idbits, August, September.

Russian Budget

First Deputy Prime Minster Anatoly Chubais said Tuesday (12 Aug.) that next week the Government would tackle spending cuts needed to reach a proposed 1998 primary budget deficit (the difference between spending and income excluding debt servicing costs) of just 0.4 per cent of GDP. Russia's Finance Ministry estimates that the 1998 deficit including interest payments on government debt will amount to about 5% of GDP, down from around 8% this year. The budget proposal assumes an inflation rate of 5% next year. Russian law mandates that the budget proposal must be presented to the Duma, Russia's lower house of parliament, by 25 August. Independent observers noted that not only deep budget cuts, but strong efforts to boost revenue are probably needed to close the primary budget deficit to the targeted figure.

July budget revenues were mostly from privatization sales, and tax collection is still below budget. To meet the budget new taxes will be levied on exchnaging dollars for rubles and on securities transactions. The State Customs Committee collected 10.5% more revenue than planned

New privatization minister. Alfred Kokh, Russia's 36-year-old Deputy Prime Minister and Head of the State Property Committee, resigned on Wednesday (13 Aug.). His secretary said that the resignation was not linked to the political controversy surrounding recent privatization sales. President Yeltsin promptly named Deputy Head of the President's Administration Maxim Boiko as Kokh's replacement. Mr. Boiko, a 37-year-old economist, has been closely allied with First Deputy Prime Minister Anatoly Chubais for a long time, and served as his adviser at the State Property Committee in the early 1990s. From 1993-1996, Boiko headed the Russian Privatization Centre. The new minister was active in designing Russia's mass privatization programme and is credited with devising the voucher system which was supposed to provide millions of Russians with a share of ownership in their communally owned country.

Currency tax introduced. At the end of July, a 0.5% tax was imposed on exchanges of roubles into foreign currencies or exchanges from one foreign currency into another. The tax affects cash as well as other payment instruments denominated in foreign currencies such as traveller's cheques and standard bank cheques. The amount of tax on an individual transaction will be determined on the basis of the transactions rouble valuation. The tax applies to all physical and legal persons, but does not extend to ATM forex withdrawals or interbank transfers. 60% of the revenues raised by the new tax are earmarked for the federal budget, while the remaining 40% will go to regional budgets. The new currency tax was immediately reflected in the buy and sell rates applied by banks. In 1996, Russian banks sold nearly US$ 52 billion of foreign cash and purchased about US$ 24 billion worth of foreign cash. It is estimated that Russians presently hold US$ 20-35 billion in physical foreign currency, and that about two-thirds of foreign currency exchanges take place in and around Moscow.

Russia experiments with real estate tax. During 1997 and 1998, the real estate tax proposed in the first reading of the Tax Code approved by the Duma in June will be tested in the cities of Novgorod and Tver. With President Yeltsin's approval of relevant legislation in July, cities are now free to decide themselves on the size of the real estate tax they levy and how it will be collected. Revenues from the real estate tax will fund municipal budgets, and any property owner, unless they are a foreign state or international organization, must pay. Residential housing will be taxed on the basis of 50% of its appraised value as of 1 January 1997. In accordance with the Tax Code, the trial cities are allowed to use a real estate tax in lieu of land taxes and property taxes.

Pension rules changed. According to a new law that goes into force on 1 February 1998, pensions are to be determined on the basis the average of a worker's past earnings, years in the workforce, and Russia's average wage. New pensions will not be indexed to prices. While years devoted to studying or taking care of children won't count, time spent in the military or on unemployment will. Switching to the new system is voluntary, and pensioners who work now will retain their pensions as determined under current law.

Yields on T-bills up slightly. At Wednesday's (13 Aug.) auction, 6-month and 12-month GKO treasuries yielded around 19% (up from 18% last week). According to investors, low liquidity in the banking system caused the rise in rates. The state raised a total of RUR 8.4 trillion (about US$ 1.4 billion) from the market.

Russia reconciles 70% of its London Club debt. According to the Ministry of Finance and Vneshekonombank, Russia has fully reconciled 70% of its debts to commercial bank creditors represented by the London Club. Over 340 creditors have signed reconciliation statements on their eligible debt. In total, foreign banks are owed some US$35 billion by Russia. Russia has agreed to reconcile its debt when 90% of its creditors agree to the reconciliation terms. Arrangements are now expected to move ahead quickly so that the final agreement on reconciliation should be signed before the end of the year.

Russian President Boris Yeltsin has signed a decree "On Exports of Unprocessed Nonferrous Metals Containing Precious Metals," According to the decree, henceforth exports will be allowed only if the hard currency balance remaining on the accoutn sof these companies (after mandatory sale of a portion of the hard currency earnings on the domestic currency market) is used to support production, reconstruction, and technical re-equipment.

The Russian predicted budget deficit of 0.5% excludes servicing of the national debt.

Three zeros will be dropped from the Russian ruble bank notes. The prime minister emphasized that all of these measures were "an integral part of the program for improving the nation's financial situation and strengthening the Russian currency." He did not explain how he arrived at that conclusion.

The Russian Federal Aviation Service has appealed to the government with a request to keep out foreign aviation organizations from the Russian market for a period of five years

Foreign investment in Ukraine in the first half of 1997 amounted to $335.5 million, or 46.1% more than over the same period last year.

Satellites will be launched from a floating platform in the vicinity of Hawaii by Sea Launch, a joint venture between Boeing Commercial Space Corp. (40% of the stock), Russia's Energiya (25%), Norway's Kvaerner Maritime (20%) and Ukraine's Yuzhnoye (15%). Chase Chemical bank and affiliated financial institutions are expected to invest about $200 million in the project. The World Bank will guarantee the creditors for non-commercial risks of $200 million, while the Russian and Ukrainian governments will guarantee the bank for non-commercial risks of $100 million each.

Russia and Ukraine will shortly form a joint venture, Kosmotrans, to develop a new rocket launch vehicle, the Dnepr, from SS-18 ballistic missiles. Kosmotrans will have a charter capital of thirty thousand dollars. Igor Lipkin, head of the Russian Federal Property Fund, has denied that the auction for the sale of 25% of shares in major telecommunications holding company Svyazinvest violated foreign-exchange legislation. The auction for the sale of 25% of shares in Svyazinvest took place on July 25. The Mustcom company, the auction winner, offered $1.875 billion for the package.

Stock market trading remained low on Aug 14th , with a total of just over $61.3 million in transactions on the Russian Trading System.

Someone please explain. Does anyone know that they are talking about???

Yeltsin announced August 8 that new rubles would be introduced (eliminating 3 zeros) in January, but that both old and new banknotes would be issued for some time. "This will help us to settle debts and never again allow any debts, neither on pensions nor on wages," he said. Since the beginning of this year Russia's money supply (M2) increased by 15% to 339.4 trillion rubles as of June 1. According to Gerashchenko, cutting three zeroes off the ruble and changing the price scale "can be seen as a certain signal to the public that the methods for fighting inflation have been found and that the economy is in a relatively balanced state." Old bills will remain in circulation.

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