does not need to borrow at this time, a fresh accord will probably not prove too difficult to negotiate.

In a policy review in early October, the European Bank for Reconstruction and Development had harsh things to say about the investment climate. It spoke of pervasive corruption, opaque business practices, widespread abuse of shareholder rights, and other ills. We find it interesting that the Bank is now fast rebuilding its activities in Russia, evidently convinced that things are about to improve.The government is well aware that it must better the business climate if the economy's recovery is to be sustained. To this end, Prime Minister Mikhail Kasyanov last month hosted business leaders at the first meeting of a newly formed Council on Entrepreneurship, to which the heads of 24 major Russian companies were invited, while most of the so-called "oligarchs" were excluded. The government is currently working on a series of bills aiming to simplify registration and licensing procedures for businesses, speed up the approval of investment projects, and slash the number of state control agencies that can inspect, fine, or even close an enterprise at will. …

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