Russia and the international economy

                                  OUTLIINE



     1. Russia within the International Trade System 3

     2. Regulation of External Economic Activities..4

      3.   Foreign Trade Pattern.6



     1. Russia and the international trade system

      According to a medium-term forecast for developments in  the  area  of
the international economy, business revival  is  cumulating  momentum  after
the recession it experienced in early 1990s. It had  a  relevant  effect  on
the world trade. In 1994 the average international trade turnover  showed  a
9.5 percent growth being a record figure in the  last  20  years  and  by  3
times exceeding the increase in the international production.  In  1995  the
World Trade Organization estimated 8 percent increase in trade  turnover  as
compared with a 3  percent  growth  in  the  world  production.  World  Bank
experts think that in the next 10  years  an  average  increase  in  foreign
trade will make 6 percent annually.
      An economic run-up in most industrialized countries was followed by  a
growing  demand  for  many  products  and  a  consecutive  price   hike   on
international markets.
      Oil markets showed a balance of demand and  supply  in  1995.  Average
prices of Dubai oil were at $ 123 per metric ton, by 14.9 percent  exceeding
1994 averages. Owning to small increase in the  world  oil  consumption  and
practically unchanged supply situation no perceptible change  of  prices  is
expected.
      A trend of natural  gas  prices  on  markets  in  Western  Europe  was
practically the same as the oil price dynamics. In 1995 average prices  were
by 13.4 percent higher as compared with 1994.
      Prices of nonferrous metals have risen dramatically. In  1995  average
world prices were as follows: aluminum  --  $  1806  per  metric  ton  (20.3
percent rise in comparison with 1994), copper --  $  2933  (higher  by  23.3
percent), nickel -- $ 8063 (19.3 percent growth).
      As a result of the 1994-95 record price  surge  in  the  whole  period
after the World War II cellulose joined the leaders with a 50 percent  price
hike (up to more than $ 1000 per metric ton). According  to  a  middle-range
outlook price stabilization accompanied by a slight price rise is expected.
      As market relations  develop,  process  of  internal  price  structure
formation continues in Russia and it gradually closes to  the  price  system
existing on  world  markets.  In  1995  contract  prices  grew  perceptibly,
however, prices of a majority of energy resources  lagged  behind  those  on
the world trade markets in terms of rates of increase.  The  outcome  was  a
worsening balance between contract and world prices.
      An important role in development of the international trade is  played
by the GATT/WTO which for 48 years tried to work out the fundamentals  of  a
future world trade basing on principles of  observance  of  the  Agreement's
general regulations  aimed  to  keep  up  non-discrimination  of  individual
states and  to  a  gradual  elimination  of  barriers  slowing  down  mutual
exchange of commodities. Since 1950 the world trade turnover  has  increased
by 13 times and eight rounds of multilateral trade negotiations  held  under
the GATT's auspices have led to a ten-fold cut of  average  customs  duties.
At present it makes a bit less than 4 percent.
      Russia's accession to the  WTO  will  make  it  possible  to  tap  all
measures existing within the framework of  this  organization  in  order  to
protect  Russia's  economic  interests.  At  present  direct  or   concealed
discrimination of Russian  producers  and  traders  on  markets  of  certain
countries is among factors affecting Russian exports  dynamics.  Thus,  only
the ban on Russian uranium exports to the USA has led to losses for  Russia,
as estimated by some experts, at $170 million a year. The  total  number  of
anti-dumping procedures imposed upon Russia has  reached  41.  More  than  a
half  of  them  (22)  are  qualified  as  openly  discriminatory  cases   or
unjustified claims by the Ministry of Foreign Economic Relations.

      In the summer of 1995 the first  round  of  negotiations  between  the
Russian delegation and the WTO's Working  Group  on  Russia  took  place  in
Geneva. Members of the Working Group apprised information on  foreign  trade
regulations stated in the Russian Memorandum as exhaustive enough.
      An outcome of the second round taking place from December 4  to  7  of
1995 was the completion of discussion  of  the  Russian  Memorandum  on  the
foreign trade  regime  as  concerns  trade  in  goods.  Besides,  the  first
discussion on special annexes to  the  Memorandum  embracing  protection  of
intellectual  property  rights,  trade   in   services   and   trade-related
investment measures was held. At the same time,  the  WTO  member  countries
have reserved the right to revert to a  detailed  discussion  on  three  key
issues: if state-owned trade organizations exist in  Russia  (Moscow  denies
this); import licensing; subsidizing of external operations.  However,  even
now they agree in principle that the Russian legislation  is  in  accordance
with the WTO's  rules  and  norms  in  these  areas  of  the  foreign  trade
regulation.
      There are no apparent opponents to  Russia's  accession  to  the  WTO,
since the world trade, especially in the area of  trade  in  raw  materials,
cannot be regulated without participation of Russia. However, the  admission
of Russia may be surrounded  by  a  number  of  additional  obligations  not
directly following from the WTO requirements. Bilateral  consultations  held
in Geneva have shown that Russia will face some complications in the  course
of tariff negotiations.
      On the whole, the outcome of the second round of Geneva talks has been
successful for Russia.

2. Regulation of External Economic Activities

      In 1995 certain changes were introduced to the mechanism of the  state
regulation of the foreign trade.  In  the  first  half  of  1995  the  state
regulation of oil exports was substantially amended: quotas and licenses  in
oil exports were abolished alongside with  preferences  (with  exclusion  of
supply pursuant to intergovernmental agreements) while export duties on  oil
and oil products were  significantly  reduced;  certain  oil  products  were
excluded from the list of strategically  important  commodities.  Producers'
access to  channels  allowing  transportation  of  oil  to  other  countries
(pipelines and terminals  in  sea  ports)  became  a  natural  restraint  on
exports.
      The list of strategically important raw commodities was shortened  and
the institution of special exporters was abolished  altogether.  The  system
of contracts' registration  became  the  main  instrument  of  control  over
exports.  Individual  preferences  granted  to  participants   of   external
economic activities were abolished, excluding  those  issued  in  accordance
with the laws of the Russian Federation.
      The law "On State Regulation of Foreign Trade" adopted  in  July  came
into force in October. The law stipulated what authority in this area  shall
be with the President, the Government and the Ministry of  Foreign  Economic
Relations. The exclusiveness of the MFER's position was  emphasized  by  the
fact that only it was vested with the right to  license  import  and  export
transactions  subject  to   quantitative   restrictions   or   to   approval
procedures.
      As pursuant to the law, the Russian Government shall submit a  program
of foreign trade development together with a draft  of  the  Federal  budget
for the Parliament's approval. Alongside with other provisions this  program
shall embrace customs tariff rates planned for the year in question as  well
as the band of their possible fluctuation, thus  making  the  foreign  trade
more predictable. The Government has  the  right  to  introduce  export  and
import quantitative restrictions on national  security  grounds,  to  comply
with international agreements or to protect the  domestic  market,  however,
these measures shall be announced not less than  3  months  prior  to  their
actual introduction. The law envisages  a  possibility  to  introduce  state
monopoly for trade in certain products. In this case a special procedure  of
licensing  import  and  export   operations   exclusively   to   state-owned
enterprises shall be applied.
      As the above mentioned law was effectuated, the Commission of  the  RF
Government on Safeguard Measures in Foreign Trade  became  fully  legitimate
and  in  December  it  received  "Procedures  of  Investigation   Prior   to
Application of Safeguard Measures" approved by the MFER  (Russ.abbr.  MVES).
A possibility to  apply  safeguard  measures  against  competitive  imported
products complies with usual practices applicable in  the  world  trade.  In
this area Russia is late in working out and application  of  such  measures,
especially taking into account that Russian exports are often  and  in  most
cases unjustifiably subject to discrimination on foreign  markets.  So,  the
RF  import  regime  loses  its  exceptional  liberalism   which   has   been
characteristic of it until recently.

      Tariff regulation.  From  September  through  December  export  duties
levels were gradually lowered until their complete abolition  since  January
1, 1996, with an exception of a small group of goods including oil,  natural
gas and some other raw commodities.
      In June and in October, 1996 import duty rates were  changed.  On  the
whole, changes were made in direction of an  increase  in  tariffs.  Earlier
goods taxable at 1 percent have constituted a  rather  significant  part  of
the list, at present this rate is only applicable to  certain  goods  within
Group 10 of the External Economic Activity  commodity  nomenclature  (grain)
and 1701 (cane sugar, beet firm sugar and sucrose). A 10 percent  tariff  is
now applied to medicines which earlier have been exempt  from  duties  while
fish and fish products are subject to a double rise of duties (from 5 to  10
percent) and duties on vegetables were tripled (from 5 to 15  percent).  For
foodstuffs earlier exempted from  duties  new  tariffs  made  5  percent  on
bananas and citrus fruits, 10 percent on  tee  and  coffee,  15  percent  on
fresh cucumbers, however, rates of import  duties  in  Russia  still  remain
considerably  lower  than  in  the  EU  countries  (16  percent  against  21
percent). There were effectuated provisions stipulating a  30  percent  duty
on goods  such  as  luxuries,  tobacco  products,  alcoholic  beverages  and
weapons.

      Tax regulation. As  before,  close  attention  was  paid  to  products
subject  to  excise  taxation.  In  July  and  in  December,  1996  a  price
difference between excise stamps and special stamps designated for  imported
tobacco and  alcohol  products  were  adjusted.  There  were  created  equal
conditions for importers of these products both from  countries  within  and
outside of the former Soviet Union (ECU 0.1 per unit of an alcohol  beverage
and ECU 0.01 per unit of a tobacco product). In December the rate of  excise
tax on tobacco products was increased  from  ECU  1.2  to  ECU  2  per  1000
pieces.
      In June the list of products subject  to  a  preferential  10  percent
value added tax was shortened; it was again examined in detail  in  November
and some new products were added to it.  In  December  works  and  services,
both produced  domestically  and  purchased,  being  exported  to  countries
outside the CIS alongside with services concerning the  transit  of  foreign
cargo through Russian territory were exempted from the value added tax.

      Preferences in External Economic  Activities.  In  October,  1996  the
Government  abolished  previously  applicable   preferential   taxation   of
alcoholic beverages imported from abroad by  certain  legal  entities  which
were exempt from customs duties (for instance, the National Fund  of  Sports
and the All-Russian Society of Invalids). Since December,  pursuant  to  the
Presidential Decree "On Customs Preferences" of November  30,  1995,  it  is
inadmissible for Federal agencies to adopt  decisions  which  would  provide
prolongation of preferences in terms of customs duty  exempts  and  receipts
of additional compensations.
      In August, 1996 the control mechanism over  incoming  export  proceeds
denominated in foreign  exchange  was  adjusted.  All  proceeds  in  foreign
currencies shall  be  entered  into  accounts  with  authorized  banks--that
became a requirement of the customs regime. Customs service now  enjoys  the
right  to  control  all  capital  flows  and  apply  relevant  sanctions  if
necessary.
      In September, 1996 the control over exports and imports  of  military-
purposed products, works and services, subject to licensing, was tightened.
      In December the set of instruments of the state control mechanism over
imports was supplemented.  The  system  of  foreign  exchange  control  over
imports introduced on January 1, 1996, is basing on the same  principles  as
the export control existing since 1994  and  envisages  the  same  chain  of
relations:  an  importer--an  authorized  bank--customs.  The  key  document
fundamental for the whole control system is a registration  certificate  for
import transactions.

3. Foreign Trade Pattern

      In 1995 Russian foreign trade was influenced by  differently  directed
factors. A favorable state of the world market and the  governmental  policy
of stimulating exports via regular lowering of export duties provided for  a
further increase in volumes of  trade  with  countries  outside  the  former
Soviet Union and a stable active balance of the foreign trade.
      Estimating Russian foreign trade the following adverse  factors  shall
be  taken  into  account:  a  decline  in  production,  small   amounts   of
investment,  rather  high  inflation  rates,  insufficient  level  of  state
assistance  for  development  of  the  country's  export   potential,   poor
competitiveness of many Russian-made manufactured  products,  especially  of
machines and equipment, lack of positive shifts in development  of  Russia's
external relations with countries of the former CMEA,  huge  external  debt,
discriminatory barriers banning  a  number  of  Russian-made  products  from
external markets. In  connection  with  accession  of  Finland,  Sweden  and
Austria to the EU Russia automatically became subject  to  anti-dumping  and
quantitative restrictions concerning trade with these  countries  in  steel,
textiles, mineral fertilizers, uranium.
      Introduction of the "ruble corridor (fluctuation band)" alongside with
a relatively high internal price dynamics  caused  deterioration  of  export
transactions'  effectiveness.  However,  due  to  liberalization  of  energy
resources exports, the export sector reacted  to  the  introduction  of  the
"corridor" slower and not so sharply as critics of  a  fixed  exchange  rate
had believed. At  the  same  time,  stabilization  of  ruble  exchange  rate
created a sufficiently favorable transaction climate for importers  allowing
them to compensate a part of the loss inflicted by  an  increase  in  import
tariffs.
      Goskomstat  reports  that  the   Russian   foreign   trade   turnover,
unorganized trade including, made $ 135.7 billion in 1995, or by 16  percent
more in comparison with 1994 figures. Exports were at $ 77.8 billion  (a  18
percent increase) and imports at $ 57.9 billion (by 15 percent more).
      The results of external economic activities in 1992 through  1995  are
indicative  of  the  fact  that  Russia  re-oriented   its   trade   towards
industrialized countries and that the share of countries outside the  former
Soviet Union in  the  total  foreign  trade  turnover  has  grown.  In  1995
countries outside the former USSR accounted for 78 percent of  it.  In  1992
through 1995 exports to these countries increased at a record  rate  in  the
last 20 years with exports showing a 25 percent growth ($ 64.3 billion)  and
imports (together with unorganized trade) increasing by 12 percent  ($  41.6
billion).
      In 1995 growth rates slowed down  considerably.  Thus,  while  in  the
first quarter exports grew by 45 percent as compared with  the  same  period
in the last year, in the second quarter it made only 29 percent  and  showed
a modest 15 percent increase  in  the  third  quarter.  Undoubtedly,  export
growth rates were affected by the  "currency  corridor  (fluctuation  band)"
introduced in the second half of the year.
      As before, the bulk of Russian exports consists of raw materials. Fuel
and energy resources account for the biggest share (41 percent) of  exports,
while  the  Fuel-and-Energy  Complex  production  (oil,  natural  gas,   oil
products) becomes more and more oriented towards external markets.
      In 1995 a decline in export growth rates in real terms was observed as
natural gas exports increased by  11  percent  (14  percent  in  1994),  oil
products grew by  8  percent  (11  percent),  oil--by  only  1  percent  (11
percent).
      Growth of exports as calculated in value terms was primarily caused by
a favorable situation on the world market. Average contract  oil  prices  of
exports in the countries outside the former Soviet Union increased by  about
7 percent as compared with 1994 figures, natural  gas  exports  grew  by  10
percent while oil products showed a 6.6 percent increase.
      Metal exports accounted for a 20 percent share in the Russian exports.
Nickel and ferrous metals exports grew most rapidly at  37  and  26  percent
accordingly. Average export prices of key  metals  surged,  thus,  price  of
nickel increased by 33.1 percent, of aluminum--by 36.9 percent, of  copper--
by 24.2 percent, of ferrous alloys--by 24.7 percent, of  pig  iron--by  14.6
percent.  The  pattern  of  metal  exports  has  somewhat  changed.  Customs
statistics reveal a growing number of contracts on export of finished  metal
articles, however,  their  share  in  the  total  export  volumes  is  still
insignificant. These  articles  are  being  made  according  to  designs  of
foreign companies (mostly in aircraft and engineering  industries)  under  a
binding condition that they shall be manufactured  in  accordance  with  the
West European standards and certified by a foreign firm. It is too early  to
suggest the end of an age of raw exports conducted in their  most  primitive
form, however, the  Russian  metal  industry  is  given  an  opportunity  to
participate in the international division of labor on  equal  basis  and  to
reach a qualitatively new level of production.
      The share of chemicals made 9.6  percent.  Mineral  fertilizers  still
remain a key  export  item  in  the  industry.  Export  volumes  of  mineral
fertilizers increased  by  14  percent  in  comparison  with  1994  figures.
Simultaneously, average contract prices also grew (by 24 percent).
      Export patterns within the forestry and paper industry  tended  to  be
oriented towards raw materials in recent years affecting  the  structure  of
currency proceeds accordingly. A third  of  foreign  exchange  proceeds  was
derived from raw timber (logs) exports while semi-finished  timber  (lumber)
accounted for 25  percent  of  proceeds  and  processing-intensive  products
brought only 32 percent.
      A  considerable  increase  in  physical  volumes  of  exports  in  the
countries outside the former Soviet Union  as  compared  with  the  previous
year figures was reported for logs (37 percent) and cellulose (38  percent).
At the same time, average export prices of logs grew by 2.8 percent  and  of
cellulose -- by 96.6 percent.
      One of the ways to increase export revenues is an expansion  of  sales
markets for Russian-made weapons and military equipment. Export  volumes  of
military production made $ 2.6 billion in 1995,  that  being  by  1.7  times
more than in 1994.
      The share of machines and equipment in Russian  exports  to  countries
outside the former Soviet Union contracted to 3.8 percent as  compared  with
5.3 percent in 1994. Development of  new  competitive  and  technologically-
intensive products relevant to modern  level  of  requirements  on  external
markets demands large investment and is time-consuming.

      Table 5.2 Volumes of Russian  Foreign  Trade  with  Countries  Outside
Former  Soviet  Union  in  Value  Terms  (without  unorganized  trade,   US$
billions)
      Source: Ministry of Economy of RF.

|             |1992         |1993         |1994         |1995         |
|             |$     |In %  |$     |In %  |$     |In %  |$     |In %  |
|             |billio|to    |billio|to    |billio|to    |billio|to    |
|             |n     |previo|n     |previo|n     |previo|n     |previo|
|             |      |us    |      |us    |      |us    |      |us    |
|             |      |year  |      |year  |      |year  |      |year  |
|Foreign trade|79.4  |83.2  |71.1  |89.5  |79.8  |112.2 |97.6  |122.3 |
|turnover     |      |      |      |      |      |      |      |      |
|Exports      |42.4  |83.3  |44.3  |104.5 |51.5  |116.1 |64.3  |125.1 |
|Imports      |37.0  |83.1  |26.8  |72.4  |28.3  |105.7 |33.3  |117.4 |
|Balance      |5.4   |87.1  |17.5  |324.0 |23.2  |132.0 |31.0  |133.0 |


      An increase in internal  productional  costs,  first  of  all  at  the
expense  of  energy  and  raw  materials,  more  expensive  loans,   growing
transport expenses, aging production assets  in  extractive  and  processing
branches, deteriorating productional situation  contributed  to  diminishing
effectiveness of export transactions. At  present  only  export  of  natural
gas, oil, nickel, timber and lumber are profitable. Export of oil  products,
ferrous and nonferrous metals, chemicals begins to  bring  losses.  However,
due to worsening financial situation  of  Russian  enterprises  and  growing
payment arrears exporters prefer to have hard currencies even  at  declining
or altogether negative profitability of exports.
      The most dynamic and growing market  of  the  Russian  Federation  are
industrialized Western countries. The largest share of Russian exports  goes
to Germany (9.1 percent). The USA account for 6.9 percent,  Switzerland--for
5.8 percent, Italy--for 5.6 percent, Japan--for 5.5 percent, Netherlands  --
for 4.9 percent, Great  Britain  --  for  4.7  percent  and  Finland--for  4
percent of Russian exports.
      The pattern of Russian imports has not been changed  considerably.  As
before, machines and equipment were ranked first  and  accounted  for  a  38
percent share of the total imports which grew by 23  percent  in  comparison
with 1994. It was caused by a necessity  to  provide  key  branches  of  the
national economy with modern technologies and equipment.
      A decline in agriculture followed by deteriorating  provision  of  the
populace with domestic-made foodstuffs has  led  to  an  expansion  of  food
imports. Such measures as a rise  of  import  duty  rates,  introduction  of
excises and of value added tax, abolition of preferences  concerning  import
tariffs, which have  been  taken  lately,  contributed  to  an  increase  in
internal prices of imported goods thus creating  prerequisites  to  restrain
imports. However,  stabilization  of  ruble  somewhat  compensated  for  the
negative impact of growing import duties and excises and helped to  increase
imports.
      In 1995 imports grew considerably,  especially  of  such  products  as
sunflower oil (a 232  percent  increase),  poultry  (by  70  percent  more),
alcoholic and non-alcoholic beverages (a 67 percent  increase),  butter  (an
increase by 65 percent), frozen meat (by 43 percent more).
      In the nearest future dynamics and pattern of  the  country's  foreign
trade will be first of all determined by the  internal  economic  situation,
i.e. whether it shows signs of business revival or not, by  changes  in  the
structure of supply and solvent demand on the domestic market,  as  well  as
by  exchange  rate  policies.  The  regulatory  mechanism  of  the  external
economic activities may also change due to political factors.
      In 1996 exports grew somewhat slower (at about 1--3 percent rates). It
was expected that export of major fuel and energy resources would remain  at
the same level while such products as metals, chemicals,  timber,  pulp  and
paper would be exported in increasing quantities.
      Oil and natural gas  exports  remained  profitable  because  estimated
rates of internal price growth prevailed.
      Imports  pattern  changed  impacted  by  a  growth  of  the  share  of
technological equipment and manufactured consumer goods. Growing imports  of
key foodstuffs and non-food consumer goods led  to  application  of  certain
measures aimed  to  tighten  protectionist  regime  in  order  to  safeguard
domestic industries in 1996 (import quotas introduced).
      In 1995 Russian foreign trade turnover with the CIS countries  made  $
29.8 billion, increasing by 5 percent in comparison with  1994  figures,  it
is due, first of all, to a price rise concerning fuel  and  energy  products
(14 -- 28 percent on the average). Exports made $  13.5  billion,  or  by  9
percent less than in 1994  while  imports  reached  $  16.3  billion  (a  21
percent increase). The share of the CIS countries  in  the  Russian  foreign
trade turnover diminished by 2 percent as compared with  the  previous  year
figures and made 22 percent.
      For the first time in the years of the  CIS  existence  Russia  had  a
negative trade balance with these countries ($ -2.8 billion) while  in  1994
it had a trade surplus of $ 1.2 billion. Starting from the end of  the  last
year imports from the CIS grew  at  a  fast  rate  while  exports  gradually
shrank.
      The main reason determining  the  import  surplus  is  an  unbalanced,
owning to a crisis situation existing in national economies,  foreign  trade
within the CIS framework, that rendering difficulties in settlement  of  the
CIS countries debts, especially those due  for  fuel  and  energy  resources
supply. According to current data, these debts as of January 1,  1996,  made
Rb 15.6 trillion, or two times more than in 1995. It is hardly justified  to
attribute  Russian   shrinking   exports   to   neighboring   countries   to
introduction of the "currency corridor (fluctuation  band)"  as  their  fall
began as early as April while to the contrary in October  some  increase  in
export operations was observed. On  the  other  hand,  introduction  of  the
"currency corridor (fluctuation band)" and stabilization of  ruble  exchange
rates enhanced effectiveness  of  operations  of  exporters  from  countries
within the former Soviet Union on the Russian market.
      As before, the fuel and energy products  accounted  for  the  bulk  of
exports to the CIS member countries (about 50  percent).  Total  volumes  of
oil exports diminished by 22 percent as  compared  with  the  previous  year
while export of  oil  products  shrank  even  more  considerably  --  by  60
percent,  the  fact  caused  not  only  by  payment  arrears  in  reciprocal
transactions, but by growing export prices of Russian  oil  which  increased
by 28.3 percent in comparison with the last year figures and reached $  74.9
per metric ton (that making  roughly  70  percent  of  prices  under  export
contracts with countries outside the  former  Soviet  Union).  However,  now
some CIS countries try to reduce their dependence on Russian energy  supply.
For instance, Moldavia has already signed an oil import agreement with  Iran
while Ukraine relies upon cooperation with countries of  the  Persian  Gulf.
At the same time, Russian oil exports to Byelorussia grew considerably as  a
result of creation of the common customs area,  that  allowing  Byelorussian
oil processing enterprises to purchase oil at prices quoted on  the  Russian
domestic market.
      The pattern of Russian exports somewhat changed in  1995  as  compared
with 1994, for instance coal exports grew by 32 percent,  iron  ore  exports
increased twofold and export of ferrous metals also showed signs of growth.
      As concerns import operations, the role of the  CIS  member  countries
remains an important one in  terms  of  providing  Russia  with  foodstuffs.
Thus, the share of white sugar  imports  from  these  countries  reached  80
percent while their volumes increased by more than two times since the  last
year. There was also  observed  an  increase  in  imports  of  grain,  meat,
butter. At the same time, a  trend  to  purchase  fewer  consumer  goods  in
countries within the former Soviet Union in connection  to  availability  of
cheaper similar products of quality made in the West manifests itself.
      The Customs Union of Russia,  Byelorussia  and  Kazakhstan  which  was
established in 1995  and  faces  a  number  of  objective  difficulties  and
contradictions caused  in  the  first  turn  by  differences  in  levels  of
development  and  directions  of  reforms.  The  Intergovernmental  Economic
Committee which at last started to  perform  its  functions  in  1995  still
lacks supranational authority; unsettled problems of mutual payment  arrears
prevent activities of the Payment Union.
      Prospects of foreign trade  developments  within  the  CIS  cannot  be
estimated in simple terms. The Commonwealth's objective orientation  towards
integration faces grave political and  economic  problems.  It  is  probable
that  in  the  beginning  of  next  year  a  negative  trade  balance   with
neighboring countries will remain, in particular due to further  decline  in
export of fuel and energy products.
      On the whole, the Commonwealth's future, undoubtedly, will  depend  on
the political situation in Russia. However, the experience of the  last  few
years demonstrates that Russia's partners  within  the  CIS  prefer  to  act
according to their economic interests rather than  to  political  rhetorics.
The CIS member countries are interested  in  an  economic  cooperation  with
Russia exactly because it has progressed relatively further on  the  way  of
reforms. That is why slackening pace of the reform or  a  complete  stop  of
the transformation may damage trends  towards  integration  to  such  extent
that any political declarations on closer  unity  and  cooperation  will  be
overweighed.


Balance of Payments


      The balance of payments reflecting Russian  residents'  activities  in
the external sector reveals the following key facts.
      In 1995, the strengthening ruble did not hold back the growth of trade
surplus: exports increased at a greater rate than imports.
      As during previous periods import of services exceeded their  exports,
that being primarily attributed to developing tourism to  countries  outside
the former Soviet Union. Thus, import of tourist services  exceeded  imports
by $ 5366 million. As a result, current accounts balance was by  43  percent
less than the balance of foreign trade. Operations of governmental  agencies
prevailed in the capital  account.  External  debt  grew  due  both  to  new
borrowing and deferments and arrears in debt servicing.
      Non-state sector operations  were  mostly  represented  by  commercial
loans, both in terms of  merchandise  exports  with  deferred  payments  and
advance  payments.  As  concerns  direct  and  portfolio  investment,   they
remained at an insignificant level.
      Growing  reliance  of  residents  on  ruble  was  shown  by   somewhat
decreasing amounts of cash foreign exchange.
      As a rule, commercial structures accounted for loans granted  to  non-
residents. The main form of such loans was export loans of enterprises.
      Non-repatriation  of  export  proceeds  became  an  important   factor
destabilizing the financial sphere. In January through September of 1995  it
reached $ 5.6 billion, as the State Customs Committee  (GTK)  reports.  This
figure is comparable to all foreign loans drawn by the  state  in  the  same
period.
      The amount of payments due to  disburse  the  official  external  debt
exerted more pressure on the  Federal  budget  as  compared  with  the  same
period of the last year. While in 9 months of  1994  96  percent  of  actual
payments to disburse  the  official  external  debt  were  financed  at  the
expense of external sources and  only  $  134  million  were  received  from
internal sources, in 9 months of 1995 the figures made 89.5  percent  and  $
590 million accordingly.

-----------------------
                    Russian Economic Academy Plekhanov



                                                                Faculty: IBS
                                                                  Group: 845
                                                Students name: Suprun Diana



                                 MOSCOW 1998



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