Communique on the 16th Session of the Foreign Investment Advisory Council

(Moscow, September 30, 2002)

The 16th session of the Foreign Investment Advisory Council in Russia was held on September 30, 2002 in The President Hotel, Moscow.

The Session was addressed by Mikhail M. Kasyanov, Chairman of the Government of the Russian Federation.

In his speech, Mr. Kasyanov described the current economic situation in Russia and its prospects for the year 2003, progress of economic reform and steps undertaken by the Russian Government to step up investment processes in the domestic economy and pave the way for both domestic and foreign businesses in Russia.

The key features of Russia's current economic status consist in the sustained positive pattern of key macroeconomic indicators, increased output of goods and services as well as public income in real terms, continued investments in the real sector, and significant gold and currency reserves.

Positive economic trends are based not only on foreign economic developments favoring Russia, but also on increased domestic demand and corporate restructuring.

Financial stability, supported by the stable surplus of the federal budget, has been maintained. Inflation is slowing down, primarily due to the fiscal and monetary policy pursued by the Government and the Bank of Russia as well as reduced inflationary expectations.

Sovereign debt has been serviced according to schedule without any new borrowings from abroad. The outflow of Russian capital has slowed down. The currency market remains stable and predictable.

The strategy of economic reform designed to improve conditions for private sector development and create an equal competition field for all businesses is being implemented successfully.

Major efforts have been undertaken to reform the tax system, cut down excessive state intervention in the economy, remove extra administrative barriers, strengthen legislative support for the rights and legitimate interests of owners and investors, and improve the judicial system. The Labor and Land Codes, four chapters of the Tax Code, the Code of Arbitrary Procedure and the Code of Administrative Offenses, the Law Concerning the Turnover of Farmland, the Law Concerning Privatization of State and Municipal Assets, and several other fundamental economic laws have been enacted in 2002.

The adoption and initiated implementation of The Joint Strategy of the Government and Bank of Russia Concerning the Development of the Banking Sector in the Russian Federation represent a major step in reforming the banking sector and enhancing its role in investment processes. Institutional reform in the country contributes to the ever-improving investment image of the Russian economy.

The participants in the FIAC session have appreciated the work undertaken by the Russian Government to modernize the Russian economy, secure macroeconomic stability, develop the institutional framework of the market, and pave the way for improving the investment and business climate in the Russian economy.

FIAC members give a positive assessment of the first steps to implement the Code of Corporate Governance and deem advisable to introduce internal audit functions and audit committees, based on best international practice, at Russian companies as an instrument of corporate governance.

Foreign investors eagerly support Russia's accession to the WTO and expect it to be completed by the next WTO General Assembly in 2003.

In order to step up work aimed at creating favorable conditions for promoting foreign investment in Russia, FIAC members propose to concentrate on the following priority tasks:

  • continue economic reforms in the energy sector and provide foreign companies with free access to transportation facilities, particularly oil and gas pipelines;
  • speed up the adoption of the PSA Chapter of the Tax Code by the State Duma and the improvement of the mechanism for cooperation between federal executive bodies and foreign investors on PSA implementation issues;
  • adopt a new law on currency regulation and currency control that would remove obstacles to capital flows (and, more specifically, abolish authorizations required to perform currency transactions, mandatory repatriation and sales of currency receipts from exports, and grant equal rights to resident and non-resident entities);
  • speed up the adoption of a new version of the Russian Customs Code in order to improve customs tariff-setting policies;
  • simplify the customs clearance of goods imported under investment projects (more specifically, equipment, raw materials and materials for production needs);
  • consider the removal of restrictions on foreign participation in the implementation of joint projects involving the development, production, testing, repair and disposal of civil aircraft, and introduction of a separate regime for regulating foreign investment in the Russian defense industry.
  • take steps to reconcile two parallel accounting systems (tax and statutory accounting) and speed up full implementation of International Accounting Standards and IAS transition by Russian companies by 2004;
  • abolish exemptions from the free trade regime applicable to confectionary as prescribed by Appendix No. 2 to the Protocol dated October 4, 2001 concerning the introduction of amendments and additions into the Protocol on Exemptions from the Free Trade Regime to the Free Trade Agreement between Russia and Ukraine dated June 24, 1993;

The foreign investors, members of the Advisory Council have reaffirmed their readiness to provide tangible assistance to Russian authorities in drafting further steps designed to upgrade economic legislation in order to improve conditions for business and investment activity. To this end, they will give thorough consideration to a list of laws drafted by the Russian Government and will identify specific drafts to be worked upon jointly in the future.

The Government of the Russian Federation will take account of recommendations issued by the participants in this FIAC session to continue building up investment processes and encouraging the work of foreign investors in Russia.

On their part, the members of the Advisory Council will issue recommendations designed to further improve the investment climate and increase direct foreign investment in the Russian economy, as well as promote practical and unconditional application of Russia's market economy status in the EU countries.

In between FIAC sessions the work will be intensified on the implementing of FIAC recommendations and improving the effectiveness of its work. The next 17th session of the Foreign Investment Advisory Council in Russia is scheduled for mid-2003 in Moscow.