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Russia: Western Praise For Reforms, But More Needed For Investment To Grow

  • Francesca Mereu

German Gref, Russia's minister of economic development and trade, spoke recently with European businessmen about reforms and the Russian economy. Gref said that while further economic reforms are needed, they are impossible without an overhaul of the country's judicial system. He also said Russia is doing its best to prepare for possible entry into the World Trade Organization as early as 2003. Business officials attending Gref's speech praised past reform efforts but said there are problems standing between foreign investors and the Russian market.

Moscow, 8 February 2002 (RFE/RL) -- Russia's minister of economic development and trade, German Gref, says Russia's two years of economic boom will continue in the year 2002, despite a slowdown in the last quarter of 2001 and unexpectedly high inflation in January.

Gref, who made his remark while addressing members of Moscow's European Business Club, added the recent negative indicators -- including a surge in inflation in January to 3.1 percent -- are a seasonal fluctuation and should not be taken seriously.

"Even if the year 2001 wasn't a good year for the world economy, it was a lucky year for Russia," Gref said. "The gross domestic product grew by about 5 percent. Estimates for the 2002 economy show that the growth is likely to continue in the year 2002, even if the growth rate lowered in the last quarter of 2001 and, according to different estimates, it was [close] to zero. But [we should wait] until the March final estimates, when all the factors will be summed up. A fluctuation of this kind happened also last year. For that reason we hope the growth will continue and we assuming positively [that it will]."

Gref said the government this year will continue the economic reforms begun two years ago. The government intends to pass a new tax code that will include a number of amendments meant to simplify the taxation procedure for small businesses. Gref also said the government is outlining a number of bills to restructure state monopolies in order to improve effectiveness and control spending. But, he said, judicial reform will be the key goal for 2002.

"Judicial reform is a key [reform]. Further economic reforms are impossible to accomplish if you have judicial system that works badly. [We need courts] that respect the law, that are unbiased and efficient. We need to concentrate government resources on guaranteeing a sound judicial system," Gref said. "We need material resources to give judges decent salaries, so they can act independently. Little by little, we will attain it."

Seppo Remes, chairman of the European Business Club, agreed with Gref's statement that the judicial system is an area where few reforms have been initiated over the past years, adding that public trust in the system is low. Without improvement in the judiciary, Remes said, "there is no objective base for long-term stability."

In the course of his speech, Gref also said Russia has made accession to the World Trade Organization (WTO) one of its top economic priorities for 2002 and that the country will work to bring its business practices in line with global standards. Gref added that Russia has had positive feedback from the United States on the issue but that problems remain in finding understanding with the European side.

"Concerning the Russian accession to the WTO, [Russia], the U.S. and the EU outlined a series of measures needed to reach an agreement about our [common] trading space. I have to say that the results of Prime Minister [Mikhail Kasyanov's] talks this month in the U.S. show that we are heading in a positive direction," Gref said. "We have reached a good understanding [with the U.S.] on a series of important problems. There are, of course, problems that need to be solved -- for example, the steel problem. [Unfortunately,] we have many problems in our relations with the EU and it is very difficult to solve them. The European Commission takes a long time before voting [to find a solution to] a problem. Sometimes when we reach a result, the situation has already changed so much that a new decision needs to be made."

Gref asked for the help of European business officials working in Russia to help improve ties between Moscow and the EU in order to speed up Russia's WTO entry bid.

Russia hopes its membership in the WTO will mean the removal of tariffs for its export goods and wider access to Western markets and financial services.

European Business Club head Remes said the Russian government has made consistent efforts to improve the investment climate both for Russian and foreign investors. He praised the tax reform, which includes the introduction of a reduction of income tax to a flat 13 percent and the abolition of VAT in intra-CIS trade. Remes also said 2001's passage of a historic land code was a positive step that will help bolster the country's real estate market. But he said problems still remain that prevent larger-scale European business development in Russia.

"Basically, very much has been done during the [past] years. We had improvement in taxation, in customs tariffs and so on. [These are] really drastic improvements. But anyway, [there still are] big problems. For example customs procedures, which are not transparent. Then we have problems with certification. Requirements are absolutely too [numerous]," Remes said. "It is not really done to guarantee the safety of your products, but it is done to collect money. There should be reforms in the area of natural monopolies, because it is [an] important investment possibility for foreign investors. [Furthermore], there are things that are related with intellectual property rights. There are a lot of things to be done there."

Russian businessmen have complained that negative press reports and the country's poor image abroad has kept many Western investors from putting their money in Russia. But Gref said that 2001 was a positive year for foreign investment, with $34.4 billion invested by October 2001 -- including nearly $18 billion in direct investment.