New government set to open foreign investment door wider

Russia's new government has an economic team of like-minded ministers. The key figures in this sphere from the Kasyanov government have retained their posts: Finance Minister Alexei Kudrin and Economic Development and Trade Minister German Gref. The third figure, former vice-premier Viktor Khristenko, has been given the industry and energy brief. No dark horses emerged among the ranks of the "economist-ministers" as they are known.

The arrival of Alexander Zhukov from the State Duma has enhanced the positions of the market-reform advocates, while Prime Minister Mikhail Fradkov should undoubtedly head this economic team because he is an expert on foreign-economic contacts. Indeed, until his appointment, he served as Russia's representative to the EU, which is one of Russia's leading trade partners. All the economic ministers, whether as cabinet member or sitting in the Duma, have proven track records in support of liberal reforms. Their economic visions are similar and they even belong to the same generation.

Consequently, foreign investors have no reason to feel alarmed, because the policy of stability and continuity is there for all to see. No abrupt economic changes are likely and the reforms already underway - in the taxation, pension and some other spheres - will be implemented in full by the very people who drafted and launched them.

If one considers the situation from the viewpoint of Russia's investment attractiveness, then the Fradkov government's economic team obviously enhances it.

The Russian economy has been growing for over four years with inflation continuing to fall as planned and the rouble remaining stable. Other plus points are that taxes have been cut, the budget is being implemented, foreign debt payments are being made in volume and on time and Russia is continuing to receive increased investment. Moody's international ratings agency gave Russia an investment-grade level late last year on the basis of all these achievements. The Russian government hopes that Standard & Poor's and Fitch will follow suit in 2004.

The economic ministers speak the same professional language as their Western counterparts. They understand that Russia has to find its own place in the global economy and that it must follow in the wake of globalisation. For example, Russia wants to join the World Trade Organisation as soon as possible, which is a conscious choice dictated by its own national interests.

Naturally, tax cuts, the introduction of international accountancy standards, currency liberalisation, anti-trust measures and the restructuring of natural monopolies have improved Russia's investment prospects over the last few years. Some other aspects, such as security, the protection of private property, a fair and effective judicial system, as well as the efficient performance of state officials, also play a role in enhancing the country's investment attractiveness. Nonetheless, businessmen perceive economic incentives as more natural and reliable than anything else.

Fradkov's government will continue the tax reform this year. Alexander Zhukov, who has a reputation for advocating highly liberal tax policies, is expected to join this work. The special economic-zone concept (which includes various tax breaks to encourage foreign investment) will be finalised and anti-trust legislation will also be streamlined. Particular attention will be paid to the banking sector reform, as its fragmented nature, low level of capitalisation, narrow range of financial services and incomplete accounting system could soon slow down economic development.

It should be pointed out that the government's economic ministers have always understood how important it is to improve Russia's investment image. In 2003, the Economic Development and Trade Ministry announced its intention to draft a national investment-brand concept with the Russian Union of Industrialists and Businessmen, which would show Russia as a growing and highly promising market. The concept's authors believe that Russia should annually attract at least $6.5 billion worth of direct investment from 2006.

However, these targets might be over-fulfilled because Russia received more than $6.7 billion in direct investment last year, while total investment volumes stood at $29.7 billion, a 50% increase on 2002. The cabinet will continue to work on improving Russia's investment image this year, too. German Gref has announced that the system for issuing investment licences will be overhauled to become simpler, cheaper and more efficient.

Indeed, the door has been opened even wider for foreign investors in 2004.

Raisa Zubova, RIAN

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