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. Last Updated: 07/27/2016

BUSINESS WEEK IN REVIEW: February 1 to 7




Budget Passed, IMF leaves


The State Duma gave its final approval to the draft 1999 federal budget. The chamber passed the budget on the fourth reading by a vote of 308-58, with six abstentions. The document envisages total revenues at 474 billion rubles ($20.6 billion at Tuesday's official rate), expenditure at 575 billion rubles, and a deficit of 2.54 percent of gross domestic product.


Even as the lawmakers passed the budget, visiting delegates from the International Monetary Fund announced that they were leaving and would not consider releasing any funds until the budget proved workable over several months. Top Kremlin officials who had pushed the Duma, Russia's lower house of parliament, to pass the budget had hoped that lenders would consider its approval a sign that Russia was getting its economic act together.


Reserves Managed Offshore


Russia's Central Bank, instead of managing Russia's foreign currency reserves itself, placed $50 billion over five years with a little-known offshore asset management company. Prosecutor General Yury Skuratov revealed the practice in a letter on Feb. 1, a day before he resigned. From 1993 to 1998, Skuratov said, Russia's critically important foreign currency reserves f used to defend the ruble on currency markets f were turned over to a company called Financial Management Company Ltd, registered in the island tax haven of Jersey in Great Britain. According to the letter, the Central Bank, instead of managing the government's money itself as state banks generally do, paid a commission to FIMACO to do it. Officials were mum on the amount of the commission.


Inkombank Wins Ruling


Inkombank has won a court case demanding $4 million in overdue loans from state arms trader Rosvooruzheniye and vowed to file additional lawsuits against borrowers owing it more than $230 million. The Arbitration Court of the City of Moscow on Feb. 1 upheld Inkombank's suit demanding the return of the money, Inkombank reported last week in a news release. The court rejected Rosvooruzheniye's argument that its debt to Inkombank should be erased because it has lost money in an Inkombank account.


State Helps Pay Rail Bonds


It can't pay its own sovereign debts, but the Russian government moved to help pay off 435 million rubles ($19 million) of bonds issued by the company set up to build a high-speed rail link, accepting as collateral a grab bag of condemned buildings, a half-built hotel and an uncertain share portfolio. The Finance Ministry sidestepped State Duma opposition to push through a loan of 80 million rubles for RAO VSM that will allow the company to pay off almost all the company bonds that are held by private individuals. Corporate holders of the bonds will have to wait for their money for now, although VSM is lobbying hard for the state to cover those obligations also. VSM missed bond payments due in September and October.


Foreign Companies Grapple


The Russian subsidiary of major U.S. insurance company American International Group lost its license as a result of a dispute with the market regulator, the Finance Ministry's Insurance Supervision Department. The subsidiary, RUS AIG, in which American International Group owns a 49 percent stake f the maximum allowed by Russian law for insurance companies f saw its license withdrawn by the supervision department on Jan. 20. According to sources in the Finance MInistry, the license was pulled because RUS AIG had illegally engaged in activities that required additional licensing. The insurer was given three months to comply with the regulations but failed to do that, said one ministry official, speaking on condition of anonymity.


Britain's Del Monte International, a major producer of fruit juices and canned fruit, said it is closing Russian operations. Local officials said production has stopped, and the company's distributors say they are selling out the last of their stock. "It is all over now," said a senior manager at Continental Beverages Central, or CBC, Del Monte's partner responsible for distributing its products in Russia. The joint venture between Del Monte and CBC, set up in 1996, is in the process of liquidation, the manager said.


Troubled Aeroflot Skies


A management shakeup is under way at Russia's flag carrier Aeroflot, which is apparently trying to mend its corporate image by ridding itself of the influence of tycoon Boris Berezovsky. Aeroflot chief executive officer Valery Okulov fired 10 executives, some of whom are rumored to have strong links to Berezovsky. Those fired included five of the airline's vice presidents. The changes came just hours after prosecutors raided offices of several Moscow companies, allegedly associated with Berezovsky, to probe allegations that companies controlled by Berezovsky were involved in siphoning off Aeroflot's revenues.