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Doing Business in Russia

Important factual remarks by US Embassy/Moscow Commercial Counselor on business in Russia.

January 23, 1997

Remarks by John E. Peters

Minister-Counselor for Commercial Affairs U.S. Embassy Moscow

The mood of the four-day gathering was distinctly upbeat -- almost a celebration of how far Russia has come. And while the optimists were bullish -- even some of the usual pessimists were cautiously optimistic. And for many good reasons: because irrespective of downbeat press and media reports -- things are gradually getting better in Russia.

PROGRESS...

- Last year we saw an election that repudiated communism.

-- And a few years ago (1992) inflation was 1,300% -- and last year less than 22%, and projected to be around 12% for this year.

-- Russia had a $40 billion trade surplus for 1996. (Exports up 5%, and imports flat)

-- Russian's have got $50 billion stashed overseas -- and it's starting to come back.

-- And its' been estimated that Russian's have $40-60 billion is assets stashed in the domestic economy.

-- Economic growth in *96 was at worst, flat, according to many economists, and some say it was 2-2.5% if the grey economy, which could be roughly 30%, is included.

-- The Russian stock market was up 156% in *96. Up 42% since January 8.

-- Real wages were up 15% during the first three quarters of *96; and the number of Russians below the poverty line decreased from 1/3 to 1/5.

-- Russia's government deficit was 6% of GDP last year, up only slightly from 5% in *95, despite the effect of very high pre-election interest rates.

-- Russia successfully negotiated debt restructuring deals with the London and Paris clubs, and has made the final down payment on rescheduling to the London club -- ahead of schedule. -- -- Russia predicts WTO accession by end of *97.

-- Eight Russian companies issued American depository receipts, and technically, these are securities on the NYSE

-- Russia successfully placed a $1 billion eurobond for the first time since 1917; and Gazprom's $430 million stock offering was snapped up, overnight.

-- Russia has received a higher than expected credit ratings from S&P, Moody's and IBCA, and in a survey of two-hundred Western portfolio managers almost 1/3 gave Russia the highest level investment attractiveness rating.

-- Russians are traveling more abroad; from 7 million tickets sold in *95 to 10 million in *96 and a projected 11 million in *97. Much maligned Aeroflot flies new air buses and Boeings to *96 countries, and it did not lose money last year. And it carried almost 4 million passengers without accident. It has just signed with Continental Airlines for single ticket access to 150 U.S. cities.

And speaking of Boeing: it's now buying 15% of titanium aircraft parts for one of its fleets from Russian factories. This is only expected to increase. Clearly, something is happening in Russia.

PROBLEMS...

But while the list of progress is indeed compelling, we all know well that Russia has got dozens upon dozens of horrible problems. Businessmen, both Russian and foreign, face sometimes mind-numbing challenges that make the cost of doing business, in a nutshell, astronomical. And in a nutshell, the American Chamber of Commerce in Russia has identified the following:

-- An ever mutating monstrosity of a tax system -- that's punitive, arbitrary, harassing, and totally ineffective. The Big Six accounting firms alone have over 3,200 employees in Russia, and growing rapidly trying to meet the demand for professional advice in dealing with this giant obstacle to increased foreign and domestic investment..

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