Union bid to refocus aid in Russian financial crisis

Date: 02/07/1998

By Mark Turner

FOREIGN Affairs Commissioner Hans van den Broek will offer Russia better-targeted technical assistance to help it overcome its financial crisis when he flies to Moscow next week.

But the Kremlin remains evasive about what, if anything, it wants from the EU as it puts together a last-minute schedule of meetings which it was not even sure would go ahead until last week.

Van Den Broek's visit comes amidst continued turmoil on Russia's financial markets, despite the Kremlin's optimism that it will receive international assistance to ease its cash-flow problems by the end of the month.

Stocks have dropped by 50&percent; this year, yields on short-term bonds continue to rise, with one- third of Russia's budget now being spent on servicing debt, and pressure is growing for the rouble to devalue.

Yet just as the International Monetary Fund (IMF) calls on Moscow to make spending cuts in return for further loans, strikes are breaking out all over the country as public sector workers demand to be paid. Russia's tycoons, who are strongly resisting any new taxes, are also making it difficult for Moscow to fulfil its IMF obligations.

European Commission analysts share the belief that the crisis has three major causes: Asian 'flu, declining oil prices (down 40&percent; this year) and a lack of economic reforms - with a weak tax system particularly to blame.

The EU has promised Moscow more than 110 million ecu this year under its Tacis technical assistance programme. Of that, more than 30 million is set aside for enterprise restructuring and development and tax reform. A Van Den Broek aide said no new money would be offered, but added: “We would like to explore whether we should refocus our programmes to help Russia overcome its short-term problems.”

Officials say the revamped Tacis could concentrate more on tax legislation and collection, intellectual property protection, and accounting and banking laws. But they add that there has been little feedback from Moscow so far. Russian Prime Minister Sergei Kiriyenko has yet to confirm that he will meet with Van Den Broek, and Moscow diplomats said they could not comment until preparations were complete.

Commission insiders claim that this kind of uncertainty is another reason for the trip, which will give the EU a chance to meet with many key players in the new Russian government.

Former Russian Premier Viktor Chernomyrdin was notorious for the disdain with which he regarded Brussels, and Commission officials hope to establish a better rapport with his successor. But Kiriyenko remains an unknown quantity.

Van Den Broek is also keen to speed up the implementation of the Union's recently launched Partnership and Cooperation Agreement (PCA) with Russia.

As Moscow adjusts to its new political climate, the PCA has been given a relatively low priority but the Commission believes that the crisis should give it new impetus. “We want to prove that, despite the crisis, we can take a longer-term look at cooperation in a range of areas such as transport, the environment and nuclear waste,” said a Commission official.