Communique on the 17th Session of the Foreign Investment Advisory Council

(Moscow, September 15, 2003)

The session was addressed by Mr. M. M. Kasyanov, Chairman of the Government of the Russian Federation.

In his address, Mr. Kasyanov focused on the main trends and prospects for the development of the Russian economy, the course of economic reforms and measures to step up investment activity in Russia.

The Russian economy is characterized by substantial growth in output of goods and services and investment in the real sector, increasing real incomes of the public, and the stable federal budget surplus.

In economic growth rate terms, Russia has been one of the world leaders in recent years. Russia's stable economic advancement and the Russian Government's consistent implementation of its economic reform strategy have won the acclaim of the global community.

A major characteristic of the economic growth in Russia today is the substantial upturn in entrepreneurial and investment activity. Many sectors of the economy are reporting an improvement in production efficiency as a result of economic restructuring.

Financial stability is being maintained in the context of a substantial positive trade balance and a balanced budgetary policy. Further reform is needed in the Russian banking system. In one singularly positive trend, in addition to general growth in foreign investment inflow to the country, investor preferences are moving away from the Russian raw materials sector to the processing sectors of the economy.

With a view to supporting the current high fixed capital growth rates, the Government of the Russian Federation plans to continue its efforts to improve the investment climate in Russia and eliminate factors obstructing economic growth. The Russian Government is relying on close cooperation with FIAC in the implementation of its efforts to remove any barriers holding down the investment process.

The measures in the areas of taxation, customs and industrial policy envisaged by the Program of Medium-Term Social and Economic Development of the Russian Federation in 2003-2005, will play a positive role in boosting investment activity and ensuring economic development through technological modernization.

The participants of this session hold in high esteem the efforts of the Russian Government aimed at establishing a solid foundation for sustainable economic growth and encouraging investment activity.

The Advisory Council members propose focusing efforts on the following measures in the on-going work to create conditions favorable to increased investment.

I. Tax and accounting reform in Russia, including:

• improve the procedure for recovering value added tax on exports;
• abolish the exceptions from the free trade rules between Russia and Ukraine;
• facilitate the transition to International Financial Reporting Standards (IFRS).

II. Enhancement of Russia's global investment image:

To address this issue and facilitate the inflow of foreign investment, a special program shall be developed to promote positive investment image of the Russian Federation globally. The program will include organizational, financial, analytical, promotional and information activities.

III. Reducing administrative barriers to business and investments:

• simplify the procedures for approval, expert review and issue of permits for the implementation of capital construction investment projects;
• reduce import duties for raw materials, components and production equipment, not yet manufactured in Russia, to encourage local production of higher value added products
• draw special attention towards licensed investment security in strategic oil and gaz sector of Russian economy; set up mechanism of trilateral (government, region, investors) resolution of disputes;
• reduce the restrictions on the participation of foreign capital in certain sectors of Russian economy, including commercial aviation and air transportation projects;
• develop proposals for the implementation of the Regulation on Customs Control Using Audit Methods;
• develop proposals for the improvement of federal laws, including the law on currency regulation and currency control and the law on mortgage,
• prepare in cooperation with the business community joint measures aimed at improving the system of corporate governance.
• review the best world waste management practice for subsequent action.

In addition, the participants in the meeting discussed banking issues and proposed to give detailed consideration to the following:

• secure transition to meaningful banking supervision methods using the professional judgment concept in accordance with the Basel standards on effective bank supervision, improve the system of banking regulations as regards the procedure for opening bank accounts by residents and non-residents, and make relevant changes to legislation;
• facilitate the shift from a paper based bank reporting system to an electronic system.

The members of the Foreign Investment Advisory Council in Russia expressed their readiness to continue their active participation in the Russian Government's activities aimed at improving the legislative framework and implementing tax and administrative reforms.

The Government of the Russian Federation expresses its gratitude to the participants in the Advisory Council session for their active support of its efforts to reform the economy, and intends to continue the joint work to remove barriers to the development of business in Russia.

The Government of the Russian Federation and the members of the Foreign Investment Advisory Council agreed to establish a joint task force to identify ways to apply best international practices to the Government’s efforts to reduce administrative barriers to business and investments.

Federal executive bodies are expected to step up their work on reviewing the recommendations put forward by the participants in this meeting and developing proposals for their implementation.

The Bank of Russia will be requested to examine recommendations for subsequent improvement of regulations in the banking sector.

The Eighteenth Session of the Foreign Investment Advisory Council in Russia will be held in Moscow in September - October 2004.