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. Last Updated: 07/27/2016

Putin Vows to Ease Currency Control

President Vladimir Putin told the country's top businessmen Thursday that foreign currency rules would be relaxed and the Central Bank and the government have until the end of June to recommend how.

"Without a solution to this problem, many other problems in the sphere of economics cannot be solved," Putin said in remarks broadcast on television.

Putin previously pledged support for currency reforms in his April address to the nation.

The 30-minute meeting with the Union of Industrialists and Entrepreneurs, referred to in the press as the "union of oligarchs," was "purposeful, efficient and fruitful," said union president Arkady Volsky.

In addition to currency liberalization, the group discussed tax and judicial reforms and Russia's possible entrance into the World Trade Organization.

The magnates cheered Putin's support for loosening currency controls, despite a lack of clear steps. The government's approach would be to "do no harm," Putin told the group.

"Putin's point of view is close to ours," said Oleg Kiselyov, chairman of the Board of the Metalloinvest holding.

Three things that will help prevent a negative outcome from such reforms, said Kiselyov, are the amount of hard-currency earnings that must be repatriated and sold, equalizing the rights of non-residents and residents and allowing Russian individuals and enterprises the right to export currency.

Current rules force exporters to sell 75 percent of their hard currency revenues to the Central Bank, which uses this mechanism as a way to control the ruble rate.

"To stem capital flight, we must allow capital export," said Vladimir Potanin, head of the Interros group who urged Putin to let Russian individuals and enterprises hold foreign bank accounts and invest their money where they like.

Currency liberalization would benefit Russia's major oil and metals conglomerates, which in the past year have begun buying or eyeing foreign assets.

"Many Russian companies are expanding into other markets, and would like to acquire assets abroad. To do so, these companies need the permission of the [Central Bank], which is difficult to get. Liberalization would make it much easier to purchase foreign assets," said Yekaterina Malopheyeva, vice president of research at Renaissance Capital.

The primary reason for capital flight is an unstable tax system, said Potanin. He told journalists that Kasyanov agreed that a legal limit on the tax burden should be established. The group is preparing proposals on a "tax cap" that should be submitted to legislators in July, said Kakha Bendukidze, head of the UralMash-Izhora heavy machines group.

In addition to foreign investment opportunities, Potanin called for a level playing field in terms of taxes.

"If I remember correctly what [Yukos head Mikhail] Khodorkovsky said … the PSA regime should not be more favorable than the national tax system," Potanin told reporters, as that would create an advantage for foreign investors denied to local companies. "[The national tax regime] is becoming civilized, normalized and transparent. … When that happens PSAs won't be necessary."

Putin and the union agreed on issues of judicial reform, union representatives said. In particular, the union is pushing to streamline the judicial hierarchy, increase the role of arbitration and improve the work of prosecutors.

Alexei Mordashov, general director of steel giant Severstal, raised a number of issues concerning Russia's entrance into the WTO. He said that Putin agreed to consider the union as "one of the sides in forming Russia's position in the WTO negotiation process."

Putin and the magnates also agreed to meet more frequently.

At the last meeting on Jan. 24, Putin pledged to support business's interests, as long as business agreed to play by the rules. He also requested donations to a fund for wounded soldiers or families of soldiers killed in combat. Within 10 days, union members had scraped together 1.5 billion rubles ($52 million).

Volsky ended the news conference with a plea. "I have one request. Please don't write the 'Union of Oligarchs' any more. … If you remember, Lenin called oligarchs capital intertwining with power. That doesn't happen anymore, we're moving away from that."