"Vremya Novostey" (Moscow), July 4, 2003

RBC created an Internet site of the museum and national park The 8th RBC international conference "Russian Economy and Investment: Reality and Outlooks" was held in Vienna, Austria. Russian presidential economic advisor Andrey Illarionov, who participated in the conference via a teleconference bridge, announced that Russia's GDP advanced 7.1 percent in the first five months of this year against the corresponding period last year and real revenues of residents increased by 14.3 percent. "Russia is enjoying an economic boom now," Illarionov was quoted as saying. He noted this growth dynamics would be enough to double the Russian GDP by 2010. "The doubling of the GDP in a ten-year period will require an average annual GDP growth of no less than 7.2 percent," the presidential advisor's statement says. To achieve this task, he suggests a significant reduction in the share of state expenditures in Russia's GDP, from 37 to 20 percent. This will lead to a GDP rise resulting, consequently, in an advance in revenues of Russian citizens. Finally, as the advisor's statement says, "with an optimal economic policy, Russia's GDP per capita may surge by 2.8 times through 2015 resulting in an increase in state expenditures per capita by 1.6 times." To make his theory look persuasive, Illarionov mentioned the Chinese economy as an example. The Chinese economy, according to the presidential advisor, recovered due to a cut in state expenditures. State expenditures accounted for 35.88 percent of the GDP in 1979 and to only 14.32 percent in 1995. Through 1979-1990, the Chinese economic growth was 7 percent a year.

At the RBC conference, Illarionov noted that the economic policy implemented in 1999 could be called exemplary compared to policies implemented before and after 1999. He explained that in 1999 the volume of the non-market economic sector together with the government sector and the monopoly sector was the smallest along with low tariffs for services of monopolies, the low level of state control and a rather low real effective ruble rate. According to the presidential advisor, policies aimed at the liberalization of prices set by monopolies for their products lead to the elimination of means of restraining these monopolies. As a bright example, Illarionov described the situation of the past several years. He stressed that a share of the GDP allocated in payments for electrical energy in Russia is larger than in the USA. Thus, monopolies are using their tariffs for the redistribution of resources in their favor.

Illarionov believes that an ideal scenario would be the liquidation of monopolies and the introduction of policies providing for businesses of private producers of electrical energy, natural gas and other resources, however, this would require the necessary policies of market price formation. The presidential advisor stressed that the government should influence the formation of prices as long as monopolies exist and use federal mechanisms. In this case, the government will restrain the redistribution of a significant part of national resources in favor of a sector trying to get funds that it does not earn.

Another participant of the conference, Hans-Joerg Rudloff, the Executive Chairman of Barclays Capital, has a different opinion. He believes that the task set by President Vladimir Putin to double the GDP volume in a ten-year period is quite an unpretentious task. He noted the US GDP had been advancing 5 percent annually for many years. Mr. Rudloff also stated the whole world had been applauding Russia over the past ten years for its economic progress. At the same time, the Executive Chairman of Barclays Capital admitted that representatives of the global economic community had some doubts about the further ways for the Russian economy.

Russian Deputy Economy Minister Mikhamed Tsykanov, who delivered a speech at the conference, announced that the total volume of investments in the Russian economy reached $20bn last year. At the same time, he noted that the share of investments in Russia's GDP was by a factor of 140 lower than that in industrialized countries and the volume of GDP per capita in this country was less by a factor of 40. Tsykanov noted that the Russian banking system was not capable of servicing domestic businesses. As of one of the factors testifying to this situation, he reported that the volume of credits provided to Russian companies by foreign banks increased by 25-30 percent in 2002 amid an insignificant increase in credit portfolios of Russian banks.

In her turn, Deputy Chairperson of the Russian Central Bank Tatyana Paramonova named the insufficient transparency of businesses, including the banking business, as one of the main problems amid a stable macroeconomic situation in Russia. "Improving transparency is one of the most important tasks for the next several years. In this respect, the switch to international standards of corporate governance and accounting is of principle importance," she said. The transfer to international standards is not a technical problem, Paramonova believes. The gap in openness of information in western countries and in Russia is huge, which alters the interpretation of the results of Russian companies by foreign investors. According to the Deputy Chairperson, the Finance Ministry is going to complete "reforms of record keeping systems and not only reforms of accounting standards" before 2010. The Russian banking sector, involved in attracting investments, still does not have the necessary strength to have a noticeable impact as an economic intermediary in this country. That is why the government and the Central Bank have worked out a program of measures to improve the domestic financial sector.

One of the most outstanding speeches at the conference was that of Pavel Zyubin, a Board Member of the First Investment Fund, who presented a new Russian investment instrument, mutual investments in real estate. "The most important question that we received from participants of the conference after our report was whether mutual investments in real estate were realistic," Zyubin was quoted as saying. "It is natural that potential investors are interested, in the first place, in the practical implementation of any new instruments, even the most attractive ones. Directing such investments through professional participants of the real estate and construction market provides for quite certain guarantees that investor funds will be placed correctly and yield profit."

The main difference between mutual investments in real estate and direct investments is the opportunity for non-professionals to make a profit on this market. Zyubin stated in his report that for several years already, Russian investors had had an opportunity to make money on the stock market without becoming professional participants of this market. Now they have an instrument that makes profit in a similar way on the real estate market.

The law "On Investment Funds" passed at the end of 2001 provided legislation for mutual investments in real estate in the form of a private investment fund. Investment funds have been developing in Russia since 1996, and a private investment fund allows for attracting money for a fixed time, which corresponds to tasks of investing in real estate. The layout of private investment funds stipulates a possibility of receiving regular incomes by its participants along with the possibility to walk out of the investment process before term using the stock circulation mechanism.