thinks Chairman of Foreign Economic Bank Andrei KOSTIN
When a region lacks money, it is better not to take out loans but to attract investment. If this applies to the Crimea, the answer to the question where to channel investments is crystal-clear: to the resort business, of course. A Russian delegation led by Deputy Premier Kasianov has recently discussed a number of investment projects with the Crimean leadership. The delegation also included Andrei Kostin, governor of the Foreign Economic Bank. After 1988, when the banking reform deprived his bank of its erstwhile monopoly privileges, the Foreign Economic Bank temporarily dropped out of the system of Russia’s actively functioning financial institutions. However, after Boris Yeltsin signed in December 1993 a decree identifying the Foreign Economic Bank as a “specialized state bank of the Russian Federation” aimed at “servicing the Russian Federation’s foreign debt and centralized foreign economic operations,” the bank has not only won back the positions lost earlier but is also actively capturing new ones, successfully competing with commercial banks in many directions.
Since 1996, the bank has been chaired by Andrei Kostin who, after graduation in 1979 from the Economics Department of Moscow’s Lomonosov State University as an international economist, worked in the diplomatic institutions of the USSR and the Russian Federation until 1992 and then went on to private business: the Russian Investment Company (executive director, 1992-1993), Imperial Bank (deputy chair of its foreign investment sector, 1993 - 1995), and the National Reserve Bank (first deputy governor, 1995-1996). After Mr. Kostin had talks in the Crimea, he agreed to answer a number of our questions about not only the frozen deposits of Ukrainian citizens in the USSR Foreign Economic Bank but also the prospects of Ukrainian- Russian relations
“Both Ukraine and Russia have seen important political changes in the past six months, with many new people assuming official posts. How do you, a banker, assess the influence of these political developments on the financial relationships of the two countries? How do you forecast the immediate future?”
“You have a point, recent political developments in Russia and Ukraine, above all, the elections of presidents, are bound to have far- reaching consequences. This is important because at the turn of the new century power in our countries has been taken by presidents advocating democratic market reforms, so we can be sure they will continue the course Ukraine and Russia have been following lately.
“But there also are other factors that bring us closer. Our governments are headed by people of a new generation referred to as technocrats. I mean Viktor Yushchenko and Mikhail Kasianov. It is in conditions of a market economy that both of them grew up and became high-class professionals, so they are not burdened with the misconceptions of the past, which is very important for understanding the current problems and successfully fulfilling the tasks of economic and financial relationships.
“Of course, everything is not yet smooth in the relations between Ukraine and Russia, but it is far more important to recognize frankly and honestly that problems exist and to suggest ways to solve them than to avoid them and pass the buck to the clerks. The political will of both sides should become the main instrument to deepen our cooperation.
“Another encouraging factor is that the executive branch in both Ukraine and Russia now has more opportunities for cooperation with the legislative, the Rada and the Duma. As you know, our parliaments in fact worked as brakes in the past, obstructing the laws intended not only to reform the economy but also promote bilateral relations, including these in the financial field. As you know, the lengthy delay in Verkhovna Rada ratification on the agreement on former USSR foreign debts assets became a factor hampering progress in this field.
“Now the situation has changed: both in the Duma and the Rada, the executive enjoys the support of a clear majority. This opens up new prospects to perfect the legislation our countries need so badly. Gone is the problem of endless confrontation between presidents and parliaments, which should be reflected not only in the quality but also on the speed of reforms and the rapprochement of our nations.”
“What is the purpose of your visit to Ukraine?”
“I come to Ukraine on business quite often. The purpose of this visit is to meet the Crimean leadership and familiarize ourselves with a number of projects primarily in the resort business. I think the Crimea should become a point of attraction, a basis for strengthening the close cooperation and friendship between our nations, rather than an apple of discord.
“The very word Crimea is dear to the heart of Russians and Ukrainians alike. The Crimea’s potential is huge from the viewpoint of its natural resources and rich cultural heritage. Nature has done everything to turn the peninsula into a high quality resort area similar to those on the southern coasts of France, Italy, and other rare and, hence, coveted holiday locales. However, nature has only laid the basis, and all the rest depends on man. There is a huge intellectual potential here, as well as an adequate number of highly qualified experts in the fields of the recreation business, health care, and service industry. But... compared to Soviet times, the Crimean holiday facilities are being utilized to a mere 30% of their capacity. The consumers, including those from Russia, are unsatisfied with the quality of the services rendered. They prefer other countries and beaches, given today’s wide choice and open borders. Only serious investment can radically change the situation.
“This is the purpose of our visit. The Foreign Economic Bank has vast experience in attracting western investments. Today we do not rule out the possibility of Russian capital also being invested in the Crimean economy. I think this will inevitably happen, the more so that Ukraine in general and the Crimea in particular is unfolding a wide process of privatization, which will enable private investors to take part in the implementation of projects. You will agree that it is senseless to expect investments as long as all items of property are run by the state. The investors will come as soon as government enacts laws that guarantee the rights of ownership.”
“How would you comment on the way Ukraine has restructured its foreign debt? Why did Russia not even consider this option as applied to its own Eurobonds? And what particular features of Russian restructuring (writing off some debts of the former USSR) could be of use for Ukraine?”
“That Ukraine has managed to restructure a considerable part of its foreign sovereign debt is undoubtedly a positive factor for the country’s economy. This operation was conducted on a highly professional level, so most of creditors, both Western and Russian, in general accepted the suggested bond-based approach to foreign debt restructuring. But, as I see it, the problem of foreign debt has not yet been exhausted. Ukraine still has to settle its obligations to Paris Club members, including Russia. I think we have an extensive field for cooperation in this context.
“As to Russia, let us not forget we have been dealing with restructuring the debt of the former USSR, and not that of our own making. Russia is known to have become the successor to and responsible for the debts of all Soviet republics. It is this that we have so far been negotiating with the London and Paris Clubs.
“An entirely different situation exists with the new Russian debts, i.e., our borrowing since 1992 as an independent state. Today, Russia is fully meeting its obligations to its creditors. It is very important to stress this. The point is any nonfulfillment of an obligation by a country and any subsequent restructuring of its debt has an extremely negative effect on its credit rating and its ability to attract investment. Russia has avoided default on
INCIDENTALLY
The Foreign Economic Bank (USSR) is one of Russia’s oldest banking institutions. Founded in 1924 by the Soviet government to service foreign trade turnover and to develop the national industry, in maintaining extensive international business ties and having gained the reputation of a first-class banking institution the bank has for many decades embodied the financial might of the country.
The Foreign Economic Bank (FEB) is a specialized state bank of the Russian Federation to ensure centralized foreign economic operations, service the foreign debt, and extend loans and guarantees on behalf of the Russian government.
Today’s FEB is a powerful financial institution capable of performing traditional banking operations on a high level and of acting, with a maximum effect, as an agent of the Russian government in transactions involving former Soviet foreign debts and assets.
The FEB is one of the few Russian banks which can perform loan and guaranteeing operations for large international projects without counter-guarantees of the Russian government.
The FEB is the only Russian bank playing a full-time role in the proceedings of intergovernmental commissions dealing with commercial, scientific, and technological cooperation between the Russian Federation and foreign countries.
Among the FEB’s clients are Russia’s largest military, oil, gas, and chemical enterprises, as well as foreign trade associations.
