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RUSSIA'S REFORMS MUST BE MORE COMPREHENSIVE TO SUCCEED, ACCORDING TO DEUTSCHE BANK RESEARCH

 RUSSIA'S REFORMS MUST BE MORE COMPREHENSIVE TO SUCCEED,
 ACCORDING TO DEUTSCHE BANK RESEARCH
 FRANKFURT, Germany, March 19 /PRNewswire/ -- Amidst growing calls for creation of an international fund to stabilize the Russian ruble, Deutsche Bank Research writes that the lack of a strong currency is one among several key obstacles to successful reform in the largest former Soviet republic.
 In its recent publication, "Economic Reform in Russia -- A Preliminary Assessment," the research subsidiary of Deutsche Bank notes that since price liberalization began in Russia in January this year, "manufacturers have been producing less because they have no interest in selling their wares for rubles which are becoming increasingly worthless."
 The institute adds that if the ruble were made convertible -- by pegging it to a single western currency or basket of currencies, for example -- foreign business would increase. This would help fill shop shelves and generate competition between domestic and international suppliers.
 In addition to the lack of money supply controls, the Russian government has also been unable to implement stabilizing fiscal policies. The government has boosted transfers to pensioners and students, increased army officers' salaries. Bowing to political pressure, the government also cut a planned value-added tax -- providing half of all budget revenues -- by 50 percent.
 As a result of these and other problems, inflation rose to 350 percent in January, surging as high as 800 percent for some individual goods. In a worst case scenario, inflation for the whole of 1992 could come in at over 8,000 percent.
 Other obstacles are also formidable, DB Research notes. For example, 60 percent of the work force around Moscow is said to be employed in defense industries. In addition more than two-thirds of all goods have until now been produced by monopolists, illustrating the lack of competition that may thwart successful reform. Despite these problems, it is still too early to say whether the Russian economic reform will be a success or failure.
 Among the republics, Russia has pursued the most ambitious and aggressive reforms to date and plans to continue opening the economy to greater competition. In the first two months of this year, the Russian government has already raised 414 million rubles by privatizing smaller firms. Some 1,700 privatization applications have been approved and more than 2,000 are now under consideration.
 DB Research concludes that stabilizing the Russian ruble is virtually impossible under the current practices of the Commonwealth of Independent States (CIS). The CIS declarations do contain the idea of a single economic area, but it is acutely endangered because of the lack of cooperation and coordination between the member states on such issues as the pace of reform and state borrowing.
 If the CIS indeed should dissolve, the institute writes, the most probable scenario is the creation of sub-federations by individual republics, such as between Russia, Ukraine and Byelorussia.
 -0- 3/19/92 p
 /CONTACT: Andreas Gummich in Frankfurt, 011-49-69-7150-4736, or James R. Kelly, 212-474-7542, both of Deutsche Bank Research/ CO: Deutsche Bank Research ST: IN: SU:


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Date:Mar 19, 1992
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