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It is enterprises' own capital, along with the one of non- government investors which are the main source for forming investments to capital assets. In January- September 1996 the share of non- state sector was 74% of the total volume of investments. The respective indices observed over the analogous period of 1995 were 67%. This year, for the period of 9 months, the state investments were financed at 23.6% of the volume allocated (RUR 7.88 trln.). The unsatisfactory financing of investment programs with the budgetary capital results in the fact that the 1996 Federal Investment Program has not been completed.

O. Izryadnova

Russian Outer Borrowings

The Russian policy of attracting foreign investments is becoming more clearly aimed at financial investors.

After the presentation of Russian eurobonds named ‘livres’ at the biggest financial centers of Europe, Asia and the USA on November 11 – 20, Russia entered the world capital market. The above events meant the Government success. The terms of the first Russian eurobond borrowing are rather comfortable for this country. The volume of the tranche is $1 bln., instead of predicted $500 thousand. The announced yield is 9.325% a year against supposed 11 – 12%. The duration is 5 years.

The Russia’s presence at the international capital market opens the latter for Russian companies and local authorities. Petersburg intends to issue eurobonds at the beginning of 1997. The local authorities have already placed the order at Moody’s and Standard & Poors Co. to assess the respective credit rating, which is a mandatory term for placement of securities. Russian corporations LUKoil, RAO UES Russia and MCTN expressed their interest in receiving the credit rating.

The started placement of eurobond borrowing caused a rise of foreign investors’ activity at the Russian domestic government securities market, because the yield of GKO-OFZ, which are as much reliable as eurobonds, are 1.5 – 2 times higher (nearly 16% a year in hard currency equivalent) than of the latter. The limit of compensatory deals set for $1 bln. in November is actually exhausted. The Russian Central Bank is going to enlarge non-residents participation at the GKO market.

November was marked by rather serious tension in relations between Russia and IMF on the transferring of the next tranche ($340 million) of EFF loan. It was the second time since the opening of the credit line that IMF has suspended the payments. This happened because of low tax collection level. In mid-November the IMF mission arrived to Russia to examine and analyze dynamics of the Federal Government deficit. Besides, the IMF representatives insist on further liberalization of non-resident admission to the GKO-OFZ market, in compliance with the statements of the article 8 of the IMF Charter.

November events testify that the current policy of Russian Government in the field of foreign investments is mainly determined by the financing of the Federal Budget deficit and the outer debt services. As a rule, it is aimed at the attracting the risky financial capital to this country. By-today, no regeneration of investment process in Russian economy, happened at the expense of foreign borrowings and loans. Meanwhile one may note an indirectly positive effect of outer borrowings. The foreign investors’ capital inflows allow to reduce the Russian Ministry of Finance needs in residents’ capital attracted through sales of the government securities. The above also weaken a necessity to implement an additional ruble emission which the opposition urges. An attraction of international capitals through the eurobond borrowing under much more comfortable terms than ones of the GKO-OFZ system may assist to an implementation of the course proclaimed by the Government to decrease the GKO-OFZ yields at the domestic market. Accordingly, alternative opportunities of capital investments becomes more attractive to the Russian financial structures. Thus, accordingly, Russian financial structures would find it more attractive to take alternative opportunities to place their capital: buying shares of Russian private enterprises and financing of investments projects in the real sector of Russian economy.

V. Ranenko, N. Nikolaeva

Market Juncture

The results of the business survey on more than 700 industrial enterprises showed that the balance of factual price expectations is down from +12 to +4 ( see Chart 8). This is an absolute minimum of the respective index. The previous minimum (+5) was registered in both June and July 1996. The slowdown of price rise is noted in all branches, except ferrous metallurgy, building industry, and light industry.

The forecasts of a change of wholesale prices decrease for the two months already. The November rate (+18%) is the minimum for all the surveys ever held since March 1992. A growth of inflationary expectations is registered at metallurgical and food enterprises in November. The most intensive price rise may occur in petrochemical (+28) and food (+42) branches. The absolute decrease of prices ( negative balance) is envisioned only in wood- working industry (-13%).A change of a price policy by enterprises has become a reaction to a growth of rates of intensiveness of a reduction in both demand and production registered by the survey statistics in October. It brought favorable results in November: dynamic characteristics of demand and production remained unchanged by industry as a whole. The rise of the balance of change in demand was registered in metallurgy and petrochemical industry, while the most substantial decline was observed in wood- working industry ( 19 points), food industry (19 ones), and construction industry (13 points). The reduction in demand for machine- building goods has been valued with the balance of - 56 over the last two months.

92 % of enterprises are not satisfied with solvent demand. This is the worst rate observed over the last seven months. The respective rate grew up to 99% in construction industry, machine building, and, regardless of a slowdown of the reduction of demand,- in petrochemical industry, too.

The dynamics of both demand and production did not practically change in November. The slowdown of rates of an output decline in ferrous metallurgy and petrochemical industry was combined with an intensification of the slump in wood- working, food branches, and in construction industry.

The rates of dissatisfaction with production volumes stands at 87-88% over the last seven months. Steady high rates of the index ( over 90%) are registered in petrochemical and light industries in 1996. The respective rate in machine building fluctuates within limits of 88- 94%.

By our estimations, the rate of production’s dependence on demand has grown from 54% up to 62% over the last four months. This value is the best since September 1995 when it reached 64%. It should be noted that the rate’s growth over this autumn is of a stable character and is not accompanied with fluctuations.

A decrease of surplus stocks of finished products has continued in industry since the beginning of this year. The balance of estimations finds itself within the +6...+1 limits over the last five months. A lack of stocks ( negative balance) was registered in November in light industry- 35%), machine building (-15%), and in non- ferrous metallurgy (-11%).

The forecasts of changes in production improved by 5 points in November. However, the negative value of the respective balance gives an evidence of the expectations of a reduction in output dominating in industry. Such a correlation was taking shape in 6 months of 11 ones this year. The most pessimistic forecasts were registered in November in construction industry (- 65%) and machine building (- 25%), while the most optimistic ones were observed in wood- working (+38%) and food ( +16%) industries.

The forecasts of a change of solvent demand remained unchanged. Expectations of a reduction in demand are dominating in industry for two months running. The worse forecasts were earlier registered only in November 195. Hopes for a rise of demand ( positive balance) are kept only in non- ferrous metallurgy ( +5%) and food industry ( +25%). The most pessimistic forecasts were noted in construction industry (- 64%) and machine building (- 25%).

R. Gershman, S. Tsukhlo

Situation In Agricultural Complex

By the results of October, the rate of decline in agricultural output in 1996 may be estimated at 7%. This is an insignificant degree of a slowdown of the decline ( in 1995, the respective reduction of volumes of agricultural production made up 8%, in 1994- 12%, and in 1993- 9%). At the same time, again, the decline rates in cattle breeding should be higher than ones observed in plant growing.

The process of the purchasing campaign showed that, as it already occurred in 1995, intended volume of purchases to the Federal stocks are, fiercely unrealistic and, secondly, they exceed actual state needs in accumulating respective goods. Thus, as of 14 October, less than 8% of the planned amount of grain, or 96% of the last year's level were bought for the Federal stocks. It should be noted that it was West Siberia region (mainly Omskaya and Kemerovskaya oblasts) which covered more than a half of the above supplies. It happened regardless of the fact that the yields rate this year is at 25% lower than the one as of the same date last year. It is likely that it is still unclear whether it was a specifically effective mechanism of the local policy aimed at stimulating such deliveries, or an underdeveloped character of a market infrastructure in terms of sales of cereals in the region, which may stand for a reason for a high rate of supplies to the Federal stocks.

In general it is worthy noting that a level of supplies to the state stocks is slightly negatively correlated with a yield rate. In other words, in those regions where yields rates grew as compared with the previous year, supplies to the state stocks reduced, and vice versa. This testifies to big differences in market situation for agricultural producers in regions dependent on a local administration's policy, a level of the development of sales and storage infrastructure, and state procurement agencies' position.

In the regions enjoying a developed sales infrastructure, including elevators, producers of grain prefer not to supply their products to the state stocks. Thus, the decline of grain production in Rostovskaya oblast made up a. 7%, while supplies to the state stocks hardly reached 9% of the previous year's level ( as of mid- October). At the same time the volume of cereals supplied to the regions' elevators exceeds 13 times the one delivered to the state stocks, while the volume of food grain sold to the state purchasers is 2 times less than the one supplied to the local storage facilities. In Stavropolsky krai, the volume of cereals supplied to the local storage facilities exceeds five times the one sold to the state stocks, and its is food grain which make up 58% of the former. At the same time, given that the Ural and Siberian grain market is significantly inferior, in terms of development, to the North- Caucasian one, supplies to the state stocks substantially exceed volumes of cereals delivered to local storage facilities.

A high per cent of supplies to the state may be determined, of course, a more rigid regulating policy of a local administration, too. For example, Saratovskaya and Ulyanovskaya oblasts have had approximately the same cereals yields rates this year. However, in the former case deliveries to the state stocks are almost 2 times lower than the volumes of cereals supplied to storage facilities. At the same time, in the latter case, the state stocks purchased 4 times more against the volumes left in holdings for further sales.

It may happen once again, as it occurred last year, that a low level of supplies to the state stocks may become a reason for a writing- off, or a restructurization of agricultural producers' debts, in terms of commodity credit. This should become a factor of a further intensification of the budgetary crisis in this country. It is worthy reminding that the volume of goods credit made up RUR 9 trln. this year.

The preferential attitude to the domestic agro- industrial complex has already become a traditional phenomena while expenditure articles of the Federal budget are sequestered. The Table shows that by all the expenditure outlays on the agro- industrial complex allocated for the 3 quarters of 1996, the level of underfinancing of respective spending on the complex and agriculture was significantly less than the ones in other branches. It is only individual farming holdings and construction for the agro- industrial complex which make exceptions in this respect. The financing of programs to support individual farming shows for two years already that the state agrarian policy neglects this sphere completely.

While analyzing the Table below, one should take into account that the commodity credit to agriculture is not represented in the expenditure part of the budget. That is why the actual financing of the sector makes up more than RUR 16 trln ( over 10% of GDP) for the 3 quarters this year. Besides, the national agriculture receives a hidden state donation through the state tax benefits mechanism: given the 6.3% agrarian sector's share in this country's GDP, its share in a total amount of tax revenues makes up only 1.2%.

6. , - 1996 .

Table 6 Execution of the Federal budget in terms of expenditure on agro-industrial complex, January- September 1996

% III

In % to the budget for the IIIrd quarter

%

in % to the annual budget

Expenditure, total

79,6

61,1

including:

( 3 ) on agro-industrial complex ( composition of three artcilrs of the budget)

48,6

68,6

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