Albania: The Albanian Government and the International Monetary Fund (IMF) have reached agreement on a tough programme to stabilise the country's economy. The programme includes restrictions on the budget deficit, an increase in value added tax, and the winding-up of the remaining pyramid schemes. Full details of the agreement will be made public by the end of October.

Armenia: An agreement on the establishment of an Armenian-Russian holding company, Armrosgazprom, has been signed by Armenian President Levon Ter-Petrosian, Armenian Minister of Power Engineering Gagik Martirossian, and their Russian partner, Rem Vyakhirev, Chair of the Board of RAO Gazprom. Armrosgazprom will deliver Russian natural gas to Armenia. The agreement also covers prospects for long-term economic co-operation between the two countries.

Armenia's foreign debt totals US$660 million and $3.85 million will have to be spent from next year's budget in order to service this debt, confirmed Armen Darbinian, Armenian Finance and Economy Minister, in Yerevan on 4 September. Armenia owes Russia alone $73.7 million; this debt has been rescheduled in accordance with the agreement signed with Russia on 30 June which postpones repayment to the years 2000-2007 and fixes the interest rate on the debt at five per cent.

Belarus: A series of bilateral agreements between the Republic of Belarus and the representative of Russia's Kaliningrad region were signed on 3 September. The agreements relate to the development of relations in mutual investment, enterpreneurship, consumer co-operation, education, science and the exchange of technologies between the two countries. This follows a series of agreements between the two countries that were signed on 2 September in Moscow, covering the creation of conditions for the unimpeded movement of commodities, services, monetary resources and human resources across the Belarussian and Russian borders. According to Valeri Draganov, Chair of the Russian State Customs Committee, the bilateral commodity turnover between Belarus and Russia in 1996 amounted to US$6.264 billion, an increase of 24.6 per cent on the previous year.

Czech Republic: The recent catastrophic floods have caused a major budget imbalance in the Czech Republic, and the budget deficit this year could be as large as 20 billion crowns (US$591 million), according to Finance Minister Ivan Pilip. This will have a strong impact on next year's budget if outside confidence in the country, the stability of the crown, and the overall macroeconomic balance in the country are to be maintained. The Finance Ministry is proposing that the Government consider the introduction of a temporary two-year flood tax.

Trade between the Czech Republic and the Federal Republic of Yugoslavia during the first six months of 1997 totalled US$38.4 million, down from $84 million during the same period last year. The Czech Republic's main exports included food products, coal, paints, dyes, rubber, tyres, paper, textiles and fabrics, metal products, passenger cars, and spare parts for cars and tractors. Imports from Yugoslavia included raw non-ferrous metals, food products, parts for vehicles and parts for furniture.

Hungary: Hungary's net household savings rose HUF 62.9 billion (US$320 million) in July to a total of HUF 364.3 billion this year, according to the National Bank of Hungary. This compares with HUF 347.7 billion last year during the same period, and follows a temporary slowdown in the first quarter of this year.

Hungary's six month trade deficit was US$1.147 billion for the first half of 1997, according to Lajos Berenyi, Deputy State Secretary of the Hungarian Ministry of Industry, Trade and Tourism. In the same period, exports grew by 15.1 per cent to $8.624 billion, imports grew $9.769 billion, and manufactured goods accounted for more than 80 per cent of total exports and imports.

A HUF 95 billion (US$484 million) underground construction project in Budapest will be 60 per cent financed by the European Bank for Reconstruction and Development along with other international financial institutions and 11 commercial banks, according to Gabor Demszky, Mayor of Budapest.

Poland: The Government Coalition has agreed a compromise on the grain issue, a recent source of political controversy in Poland (see previous news). The compromise involves the purchase of between 300,000 and 400,000 tonnes of grain from local farmers and some US$45.7 million in rural aid. It is intended to help farmers who lost income in the last two years due to low grain prices resulting from a strong import market. A vote of no confidence in Prime Minister Wlodzimierz Cimoszewicz had threatened to bring down the Government just weeks before the parliamentary elections of 21 September, but was finally rejected last week by 177 votes to 79, with 93 abstentions.

The inflow of foreign direct investment (FDI) to Poland slowed in the first six months of 1997 to US$1.93 billion, down from $3.32 billion in the same period last year, according to the statistics released last week by the State Agency for Foreign Investment (PAIZ). Waldemar Dabrowski, the President of PAIZ, said that Poland would need an additional $2 billion in the second half of 1997 to meet the target of $5.2 billion. Poland is presently the second largest recipient of FDI in Central and Eastern Europe, with a cumulative total for the period 1990-1997 of $13.959 billion. The largest FDI recipient in the region is Hungary, which received $15 billion in the same period.

American bank subsidiary Citibank Poland announced last week that it will invest US$100 million in the next five years to develop its new retail banking services in Poland. Other foreign investment banks including ING are also interested in developing this sector of banking activity, eyeing the high growth potential in the underdeveloped Polish retail banking sector. Polish banks planning to invest in the retail sector include Bank Slaski, which has reported that it intends to invest several hundred million dollars in developing a broader consumer base. Bank Slaski plans to increase its retail banking operation from the current six per cent to 10 per cent, according to a statement made by Brunon Bartkiewicz, Bank Slaski President, in July this year.

Russia: Russia and Chechnya are still discussing a final agreement on the route of the Baku-Novorossiisk oil pipeline, according to a statement made in Moscow on 1 September by Sergei Kirienko, the Russian First Deputy Minister with responsibility for the fuel and power sector. Mr Kirienko pointed out that there are two possible versions of that agreement. The first version is in accordance with the previous agreement signed with Azerbaijan, in which Russia agreed to transport 200,000 tonnes of crude oil from the Azerbaijani capital Baku to the Russian port of Novorossiisk on the Black Sea coast. The other is the 'by-passing' version, according to which oil would be transported to the oil refineries in Astrakhan and Volgograd through Chechen territory. Russia and Chechnya have been trying for some time to come to an agreement on the restoration of the Chechen section of the pipeline, but both countries disagree on the structure of the tariffs. Russia initially proposed to pay Chechnya a fixed tax of US$0.43 out of the overall $15.76 per tonne of transported oil, but Chechnya wants this tax to be fixed between $1.9 and $2 per tonne of oil. Chechnya also wishes to include some budget subsidies in the tariff in order to cover administrative expenditure on the maintenance of the Chechen section of the pipeline. Talks between the two countries continue.

The 14th Conference of the Association of Asian Banks (ABA) opened on 1 September in Moscow. Two Russian banks, the International Industrial Bank and Bashkortostan's Credit Bank, are members of the ABA, one of the largest banking associations in the world. Others, like Inkombank, Oneximbank, Alfa Bank and Russian Credit Bank, are actively working with the association to attract more investment from Asia to Russia, which currently represents only 1.5 per cent of the total investment coming from the Asia-Pacific region. A framework agreement on mutual co-operation was signed on 2 September by Sergei Yegorow, President of the Association of Russian Banks, and Jeffry Coo, Honourable President of the ABA. According to Rigor Ivanov, the Russian Deputy Foreign Minister, who spoke during the conference, this agreement will play an important role in the development of multilateral trade, economic and banking co-operation. Mr Ivanov pointed out that Russia is an important trade partner in the region with a turnover of US$22 billion, representing 17 per cent of the total Russian trade volume. Viktor Chernomyrdin, Chair of the Russian Government, declared during the conference that he is confident about Russia's forecasted growth for 1998. He also stated that the Government needs to put a great deal of effort into improving the general investment climate, in order to create conditions for the inflow of foreign investment such that Russia will be able to attract between $10-15 billion annually by the year 2000. To achieve this the Russian Government intends to take a number of steps, including reducing public spending and taking pressure off the taxpayers and the business community. Mr Chernomyrdin highlighted the importance of healthy banking structures, which account for 60 per cent of world investment potential. He stressed that the Central Bank of Russia ensured both non-inflationary growth in the money supply and access to the domestic state bond issues market for non-residents. He also emphasised that the Government is planning structural reforms linked to the adoption of new tax and budget codes in an effort to improve the state budget.

Russia has reconciled 95 per cent of its outstanding debt to the London Club of creditors, according to Vladimir Dmitriev, First Deputy Chair of the Vneshekonombank, the Bank for Foreign Economic Affairs.

The Central Bank of Russia (CBR) has issued new regulatory documents aimed at creating an efficient instrument of control over financial risks assumed by the banks, thus minimising such risks, announced Alexander Turbanov, Deputy Chair of the CBR on 3 September. The document 'On Organisation of Internal Control Over Transaction of Credit Institutions on Financial Markets' focuses on the regulation of information flows between credit institutions.

The board of the International Monetary Fund (IMF)will allocate a new credit tranche of US$700 million to the Russian Government, it was reported on 4 September. The credit is based on the satisfactory development of the Russian economy in the first quarter of 1997 and is part of a three-year $10.2 billion IMF credit programme designed to support Russian economic reforms.

The Russian Government is "not going to run races in relation to the sales of blue chip state companies, including Rosneft and Svyazinvest", according to Viktor Chernomyrdin, Chair of the Russian Government, speaking to Russian news agency RIA Novosti, in Moscow on 3 September. Mr Chernomyrdin stated that the revenue from privatisation in 1997 had already exceeded all expectations.

The Russian National Reserve Bank plans to invest US$7 billion in a series of large scale investment and construction projects in Russia, according to Bank Chair Alexander Lebedev. These investment projects will be shared with some other financial institutions, and include the construction of a US$1.5 billion drilling platform in the Barents Sea, the production of 20 Ilyushin-96 aircraft, and the establishment of a $200 million leasing company with the participation of US investors. The bank also plans to invest in a small number of agricultural projects.

Ukraine: Ukraine plans to reduce gas consumption by cutting gas imports by 20 per cent and modernising its own private distribution system, according to Mykhail Kovalko, head of the State Oil and Gas Committee. Ukraine is expected to import 53 billion cubic metres of Russian gas this year, of which 32 billion cubic metres is in the form of payment-in-kind from Russian gas company Gazprom in return for transit of its gas through Ukrainian territory to Europe. Ukraine also imports gas from Uzbekistan and Turkmenistan.

Poland: The US credit rating agency Moody's has warned that Poland "faces extremely unfavourable policy development" if the main opposition movement Solidarity Electoral Action (AWS) forms a new government after the elections on 21 September. These comments were made in a report released last week in New York, two weeks before the Polish parliamentary elections. Moody's awarded Poland a BAA3 long-term foreign currency rating, and is a supporter of the present coalition of the reformed communist Left Democratic Alliance (SLD) and the Polish Peasant Party (PSL), both of which are confirmed supporters of economic reform.

Czech Republic: Following the flooding in the Czech Republic, Ceska Sporitelna, one of the top Czech banks, has allowed delays to loan repayments for flood affected companies to a total value of 180 million crowns (US$5.3 million). The bank has also provided a number of other firms with bridging loans to help them revive production. Jaroslav Klapal, General Director of the Bank, assured affected companies last week that Ceska Sporitelna will help them to maintain their operations since this will secure their chances of repaying existing loans.

Hungary: Ibusz Holding Rt has established its own hotel company with capital of HUF 3 billion, announced Gaspar Kovacs, Ibusz President. The new hotel complex will be named Ibusz Hotels Rt and will include the Rubin Aktiv Hotel, Olimpia Szallo, in which Ibusz already holds a 84.01 per cent stake.

OTP Bank Rt reported a profit of HUF 9.131 billion after tax for the first half of 1997, a rise of 80 per cent from the same time last year. The OTP group has registered capital of HUF 28 billion.

Oil and gas company MOL reported a HUF 12.544 billion net profit for the first six months of 1997, 17.4 per cent up on the same period last year. While MOL's exploration and production business showed an improvement in profitability, this was based on higher gas sale prices rather than crude oil production, which declined.

Poland: Polish telecommunications company TeleKomunikacja Polska SA (TPSA) has been accused of grave irregularities surrounding its recent US$50 million contract with Motorola. According to allegations by Polish GSM companies Polska Telefonia Cyfrowa (ERA GSM) and Polkomtel (PLUS GSM), TPSA ignored national regulations and did not get a licence from the Telecommunication Ministry when it awarded Motorola a contract earlier this month to build a cellular network in the Warsaw area. Polska Telefonia Cyfrowa and Polkomtel each paid a total of $800 million to the Communication Ministry for their licences to build a wireless telecommunication network in Poland.

Czech Republic: Becherovka, the Czech Republic's most successful liquor making company, is to be sold for 2 billion crowns (US$59.1 million) to a consortium including Pernod-Ricard, the French luxury drinks company. The winning consortium is 40 per cent controlled by Pernod-Ricard, 40 per cent by Czech Investment bank Patria Finance, and 20 per cent by Karl Schwarzenberg, Czech aristocrat and former advisor to President Vaclav Havel.

Poland: The Polish Security Commission (KPW) has cleared 3.7 million shares in currency exchange firm Gant SA for public trade, including a 1.2-1.3 million share public offering. Gant SA intends to start trading on the Warsaw Stock Exchange's third tier in November this year. The company is privately owned by different individuals; the major shareholding is that of Grzegorz Antkowiak, who holds 33.12 per cent of the shares.

Polish brewery Brok SA started trading on the Warsaw Stock Exchange's third tier at PZL 34.50 (US$9.86), 43.8 per cent above its IPO price of PZL 24 (US$6.86). Brok SA has listed a total of 2,012,500 shares. AHK, a subsidiary of German brewery Holsten is the main shareholder, with a 60.1 per cent stake.

Polish outfitter Prochnik SA is planning a new issue of 15 million shares on which present shareholders will vote on 11 September. According to a report in Polish daily Dziennik Prawa i Gospodarki, the planned series B ex-rights issue will consist of up to 10 million shares and the series C issue up to 5 million shares. The company currently has 1.5 million shares outstanding.

Romania: Romania has lifted the last restrictions on foreign investment in Romanian equities and foreign exchange markets. The move, intended to create a better investment climate for foreign companies, was one of the conditions set by the International Monetary Fund (IMF) and the World Bank in return for a stand-by loan agreement in April. IMF representatives said on 3 September that they would meet with the Romanian authorities on 12 September to discuss releasing the second tranche of the agreed funds.

Russia: The turnover on the 35 Russian stock exchanges operating in 1997 increased in the first quarter of 1997 in volume terms by 1.3 fold, compared with the same period of 1996. The total turnover on all exchanges amounted to Rbs 720,300 billion, according to the latest statistical data issued by the State Statistical Committee of the Russian Federation. The market has been dominated by transactions in government bonds, which accounted for 96.9 per cent of the turnover. At the beginning of 1997, 44 Russian stock exchanges licensed by the Russian Ministry of Finance were in operation, but in the course of the year nine stock exchanges lost their licence.

Slovakia: An unspecified tranche of Finance Ministry one year bonds will be auctioned on 2 September by the National Bank of Slovakia. The bonds will have a nominal value of 100,000 crowns (US$2,880), and will carry a fixed annual coupon of 11 per cent. The last auction of similar bonds took place on 8 August, when the Ministry sold a 2.38 billion crown tranche of one year bonds at an average accepted yield of 20.349 per cent.