Russian-Finnish trade turnover approached US billion in 1997, of this 2.4 for Russian exports and 2.7 for imports.
Trade turnover rose by 130% from 1993 to 1997--Russian exports by over 60% and imports fourfold. The year 1997 saw an increase by 3.7%, in US dollar terms and 29.4% in markkaa.
Russia ranks fourth in Finnish foreign trade, accounting for its 7.4%. The trade balance for 1997 approached US million in Finland's favour.
It was positive for Russia in 1990-95, and negative before 1990. Russia's negative balance reappeared of late due to its raw material-dominated exports and no chance for their expansion. Raw materials presently account for 77.7% of the entire exports, with 31.8% for oil and its derivatives, 13.7% natural gas, 11% timber, and 7.7% metals and ores. Finished articles account for 22.3%.
Machinery, industrial equipment and transport vehicles account for 31% of Russian imports from Finland, foodstuffs 13.5%, chemicals 11.5%, paper and cardboard 8.5%, and raw materials 30.7%.
Finland has not yet made sizeable loans to Russia, though bilateral interbank contacts are dynamically progressing. The Finnish Merita Bank, one of the largest in Scandinavia, is active on the Russian market, and has considerable practice of contacts with Russian banks for rouble transactions. Overseas rouble payments became possible late in summer 1996, when the Central Bank of Russia liberalised currency control. The Merita Bank was the West's first bank to open rouble correspondent accounts for Russian banks via the Moscow International Bank (MMB).
Rouble payments are more preferable than hard currency as they do not make Russian clients draw export/import transaction passports in Russian banks as such deals are liable to currency control. Certain Russian companies have never had foreign exchange accounts and so could not acquire currency for commercial payments. A chance to pay in roubles removes that barrier. Next, rouble transactions are cheaper for Russian partners as they do not imply any commission fee forcurrency acquisition.
The Merita Bank also services payments in soft CIS currencies, e.g., the Ukrainian hrivna, the Belorussian rouble, the Kazakh tenghe and the Uzbek som--also through the MMB.
In addition to payment servicing, Finnish banks are steadily extending their presence on the Russian interbank credit market. Total loans to Russian banks approached 150 million markkaa, or US million in 1997. Borrowing from the Merita Bank were the Rosvneshtorgbank, the Toribank, the Promstroibank and the MMB. Dollar loans are granted for up to 12 months at LIBOR rates plus 3.5 to 5.5% depending on the amount of the loan.
The Merita Bank permanently accepts bills and confirms letters of credit for 120 Russian import organisations for one to six months within 30 to 40 million markkaa, or US million. At the moment, rouble loans are not granted, though the Merita is considering the opportunity.
The Postipankki, Finland's second-largest bank, notably increased payment services in 1997, practically non-existent in 1995, for commercial supplies and on credits extended on Russia's interbank market. Letter of credit payments were made via 13 Russian banks to a total approaching 10 million markkaa. Credit lines were opened for four Moscow and St. Petersburg banks to several tens of million markkaa. Transactions with banks based in other CIS countries are not madedue to a high degree of exposure. The bank is active in power industry, oil drilling and petrochemistry, construction, and pulp-and-paper industry.
The Postipankki has not engaged in the financing of long-term investment projects. As the bank sees it, projects offered for Russia still present a considerable non-payment risk. It is involved in several rather ambitious projects, however--in particular, a golf club under construction in Moscow's Nahabino on a Diplomatic Corps Service Bureau order to be finished in two years.
Finnish banks are ever more active in Russia as trust to Russian companies is rising due to closer contacts with Russia by the Finnish Centre of Government Guarantees, which totally amount to 47 billion markkaa. Guarantees to Finnish exporters reached 1,057 million markkaa in 1997. Permanent guarantees of short-term (one to three months) loans for supplies to Russia come to a total 70 million markkaa, or an annual 480 to 500 million markkaa, as against 600 million on total long-term (up to 11 years) loans to Russia.
The Guarantee Centre guaranteed loans for Russian trade to 61 Finnish exporters and 141 Russian importers. Short-term loan guarantees are granted for supplies of consumer goods, foodstuffs, paper, medicines, etc., and on long-term loans for investment commodity supplies in power industry, oil drilling and refining, pulp-and-paper industry and construction.
A memorandum on mutual understanding and guarantees against Russian government guarantees, and a memorandum on mutual understanding and guarantees against a Russian government letter of comfort, signed in Moscow on 27 November 1997, provide a basis for increasing guarantees for Russian-based project financing up to 3-3.5 billion markkaa, or US million.
It is currently impossible to implement another memorandum, on loans granted to Russia for investment commodities on its government guarantees, as the Vnesheconombank and the Guarantee Centre have no framework agreement between them specifying guarantee arrangements for project financing.
The terms of bilateral trade notably improved as Russia signed an agreement with the London Club on 6 October 1997, joined the Paris Club on 17 September 1997, and signed, in the Paris Club, a Russo-Finnish agreement for national debt rescheduling, 6 November 1997. It is, however, necessary, to sign as soon as possible interbank agreements to reschedule debts on the London Club and finally agree on the amount of Russian corporate commercial indebtedness.
Guiding Russo-Finnish bilateral trade and other economic contacts are an acting intergovernmental agreement on trade and economic cooperation, and a partnership and cooperation agreement signed by Russia and the EU in 1994, which provides for mutual best-favoured-nation treatment in Russia's trade with EU member countries.
Russia's Economy Ministry drafted, in 1996, a list of pilot projects for investment cooperation. Assisting it in that effort were interested ministries and agencies, and the Russian trade representation in Finland. The list of 29 items was coordinated with the Finnish side during the third session of an ad hoc group for investment cooperation of the intergovernmental commission in Moscow on 31 October 1997.
Among priority construction projects on the programme are an oil mainline within the Baltic pipeline network, a gas mainline to Europe via Finland, the Northwest thermal power station in St. Petersburg, a car assembly plant in the Leningrad Region, and the updating of a highway and a railway from Helsinki to Moscow via St. Petersburg.
Projects on the list are currently at the various stages of blueprinting or implementation. Compliance with the programme is regularly checked at sessions of the ad hoc investment cooperation team, and coordinated by the Russian Economy Ministry. A search for financial sources, international financial agencies included, is the central problem for a majority of projects.
Direct Finnish investments in the Russian economy amounted to 520 million markkaa, or US million, in 1997—a 54.7% rise on 1996. Included in this sum are budget allocations for 1997, approved by Finland's government, to promote projects coordinated by an intergovernmental group for the development of cooperation between neighbouring regions.
Of tremendous importance for Russo-Finnish investment cooperation is, in this context, the ratification of an intergovernmental memorandum on developing cooperation in investment and project implementation and a double taxation agreement--both signed in May 1996, and a protocol to an agreement of 9 February 1996, on the promotion and protection of capital investment.
As Finland joined the Schengen agreement, 19 December 1996, its east frontier became the outer frontier of the Schengen countries, so its guard was improved, and the Board of Frontier Guards intends to reinforce it.
Frontier areas. An intergovernmental agreement of 20 January 1992, on cooperation in the Murmansk Region, the Republic of Karelia, St. Petersburg and the Leningrad Region provides a legal basis for Finnish-Russian cooperation in neighbouringregions.
The organisational structure of that cooperation includes an intergovernmental group promoting neighbouring regions' contacts on the basis of that agreement. A list of joint projects for the above parts of Russia, to be implemented with the support of Finnish budget allocations is drawn up annually. These projects concern the most diverse fields--environment protection, farming, nuclear station safety, and personnel training. Rational combination of government coordination and regional interests is the key objective of that agency with respect to mutually coordinated joint projects.
This line of cooperation is part and parcel of Russia-Finland-EU relations. Finland's membership of the European Union gives the available regional cooperation an all-European scope and graphically enhances the Parties' potential.
Closely approaching solution is the issue of coordinating union programmes TACIS and INTEREG, and of certain coordinated joint projects whose implementation is at the stage of approval by respective agencies of frontier cooperation.
Proceeding from work principles adopted in EU member countries, the role of community self-government bodies is considerably enhanced, which would help to spend in the best possible way EU allocations coming both to Russia's frontier areas under the TACIS programme and to Finland for an infrastructure of its cooperation with Russia under the INTEREG.
Coordinating neighbouring regions' cooperation efforts are both countries' Ministries of Foreign Affairs. In addition, the Russo-Finnish intergovernmental commission for economic cooperation has ad hoc teams for Finnish contacts with several constituent members of the Russian Federation: Bashkortostan and Komi republics, and the Nenets autonomous area. Governors of the Arkhangelsk, Leningrad and Murmansk regions and the Mayor of St. Petersburg are commission members.
Finland's Ministry of Commerce and Industry signed cooperation memorandums with the Nizhny Novgorod Region, Samara and Tatarstan within the last two years, and a treaty with the Sverdlovsk Region is being drafted.