YEAR IS ENDING. CRISIS - FINISHED ?

November 26th, 2009

 

Airport, hotel and entertaining complex

New international airport "Hermes" in the Cyprian city of Larnaka has been launched this November and, according to its head, well-known Cyprian businessman Nikos Shakolas, it is the largest capital investment project that has ever been carried out in Cyprus. Despite a high price of 656 million euro of the new airport and possible risks of its starting under  world crisis, not a cent of the state money  has  been spent for realization of this project. On the contrary, on May, 11th, 2031, that is just a little more than in 20 years, the airport will completely pass under the state control. The airport in Larnaka has been launched in the presence of the president of the country Dimitris Christophias on November, 10th marked by a voyage of the Cyprian airlines. New airport "Hermes" can ensure 9 million passengers traffic a year and is located near the former one, on a total area of 100 thousand sq.m. The former airport ment for 3 million passengers a year, has been overdriven and actually accepted 5 millions. Now on its place it is planned to construct a 5-level hotel and an entertaining complex.  Provided that all necessary procedures will be adopted by March, 2010, the new hotel will be opened in 2011.

Cyprus - Russia: prospects of expansion of business relations

In the middle of November in the Cyprian Limassol the open forum named «Development of prospects and possibilities in expansion of business relations between Cyprus and Russia» has taken place. During the forum the taxation, investment, corporate & legal mechanisms and other issues on increasing of activity between Russia and Cyprus have been discussed. The Minister of Finance of Cyprus Charilaos Stavrakis, the president of the Russian-Cyprian business association in Cyprus Phidias Pilidis and others spoke at the seminar. During the meeting  Charilaos Stavrakis, - the Minister of Finance of Republic Cyprus who actively participated in preparation of the analytical report read at the First conference held by Midland Consult by the ambassador of Cyprus in Moscow Mr. Petros Kestoras, - told to our representative that «his ministry is always ready to help»  Midland Consalt with this important information work. The minister, who has just come back from Moscow, underlined that both parties are satisfied by the results of negotiations and documents signed as both Russia and Cyprus remained in a prize from the mutual coordination of some moments of cooperation by agreement on double taxation avoidance. The Cyprian Minister of Finance noticed that a number of  negative publications which appeared in the Russian press after additional Protocol to the Agreement on avoidance of double taxation between Russia and Cyprus had been signed, have been inspired by competitors of Cyprus in this area of the international business. It has been explicitly reported during his meetings in Moscow.

Charilaos Stavrakis  told that the problem of the information disclosing, that many businessmen are concern of, was solved satisfactory for both parties. If earlier the disclosing of such information required the consent of the Head of the Internal revenue service of Cyprus and the Decree of the Cyprian court, now again the consent of the Head of the Internal revenue service is required but instead of the court’s  –  written Decision of the Director of public prosecutions of Cyprus which is the representative of independent state structure. The Cyprian Minister of Finance has underlined that the island Government considers the services sphere one of the major elements of the economy of Cyprus. And thereupon, Cypriotes consider Russia as the basic partner. Cyprus – the member of European union, the participant of the Eurozone, has the lowest tax from the income (10 %) and unique tax conditions. Thus, the minister noticed, Cyprus is going to keep this situation with the minimum taxation, the lowest in Europe. Charilaos Stavrakis  underlined that during the last year intense work on Agreement between Russia and Cyprus on double taxation avoidance was carried out, and, according to the minister, both parties are happy with the results. It is especially important, as Cyprus is the most interesting jurisdiction in the world speaking about investments into Russia. The Cyprian minister  told that the world financial crisis, in comparison with other countries, has not so hardly affected Cyprus. «We have  healthy bank and financial systems that allow to involve foreign investments. Sure, the world crisis has affected Russia and consequently us too, but we hope that soon all will be overcome & we are ready to work much not to let down Russia and  Russian investors».

According to the informed sources the following weeks the Central Bank of Russian Federation will exclude Cyprus from its offshore list. On November, 20th it has published the project of instructions which excludes Cyprus from such Russian list of the offshore zones approved by the Central Bank of Russian Federation in 2003 Besides it, the Republic of Montenegro which was in the third offshore group being a part of the state of Serbia and Montenegro, is transferred to the first group, thereby improving its status. The decree should become effective in 10 days after the approbation of the Central Bank board of directors. Let us remind you that according to the requirements of the Bank of Russia, when caring out operations with banks of the countries included in the first group, reservation on operations it is not required, and with banks of the countries of the second and third groups – reservation at a rate of 25 % and 50 % is necessary.

 

IMF will give another credit to Belarus

Mission of the International Monetary Fund reached an agreement with the authorities of Belarus about granting next tranche of the credit stand-by. The mission noted a satisfactory  fulfillment of the adjusted conditions of the economic program for 2010 by Belarus. It provides realization of the weighed monetary and budgetary policy for the purpose of narrowing the deficit of the balance of payments and inflation decrease.

Final decision on allocation to Minsk of 700 million dollars the board of directors of IMF will sign in the end of December. Previous tranche at a rate of 699,5 million dollars has arrived to Belarus on October, 26th. In the network of this program IMF has already loaned Belarus 2,23 billion from 3,63 billion dollars.

 

In 2010 Russia plans to borrow 17 billions of dollars in international markets

In October Russian Minister of Finance Alexey Kudrin announced that In 2010 Russia planned to borrow about 17 billions of dollars in the international markets. “To secure a large volume of expenditures, social payments, infrastructure, economy modernization, for sure we’ll borrow in the international markets’, he said. “Next year we will borrow about 17 billions of dollars. Now we’re discussing the loan of 2-4 billions from the World Bank because the World Bank’s credits are distinct in a credit period. They are more long-termed and benefit”, explained the Minister. He also added that if the state debt increased 3% of GDP, it won’t be critical for the Russian economy. Mr. Kudrin mentioned that nowadays the state debt makes about 10% of GDP.

Developing countries – champions on bond issue

Developing countries set up a record on issue of state bonds. This year their volume constituted 93 billion dollars. JPMorgan results give a figure of 71 billion - eight years’ maximum. However bond issues made by regional and municipal governments are not considered. Qatar made the most significant investment into this record. In November it has allotted the international bonds on 7 billion dollars. It is the maximum for the whole history of the market of sovereign debts of developing countries.  Previous record belonged to the ministry of railways of China which issued bonds on 6 billion dollars. According to the forecasts volumes of issue of bonds will grow. This year 28 countries which enter the international index of sovereign bonds have issued bonds on 50 billion, in the following - they can issue securities on record of 62 billion dollars. Russia and Kazakhstan declared their plans to allot Eurobonds as well. In 2010  Moscow intends to offer the investors securities valuable of  more than 17 billion 800 million dollars – valid for 7 years.

The Privatbank group has acquired more than 50 % of shares Aerosvit

The Privatbank group acquired a controlling share (more than 50 %) of "Aerosvit" airlines (Kiev), - Dmitry Parfenenko,  deputy  chairman of the Fund of the state-owned property reported.

Today "Aerosvit" has 3 groups of shareholders, he said.

Parfenenko underlined that the Fund of state-owned property owns 22,3 % of the shares of the company, a company related to  businessman Victor Pinchuk possesses 25 %-1 share of "Aerosvit" .

«All the rest is consolidated in the property of the companies, associated with Grigory Gurtovoy and Privatbank», - Parfenenko told.

He has added that Gilward Investments B.V. (Netherlands) revoked a power of attorney from Aaron Mayberg that empowered him to be the chairman of the supervisory board of the airlines due to the fact that he had sold his share in the structure of the property of principal "Aerosvit" shareholders ".

Let's remind, the general director of "Aerosvit" Kostadin Botev resigned. "Aerosvit" supervisory board at the meeting held on November, 16th named as the co-chairman of the supervisory board Mr.  Grigory Gurtovoy.

In 2008  "Aerosvit" increased the passengers traffic by 22,2 %, which is the growth from 0,456 million up to 2,51 million passengers compared to 2007.

"Aerosvit" is one of the largest Ukrainian air carriers and at present serves more than 50 international air-lines, including 5 transcontinental.

 

Looking for a serene port, Russia lost billions

At first the capital outflow from Russia was $53 billion. “It’s a huge amount”, recognizes the Central Bank. Much money was withdrawn from Russia in the beginning of this year when the ruble was devaluating and oil quotations were sinking. The capital outflow from Russia still may be observed. Speaking in the State Duma the Head of the Central Bank Sergej Ignatiev informed that during the last 10 month the private capital outflow was $53 billion. He also said that no one expected that the inform would indicate this number because in the third quarter this year the capital outflow was of $31,5 billion.

It’s worth mentioning that the Bank of Russia expected the capital outflow would be $40 billion in year 2009. According to Mr. Ignatiev there were two reasons for such a high amount. First, much money was withdrawn from Russia in January when the ruble devaluation hadn’t finished yet. Second, it is related with the fact that the RF Central Bank transferred the funds from the foreign currency accounts to the foreign banks’ accounts.

But he also underlined that in October the capital started  returning to Russia. For the first time this year October saw a $10 billion capital flow. 

Several days ago the Deputy of the Central Bank Alexej Uljukaev declared that the capital flow to Russia continued increasing in November and in the 4th quarter of 2009 it would make $15-20 billion. “$53 billion is much money but it’s not surprising as the beginning of 2009 was a period of uncertainty and the mood was generally pessimistic: the ruble was devaluating, the oil prices sank, and it was difficult to predict when the market fever would finish”, says the chief economist of Analytic Center Evgenij Golovin. “That is why people preferred to withdraw money from instable Russia”, considers the expert.  

“Nowadays the situation is more clear, the prognosis concerning the end of the crisis are more positive, the ruble is increasing, and the capital is returning”, explained Mr. Golovin. But still it’s too early to speak about the capital flow in 2010 that was declared by the officials of the Russian Federation Ministry of Finance about a month ago. 

Russia is the leader of economic crimes

Russia is the country with the highest rate of the economic crimes (the list includes about 50 countries). More than 70% of the Russian companies suffered from fraud. It’s 12% more than in 2007. The most wide spread financial crime is the assets deforcement or simply a theft. More than a half of the respondents – different companies’ directors – have faced this problem. About 48% have complained of bribery and corruption.

About 30% of the respondents nabbed their employees at forgery. In order to get a bonus, managers distort the data of financial informs. Violations of intellectual property right and cartel agreements are also among the most popular economic crimes. A quarter of crimes is committed by financial companies: 15% in mining industry and energy sector and about 8% in automobile industry. Large companies suffer a lot from fraudsters. Thus, the companies that have more than a thousand of employees suffer from fraud two times more often than small companies because large companies have more difficult schemes and important transactions. The analysts consider that there is much freedom for fraudsters in this kind of companies. 47% of the companies’ employees claimed the fraud to be the reason of at least $1 million loses for their companies this year. 43% of the respondents have underlined that the amount of money lost this year because of the fraud has increased in comparison with the previous year.

In the rating of economic crimes Kenya (67%) and South African Republic (62%) come after Russia. The lowest rate of economic crimes have Japan (9,6%), Hong Kong (13%) and the Netherlands (15%).

It was reported before that in the rating made by Transparency International Russia occupied the 146th place of 180. Russia managed to obtain 2.2 points of 10. It’s 0.1 point more than the previous year. The same points went to Cameroon, Ecuador, Kenya, Zimbabwe, and Ukraine.  

 

Russian President tells about corruption and other thing…

The Russian Federation President Dmitriy Medvedev said that the corruption was one of the main obstacles to the country’s development. It’s evident that the fight against it must be held in different directions: from making the legal acts, the law-enforcement and judicial institutions more efficient to developing intolerance to any manifestation of this social evil. There are some numbers testifying that many corrupt officials were brought to justice. 4.5 thousand of cases on corruption were examined during the six month this year. 532 state officials and 700 persons who worked in law-enforcement institutions were among the convicted. But it’s impossible to solve this problem only convicting people. At the same time Medvedev considers that it’s necessary to convict.

The fight against the corruption will be successful if all the spheres of state administration become open for public including state institutions, courts and judicial institutions. The legislative act aimed at solving this problem will come into force the next year. It’s an act on openness of the state institutions and provision of access to the information on courts’ activities. It will also establish the way the information on the courts’ activities will be published in the Internet. The courts’ acts that will be published will help to have a better idea on how the courts work, on problems of legislation and judicial practice. It will also contribute to the problem of fighting against judicial nihilism. 

The Russian President in his address to the Federal Assembly that was published in November also draws attention to the fact that it’s necessary to strengthen the coordination in the work of defending the Russian Federation interests in political, economical and humanitarian spheres. The President considers that a special attention should be paid to the diplomatic work in the interest of the Russian economy. This work should include not only the support to the Russian companies abroad, not only an effort to promote brands of Russian goods and services although it’s very important but also it must include attracting foreign investments to Russia and, the most important, the influx of Hi-Tech to our country.

Information on clients will be disclosed

Switzerland has published some articles of the Agreement with the US tax authorities on USB case. The Agreement provides the conditions of the information disclosure on clients. 40 experts including PwC officials will be in charge of this project that will cost about $40 million.

According to the Agreement the information must be disclosed if UBS client is suspected in tax evasion and is:

• The US resident and owned or was a beneficiary of at least $1 million saving or deposit account in from 2001 to 2008 without giving any information about it to the American tax authorities.
• The US citizen (no matter if he is a US resident or not), who was a beneficiary of an account opened for an offshore company from 2001 to 2008.

The Agreement also includes a more detailed definition of “tax evasion”. To this definition correspond saving accounts of $250 thousand and accounts that generate $100 thousand profit. During the year Switzerland will have to disclose to the US tax authorities the information on 4450 UBS clients that are under these conditions.

Singapore took the same decision and signed an Agreement with France on the exchange of tax information. Thus, Singapore was included in OECD list as “correct” jurisdiction. From April 2009, Singapore has become the 15th jurisdiction that managed to fulfill 12 agreements and prove that they don’t keep in secret any tax information. The same day Singapore signed an agreement on the exchange of tax information with Brunei.    

MIDLAND CONSULT