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Puck
The Texan
Joined: 05 Jan 2004
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 Wed Nov 24, 2004 12:25 am Russian democracy 'under threat' |
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Russian democracy 'under threat'
But development bank says economic progress made
LONDON, England (Reuters) -- Russia has made strong economic progress, but concerns have increased about the health of its democracy and the state's role in its economy, the European Bank for Reconstruction and Development said on Tuesday .
In a two-year strategy paper on Russia, the EBRD, the single biggest private investor in the country, urged the government to accelerate institutional reforms to support growth and protect the economy from external shocks.
"There are questions but we see the trend as progress,'' EBRD President Jean Lemierre told reporters in London. "Russia is now on the map of the global economy.''
The development bank for eastern Europe and the former Soviet Union said it plans to invest 1.2 to 1.3 billion euros next year in Russia against about 1.0 billion euros in 2004.
It said elections in Russia had slowed reforms and their implementation remained a major weakness.
"Recent political developments suggest a concentration of power in the hands of the executive and a perceptible drift from the democratic practice that has raised concerns in the international community,'' the strategy paper said.
In September, Russian President Vladimir Putin, who won a second term in elections in March, placed a limit on the number of political parties and asserted full control over nominating regional leaders.
Lemierre said the Yukos affair was also being very closely watched by investors but he saw it as an stand-alone case and not a policy going ahead.
"Yes, Yukos is a serious question. It's a case closely monitored by investors and important to investors and even the the outcome is important. At the same time, from various angles, we don't see a clear macroeconomic impact of the case on Russia.''
Russian oil major Yukos faces financial ruin because of an enormous $24.5 billion back tax bill presented by the government and authorities will sell its main Siberian production Yuganskneftegaz on December 19.
The company has repeatedly said it may go bankrupt and has described tax demands against it as politically driven to punish its main owner Mikhail Khodorkovsky, who is currently on trial on charges of fraud and tax evasion.
The strategy paper said there were major uncertainties and risks with regards to protection of property rights in Russia and conflicting signals about the role of the state in the economy.
Focus on private sector
The EBRD said key challenges for the Russia economy were to diversify from dependence on oil, gas and raw materials and to step up economic growth in the regions.
The bank pledged to support private enterprises in Russia, particularly in the regions, provide finance and take equity stakes in companies to provide comfort to investors.
"We are taking three equity stakes in regional banks. These are private sector banks. They are well managed and we will work with them to finance SMEs (small and medium sized enterprises),'' Lemierre said.
The EBRD President welcomed the restructuring of "unsafe'' banks in Russia but emphasized that the need for further reforms in the banking sector was crucial to financing the productive sectors of the economy.
Lemierre said the EBRD was open to resume discussions with the government on possible purchase of a stake in state-owned Vneshtorgbank (VTB).
"We know quite well what we could do. But the government needs to know what it wants to do,'' Lemierre said.
The sale of a stake in Russia's second largest bank to the EBRD, which has long been delayed, is seen as a first step before VTB takes more private investors on board. It is also at the heart of the government's plan to reduce its role in the banking sector.
The EBRD said it also plans to issue ruble bonds and use the money to fund SMEs, which do not earn export revenues and municipalities.
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http://www.cnn.com/2004/WORLD/europe/11/23/russia.econ.democracy.reut/index.html
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