N e w s

The market tools so much spoken about by the fathers of privatization will be able to work only under the conditions of real business freedom, said Vakhtang Chkuaseli, the head of the Institute of Crisis Research.

Until very recently gold played a role of a widely accepted cost measure and payment means in trade operations, domestic as well as international. In reality it is used as an alloy with platinum, silver and other metals. The expored world reserves are estimated to be reaching 90 thousand of tons. The leading miners are South African Republic, Russia, Canada, the US, Gana, Philippines and others. World production - about 2 thousand a year.

GOLDEN "DEW DROP"

In the gold "Who's Who?" register our country has exchanged the second place for the sixth. The inertion power! We still like to think of ourselves as prize winners, leaders, while actually we have long left the leading list and show tendencies for further slide down. According to the latest data, in 1999 gold mining companies of Russia handed over for affinage 6-8 tons more than last year. And for the year 2000 the Finance Ministry optimists are predicting surge of 8-10%. But their optimism is likely to fade when they turn to real figures which show an obvilioulsly negatie dinamics: 1994 - 142.5 tons, 1995 - 131.9, 1996 - 123.4, 1997 - 124.9, 1998 - 112.0. To compare to SAR - 522.4, in the US - 329.3, in Canada - 150.3 (all data is of 1995)

What is the matter? Why with the introduction of the risk element to the economy of the country this industry has sunk into a deep crisis instead of springing up? The reason for such a situation mentioned in one of reports at a London precious metal seminar "Gold Field Mineral Service" was incomplete reforming. The term can be applyed to Russian economy as a whole: we have left state planning but haven't yet arrived to the market. The golden "dew drop", in its own way reflecting all the idiocy of our reforming.

STATE PLANNING NOSTALGIA

The reforms started in Russia since the establishment of an independent state for the most part influenced the precious metal production. In the Soviet times gold was mined by a dozen large enterprises accountable to the central management. Because of the seasonal manner of mining (the climat!) the state advanced to the enterprises 50% of annual output. Prices were set without any correlation to the world market. Then came the reforms and the whole industry (like many others) was exposed to the scandalous, dishonest privatization. Most of new owners were unable to maintain the activities for the lack of technical assets, financial resources and even the simple desire to work as professionals. Commercial banks stayed away from such companies: why run the risk? Meanwhile the credit system changed in the middle 90s. Unreturnable loans became history. Their place was taken by the draft credit system operated through commercial banks.

The London report mentions other factors that had a negative influence on gold mining in Russia. For instance, the rouble exchange rate against the US dollar was overstated in the framework of "currency passage" policy, maintained by the CBR of Russia before August 17 of 1998. When in the period 1994-1997 technical and material resources increased by 20-50 times, the official ruble rate rose by less than 5 times. In addition the yellow metal fell in price by 15%. As a result the average profitableness of the industry did not even reach 5% and nearly a third was sold at loss. By the way, the default of Aug. 17 had a positive influence on the industry. The situation, however, resembles the anecdote about the average temperature in the hospital ward: while some regions show real output increase, others experienced a dramatic fall.

The domestic precious metal market remains poorly liquid and inelastic. Only slot transactions are carried out, no speaking of forward futures. The CB and Gokhran is content with the role of buyer. Or take this absurdity: purchasing a gold nugget from the CB you will pay the VAT but if at some time you decide to sell the nugget back, no tax will be refunded. The law says no physical person can be a VAT receiver. The market participants are only trying to surpass the law traps which consequently leads to the forming of gold black market, stimulates crime and corruption.

THOUGHT SLUGGINESS

So many times we asked: give the industry over to those who know how to organize the production and want to work. Letters were written to all official institutions and even to President Eltsin. Still no result.

This policy has its very sad results. For example, Sukhoy Log. It is the world's largest abandoned gold mines and still is not being used. The right for it were given to an Australian company. Why? For what virtues? The company invested $40 million but the only result is the gold bearing territory turning into a wrecked piece of land.

The dull reforming turns over not only land but people's souls. The gold miner of previous times who was proud of his frofession, willing to work himself out in the taiga forest and in the swamps, although requesting the proper payment, is now history. Now most miners think differently: the main aim is to come, snatch the bucks without having to work and come back to where you are from. Thought slugginess is suffered by all which leads to slugginess in finance and production. Banks, holders of gold, do their best to try to export the precious metal overseas as Russian market is in a peaceful slumber. And so are those who are supposed to generate new ideas or at least not to be in other's way.

TRICKY CERTIFICATE

Let's assume we were asked a question: can our considerable gold reserves used to force out foreign currency from the Russian financial market and generally for overall economic stabilization? There are professionals who say a firm "yes" to that question. For instance, a noted money theorist, a leading researcher of the Economy Institute of Russian Science Academy Dorimendon Gogokhia

"I am sure Russia can be made strong again by a gold secured bill having a series of qualities. It should be made altemately attractive for holders, i.e. bringing its owner not less but more advantages than owning gold or dollars. For this to be possible it should be made clear of any liaison to gold, ruble, dollar or any other currency.

The state will benefit from such a certificate by selling the certificates annually to raise billions of rubles for the budget. This will require no interest payments. Demand growth for the certificates will bring the demand fall on dollars. The mechanism can be called "painless operation".

I am not in the position to judge if the idea can be applyed in reality. But in case it can, this might lead to the so long desired market regulators and work will start. And today we hear so much of the price fall on the yellow metal, the term "demonetarization" is being used more and more widely.

Of course, gold has lost its previous role of universal money. It is not a general measure anymore. It is subject to demand swings just like any other commodity. But there is an economic category this is best measured by gold: the level of our "underreforming". The lower the level, the more gold is mined, the thicker is the order portfolio, the more stable are the finances and the less crime in the industry.

Source: Independent Newspaper