Index

DATE=3/16/2000 TYPE=BACKGROUND REPORT TITLE=PUTIN'S ECONOMY (PART 1) NUMBER=5-45662 BYLINE=BARRY WOOD DATELINE=WASHINGTON INTERNET=YES CONTENT= VOICED AT: INTRO: With barely a week before Russia's presidential election (3/26), the man regarded as certain to be elected, acting-president Vladimir Putin, has yet to lay out his program for economic recovery. V-O-A's Barry Wood reports despite the uncertainty, many experts are optimistic, believing a new and more sustained wave of reform is on its way. TEXT: Judging by the statistics, Russia's economy is improving. Output in 1999, by official estimates, was up three-point-two percent, by far the best performance since the collapse of communism in 1991. Largely because of the tripling of oil prices, Russian exports in recent months have been up over 20-percent. Foreign exchange reserves are up and have risen by over one-billion-dollars so far this year. The Russian budget has moved into surplus, and the stock market for the past four months has greatly out-performed Eastern Europe. Matthew Thomas is a Russia analyst at ING Barings Bank in London. He has high expectations that Mr. Putin will move quickly on a crucial element -- tax reform. /// THOMAS ACT /// First of all I think the tax code has to be simplified to remove a lot of the gray areas that unfortunately feed corruption currently. Secondly, the tax code has to reduce the overall tax take, which has traditionally been far too high for business. It has become less since (the 1998) devaluation but it is still punishing. It is also too high considering the income levels of the population. We think that a combination of simplification of the tax code and a reduction of the tax take would therefore provide a basis for improving tax compliance, collection, which is something Russia has struggled with for a decade now. ///END ACT /// Mr. Thomas also expects Mr. Putin to move quickly on land reform. Natalia Gurushina, a Russia analyst for Deutsche Bank in London, is also optimistic. She believes that if Moscow pursues sound policies and puts necessary safeguards in place foreign investors will return to the Russian market they largely abandoned following the 1998 debt default and devaluation. /// GURUSHINA ACT /// In this particular case, what investors will be looking at is legislation. What happens to the tax legislation? What happens to the law on production sharing, for example? And I think clearly a lot of things still need to be done. For example, legislation on the protection of minority shareholding. /// END ACT /// Ms. Gurushina predicts there will be increased cooperation between Putin as elected president and the often obstructionist parliament, the Duma. For the business community, Mr. Putin says all the right things: he promises financial discipline, he says he wants foreign investment, and tax and land reform. But what will Mr. Putin do about corruption? What will be his relationship with the oligarchs who control the economy? Will Mr. Putin's reform be a continuation of the pseudo-reform that occurred under President Yeltsin, with the same people in charge? Keith Crane examines the former centrally-planned economies for Planecon, an economic research group here in Washington. Mr. Crane too is cautiously optimistic and eagerly awaiting Mr. Putin's economic program. /// CRANE ACT /// From our point of view, the major problems now are not so much at the macro-level but at the enterprise and banking level. The banking sector has really never been cleaned up since the collapse of the Russian ruble in August 1998. Many of the bank owners have succeeded in the theft of deposits from depositors. And without the modicum of a functioning banking system it is difficult to see how the current recovery could really have legs (be viable) -- that it could really accelerate and result in a period of strong growth for Russia. /// END ACT /// Uncertainties abound. There is no sign that the International Monetary Fund is prepared to resume the lending that it suspended last year. Even the outlook for oil prices is uncertain. And experts do agree that Russia's economic progress this past year is largely due to the spectacular rise in oil prices.(Signed) NEB/BDW/TVM/gm 16-Mar-2000 18:36 PM EDT (16-Mar-2000 2336 UTC) NNNN Source: Voice of America .