NEWSLETTERS

June - first summer months brings success.

June, 2010

Cyprus excluded from Russian offshore list

The Central Bank of Russia excluded Cyprus from Russian offshore zones list, Cyprus mass media reported early in June. Such is a successful result of the efforts of Cyprus Minister of Finance Mr. Kharilaos Stavrkis, who kept visiting Moscow during the last two years & managed to prove that Cyprus being a member of the EU is not seen as a tax heaven any more for quite a long time & that Cyprus financial bodies satisfy the highest European standards. Cyprus Minister of Finance did loose no opportunity to speak out at various international forums, including a report prepared by him was read by Mr. Petros Kestoras – the Ambassador of Cyprus in Moscow at a conference organized by Midland Consult.

In Cyprus Central Bank they believe that the fact the country was stroke off the Russian offshore list is a good sign of further improvement of the Cyprus reputation as an internationally acknowledged world financial centre. Besides in a specially prepared press release the Cyprus Central Bank noted that the success was also a result of close cooperation in banking supervision between the Central Banks of both countries.  Still, the monitors observe that in spite of this new status in Russia Cyprus remains being attractive for international business as it has not only the lowest tax rates in European Union but also compared to many other world countries.

Besides striking off Cyprus from its offshore list Russian Central bank moved Montenegro to a more respectable category, before that, being a union of two republics of Serbia & Montenegro it had been included in the third group. It is worth mentioning that the Central Bank of RF divides offshore zones into three groups according to different banking requirements & operations reserves’ volumes. Operations with the banks from the countries of the first group - there is no need to make reservations. Those from the second group require 25% reservation for operations, 50 % - for the banks from the third group.

Russia – EU 25^th Summit

At the beginning of June the anniversary 25th Russia- European Union Summit took place in Russian city Rostov on Don. The two- days meeting was presided over by Russian President Dmitry Medvedev, President of the European Council Herman van Rompuy & the Chairman of the European Comission Jose Manuel Barroso. The meeting was the first one of a kind after the Lisbon agreement had entered into force. One of the issues discussed at the summit became the new system of the EU security. They also discussed anti global financial crisis measures & a perspective of a non-visa regime between Russia & the EU, & so called partnership for modernization, the point Russia & the EU had agreed in Stockholm, November 2009. Let’s remind that Russian authorities had announced on various occasions that the key aim of the summit is to go ahead in the process of the lifting of visa regime between Russia & Europe. However no treaties were concluded. The only document signed during the summit was a treaty of secret information protection. The Russian President explained the failure of visa regime lifting negotiations by the fact that it is complicated for the EU to take quick decisions – there are 27 member countries in it.  Among other topics discussed during the summit much attention was paid to the world financial crisis issue & consequently preparations for the G20 summit in Toronto, that has started in June with the participation of the Russian President. European & Russian leaders expressed on various occasions there mutual deep comprehension of the problem. Among current economic issues that are to be resolved by Russia & Europe jointly Dmitry Medvedev named economic programs, audit problems, rating agencies & IMF& Global Bank quotas. Jose Manuel Barroso also spoke on EU & Russian economic mutual dependence. He stressed that “there is a coincidence of the point of views on the necessity of reasonable increase of financial control & regulation, protectionism & global disproportions, different solutions for different countries.” By the way this coincidence of the points of view on numerous issues was noted as well during Dmitry Medvedev’s visit to the USA in June. The Presidents of the two countries agreed that Russian entry to the WTO will be decided by the end of the year.

Europe creates the Euro Aid Foundation

The Finance Ministers of the 16 countries – members of the Euro zone officially approved the mechanism of financial stability protection & anti crisis aid for Europe in a course of a meeting  in Luxembourg in June. The total volume of the new major European Financial Stabilization Foundation will be of 750 billion Euros. The Chairman of the Eurogroup, Luxembourg Prime- Minister Jean - Claude Juncker commenting on the results of the 16 ministers’ meeting told that the anti crisis mechanism was planned for three years. The main part of these 750 billion Euros – 440 billions will be guaranteed by state guarantees of the Euro zone countries, other 60 billions will be provided by the Euro Commission, & the rest 250 billions will be granted by the International Monetary Fund.  This mechanism can be used in order to aid any one of the 16 countries facing budget crisis, like the one that has happened in Greece.  At the same time the President of the European Union Mr. Herman van Rompuy announced that according to the preliminary agreement of the finance ministers sanctions will be imposed on those Euro Zone countries that accumulate state dept. They suggested these sanctions are to be imposed before a country reaches the limit of budget deficiency of 3% of GDP & in case the dept is rapidly increasing.

Russians deposited 8 trillion rubles in banks

By 1^st of June the total volume of the physical persons’ deposits in Russia exceeded 8 trillion rubles, Central Bank announced in its monthly overview of the Russian bank sector. Let’s point out that now Russian banks have got one trillion rubles of deposits more than it was predicted by the Ministry of Finance (6, 95 trillions). Such deposit boom during past year can be partially explained by a drastic growth of bank rates. The credit institutions had to increase the rate in order to attract money facing the world financial crisis problems. Just the reverse, starting 2010 banks have been slowly diminishing deposit rates. According to some analysts in 2010 the share of the Russians who want to accumulate money increased from 22% to 63%. It is the biggest share on the whole continent; meanwhile the number of those who want to increase their expenses is diminishing.

RIB suggests a unique bank product

Starting from the 7^th of June Russian International Bank initiated a new program for its clients suggesting them a brand new product – investments with capital protection, that guarantee investments return & profit even in case of negative situation in stock-exchange  markets. This product is very unique; none of other Russian or foreign banks suggests it to their clients yet, mass media claim. The essence of the product is as follows: the funds of a client are divided into two unequal parts, one of which (80% or 90%) is deposited & the other (10% or 20%) is invested into stocks – exchange market instruments.

Therefore the deposit guarantees the client 12% of profit per annum & the rest of the funds are allotted in securities that gives the client an opportunity to receive a bigger annual profit than just a deposit one. The Program of protection of funds invested in stock – exchange market instruments implies the following: there is a tough barrier against possible loses, so called Stop Loss. The funds of a private investor allotted in shares & bonds can, however, diminish due to the situation in the market. In fact an investor can loose everything. However in this case the maximum loss can be of 30% of the initial portfolio price. Thus if a client invested in securities 10% of his funds, his loses will be only 3%, & if the investments were of 20% his loses won’t exceed 6%. At the same time the client’s deposit compensate such a loss. Even in the worst case a client of the RIB will receive from 3,6% to 7,8% profit by the end of a year.

Surely, the year 2009 when the clients received 150% - 170% from their stock – exchange markets investments won’t be repeated, but 40% annually – is possible. So the total profit of an investor can be up to 19,2% per annum, that is  of course much attractive than a simple deposit one. So the client is totally safe.

Tigipko: new state purchase legislation brings Ukraine & Europe closer together

When the Supreme Rada approve a Law for state purchases it will help to make state purchase process transparent & provide considerable savings of state funds, that will in its turn diminish corruption & other abuses, Vice Prime Minister of Ukraine, Mr Sergey Tigipko commented on the adoption by the Parliament of a new version of The Ukrainian Law on state purchases process.

Tigipko believes that it is highly important that the law foresees differentiation of the functions of state policy elaboration & control over the state purchases. The first function is to be carried out by the Ministry of Economics, while the control is to be exercised by the Anti Monopoly Ukrainian Committee as an institution for disclaims. The Cabinet of Ministers noted that a creation of such a clear & transparent instrument for state purchases regulation is a following to some other economic reforms aimed at state finances stabilization, business development & honest competition.

The adoption of this law, from the point of view of European practice, is a big step forward for the Ukraine in forming a free commerce zone with the EU. Besides the law will allow to enforce Ukraine positions in its negotiation process with the World Bank & the European Commission on the cooperation”, Tigipko pointed out.

Ukrainian population decreased to 45 millions

In 2010 the Ukrainian population decreased to 45 million people, State Statistics Committee (Goskomstat) reports. According to the data just during the last May the number of Ukrainian citizens diminished 17 thousand people. Goskomstat reports that 31 million people now live in cities, while rural population consists of 14 millions. The UN forecasts say that if the dynamics continues by 2030 there will be only 39 millions of Ukrainians. Previously the UN stated in its demographic reports that Ukraine has the lowest population growth in the world.

Italy introduces tough savings regime, following Greece, Spain & Portugal

According to a “financial maneuvers’ decree, approved by the government the state loses of Italy should reduce on 24 billion Euros during next three years. Meanwhile the income is expected to be obtained from tourists. In order to avoid “Greece risk” & reduce budget deficiency to 3% of the GDP it was decide to dissolve a number of state-owned companies & introduce a stricter control over the expenses of the national defense bodies. The top managers’ bonuses will be taxed additionally. The officials even didn’t spare themselves: the salary of ministers, parliamentarians & government officials will be reduced 10%. They even reduce the number of government owned cars. The anti crisis measures also foresee to frozen state employees’ salaries for 4 years, 6-month delay in paying out of pensions, disability payments will be reduced from 12 to 5 thousand Euros. A number of roads will become toll. Even tourists will suffer; everybody staying in Rome hotels will have to pay additional 10 Euro tax. Italian Mass Media immediately criticized the maneuver.

Turkmenistan starts constructing its own gas pipeline

Turkmenistan is starting to construct a gas pipeline that will connect this country rich in energy resources with European consumers, diminishing European dependence from Russia on gas supplies.  The Turkmenistan President Gurbanguly Berdymukhamedov participated in June in the ceremony of the start of the construction of “Vostok - Zapad” (East –West) pipeline that took place at “Shatlyk” gas compression plant 400 kilometers south from Ashkhabad. This new pipeline with the power of 30 billion cubic meters of natural gas a year will stretch for nearly 1000 kms to the Caspian sea.  The President Berdymukhamedov said during the ceremony that the 2 billion dollars worth project would improve political & economic importance of Turkmenistan as a country that makes its contribution to the world energetic safety.  The construction is to be finished in 2015.

Estonia enters the “rich countries’ club”

Estonia has entered the Organization for Economic Cooperation & Development (OECD) that is often called a “rich countries’ club”. The agreement admitting Estonia was signed on the 3rd of June in Tallin by Prime Minister Andrus Ansip & the secretary General of the Organization Mr. Angel Gurria. Estonia received an invitation to become a member on the 27th of  May together with Israel & Slovenia. Estonian Prime Minister accepted it the very same day. Estonia is expected to become a full-power member of the OECD by the end of the current year, after the state government ratifies the agreement. The OECD consists of more that 30 highly developed countries, including the USA, Great Britain, Japan, Germany, Spain & Italy. OECD countries posses two thirds of the world’s GDP. Russia is not a member of the organization, although it had received an invitation in 2007 already.

European Commission agreed to admit Estonia in Euro Zone

The European Commission recommended to admit Estonia in Euro Zone, a source in Estonian Foreign Affairs Ministry told. According to the Commission estimations in 2010 the budget deficiency in Estonia will constitute 2,4% of the GDP. One of the conditions of admission is 3% GDP  reduction. Estonia is expected to become a full power member of the Euro Zone in 2011. Estonian government adopted a law project for the introduction of the common European currency in March 2010.

USA state dept has reached a record

By the beginning of June 2010 the state debt of the USA has reached a record & constitutes 13 trillion dollars, American Ministry of Finance announced. American mass media made counts that now the “debt” of each US citizen is 42 thousand dollars. In June the US president claimed that his administration can’t be blamed for such a large national debt, as he had come to power right in the middle of the crisis when due to the economic decline the national budget lacked 3 trillion dollars. Obama didn’t name George Bush, however he made it clear that the state debt growth is a result of the policy held by his predecessor’s administration. During the eight years when Bush was President the US debt grew 4,9 trillion dollars. In February 2010 Obama signed a document that increases the possible limit for the state debt up to 14, 3 trillion dollars  (before it was of 12, 4 trillion dollars).

Prada is about introducing IPO in Hong Kong

Italian fashion company – Prada is considering making IPO at Hong Kong stock. The company also planes to put its shares on bidding in Milan. Still Prada hasn’t selected banks for listing. Besides they haven’t make final IPO decision yet, some sources note. However it is precisely now, after reducing debts & opening new shops in Asia, when the company is getting out of the crisis. According to some other sources Prada will be waiting for the stock- exchange markets to grow & allot its shares only in 2011. During last 10 years the company postponed the IPO  for four times. Gross profit of the fashion company in the first quarter of 2010 constituted 6 million Euros. Prada was founded in 1913 by Mario Prada in Milan & was initially called Prada Brothers. In 1978 it was inherited by the founder’s granddaughter Miuccia Prada.

Poland can supply with gas the whole Europe

American oil & gas concerns like Exxon Mobile, Chevron, ConocoPhillips, Marathon Oil, as well as European Statoil & Total are planning to invest hundreds of millions bucks in gas slates prospecting in Poland. Geologist suspect that the resources of slates gas on the territory of Poland can constitute up to 3 trillion cubic meters. In this case Poland will be able to provide with gas the whole Europe. Nowadays Canadian concern Talisman energy & British San Leon Energy already invested 140 million dollars in prospection. Gas slates were first announced to be found in Poland this April. They said that 1, 36 trillion cubic meters of gas are located in north & central regions of the country. It has become possible to get the gas out of the depth of the rocks only after new production technologies were developed in the USA. American Conoco Philips planned to start gas production in Poland this May already. If Polish gas resources will be confirmed the common gas resources in the EU will constitute 47%. Experts think that European projects of slates gas production can become a serious threat for Gazprom in 10 years. Now Poland has to import 72 % of the gas it needs. Annual gas consumption in the country is about 13, 7 billion cubic meters, 30% from which are supplied by local production. In 2009 Gazprom exported to Poland 9 billion cubic meters of gas. Meanwhile at the beginning of the year Poland faced certain problems due to the growing gas consumption of its population. In January Polish authorities were going to limit industrial consumption due to the gas deficiency. Warsaw managed to agree with Gazprom on additional supplies & transit prices. Gazprom in change for the 340 million dollars debt writing off accepted a higher transit rate & gave Warsaw a discount for additional gas supplies. On a whole all European countries have been looking for years for an alternative for Gazprom supplies. That provides 23% of gas required by Europe. Specialists believe that due to the vast Polish gas resources Europe will be able to loosen its dependence from Russian supplies.

Ukraine gets a 2 billion dollars credit from Russia

Ukrainian government received a 2 billion dollars credit from Russia, a source in Ukrainian authorities said on Tuesday. He said the currency arrived to the government accounts considerably increasing international reserves of the National Bank of Ukraine. He supposed that these means were given in the frame of Russian - Ukrainian project of finishing the construction of atomic plant Khmelnitskaya (KHAES). The agreement between Russia & Ukraine on cooperation in construction of two KHAES energy blocks was approved by Ukrainian Cabinet of ministers in spring of 2010. The document foresaw a credit for the works, but its amount & terms were not indicated.

Economic Forum in Saint Petersburg brings 15 billion Euros

The total number of investment agreements reached during the Saint Petersburg International Economic Forum held on 17 -19 June, is more than 50, while their total volume exceeded 15 billion Euros, RF President’s Assistant Mr Arkady Dvorkovich told  journalists. “Besides there is a number of contracts that foresee orders for production of different kinds of products”, President’s Assistant reminded, adding that among such contracts are gas tankers construction by Sovkomflot for Gazprom. These contracts that will be fulfilled in various years imply payments of more than 6 billion dollars. “It is not correct to sum up all these money, - Dvorkovich admitted, - but if we will try to count the total volume of different contracts it will exceed 15 billion Euros”.

Among the most active “contractors” Dvorkovich named Saint Petersburg Administration, Bank of Savings. Gazprom, & among foreign partners – some French companies, that during Nicolas Sarcozy ‘s visit to Russia concluded more than ten treaties.

This year’s Saint Petersburg International Economic Forum was held under the motto “Forming basement for the future”. Leading world politicians & businessmen discussed key problems that Russia, developing markets & world community are facing.