News round-up

24 - 31 August 1997


General: New car sales in the region are rising and this rise is expected to continue, according to the East European Automotive Industry Forecast Report published recently by DRI/McGraw-Hill. This follows an overall rise in real incomes and an agreement with the European Union over changes in regional import tariffs. Car sales in the region grew by 14 per cent in 1995 and by 35 per cent in 1996, when 888,000 new cars were sold. The forecast for 1997 predicts a decrease in this growth; it is estimated that 975,000 new cars will be sold, a rise of 10 per cent on the 1996 figure.

Hungary: The Hungarian Ministry of Finance is planning a number of tax rises, according to reports last week in the Hungarian business daily Vilaggazdasag. The tax on large distributed profits will be raised from 27 per cent to 35 per cent starting in January 1998. This tax applies to dividends per net assets that are more than 100 per cent above the central bank base rate, which was initially established at 23 per cent earlier this year but has recently fallen to 21 per cent. Taxes on local businesses are also to rise. Until now they have been fixed by local councils at a maximum level of 1.2 per cent of the company's adjusted gross sales income, but this level is set to rise to 1.5 per cent in 1998, and to two per cent in 1999.

Capital investments in Hungary in the second quarter of 1997 were worth Ft333.2 billion (US$1.7 billion) according to a report from the Central Statistical Office of Hungary published at the beginning of August. This represents a rise of 13.4 per cent compared to the same period last year. The rate of growth in capital investments was highest in the agricultural sector, where the figure was 39 per cent, followed by manufacturing, with a rate of 25 per cent.

Poland: The month-on-month consumer price index fell by 0.2 per cent compared to a rise of 1.5 per cent in June, according to economic performance data for July 1997 released last week by the Polish Finance Ministry. The Polish Central Statistical Office, GUS, reported that Poland's trade balance in the first half of 1997 amounted to US$7.78 billion, up from $5.53 billion in the same period last year. Industrial output fell by 3.4 per cent in July, after a 5.9 per cent rise in June, and was 10.4 per cent higher than in July 1996. Poland's current account deficit in June stood at $287 million, against $135 million in May, according to the National Bank of Poland (NBP). This brings Poland's shortfall for the first six months of 1997 to $42.697 billion. Zbigniew Kuzmiuk, head of the Center for Strategic Studies, said that Poland is likely to meet its inflation target of 15 per cent this year. He also said that Poland's GDP should grow by 5.7 per cent this year, despite the negative effects of July's flood. According to Mr Kuzmiuk, this increase will be generated largely by growth in industrial production, construction and investment.

The Polish central bank, the National Bank of Poland, has granted the Bank of America a licence to open a wholly owned subsidiary in Poland. The US bank is the second to open such a subsidiary in Poland after Citibank, which has operated there since 1991. The Bank of America will offer corporate banking services in addition to its venture capital operations, and is arranging finance for a US$117 million gas fuelled heat and power plant project in Nowa Sarzyna for the Enron gas company.

Russia: Economic growth in Russia is guaranteed by the 1998 budget, according to Anatoly Chubais, First Deputy Chair of the Russian Government. The priorities for next year's budget strategy include reform of the Russian army coupled with greater military expenditure, more money for health and cultural activities, and less money for regions 'in need' of federal funding. Mr Chubais emphasised that one of the most important tasks for next year will be to reduce the tax burden on the hundreds of thousands of smaller Russian producers. The Government also promised to implement a plan to pay the wages arrears of regional employees within the next four months.

Slovakia: A treaty establishing a Slovak-Russian Chamber of Commerce in Bratislava was signed on 27 August by Milan Lauk of the Slovak Chamber of Commerce and Sergei Bednov, Vice-President of the Russian Chamber. The new Chamber will focus on co-operation between the two countries.


Poland: Three Central and Eastern European heads of government met last week to discuss co-operation between their three countries in their bids to join NATO and the European Union. Following the meeting between Polish Prime Minister Wlodzimierz Cimoszewicz, Hungarian Prime Minister Dr Gyula Horn and the Czech Prime Minister Vaclav Klaus, Mr Cimoszewicz said that the three countries would consult on military expenditure and armed forces reform, and would also support bids to join Western institutions from other Central and Eastern European states.


Hungary: A Ft2.2 billion (US$11.9 million) investment project will be launched in September this year by hand-painted luxury china producer Herend Porcelain Manufacturing Rt, according to Company General Manager Josef Kovacs. The company will spend Ft500-600 million ($2.5 million) on modernising its production technology, and also intends to construct an exhibition centre with a permanent exhibition on the history of porcelain, a workshop, a restaurant and a shopping centre. Herend Porcelain reported a pre-tax profit of Ft845 million ($4.3 million) in the first half of 1997, Ft341 million more than for the same period in 1996.

Russia: Russian commercial bank Rossiisky Kredit Bank has signed an agreement with a consortium of European, Asian and American banks to be provided with a one year US$125 million syndicated loan. The consortium comprises 40 banks and financial institutions from 15 countries and is managed by Raiffeisen Zentralbank Oesterreich AG of Austria and the London based Forfaiting Asia Ltd of Cyprus. This is the fifth such loan to the Rossiisky Kredit Bank by foreign financial institutions.


Hungary: APV Rt, the Hungarian privatisation fund company, is planning to buy back Alitalia's 30 per cent stake in Malev, the Hungarian national airline. In addition to the 30 per cent stake, Alitalia also holds pre-emption rights on further sales of shares before the end of 1998. The APV Ft fund owns 63 per cent of Malev, and plans to list Malev on the Budapest Stock Exchange in 1998 or 1999. According to Hungarian privatisation law a 25 per cent stake in the company plus one vote must remain in state hands.

Poland: The Polish travel agency Orbis SA will be privatised in the fourth quarter of 1997, according to the company's Deputy President, Ireneusz Weglowski. The privatisation will take the form of state treasury shares and an issue of 8.5 million new shares, and the State Treasury will retain a minority holding. Money from the privatisation is estimated to reach Pzl 450 million (US$128.6 million) and will be used to modernise the company's 54 hotels and to buy new properties.

Panstwowy Zaklad Ubezpieczen SA (PZU), the largest state-owned Polish insurance company, plans to increase its capital of Pzl 60.5 million (US$17.3 million) by between 20 and 34 per cent via a new share issue prior to its planned 1998 privatisation, according to Treasury Ministry spokesperson Zbigniew Ostrowski. Marek Maszek of PZU said that in order to secure mandatory safety ratios, the new issue must bring in at least Pzl 600 million ($171.4 million).

Ostrow Wielkopolski in Western Poland has been granted a rating for a municipal bond issue, the first such rating to be granted in Poland by the Central European Centre for Rating and Analysis SA (CERA), the first credit rating agency in Central Europe. CERA President Wojciech Lipka and the Mayor of Ostrow, Miroslaw Kruszynski, signed an agreement on 20 August covering the issue of bonds to the value of Pzl 17.5 million (US$2.1 million) by the end of 1997.

Russia: Russian President Boris Yeltsin signed last week a decree on the privatisation of Roslesprom, the State Enterprise of the Russian Lumber Company. Under the decree, Roslesprom becomes an open joint stock company and it is expected that privatisation will bring improvements to its structure and organisation. The Government will keep a golden share in the company for three years.

The draft federal law for the 1998 privatisation programme was submitted last week to the Russian Duma. The draft law was accompanied by a preliminary list of 66 companies to be privatised, of which 29 are joint stock companies only partly owned by the state. The list contains some of Russia's largest companies including Lukoil, Rosneft, Transneft, Svyazinest and Aeroflot. According to Maxim Boiko, Vice-Premier of the Russian Government and Chair of the State Property Management Committee, if the Duma approves the list proposed by the Government, the proceeds from privatisation could amount to Rbs 30,000 billion.

Shares in the Russian gas company Gazprom increased in price from Rbs 3,470 to Rbs 5,584 between 1 July 1997 and 26 August 1997. This followed the Government's decree of 1 July regulating the circulation of Gazprom shares and the co-operation agreement signed in August between the Moscow Stock Exchange, the Depository and Settlement Union and Gazprombank. The implementation of the agreement is expected to raise the liquidity of Gazprom shares and facilitate over-the-counter dealings in them.

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