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World Bank President Calls for Russia to Implement Economic Reforms - 2004-06-03

World Bank chief James Wolfensohn is urging Russia to push ahead with economic reforms to spur investment. He also cautions that how Russia deals with a tax affair involving the country's largest oil company could have broad repercussions.

Mr. Wolfensohn says Russia needs a sense of urgency and a willingness, as he puts it, to press ahead with more rapid economic reforms, from combating corruption to eradicating wide-scale poverty, if it wants to attract more investment.

But more than anything, he says, Russian authorities need to send a strong signal, both at home and abroad, that they are committed to good corporate governance. He said that step alone could yield big gains for Russian investment.

"I think, the first thing the Russian government has to do is to complete its system of reform," he said. "It has already changed a number of aspects of corporate governance. It probably still needs to strengthen its bankruptcy code and, most importantly, to deal with the question of legal and judicial reform, which includes a cleanly operating judicial system and an ability to speedily implement judgments that are made."

Mr. Wolfensohn's comments on the sidelines of a Moscow investment conference came on the same day Russian tax police again raided the offices of the nation's largest oil company, Yukos. Russian news agencies quote a spokesman at the firm as saying police seized financial documents dating back to the late 1990s.

Tax officials say Yukos owes more than $3 billion in back taxes. Yukos officials have said the company may have to declare bankruptcy, if it is forced to pay that.

The Russian government's nearly year-long probe into Yukos is widely viewed among financial and political analysts as a Kremlin-sponsored campaign against the company's chief executive, Mikhail Khodorkovsky, who aggressively supported opposition candidates over President Vladimir Putin's allies.

Mr. Putin has denied claims of a Kremlin-sponsored campaign against Yukos, and said that everyone, from oligarchs to pensioners, should be equal before the law.

Meanwhile, Mr. Khodorkovsky remains in jail pending trial on multiple tax evasion and fraud charges.

World Bank chief Wolfensohn said the Yukos case has clearly unsettled the markets. "That reflects the uncertainty of whether the Yukos case is an individual case, or whether it is a systemic change," he said. "I'm inclined to believe that it is not a systemic change. But even if it is not a systemic change, it needs to be dealt with very carefully, because the impact of big losses in Russia's largest company cannot be positive."

Mr. Wolfensohn said the Russian market is off by as much as 25 percent, a figure he says he hopes will force Russian authorities to take note and to deal with the Yukos case in an appropriate way.

The World Bank chief also predicted that the challenge of writing off some of Iraq's debts to Russia, estimated to total around $8 billion, will be a critical issue in the coming month.

During a visit to Moscow earlier this year, Mr. Wolfensohn urged Russia to forgive Iraqi debts. But Russia, a vocal opponent of the U.S.-led war in Iraq, has yet to agree to that proposal in full.