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Thursday, May 25, 2006

Private capital outflow matched by capital inflow for first time

ST. PETERSBURG, May 25 (RIA Novosti) - Russia's private sector capital inflow and outflow have matched each other for the first time, the finance minister said Thursday. "The capital outflow balance reached zero in the private sector," Alexei Kudrin told a St. Petersburg forum of government borrowers. Kudrin said private capital outflow had reached $23-25 billion at one time in the last five years, but added that Russia had created favorable conditions for investment in the Russian economy, which had helped reduce capital outflow. Nevertheless, the finance minister said Russia still had to resolve some problems in the near future. In particular, the government had to start three-year budget planning and preparing three-year forecasts for the country's monetary policy. Kudrin said Russia would completely liberalize its foreign exchange regulation from July 1. The minister added that Russia now had a stable government finance system, allowing the government to liberalize capital flows completely.

Tuesday, May 23, 2006

Russian-Chinese Trade Turnover to Reach $35Bln in 2006

Photo from www.cnn.com19.05.2006 MosNews - On Friday, May 19, chairman of the Federation Council's foreign affairs committee Igor Rogachev said that the volume of bilateral trade between Russia and China may amount to $35 billion in 2005. Last year trade turnover between the two countries has grown by 38 percent and exceeded $29 billion. Rogachev, who is currently in Beijing, said that the most serious problem of the bilateral trade between two countries is the fact that the share of engineering production in Russian exports to China has decreased dramatically. "Today this figure amounts to 2.5 percent [of total exports]," he said, quoted by RIA Novosti. The Russian senator said that this has never happened before in all history of Russian-Chinese trade relations. He added that in many ways the solution to this problem depends on the level of Russian industry's development, but noted that for now there is a tendency of turning Russia into China's "raw material supplier". "We do not agree with this and we hope for understanding from our Chinese partners in regard with keeping a balanced trade," Rogachev said. The senator also said that Russia and China are currently considering joining Chinese program for revival of the old industrial base in the country's north-eastern part and Russian program for development of Siberia and the Far East.

WTO Membership Will Make Russia $19B Richer - PACE Official

Click here to return to homepage22.05.2006 MosNews - Senior European official said on Monday, May 22, that joining the World Trade Organization is in Russia's interest, especially because it could earn about $19 billion from the move. Kimmo Sasi, who presented a report on the Russian economic situation for the Parliamentary Assembly of the Council of Europe, said that Russia's WTO membership could substantially strengthen the status of other members of the organization and would be in the interests of the Russian Federation itself. He said Russia would gain an estimated $19 billion from joining the WTO, which would, furthermore, improve the living standards of virtually all strata of the population. Sasi did not explain where the $19 billion in question would come from. He added that accession to this global trading body would also liberalize markets and provide broad access for foreign investors to the country's telecoms, banking, transport and insurance sectors, while tariffs would be halved. In addition, Kimmo Sasi said that Russia's accession to the WTO would give it a better legal position if it had to deal with anti-dumping procedures. Sasi said all of that combined would enable Russia to compensate substantially for a possible loss in labor efficiency that could result from reduction in state subsidies for Russian enterprises in the agro-industrial complex and on foreign markets.

EBRD to Invest More in Russia, Southeastern Europe, Reduce Presence in New EU States

22.05.2006 MosNews - The European Bank for Reconstruction and Development rolled out its five-year strategy to invest more cash in southeastern Europe and Russia and away from new EU nations, at the outset of its annual conference in London, AFP reported. Under the plan, the bank hopes to reduce its presence in eight of the new European Union member states — the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia. The bank said on Sunday, May 21, that the so-called EU-8 were on course to graduate from the EBRD and complete their transition to full market-economy status by 2010. As a result, the EBRD will re-allocate more resources to Russia and to southeastern Europe where countries including Bulgaria and Romania are battling for EU membership. "The EBRD is changing and is confident of repeating the success of the past in the new environment of the future," EBRD President Jean Lemierre said in a statement announcing the gear-change in policy. "With... different investment approaches required for the countries outside the EU-8, the Bank will look very different in five years' time from how it looks now and certainly how it looked five years ago," added Lemierre, who has been the bank's president since July 2000. The EBRD operates across 27 countries in southeast and central-east Europe, the Baltic states and the Commonwealth of Independent States (CIS) — the latter being a loose grouping of 12 former Soviet republics. The bank's Transition Report Update published Sunday said the 27 countries, including Latvia, Serbia and Uzbekistan, grew on average by 5.6 percent last year. That compared with record growth of 6.7 percent in 2004, which had marked the highest rate since the collapse of communism. Average gross domestic product growth was forecast to slow to about 5.3 percent in 2006. The five-year strategy, meanwhile, was endorsed on Sunday by the EBRD's board of governors. "Our bank will intensify the move of our activities to the east and to the south where new challenges, new difficulties but for sure new opportunities are beckoning," Steven Kaempfer, EBRD acting first vice president, told delegates at the two-day conference. The graduation of the EU-8 countries was "an extraordinary vision that fills us with pride and excitement... and must rank as one of the really historic events of our time and of our generation", he added. The EBRD, which was founded in 1991 to assist the transition of former communist nations to market economies, invests just under four billion euros (5.1 billion dollars) each year across the region in which it operates. "Our vision is that in three or four years' time about 40 percent of this will be in Russia, and the rest will be in the other countries of the CIS as well as the countries... to the east and to the south," Kaempfer said. The development bank is meanwhile launching its Sustainable Energy Initiative at the conference in a bid to address the issues of energy waste and security, climate change, and the need for cleaner sources of energy. The EBRD represents 60 shareholder governments as well as the European Community and European Investment Bank.

Thursday, May 18, 2006

RUXX investment index set to open 4.85% down

RUXX MOSCOW, May 17 (RIA Novosti) - Russia's newest investment index, stands at 634.45 points Thursday, down 4.85% on the previous day's trading, following Wednesday evening's sessions on major world trading floors. The Russian Industrial Leaders Index (RUXX) has been calculated in U.S. dollars since January 1, 2006, and has been available for all global trading systems since February 1 this year. It has an initial base of 500 points. In April, the index went up 14 %. RUXX is a composite economic index of Russian companies with financial instruments (shares and depository receipts) placed on major world trading floors, including the New York Stock Exchange, the London Stock Exchange, Nasdaq and AMEX. The index includes 17 Russian companies listed abroad: Tatneft (NYSE, LSE), MTS (NYSE), Rostelecom (NYSE, LSE), VimpelCom (NYSE), Wimm-Bill-Dann (NYSE), Mechel (NYSE), Gazprom (LSE), LUKoil (LSE), Novatek (LSE), AFK Sistema (LSE), Golden Telecom (Nasdaq), Rambler Media Group (LSE), Norilsk Nickel (LSE, Nasdaq), Mosenergo (LSE, NYSE), Novolipetsk Steel (LSE), Unified Energy System (LSE, NYSE), and Surgutneftegas (LSE). The RUXX Index was launched by Press Release Group, a New York-based communications company, and RIA Novosti. It is calculated and disseminated by Dow Jones & Company. The index is based on companies' weight depending on their market capitalization. The higher the market capitalization, the larger the company's share in the index, with a weight cap of 20% for each company. Market capitalization and share weights in the index are changed quarterly. The index is published daily at 05.55 p.m. EST by the Dow Jones ITC 2.1 data feed system and the Chicago Board of Trade. The index was presented to foreign investors at the New York Stock Exchange on April 24. According to Cameron Brandt, senior analyst with Emerging Portfolio Fund Research, although the RUXX Index was introduced only recently, financial circles were closely watching it.

Friday, May 12, 2006

EBRD Says It Will Move East in 2010

Friday, May 12, 2006 - By Stephen Voss - Bloomberg -- LONDON -- The European Bank for Reconstruction and Development will cease funding in Baltic and Central European nations after 2010, turning its focus to Russia, southeastern Europe, the Caucasus and Central Asia. The bank's board made the unanimous decision Thursday as it drew up its five-year plan, EBRD President Jean Lemierre said. Overall funding will total 3.9 billion euros ($4.99 billion) in 2010, compared with 3.7 billion euros this year, he said. The EBRD plans to phase out loans to the eight newcomer countries in the European Union, or EU-8, as their capital markets are increasingly able to provide funding for businesses and projects without aid from the state-backed EBRD. "These EU-8 will graduate from the operations of the bank by 2010. Segments of the economy are financed in the normal way by the private sector without the need of a risk-taker like us," Lemierre said in London. The EBRD was set up by Western governments in 1991 to help build market economies in Eastern European and former Soviet states. Bank funding for projects in the EU-8 nations plus Croatia will drop to less than 250 million euros, or 6 percent of the total, in 2010, compared with 45 percent in 2001. Funding for Russia will rise to 1.6 billion euros in 2010, or 41 percent, from 22 percent in 2001. More funding will also go to Ukraine, the Caucasus, including Armenia, and Central Asian nations, including Kazakhstan and Uzbekistan, with those regions collectively expected to get more than 2 billion euros of loans, or 53 percent of the total, in 2010, compared with 33 percent in 2001. The EBRD expects to open two new offices in Russia and another in Ukraine this year, and possibly one in Montenegro, Lemierre said. EBRD staff in Russia will double to 90 people. The bank will decide between June and September whether to provide funding for the Royal Dutch Shell-led Sakhalin II oil and gas project in Russia, Lemierre said Thursday.

Russia to lift restrictions on capital import and export - Kudrin

12/ 05/ 2006 MOSCOW, May 12 (RIA Novosti) MOSCOW, May 12 (RIA Novosti) - Russia will lift restrictions on bringing capital into and taking it out of the country from July 1, the finance minister said Friday. "On July 1, Russia will lift restrictions on import and export of capital that have been in place since the default of [August] 1998," Alexei Kudrin said. "We have accumulated the necessary potential to be considered a country with a fully stable currency whose stability is guaranteed for many years ahead in any circumstances," Kudrin said. The move is part of Russia's bid to make the ruble fully convertible by the middle of this year. President Vladimir Putin in his state of the nation address Wednesday said work on ruble convertibility should be finished by July 1. Kudrin said following Putin's speech the measures set out in it were realizable. The ruble will formally be considered convertible from January 1, 2007, when all restrictions on foreign currency operations will be abolished under a new law on currency regulations. But the law gives the Central Bank the right to impose certain restriction on capital transactions until that time. The Finance Ministry said earlier it was considering abolishing all restriction before the date stipulated by the law. The Central Bank said last month it could take years to make the ruble fully convertible, and that convertibility could only happen after Russia creates a full-fledged financial markets infrastructure. Sergei Kamburov, deputy director of the Central Bank's department for operations on financial markets, said external demand for the ruble as a global financial instrument was almost non-existent, and Russian financial markets are not developed enough to make the ruble an efficient alternative to the U.S. dollar. Politicians have recently floated the idea of making the ruble the only currency circulating on the domestic market. The pro-presidential United Russia faction also recently backed a proposal by the head of the Public Chamber to ban MPs and officials from using the terms "dollar" and "euro" in domestic economic debates.

Wednesday, May 10, 2006

Sakhalin Island: Journey to Extreme Oil

May 9, 2006 - Business Week -
Big Oil's future lies in such forbidding places as Russia's Far East
By Stanley Reed on Sakhalin Island
Summary prepared by Hayk Sargsyan of CDI
With their home reserves depleting fast, the big Western giants are increasingly compelled to go to any extreme to find new oil and gas. Sakhalin Island is about as extreme as they come. The 600-mile-long strip of mountains and forests off Russia's Far East is as good a vantage point as any to see the international oil industry's future and the challenges it faces. Big Oil is having to place ever bigger bets to get the reserves it needs. As a result immense new landmarks - drilling platforms, pipelines, and liquefied natural gas facilities -- are rising through the mists of this forbidding island. An estimated 45 billion barrels of oil equivalent lie beneath the icy seas off its shores, a figure rivaling what remains in the U.S. or Europe. But developing those resources is proving lengthy, difficult, and expensive. Cost overruns have been huge, and no one knows if the Russians will end up controlling the assets now being built.
Clearly, this is a game for the big boys only - Shell (RD ), ExxonMobil (XOM ), and BP (BP ) - and even they are struggling to get Sakhalin right. Operations of the island's biggest player, Royal Dutch Shell PLC, stretch all the way from the island's barren northeastern shore on the Sea of Okhotsk to the regional capital city, Yuzhno-Sakhalinsk, and further south. Shell is a 55% partner in Sakhalin Energy Investment Co., a controlling stake it picked up when Marathon Oil (MRO ) Corp. bailed out in 2000. Shell's other partners are Mitsui & Co. and Mitsubishi Corp. Together they are building and operating Sakhalin II, a batch of five or six projects each costing a billion dollars or more and employing 17,000 people. Shell has hurt its reputation with investors and with its Russian hosts by letting the costs of the venture soar. In 2005, Shell announced that the price tag for the main phase of Sakhalin II would double, to $20 billion.
There's a lot at stake. Oil and gas from beneath three platforms off the island's northeast coast will be pumped onshore by pipeline and sent 500 miles south to the tip of the island. There the oil will be loaded into tankers and the gas supercooled in giant liquefied natural gas plants, to be shipped to energy-hungry Japan and South Korea, and probably to China. Some gas will also pass through a terminal in Baja California, Mexico, and on to the West Coast of the U.S.
If successful, the project will confirm Sakhalin's stature as a major new energy province and transform Russia into a key supplier to Asia. Sakhalin II will also be Russia's first ticket into the game of liquefied natural gas, a hot area of the energy industry these days. Altogether, Sakhalin II boasts 4.5 billion barrels of reserves. Shell expects to be producing 185,000 barrels a day of oil plus condensates from gas and 467 billion cubic feet per year of gas by 2008.
Just getting to Sakhalin, and to Shell's operations, is challenging in itself. The island is located seven time zones, and a nine-hour flight, from Moscow. That's the first part of the journey. Expatriate oil workers and visitors then board the train that runs north from Yuzhno-Sakhalinsk to Nogliki, the snowy gateway to the offshore oil fields. Sakhalin Energy maintains its own sleeping car with wood paneling, rugs, and burly, tattooed guards to fend off bandits. Passengers board in the evening and toss and turn on narrow bunks in steamy cabins while the train bumps and clatters for 15 hours through the snowy wastes. Sakhalin Energy's operations in the north are so remote that it had to build a 43-mile road to get there. Bears roam the woods, and the weather is so bad that construction manager John Burn hires 70 people to keep the area clear of snow and ice six months a year.
The pipeline system that Sakhalin Energy is building is no less complicated. Two conduits - one for gas and one for oil - are being buried in mountainsides and other rugged terrain and will cross about 1,000 streams and rivers on the way south. Many of the waterways are spawning sites for salmon, posing an environmental challenge. In special cases Sakhalin Energy uses sophisticated drilling to tunnel under streams. But the company has run into trouble with sloppy local contractors who rely on their instincts to do things their way, managers say. Because Sakhalin lacks a high-tech local oil industry, Sakhalin Energy must import just about everything, including oil platforms built in South Korea and towed across the Sea of Japan. Shell had hoped to turn to Russian suppliers for pressurized tanks and other equipment, but these proved "useless," says a senior Shell executive. Even so, Shell has channeled some $6 billion in work to Russian contractors for building roads, pipelines, and other jobs.
Sakhalin Energy is also responding to the demands of indigenous peoples. Numbering about 3,500, they live mainly in the north and protested vigorously against the company's construction projects there. So Sakhalin Energy is spending $1.5 million to bolster enterprises, such as fishing and dog-raising. Considering the billions that Shell stands to gain from Sakhalin II, the indigenous peoples and Zlivko are minor worries. The bigger issue is the Kremlin. Everyone from President Vladimir V. Putin on down is complaining about cost overruns. That's because under the production sharing contract, signed in 1994, Russia will start making serious money only after Sakhalin Energy recovers its costs. Up to then, the company pays just a 6% royalty on revenues. After that, Sakhalin Energy will get 90% of the profits until the project shows a 17.5% return. Income taxes will be 32%. "If they can't develop the project at the original costs, perhaps we should bring in another operator," gripes Vladimir Efremov, chairman of the Sakhalin parliament.
To smooth relations with the Kremlin and gain a strong local partner, Shell last year agreed to swap 25% of its controlling stake in Sakhalin Energy to the powerful state-owned gas giant, Gazprom. In exchange, Shell receives a 50% stake in a Gazprom field in western Siberia. Teaming with Gazprom should give Shell some political protection for now, but how much the government might want to up the ante later is a big question.

Kuchins: U.S.-Russian Relations 'Rather Precarious' Now

Andrew KuchinsMay 2006 - Council on Forign Affairs - Interviewer: Bernard Gwertzman, Consulting Editor Interviewee: Andrew Kuchins Andrew C. Kuchins, director of the Russian & Eurasian Program at the Carnegie Endowment for International Peace, says U.S.-Russian relations are "rather precarious" and could spiral downwards. The latest development was the speech given by Vice President Dick Cheney in Lithuania in which he criticized Russian internal policies, drawing sharp responses from the Kremlin.
But Kuchins points out that Cheney, while visiting oil-rich Kazakhstan on the same trip, delivered no criticism of its dictatorial ruler. Likewise, he says, the authoritarian president of Azerbaijan was welcomed without criticism in Washington recently.
"I think the Russians are struck by what looks to be a sort of breathtaking exercise of double standards on the part of the Bush administration," says Kuchins. He also says he believes that the administration felt it had to be tough in public on Moscow to allow President Bush to attend a scheduled G8 meeting in St. Petersburg this July...
Full story...

Bush Takes Swipe at Kremlin

May 10 2006 The Moscow Times - By Anatoly Medetsky - U.S. President George Bush accused Russia of "economic nationalism" while Foreign Minister Sergei Lavrov called the White House ill-informed as the United States and Russia waded deeper into a verbal spat between the two former foes. The jousting, which stems from comments made last week by U.S. Vice President Dick Cheney, revolves around U.S. concerns over Russia's commitment to democracy and its reliability as an energy supplier. Bush said Friday that he had a "warm" relationship with President Vladimir Putin, but that Russia appeared ambivalent about democracy and open to using oil to achieve political ends. The president's comments were part of an interview Friday with the German newspaper Bild. The comments were not released until Sunday. "Russia is a country that has made some signals that are mixed signals, signals that allow, cause us to question their commitment to whether or not they intend to become a true democracy, where there's a freedom of the press or freedom of religion, all the different freedoms that are inherent in democracy," Bush said in the interview. Bush also voiced concern about Russian energy policy. "One of our concerns is economic nationalism, to a certain extent, where he [Putin] is using his oil companies to achieve what appears to be political objectives." The president's remarks came one day after Cheney, speaking at a conference of East European leaders in Vilnius, Lithuania, raised similar concerns about Russia. It was Cheney's remarks that sparked Lavrov's angry response. Cheney said the Russian government had "unfairly and improperly" suppressed religious and press freedoms while curbing the activities of advocacy groups and political parties. The vice president also accused Russia of intimidating neighboring countries by manipulating the oil supply. In January, Russia briefly ceased shipping oil to Ukraine amid a price dispute. "I thought that a person who holds such a job in the government had all the objective information at his disposal, but apparently his aides or advisors have let him down," Lavrov said, according to the ministry web site. The Kremlin earlier called Cheney's statements "subjective" and "incomprehensible." Defending what the United States regards as Russia's authoritarian slide, Lavrov said Moscow had simply sought to bring stability to a nation that had teetered on the verge of breakup in the wake of the Soviet collapse. Lavrov also called Russia a reliable energy exporter, once again chiding the vice president for being out of touch. "The vice president of the United States probably should have the information that in the last 40 years our country has not once, neither the Soviet Union nor Russia, violated a single contract for the supply of oil and gas abroad," he said. Cheney remained unapologetic Sunday, calling his critique a "very measured, short part of the speech, carefully crafted and thoroughly vetted," Bloomberg reported. In an interview with reporters, Cheney twice referred to a speech that was far more critical than his own, The Associated Press reported. That speech was given by Andrei Illarionov, a former economic adviser to Putin, at the same conference where Cheney spoke. "The story of destruction of freedom in my own country, Russia, is sad," Illarionov said in the speech. Cheney added that the leaders of East European democracies repeatedly brought up in private conversations the "sense that the Russians are trying to use their control of the production and transportation of gas, natural gas in particular, to obtain leverage on a lot of the governments," the AP reported. A Foreign Ministry spokesman said Tuesday that the ministry had no response to Bush's comments. That could be because of work stoppages during the weekend's holiday period, capped off Tuesday by Victory Day. Despite the friction, Cheney said Friday he expected the Group of Eight summit to take place as scheduled in July. "We'll all benefit from a free, open and honest exchange at that conference," he said, the AP reported. Cheney said Sunday that his criticism of Russia should not affect U.S.-Russian dialogue on Iran's uranium enrichment program, Bloomberg reported. Lavrov appeared to agree, saying Cheney's criticism would not undermine Russian cooperation with the U.S. on global crises. Some analysts say Cheney's comments were intended for conservatives back home upset with the president's reluctance, they say, to criticize Putin. In the latest twist in the U.S.-Russian dispute, Industry and Energy Minister Viktor Khristenko was quoted Monday by Reuters as saying that the United States must bury its "Cold War-era ghosts." He called the recent remarks coming out of the White House puzzling, saying they distorted the record. Russia, Khristenko said, had simply embraced the free market and was now looking to charge its neighbors the going rate for oil and gas.

Putin to Make His Seventh State-of-the-Nation Address

Vladimir Putin / Photo: AP10.05.2006 10:54 MSK The Moscow News - The exact contents of the speech are being kept secret until he delivers the address, but it is expected to place more emphasis on foreign policy than in previous years, the BBC reports. It is also thought that energy security will be one of the key themes. His speech, to be delivered at 12:00 local time (08:00 GMT), Putin will address ministers and parliamentarians, senior members of the judiciary and religious leaders. Those gathered in the Marble Hall of the Kremlin may number more than 1,000. The speech will be shown on live television. A much larger, worldwide audience will also be paying close attention. Russia currently holds the presidency of the G8 group of the world's leading industrialised nations. Some hope that the Russian President will answer critics, including U.S. Vice-President Dick Cheney, who has suggested that Russia uses its resources as tools of intimidation and blackmail. Vladimir Putin may also talk about policy towards Iran. Moscow has always insisted that the tension over Tehran's nuclear programme should be eased through diplomatic means. President Putin is also likely to discuss domestic issues, particularly Russia's so-called "national projects" (e.g. education and health projects, such as the campaign for HIV-prevention).

Putin to address parliament

RBC, 10.05.2006, Moscow 09:27:03.– Russian President Vladimir Putin will deliver his annual address to the Federal Assembly today. The address will be broadcast on Channel One, Rossiya TV channel, Mayak radio, and Radio Russia. The broadcast will begin at noon. It is expected that the subject of the address will be foreign policy. This will be Putin's seventh address to the parliament. In particular, in 2003 the President set a target to double Russia's GDP within 10 years. The result of last year's address was a launch of four large-scale national projects.

Friday, May 05, 2006

The Enemy at the Gates

Photo: AP05-05-2006 Kommersant - by Mikhail Zygar -
Dick Cheney practically gives a new Fulton Speech
At the "Common Vision for a Common Neighborhood" conference in Vilnius yesterday, U.S. Vice President Dick Cheney gave a programmatic speech on relations between the West and Russia. He criticized the Kremlin's domestic policy ad accused Moscow of "blackmail," "intimidation," "undermining the territorial integrity of its neighbors" and "interference in democratic processes." As the G8 summit in St. Petersburg approaches, Russia is being given the choice between "returning to democracy" and "becoming an enemy."
Until yesterday, the White House preferred to criticize Kremlin policies only through press secretaries. U.S. President George W. Bush and politicians close to him spoke of Russia as a reliable partner in the fight against international terrorism, even while admitting to certain disagreements. Cheney's Vilnius speech has broken that tradition and was the most pointed declaration by an American leader since the end of the Cold War.
The theme of the Cold War ran throughout Cheney's speech. That phrase, first spoken exactly 60 years ago by Winston Churchill at Fulton, was used by Cheney three times. He named the heroes of the Cold War who, in his opinion, made the greatest contributions to democracy: Andrey Sakharov, Lech Walesa, Vaclav Havel, Pope John Paul II, Natan Sharansky and Ronald Reagan. He mixed interspersed that list with the names of the "heroes of our time": Mikhail Saakashvili, Viktor Yushchenko and Alexander Milinkevich, the Belarusian opposition leader who is now jailed in Minsk. Cheney's words practically point to a renewal of the Cold War, only now the "front line" has changed. "The spread of democracy is irreversible. It is to the benefit of al and poses a threat to no one. The system that has provided hope on the shores of the Baltic Sea can bring hope to the shores of the Black Sea and even farther," Cheney said. "That which is applicable to Vilnius is applicable to Tbilisi and to Kiev, and it is applicable to Minsk and Moscow as well."
Mentioning Moscow and Minsk in this context, Cheney identified them as powers opposing democratic states. He then criticized Russian and Belarusian authorities. He spoke shortly but mercilessly about Belarus, saying the Belarusian President Alexander Lukashenko has earned the title of "last dictator of Europe." "There is no place in Europe for that kind of regime. The people of Belarus deserve better," the U.S. vice president said before turning his attention to Russia.
Cheney briefly listed the charges accumulated against Russia. First, the victories of recent decades are being scaled back as the authorities limit civil rights and the rights of the media, nongovernmental organizations and political parties. Cheney continued that Russia's policies are detrimental not only within the country but beyond it as well. "No one can justify actions that undermine the territorial integrity of a neighbor, or interfere with democratic movements. No legitimate interest is served when oil and gas become tools of intimidation or blackmail, either by supply manipulation or attempts to monopolize transportation," Cheney said.
Cheney's speech culminated in the assertion that Russia faces the choice of "returning to democracy" or "becoming an enemy." "There is no question that a return to democratic reform in Russia will generate further success for its people and greater respect among fellow nations," Cheney said. "None of us believes that Russia is fated to become an enemy." But it can be concluded from that statement that the likelihood of that happening is high.
The Baltic and Black Sea region leaders assembled at the conference applauded the U.S. vice president. The leaders of Poland, Romania, Bulgaria, the Baltic countries, Ukraine, Moldova and Georgia were present in Vilnius. Cheney's address to then practically identifies their countries as the "defensive wall" that separates the democratic West from potential hostile Russia. Cheney's speech was full of praise for the "new democracies." He thanked the "brave leaders" of the color revolutions for proposing the summit and noted the success of the Baltic states "one the provinces of an empire, ancient nations whose sovereignty was stolen" that were able to throw off imperial dictatorship and the command economy. He gave a rather lengthy description of democratic value, hinting that democracy is now being threatened, although without stating directly where that threat was coming from. "I don't think I have to mention what the alternative is [to democracy]. You have all seen it and lived through it." He went one to list centralized control, intimidation of political opponents, merciless corruption, ever-present violence, national decline, economic stagnation "that no rational person could want."
Cheney ended his speech by mentioning the July G8 summit in St. Petersburg. The leading developed countries will make it clear to Russia there that it has nothing to fear and can only win if there will be a "strong democratic state" within its borders. In other words, an answer is expected from Russia at the G8 summit about which of the two relationships with the West it has chosen. That is bad news for the Kremlin, which has grandiose political and propagandistic plans of its own for the summit.

Monday, May 01, 2006

Raising Living Standards for the Russian

24.04.2006 Financial Times - 1st Deputy Prime Minister Dmitry Medvedev Interview
How would you define the fundamental goal of the national projects?
The goal is very simple — to raise living standards for people in Russia. We chose the four sectors of providing quality healthcare, and education, access to affordable housing, and developing agriculture, because how things look in those areas has the biggest impact on how people feel about their lives. Together they affect 100 percent of the population.
Where have you encountered the biggest challenges?
There are more complex projects, let's be frank, and less ambitious ones — though that doesn't mean any of the goals are insignificant. Housing is rightly seen as most complex, because in comparable countries such as the U.S. it took decades to complete similar programmes. America's programme to provide affordable mortgages lasted from the 1940s until the 1960s. Frankly, I don't think our housing programme will be any shorter. But in the short term we ought to be able to achieve some real changes, and make mortgages much more accessible to people. Total outstanding mortgages, we hope, will reach $3.5 billion by the year-end. That's decent but still too little. In the long run it should be many times higher.
To what extent is the investment, $7 billion this year, going into raising wages, or into real structural changes?
It's not simply about raising wages, though we need to do that. The projects will succeed only if they're accompanied by modernisation of the relevant sectors. In healthcare, for example, it's proposed that resources going to primary care doctors, those in general practice, should not simply raise wages, but help attract more highly-qualified people to the local level, where they're needed.
What do you say to critics who suggest that while a lot of work is going into the national projects, liberal economic reforms have virtually stopped?
The economic reform programme has not stopped, but is being consistently carried out. In six years, we have achieved a large part of the economic projects and structural reforms talked about in the 1990s. We adopted the new tax law which significantly lowered the total tax burden and tax rates. We have one of the world's lowest income tax rates — a 13 percent flat rate. Untransparent tax breaks and burdensome taxes have been abolished. In 2007 we hope to fully liberalise currency transactions, a vital precondition for making the rouble convertible. Making the rouble a hard currency is one of the state's aims. We're also passing important laws, like the law on foreign investment in so-called strategic sectors, so that foreign businesses know in which sectors the state will attach particular conditions to investment. On the other hand, we're preparing the so-called "capital amnesty" law, allowing the return of capital taken out of the country on payment of 13 per cent income tax. This all shows there's been no change of economic course.
But the state seems to be playing a much bigger role in the economy, with state companies buying up private ones.
I don't believe we're seeing any significant increase in the state's participation in business. True, in a number of cases, the state, or state-controlled companies, increased their presence in several sectors. Above all we're talking about the energy sector. But these are not new companies; we're not talking about nationalisation but about buying appropriate assets on the market. Many oil companies have done this. As for Gazprom, the state's acquisition of [a controlling stake] was linked to the need to liberalise the market for the rest of Gazprom's shares, which investors had spoken about for a long time. This was carried out last year, along with the abolition of the so-called "ring fence" [which restricted foreigners' rights to own shares]. As a result, Gazprom's capitalisation has gone from $10bn, when I became chairman, to $200bn, putting Gazprom among the world's 10 biggest companies. That's good for Gazprom and for the whole Russian stock market.
Why did Gazprom have to turn off gas to Ukraine in January?
There should have been no need to turn anything off. What we needed to do was ensure a transition to market relations with our partner, Ukraine. President [Victor] Yushchenko was the first to speak about this when he suggested moving to full openness and 100 per cent cash payments at European prices. We agreed with that approach. That's the civilised way of developing market relations, and that, ultimately, is what we did. The agreements we signed are based on the prices most European countries pay for energy. Though the price we agreed, $230 per thousand cu metres, is still lower that those within Europe, where spot prices can exceed $1,000/tcm.
But all this raised questions in European countries about Russia's reliability as an energy supplier.
Those questions should not have arisen. Firstly, because in January Russia fulfilled all its obligations under its long-term contracts with European energy consumers. Secondly, as far as I know, all European governments and big energy companies recognise Gazprom's right to operate according to normal market relationships. In fact we were often criticised for subsidising other countries' economies by supplying energy on non-market conditions.
Everything done in January was aimed at guaranteeing normal, competitive conditions which ultimately should benefit energy users in Europe. And I think Russia, in its G8 presidency this year, as the world's biggest energy power, has already presented some important initiatives on energy security to leaders of the G8 countries. The decisions that will be taken [at the G8 summit] will help us guarantee that security.

Solzhenitsyn upbeat about Putin's presidency

Aleksandr SolzhenitsynMOSCOW. April 28 (Interfax) - Russian writer Alexander Solzhenitsyn decried in an interview published on Friday the existence of ordinary Russians, which "remains hard and without much order," chided former leaders Mikhail Gorbachev and Boris Yeltsin, and had some positive words to say about Vladimir Putin's presidency. "In the times of [former Soviet president] Gorbachev, the very notion and understanding of statehood was cast aside. The same line was in effect pursued in the times of [former Russian president] Yeltsin, but it was further aggravated by the colossal plundering of property in Russia, of national wealth, and with the absence of any constraints and the condoning of state chaos," the former Soviet dissident told the newspaper Moscow News. Since Putin became president, "efforts have begun to be made to salvage the statehood that has been in a mess," the author said. "Admittedly, some of these attempts were rather of a cosmetic nature initially, but then they began to manifest themselves more clearly. Our foreign policy, taking into account our current situation and our resources, is reasonable and increasingly far-sighted. But because of the legacy of predecessors, there is still very much in Russia that has not been rescued from a state of decay," he said. "Preserving the people" - stopping the fall in the population and making it physically and morally healthy - should be the main task of the Russian state, Solzhenitsyn said.

Russia wants to pay Paris Club debt in 2006

May 2006 RBC News - Russia plans to fully repay its debt to the Paris Club of creditor nations in 2006, Russian President Vladimir Putin said at a meeting with German businessmen on Thursday. "We hope that Germany, along with other countries, will accept our proposal," Putin said. In August 2005 Russia paid $15 billion of its Paris Club debt, of which Germany received about $6 billion. "I think this increased confidence of German businessmen in their Russian partners," he stressed. Russia financed its early debt payments using the Stabilization Fund, currently standing at RUR 1.7 trillion, or $60 billion. On April 6, Russian Finance Minister Alexei Kudrin signed a formal proposal to the Paris Club nations to prepay part of Russia's debt. "These nations may not want to take the whole of the debt," he added. In the estimation of the Finance Ministry, Russia could prepay $12 billion of its debt to the club. Russia's proposals will be discussed at the Paris Club meeting next month. If the Paris Club nations accept Russia's early pay offer, the money could be transferred by the end of August, Kudrin said. Russia owes about $20 billion to the club. Earlier this month Russian Prime Minister Mikhail Fradkov signed a decree to start negotiations with the Paris Club on the early payment of $12 billion. Russia's foreign debt dropped from $114.1 billion (19.3 percent of GDP) to $81.5 billion (10.6 percent of GDP) in 2005, due to significant debt payments, including early payment of $3.3 billion to the International Monetary Fund and $15 billion to the Paris Club.

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