Communique on the 12th Session of the Foreign Investment Advisory Council

(Moscow, March 13, 2000)

The 12th Session of the Foreign Investment Advisory Council took place on March 13, 2000 in the President Hotel in Moscow. The session of the Council was addressed by the Acting President of the Russian Federation and Chairman of the Government of the Russian Federation V.V. Putin who focused on the principal development trends in the Russian economy in 1999, as well as the prospects for 2000.

As stated in the Communique released at the conclusion of the Council, the Russian Federation has entered the year 2000 with a noticeable increase in economic growth, having overcome the most difficult consequences of the 1998 financial and economic crisis. In 1999, GDP grew by 3.2% as compared to the previous year. Industrial output demonstrated significant growth totaling 8.1% in 1999. Inflation rates have been relatively low - the aggregate increase in general consumer price index for the year totaled 36.5%. Moreover, from August 1999 its monthly increase did not exceed 1.2 - 1.5%. A significant positive trade balance of USD 33.2 billion has ensured relative stability on the currency market and made it possible to service foreign debt.

For the first time in the years of reform, investments in fixed assets in 1999 increased by 4.5% from the previous year. Direct foreign investment in 1999 amounted to USD 4.26 billion, which exceeds the figure for 1998 by 26.7%.

At the same time, these positive development trends in the economy have not yet acquired stability, and largely depend on external factors. The cost of borrowed resources remains high. The banking system is overcoming the crisis too slowly. The investment climate needs further improvement. Despite the growth trend, the level of direct foreign investment remains inadequate.

The session of the Council addressed specific issues concerning the improvement of investment climate in Russia, tax reform, the restructuring of the banking system, the encouragement of the flow of foreign investments into the regions of the Russian Federation, the improvement of customs procedures as applied to the transportation of goods, and the removal of trade and non-trade barriers to Russian exports.

The recently enacted Federal Law "Concerning Foreign Investment in the Russian Federation", which is fundamental to investment cooperation, establishes a national regime for foreign investor activity and stability for their operations in the Russian Federation. The existing legal framework for implementing of production sharing agreements encourages large-scale investment in the raw materials sector.

The State Duma continues work on the draft law "Concerning State Concession Agreements Concluded with Russian and Foreign Investors". A reconciliation committee has been formed to finalize the draft Federal Law "Concerning Free Economic Zones". The draft law "Concerning the Prohibitions and Restrictions on the Activity of Foreign Investors in the Territory of the Russian Federation" is being finalized.

An agreement has been reached with the American Chamber of Commerce in Russia, the German Business Union in the Russian Federation, the European Business Club in the Russian Federation and the Petroleum Advisory Forum on joint and coordinated ongoing cooperation to promote a favorable investment climate and improve investment legislation.

The Government of the Russian Federation, recognizing the importance of improving the investment climate, is committed to address the following issues:

  • Accelerate complete transition to IAS by companies listed on the Russian stock market, and financial institutions;
  • Introduce the country-of-destination principle of VAT assessment for manufacturing exports to CIS countries;
  • Consider abolition of revenue-based taxes;
  • Nominate a senior government official at the level of Vice Prime Minister of the Russian Federation to be responsible for coordinating the work of the ministries and agencies of the Russian Federation to resolve investor issues as they arise;
  • Accelerate the completion of a legal framework ensuring the implementation of Federal Law "Concerning Production Sharing Agreements";
  • Develop an effective mechanism for tax dispute resolution, including a procedure for tax appeals, in order to build an effective system of guarantees for taxpayers' rights;
  • Remove unjustified restrictions on the deduction of certain costs (business expenses) for profits tax purposes;
  • Draft proposals for establishing an insurance system for direct foreign investments.

The foreign members of the Advisory Council have positively assessed the efforts undertaken by the Government of the Russian Federation to improve conditions for foreign investment activity in Russia and, in their turn, will undertake efforts to restore the confidence of foreign investors.