Local view for "http://purl.org/linkedpolitics/eu/plenary/1999-09-16-Speech-4-104"
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"en.19990916.7.4-104"2
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"Mr President, with your permission, I would like to make a Commission statement on the effects of the financial crisis in Russia and on matters relating to corruption and money laundering. As the House will know, some stability has been achieved in the general financial situation in Russia since the dramatic fall in the international exchange value of the rouble in August last year. Indeed, since the beginning of this year, there has been some encouraging news with the recovery in industrial output, mainly as the result of import substitution, relatively tight controls on inflation and a stronger balance of payments position, produced mainly by a sharp rise in the price of Russia’s oil exports.
There is also growing cooperation between the relevant Commission and Russian officials in customs and anti-fraud activities. The House will be only too aware of the sophisticated skills of international criminals in taking advantage of different legal and regulatory provisions across the globe and infiltrating economic and financial systems regardless of national frontiers. We are therefore faced with a worldwide problem that is not confined to Russia. Obviously combating it requires closely coordinated international responses and the Commission is ready to play its full part in that.
Russia must nevertheless take whatever action it can to put its own house in order. The Commission therefore hopes that the Russian authorities will respond to the present situation in a convincing way and it is vital that those authorities cooperate fully with the ongoing investigations in Europe and in the USA. The Commission notes with approval that the authorities have decided to send a high-level mission to the USA to liaise with investigators there, I think that is actually happening at the present time. Clearly the internal investigations in Russia into these fraud allegations should be actively encouraged.
The Commission is concerned, however, that the questions raised have been met by only routine denials and have not been properly addressed in Russia. Against that background, timely action by President Yeltsin in signing into law the Russian draft legislation on money laundering would be reassuring to the international community. Ratification and implementation of the relevant Council of Europe Convention is also essential.
In addition, the Commission would like to see a speedy resolution of the problems in the Russian banking system, which is obviously at the centre of concerns about corruption. Confidence in that system needs to be restored quickly and decisively as a major contribution to the achievement of something like normality.
In addition, at the end of July, agreement was reached with the IMF, and other financial institutions, on the resumption of direct loan assistance, and soon afterwards there was an agreement in the Paris Club on rescheduling debt service payments due on Russia’s sovereign debt. Talks are now under way in the London club of private-sector creditors. The Russian economy has consequently gained a breathing space in the run-up to the
elections in December and the presidential elections next summer.
However, by itself, none of this is enough to revive an economy which remains very fragile with rising unemployment and levels of poverty. Much more effort is therefore needed from the responsible authorities to promote sustained recovery over the medium-term. Adoption by the
of the budget proposed by the government for the year 2000 will be a significant test. In addition to severe structural problems like lack of investment, the public debt, particularly foreign debt, has grown rapidly and at present it is not clear how the authorities intend to service that debt burden.
With reference to the more specific issues of the flight of capital and money-laundering, I would like to say the following. The Commission is aware of the current media speculation and the growing worries about the misuse of international assistance funds provided to Russia. Clearly we must await the outcome of ongoing investigations in Europe and the United States of America, and the Commission is naturally following the matter closely.
In the meantime, the decision about a response to the speculations and the allegations about misuse of assistance funds is primarily a matter for the IMF, the World Bank and the G7 countries, since they are obviously the main suppliers of direct financial assistance. Everyone should of course be mindful of the fact that the Russian authorities are responsible for repaying the principal and the interest due on such assistance. Moreover, the latest IMF assistance will be cancelled out by debt-servicing payments due to the IMF by Russia. It will therefore be a book transaction without any substantial transfer of money.
Meanwhile Community assistance is, as this House will know, primarily delivered through the TACIS programme which is centrally managed from Brussels. The funds concerned are predominantly used to pay EU firms to provide technical expertise and advice for Russia. Only a very small proportion of the funds therefore goes to Russia. Indeed it is only EUR 4 million out of the total of EUR 140 million. That EUR 4 million is obviously directly managed by our representation in Moscow.
In addition the Community food supply programme for Russia, that was launched earlier this year, is subject to very close monitoring which involves, amongst other things, checks on the use of the funds generated by the sale of relevant food products on local markets. Moreover, Russia does not currently receive Community loans, and the lending mandate of the European Investment Bank for countries outside the European Union does not extend to Russia.
However, the issues which deserve close attention are not confined to alleged misuse of international funds. They extend, in the Commission’s view, to the massive outflow of capital from Russia which has in turn obviously contributed to the low level of internal investment and therefore impeded economic growth. The Commission has always made it clear to Russia that reversing capital flight urgently and fundamentally requires a more appropriate investment environment and better protection of investor rights in Russia.
For some time, the Commission has recognised the link between capital flight and corruption and criminality in Russia and we also understand the cumulative threat these conditions pose to the country’s transition to a democratic system and a market economy governed by the rule of law. The House will be aware that criminal activity thrives on institutional weaknesses and the fragility of efforts to consolidate the rule of law. That is why the Commission has made, and will continue to make, useful efforts to assist Russia in its arduous transition by actions like targeting technical assistance at combating money-laundering and organised crime and supporting efforts to advance the rule of law in general. One example of such activities is a study into Russian institutional and regulatory requirements in combating money-laundering that will be launched later this year."@en1
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