Moscow Outlines Reform Plans
By Daniel Mclaughlin
Reuters
MOSCOW - Russia laid out on Monday long-awaited short- and mid-term plans to bring about a liberalization in the economy and speed land and tax reform as it strives to tame inflation and improve a gloomy investment climate. The government and Central Bank said in a joint memorandum on economic policy for 2001 and beyond that they are also planning to bring international accounting standards and transparency to the financial sector and encourage greater competition between banks. Analysts said these steps were vital to making the Russian market more attractive to investors, and highlighted as a key element a government pledge not to place limits on foreign investment in Russian banks or on repatriation of profits. The reforms could clinch Western support for restructuring Russia's huge foreign debts as a payment crunch looms in 2003. "The main elements for improving the investment climate are strengthening property rights, reducing administrative interference in economic activity and the development of financial markets and institutions" the statement said. The government and the Central Bank are also aiming to make Russian banks adhere to international accounting standards by 2004, to create fair competition between banks and to encourage foreign investment in the sector. But reform could spell the beginning of tough times ahead for domestic lenders who are not ready to go up against foreign competition, analysts said. "The actual adoption of the law could be a long and painful process with big opposition from the Central Bank, but if there is more liberalization and more open doors it is a good sign," said Raiffeisenbank Austria economist Yelena Romanova. Romanova said that about 12 percent of Russia's 1,300 or so banks were in poor financial shape. Oleg Vyugin, chief economist at Moscow brokerage Troika Dialog, said that foreign banks might not be particularly eager to dive straight into a murky financial pool. "International accounting standards are very important but they are first steps, not a total panacea," Vyugin said. "Steps have to be taken to make foreign capital feel more comfortable, but it seems to me foreign banks won't hurry to get involved." The government also announced that it wants to lower inflation in the mid-term to 7.0 or 8.0 percent from a predicted 14 percent this year and to stabilize real gross-domestic-product growth at 4.0 to 5.0 percent. Growth is now slowing down from last year's 7.7 percent. The government of President Vladimir Putin has touted all of these goals as central to its economic policy since taking office last year, and concerns over the country's ability to make payments on debts that were accrued during the Soviet period have evinced such comments with more regularity. Russia has agreed with previous economic policy statements made by the International Monetary Fund, but officials have said the 2001 program was "designated for internal use" as the country did not need a formal deal with the fund this year. A senior World Bank official said the bank and the IMF would discuss the plan at a joint meeting this week. Russia restated its pledge to repay its total $144 billion foreign debt but said it may face problems in 2003, when a peak of some $18 billion in payments falls due. Russia hopes to restructure debts ahead of the crunch, but must secure the IMF's backing to do so. Moscow has turned down IMF lending in 2001, the plan for up to 2004 outlined reforms which the fund has often urged Russia to implement. The memorandum said Russia wanted to introduce land reform and simplify the tax code, lowering the overall burden and making a new profit tax a priority for 2001. The government said that it would not impose any new limits on foreign trade or tighten currency controls, which analysts have said is part of the problem that encourages capital flight. Putin has also said that Russia lost some $20 billion in capital outflows last year alone. The government published the statement in electronic form on its Web site (www.pravitelstvo.gov.ru).
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