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Saturday, June 19, 1999 Published at 12:09 GMT 13:09 UK

Business: The Economy

G8 talks focus on ailing Russia

G8 leaders are keen to pull Russia's economy out of the doldrums

With a settlement now agreed on Russia's role in the Kosovo peacekeeping operation, world leaders meeting in Cologne are discussing how to provide financial aid to the embattled Russian economy.

The summit of the world's seven most industrialised nations, plus Russia, is being seen as a chance for western powers to patch up relations with Moscow damaged by Nato's campaign against Yugoslavia.

[ image: More Russian troops are preparing to head for Kosovo]
More Russian troops are preparing to head for Kosovo
Diplomats are acknowledging that Friday's agreement on Kosovo has significantly helped clear the way for a more co-operative atmosphere at the summit.

Russia is hoping that the summit of the so-called G7 economies will produce billions of dollars from the International Monetary Fund (IMF) to pay the debts owed to Western banks.

World leaders are also hoping to bolster Russia's so-far shaky integration with the world economy and support efforts at reform.

Challenge ahead

The BBC's Peter Morgan: "This has been a stunningly successful campaign"
However, BBC Diplomatic Correspondent Barnaby Mason, says integrating Russia into a global economy dominated by the Western powers and Japan, will be even more of a challenge than the difficult negotiations over Kosovo.

[ image: Homelessness and poverty are widespread]
Homelessness and poverty are widespread
They will also have to discuss the issue of who will pay for the costs of Balkan reconstruction. Washington is pressing for Europe to pay the largest share.

Russia's new Prime Minister, Sergei Stepashin, is attending the talks, sitting in for President Yeltsin who arrives on Sunday.

G7 leaders are likely to emphasise that they are not in the business of giving handouts to Russia. But the summit is expected to adopt a plan for continuing long-term economic support, primarily transfers of expertise and baking for continued reform.

Pressure to act

The BBC's Paul Reynolds in Cologne: The Russian PM will be urged to continue reform
In return the Russians will be pressed to act on promises to improve taxation and financial regulation if they want more assistance. The Russian parliament has recently blocked tax reform plans that the IMF says are essential if it is to receive any aid.

Mr Stepashin has said he is confident of striking a deal on around $69bn of debt from the Soviet era which Russia says is an unfair burden on its economy.

"We more or less successfully are coming to a conclusion on the issue of Soviet debt," he told reporters after a breakfast meeting with Germany's Chancellor, Gerhard Schröder.

Keen to co-operate

He told his colleagues that President Yeltsin was looking forward to his arrival and was emphasising co-operation within the G8 - the G7 countries plus Russia.

[ image: Russia's financial markets are lagging far behind those of the G8]
Russia's financial markets are lagging far behind those of the G8
Correspondents say other leaders are also keen to co-operate, after the Kosovo crisis increased Moscow's isolation from the world's richest economies.

"This summit gives us the chance to put our differences behind us and map out a set of common interests for the future," UK Prime Minister Tony Blair told the BBC.

On Friday the G7 leaders agreed on a further reduction of the debts owed by the poorest countries.

The burden will be cut by about $70bn in what President Clinton has said is an historic step to help them achieve growth and independence.

However, debt campaigners say most poor countries will still pay more on servicing their debts than on health and education.

The Jubilee 2000 campaign is organising tens of thousands of people in a human chain around the G8 summit here; they want all the debts cancelled.

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