Five years ago following the disintegration of the Soviet Union and the collapse of its political and economic management structures, the leadership of the Russian Federation announced its new policy of market reform. The main aim of the policy was decentralisation of the over-centralised state system of management of the national economy, privatisation of state-owned enterprises, and the formation of legal, financial and other structures facilitating the development of market economic mechanisms. In January 1992 the reform was started with the introduction of price, currency and trade liberalisation. At the end of the same year this was followed by the beginning of the privatisation campaign. Lifting of state control over prices almost immediately sparked off a huge inflation wave which very soon became one of the major obstacles to the continuation of the reform. Although the Russian government has been successful in controlling and lowering the inflation rate since 1995, this has not stopped the economy from sliding further and further into recession.
The dramatic falls in production indicators and standards of living experienced by Russia and the majority of ex-Soviet states in the post-1991 period can be attributed to a number of factors, the most important of which are: (a) the high level of mutual dependency, general backwardness and inflexibility of the socio-economic systems these newly independent states inherited from the over-centralised Soviet system which made independent management of their economies extremely difficult and greatly intensified the already existing socio-economic crisis in these states; (b) lack of experience in management and legal affairs in a market environment on the part of the political and economic elites in these countries, which caused serious legal confusion and created too many legal loopholes, even a certain "power vacuum", resulting in an unprecedented growth in corruption as well as in economic and other forms of crime; (c) the economic difficulties and social costs caused by transition to the market economy in ex-Soviet states, which proved to be much higher than anticipated by reformists at the start of the reforms, forcing the majority of the leaders of these republics to make significant alterations to the initially proclaimed strategies which brought the whole reform process to a standstill and exacerbated the crises.
These factors affect developments in all of the former Soviet republics, although their strength and effects vary greatly. In some regions of the ex-USSR, like the Transcaucasus and parts of Central Asia, post-Soviet political instability has led to a situation of on-going civil war which has had an even more devastating effect on economic and social transformations in these areas. At the end of 1994 political instability spread to the Russian Federation with the outbreak of the bloody Chechen War.
Despite the differences in terms of economic, social, political and ethnic background, not one of the former Soviet states has shown any signs indicating a genuine recovery. The key to successful change seems to lie in the ability of post-Soviet leaders to coordinate their transition policies in such a way as to facilitate, rather than destroy, the existing benefits of their mutual cooperation. This raises the more general issue of the inter-relations between political independence (the nationalism factor) which frames the ideologies of the majority of ruling elites in these states, and the de facto economic dependency (moves towards integration) which these states inherited from the Soviet Union. The clearest illustration of the struggle between these two tendencies is the history of the Commonwealth of Independent States (CIS). During the five years of its existence the CIS has failed to fulfil its proclaimed objectives of facilitating closer cooperation between its members, mainly because of strong internal pro-independence (ie. anti-integration) political pressures in most of its member-states.
The future of social and economic transformations in the former Soviet Union (FSU) is largely dependent on the success of the transition to democracy and a market economy in the biggest of its former republics, the Russian Federation. Russia accounts for 70-80% of the total industrial output of the FSU and, through energy supply chains, holds in its hands a very effective lever of control over developments in all of the other ex-Soviet states. Russia is also the indisputable military leader in the area and, in the event of a major crisis, still has the potential to bring all the other ex-Soviet states into its political and strategic domain. Since the collapse of the USSR Russia has also proved to be a clever and sometimes ruthless political manipulator in the area, on many occasions strongly and consistently safeguarding its own interests.
However, continuing attempts by the Russian leaders to reinstall Russia as the dominant force on the ex-Soviet territory are being blocked by the growing weakness of its economy (Table 1) [NB: tables and statistics are available in hard copy only]. Even Russian military might has become questionable following the humiliating defeat of Russian federal troops in the civil war in Chechnya. The economic difficulties of transformation are limiting the manoeuvring space of the Russian leadership drastically. Of all the economic matters requiring urgent attention of the current Russian leadership, the general financial crisis and the resulting collapse in investment seem to form the core of the problem. This study attempts to analyse the dynamics of both domestic and foreign investment in Russia during the post-Soviet period (1991-96).
Before discussing Russia's investment problems, a few words should be said on the issue of the reliability of official Russian statistical data which form the basis of the present analysis. Official Russian statistical materials are currently at the centre of a broad academic debate. The restructuring of the economy, changes in the ownership of companies, the growth in market services that were non-existent in Soviet times, changes in accounting systems - all these factors have made the work of statisticians more difficult than ever. Since 1994 the Russian Statistical Committee (Goskomstat) and its regional branches have gradually been moving towards international statistical standards(1). By mid-1996 the old Soviet system of formal accounting of production had been replaced by a system of national accounting. This brought the Russian statistical series in line with international standards, but did not help Russian statisticians to collect data from the so-called "unorganised" sectors of the economy and the shadow economy. Coefficients reflecting these developments had to be incorporated into the official statistical series. However, this sparked an on-going debate over whether these coefficients were truly representative of the real processes or whether they underestimated the real situation. In the most recent debates Russian statisticians are being accused, not of overestimating, but underestimating real production and GDP indicators (2).
The author of this paper supports the group of analysts who suggest that although Russian statistical series do have some faults, they are nevertheless in no way less reliable than statistics in many Western countries(3). Moreover, the reliability of Russian statistical series that generally show a continuing decline in the economy is proved by numerous on-ground reports of a similar nature. Therefore, it is my view that, despite some inaccuracies, Russian statistics have generally managed to reflect the dynamics and trends of post-Soviet socio-economic developments correctly.
The Scale of the Current Financial Crisis in Russia
In the last two years the Russian economy has been almost totally paralysed by a serious financial crisis. The crisis began with the launching of the Russian reform in 1992 after the political disintegration of the USSR was followed by the break-up of economic ties between enterprises in the newly established states. This crisis was also greatly intensified by dramatic falls in the population's consumption, accompanied by rises in wholesale and retail prices. Many companies found it difficult to meet their payment obligations, first to suppliers and later to local and federal budgets.
Cuts in budget revenues meant that the state's capacity to assist the development of national industry and agriculture (through investment and subsidies) also started to shrink. In order to (even partially) meet its budgetary obligations the government raised taxes and introduced a complex system of control over cash and currency flows in and out of the country. This however failed to bring the necessary funds into the budget, forcing the Russian government to borrow more and more money, both domestically and abroad.
Increased borrowing helped the Russian government to balance the budget temporarily, but such a policy could not stop the spreading of the financial crisis. By 1993 delays in salary payments to state employees had become an everyday fact of life in Russia. Revenues from the privatisation of state property turned out to be much less than initially expected, but what was more important, the whole process of privatisation generally did not affect the way Russian companies were managed. Inefficient and loss-making enterprises inherited by Russia from the Soviet times only became even more inefficient in the crisis situation. Bankruptcies were very rare for the sole reason that the government simply did not have funds to pay unemployment benefits to employees of bankrupt factories or to create new jobs for them.
The pace of the financial crisis in Russia was increasing since 1992, but it reached its culmination in 1996. In 1996 federal budget expenditures totalled 15.6% of GDP or $62 billion(4), which was less than the amount necessary to meet the government's social policy obligations. 1996 budgetary revenues were 21% lower than expenditures and stood at $49 billion(5). Budgetary payments to the economy were at a level of 1.84%, down from the 2.92% planned in the budget(6). In mid-April 1997, the government's debt in back wages to public employees and delayed pension payments grew to an astronomical figure of approximately $9 billion(7).
While in 1992-94 the government was trying to solve the problem of falling tax collection by increasing tax levels and introducing new taxes, in 1995-96 the taxation burden almost reached its absolute limit(8). This forced many Russian businesses to enter the "shadow economy" in order to evade tax payments. Emergency measures aimed at increasing tax flows were introduced at the end of 1996 and helped to raise some additional taxes. However, for the whole of 1996 the Russian government managed to collect only 84% of planned taxes(9). According to data released by the government, only 16.5% of Russian companies honoured their tax obligations in 1996. In November 1996, of 2.6 million registered firms in Russia, 436 thousand paid taxes regularly and in full, while at least 882 thousand companies (34%) published no accounts and made no tax payments whatsoever(10). The majority of local governments also failed to pay their taxes on time. In 1996 only 6 out of 89 Russian administrative units met their obligations to the federal government fully(11).
By 1996 non-payments to suppliers had begun to hit the most successful Russian companies. Three of Russia's seven largest tax deadbeats were subsidiaries of Gazprom, the natural gas monopoly. Their inability to pay taxes, however, is not an indication of their poor state; it simply indicates the inability of their customers to pay for gas supplies. In 1996 only 7% of retail natural gas purchases were settled in full in cash.(12) In late 1996 the total debt owed by large Russian companies to the federal budget was $1.3 billion.(13)
In a situation where private banks were reluctant to credit indebted companies, the government was forced to step in by issuing state guarantees for commercial bank credits. It could be said that by the mid-1990s state-issued bank guarantees and tax exemptions had effectively replaced the old Soviet state subsidies to enterprises. In the first nine months of 1996 state-issued guarantees to the three largest credit providers alone exceeded $3 billion.(14) Another source of "hidden subsidies" are government-approved tax exemptions. In early 1997 it was reported that tax exemptions and offsets totalled $30 billion, two-thirds of which were exemptions granted by the federal government to local authorities.(15)
In a cash-stripped economy such as the Russian economy had become by the mid-1990s, it is usual for various forms of surrogate money to appear as a replacement for the deficit cash. In the Russian case, many banks and local authorities started to issue bills of exchange (vekselya) order to facilitate payments between enterprises. In 1996 alone private banks issued $20 billion worth of bills of exchange with an additional $8 billion issued by local governments.(16)
Rapidly falling tax collection and diminishing state foreign currency reserves(17) forced the Russian government to seek funding sources outside the country. Between 1991 and 1996 Russia's foreign debt increased by approximately 50% and reached $128 billion.(18) In 1996 the Russian government also started to issue state bonds (GKOs). During that year the sales of GKOs to foreigners were 3 times larger than foreign direct investment and were at a level of $6.7 billion.(19) Foreign debt repayments became a heavy burden on the Russian economy. According to Russian Deputy Finance Minister Oleg Vyugin, the cost of servicing Russia's borrowing program was still "bearable" in late 1996, but he admitted that if the current borrowing rate continued financial resources "could run short by 1998".(20)
The financial crisis in Russia also had direct implications for savings and investment trends. A very good indicator of the population's faith in the government's ability to improve the economic situation are the dynamics of internal and external capital flight from Russia. Recent reports indicate that Russians were converting their savings in local currency into foreign currency on a massive scale, primarily into US dollars. In 1995 14% of the total population's income was spent on foreign-currency purchases; in 1996 this figure was already 18.5%.(21) According to the Russian Central Bank, in 1993-96 a total value of $84 billion was imported into Russia. Almost 3/4 of that sum were imported in two years - 1995 and 1996. Of the total amount of currency imports, $63.7 billion were net sales to individuals. About half of that money was later exported and in the beginning of 1997 it was estimated that $33 billion were in circulation among the Russian population.(22) This was more than half of the gross Russian money supply.
The scale of monthly internal capital flight in Russia in early 1997 was estimated at $5 billion.(23) Another $2 billion leave Russia each month in the form of external capital flight. In my recent article I estimated that the total amount of capital exported illegally from Russia during 1992-95 was $62 billion, with a further $20.8 billion leaving the country in 1996.(24)
Foreign Investment Flows
Between 1990 and 1996 the total volume of foreign investment in the non-financial sectors of Russian economy(25) amounted to $12 billion. This was six times less than the estimated need for investment in Russia during that period, and 25 times less than the investment that the People's Republic of China managed to attract in 1991-96.(26) Despite of the size of its economy, in 1996 Russia received less investment than Hungary and Poland, Russia's former allies in the ex-Eastern bloc.(27) The share of foreign non-financial investment in Russia's gross volumes of investment from all sources in 1993-96 was between 2% and 4%.
The dynamics of foreign investment in the non-financial sector of the Russian economy are shown in Table 2. According to these figures, $5.5 billion were invested in Russia between 1990-95. In 1996 a further $6.5 billion were brought into the country. The latter indicates that last year there was a significant change in the attitudes of foreign investors to Russia. It is interesting that more than 2/3 of this money entered the country after the June 1996 presidential elections in Russia. This fact shows the extent to which trends in foreign investment flows are dependent on the course of Russian political developments. Among the largest investors in the Russian economy are the United States,(28) the UK, Switzerland and the Netherlands. Together these four nations accounted for almost 70% of all foreign investment in 1990-96. The rapid growth of investment from Switzerland and the Netherlands during 1996 could be largely attributed to the partial repatriation of fugitive Russian capital through Swiss and Dutch banking systems.(29)
Of an estimated gross volume of $13.2 billion invested by foreigners in all sectors of the Russian economy during 1996, foreign direct investment totalled just $2 billion which was slightly up from $1.8 billion in 1995 (Table 3). The bulk of money invested in Russia during that year went into purchases of Russian state bonds and other securities ($6.7 billion). The next biggest items after investment in the financial sector were trade credits and bank deposits ($3.3 billion).(30) In 1996 portfolio investment in non-financial sectors of the Russian national economy had a very small share of all non-financial investment - less than 1%. In 1994-96 the share of FDI in foreign non-financial investment declined significantly: from 52% in 1994 to 32% in 1996. In the same period the share of foreign trade credits, bank deposits and other credits (see "Other" in Table 3) increased from less than a half to over 67%.
Since the beginning of reform in Russia significant changes have occurred in terms of the direction of foreign investment. At the start of the reform (1992-93) the major part of foreign investment was accumulated either as charter capital of various joint ventures with Russian enterprises (mainly in trade, oil exploration and processing, construction, metallurgy) or in the form of credits issued to Russian export-import companies.(31) These investments were generally aimed at facilitating export-import operations with Russian partners, at a time when most of the Russian economy was still owned by the state. The peak in this "joint-venture" investment came in the first half of 1994, before the end of the first stage of Russian privatisation. At that time more than 80% of all foreign investment in the Russian economy (excluding the financial sector) was directed towards industry. Half of the latter was invested in the fuel sector.
Privatisation of state-owned enterprises, many of which were turned into joint-stock companies in 1994-95, decreased the significance of "joint venture" investment. However, barriers on foreign ownership of Russian minerals companies that were imposed both by Russian legislation and by stockholders of the newly-formed private enterprises, greatly limited the direct flows of foreign capital into the national economy. While direct investment in the production sectors of the economy has been declining steadily since mid-1994, the major part of foreign investment has been redirected into stock market operations, banking and finance. Thus, the share of industry in the total volume of foreign investment in Russia fell from 80.4% in mid-1994 to 33.3% at the end of 1996.
One of the major drawbacks in foreign investment in Russia is that a very small proportion of both direct and portfolio investment goes to productive sectors of the economy (industrial and/or agricultural enterprises). Some current estimates put the share of such investment during the whole reform period at below $800 million.(32) And this is happening at a time when, according to the president of the US Overseas Private Investment Corporation (OPIC), there is at least $30 billion in new US investment just waiting to go into Russia.(33) Another recent estimate indicated that around $50 billion could be invested into the Russian fuel and energy sector alone.(34) However, this foreign money will start to come into Russia only after the existing Russian environment for foreign investors changes.
Foreign investors are put off from investing by the under-developed nature of Russia's market structures; existing tax burdens and the general instability of the taxation system; problems associated with the methods and outcomes of privatisation; outdated accounting practices;(35) frequent legal confusion arising from contradictory legislative acts; and widespread corruption in the bureaucracy and law-enforcement agencies. Added to this are frequent attempts undertaken by Russian legislators and companies aimed at limiting or even banning foreign participation in some areas of the economy.(36) The combination of all these factors explains the extremely modest scale of long-term foreign (direct) investment in the productive sector of the Russian economy. At the same time, attempts made by the Russian government in recent years to attract foreign capital and credits have opened up new opportunities for short-term but highly profitable foreign investment in Russia's emerging securities and stock markets.
The year 1996 saw the Russian stock markets booming. Billions of dollars of foreign portfolio investment were directed into purchases of Russian loans, state bonds and company shares, making Russia the most lucrative equity market in the Emerging Markets' group of countries.(37) Between mid-1995 and the end of 1996 the share of investment in banking and finance in the total volume of non-financial foreign investment increased by 2.5 times from less than 20% to 54%. Since mid-1996 Russian statistics have also started to list volumes of foreign portfolio investment in "the financial sector" or stock market operations. In the first half of 1996 the total volume of investment in that sector was 3.5 times larger than gross foreign investment in all other sectors of the Russian economy (Table 4). After the results of the Russian presidential election became known, the flow of foreign capital into productive sectors of the economy increased, bringing the ratio between portfolio and all other types of investment down: in 1996 foreign investment in the financial sector (purchases of state bonds and company shares) amounted to $6.7 billion, against $6.5 billion of investment in all other spheres of the national economy.
The shift in orientation of foreign investment flows in Russia from "joint-venture" to "finance" was also reflected in the regional structure of investment (Table 5). Resource-rich areas (Northern and Western Siberian regions) and key transport regions (Far East) were the main centres of foreign investment in the early "joint venture" period. However, in later years these areas largely lost their attractiveness to foreign investors: for example, between 1993 and September 1996 the share of the Western Siberian region in the gross volume of non-financial investment fell from 14.7% to 5.5% and that of the Far East from 12.3 to 5.8%. During the same period the share of Tyumen in the total volume of investment made by foreigners in the Russian economy declined from 11.6% to 3.3%.
While investment in Russia's industrial regions was steadily falling in 1993-96, the country's capital city developed into the major centre for foreign investment in Russia, with its share in the gross foreign investment rising from 15.9% in 1993 to 70.7% in September 1996. This spectacular development was mainly due to the fact that Moscow is home to the absolute majority of Russian national stock exchanges, banks and other financial institutions. Therefore, the bulk of foreign portfolio investment in Russia was naturally coming to Moscow.
By 1996 Moscow had also become the absolute leader among Russian regions in attracting "joint venture" foreign capital. The larger part of this capital is now invested not in the production sectors, but in trade, services and financial structures.(38) In September 1996, 44.8% of the total number of joint ventures in Russia were based in Moscow; Moscow's JVs had a combined share of 43.4% in the gross exports made by joint ventures from Russia during the first nine months of 1996.(39)
Conclusion
The profound social and economic crisis that has been developing in Russia since 1991 has had an extremely negative effect on finance and investment. In the post-Soviet period, an acute financial crisis that almost paralysed the Russian national economy forced the government to make even larger sacrifices to its investment strategy. Increasing pressures from unpaid public employees, mounting state debts to internal and foreign creditors, shrinking state currency and gold reserves, and huge tax collection arrears put the already weakened financial system under great strain. It could be argued that short-term needs of political survival have largely replaced long-term economic and investment strategies on the current priority list of Russian reformers. During the last few years funding demands coming from a variety of political, social and regional quarters have been the main factors forming the national investment policy. In today's Russia, state investment policies (both with respect to the various branches of the economy and to the regions) are more and more reminiscent of the old Russian story about Trishka's coat ("Trishkin kaftan"), in which the continual appearance of new holes in a poor man's old coat means that he is forced to keep ripping off sections of the same coat.
By mid-1990s the need to cover the growing state budget deficit became the dominant objective of the Russian government's economic policy. Almost all of the government's other economic concerns were in one way or another subjugated to the achievement of this major aim (tax policies, foreign borrowing, demonopolisation and privatisation, state social and investment expenditures). In the decade between 1986-96 the Russian state to all intents and purposes withdrew almost completely from pursuing any viable investment policy: during that period the share of public finance (federal and local) in the gross volume of investment fell from 90.4% to 18.8%. In 1996, in real terms, the total volume of all state investment in the national economy amounted to just over 6% of the 1986 level.
The deep crisis in the Russian financial system and economy is also reflected in the dynamics of foreign investment. The share of foreign investment in the total volume of all investment in Russia has never exceeded 4%. Since mid-1994 foreign investors have been directing less and less money into the production sectors of the Russian economy. At the same time, budgetary needs have forced the Russian government to borrow growing amounts of money by issuing internal and, since late 1996, external bonds. The interest rate on these bonds was significantly higher than the inflation rate and this immediately attracted both local and foreign investors. In 1996 the Russian equity market became the most lucrative area of investment in the financial sector in the non-Western world. During that year the volume of foreign investment in the Russian non-financial sector grew by 2.3 times over the 1995 level and exceeded the total sum of money invested by foreigners in Russia in the five previous years. However, of $13.2 billion of 1996 foreign investment in all sectors of the economy, only $2 billion were invested in Russian industry. The remainder was invested in purchases of Russian state bonds and debts or issued as trade and other credits to Russian companies and state agencies.
The collapse of state investment accompanied by the continuing decline in real private funding of the national economy left the latter struggling without investment. The growing investment gap was not filled by foreign investment in the production sector which remained at negligible levels throughout the 1990s. Unless this tendency is changed, it is hard to expect any substantial economic growth in Russia in the future. Fundamental changes need to be made to the current Russian investment strategy without delay. Despite the acute shortage in state funds, there are massive and grossly under-utilised non-public financial resources available in Russia that are not being invested into the national economy. These include the population's uninvested foreign currency savings (which are increasing by $5 billion each month) and the capital that is invested abroad (at a rate of $2 billion a month). Although there were signs in 1995-96 that some of this money was coming back into the national economy, only miserable amounts were invested in the production sector. The bulk of the money went into servicing export-import operations and purchases of state bonds.
It could also be argued that to a great extent it was the post-Soviet Russian government's actions that led to the situation where it is left with very inadequate financial resources and very limited means of controlling the development of investment in the country. Liberalisation of Russian foreign trade in 1992 opened up the main channel of capital flight out of the country and significantly reduced the funds available to the state, while the lifting of foreign currency controls led to a massive flight of the population's savings from the quickly depreciating ruble into low-inflationary foreign currency. Privatisation of the state-owned economy resulted in the collapse of the system of state redistribution of funding between different branches of the economy. Thus, through losing control over revenue flows from export-oriented industries and foreign trade, the government cut itself off from a major source of budgetary funding. At the same time the bulk of loss-making companies that in 1996 made up almost half of the Russian economy(40) remained dependent on state subsidies. But the state cannot declare most of these companies bankrupt, because this would effectively mean leaving millions of their employees without any source of income. The current financial crisis has left the Russian government without any resources that could be directed into paying unemployment benefits to these people. On the other hand, the deep investment crisis means that fewer new jobs are created each year.
It would be unrealistic to expect that this dilemma will solve itself without government intervention. At present all of the state's economic activities in Russia are directed towards increasing cash flows into the nation's shrinking budget. This, in my view, is a highly questionable policy because in the situation of major socio-economic crisis that exists in Russia the state has almost totally withdrawn from economic strategy and planning. Instead, the state's main efforts should be directed towards reversing negative trends in the national economy. Public investment policy should be the centre of such a strategy. Internal and external channels of capital flight should be, if not closed, then at least state-controlled. If not, the government - if it continues to stand firm in implementing its current policies - will inevitably become even more isolated from society and may resort to undemocratic (administrative and/or authoritarian) measures more frequently in pursuing its proclaimed strategic goals. And this would hardly bring the proclaimed objectives of democratisation and formation of the market economy in Russia any closer.
Dr Vladimir Tikhomirov
Contemporary Europe Research Centre
The University of Melbourne
vladimirt@rubens.its.unimelb.edu.au
ENDNOTES:
1 See: "Rossiiskaya statistika ukhodit ot totalnogo uchyota", Finansovye izvestiya. Cit. from Biznes-TASS, 31 August 1994.
2 For instance, the official Russian inflation indicator in the consumer sector of 22% for 1996 was questioned by a leading Russian business newspaper which estimated that it should rather be at 60% (Delovoy mir, 16 January 1997). In March 1997 Goskomstat was again accused of manipulating Russian GDP figures through increasing its allowance for the shadow economy from 20% to 23% (The Financial Times, London, March 25 1997, "Russia Shadow Economy Shown in Statistics", Reuter, 4 April 1997).
3 See James H. Noren, "Statistical Reporting in the States of the Former USSR", Post-Soviet Geography, Vol.35, No.1, January 1994, pp.13-37; Stephen G. Wheatcroft, "Re-Visiting the Crisis Zones of Euro-Asia", Russian and Euro-Asian Bulletin, Melbourne, March 1997, Vol.6, No.3, p.6.
4 This figure as the rest of data in the article is in US dollars.
5 This data corresponds to the officially released figure for the 1996 Russian budget deficit of 74.3 trillion rubles ($13 billion). However, it did not include the real yield paid on T-bills (state bonds) as part of the budget expenditure. That included, the budget deficit was 2.3 times larger at 174.3 trillion rubles ($30 billion). For a recent discussion on that issue see Stanislav Menshikov, "The Budget According to Chubais", Johnson's Russia List, 30 April 1997.
6 "Russia: Budget Arrears", Oxford Analytica East Europe Daily Brief (OAEEDB), 21 January 1997; Open Media Research Institute Daily Digest (OMRI), No.38, Part 1, 24 February 1997.
7 Interfax, 30 April 1997.
8 In late 1996 out of every million rubles earned by business, up to 950,000 rubles went to taxes and other fees (Lidia Lukyanova, "Will Russia Get a 'Smarter' Tax Policy?", Prism: A Monthly on the Post-Soviet States (Jamestown Foundation), Vol.II, November 1996, Part 3).
9 Izvestia, Moscow, 14 January 1997.
10 Trud, Moscow, 18 December 1996; OMRI, No.220, Part 1, 13 November 1996.
11 Rossiiskaya gazeta, Mosocw, 11 March 1997.
12 Monitor: A Daily Briefing on the Post-Soviet States, Vol.III, No.50, 12 March 1997.
13 Sergey Lukianov, Geoff Winestock, "Tax Collection Crisis: Is a Solution in Sight?", St.Petersburg Times, 18-24 November 1996.
14 "Russia: Budget Arrears", OAEEDB, 21 January 1997.
15 Kommersant-Daily, Moscow, 16 February 1997, p.1; The Financial Times, London, 25 February 1997.
16 OMRI, No.50, Part 1, 12 March 1997.
17 According to Nezavisimaya gazeta, at the beginning of February 1997 the net gold and foreign currency reserves of Russia amounted to only $600 million (Nezavisimaya gazeta, 25 March 1997).
18 Moskovskii komsomolets, Moscow, 19 February 1997.
19 OMRI, No.32, Part 1, 14 February 1997.
20 "Russian Economist Warns of Crisis", Associated Press (AP), 18 December 1996.
21 OMRI, No.44, Part 1, 4 March 1997.
22 OMRI, No.60, Part 1, 26 March 1997.
23 Rossiiskaya gazeta, 19 November 1996; OMRI, No.44, Part 1, 4 March 1997.
24 Vladimir Tikhomirov, "Capital Flight from Post-Soviet Russia", Europe-Asia Studies, Glasgow, Vol.49, No.4, June 1997, pp.591-615; Interfax-AiF, No.29-30, 14-20 July 1997.
25 All investment minus mainly purchases of state bonds (GKOs) and state debts.
26 Finansovye izvestia, 31 October 1996 and Delovoy mir, November 10-14 1996.
27 Reuter, 18 February 1997.
28 The bulk of US direct investment in 1995 came from US tobacco and food companies: Phillip Morris, Master Foods, Pepsi Cola (Nezavisimaya gazeta, 29 October 1996).
29 Nezavisimaya gazeta, 29 October 1996.
30 "Russia: Foreign Capital is $11 Billion", AP, 27 December 1996; OMRI, No.32, Part 1, 14 February 1997.
31 Moscow-based joint ventures that were trade intermediaries made up 82.6% of all JVs operating in Russia in early 1990s (Nezavisimaya gazeta, 29 October 1996).
32 Ibid.
33 Robert Lyle, "Russia: Huge Foreign Investment Hinges On Reforms", Radio Free Europe/Radio Liberty News Service, 13 January 1997.
34 Bruce Clark, Chrystia Freeland, "Russia: $50bn Awaits Tax Reform", The Financial Times, London, 7 February 1997.
35 Very often foreign investors reported as one of the major problems the so-called double accounting often practised by Russian companies which did not allow investors to keep track of cash flows at an enterprise.
36 For example, in February 1997 it was reported that the lower house of the Russian Parliament, the Duma, passed in the first reading amendments to the law on foreign investment banning foreign investment in many sectors of the economy, including telecommunications and electrical power distribution. Next month Russia's gas monopoly Gazprom blocked an attempt by foreign investors to buy its domestically traded shares ("Duma Urges Wide Ban on Foreign Investment", Reuters, 21 February 1997; "Defensive Gazprom", OAEEDB, 3 March 1997).
37 For example, according to the data from the Emerging Markets Traders Association (EMTA) between end of 1995 and end of 1996 the average bid price on Russia's Vneshekonombank's Yen loans changed by 141.67% making it the largest change on the EMTA's list (see V. Tikhomirov, "Russia: The Stock Market Boom", Russian and Euro-Asian Bulletin, Melbourne, January 1997, Vol.6, No.1, pp.10-14.
38 In January-September 1996 43% of registered joint ventures in Russia were operating in trade and catering (Ekonomika Rossii, yanvar'-noyabr' 1996 g., Moscow: Goskomstat, 1996, p.79).
39 Nezavisimaya gazeta, 29 October 1996 and Ekonomika Rossii, yanvar'-noyabr' 1996 g., Moscow: Goskomstat, 1996, pp.79-80.
40 According to Goskomstat, in 1996 43% of industrial, 75% of agricultural, 58% of transport and 35% of construction companies were making losses (Sotsial'no-ekonomicheskoe polozhenie Rossii, yanvar' 1997 g., Moscow: Goskomstat, 1997, p.145).
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