RUSSIA: NOT SO MUCH OF A GOLD MINE.

On July 10 the Russian government for the first time allowed private citizens to buy and sell gold. Aleksandr Potemkin, deputy head of the Central Bank, said one of the reasons for the move is to encourage citizens to put their savings in gold — in other words, it provides an opportunity for the state to buy up some of the $30 billion in cash which is thought to be held by Russian citizens. (NTV, July 10) Russians are still reluctant to put their savings into ruble bank accounts, despite the fall in inflation and the ruble’s ability to hold its value against the dollar. (On July 9, for the first time, the dollar even fell against the ruble in nominal terms on the Moscow currency market.) Potemkin acknowledged that the need to pay VAT is a disincentive to gold buyers, but he said the government will change customs regulations so as to allow individuals to freely export precious metals.

The move is also seen as the first step in a plan to liberalize the gold industry, which is obliged to sell all its gold to the state. The Central Bank has been late with its payments to gold mines, causing wage arrears and a slump in investment, so liberalization is desperately needed to open up new sources of financing for the industry. Strange though it may sound, gold-mining in Russia is no longer a profitable business. Apart from delays in state payments and punitive taxes, the mines face high expenses operating in the remote northern reaches of Siberia, and are often saddled with the cost of maintaining entire cities (such as Anadyr). (Rossiiskaya gazeta, April 3) As a result of these problems, output fell from 162 tons in 1992 to 123 in 1996, and may be as low as 100 tons this year. A further setback to the industry was the April decision by the Supreme Court to annul the 1992 sale of the Sukhoi log gold deposit to Yakutia’s Lenzoloto and its Australian partner, Star Technologies.

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