JULY SUMS UP THE HALF-YEAR
July 24th, 2009
Summer is in full swing, but in the financial structures of some countries the holidays are postponed … There is an active process leading the world economy out of the crisis. It is surprising that according to the 6 months results the crisis has struck most painfully across Russia though it began in the USA. Meanwhile Americans, by their own estimations, are already recovering from the financial collapse and fix some stabilization, though figures are still negative. The past half-year was most positive for the economies of China and Cyprus. The Chinese economy shows certain growth of 6 %, while the small Cyprus became one of the most stable EU countries, despite decrease in indicators in tourism and the real estate. In July this Mediterranean island became for the international holding MIDLAND CONSULT a place to carry out its corporate meeting & a seminar during which modern consulting tendencies have been discussed, as well as the latest news in this sphere, and approaches to the optimal work with clients were developed. At the head office in Nicosia representatives of MIDLAND CONSULT from Kiev, Riga, Moscow and other world cities have exchanged their opinions, defined the most effective ways of interaction between all representative offices, ascertained the secure and stable development of the company and summed up some results. According to the head of MIDLAND CONSULT Group Mr. Maxim Stepanov, similar meetings, despite crisis in a number of economy sectors, allow to search and find together decisions for modern business dealing.
Has the Additional Report to the Treaty on avoidance of the double taxation signed between Russia and Cyprus brought any positive points to the business?
The question was answered during the seminar organized on July, 16th in Moscow with participation of the Cypriot official representatives and businessmen. Last innovations in the Russian-Cypriot relations, such as signing in December, 2008 of the Memorandum of mutual understanding between FAFM and CySEC and this April’s Report making changes in the operating Treaty on avoidance of the double taxation, became the reason of some vigilance of the Russian business circles which by this time have been present in Cyprus for more than 20 years, and this anxiety is constantly fed by global drift to more rigid regulation in counteraction of legalization of illegal incomes and wider information exchange concerning the taxation. At the same time, the analysis of aforementioned arrangements between the Russian and Cypriot authorities allows to make a conclusion that such anxiety is groundless, and in the circumstances of worldwide pressure on traditional offshores, Cyprus, being a member of the European Union completely integrated into the new European system of financial sector regulation, and being a "white" jurisdiction according to latest OCED classification, will keep all its advantages, including the lowest profit tax rate in Europe, a favorable regime of regulation and independent judicial system. Members of the Cypriot Bar specialized in the international tax planning and optimization talked about this during the seminar.
Russia GDP: recession to 8,5 % is expected.
Ministry of economic development and trade has worsened the forecast of recession of gross domestic product of Russia during the current year to 8,5 percent while before it was expected to be 6-8 percent, - an official of one of the departments of the financial and economic block of the government has told referring to the specified forecast of the ministry for 2009-2012. He has assumed that forecast change has occurred, first of all, due to a sharp decrease in stocks of production and negative dynamics of investing volumes. According to the source, revision was affected by bad macroeconomic indicators of Russia for May, 2009. He also informed that the ministry predicts insignificant growth of gross domestic product in 2010 – at level of 0,1 percent, in 2011 – 1,5 percent, in 2012 – 3,2 percent. Also the Ministry of economic development and trade has reviewed its forecasts for oil prices for 2009-2012. In 2009 the mid-annual price for oil, according to the department, will be 54 dollars for a barrel that is 9 dollars more than in previous forecast. Before that the Minister of Finance of Russia Mr. Alexey Kudrin declared that by his estimation oil cost can fluctuate about 50 dollars a barrel within the next three-five years. The Ministry of economic development and trade insisted that cost of a barrel in 2010 will be around 60 dollars. The assistant to the President of the Russian Federation Mr. Arcady Dvorkovich declared in July that "if the oil prices will not grow sharply, budget deficiency next year will be more than 5 percent, and most likely — even more than 6 percent of gross domestic product". "The budget deficit in 2010 will be lower, than this year —hardly more than 8 percent, and we will try not to decrease twice this rate.", - Mr. Dvorkovich told.
In 2010 growth of gross domestic product of Russia will be of about 1 percent, and the next three years the economy will grow for 2,5-3,5 percent a year, the Vice-Prime Minister, the Minister of Finance of Russia Mr. Alexey Kudrin declared in July. Thus he assumed that following the results of 2009 gross domestic product decrease will be 8,5 percent. "It not that much compared to the CIS countries or Japan and Germany", – the head of the Ministry of Finance has stressed. In the end of June Mr. Kudrin stated that there’s still long time before getting out of the economic crisis. According to the Vice-Prime Minister, till now Russian and world economy have not found a steady tendency in overcoming the crisis, despite first signs of improvement of the situation, while there are "not enough" positive symptoms. Russian president Dmitry Medvedev called in May the officials to abstain from negative estimations of prospects of economy." When some of my companions, including ones from the government, say that Russia will not get out of the crisis for the following 50 years, it is unacceptable. If you believe so, do go to work in some other place ", – the President said. It was precisely Mr. Kudrin who presented in April a statement that the external economic conditions for Russia will not be favorable within 10-50 years.
Salary debts in Ukraine have exceeded $200 million - Yushchenko is afraid of "dangerous public consequences".
"From the beginning of the year the debts at the enterprises of Ukraine have increased on 26,8 % and by June, 1st, 2009 have exceeded 1,5 billion grivnas (about $200 million)", - declared the Press Secretary of the President of Ukraine at a briefing held in July, having noticed that Yushchenko in his letter addressed to the Prime Minister Mrs. Yulia Timoshenko expressed his deep concern about this situation. " The head of the state mostly concerns the growth in 1,4 times of debts of economically active enterprises from the beginning of 2009, and it almost causes 70 % of the general debt", - Mrs. Vannikova told. According to this information, the situation at the state enterprises which debts have increased on 21 % keeps worsening and counts with 180 million grivnas. "The president considers insufficient and ineffective government measures carried out in this sphere. Untimely payment of the salary leads to social intensity in labor collectives and can have dangerous public consequences", - summarized the Press Secretary of the head of the Ukrainian state.
Development means caution
Cyprus will need to adopt additional measures to maintain the economic growth in long-term prospect– in spite of the fact that the economy of island survives the crisis consequences better than other European countries.
Such statement was made in July by the Central bank of Cyprus after its meeting with the representatives of the International Monetary Fund that took place on June, 19th. The president of Cypriot Central Bank Mr. Atanasios Orphanides is a member of the operating council of the European Central Bank. The statement also told: «According to the general opinion, Cyprus did not remain on the margin of the crisis, however, compared to other European countries, its influence was presented here to a lesser degree. Both parties have agreed that, taking necessary measures, Cyprus can cope with crisis and put a basis for development for many years».
Let's remind that on June, 15th the Central Bank of Cyprus has lowered forecasts of the island’s economy growth in 2009 to 0,4 % (in December, 2008 the figure of 2 % was stated). The main reasons are the reduction of a tourist's stream and prompt decrease in incomes in real estate sphere, that have been key points of the public revenue during last years.
Earlier the Cypriot Central Bank recommended to the commercial banks to invest money in the governmental bonds that would simplify the reception of financing from the ECB, and also would allot risk of delivery of business credits to the private sector enterprises between banks and the state. The bank also has warned the authorities on the necessity to carry out any fiscal support with care as these measures raise risk of a budget deficit. In 2009 the Government expects deficiency of about 2 %, compared to the last year profit at a rate of 0,9 %.
In 2010 Russia will borrow funds
Analysts note that with a budgeted deficit of 6-8 percent of GDP reserve funds which the government planned to spend in 2009-2011, will end in the middle of this term. "Stabfond will be over in 2010. If the oil price is good the budget deficit will be approximately 4 percent of gross domestic product, and if the price will be as estimated by the Ministry of Finance, it will approach 6 percent. It could be even more provided that pensions would be sharply increased, while the increase of ECH will be postponed, than the deficiency of the Pension fund can make 1,7 billion rubles, and it should be financed at the expense of budget means", — experts of analytical agencies say.
The assistant to the head of the Ministry of Finance of the Russian Federation Mr. Dmitry Pankin assumed that Russia is ready to enter the market of external loans, it’s just a question of its form.." We will judge according to the situation, in what form it is more convenient to attract funds — whether from the international financial organizations, the syndicated bank credit, or in a way of eurobonds ", — he told. Mr. Pankin says he wishes to keep sovereign funds even after 2010." We believe it will be wiser to enter the market. It’s not correct to spend all the reserves & than go to the market begging for charity & in such a case we won’t be in a good condition.”,— he declared, naming among probable creditors of Russia the World bank, the European bank of Reconstruction and Development, the European Investment bank and Nordic Investment Bank.
Where does Russian money go & where from return?
In the first quarter of 2009, $19,7 billion were directed abroad from Russia as foreign investments, which was by 2.7 times more than in the first quarter of 2008.
Among the major recipients of Russian investments – Switzerland (4592 million dollars), the Netherlands (3528 million dollars), Cyprus (3181 mln. dollars) And also Great Britain, Germany, Gibraltar, the USA and others. According to Federal Agency of the State Statistics, the greatest return of funds to the Russian economy during past years came from Cyprus which throughout last decade was the largest investor in the economy of Russian Federation. As for the investments into the Russian economy in the first quarter of 2009, by the end of March the saved up foreign capital in the Russian economy was 226,7 billion US dollars, of which 12,0 billion dollars arrived in the form of foreign investments, which was that 30,3 % less, than in the first quarter of last year. In first three months of 2009 the greatest sums of investments have come from the Netherlands, Luxembourg, Germany and Cyprus. Japan, the British Virgin Islands and Ireland scarcely invested in Russia. The most essential investments have been directed to processing manufactures. Followed by wholesale and retail trade, transport and communication, operations with the real estate, metallurgy and a mining operations. Least investments were directed to agriculture of Russia.
Crime threatens the economy of Russia.
Crime poses a real threat for effective development of economy of Russia and Belarus, - The Minister of Internal Affairs of the Russian Federation Mr. Rashid Nurgaliev declared in the middle of July at a session of the Joint board of the Ministry of Internal Affairs of the two countries. He has noted that now Russia and Belarus form joint customs and economic space, goods turnover grows – only in 2008 it has made 34 billion dollars, joint ventures are created." At the same time, the successful resolution of all these problems mostly depends on efficiency of counteraction the criminal which poses today a real threat to processes in economic sphere ", – Mr. Nurgaliev told. In order to back up his words he quoted statistics results according to which in Russia just in 2008 about 450 thousand of economic crimes were registered, including 20,3 thousand tax crimes. Besides, according to the minister, it has registered 8,4 thousand facts of legalization of the funds received by a criminal way, 40,7 thousand cases of manufacturing or sale of counterfeit money, almost 8 thousand cases of smuggling." The material damage from all economic crimes on the closed criminal cases has made 142,5 billion rubles, 114,2 thousand persons were criminally liable ", – the head of the Ministry of Internal Affairs of RF. He said, the situation has not drastically changed in 2009. Just during recent five months in the country more than 235 thousand crimes in economic sphere were revealed.
Crisis in Latvia - result of Bank of Latvia policy and errors at the decision of Parex banka problems.
Latvia was lead to the crisis because of the errors committed when solving problems of Parex banka, and the policy of Bank of Latvia on deduction of a high rate of national currency. Such opinion was stated by the president of national airline of Latvia Àir Baltic Mr. Bertolt Flik. "Last year when Parex banka had problems, the Bank of Latvia has committed all the errors that could be committed.. Up to now the BL continues to keep a high rate of lat so everybody becomes poor as only in this way we can become competitive. The only purpose for this is to introduce Euro in 2013 as national currency", - explained Mr. Flik in an interview in reply to a question why in Latvia there was a boom in the real estate market. Mr. Flick also added that BL gave up the entire financial sector to take its own course." We do not have monetary policy, and BL remains passive. It is one of fundamental problems with which we should struggle. I do not see why the devaluation of lat is worse than general poverty which now threatens Latvia ", - the head of AirBaltic declared. As he said, if the lat’s rate was more liberal in admissible limits, it was possible to gain smth - the price level in Latvia would be not at the level of Paris or London, but the same as in Lithuania and Estonia. They should have thought about lat’s rate long time ago, “- Mr. Flick added.
The businessman named the refusal in providing new credits as an actual problem." It is a problem, banks do not give credits even when there are state guarantees. It means that crisis will be aggravated. Other countries solve problems, investing in a fixed capital of banks so this money goes for crediting restoration. In Latvia it does not happen, and we plunge into deeper and longer crisis ", - the president of AirBaltic noted.
As it was informed earlier, on November, 8th, 2008 the government of Latvia has made the decision on acquisition of a controlling stock of the largest Latvian bank "Parex". The decision was accepted after negotiations between the Ministry of Finance and shareholders of Parex banka, and also on the basis of the information given by the Commission of the Financial & Capital Market and Bank of Latvia.
The United Arab Emirates – a potential investor
The Minister for Foreign Affairs of Cyprus Markos Kyprianou.
In the nearest future Cyprus can count on additional investments from Arab Emirates (United Arab Emirates) and on signing of the treaty on avoidance of the double taxation.
It was declared by the Minister of Foreign Affairs of the United Arab Emirates Sheikh Abdulla Al Nahajjan after a meeting with the Minister of Foreign Affairs of Cyprus Mr. Markos Kyprianou in Nicosia. Sheikh Al Nahajjan expressed his confidence that mutual relations between two countries can become stronger. He hopes that soon «we will see, how new investments from the United Arab Emirates will come to Cyprus». He also added that both countries have reached certain progress in avoiding of the double taxation and protection of investments and can soon sign corresponding agreements. It, certainly, makes an impulse for attraction to Cyprus of new investments.
According to Mr. Kyprianou, the meeting with the Arabian minister passed in friendly atmosphere and was constructive, especially taking into account that important role which the United Arab Emirates played in restoration of economy of the island after Turkish invasion of 1974 when the economy of Cyprus appeared on the verge of crash. He also noticed that at that time many Cypriot businessmen had a possibility to do business in the United Arab Emirates, and the money earned by them has helped with restoration of Cyprus economy. Since then business and political links between the countries have become stronger.
Mr. Kyprianou thanked Sheikh Al Nahajjana for a prompt reply to opening of the Cypriot embassy in Abu-Dhabi, «that was acknowledgement of high level of existing mutual relations».
Ministers have discussed various questions which are of interest for both countries, mutual relations and relations between the European Union and Gulf States. «There is more potential for development, and we can strengthen links between Council for cooperation of the Gulf States and the European countries», – Mr. Kyprianou told.
