`Russian Hong Kong': Anything Goes in Grimy Baltic Seaport

Article excerpt

In a nation where laws virtually have ceased to have meaning, this grimy port on the Baltic Sea may well be the most lawless corner.

Virtually anything can be bought or sold in Kaliningrad. Most taxes and import duties are neither paid nor demanded.

Mercedes and BMWs cruise the streets, fueled by high-octane gasoline smuggled into Russia from Poland and Germany. Floating gambling palaces rock serenely on the harbor estuary, in plain sight of police headquarters.

But Kaliningrad's wide-open, brassy ways are not simply tolerated. They're enshrined in deliberate government policy - an effort to establish what its authors call a "Russian Hong Kong."

"In fact, it was Yegor Gaidar's own idea," said Tamara Poluektova, President Boris Yeltsin's personal representative in the Baltic region, referring to the deputy prime minister who is the government's leading economic reformer.

At Gaidar's urging, Kaliningrad was designated by presidential degree in September 1991 as Russia's pioneer "Free Economic Zone." It was modeled on Britain's dynamic Asian colony and similar special economic zones that have spawned double-digit growth rates in China. Most tariffs and import duties have been eliminated, taxes have been suspended for up to five years on many businesses and thousands of rules and regulations on entrepreneurs have been eased.

"We understand that an experiment like this, with its uninhibited business climate, entails risks," Poluektova said. "But it can also point the way out of our crisis."

Yeltsin's government faces parliamentary elections Dec. 12 that are widely viewed as a referendum on the reform effort.

Like China's coastal cities a decade ago, Kaliningrad has attracted ambitious if penniless would-be entrepreneurs from all over the country, many of whom skate a thin line between audacious business and outright crime.

Smuggling and prostitution are rampant, and contraband often travels through the region under the guise of legitimate trade.

"It doesn't take much to set up an enterprise in the liberal atmosphere we've cultivated," acknowledges Oleg Mikhailov, deputy chairman of the Free Economic Zone project. …

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