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Friday, February 25, 2005

Putin pledges to uphold democracy

 Russian President Vladimir Putin met US counterpart George Bush in Slovak capital Bratislava on Thursday, signing key documents on Russian entry to the World Trade Organization alongside cooperation in the energy sector and nuclear affairs. Putin assured Bush Russia remained committed to democratic principles and would not invent a "Russian version of democracy." He said the state would never go back to totalitarian rule. But the Russian leader said introducing democratic principles should be appropriate to the development of Russian society, its history and traditions. "There's nothing surprising about that - those principles find their reflection in every country," Putin noted. He promised that key principles of democracy would be introduced in Russia "in the same form in which they are accepted in modern society." Commenting on the role of his predecessors, the Russian head of state credited them with bringing democracy to the Russian people "for all the excesses of their policies." Introducing democracy "shouldn't lead to the collapse of the state and impoverishment of the people," he said. The key goal of democratic reform was the strengthening of statehood and improvement of people's lives, Putin said. Bush lauded the Russian leader for his contribution to the development of democracy in Russia, though the American president said he did not always agree with his Russian counterpart, openly discussing problems arising. Russia and the US reached agreement on joint efforts to prevent nuclear terrorism, Bush told a news conference after the meeting. He said nuclear terrorism was one of the most significant threats faced by Russia and the United States. The two leaders agreed to promote the signing of an international convention on the fight against the threat and amendments to the convention on physical protection of nuclear materials. Moscow and Washington agreed to continue efforts to improve security systems of nuclear assets in both countries. They also agreed that Iran and Korea should not have nuclear weapons. To achieve those targets, Russia and the United States set up a top-level group on nuclear security issues. This will be headed by Alexander Rumyantsev, director of the Russian Federal Agency for Atomic Energy, and US Secretary of Energy Samuel Bodman. The group will prepare its first report by July 1 this year. Bush and Putin issued joint statements on cooperation in the energy sector and on completion of bilateral talks on Russia's entry to the World Trade Organization. The two countries confirmed their intention to complete negotiations in 2005. This would help boost bilateral trade, the two heads of state said. In their statement on energy cooperation, Putin and Bush said this was one of the most important areas in bilateral cooperation, notably regarding energy security. The two leaders assigned Russian and US energy ministers to define obstacles to development of mutually-advantageous energy resources and investment growth in this area. The two sides expressed interest in the construction of new pipelines in Russia and the expansion of Russian oil and natural gas supplies to the United States.

Thursday, February 24, 2005

Minister forecasts investment boost

This year "should become a year of investment demand in Russia, unlike last, when consumer demand prevailed," economy minister German Gref told cabinet colleagues on Thursday. Joining the World Trade Organization (WTO) was among Russia's key priorities, he said.

Ministry figures point to investment in the economy rising a potential 10 percent to 10.5 percent in 2005. Gref said this target could be met, provided "mutual trust between the state, business, banks and the population strengthens."

Given large national projects and impressive performance in certain sectors, investment growth might stabilize at about 10 percent a year, the ministry said.

Assignment of investment grade rating to Russia had created improved conditions for borrowing by Russian companies on domestic and foreign markets, Gref noted, adding that this would boost the flow of investment in a year or two.

On Russia-WTO relations, he said it was necessary to complete preparations for entry this year and that admission would become "a detonator for attracting foreign investment."

To achieve that goal, the government had to improve the climate for investment, ensuring fair competition, developing financial systems and restructuring natural resources monopolies, alongside improving land laws and reforming the judicial system. Investment in the Russian economy would rise in one or two years if those conditions were met, he forecast.

Finance Minister Alexei Kudrin said total capital investment would be RUR 3.342 trillion in 2005, and RUR 4.026 trillion in 2006, against RUR 2.73 trillion in 2004.

Foreign direct investment would rise from $6.6 billion in 2004 to $11 billion this year, Kudrin said. In 2006, it was expected to be $15 billion, in 2007 $19 billion, and in 2008, $23 billion. "Such super-ambitious plans can only be implemented if structural reforms are implemented," the minister warned.

Tuesday, February 22, 2005

Russian economy to slow down, say UN experts

 Russia's GDP growth will drop to 5.8 percent this year, against 6.8 percent in 2004, the United Nations Economic Commission for Europe said in its Economic Survey of Europe 2005. The commission forecast an economic slowdown from 7.9 percent in 2004 to 6.4 percent this year for the Commonwealth of Independent States (CIS). Decelerating growth rates will prevail in all the large CIS economies - Belarus, Kazakhstan, Russia and Ukraine, the report says. Ukraine’s GDP is expected to grow 6.5 percent, down from last year’s 12.4 percent. A 7.9 percent growth is forecast for Kazakhstan, against 9.3 percent in 2004; and Belarus' GDP is projected to be 9 percent, down from 10 percent last year. The Economic Survey of Europe 2005 is prepared for the UN Economic Commission for Europe session scheduled for February 22-25 in Geneva. Last year, the country's GDP grew 7.1 percent, and the economy ministry expects a 6 percent growth for 2005, against the 6.3 percent projected in the budget. According to preliminary estimates, Russia's GDP grew 4.4 percent in January 2005, compared to the same period last year, economy minister German Gref said at a meeting of Russian President Vladimir Putin with cabinet ministers on Monday. Industrial production was up 0.1 percent in January, Gref said, noting that “economic growth is connected with manufacturing growth and rising consumer demand.” Sales increased 10 percent in the country last month, but investment dipped slightly. Gref reported an inflation rate of 0.7 percent in the first two weeks of February.

Friday, February 18, 2005

Russian foreign debt down to $112.9 bln

MOSCOW (Interfax) - Russia's sovereign external debt was down to $112.9 billion on October 1 from $119.7 billion on January 1, the Finance Ministry said. The debt in euros fell to 91.7 billion euros from 95.7 billion euros, the ministry said. Debt to members of the Paris Club of sovereign creditors fell to $44.4 billion (36 billion euros) from $47.7 billion (38.2 billion euros) and debt non-Paris Club members grew to $7.8 billion (6.3 billion euros) from $7 billion (5.6 billion euros). Soviet-era commercial debt decreased to $2.9 billion (2.4 billion euros) on October 1 from $3.8 billion (3.1 billion euros) at the start of the year. Debt to international financial organizations fell to $9.8 billion (8 billion euros) from $12.1 billion (9.6 billion euros), including debt before the International Monetary Fund (IMF) to $3.6 billion (2.9 billion euros) from $5.1 billion (4.1 billion euros); debt before the World Bank to $5.9 billion (4.8 billion euros) from $6.6 billion (5.3 billion euros); and debt to the European Bank for Reconstruction and Development (EBRD) to $0.3 billion (0.2 billion euros) from $0.4 billion (0.3 billion euros). Debt on sovereign Eurobonds fell to $35.2 billion (28.6 billion euros) as of October 1 from $35.7 billion (28.5 billion euros) on January 1. Debt on MinFin OVVZ bonds was unchanged at $7.3 billion (5.8-5.9 billion euros). The government's debt on credits issued via Vnesheconombank and financed by the Central Bank decreased to $5.5 billion (4.5 billion euros) from $6.2 billion (5 billion euros).


Boris Shmelyov, director of the Center of Political Studies, for RIA Novosti - Vladimir Putin and George Bush will not solve the contradictions that have emerged in bilateral relations when they meet in Bratislava, but they can help smooth them over, which would be a major achievement. The results of their summit will have also a substantial influence on Russia-Europe relations. Many problems have complicated Moscow's relations with Europe, and with the West at large, which has provoked rumors about a crisis of trust. This has outwardly taken the form of sharp media criticism of Russia's domestic and foreign policy. The European press has started criticizing everything in Russia, alleging that everything in the country is bad. The Russian president has even been compared to Mussolini. The public and political mood in Europe is negative with regard to Russia, and sometimes hostile. The European Parliament and lawmakers in many European countries now use harsh anti-Russian vocabulary, which is only one step from becoming political practice. Where has Russia sinned? Romano Prodi, a former president of the European Commission, said attitudes to Russia began changing in September-October 2004, when representatives of the law-enforcement and military agencies were gradually taking over key posts in the country. Opinions on this may differ, but nobody can deny the Russian president the right to give key offices to the people he trusts. The tidal wave of criticism in 2004 reached its peak during the tragedy in Beslan, when the European media laid most of the blame for it at the door of the Russian authorities, and not on the cutthroats who perpetrated the massacre. Europeans are sometimes surprised by Russia's excessively nervous reaction to such criticism, saying that it comes from sincere and sympathetic friends. This may be so, and much of what Europe says about Russia may be true. The human rights situation could be better, and thereare serious problems with the independence of courts and the media, with civil society, and the inadequate lawmaking efforts of the State Duma. The recent protests over benefit reform cast a bright light on that. However, many other accusations are completely groundless. Russia is strengthening the vertical structure of power; governors will be not elected but nominated by Moscow. But this does not threaten European or global security. Maybe it threatens Russian democracy? I would say that anything that promotes social progress is democratic. The main obstacles to the development of democracy in Russia are irresponsibility and poverty, but the new political system is designed to eliminate them. Anyway, this is not a reason to conclude that democracy in Russia is dead. A painful process of normalization is underway in Chechnya, but the situation in the republic and the North Caucasus as a whole remains complicated and explosive. If Europe has practical proposals for solving Chechnya's problems, why not discuss them at joint conferences and seminars? Europe, though, only suggests talks with Maskhadov. What can we discuss with him if he represents no one and controls nothing? We will not discuss the independence of Chechnya with him. Accusations of neo-imperial ambitions are groundless too. Any state wants to have a belt of stable and friendly countries around it, and Russia is not an exception. It has had its share of problems with the Baltic countries. Europe seems to be keeping something back, despite the wave of criticism it has directed at Russia. It is making hints and expects Russia to understand them and to change its political conduct. Many people in Russia interpret these hints as an unwillingness to see it as an independent pole of geopolitical influence whose actions in Europe and the rest of the world stem from its national interests. Russia can be criticized for many things, some justified and other less so. But it cannot be accusedof undermining European and international security or hindering democratic reforms in other countries. Russia's international situation is not enviable. The new US policy of unilaterally solving global problems has led to serious questions in Russia-US relations. China is rising to a towering height in the Far East. The Islamic world is in turmoil in the South, and its giant stock of passionary energy threatens to explode in any direction, including toward Russia. Europe is promoting political and economic integration around the EU and NATO, but it does not want Russia in. The post-Soviet countries are accusing Russia of neo-imperial aspirations. And now the West is criticizing its domestic policy. Russia's history has always been tied with Europe, and confrontation would benefit neither party. They should stop seeing each other as rivals and abandon mistrust. They need each other to ensure international security, as well as each other's economic prosperity and cultural enrichment. The opinions expressed in this article are those of the author and may not necessarily represent the opinions of the editorial board.


Former U.S. Secretary of State George Schultz / Photo from www.planet.nlSTANFORD, (California, USA), February 18 (RIA Novosti, Alexander Bratersky) - Former US Secretary of State George Schultz called Russia "a gold mine" for investment. If you are looking for a gold mine in the sphere of sciences and technologies, pay attention to Russia, the former US Secretary of State announced yesterday, speaking at the opening of the Russian-US symposium on technology at the Stanford University. Mr. Schultz, who was an architect of the Detente policy toward the Soviet Union under the Regan administration, gave high marks to the potential and the role of Russia on the global arena. At the same time, he called Russia's cooperation with Iran and Syria "bad news" for the security in the region. According to Mr. Schultz, the global situation "is heating up" due to Iran's nuclear ambitions. We see that Iran desires to possess nuclear weapons, and we see that Russia cooperates with Iran, Mr. Schultz underlined, adding that Iran insists on the peaceful use of its nuclear technologies. Mr. Schultz emphasized that Iran's nuclear aspirations "destabilize the situation in the Middle East." He also pointed out that despite Russia has high economic potential, such problems as significant decrease in birth rates, alcoholism and deterioration of health care hinder its progress. The participants of the two-day forum also include Stanford University professor William Perry, Russian Minister of Education and Sciences Andrei Fursenko, and prominent representatives of Russian and US business circles.

Wednesday, February 16, 2005


MOSCOW. (Alexander Konovalov, president of the Institute for Strategic Assessments for RIA Novosti.) The Russian-US summit in Bratislava in late February will not be a routine meeting between the two presidents. The year 2004 was marked by significant changes in the approaches taken by the West, and the United States in particular, towards the political situation in Russia and Moscow's actions on the global arena. Therefore, the summit in Slovakia will certainly be a historical crossroads, and will determine future developments in many areas of international relations. During Vladimir Putin's first presidential term, Russia managed to strengthen significantly its authority, role and weight in international affairs, which was a surprise for many experts. Importantly, these positive changes occurred against the backdrop of moderate economic success and progress in the reform of democratic institutions in the country. The positive image of Russia on the global arena was shaped by a well-considered and appropriate foreign policy, primarily, due to the fact that the Russian leader was one of the first foreign leaders to support the US counterterrorist operation in Afghanistan after 9/11.

Tuesday, February 15, 2005

Finance ministry reports 2004 budget surplus

Russia's federal budget surplus for 2004 amounted to RUR 730.7 billion (around $26.09 billion), against the projected RUR 505.7 billion (approx. $18.06 billion), the finance ministry reported on Tuesday. Earlier, the ministry put the surplus at RUR 686.5 billion (4.1 percent of the GDP). Federal budget revenue totaled RUR 3.426 trillion (around $122 billion), up from the planned RUR 3.274 trillion ($117 billion), including RUR 2.712 trillion ($97 billion) in tax revenue, against RUR 2.613 trillion planned. Federal budget expenditures were RUR 2.965 trillion (around $96 billion), more than the planned RUR 2.768 trillion ($98.8 billion). In October, the State Duma passed amendments to the federal budget for 2004. Budget surplus was expected to be RUR 505.7 billion instead of the planned RUR 83.4 billion, and revenue was projected to be RUR 3.274 trillion, RUR 531bn more than initially planned. Expenditured were set at RUR 2.768 trillion, RUR 108.6 billion more than projected. Russia’s stabilization fund totaled RUR 522.3 billion on January 1, 2005, according to preliminary results. The fund is expected to be RUR 709 billion on January 1, 2006. The stabilization fund was set up to finance budget expenditures in the event of falling oil prices. “Windfall” oil revenues go to the Stabilization Fund if the price of Urals oil exceeds $20 per barrel.

Data on budget expenditures for Russian President disclosed

RBC, 15.02.2005, Moscow 18:28:26.Expenditures of the Russian federal budget for the Russian Pressident amounted to RUR6.571bn (around USD241m) in 2004, RUR110m (around USD3.928m) lower than the targeted amount, the Russian Finance Ministry said in its report. Budget expenditures for state governance and local administration totaled RUR223.018bn (around USD7.96bn) in 2004. Consolidated budget revenue was RUR5.427 trillion (around USD194bn), including RUR4.491 trillion (around USD160bn) in tax revenue. Budget expenditures were RUR4.665 trillion (around USD166bn).

Monday, February 14, 2005

Capital flows in Russia at year-end

02.14.2005 RIA RosBusinessConsulting - Russia saw an inflow of capital in the fourth quarter of last year, deputy prime minister Alexander Zhukov told reporters on Friday. He noted it “has yet to be verified" to what extent capital flight from Russia in 2004 was caused by Russian companies' investment abroad. Zhukov rated such investment a positive factor.
Recently, Russian officials have found many such positive factors in the Russian economy. At a conference “Russia's role in the global world," finance minister Alexei Kudrin said Russia, while becoming less attractive to investors and lagging behind China and India in this respect, was “building an open liberal economy," unlike those two countries. He said Russia's per capita GDP measured by purchasing power parity was $9,000 – 50 percent more than in China and 3 times more than in India.
It looks like Soviet propaganda methods had been firmly inculcated in the minds of Russian officials. Terminology changed but the main idea of their statement remains the same. “Even though we have no trousers, we boast a liberal market economy" – this seems to be a motto chosen by the officials, which they think is both clear and patriotic. But comparison with China and India is misleading. Over the past 20 years, Russia's per capita GDP has remained almost unchanged, while in China, it increased 12-fold. Over the past two years, when Russia's economic growth accelerated, China was still ahead, and not only China. As for capital inflow, it's not new for Russia. As a rule, capital inflows are reported in the last quarter of a year, like it also happened in 2003. But annual results are usually less impressive, with different analytical centers and the state statistic figures reporting different figures. Short-lived surplus is then attributed to the advantages of Russia's tax policy, large privatization auctions or some other factors.
It's difficult to judge about such things. Perhaps, the inflow of capital in Russia in the fourth quarter of 2004 was fed by the Yuganskneftegas auction on December 19. As it turned out, only President Putin knew who was behind Baikalfinancegroup – the surprise winner of the auction. It remains unclear where the secretive group had taken $9.35 billion to finance the acquisition. If the money came from some offshore centers, it can be presented as capital inflow. 02.14.2005 RIA RosBusinessConsulting - Back in August 2004, Russia's economy minister German Gref warned capital flight would increase at the end of the year. No doubt, this would have happened had it not been for the Yugansk deal.
Economy ministry officials say capital flight will continue in 2005, and the trend could only reverse in 2006, under effect of structural reforms. And what if the reforms are not effective enough, if prices for energy and metals go down? What if Russia faces negative factors of globalization after joining the World Trade Organization, such as crisis in unprotected industries, rising unemployment and falling consumer demand? It's clear that capital flight will increase in this case.
Of course, Russia can be proud that it has now been granted an investment-grade rating by the world's three leading rating agencies. This inspires more optimism than upbeat forecasts offered by Russian officials. Indeed, an investment-grade rating makes Russia attractive to institutional investors, not only as a source of raw materials and metals. In view of this, a miracle could occur in 2006, and Russia might report a net inflow of capital.

Friday, February 11, 2005

Capital inflow reported in Russia

RBC, 11.02.2005, Moscow 17:20:31.An inflow of capital to Russia was reported in the fourth quarter of 2004, deputy Prime Minister Alexander Zhukov told journalists. Answering the question whether capital flight from Russia that took place in 2004 was foreign investments of Russian companies, Zhukov said this question "needs to be analyzed." According to the deputy PM, investments in Russia grew in 2004. As far as Russian companies' foreign investments are concerned, Zhukov declared, "This is a positive issue." "Obviously, when Russian companies participate in large investment projects abroad, this strengthens Russia's image," he noticed.

Thursday, February 10, 2005

Unlawful Legalization

Photo from MN Archive 07.02.2005 Gazeta.Ru - Lack of coordination between governmental agencies and inconsistencies in their actions is the result not only of the violent struggle within the Kremlin but also of natural personnel selection. It is scarcely surprising that something poorly put together starts falling apart. The much-talked-of takeover of Yuganskneftegaz - Yukos' main production unit - again was in the limelight last week as new details of the dubious deals leaked into press. Ironically, while continuing its violent fight against the owners of unlawfully amassed capitals the regime itself clearly experiences problems with legalization of "redistributed" property, i.e. Yuganskneftegaz. The war on the so-called oligarchs, the country's richest who built their vast fortunes in shady privatization deals of the 1990s, has been a cornerstone of popularity of Russia's second president Vladimir Putin. Those Russians who believe that building a strong state is a priority are convinced that this task cannot be achieved without fighting oligarchs. Those approving of the ends approve also of the means - which range from arrests and prolonged pre-trial detentions to seizure of "fraudulently amassed" fortunes - and agree with rhetoric used by the authorities. The Kremlin's campaign to dismantle Yukos received popular support namely because it was believed to be aimed - in the long run - at strengthening the state. A considerable majority of Russians agreed that Mikhail Khodorkovsky and his colleagues were enemies of the state and any means would do to destroy them. The recent poll held by Levada Center shows that the popular support for the campaign against Yukos is waning, and the Kremlin has only itself to blame for such a change of heart in ordinary Russians. For instance, last week was filled with highly conflicting media reports on the circumstances of sale of Yuganskneftegaz and its further fate. Once again the question as to who financed the purchase was raised and remained unanswered. It was also reported that the new owners of Yuganskneftegaz had no intention to pay off the company's debts, being convinced that the former owner -Yukos - should be held liable for them. One of the business newspapers speculated that Rosneft - that played a crucial role in the seizure of Yugansk - could default on the company's debts. Officials issued conflicting statements. The conflict between Gazprom and Rosneft flared up anew. The government is very good at concealing information, perhaps, this is the only trick the Kremlin and the Bely Dom have mastered to perfection. Last week's abundance of information proves that the conflict over a tasty morsel of property has reached such an enormous scale it is simply impossible to hush it up. But then, the lack of coordination between governmental agencies and inconsistency in their actions is the result not only of the violent struggle between the various clans and financial and industrial groups within the Kremlin but also of natural personnel selection of the recent years. Seeking to purge its ranks of all those who fail to toe the Kremlin line the incumbent regime has ousted from the presidential administration and the cabinet almost all those versed in devising intricate and immaculate schemes. Today at the helm are those who prefer simple and straightforward solutions that hardly correspond with market economy and legislation. Hence, numerous drawbacks. In other words, having applied the same fraudulent scheme that Yukos today stands accused of using back in the 1990s the new owners have failed to provide effective financial schemes and ensure appropriate media coverage. What is happening now undermines the ideological foundations of the attack on Yukos. Not in the eyes of liberal-oriented public who initially realized what was going on, but in the eyes of most Russians who previously approved of the onslaught on the oligarchs. Now it transpires that arrests of shareholders and employees of Yukos, mounting tax claims and other actions of the authorities do not strengthen but, on the contrary, undermine and discredit the state. The war to the victorious end declared by the Kremlin has resulted in plunder. Old oligarchs are being replaced with new ones. But the authorities have not yet enlisted support for such actions. The poll results released by Levada Center this week may prove to be nothing compared what is yet to come. The more light is shed on the true ends pursued by the Kremlin in its attack on Yukos the less support the regime will enjoy. All that is sad as the Kremlin has no opportunity - and no desire - to revise its policy. The authorities may either revise it by questioning both the means and ends of that fight, or continue pursuing those policies hoping that some events will occur and distract public attention away from Yukos.

Wednesday, February 09, 2005

Top Russian Arms Exporter Offers Weapons for Oil and Gas

Frame from NTV Channel09.02.2005 17:09 MSK MosNews - The state-owned enterprise Rosoboronexport is looking at accepting hydrocarbons as payment for defense export, its general director, Sergei Chemezov, told the RBC news agency.Chemezov is currently engaged in talks with Russian oil companies about the possibility of foreign energy companies handing over oil wells to Russian companies in exchange for weapons to that country. Thailand - where officials are in talks over supplying the country with aviation technology - is paying for Russian defense equipment with poultry and other products, for example.

Tuesday, February 08, 2005

Lessons from Russia

February 8, 2005 Baltimore Sun - Lessons from Russia on perils of pushing democratization too fast By Trudy Rubin Trudy Rubin is a columnist for The Philadelphia Inquirer. Her column appears Tuesdays and Fridays in The Sun. Summary prepared by Hayk Sargsyan of CDI In his state of the Union address, President Bush renewed his pledge to support democratic movements in "the Middle East and beyond." The notion of bringing democracy to the Arabs has become the verbal centerpiece of the administration's strategy to fight terrorism. In practice, the advent of Mideast democracy will be a long time coming, irrespective of successful elections in Iraq and the Palestinian territories. That does not mean the concept should be disparaged. But if their efforts are to be more than propaganda, U.S. officials ought to take a hard look at the Russian experiment with democracy and deduce why it is failing. The administration often holds up the democracies that emerged from communism as proof that the Middle East can create democratic institutions in countries that have known only authoritarian rulers. Russia, led by Mr. Bush's ally, Vladimir V. Putin, still has democratic trappings. But after a brief post-communist flowering of free press and political competition in the 1990s, the Russian Federation has reverted to an authoritarian state. I spoke about this tragedy with Vladimir Ryzhkov, one of the last independent liberals in the Duma, who at one time was its first deputy chairman. Mr. Ryzhkov was attending the World Economic Forum in Davos, Switzerland, which used to see a large annual delegation of Russian economic reformers and businessmen in attendance. That number has shrunk since the Kremlin jailed leading Russian oilman Mikhail B. Khodorkovsky, purportedly for tax evasion, but in reality because he dared to finance and encourage political opposition to Mr. Putin. Since then, Russian businessmen keep their profiles low and their mouths shut, and their presence was barely visible in Davos this year. Russians soured on "democracy" because their old communist institutions collapsed too fast, leaving many people impoverished. In the rush to establish free markets, pushed by U.S. advisers, Russia privatized state assets overnight. This created a new class of super-rich oligarchs but left millions of ordinary Russians without jobs or savings. Unfamiliar with free institutions, Russians came to associate the term "democracy" with chaos and criminality. Mr. Putin won popularity with a populist pledge to restore order and prosperity. Rapid change and chaotic conditions can create a yearning for order that trumps any desire for abstractions such as democracy. Also, elections alone do not a democracy make. The march toward democracy is a long process that will be colored by a country's history and culture. Mr. Ryzhkov believes that outside pressure can still help Russia. Russians look to the West, he says. They will be receptive to U.S. and European criticism of Mr. Putin for squelching the institutions that can bring them closer to membership in Europe. So Mr. Bush should keep talking to Mr. Putin about "Western values" and urge a more open system for Russia. But Americans should be aware of how internal dynamics can affect democratic progress in a country such as Russia. All the more so for Iraq.

Gap between rich and poor reaching dangerous level in Russia

February 7, 2005 TV BBC Monitoring - Gap between rich and poor reaching dangerous level in Russia Channel One TV / 7 Feb 05 /TV BBC Monitoring / (c) BBC The gap between rich and poor grew sharply in Russia in 2004, reaching a dangerous level, Channel One TV reported on 7 February. The poorest strata of the population earns nearly 15 times less than the richest, "which is a gap several times wider than in Western countries", the presenter said. In 2004, the gap was at its widest for post-Soviet Russia, though the number of people living below the poverty line was reduced by 4m and growth in real income was nearly 11 per cent, the programme said. The richest twenty per cent of the population currently accounts for over 46 per cent of all income, whilst the poorest 20 per cent accounts for 5.5 per cent of all income, a correspondent told the programme. Studio guest, Chairman of the State Duma Committee for Labour and Social Policy Andrey Isayev, gave two reasons for the widening gap: the lowering of taxation, which has prompted the well-off to declare their real earnings, and inadequate measures by the state to reduce poverty. The minimum wage in Russia must be increased at least to subsistence level, Isayev said. To reduce the gap between rich and poor to the level of eastern Europe, pensions and state sector pay would have to be increased by at least 40 per cent, the programme said.

United States Stop Financing Russian Economic Reforms

Image from www.imagebank.com08.02.2005 13:06 MSK  MosNews - The United States will soon stop financing the Russian economic reforms, RIA Novosti reported, quoting an explanatory note prepared by the U.S. State Department. The note says that the year 2006 will be the last year when such a financial aid will be included in the U.S. federal budget. The State Department explains such a decision by the fact that "many institutions of the market economy have been created and are functioning" in Russia and therefore "the need for further aid to reforms from the U.S. government is negligible". This year the financing for the advancement of economic reforms in Russia is set at $87 million, but in 2006 this figure will be almost twice as small at $48 million. Still, despite the cessation of financial aid for economic reforms, the United States still plans to finance other programs in Russia. These programs will be directed at supporting non-government organization and independent media as well as anti-HIV events.


MOSCOW, February 7 (RIA Novosti) - Russia saw a fourfold increase in capital outflow last year, Deputy Economics Minister Andrei Sharonov reported. Speaking Monday at parliamentary hearings in the State Duma, or the Russian legislature's lower house, Mr. Sharonov said capital flight reached $8 billion in 2004, quadrupling 2003 outflows. There was an inflow of investment in the private sector from September onward, but the year's figures turned out worse than expected, Mr. Sharonov said. He attributed the tendency to problems with the investor climate and investor confidence, relating these problems to the tax authorities' raids against Yukos and other corporate giants. The government's continuing attacks on high-profile companies have scared off many domestic and some foreign investors already, he said. This year will see a production decrease in export-oriented sectors, including in the oil industry, Mr. Sharonov predicted. According to him, the rate of economic growth is expected at 5 percent this year, in comparison to last year's 6.1 percent. He said this was attributed to a slowdown in petroleum export growth and that the tendency could be reversed by investing heavily in the development of new oilfields and the construction of pipelines. Russian producers' competitiveness dropped by 20 percent in 2004, Mr. Sharonov said. He pointed to a recent growth in domestic demand and in retail sales, adding that two-thirds of the demand was satisfied by imports. "This indicates a low level of domestic producers' competitiveness," he noted. "Problems of competitive pricing will become even harder for Russian producers to cope with in the year ahead, and they have lessons to learn."


MOSCOW, February 7 (RIA Novosti) -- Possibilities of fiscal bodies to interpret the law in their own way should be limited, Russian Economic Development and Trade Minister German Gref told the magazine Der Spiegel in the interview. He was asked about tax claims to some Russian companies. "There was a time when enterprises did not pay most of the taxes. Now, a tax culture is taking shape. The third phase is coming: the state is beginning to assume a tough control of firms through taxes. But, I think, it is not always well done. The possibilities of fiscal organs to interpret the law in their own way should, I think, be limited", Mr.Gref said. He also noted that there will be no revision of results of privatization in Russia. "We have 13 large oil companies. Ridding them of property will entail a revolution. This is impossible", the economic development minister said. Simultaneously, he added that changes in tax legislation have made tax dodging "twice as difficult". "Those unwilling to obey will have to answer for that", he stressed. As regards the outflow of capital from Russia and the reduction of investments, Mr.Gref said: "It is only in part linked to the YUKOS case, though negative effects (of the case) have taken place". "The state should have taken it to the logical end. The selected scenario may not be ideal, which is beyond my competence. Though, of course the investment climate should not suffer".

Friday, February 04, 2005


TOKYO, February 4 (RIA Novosti's Andrei Fesyun) - The Japanese companies' lack of trust in Russia stands in the way of boosting the Russian-Japanese economics contacts. Toshimitsu Mori, executive director of the Minitoku bank, voiced this opinion in the RIA Novosti interview. He was commenting on the results of the sitting of the Russian-Japanese Sage Council in Tokyo on February 2 through 4, 2005. Mr.Mori noted that bilateral economic contacts are still in development and will eventually come right, though Japanese companies are still seeing the Russian market through the prism of suspicion and mistrust. "It is hard to negate the extreme complexity of problems facing the current Russian leadership. They are many and overdue", Mr.Mori said. Before they move into a foreign market Japanese companies make a thorough study of what is of interest to them, create a favorable environment and only after that seriously get down to work, he explained. "Merely gaining money and then going in not the Japanese style", the Minitoku director said. Political stabilization and the consistently rising microeconomic indicators in Russia give a real chance for launching big joint projects. Mr.Mori is sure that the main role here can be played by three big Japanese companies - Toyota car-maker, Tokyo Denrioku energy producer, Sinnittetsu steel-maker. Toyota will surely come to Russia in two to three years, he believes. Now it is studying the Russian market and the proposed factory projects near Moscow, St.Petersburg or Nizhni Novgorod. Toyota is taking time as seen in the lack of concrete results from yesterday's talks between Moscow mayor Yuri Luzhkov and Toyota managers. Sinnittetsu could supply pipes for Russia's oil and gas projects in Siberia, the Far Eastern region, Sakhalin island and is showing certain interest, Mr.Mori said. Tokyo Denrioku so far does not think economically sound importing much oil and gas from the Sakhalin offshore zone, he added. "The development of bilateral economic contacts between our countries will greatly depend on the attitude of these three companies towards Russia", Mr.Mori said. "If they come to you, others will follow suit". Asked whether the Japanese government is going to prevent these companies from cooperating with Russian partners, the Minitoku director said definitely no. "Of course, the solution of the territorial problem (Japan claims return of four islands in the Southern Kurile chain, lost after Japan's defeat in WWII) and the conclusion of a peace treaty would promote trust. But now political considerations can tell only if a dozens-billion-dollar macroeconomic project requires borrowing from the state budget", he is sure. Mr.Toshimitsu Mori set high store by the efforts made by President Vladimir Putin to improve the economic situation in Russia. He added that, despite the uncertainty, which still exists in matters of responsibility, "the balance of risk and profit for Japanese companies is being tipped in the latter's favor".

Thursday, February 03, 2005


MOSCOW (RIA Novosti commentator Arseny Oganesyan) The recent velvet revolutions in former Soviet republics prompt one to stop and think about how the region will develop politically. According to the director of the Center for Current Politics, Konstantin Simonov, the United States and Western Europe want to see a wave of triumphant orange revolutions throughout the CIS. At present, Central Asian countries, primarily Kyrgyzstan, Kazakstan and Uzbekistan, are the most vulnerable to political cataclysms. In addition, these countries are the most attractive in geopolitical terms, especially considering the political instability in the Middle East and a potential conflict around Iran. The ruling elites in the above-mentioned countries no doubt realize the fragility of their power. This sense of tension might have a positive effect on the situation in Central Asia in general. Alexei Malashenko, an expert at the Moscow Carnegie Center, believes it will. He says the leaders of these countries, especially Kyrgyzstan, "are trying to intercept the idea of democratization and the creation of a civil society." In other words, any initiative to modernize the current political regime will come from the authorities, which maintain a progressive position, realize the inevitability of changes, and so on and so forth. However, Mr. Malashenko believes the leadership of these countries will seek "to preserve their authority by all means. If it is not the current president, then, at least, it must be his family, or preferably the entire clan." Nevertheless, that the existing regimes will be forced, one way or another, to adapt to the changing situation should be regarded as a positive development for the region. Meanwhile, the general opinion of the experts asked by this RIA Novosti commentator is that "orange revolutions" may lead to the inevitable disintegration of Central Asian countries, primarily Kazakhstan and Kyrgyzstan, because of theirethnic diversity. "If we are talking about Turkmenistan," says the director of the Institute for Political and Military Analysis, Alexander Sharavin, "I would be very pleased to witness a 'velvet revolution' there, although, so far, there are no objective grounds for such an event in that country. All the civilized opposition has been trampled down and eliminated there. But if Taliban-type radicals were to come to power, it would only make the situation worse." As to Kyrgyzstan, Mr. Sharavin believes "it would be wrong, even from a liberal point of view, to claim that the success of a 'velvet revolution' might have a positive effect on the situation in that country." "Although Akayev's regime bears certain signs of authoritarianism," he continues, "they are totally justified, considering the presence of extremist forces in the country that tend to use force to oppose the government." In addition, it should not be forgotten that countries such as Kazakhstan, Uzbekistan, Kyrgyzstan, and, to a lesser degree, Tajikistan and Turkmenistan, still have considerable Russian and Russian-speaking populations. In that sense, security in these countries means the security of our compatriots. "Russia does not want to conduct any experiments in these countries, including attempts to expedite the democratization process," the director of the Russian Institute for Strategic Studies, Yevgeny Kozhokin, comments. He says that this is not because Russia is against democracy, but because the introduction of poorly-developed models of democratization might lead to social and political crisis resulting in the substitution of secular regimes with Islamic regimes, possibly even fundamentalist regimes in these countries. "This danger exists throughout the entire Central Asian region," he concludes, "particularly in Uzbekistan and Tajikistan." Therefore, the road to stability in Central Asia must be traveled cautiously, through a gradual transition to rule of lawstates that might still bear the signs of authoritarian systems for a long time.

Wednesday, February 02, 2005

World Bank: 2005 is turning point for Russia

This year will be become an indicator of Russia's further economic development, said Dr. Kristalina Georgieva, Director for the World Bank Russia program. She said investors putting money into Russia were optimistic about the country's economic situation, but they continued to consider different scenarios of Russia's economic development. Georgieva said the country's economic growth had slowed down. She reckons this is partly due to rising producer prices, fuelled by the strengthening ruble. Another factor is a quick rise in wages, which has outstripped economic growth in recent years. She also pointed to slow reforms in Russia. In this respect, Georgieva said it was particularly important that Russia's economic performance in 2005 was better than expected. On the upgrade of Russia's credit rating by Standard & Poor's, Georgieva commented: "The world believes that if the Russian Federation borrows money, it will not default." She rated S&'s move as a positive signal, showing that Russia was a reliable borrower. Standard & Poor's Ratings Services announced on Monday it had raised its long-term foreign currency sovereign credit rating on the Russian Federation to 'BBB-' from 'BB+'. It also raised its short-term foreign currency sovereign credit rating on Russia to 'A-3' from 'B', its long-term local currency sovereign credit rating to 'BBB' from 'BBB-', and its Russia National Scale rating to 'ruAAA' from 'ruAA+'. At the same time, Standard & Poor's affirmed its 'A-3' short-term local currency sovereign credit rating. The outlook is stable. On possible upgrades in the future, experts say the assignment of an investment-grade rating to Russia by Standard & Poor's would push up the price of ruble-denominated bonds and shares. Alexander Razumny of Mezhprombank believes this will be speculative growth, which will not tempt large foreign investors, especially pension funds, into Russia - something he thinks is only possible in the long term. For his part, Maxim Shein of BrokerCreditService expects S&P to raise its credit rating on Russia to investment-grade. He thinks this will have a significant effect on Russian bonds. "This will be a long-lasting effect," he noted.


MOSCOW, February 1 (RIA Novosti) - According to Andrei Klepach, director of the Russian economic development and trade ministry's department for macroeconomic forecasting, Russia's GDP rose by 7.1% in 2004. This time, he cited the more precise data received by the ministry from the Federal State Statistics Service of Russia (Rosstat) on Tuesday. Previously, he cited the figure of 6.9% adding that "the further improvement of the data may raise this indicator." "Why may it be higher? Because the exports data are underestimated and usually revised upwards," Andrei Klepach continued. "I feel that the last year's indicators must be higher, and this year's indicators - even lower [than the cited figure]", Mr. Klepach noted. Yesterday, Vladimir Sokolin, Rosstat's chief, told journalists that, in his opinion, Russia's GDP rose by 6.5-6.7% in 2004.

Tuesday, February 01, 2005

Economy ministry forecasts 6% GDP growth for 2005

Russia's GDP is expected to grow 6 percent in 2005, according to Andrei Klepach, director of the economy ministry's department for macroeconomic forecasting. He said the economy ministry's official forecast for Russia's GDP growth in 2005 was 5.8 percent, while a 6.3 percent growth was set in the budget. Klepach commented that 5.8 to 6 percent was a more realistic forecast, with oil prices expected to decline slightly this year. If the government wanted to meet its 6.3 percent goal, it would have to review all of its macroeconomic figures, Klepach stressed. Earlier, Russian economy minister German Gref said GDP growth could drop to 4.5 percent in 2005 unless Russian companies became more competitive. According to provisional figures, the country's GDP grew 6.9 percent in 2004. The official figure for 2003 is 7.3 percent. Klepach said Russia's GDP growth in 2004 could be more than 6.9 percent, noting that the final figures would be presented by the Federal Service for State Statistics of the Russian Federation in the first quarter of 2005. In general, Klepach commented, Russia's economic development became more consumer-oriented in 2004. Last year's economic growth was not solely due to foreign trade factors. "These factors account for only 50 percent of GDP growth, the rest we achieved ourselves," I mean Russian business and economic authorities," he said. The highest growth rates were reported in the second quarter of 2004, but the economy slowed down in the following quarter. In the first quarter of last year, Russia's GDP grew 7.5 percent, in the 2nd quarter - 7.4 percent, in the 3rd quarter - 6.4 percent, and in the 4th quarter - 6.3 percent. Klepach also said inflation could rise above the planned 8.5 percent in 2005. "Given high inflation in January, it will be difficult to meet an 8.5 percent target," he noted. According to Klepach, the government was not going to review the target because "a significant rise in inflation" was over. At the same time, he did not give January's inflation figures. Russian finance minister said earlier that inflation would be around 2.1 percent in January 2005. Vladislav Sokolin, head of the statistics service, predicts inflation between 2.3 percent and 2.5 percent.

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