THE WORLD ECONOMIES ARE IN DEBT: THE SPRING HOPES OF APRIL

April, 2011

The Russian government intends to make the ruble convertible

The deputies of the State Duma on the first reading held in April discussed a bill, that would allow the nonresident to use roubles in conducting money transfers, that could promote the attraction of the foreign investors.

The Russian government has decided to correct the legislation on foreign currency transactions. But until now, this definition didn’t take into account the trans — border transactions, which carried out the Russians. After the adoption of this law, the Russian rouble would be able to be freely transferred between residents and nonresidents, and become the convertible currency de jure. The other question is — if the rouble becomes the convertible currency in practice, so will be the interest to manage transactions in roubles outside Russia.

In addition, authorities will be able to obtain more reliable information about the financial flows between Russia and other countries, because cross-border operations of the Russians and non-Russians are reaching now a significant volume and we are talking about billions of dollars. However, this is the information transparency gets the expert’s attention. But as the specialist hope, during the modification of this bull all the norms will be spelled out clearly.

The specialists assure, that the adoption of the law will attract foreign investors to Russia, besides not so much speculative so serious, that are working with the direct guidance of the capital into investments. Some additional guarantees, for example, the transactions defense carried on the Russian trading marketplaces, are necessary for Moscow to become the world financial center. These guarantees are expected by a lot of investors, most of whom prefer to work through the well-known world financial centers, including Cyprus. But this small Mediterranean island is heading tht list of record holders of the direct investments in the Russian economy.

Portugal asks for help the European Union

The Portuguese authorities in April asked for financial assistance from EU. According to various estimates, more than 75 billion euros may need for the salvation of the country’s economy. According to the European Commission President Jose Manuel Barroso, Portugal’s request will be shortly reviewed. The cost of market borrowings of Portugal has reached such volumes, that threatens the entire economy of the country’s deep crisis. The situation worsened after the resignation of Prime Minister Jose Socrates, who proposed anti-crisis program. However, the parliament by a majority of vote has refused to accept it. The main points of the former Prime Minister’s program, was to increase taxes and reduce pensions and social benefits. Thus, in his opinion, was possible to come out of recession without resorting to external borrowing. However, financial analysts fear that the situation in Portugal may have favorable impact on the euro exchange rate. The experts also suggest that the pressure on the neighboring Spain may increase, taking in consideration that in recent years Spain, despite the more dynamic economies, suffers some difficulties, for example, the unemployment rate reached 20%.

According to the unofficial estimates, the Portugal’s economic recovery may take from 75 to 100 billion euro. Portugal’s budget deficit amounted to 8,6% of GDP in 2010. The country’s economy, whose population exceeds 10 million, could fall this year another 1.3%. It is worth noting that Portugal is the third EU country to seek financial assistance. It is worth noting that Portugal is the third EU country in seeking financial assistance. Last year European Union and the International Monetary Fund granted a loan of 85 billion euro to Ireland, and then Greece received a 110 billion euro as financial support.

U.S. debt will reach the limit on 16th of May.

In April U.S. Treasury Secretary Timothy Geithner warned that if Congress did not adopt the necessary measures, at the latest on 16th of May USA would reach the statutory debt limit and will lose the opportunity to attract funds to finance government spending. After that, the U.S. Treasury will be able to apply a set of emergency measures to free up additional reserves, but it can give a breathing pause for only about 8 weeks, before the beginning of July.

Procrastination can lead to the raising of borrowing costs and delay of appropriation of funds to military, retirees and others. Republicans that gained a majority in the House of Representatives, require from the administration to reduce the government spendings and therefore do not want to raise the ultimate level of the government debt, they also inhibit the adoption of the budget for the second half of fiscal 2011 year, that began the 1st of April.

The debate in Congress in respect of budget issues came to a standstill in April.

Japan: failure to reduce taxes will lead to challenges for the ruling party

The ruling Democratic Party of Japan may cancel the planned tax cuts for corporations and raise taxes on individuals. Thus collected additional funds will go to the restoration of the economy, that suffered from the earthquake and reduce the need for the next issue of government bonds.

The government plans to revise the plans respect to the reduction of corporate tax and tax concession on dividends and stock trading. In particular, it is supposed to cancel a planned decrease of 5% taxation rate of companies, which now stands at 40.69% (For comparison, in the UK it is kept at 28%, while in China — 25%). According to the Ministry of Finance of Japan, that previously proposed a tax cut that was supposed to come into force on April 1, would reduce the revenues to the treasury at 1,4-2,1 trillion yen (14,7-25,7 billion dollars). In this case, the direct damage from the earthquake and tsunami in the country is estimated at 25 trillion yen (306 billion U.S. dollars). The government promised to give an big sum of money to the reconstruction, but then the question arose: where to get the money?

Japan has a huge national debt and the Bank of Japan can’t put liquidity into market indefinitely, economists say.

The Government of Japan, that agreed to pay from the budget $ 12 billion for reconstruction, has already come close to the limit line on the bond issue.

Nowadays Japanese economy has the national debt of 200% of GDP, at that the amount of borrowing before the earthquake had to grow this year to a record 12.2 trillion dollars

In recent days, are breaking down the initial optimistic forecasts of analysts that predicted that the earthquake that happened in March 11 in Japan’s will not have a significant impact on the economy of other countries.

But in April it became clear that this earthquake led to the formation of not only the tsunami that swept away from from the face of the earth fishing villages and destroyed nuclear reactors, but also led to other economic tsunami that is now spreading around the world. This huge wave is gradually eroding the established relations of companies with suppliers of components, affecting the interests of producers from Louisiana in the U.S. to Thuringia in Germany.

Bank Rietumu: successful indicators in 2010.

Net profit of Rietumu bank totaled 4.6 million euro in 2010, profit Rietumu Group — 9,7 million, as it was said by the Latvian financial group by the results of the meeting of shareholders that took place in Riga. The volume of assets of bank Rietumu amounted to 1.6 billion euro on 31 December 2010, its loan portfolio — 763 million, the amount of customer deposits — 1.4 billion and shareholders’ funds — 196 million. Capital adequacy ratio — 17,8%.

As it was said in a statement of the financial group, the shareholders’ meeting adopted a decision not to disturb the net income and to leave it in possession Rietumu bank.

The head of Central Bank of Russian Federation: The inflation rates will descend

The head of Bank of Russia Sergei Ignatiev believes that in the next 4-6 years, Russia could reach the level of annual inflation of 3-5%, and offers to proceed from a zero budget deficit in economic planning for the next 10 years.

‘Inflation rates 5.3% in the coming years — this is the normal and achievable goals, ‘ - Ignatieff said during a meeting on the adaptation issues of the ’Strategy 2020‘.

Ignatiev reiterated the estimate of inflation of 6-7%, with the following tendency to reduce this indicator.

Dmitriy Medvedev tried on BRYUKI

In April China hosted the third summit of the group of countries that includes Brazil, Russia, India, China and now South Africa. Instead of the popular Latin abbreviation BRIKS the Russian President jokingly suggested the use of Russian — BRYUKI. ‘We held frank and deep discussions and reached broad consensus on strengthening cooperation within the framework of BRIKS as well as to strengthen coordination on the international and regional issues that present the common interest’ — as it is mentioned in the declaration by the results of the meeting. In the declaration, the leaders of BRIKS also recorded that they are still interested in the achievement of the objectives of reforming the International Monetary Fund, welcomed the reform of the international monetary system, noted the risk that creates for the recovery of the global economy excessive price fluctuations in food and energy. In addition, they expressed the support for the development of renewable energy, that nuclear energy will remain as an important element in future energy balance of the BRIKS countries, and the climate change is one of the global threats, etc. In BRIKS are represented the largest state of three continents — said after the meeting, Dmitry Medvedev. And our economic potential, our political possibilities and the prospects are exceptional in this sense.

Russia’s president drew special attention to the fact that all members of BRIKS (Russia and China — are permanent members, others — in order of rotation) are a part of the UN Security Council.

Meanwhile, Dmitry Medvedev explained that the experts will specify the reached agreement on the reform of the International Monetary Fund and World Bank as well as measures to reduce the volatility by the summit ’G-20 ‘ which will be held in May in France.

According to Medvedev, the BRIKS countries are united not only on the basis of the growing economy, attractive markets, but also because Brazil, Russia, China, India and South Africa have common views on the development of international life, world economy and political processes.

Capital outflows from Russia: in the firs quarter — $ 21.3 billion.

In the first quarter of this year (January-March) net capital outflows from Russia amounted to $ 21.3 billion against last year’s figure of $ 14.7 billion, according to official information of the Central Bank of Russian Federation. The Deputy Minister of Economic Development Andrei Klepach said that the Ministry of Economic Development registered a capital inflow into Russia last March for the first time in recent months.

Net capital outflow from Russia in February totaled $ 6 billion, previously reported first deputy chairman of Bank of Russia Alexei Ulyukayev.

The last two decades have made the poor Russians even poorer

Over 20 years of economic reforms in Russia, the level of real income of the 20 percent of poorest Russians fell into the 1.45 times, and another 20 percent — in 1,2 times.

This is stated in the report of the Higher School of Economics named ’The level and way of life in Russia in 1989-2009 years‘and ‘Comparative analysis of consumption and expenditure on housing’

Another 20 percent of Russians did not feel a real change compared to 1988, because their income remained at the same level. The income level of the 20 percent of richest Russians went in twice, and of the remaining 20 percent — a quarter. Thus, this means that over the past 20 years, a layering of the population has significantly increased, moreover, it increased to 8 times faster than in Hungary, and five times faster than in the Czech Republic (in both countries there were similar processes with Russia).

Director of the world bank in Russia: pieces of advice of the strange

World Bank Director for Russia Pedro Alba advises Russia to reduce the budget deficit by raising excise taxes on vodka and cigarettes. He also says, that is necessary to work on improving of the efficiency of the economy, not relying onle on privatization, though it is-a good idea. State’s share in Russia’s economy long ago became a subject for debate, but it is still very high. Now officials have decided to reduce the public sector. This step will simultaneously contribute to the development of the Russian financial market. According to Pedro Alba, the Russian assets attract investors. It’s just a matter of time the question of execution of the declared privatization program. As example — sale of state shares of VTB bank. As he believes, the transaction took place quite well. According to the assets that are represented in the privatization program the interest will be high. For example, the ‘Russian Railways ‘ are characterized by good governance, Rosneft signs partnership agreements at the global level, and so on. The experts of the World Bank consider inflation as the most dangerous risks for the Russian economy. The prices are rising not only because of the increase of social spending — it is a worldwide trend. Food becomes more expensive in the world. In Russia, the growth of prices for food was accelerated by drought in 2010. In general elections are more important for the citizens of Russia, because their impact on the economy is not significant, said Pedro Alba.

Ukraine: what impedes the process of inviting investments?

Ambassador of France in Ukraine Jacques Faure believes that the activities of the State Customs Service and the State Tax Service impede the process of inviting investments in Ukraine. While saying that he analyzed some certain examples of difficulties, which European, and in particular French companies face during their activity in Ukraine. There are three basic categories of problems faced, where the first is the Customs’ viewpoint. ’While the government has declared out loud it’s great desire to invite foreign investors, the representatives of the Customs Service recently have systematically refused to accept bills of entry indicating the correspondent value of customs goods, imported to Ukraine by French and European companies’ — said Faure. Furthermore, according to him, the Customs authorities sometimes arbitrarily raise the customs value of particular goods in 5-6 times.

‘The second category of difficulties is in the relationships with tax authorities, which frequently use as cover the praiseworthy thesis of combatting corruption. Nobody contests it. But when we see certain examples, certain approaches, applied for so-called combatting corruption, it is clear that something is going wrong here.’ — said the Ambassador. According to Faure, every month or even every 2 weeks tax inspections create such conditions that prevent business from functioning properly.

"The third category of difficulties according to the Ambassador is improper loyalty of intellectual property in Ukraine, improper loyalty of patent rights and stimulation of non-legal actions alike on the part of judicial bodies.

The Ambassador remarked that these aspects and also Ukraine’s positions lowering in investment attractiveness international rating allow to speak about deterioration of business environment in the country on the whole. In the first quarter of the year the Ukrainian Cabinet of Ministers forecasted the involvement of 100 billion hryvnas of investments in the country’s economy.

Moscow, April: conference against money laundering

The IXth International Research and Practice Conference took place In Moscow, it was devoted to money laundering counteraction and financing of terrorism: ‘World tendency of MLC/FT system development and its realization in Russia’. The event was held on the 25th of April 2011 in Marriott Grand Hotel. The sponsors were — VTB and Rosbank. The conference was organized by the Association of Russian Banks, Bank of Russia, and Federal Service for Financial Monitoring involving the State Duma of the RF and international organizations.

The conference allowed to analyze new world tendencies of criminal money laundering counteraction and financing of terrorism system development and their realization in Russia; to fetch out peculiarities of risks, connected with MLC/FT in credit organizations’ activity; to discuss a new edition of recommendations from Financial Action Task Force on improving of Russian MLC/FT system and actions of RF authorities on specification of corresponding measures of the applicable legislation; to discuss the advanced practices of MLC/FT policies’ realization by Russian and foreign banks; to offer extra regulations on cooperation efficiency upgrading between Russian banks and state authorities in the field of criminal money laundering counteraction, and also to get professional advice from the leading specialists of field-oriented departments on topical issues.

British Finance Minister declared ‘budget to grow‘

British finance Minister George Osborne announced in Parliament budget for a new financial year and explained how the government was going to reset the dead economy and guarantee future prosperity. With the aim of supporting transport and business Osborne didn’t raise, as it was expected, but cut fuel excise duty by one penny per liter. It also will soften the effect of sharp rise of world oil prices for British drivers, for whom it’s becoming more and more pricy to fill tanks.

Fuel price stabilization mechanism is being created, which would be done by British oil companies at their own expense, spending on it 2 billion pounds per year.

With the purpose of stimulating house construction 10 thousand Britons, who want to buy their first house, will get a financial help in the amount of 250 million pounds.

This will lead to creating of 50 thousand working positions in the field. Corporate taxes will be cut and they will be the lowest out of all the countries of the Big 7. This budget loss is supposed to be compensated by raising bank fees. ’The world should see that Great Britain is open for business", — said Osborne. The main task of the last year Britain’s emergency budget was to reduce the big internal debt. This time George Osborne made emphasis on measures leading to recovery of the economy growth.

On the eve it was announced that inflation in the UK has risen till 4, 4 % comparing to 4% in January. It may be explained by the price increase on food, oil and clothing. George Osborne supposed that the inflation would be on the level of 4-5 % during the whole year, before it dropped down, in years to come, to desirable 2%.

The Minister of Finance acknowledged that the favourable results of the measures, announced by him, won’t be visible soon, but will provide safe future, especially for next generations. Provisions for science and education are very important for that. Thus 100 million pounds are allotted to research centers of Cambridge and three other universities. It is planned also to double till 24 the amount of grant-aided technical colleges, and to educate additionally 40 thousand young men for professions, that do not require higher education.

Drawing up a budget for financial year 2011, George Osborne looked toward lessening the weight of economic decline for ordinary citizens, with no indulgence to well — off people. Because of that the media compares this conservative politician to distinguished robber Robin Hood, who took money from the rich and gave it to the poor. The Ministry of Finance of the Great Britain also froze the excise duty on alcohol, but raised it on tobacco by 2 %. George Osborne said that the airfreight tax rise which was planned this year was abolished, as because of it the citizens would have to pay more than usually for their vocations abroad.

Hong Kong: the world’s highest hotel is built.

The world’s highest hotel — Ritz Carlton — Hong Kong — has opened its doors for visitors. The height of the complex, which is the highest building in the city, is 490 meters. The hotel has 312 rooms with the total area of 50 000 square meters. Presidential suite costs 12.8 thousand dollars per night, and delux room — 770 dollars per night. The international commercial center with a fabulous view overlooking the harbor is situated on the territory of the hotel of 1300 square meters between the floors 102 and 108. But for business negotiations one doesn’t have to go that high. There are negotiation rooms on the 3rd and 8th floors. What is more this unique hotel has external verandas and swimming pools, and also bar Ozon, which is the first and the only one in the world to be placed so high. The hotel is equipped with internet, and in every room there is a personal telescope. The hotel is situated just within 20 minutes ride from Hong Kong International Airport and has the most surprising all-round view.

The president of the RF visited Hong Kong for the first time in history.

The president of the RF visited Hong Kong for the first time in history. The head of the Russian Federation had a number of meetings; among the main issues of the negotiations was collaboration in the sphere of finance, investments and new technologies.

Medvedev had a meeting with Donald Tsang, the head of this special administrative region of the People’s Republic of China, and Hong Kong businessmen, and visited Hong Kong stock exchange.

The president of Russia said that his visit to Hong Kong brings the level of cooperation between the parties up essentially. Medvedev remarked that as a result of Tsang’s visit to Moscow, the contacts between Hong Kong and Russian provinces and the economies on the whole, became significantly stronger. "You also named some figures, which characterize our cooperation. On the one hand they are really good but we shouldn’t calm down now, there are great prospects for economic ties development and humanitarian collaboration strengthening, — he said.

President Medvedev: foreign investors don’t trust the RF.

President Medvedev declared it at the meeting of modernization commission, which took place in April in Magnitogorsk. Medvedev called investment climate in the country as ‘very bad’. According to him this is the fault of corruption and tax burden rise — says Information Telegraph Agency of Russia. Medvedev said:" the grasp of corruption does not grow weaker, it has by the throat all the economy‘. Dmitry Medvedev instructed the RF Prosecutor General to bring into action a special mechanism of complaint investigation of corrupted civil servants.

New passions about Greece problems.

Chancellor of Germany Angela Merkel declared in April that there shouldn’t be any expectations regarding the last EU summit certain decisions on delivery of assistance to Greece. ’EU leaders shouldn’t create illusions in the market stating that the Greek issue may be solved in the short run. Thus Germany continues to defend its rigid position in this issue, notwithstanding the fact that chairman if the European Commission Barrozu insists on early solution of the Greek issue and appeals to the heads of EU countries to make an agreement on delivery of assistance to Greece. The thing is that Angela Merkel’s government is limited in its action as much as Papandreou’s government. In Greece the plans of the government to reduce budget expenses, that means scrapping all social programmes and raising taxes, are met with high power resistance on the part of the citizens. Strikes paralyze Greek economy, making it impossible to implement unpopular reforms, which EU, primarily Germany, insists on.

Such a high power resistance of the Germans is aimed at the government’s decision to help Greece at the expense of Germany. As you know, if the EU decides to help Greek government — Germany as the main EU contributor, whose economy is integral of the euro zone, will face all the weight of the decision. So Merkel is at the risk of having the same situation in the country — waves of powerful resistance in case she chooses to help Papandreou.

Meanwhile Papandreou under the pressure of protest waves in his country brought forward an ultimatum that if the Greek issue wouldn’t be solved during EU summit, Greece will apply to the International Monetary Fund. Analysts remark, that Greece is not capable to solve its problems on its own. Meanwhile Greece is starting the process of privatization of 50 billion euro state assets. This was announced by the government in April. According to the plans of Greek government, it will happen by 2015. Funds received will help the country, as expected, to manage with a huge state debt, which is now estimated approximately at 340 billion euro and to reduce the budget deficit. The details of the privatization plan and cutting budget expenses will be published after the Easter (April 24th).

According to preliminary data, Greece is going to reduce the state share in power corporation PPC from 51 to 34 percent. Then the authorities are planning to bring their participation in Telecommunication Company OTE to 20 percent and to privatize one of the biggest banks — ATE bank. At the end of 2010 the Greek government also announced its plans to sell in 2011 its share (55 percent) in Athena Airport, and also to find a strategic investor for Defense Company EAS and Gas Corporations DEPA and DESFA. Las year Greece was at the edge of default because of the growing debt and had to use the help of the EU and IMF.

Instead the authorities promised to bring into action a range of measures for reducing budget expenses, including reduction of wages and rise of taxes. These steps led to protest action on the part of the citizens.

Taxmen strengthen the collaboration.

Tax authorities of Great Britain and Ukraine announced in April their intension to sign in foreseeable future a memorandum on mutual understanding. The decision was taken after the visit of Ukrainian taxmen to London. The memorandum will let the representatives of tax authorities of both countries activate their effort on tax collection, and also start work on data exchange coordination. International collaboration of both countries is regulated by the Convention on Mutual Administrative Assistance in Tax matters.

At the same time in April it was reported that Switzerland and Luxembourg will share the data with Russian taxmen. Luxembourg and Switzerland will sign with Russia amendments to Double Tax Avoidance Agreement, which will let Russian taxmen simplify the access to the data of the countries mentioned above, which is tax and bank secrecy. According to the Head of International Tax Policy Department of the RF Ministry of Finance Dmitry Nikolaev, the negotiations with Luxembourg and Switzerland are finished and the parties are adjusting the projects of correspondent documents signing. According to the existing agreement with Luxemburg dated 1993, the parties are not obliged to open the data, which is commercial and advocate secret. And similar agreement with Switzerland dated 1995 didn’t even include the article on data exchange. Nikolaev added that the Russian part is holding talks with Austria and Belgium, and they are practically finished with Belgium. In Austria they expect that the data exchange agreement with Russia will come into operation not later than 2013.