RUSSIAN GOVERNMENT FAILS TO BANKRUPT TAX-DEFAULTING AUTO-MAKER.

The Russian government suffered a defeat yesterday when Moscow’s Arbitration Court rejected its attempt to bankrupt one of the country’s largest car-makers, the Moscow-based AZLK. The Federal Bankruptcy Administration took the action in an effort to force AZLK, which produces the Moskvich car, to pay its massive tax arrears. The plant, which has virtually ceased production over the past year, is said to have debts amounting to one trillion rubles. (Itar-Tass, January 8; Financial Times, January 9) Earlier, the court had rejected the bankruptcy administration’s request to authorize AZLK’s acquisition by outside investors. The Moscow city government under Mayor Yuri Luzhkov supported AZLK’s management in its efforts to avoid takeover.

AZLK’s acting managing director, Ruben Asatryan, said yesterday that the Moscow city government may acquire a controlling stake in the company. AZLK will, in other words, "stay in the family." AZLK’s alliance with Luzhkov’s city administration is typical of the situation in many Russian regions, where local governments are intimately intertwined with insider owner-managers of big enterprises on their territory. (Last year, the Russian government failed in a similar bid to bankrupt the Kama Auto Plant (KamAZ), which was bailed out by the personal intervention of the president of Tatarstan, in whose republic KamAZ is situated.) Luzhkov has put forward a scheme to save AZLK, which involves the injection of 500 billion rubles of subsidies into the plant. There are also plans for AZLK in March or April to start assembling Megane cars in association with the French company, Renault.

Tax Break for General Motors in Tatarstan.