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. Last Updated: 07/27/2016

Premier Defends Investment Climate

Prime Minister Viktor Chernomyrdin said Monday that Russia's investment climate had improved over the past year, despite the recent announcement of a major credit rating agency that the country had become a riskier place to invest.

Chernomyrdin, speaking after the ninth session of the government's Foreign Investment Advisory Council, said the decision of Moody's Investors Service to downgrade Russia last week would not deter investment.

"The agency that lowered Russia's rating made a mistake," he said at a news conference with top Western executives from multinational corporations that have major investments in Russia. "It will not affect investment."

Moody's downgraded Russia on Wednesday, saying the country remained vulnerable to tremors from Asia's financial crisis and needed to boost tax collection.

Former Economics Minister Yevgeny Yasin, currently a minister without portfolio, said Moody's had failed to notice that tax collection in cash had been improving. He suggested that the agency may have acted too cautiously after being criticized for failing to predict Asia's economic troubles.

"They were wrong about Asia, and now they are afraid of being wrong about Russia," he said.

Chernomyrdin said Russia had made progress over the past year, posting modest economic growth and surviving turmoil on world markets.

The government responded to the market upheaval by raising interest rates to shield investors from the possibility of a ruble devaluation. But Chernomyrdin said its chief aim this year is to lower rates even further to stimulate investment in the real economy.

Russia last year attracted $10.5 billion in foreign investment, compared to $6.5 billion in 1996. But Russia received only $4 billion in 1997 in the form of direct investment, double the amount in 1996 but still paltry in comparison with other former Communist countries.

Chernomyrdin said he expected foreign investment this year to increase 10 percent to 15 percent and to reach $20 billion in 2000. Total foreign investment in Russia since reforms began totaled $21.8 billion, about half of which was direct, he said.

Chernomyrdin and other Western business leaders said the key to a foreign investment boom would be an overhaul of Russia's troubled tax system.

The government has submitted a revised version of its tax code to the State Duma, urging legislators to pass the bill by mid-summer to ensure it takes effect in 1999.

"It is vital," Chernomyrdin said. "If we do not adopt the tax code we will be marking time."

Foreign investors have been pressing for a reform of Russia's cumbersome tax system, but the government's proposed code was rejected by the opposition-dominated Duma last year.

Western executives said they had high hopes that tax reform would be passed this year.

"We are not far away from success in terms of having a code which will bring Russia the kind of investment it deserves," said Neville Isdell, president of Coca-Cola's European operations.

Others said they were heartened by their talks with government leaders Monday.

"I feel more encouraged today than I have in a long time," said Percey Barnevik, chairman of the Swiss-Swedish engineering giant ABB, which employs more than 6,000 people in Russia.

Chernomyrdin said the government would press ahead with plans to give special breaks on customs duties to foreign companies investing in automobile production in Russia, despite criticism from the International Monetary Fund.

"We are convinced that this approach to stimulating investment is right," he said.