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. Last Updated: 07/27/2016

EU Firms Press Kremlin on Economic Policy

A club uniting 300 European companies doing business in Russia made public Thursday a letter spelling out a set of suggested economic measures the Russian government ought to take if it wants Western investors to continue to do business here.

"Time is running short and many companies will be thinking of getting out at the end of the year if things do not start changing for the better," said Seppo Remes, the chairman of Moscow's European Business Club, which includes corporations from the 15 member states of the European Union.

Remes, who also heads the Moscow office of the Finnish oil company Neste Oy, said that though he does not yet know of a single EBC member company in the process of withdrawing from Russia, he has heard of some making such plans.

The EBC's advice contradicts that of the International Monetary Fund in that it calls for some printing of rubles. The EBC's letter, written to Prime Minister Yevgeny Primakov and Central Bank chief Viktor Gerashchenko, urges the state and the Central Bank to restore liquidity to the commercial banking system f either through mutual offsets among banks and companies or through a "limited targeted monetary emission accompanied by the strictest controls to prevent the outflow of such money onto currency markets and abroad."

The IMF has opposed talk of "limited" emissions, arguing that once a state begins to print money it is politically too hard to stop in time to prevent an unacceptably high level of inflation.

Remes said that European Commission President Jacques Santer, who arrived in Moscow late Thursday, was familiar with the EBC's letter and was likely to raise some of its main points with top Russian officials.

Reviving the banking system is particularly important for European importers, who Remes said are among the worst hit European companies in Russia. As an example he cited Neste's wholesale gasoline import operations f which constitute a small part of Neste's business here but have stopped completely.

Fifty percent of Russia's foreign trade is with EU nations, the EBC said.

The EBC also asked the government to help Russian banks meet their domestic and international obligations, especially on trade financing debts, and also asked the government to give foreign banks more freedom of action in Russia.

"[Measures to restore confidence in the banking system] would be a way to draw into circulation the $40 billion in savings that Russians now keep under their mattresses," Remes said.

Echoing proposals a group of foreign CEOs put to Primakov in a meeting last week, the EBC also called for lowering taxes on firms with production facilities in Russia. Remes said taxes for such companies now reach 70 percent to 85 percent of profits, making it "almost impossible to operate."

The EBC is also pressing for the passage of production-sharing legislation, arguing it would not only help the oil sector, but also help revive the Russian defense industry, which would benefit from orders from the foreign oil companies that would flock to Russia to take advantage of such an arrangement.

"When it comes to financial investors, the game is probably lost for Russia for many years f they will not come back anytime soon," Remes said. "But when you're an investor in production, you cannot just put your factory in your pocket and leave. People are waiting to see some specific steps from the government, and if they are not taken, in two or three months they may be pulling out."