Okno: Policy Developments in the FSU

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Former Soviet Union: Recent Policy and Business Developments

Sampling of briefs from the East/West Letter

	Armenia		Azerbaijan		Belarus		Estonia		Georgia		Kazakstan
	Kyrgyzstan		Latvia		Lithuania		Moldova		Uzbekistan		General FSU

Russian Policy Developments

Ukrainian Policy Developments

Policy Developments in Central and East Europe

July 1996: The Armenian government adopted a decision in July 1996 adding to the list of products imported to Armenia which require certification. The Armenian customs department has already started to require certification despite the fact that the decision is not effective until 1 January 1997. However, Armenia does not yet accept U.S. certificates making U.S. imports subject to local examination meaning potential delays in delivery, increased costs, and spoilage. The U.S. embassy believes this is a direct violation of the U.S.-Armenian trade agreement signed in 1992 and is working with other agencies to remedy the situation.

Products which currently require certification are: meat and meat products; fish, crustaceans, and mollusks; eggs; natural honey; vegetables and other edible roots; edible fruit and nuts; animal fats and vegetable oils; meat and fish products; sugar, confectioneries, and chewing gum; processed food made from vegetables, fruit, or nuts; alcoholic and non-alcoholic beverages; tobacco and tobacco substitutes; petroleum products; vitamins; pharmaceutical products; and baby pacifiers and related items.

Armenia

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September 1996: A credit of $20 million to better Azerbaijan's gas delivery system has been approved by the International Development Association (IDA) of the World Bank. The government of Azerbaijan will be the recipient of the credit, but will turn it over to Azerigas to upgrade equipment. Azerbaijan is very dependent on natural gas, probably more so than any other country. The distribution system currently in place is extremely inefficient and loses about 20% of its inputs.

July 1996: On 16 July, the parliament of Azerbaijan passed legislation on agrarian reform which will entail a substantial redistribution of land. Over 20% of Azerbaijan's agricultural land will be given free for private ownership to rural residents. The remaining agricultural land will be split among the state and municipalities. Foreigners may not own land, but may lease and use it in Azerbaijan.

Azerbaijan

September 1997: Soros Foundation pulls out of Belarus The Soros Foundation closed its doors in Belarus in early September. It said it was pulling out of the country because its employees were being harassed and it repeatedly ran into barriers to its activities. Relations between the foundation and the Belarus government have grown tense since March when the foundation's local representative, Peter Byrne, was barred from entering the country and accused of fomenting opposition to President Aleksandr Lukashenko. The Soros Foundation is supported by George Soros, the American financier, and his Open Society Institute, based in New York. Mr. Soros said the crackdown on his foundation-what was the largest independent nongovernmental organization in Belarus-was part of a broader campaign to "destroy civil society and independent mass media" in the country. The government's hostility to opposition had already prompted reaction from other nations; both the U.S. and Europe have frozen aid to Belarus to express their displeasure with Mr. Lukashenko's actions.

October 1996: The president of Belarus, Aleksandr Lukashenko, is rolling back much of the market reforms already initiated in the country. The moves are probably part of his effort to gain more popularity before facing a constitutional referendum in November that would grant him more power. On the other hand, his actions have also led to the World Bank's suspension of lending to Belarus.

In early October, Mr. Lukashenko issued a decree that requires imports from countries outside the CIS customs union be subject to a special, case-by-case governmental review. In addition, the cabinet of ministers has been directed to "defend the domestic market" by implementing a national program that will include tariff and non-tariff barriers to trade, quotas, import substitution, and subsidies to domestic producers. Another presidential decree requires the government to guarantee jobs for college and secondary school graduates and for discharged military personnel. In a speech reminiscent of the Soviet-era, Mr. Lukashenko called for a renewal of ideological education and restoration of the Young Pioneers' organization in the schools. (The Young Pioneers was considered the "training ground" for future members of the Communist Party.)

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Belarus

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Estonia
November 1996: NRG Energy invests in Estonian power plants The Estonian government and Estonian Energy signed an agreement with the American company NRG Energy, part of Northern States Power, to form a joint venture to operate Estonia's two biggest power plants. NRG Energy plans to invest $250 million in the plants, the biggest foreign investment to date in Estonia. The two plants use oil shale and produce 96% of Estonian electricity. Technical and economic analyses of the plants will help determine how the investment can make production more efficient and solve potential environmental, social, and economic problems. Power may also be exported in the future.

[back to Estonia’s facts & figures page]

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Kazakstan
January 1998: Kazakstan moving on large-scale privatization In late January, the Kazak government announced provisional lead managers for the sale of state-owned shares in large local companies to portfolio investors. Among those chosen were ABN AMRO Bank of the Netherlands, CS First Boston of the U.S., and Global Securities of Turkey. The western managers will negotiate sale contracts with the government; the sales are expected to begin in April. Large companies on the block include Kazaktelekom, the national telephone company and Mangistaumunaigaz, Kazakstan's largest oil producer.
December 1997: Kazakstan moves capital to Arctic, errr... Akmola Much to the consternation of local and foreign officials alike, President Nursultan Nazarbayev moved the capital of Kazakstan from the metropolis of Almaty to the obscure northern city of Akmola in early December. Akmola became the official seat of the Kazak government on 10 December. Mr. Nazarbayev chose Akmola, which is more than 700 miles north of Almaty, two years ago; he cited Almaty's overcrowding, proximity to the Chinese border, and location on an earthquake fault as reasons for the move. However, many believe that Mr. Nazarbayev is primarily interested in countering separatist tendencies in Kazakstan's north, which is populated mostly by ethnic Russians. Akmola is geographically in the middle of Kazakstan, while Almaty is in the far south. Akmola is a city of 300,000 with little infrastructure compared to Almaty and its 1.5 million residents. Akmola - which means "white grave" in Kazak - is also located in the vast flatlands where winters are fierce and the temperature repeatedly dips to 40 degrees below zero (Celsius and Fahrenheit) in the winter. Stalin once banished people to exile in Akmola, known as Tselinograd before Kazak independence. Many Kazaks privately opposed the move because of the enormous costs involved at a time when many people are struggling to make a living. Nevertheless, Mr. Nazarbayev - who has ruled Kazakstan since the Soviet era and tolerates little opposition - hand-picked Akmola himself. A new government complex was built on Akmola's main square and many Soviet-era buildings were re-faced with vinyl before one of Mr. Nazarbayev's trips there in early November. Mr. Nazarbayev will continue to receive official state visitors in Almaty until 10 June when an official transfer ceremony will be held.

December 1995: Kazakstan legalized private land ownership in a presidential decree of 26 December. The decree allows both foreign investors and Kazakh firms and individuals to purchase land on which productive assets or residential buildings are located. Kazakh citizens may also buy farm land. However, restrictions still abound. Only residential structures may be built on privately owned land; new industrial enterprises or offices may not be built. Also, if the privately owned land is "misused" - for instance, if the owner has failed to plant anything on an agricultural plot for three years - the state has the right to take legal action to seize the land. There are also still restrictions on the purchase of land on military bases and public lands - those which contain vital mineral and water resources. (from East/West Letter, December 1995/January 1996)

[back to Kazakstan’s facts & figures page]

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Uzbekistan
November 1996: Tax breaks for foreign investment in Uzbekistan New regulations were introduced in Uzbekistan in an effort to attract more foreign investment. Companies with a minimum foreign investment will be exempt from taxes for seven years, up from the previous five years. However, a presidential decree of 30 November increased the minimum foreign investment required to receive tax breaks in Uzbekistan to $300,000 and raised the minimum stake of foreign partners from 10% to 30%. Also, at least one of the shareholders of the venture must be a foreign national. Enterprises registered prior to 1 January 1997 will be grandfathered in and will retain their tax exemptions or breaks. The decree also reduces the income tax rate, again depending on the amount of invested foreign capital. The tax rate drops to 20% for companies with foreign investment ranging from $300,000 to $1 million and to 16% for companies with foreign investment over $1 million. Finally, companies with foreign investment involved in production for export or import substitution, 25% of whose production is for children, will be tax exempt for five years and will pay one half of the normal tax rate thereafter.

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	Estonia		November 1996: NRG Energy invests in Estonian power plants The Estonian government and Estonian Energy signed an agreement with the American company NRG Energy, part of Northern States Power, to form a joint venture to operate Estonia's two biggest power plants. NRG Energy plans to invest $250 million in the plants, the biggest foreign investment to date in Estonia. The two plants use oil shale and produce 96% of Estonian electricity. Technical and economic analyses of the plants will help determine how the investment can make production more efficient and solve potential environmental, social, and economic problems. Power may also be exported in the future.
	[back to Estonia’s facts & figures page]
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	Kazakstan				January 1998: Kazakstan moving on large-scale privatization In late January, the Kazak government announced provisional lead managers for the sale of state-owned shares in large local companies to portfolio investors. Among those chosen were ABN AMRO Bank of the Netherlands, CS First Boston of the U.S., and Global Securities of Turkey. The western managers will negotiate sale contracts with the government; the sales are expected to begin in April. Large companies on the block include Kazaktelekom, the national telephone company and Mangistaumunaigaz, Kazakstan's largest oil producer. December 1997: Kazakstan moves capital to Arctic, errr... Akmola Much to the consternation of local and foreign officials alike, President Nursultan Nazarbayev moved the capital of Kazakstan from the metropolis of Almaty to the obscure northern city of Akmola in early December. Akmola became the official seat of the Kazak government on 10 December. Mr. Nazarbayev chose Akmola, which is more than 700 miles north of Almaty, two years ago; he cited Almaty's overcrowding, proximity to the Chinese border, and location on an earthquake fault as reasons for the move. However, many believe that Mr. Nazarbayev is primarily interested in countering separatist tendencies in Kazakstan's north, which is populated mostly by ethnic Russians. Akmola is geographically in the middle of Kazakstan, while Almaty is in the far south. Akmola is a city of 300,000 with little infrastructure compared to Almaty and its 1.5 million residents. Akmola - which means "white grave" in Kazak - is also located in the vast flatlands where winters are fierce and the temperature repeatedly dips to 40 degrees below zero (Celsius and Fahrenheit) in the winter. Stalin once banished people to exile in Akmola, known as Tselinograd before Kazak independence. Many Kazaks privately opposed the move because of the enormous costs involved at a time when many people are struggling to make a living. Nevertheless, Mr. Nazarbayev - who has ruled Kazakstan since the Soviet era and tolerates little opposition - hand-picked Akmola himself. A new government complex was built on Akmola's main square and many Soviet-era buildings were re-faced with vinyl before one of Mr. Nazarbayev's trips there in early November. Mr. Nazarbayev will continue to receive official state visitors in Almaty until 10 June when an official transfer ceremony will be held. December 1995: Kazakstan legalized private land ownership in a presidential decree of 26 December. The decree allows both foreign investors and Kazakh firms and individuals to purchase land on which productive assets or residential buildings are located. Kazakh citizens may also buy farm land. However, restrictions still abound. Only residential structures may be built on privately owned land; new industrial enterprises or offices may not be built. Also, if the privately owned land is "misused" - for instance, if the owner has failed to plant anything on an agricultural plot for three years - the state has the right to take legal action to seize the land. There are also still restrictions on the purchase of land on military bases and public lands - those which contain vital mineral and water resources. (from East/West Letter, December 1995/January 1996)
	[back to Kazakstan’s facts & figures page]
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	Uzbekistan		November 1996: Tax breaks for foreign investment in Uzbekistan New regulations were introduced in Uzbekistan in an effort to attract more foreign investment. Companies with a minimum foreign investment will be exempt from taxes for seven years, up from the previous five years. However, a presidential decree of 30 November increased the minimum foreign investment required to receive tax breaks in Uzbekistan to $300,000 and raised the minimum stake of foreign partners from 10% to 30%. Also, at least one of the shareholders of the venture must be a foreign national. Enterprises registered prior to 1 January 1997 will be grandfathered in and will retain their tax exemptions or breaks. The decree also reduces the income tax rate, again depending on the amount of invested foreign capital. The tax rate drops to 20% for companies with foreign investment ranging from $300,000 to $1 million and to 16% for companies with foreign investment over $1 million. Finally, companies with foreign investment involved in production for export or import substitution, 25% of whose production is for children, will be tax exempt for five years and will pay one half of the normal tax rate thereafter.
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