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Russia: Investment Potential Huge But Pending

Washington, 7 February 1997 (RFE/RL) - Foreign investment into Russia now totals around $9 billion -- a third of that from the United States -- but a senior U.S. official says many times that amount will be available once Russia takes three key steps.

The official, deeply involved in Russian-American commercial relations and the U.S.-Russian Joint Commission on Economic and Technological Cooperation meeting in Washington, spoke with reporters on the condition he not be named.

He said U.S. officials "strongly believe" that investment into Russia, especially from the United States, "can increase very, very dramatically." In fact, in the energy sector alone, he said, there is "well over" $50 billion dollars in American investment available over the next 10 to 15 years.

The three steps Russia must take first, however, the official said, are all up to the Duma. Those steps are:

Ratification of the bilateral investment treaty with the United States.

Approval of two important pending amendments to production-sharing agreement legislation

Passage of at least the major elements of the tax reform package.

The official said the investment treaty, already ratified by the U.S. Senate, is critical to drawing direct investment from other than the largest American firms. The amendments to the production-sharing agreement law are necessary to open up the critical oil and gas industry to desperately needed foreign investment. And Duma passage of the tax reform package -- or its major elements -- is essential for investors both Russian and foreign.

He said passage of the tax reform program would, among other things, move "a lot of the economic activity that's occurring in the gray economy, so to speak, into a revenue base for the treasury and for raising taxes as well as making it possible to engage in much more productive economic activity."

The official said American experts, public and private, have told the Russians that if the Duma would at least pass "part one" of the tax reform bill, which sets the foundation for tax reform in Russia, and key parts like "section 16 of part two, which deals with energy taxation," it would make clear that there is real movement from a revenue-based taxation system to a profit-based tax system.

These issues are at the heart of discussions on a number of fronts between the United States and Russia, including in the meetings in Washington this week of the joint commission, popularly known as the Gore-Chernomyrdin Commission, which is concluding its 8th semi-annual session today.

Russian Prime Minister Viktor Chernomyrdin, opening the commissions meeting Thursday, said Moscow was aware that its legislation "is far from perfect at present." But he said, the laws which have been adopted "on the whole are helping create a normalized climate for business precisely in market terms."

He said his government intends to "devote particular attention to completing the institutional restructuring that will be required to allow full market relations to exist in Russia."

Significantly, this year's Russian delegation includes a number of Duma members, including Deputy Speaker Aleksander Shokhin. In his previous role in the Russian government, Shokhin co-chaired the Business Development Committee of the joint commission.

The senior U.S. official said it's very important that these Russian legislators are now part of the process. In addition, he said, the presence of three regional governors in the delegation helps bring closer regional and individual cooperation. The governors are Victor Ishaev of the Khabarovsk region, Igor Farhutdinov of the Sakhalin region, and Vladimir Butov of the Nenetsk district administration.

U.S. Vice President Al Gore said a challenge for the commission is to "move beyond the realm of federal governments to involve people and businesses throughout our countries, people that are the backbones of Russian and American business."

To that end, Gore and Chernomyrdin and their wives will travel to Chicago on Saturday for a series of meetings with more than 150 local and regional business people, primarily from the agribusiness and energy sectors, in the mid-section of the United States.

The commission, set up by Presidents Boris Yeltsin and Bill Clinton in 1992, has a broad mandate to deal with just about anything in the economic and technological sphere which can profit from a boost from a high level group. From Agribusiness to defense conversion, from energy policy to the environment, from public health to space exploration, the commission's subcommittees and working groups deal with the broad framework agreements and the narrow nuts-and-bolts implementation issues.

At its last meeting in Moscow in July, the commission signed 14 agreements and issued seven joint statements.