OPTIMISTIC FORECASTS FOR THE FALL

September 28th, 2009

Many business entities spent the summer striking against negative consequences of the global financial crisis. Mr. Ben Bernanke, head of the US Federal Reserve System, testifies that the States are slowly recovering from the crisis. However the data shows that its external debt has grown up to 1 trillion 520 billion dollars making a new world record. Specialists compare it to the years of the Great depression when American financiers from time to time claimed the crisis was over, while it still remained.

Actual crisis has stricken hard the economy of the Baltic States. Countries that suffered less, such as China, India, Libya, Cyprus & some others, from the very start weren’t guided by the American finance & economic systems. Russia, that invested large sums in American foundations suffered significantly from the crisis’ consequences, in particular the official level of unemployment grew up to more than 2 million people. Although some measures inspire hope that in the following two years the crisis’ consequence will be overcome, still the situation remains complicated. It could be one of the reasons for Russian president to address in September the population asking to present their solutions how to overcome the crisis & develop the economy.

Medvedev at G20: “We can’t ban businessmen to register companies in countries with low taxation burden”

At late September press-conference held in Pittsburg, US Russian President Dmitry Medvedev told the journalists the main topics that were discussed at the G20 meeting. He said: “the participants paid much attention to the reformation of Breton-Wood institutions, as well as to such an important & long undiscussed issue as the redistribution of quotes in The International Monetary Fund & World Bank. Another topic was joint monitoring of other economies, analysis of macroeconomic situation in national economies, organized not only by the IMF but also by other states. It can help to create a more effective system of possible crisis prevention. Another result concerns the format. There has been taken a decision to institute the G20 itself, I mean, we shall consider it not only as a purely anti-crisis platform, but as a permanent economic forum, where most important decisions for the world economy will be taken.

Now about tax havens. This topic was discussed, during previous summit we had prepared related solutions, made a list of so called uncooperative jurisdictions. Nowadays we monitor them. Those who will start cooperating will be excluded from the list. But the question is a little bit wider. It’s not that easy as it seems. Businessmen will keep looking for places with benefit tax regime to register a company. It’s not the point. It is mostly an issue of each particular local state policy. Until we have common global taxes, there will be states with lower or higher tax burdens. We can’t ban businessmen to register companies in such countries. The point is to make these countries disclose the information for the tax purposes of the country with which a related treaty has been concluded, the country of origin of the business, where the owner of the business belongs by his/her citizenship. This is what is most important. & surely in future we should create such a system that will make clear the real ownership of any business entity. By the way, the world society has already made a step in this direction. Now the information about beneficiaries can be revealed quite easy. Nowadays there don’t exist any purely anonym societies, nothing of the kind. Still we have to undertake smth. in order to make people file the tax reports properly & provide the information to the state where the business actually belongs, to the state one is a citizen of. In my point of view it is much more important. Maybe it’s not that bad for business that there will exist different tax regimes.”

Taxes for Cyprus real estate can be lowered.

Cyprus Developers Association (LBDA) says that real estate taxes reduction will help the “besieged” realty market of Cyprus, thus the Association prepared a document addressing Cyprus President Mr. Dimitrias Christophias. During last 20-30 years the state treasury received considerable sums from taxes & fees on immovable property. Being on of the basic elements of the Cyprus economy real estate market has been strongly affected by the crisis & now needs the government support. The letter to the President, written by the Association, includes the following points:

expenses paid for the transfer of the right of ownership must be exempt from VAT

flexible system of tariffs for immovable property deals must be changed & amended according to the actual prices

provisions on refundable VAT for those who buy realty for the first time must be simplified

tax for the capital increase must be lowered twice – from 20% to 10%

Russia & Switzerland discussions

During September visit of Russian President to Switzerland a number of documents were signed & some issue of global finance-economic crisis were discussed along with the ways to guarantee energetic security in Europe. New treaties are very important, especially after the G20 meeting in Pittsburg, USA – Dmitry Medvedev thinks. During Russian-Switzerland meeting they discussed possibilities to disclose bank information about the accounts of some Russian businessmen. Both sides signed an intergovernmental agreement to simplify the process of visa issue for the citizens of these two countries, it referrers to the single entry visa type valid for up to 3 months & multiple entry visa for participants of official delegations & businessmen with regular contacts in the country. Russian President met as well representatives of the business circles of the two countries & assured that Russian authorities in order to develop investment cooperation are aspiring to create indiscriminative conditions for Swiss companies acting in Russia as well for the companies in Switzerland with Russian shares.

Crisis Anniversary: over, overcoming or lasting?

A year passed since the world economic crisis came to Russia last September. Practically it was totally unexpected for the whole country. The reason is simple: it is the first crisis Russia has faced since its new condition being a part of the capitalist world. In 2008 the crisis came from abroad, so it is obvious that we can get out of it only along with other capitalist countries. Relative date of the crisis start is 15th of September 2008, the day when one of the major world banks - American Lehman Brothers having $639 billion of assets went bankrupt. It cause a so called domino effect that in first place affected the largest world insurance company American International Group Inc. which quotes at the New York stock exchange crushed 42% just five minutes after the bidding started the 15th of September 2008. The Lehman Brothers collapse really shocked the global society. It became clear that any economic giant, any bank can crush. As a result word banks stopped providing credits to each other, western banks cut the limits for Russian banks & enterprises which they had actively used before the crisis started. In Russia the first ones to crash were the companies that worked with loaned money, mostly in the spheres of real estate & retail. As for the United States crisis had started in the financial sector due to the “bubble” emerged at the American mortgage market in 2007.

2012 - Exit

We are to admit that Russian Government & Central bank were quick in react. Due to the in time multi billion investments they managed to keep the banking system & prevent accounts paralysis. Soon some other anti crisis measures were presented, very much alike those made by the governments of leading countries. Never the less Russian GDP has lowered 10,1% during the first 6 months of 2009 meanwhile this crush in other countries of G8 were considerably less obvious. Russian Government foresees economic decrease for 2009 of 8,5%, while independent experts say that Russian GDP will decrease 10-15% in 2009, meanwhile some countries of G8 already see economic growth in the second half of the current year. Such Russian backlog is quite strange especially taking into account that world raw material markets’ prices have risen in the second quarter of 2009. We are to admit as well that part of the funds given to the banks aiming to finance the industry hasn’t reached the object, appearing at some private bank accounts. Besides many bankers don’t want or are not able to credit enterprises. In addition one of the world admitted anti crises measures - society’s demand stimulation - hasn’t worked in Russia. Considerable sums were directed to the major plants that use them in order not to bankrupt. But in such case market laws suggest provision of funds to the population so it increases the demand for this plant’s products. Thus we can only hope that the starting economic growth in highly developed countries will lead to the restoration of the Russian raw materials’ prices & revival of Russian economy on the whole. According to the latest forecast of the Ministry of Economic development of RF in 2010 Russian GDP will rise 1,6%, in 2011- 3%, in 2012- 4,3% & thus reach its ante crisis level.

UN gives up dollar for lost

The club of the opponents of dollar hegemony as the world currency has acquired new members. The UNCTAD experts prepared a report with a quite radical conclusion stating that actual currency system is not effective, brakes world economy development & is one of the reasons of the financial crisis. They conclude that the role of the dollar as reserve world currency should be revised. That is why they are actually suggesting their program of creating a new system alike Bretton – Wood treaties of 1944 that would regulate exchange rates & oblige central banks of independent states to arrange interventions in order to maintain or shake their currencies.

They have been spoken about the obsolete Bretton Wood system of 1944, that made the dollar major world currency, since a long time. When last year the crisis started the necessity of creating a new world currency instead of the dollar realized not only experts, but the leaders of big states. One of the first ones to speak of releasing the world economy from dollar’s power were the authorities of the Peoples Republic of China. Later the issue was supported by Russian President Dmitry Medvedev, who practically came with the united position at the first session of the G20 meeting held last November. Than Nursultan Nazarbaev, President of Kazakhstan suggested to create a joint currency in the territory of the CIS. Later other leaders came up with similar ideas. But for the first time the proposal to reform the Bretton – Wodd agreement was announced by such an important international body as UN. It was announced exactly on the eve of the G20 summit in Pittsburg on 24-25th September. There is no doubt that international experts of the UNCTAD were preparing their report basing not on their private preferences but on the preferences of national governments and central banks.

Timoshenko paid Yanukovich debts.

“Ukrainian government returned its state debts of $800 million, taken by the previous government, beforehand, - Julia Timoshenko, Ukrainian Prime Minister said in the middle of September. She pointed out that the loan was made by the government of Yanukovich & Azarov during the last year they governed claiming to return it in 12 years. “In reality these funds were loaned under very high interest and the agreement stipulated that the credit could be asked to be paid out at any time. That is why he Ukrainian government provided this sum now”, --she said. The former government also took a loan of 1 billion dollars for “Ukravtodor” needs. “This money was wholly robbed & written off. They said it was for the period of 10 years but then claimed this billion to be paid beforehand under the crisis. 6 billion grivnas payment is very hard for the Ukranian economy nowadays, when we are facing the financial crises- the strike made by Yanukovich & Azarov, but we returned these funds yesterday & came out of the situation with credit”, - stressed Timoshenko.

Ukraine Industrial production declines 23,3% in August

Ukrainian industrial production declined 23, 3% compared to August 2008 – State statistics Committee reported in the middle of September. According to a source the decline of industrial production in Ukraine for January – August is 29,6% compared to the same period of last year. The volume of industrial activity compared to the last year’s July declined 0,9%. At the end of July the Board of Directors of International Monetary Fund approved the third credit to Ukraine of 3, 3% billion dollars, although expressed their concern about the decline of the productivity, that “turned out to be far more considerable than it had been expected."

Estonian society against atomic power station construction at Pakri Islands

Estonian society is highly concerned with the plans of Estonian energy corporation Eesti Energia to make Pakri islands located in the Gulf of Finland near Paldiski town (north-western Estonia) as a site for the first Estonian atomic power plant –informed in the middle of September Pakri union that includes not only the residents of the islands & nearby Paldiski town but also their friends & relatives all over Estonia. They claim nobody discussed these planes with them & Eesti Energia’s position remains unclear to them. The union wants to issue the permission of Eesti Energia received from the Ministry of Economy & Communications of Estonia to realize preliminary research at Pakri islands weather it is possible to construct an atomic power plant there. They started signature collection for the petition directed to the Estonian government claiming to annul this permission.

Where does Russian money flow?

As before the crisis guest workers continue transferring billions out of Russia – testifies the information published by the Central Bank at the end of September. Construction freeze nor market trade problems (as there mostly work people from the CIS) haven’t affected the amount of this money flow. It has even increased. According to the Central Bank during the second quarter of the year 5, 703 billion dollars were transferred out of Russia by different money order systems, banks & post, that is 801 million more than during the first quarter of 2009. China holds the leading place with 120 million dollars transferred by Russian citizens in May – June & 414 million dollars transferred by foreigners, mostly the Chinese. Second place is for Uzbekistan – (219 millions transferred by Russians, 258 millions – by non-residents). Third position holds Tajikistan with 392 million dollars (179 & 212 mln.), followed by Ukraine (375 mln. Dollars), USA (286 mln.) Great Britain (260 mln.), Switzerland (226 mln.), Kirgizia (224 mln.), Armenia (215 mln.) & Turkey (211 mln.). On average they transfer 9832 dollars to China, 7259 to the United States, 16 700 to England, 12 266 dollars to Switzerland. An average sum of transfer to the CIS countries is of 400-600 dollars. The amount transferred to the CIS has considerably increased compared to the first quarter of the year: to Uzbekistan - from 292 to 477 millions, to Tajikistan - from 278 to 392 millions, to Ukraine - from 267 to 375 million dollars. At the beginning of the year money transfers to the CIS held 32% of the market, now it has 40% share or 2 265 billion dollars. Transfers made by means of banks decreased 200 million dollars, while people started to prefer money transferring through money order systems & by post. Russians are actively investing abroad, the fact proved by the increased number of transfers for acquiring real estate from 178 up to 223 million dollars.

Mr. Ivanov: Russia will renounce Baltic ports services

During the following 2-3 years Russia can totally renounce Baltic ports cargo transferring services, - Sergey Ivanov, Russian vice Prime Minister said during his visit to Kaliningrad region in September, RBK reports.

“This will be possible due to the launching of a new port in Ust – Luga, that will as well receive automobiles transported by marine ways, “ – Mr. Ivanov said. He also thinks that Russia could deal with a number of transit cargos. But he also added that Russian ports in Baltic Sea in the future will remain the major Russian gates to the world commerce. He reminded that just a few years ago 90% of the total Russian import & export flows went through Baltic states’ ports. “Taking it into account we started developing such special purpose ports as Vysotsk & Primorsk & multisectoral ports – Ust –Luga & Kaliningrad. Thus just in 2008 Russia managed to reduce cargos transfers through foreign ports in 20%”. He also noted that while Ust – Luga port is developing the one in St. Petersburg will start specializing in containerized shipments & automobile reception. He thinks it will help to lighten the Moscow – Helsinki route & improve ecological situation.