News round-up December 1998


Russia: the Duma, the Russian Parliament, has advocated the 1999 budget in the first reading. This decision was important for Prime Minister Primakov' Government, which faces the difficult task of lifting Russia out of crisis. However, there were some reservations concerning the solidity of the budget, in that many estimates are not realistic and need to be revised. However, Primakov stated that it would be possible for the budget to be updated every quarter. According to the new budget draft, value-added tax (VAT) will be lowered from 20 per cent to 15 per cent and the profit tax from 35 per cent to 30 per cent.

The World Bank has approved a US$400 million loan to Russia for road construction improvements, indicating the bank's willingness to co-operate with Russia despite its financial problems. This loan has raised the bank's total commitment to Russia to approximately $11.8 billion for 42 projects.

The International Monetary Fund (IMF) predicts that Russia's economy will decrease by 8.3 per cent in 1999 and that inflation will be 56 per cent. The Gross Domestic Product (GDP) is forecasted to grow by 3.6 per cent in Estonia and by four per cent in both Latvia and Lithuania. Inflation in these states is expected to be six per cent, four per cent and five per cent, respectively. Polish GDP is seen to grow by 5.1 per cent.

Slovakia: the Slovak Economy Minister, Ludovit Cernak, stated that Slovakia would not use import charges to reduce the current account deficit. 'Slovakia will not go for an import surcharge ... we will first of all support export payments and we will seek other forms of improving our balance of payments,' he told reporters. The state currently holds an account deficit of approximately 11 per cent of GDP, as calculated by the country's central bank. However, Finance Minister, Brigita Schmognerova had previously stated that import surcharges were being taken into account as a means of reducing the deficit.

Brigita Schmognerova recently announced that the Ministry wanted the 1998 budget deficit to remain at or to fall under 16.2 billion Slovak crowns. Last month the budget deficit amounted to 12.881 billion crowns. The Ministry modified the budget balance at the beginning of the year to exclude the payment of the state debt principal. Figures for 1997 were not immediately available to conduct a comparative study. The newly elected government intends to balance the budget by the end of its term.

Hungary: Hungary's consumer price index (CPI) for November rose 0.3 per cent against October 1997. Adam Hegyi of Hypo-Securities Budapest stated how 'So far in the second half of the year the market was surprised by these low inflation figures because everything was in line with the trend ... the market expected a rise in domestic demand which is prevalent in industrial production and has not yet filtered through to consumer prices. Considering the growth potential of Hungary, all Government papers should be bought up now.'

The Hungarian Social Welfare and Family Affairs Ministry told a recent news conference that the nation's current rate of unemployment stands at 8.8 per cent. A total of 392.429 unemployed were registered in November 1998, nearly 500 more persons than in October.


Hungary: the Hungarian brokerage firm Procent recently downgraded the electricity distributor Demasz from an 'accumulate' to a 'hold' and began coverage of Emasz as a 'hold' and Elmu with 'accumulate'. Equity analyst at Procent, Zoltan Legradi, said 'We feel that the (Demasz) stock gives more safety than average to investors with a high dividend in the long run. At the same time, considering the stock's significant price rise in the recent past, we recommend a 'hold' on the shares.' Demasz's price earnings ratio was determined at 16.6 times with 1998 earnings forecast and at 11.9 times with 1999 profit estimations. Projected EPS for 1998 stands at HUF 1.024 and is expected to increase to HUF 1.426 in the new year.

Poland: the Polish glass manufacturer Irena SA is estimated to make a 2.8 million zloty net loss in 1998 against an earlier forecast of 3.9 million zloty profit. It was the second time Irena degraded its net view this year. In July it declared a cut from the estimated 9.9 million zlotys, blaming 'a strong zloty', the collapse of the Japanese glass market, and the necessity to conduct repairs and corrections of the assessed value of its financial assets. Irena said it expected to make a pre-tax loss of 2.5 million zlotys on sales of 79 million against its previous prediction of 5.5 million zlotys pre-tax profit on 87 million zloty sales.


Russia: the New Year holiday will interrupt trading and GKO restructuring talks on the Russian markets.
Meanwhile, the $660 million proceeds from the 2.5 per cent sale of Gazprom flew into the Government coffers, which supported the rouble. Many companies and individuals hurried to pay year-end bills and withdraw rouble cash for presents and holidays. The official rouble rate was pushed up against the dollar.

Baltic States: the Baltic markets are calm, with interest rates declining as speculation decreases before the year-end.

Poland: the Polish zloty is seen to be decreasing in slow year-end trade. Today the zloty opened at 7.26/7.11 per cent above the parity rate (3.4840/90 per dollar). Interest rates are expected to remain stable.


Hungary: it has been reported that the nation's bus manufacturer Ikarus is likely to sell a 43 per cent stake in the company to save it from bankruptcy. The possibility of this move comes as a result of the major losses suffered by the company following the Russian crisis. A shareholders' meeting is expected to take place on 16 December, during which, if company owners vote to begin bankruptcy proceedings, Ikarus will finalise the stake sale.

The Hungarian investment firm, Dunoholding Rt purchased a 30.29 per cent stake in the nation's knitwear manufacturer Senior Vaci Kotottarugyar Rt. Senior Vaci currently has a subscribed share capital of HUF 618.7 million ($2.86 million).


Belarus: during the first ten months of 1998 the Belarussian Military Prosecutor's Office effected 58 criminal proceedings of corruption and organised crime, compared with only 12 such cases last year. Among the most serious crimes was an investigation involving a criminal group of officers and former officers of special units of Belarussian and Russian internal troops, accused of the contract killing of the Head of the Belarussian Railway Company.

Russia: during a session of the Russia-North Atlantic Treaty Organisation (NATO) Permanent Joint Council, United States (US) Secretary of State, Madeleine Albright, told Russian Prime Minister, Igor Ivanov, that the US could suspend scientific co-operation with Russia if Moscow does not halt its supply of nuclear technologies to Iran. Despite the Russian Government's statement that interaction with Iran is of a peaceful nature, the US believes that this is a serious disagreement in terms of relations between the two countries.

Bulgaria: in a move to tighten regulations over Bulgaria's 20 casinos and numerous gambling halls, the Government recently approved a draft law that imposed a licensing regime. Deputy Director of the Tax Administration Directorate, Angel Savov, stated that 'Existing casinos and gambling halls will have one year after the law comes into force to meet new licensing requirements.'

Estonia: Chancellor Ilmar Tupits and former Agricultural Minister Jaan Leetsr were acquitted of embezzlement charges in Tallinn City Court. Tupits and Leestar were charged with performing illegal privatisation procedures relating to a state-owned apartment building in 1994. The prosecuting lawyer alleged that the state suffered significant monetary loss because of their actions. However, Helve Srgava, presiding judge for the case, ruled that the subject to use the apartments for service flats was up to the regional authority and thus Tupit and Leestar did not break the law. Two other officials implemented in the case were also released.

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