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Russia: Tax Reform Tops Russian Agenda

Washington, 24 January 1997 (RFE/RL) - The head of the independent U.S. agency which insures American investment abroad says she has been assured by senior Russian officials that the urgently needed reform of the Russian tax system and other economic measures are at the top of President Boris Yeltsin's agenda.

Ruth Harkin, President of the U.S. Overseas Investment Corporation (OPIC), met last week in Moscow with presidential chief of staff Anatoly Chubais, First Deputy Prime Minister Vladimir Potanin and Deputy Prime Minister and Foreign Economic Relations Minister Oleg Davydov.

She said they all assured her that a plan to completely overhaul the Russian tax system is at the top of the Yeltsin administration's agenda for legislation action immediately after the budget.

The International Monetary Fund (IMF) has been pushing Russia to reform its tax system to make it more enforceable. But private businesses have also been calling for tax reform because of the inequities in the system which penalize honest business people.

Speaking to reporters in Washington Thursday, Harkin said Chubais and the others said passage of provisions for so-called Production Sharing Agreements -- needed for joint venture oil and gas operations, for example, -- is also at the top of the agenda, along with new measures for dealing with crimes against business and measures on privatization to make the process more transparent.

Harkin was in Moscow for discussions with senior Russian officials in advance of next month's meeting of the U.S-Russian Joint Commission on Economic and Technological Cooperation chaired by Prime Minister Viktor Chernomyrdin and Vice President Al Gore.

She said one issue she raised was U.S. concern that some of the major privatizations coming up in Russia would not be transparent or open.

"One fear we have is that there might be a core of favored investors that the Kremlin had in mind and somehow we would be denied access," said Harkin, "but I was assured that was not the case."

She said the concern of many American investors is that in the end they might be kept away from projects like oil and gas pipelines and telecommunications. Particular concerns about the telecommunications industry privatization have arisen in recent months, with even World Bank officials saying it was being set up as a closed deal for certain favored Russian bankers.

However, in addition to the assurances given to Harkin last week, Russian communications Minister Vladimir Bulgak Tuesday said that at least 25 percent of the telecommunications privatization would be offered to foreign investors, with 24 percent being sold to domestic Russian buyers. The rest is to be held by the government.

In addition to her discussions with Russian officials, Harkin took time to check on some of the joint venture enterprises to which her agency has sold political risk insurance.

"Almost all of our projects in Russia are successful," she said, which means they are making a profit and have potential for growth. "Whether they are realizing as much profit" as they wanted is another question, she said, but none are currently in financial trouble.

OPIC provided over $1 billion in insurance and financing for U.S. investment projects going into Russia last year, bringing the agency's exposure there to over $3 billion.

She said she expects 1997 to be another record year of U.S. investment in Russia, but says that is "only the tip of the iceberg." She says there's another at least $30 billion in potential private American investment just waiting for economic and business legislative reforms to be implemented.

Russia can't expect that money to wait forever, said Harkin, because there are now many nations in the world looking for investment capital which are implementing needed reforms more quickly. Still, Harkin says she is "optimistic" about the future in Russia because her optimisim is "based on our participation in projects that are going right."