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Russia: St. Petersburg's Yakovlev Is Riding High

St. Petersburg, 11 June 1997 (RFE/RL) -- St. Petersburg Governor Vladimir Yakovlev looked like a man with a new lease on life. Flanked by his two young economic advisers Finance Committee Chairman Igor Artyemev and City Property Committee Chairman Mikhail Manevich Yakovlev faced the press on Monday with confidence for the first time since the heady early days of his administration.

Indeed after a rough several months, the governor finally has reasons to smile. On Thursday, the St. Petersburg Municipal Court struck down as illegal a communist sponsored no-confidence referendum on Yakovlev's rule. Also on Thursday, St. Petersburg returned to world financial markets with a fully subscribed Eurobond float that gained the city $ 300 million to finance part of its internal debt.

And to top it all off, Saturday, Inkombank announced that it will help St. Petersburg to attract up to $ 1 billion dollars in loans for programs related to the city's planned 300th anniversary celebrations in 2003.

Yakovlev had called the press conference to announce the city's successful Eurobond float. With him were Artyemev and Manevich, who had just returned from a trip to Europe, Asia and America to drum up support for foreign investment. The $ 300 million raised on the Eurobond issue will be used to re-finance the city's $ 500 million internal debt at longer maturity and lower cost. Servicing that debt ate up 31 percent of expenditures in the city's 1997 budget and re-financing it will free up considerable funds.

"Next year we will be able to use budget funds (spent on servicing the debt) on other problems," said Yakovlev, adding that in the 1998 budget spending on culture and education will be doubled.

Yakovlev even confidently took on the issue that has dogged him for most of this year, housing and communal service reform. Since his decision February to double apartment rents and service charges, Yakovlev has been a man under siege -- noisy communist street demonstrations were followed by a signature-gathering drive to force a no-confidence referendum in the governor's rule.

Although the reforms have been endorsed nationally by President Boris Yeltsin and some of Yeltsin's key officials, housing reform a la Yakovlev has been widely criticized as being clumsily implemented. Adding to the gloom in the Yakovlev camp were rumours that Yeltsin wanted him out and would force his resignation.

But that didn't happen, and now, with the specter of a no-confidence vote fading fast, Yakovlev took on the housing issue with gusto. "In St. Petersburg we don't play with populist politics," he told the journalists in an apparent reference to Moscow Mayor Yury Luzhkov's resistance to the reforms. "We work on concrete problems."

"Spending money on social problems is normal, this is done all over the world," said Manevich. "Spending money on housing subsidies for everybody is not." "The rich should pay, the poor should not," he said.

Last week's successful Eurobond issue was a major breakthrough for St. Petersburg. After the the extent of the international support became clear, Yakovlev last week termed the event historic, saying it reflected the government of St. Petersburg's commitment to market transformation in Russia. He said the bond issue was indicative of the policy of the city administration as a leader in the economic reforms of Russia.

"There was a broad range of demand throughout Europe, the U.S. and Asia," said a London-based market source speaking on condition of anonymity. "The city's careful preparation has paid off."

St. Petersburg's successful Eurobond issue follows on the heels of an over-subscribed bond issue by Moscow late last month which brought the capital $ 500 million. "The interest in St. Petersburg's bond was at least as high as in Moscow's," the London source said. He also termed the launch "historic" and said the bond's performance a sign of "international recognition of Russia's commitment to reform."

Local politicians have said throughout the Eurobond process that raising $ 300 million on the international market would be a giant step toward financial health for the city. "The city will not only be able to restructure its debt, but it will also be able to finance some city projects," said Sergei Mironov, deputy speaker of the Legislative Assembly. "This will be the start of normal budgetary administration."

When Yakovlev came to office a year ago, his administration inherited a 2.5 trillion ruble debt -- some $ 500 million at the time. Earlier this year, the city received credit ratings of BB minus by Standard and Poor's and a BB plus rating from IBCA, both of which were constrained by the sovereign ceiling of the Russian Federation. According to Standard and Poor's and IBCA's regulations, no city in Russia can be given a higher credit rating than the country as a whole. In general, Russia's return to the international bond market has been highly successful starting with the November issue of five-year Russian bonds which were snapped up by investors to the tune of $ 1 billion, far better than even the most optimistic projections had held. That bond issue marked Russia's return to the international markets for the first time since the Bolshevik Revolution of 1917.

In March, Russia followed up on that success with a second Deutsche Mark denominated Eurobond issue that netted DM 2,000 million ($ 1.2 billion ). The next city in line on Russia's Eurobond parade is First Deputy Prime Minister Boris Nemtsov's hometown Nizhny Novgorod which plans to issue its bond later this month.