www.themoscowtimes.com Thursday, Jan. 23, 2003. Page 11 By Alex Nicholson Staff Writer

A linchpin of economic development, the legal profession, like most industries, has undergone a fundamental shift since that fateful summer of 1998, when the economy's legs were sawed off.

Unlike most industries, however, commercial law in Russia continues to be exclusively the dominion of foreign firms. Their ranks may have thinned since the August collapse and those that remain may be relying more and more on a new breed of domestically trained natives, but their importance to the economy has not waned.

In fact, if anything, their influence is growing along with the economy -- and knowing how they got here, how they survived and what they learned along the way sheds some light on what the future holds for Russia's peculiar brand of business.

A New Country It was the efforts of a few pioneering enthusiasts working out of ramshackle offices in the early 1990s that paved the way for the roughly 40 international firms now working in Moscow, about half the number that were here in 1998.

"As with all emerging markets, you start in an apartment and you get a call on a poorly connected telephone and the client asks you whether its safe to invest in the country," said Baker & McKenzie's Max Gutbrod, a German expatriate who has been here for the better part of a decade.

"You say, 'Well I don't really know,' and the client says, 'Well I need a memo for my board of directors.' And you answer, 'Excellent. I'll write it for you in three weeks,' for which you charge 10,000 bucks. You charge 10,000 bucks not because the information is very detailed but because the information is very difficult to get."

White & Case, a U.S.-based firm active in more than two dozen countries, wasted no time moving into the new Russia.

In 1990, Alex Papachristou, a lawyer from Washington, offered to set up an office for White & Case, and within a year the firm had a few rooms in the Central Telegraph building on Tverskaya Ulitsa.

"We had a contractor who helped expand the premises," White & Case partner Eric Michailov said. "There were four of us lawyers, and we were taking out the garbage and helping the builders."

Dominic Sanders told a similar story. In 1992, Sanders, then in his mid-twenties and fresh out of law school, was sent here to open British-based Linklaters' representative office and set up shop in a couple of rooms in the Academy of the National Economy.

In those heady days, Sanders says, legal databases were non-existent and getting copies of new legislation was virtually impossible, so he had to resort to snipping the text of laws out of newspapers.

Salans, on the other hand, is something of an oddity among the top firms, having been advising multinationals on doing business in Moscow for nearly three decades.

Working out of Paris in the early 1970s, founding partner Jeff Hertzfeld was one of only a handful of people advising multinationals on transactions with the Soviet Union. Now Salans' business in Russia accounts for a quarter of its global revenues.

A Maturing Market

The collapse of the economy in 1998 and the emergence of President Vladimir Putin's regime has had a profound effect on the commercial law industry.

For those that were here before the summer of 1998, the difference between the two eras is night and day.

"There has been a radical change in the climate from virtually the moment president Putin came into power," White & Case managing partner Hugh Verrier said.

"Since Mr. Putin came to power, the level of political stability and corresponding economic stability has allowed our clients and therefore ourselves to function with greater scope and efficiency."

That stability, combined with four consecutive years of economic growth and a raft of new legislation, has been a boon for the legal community.

A wave of restructuring work flowed out of the wounded economy, and the emergence of leaner, meaner domestic companies in 2000 kept the ball rolling.

With mergers and acquisitions among domestic companies picking up pace and foreign companies clamoring to enter the market, the leading law firms are getting as much work as they can handle and are on the lookout for new help.

"There's been a vast shift," said Michael Cuthbert, senior partner at Clifford Chance Punder.

"We're seeing more of the big Russian companies coming to us as they begin to expand internationally or begin to access international capital markets."

And the companies themselves are easier to work with, mainly because many of them, especially banks, have hired in-house lawyers who have cut their teeth working for major international law firms.

"The Russian commercial environment has matured a lot," Sanders of Linklaters said. "And it's often to the credit of the very young people in the bigger Russian companies who are very proactive and very pragmatic and sensible about how to run things."

Like Sanders, most expatriate lawyers who have been here for several years say it is now easier to work with some Russian companies than Western companies -- a situation that would have been almost unthinkable just a few years ago.

"If you go to a Russian company and you have won its respect, then they know you know what you're talking about and they take your advice," Baker & McKenzie's Gutbrod said.

Gone too are the days when Russian businesses hire Western firms just to improve their image and, for the most part, the danger associated with taking on new clients.

Normally associated with long working hours, fat compensation packages and fine dining, expatriate lawyers have also experienced their share of the physical danger that was once synonymous with doing business here.

Tales abound of lawyers being locked into meeting rooms by frustrated and aggressive clients or learning from the media that their lives are in danger because of a murder plot against one of their clients. But those days, for the most part, are gone, Gutbrod says.

"If you compare us to our poor colleagues in Venezuela or Brazil, then in terms of day-to-day safety, we're much better off."

Adapting to the Times

As the economy continues its ascent, firms are expanding disciplines and looking forward to new types of work.

One developing area concerns production-sharing agreements, which provide political risk insurance for natural resource companies that want to invest heavily in a project but may not see that investment pay off for years.

Foreign oil majors say they are willing to invest billions of dollars here if the government puts a proper PSA regime in place, and Russia's new energy partnership with the United States has put the issue, opposed by domestic oil companies, once again on the front burner.

Law firms are also diversifying into areas that have recently taken off, such as retail, telecommunications and real estate.

As the economy matures, so do the markets, and Russian companies are increasingly looking to borrow money and float their shares both at home and abroad.

Freshfields, Bruckhaus Derringer, for example, helped Internet media company RosBusinessConsulting place its shares on the domestic stock market last year, which was Russia's first initial public offering, and is helping drugstore chain 36.6 do the same Thursday in the country's second IPO.

"I could almost say I've done more IPOs than Frankfurt has," managing partner Tobias Mßller-Deku said.

The trend is likely to accelerate, lawyers say, because the pace and quality of change is putting more distance between Russia and other emerging markets.

"Those emerging market funds -- where do they want to go?" Mßller-Deku says. They're not likely to buy Venezuelan or Argentinean bonds or do Argentinean or Brazilian IPOs at the moment. So if you do need emerging markets, and quite a few do need emerging markets, then where should they turn other than Russia?"

Clifford Chance this week, together with PricewaterhouseCoopers and the Russian Trading System, the country's benchmark stock market, created an consultation center for domestic corporations thinking about listing their shares here or overseas.

Linklaters also sees the opportunities and is transferring some lawyers from London to Moscow to beef up its capital markets and project finance divisions.

One area that vanished overnight when the crisis hit is also giving lawyers the kind of work they would expect in the West -- real estate, Sanders of Linklaters said.

"There are true possibilities in real estate," he said. "There's a possible watershed because you've got international institutional money coming in as opposed to just acting for the developers. Now the developers are starting to get their funding from real estate funds. That's the sort of client our practice in mature markets is based upon."

A New Breed

Junior Russian lawyers have come of age, the role of the expatriate lawyer is dwindling and the firms here are thinking carefully about who to bring in from other offices.

"The importance and the number of expats will go down, and it has to go down because these guys [Russians] are getting better by the minute," Mßller-Deku says.

"Most of my Russian colleagues studied at Moscow State University or the Moscow State Institute for International Relations and almost all of them have also studied in Britain or America," said David Marshall of the firm Cameron McKenna.

"These are without doubt some of the most impressive lawyers that I have worked with."

The quality of Russian lawyers, who now outnumber expats at most foreign firms, has been a driving force in the development of commercial law here since the crisis.

"Before the crisis, I think the work people were doing was uneven at all the firms," Verrier of White & Case said.

"At the time, the market was immature, and the lawyers were learning alongside their clients in those crazy, bonanza days," he said. "I think real business is happening now."

"It was like having a hospital where the doctors have only practiced for two years," said a lawyer at a major foreign firm.

"What kind of hospital is that? You can imagine the malpractice, right?"

"In money terms, we can achieve better results with two-thirds the staff than we could before the crisis, which is a real testament to the quality of the people," said Sanders.

abcnews.go.com

— CARACAS, Venezuela (Reuters) - Venezuela's Supreme Court on Wednesday ordered the suspension of a planned February nonbinding referendum on the rule of President Hugo Chavez, dealing a blow to opposition hopes to inflict a symbolic political defeat on the leftist leader.

Electoral authorities had set the referendum for Feb. 2, after the opposition had collected more than 2 million signatures to request the poll, which would have asked voters whether or not the populist president should resign.

But Chavez's government, which is battling a seven-week opposition strike, objected to the vote as unconstitutional and appealed to the Supreme Court to stop it from going ahead.

"This means that the referendum is frozen,' Romulo Rangel of the country's National Electoral Council, the official electoral authority, told reporters.

Chavez, who was voted into office in 1998 and is refusing opposition calls to step down and hold early elections, had said he would ignore the result of the nonbinding referendum, even if he lost by 90 percent.

A defeat in the poll would not have legally obliged Chavez to resign, but the opposition had been hoping it would show they could beat him in a vote.

Chavez has said they should wait until Aug. 19, halfway through his term, when the constitution allows for a binding referendum on his current mandate, which is scheduled to last until early 2007.

reuters.com Wed January 22, 2003 03:23 PM ET By Patrick Markey

CARACAS, Venezuela (Reuters) - Venezuela on Wednesday suspended foreign exchange trading in a desperate bid to stem capital flight and a slide in the bolivar as the government battled an opposition-led strike which has drained its oil-reliant economy.

The Central Bank said it would close the foreign exchange market for five trading days and prepare temporary currency exchange and transfer curbs to fend off the impact of the shutdown, which aims to force President Hugo Chavez to resign.

Finance Minister Tobias Nobrega said the government planned also to slash its 2003 budget by 10 percent or $2.2 billion, extend a temporary bank debit tax through 2003 and continue with a domestic public debt swap to counter the economic damage of the strike.

Venezuela's bolivar has tumbled more than 28 percent during the seven-week-old work stoppage and its international reserves have fallen. Oil output in the world's fifth-largest petroleum exporter has been slashed by the strike to a fraction of its normal levels.

Economists said foreign exchange controls would give the government some short-term breathing room, but the economy would suffer the longer the controls were maintained.

"This looks more like a knee-jerk reaction of theirs to the currency weakness," Jose Cerritelli, a Bear Stearns Andean economist, said. "But in the long term, people look to escape the controls by taking their money out."

A government source told Reuters on Tuesday that the cabinet was still not clear what currency measures it would introduce. But the government did not plan to devalue the bolivar for now, the source said.

The economic crunch has raised fears that Venezuela may default on its foreign debt later this year. But the Central Bank said the government would maintain the necessary operations to make those debt payments.

Chavez, a fiery populist who was elected in 1998 and survived a coup in April, has branded his foes as "terrorists" who are trying to topple him again through an economic coup and by draining hard currency from Venezuela. He has refused to quit and vows to defeat the strike.

Venezuela's Trade and Production Minister Ramon Rosales said the suspension of the exchange market aimed to halt what he called the "attack against our international reserves."

"The aim of this measure is to preserve our reserves which are the only guarantee of Venezuela's recovery after this oil sabotage," Rosales told Reuters.

FALLING RESERVES, BATTLE FOR OIL

Venezuela's international reserves have fallen to $11.05 billion, a drop of 7.5 percent so far this year. The government also has $2.85 billion in its FIEM rainy-day savings fund and insisted recently that hard currency levels were sufficient.

Rattled by political uncertainty, the bolivar currency has lost more than 24 percent of its value this year alone. The central bank reference rate for the bolivar closed Tuesday trading down 5.1 percent at 1,849.50/1,853 bolivars.

Opposition leaders hope their strike, which began on Dec. 2, will pressure former paratrooper Chavez to agree to early elections. They say that rather than deliver on promises to ease poverty, he has wielded power like a dictator and driven Venezuela toward economic ruin and Cuba-style communism.

The bitter stalemate has raised international concern after the strike drove world oil prices to two-year highs. It has also severely disrupted domestic fuel and food supplies, pushing Venezuela's already weak economy deeper into recession and stoking social unrest.

But negotiations to break the deadlock have been stalled over the timing of possible elections. Former U.S. President and Nobel Peace Prize winner Jimmy Carter on Tuesday proposed to the government and the opposition a blueprint for elections that would also end the strike.

The currency trading shutdown is the latest government measure to combat the effects of the strike, now in its 52nd day. Many private businesses are still closed and the fuel shortages have forced Venezuelans to wait for hours outside gasoline pumps.

Chavez, who led a botched coup six years before his victory at the polls, has fought back, sending troops to seize control of oil installations and refineries and importing food and gasoline to offset shortages.

Strike leaders claim the government has failed to break the stoppage. But in a first sign of a crack in the oil shutdown, some tanker pilots in the key western oil and shipping hub of Maracaibo went back to work this week.

www.miami.com Posted on Tue, Jan. 21, 2003 BY FRANCES ROBLES frobles@herald.com

CARACAS - Jimmy Carter arrived in Venezuela's capital Monday after enjoying a fishing trip with the president's archenemy to help referee a 50-day strike that has crippled industry and commerce.

Carter met with President Hugo Chávez one day after the Venezuelan leader criticized international negotiators who have been trying in vain to broker a negotiated solution to the strike that so far has cost $4 billion.

''I think there's always hope for a resolution,'' Carter said moments after his arrival. ``And I hope it will be soon.''

Opposition leaders refuse to lift the strike until the government agrees to early elections or at least a referendum on Chávez's rule.

Despite nearly three months of talks brokered by the Organization of American States, the opposition and the government have never been further apart. Carter entered a political arena so full of tension that some experts believe it is beyond the reach of the Nobel Prize-winning former U.S. president.

''Not even if Jesus Christ came to Caracas would it be enough to bring these sides together right now,'' said political analyst Miguel Diaz, with the Center for Strategic International Studies in Washington. ``I don't think many people expect much from Jimmy Carter. It's beyond him.''

Carter's visit was complicated by his choice of fishing partners. He arrived in the country Friday at the invitation of media magnate Gustavo Cisneros, who has publicly been accused of financing and plotting a coup that briefly ousted Chávez in April. Cisneros has denied any involvement.

Carter Center representatives said the former president would not make public statements about his visit until today, but opposition negotiators said he is widely expected to present a proposal today. In addition to Chávez, Carter met with OAS Secretary-General César Gaviria, opposition leaders Carlos Ortega and Carlos Fernández and representatives at the negotiation table.

''President Carter is coming at a very difficult time,'' said Gaviria, who has brokered talks here since November. ``Circumstances have changed a lot in the last few days. There's much more tension. But I think the table is the bridge between the government and the opposition. This is the place to find an accord.''

Six nations -- Brazil, Chile, Mexico, Portugal, Spain and the United States -- have formed an initiative called ''Friends of Venezuela'' to lend weight to the OAS-brokered talks. The first meeting will take place Friday in Washington to determine the structure of the group's talks.

The group was not days old before Chávez was publicly bashing it. He made a surprise trip to Brazil on Saturday to ask President Luiz Inácio Lula da Silva to expand the group to include more nations friendly to Chávez. Lula declined.

Days earlier, during a visit to the United Nations, Chávez publicly rebuked Gaviria, saying Gaviria was here only on the president's personal invitation. He later ordered a raid on Coca-Cola bottling plants here, saying that if private firms won't sell their goods, the military will.

www.forbes.com 01.21.03, 11:50 AM ET

The following is the transcript from a Jan. 17, 2003, online chat with the Forbes president and editor in chief, Steve Forbes, who discussed the economic outlook for the coming year.

STEVE FORBES: Welcome to the Forbes.com CEO Network Chat. We're ready to begin answering your questions.

CEDARCREEK: Do you have an interest-rate forecast to go along with the rest of your economic forecast? If so, what do you expect rates to do in 2003?

STEVE FORBES: Government rates will rise in the latter part of the year. The ten-year treasury should inch up to about 4.5%. Many corporate bonds will see smaller rises because they were hurt and hit by the scandals and uncertainties of last year.

STEVEN: Do you believe with all of the governance and compliance failures of the past year or two that corporate boards and CEOs have given effective compliance management the attention they need to?

STEVE FORBES: Fortunately, most companies and most boards did not engage in the shenanigans of Enron, Tyco, et al. Every director today is far more conscious of his/her responsibilities. Institutional investors are also more on the ball.

CAPITALBUSINESS: What is the capital spending outlook for 2003? How about the laboratory equipment market in 2003?

STEVE FORBES: Capital spending will improve. Companies are starting to replace equipment bought in the late 1990s. With the Bush tax cut, small businesses will have strong incentives to boost outlays.

BAMA90: Given the history of economics before, during and after wars, what do you think our economy will do if and when we embark on the next war?

STEVE FORBES: The war with Iraq should be short even though the fighting will be intense and we will be the target of attempted terrorist acts. The cost of the war on terror is easily affordable in terms of money. The real cost is the fear of terrorist attacks and the American lives that will be in jeopardy in our armed forces. Assuming the Iraq crisis is resolved and the North Korean crisis is defused, under those circumstances the stock market will go up this year in good fashion. The S&P 500 would increase at least 25%.

IEDEN: How long before the Fed starts tightening the rates?

STEVE FORBES: Not until the economy shows vigorous signs of life, which will be by the third quarter at the latest.

BRANDGUY: What are the relative advantages/disadvantages of eliminating double taxation of dividends at the corporate vs. personal level?

STEVE FORBES: It would be more efficient to make dividends tax deductible on the corporate level, just as interest payments are today. But politically, that just won't fly. The White House has put together a smart package--companies that pay federal income taxes will have their dividends tax-free for investors while those that avoid federal income taxes will see their dividends not receive favorable tax treatment for investors. Please refer to our Feb. 3 issue, which has an article on this topic as well as a table of companies whose dividends will be treated favorably. For those who have not yet received their issue, see the Forbes.com version at www.forbes.com/div.

TIKKI: Why are 99% of Americans such disgusting cheapskates?

STEVE FORBES: Thankfully, the American consumer has been a spender, which is why the recession was so mild.

PF: What would be the effects of a long-term public works/infrastructure (e.g., roads and bridges) improvement program?

STEVE FORBES: The federal government already spends billions of dollars every year on highways, mass transit and other transportation projects. The best boost for the economy would be a Texas-size tax cut of the kind that President Bush has proposed. With a more vibrant economy, which the tax cut would help create, government would have more resources for more infrastructure spending.

PF: What can we do to make Congress, the White House and the bureaucrats more accountable to us? They seem to be running the country like the CEOs who forgot that the shareholders own the companies.

STEVE FORBES: Get involved with the political process. Let your representatives know what you think. Take the time to contribute to candidates you like and to help their campaigns. Support think tanks and advocacy organizations that share your point of view. When stockholders get restless, CEOs get nervous. The same is true of pols. If they don't hear from you, they figure you're happy with them.

ROBERTSK: How strong is the U.S. economy right now, and how much of a recovery do you expect to see as 2003 unfolds?

STEVE FORBES: Uncertainty about Iraq and North Korea is hurting us. The Iraq crisis should be resolved by early March. The economy will be stronger in the second half of the year than in the first half.

PHILGOLD: Would a war in Iraq derail the recovery?

STEVE FORBES: No.

TLINKCEO: Is President Bush's proposed stimulus package likely to have an immediate impact on the economy or does it reflect a longer-term strategy to promote growth?

STEVE FORBES: The package will positively impact the economy--assuming it's passed--both now and in the future. Consumers will get to keep more of their income. A family of four making $40,000 per year would receive an extra $1,000 under the Bush tax plan. The program also has powerful incentives for creating more capital and investing that capital.

VPALMAGIL: Do you think the stimulus package will pass as proposed or is Congress likely to change it substantially? In particular, what are the chances that Congress will heed Bush's call to eliminate the tax on dividends?

STEVE FORBES: If the President pushes the package the way he did Republican candidates last fall, the essence of his proposal will pass.

ANGELOFABARA: You have called for more sweeping changes in the tax code. Are you disappointed with Bush's new program or do you think it represents the best reforms that can be obtained at present?

STEVE FORBES: I am hopeful that the president will propose a major tax simplification program in his second term (assuming, as I do, that he will win reelection). Even with his current tax cuts, some progress is being made in the fight to eliminate the death tax and the fight to eliminate double taxation of dividends.

CNONE1823: What do you expect from the Federal Reserve in the next few months? Are we still in danger of falling into a deflationary spiral if the Fed responds to a recovery by tightening interest rates?

STEVE FORBES: To judge by commodity prices, especially the price of gold, it appears that at the moment the deflationary spiral is over. The key will be for the Fed to pump in more liquidity into the economy after the Iraq war. Such a move would prevent a resumption of deflation.

STEPHENWEINBERG: What do you expect FCC Chairman Michael Powell to do about the misbegotten Telecommunications Act of 1996? Will he give the Baby Bells what they want?

STEVE FORBES: Chairman Powell has just made a proposal that would phase out some of the stupidities that his predecessor gave us under the guise of the 1996 Act. Competition will effectively come from cable, satellite, wireless and perhaps your electrical lines!

STEPHENWEINBERG: What are the prospects for any sort of rebound in telecom valuations this year?

STEVEFORBES: Prospects are very decent. You've already seen Nortel make an upward break through the $2 barrier!

DLAURELESO: Does Bush's new economics team have what it takes to restore investors' confidence?

STEVE FORBES: Yes. One key is getting John Snow confirmed as Treasury secretary by the U.S. Senate. That, alas, will take time, because the Democrats are going to play games with this nomination.

BDA0893: At $350 or so per ounce, gold is higher than it's been for years. Is this a temporary response to the current uncertainty or the beginning of a long bull run for the yellow metal?

STEVE FORBES: No question that the yellow metal has been boosted because of the prospect of war with Iraq and the possibility of a showdown with North Korea. Assuming those crises are solved and defused, gold prices would retreat unless the Federal Reserve prints more money. I hope the Fed will do just that. Gold should ideally stay around the $350 level.

SAMUEL: The U.S. government intervened on the steel tariffs issue. Don't such steps go against the very basis of the success of the U.S. economy?

STEVE FORBES: The steel decision was a mistake. Fortunately, the administration has been moving since then to ease trade tensions and reduce trade barriers. The White House won a victory in that direction when Congress, by a very narrow vote, gave the president so-called "trade promotion authority," which will enable the president to make trade barrier-reducing agreements with other nations. President Clinton had sought such authority and had never been able to win it.

FAHLANDER: If the war starts in mid-February and ends before summer, what effect do you think it will have on the U.S. economy?

STEVE FORBES: The economic impact will be small long term, even though oil prices may temporarily spike upward. Short term, we will also be hurt by terrorist attempts to commit murderous acts. But these efforts won't slow us down for long.

GOD: How do we generate more awareness in the American people about Bush's strategies to divert attention from his administration's poor handling of the economy by bombing and killing Iraqi people?

STEVE FORBES: Fortunately the president does not see himself as God and thankfully we have a constitutional government that prevents wannabe gods from getting dictatorial powers. The president is fighting a war on terror and he has put bold proposals on the table to deal with the economy. Remember, we got the bubble under the previous president.

JUAN: What's your opinion on Latin America, and Colombia in particular?

STEVE FORBES: Colombia is facing dreadful attacks from drug-financed guerrillas. The country also has a severe challenge with so-called paramilitaries. We should, and are beginning to, provide Colombia with more assistance to fight the guerrillas. Latin America faces severe economic challenges in no small part because of bad economic advice from the International Monetary Fund. The IMF mindlessly advocates higher taxes and devaluations. Latin America needs pro-growth policies of sound money, low tax rates and the rule of law.

TRIBBLE: Consumer confidence is as low as it has been in years. Do you see any catalyst to change that or will 2003 be as bad as 2002?

STEVE FORBES: 2003 will be better than 2002, although this won't be an easy year. The stock market will move up when the Iraq crisis is resolved and the North Korea crisis is defused. Capital spending is beginning to show signs of new life. The Federal Reserve, at least recently, has been getting it right on the monetary front.

SCOTT: What business sector do you see the most potential in? Telecom, IT, manufacturing, medical?

STEVE FORBES: The vital signs of manufacturing are registering stronger signals. The FCC is finally recognizing the need to take bold actions to stop the death spiral with telecom.

PF: What effect will the city and state budget problems have on the private sector?

STEVE FORBES: The effect will be very negative. Taxes are being boosted. In New York City for example, property taxes were raised 18%. City income taxes will also be boosted. California is a disaster. Other states will be jacking up levies to meet shortfalls. Sadly, states went on a spending binge in the 1990s. State outlays, adjusted for population and for inflation, went up more than 50%. It's thus very important for Washington to enact a major tax cut that would more than overcome the tax drag that we're going to experience from states and municipalities.

TRIBBLE: Microsoft just announced a dividend. Do you see other cash-rich tech companies doing the same or is it better for those types of businesses to reinvest in R&D and continue to innovate within their category?

STEVE FORBES: Other companies will provide dividends too. Startups won't. Nor will companies that are experiencing fast growth. Microsoft today is a huge company. Its return on equity is lower than it was a few years ago. Thus it is fitting and proper for it to return money to investors who can put it to work in other areas.

ZYCON: Are you still in favor of a flat tax?

STEVE FORBES: Yes! The Russians put in a flat tax two years ago. Their rate--13%--is lower than what I proposed. I never thought a government headed by an ex-Communist and ex-KGB agent would be more radical than me on the subject of taxes. The Russian experience has been very positive. Real revenue has soared.

GIDEONARTECOM: How do you see the new administration in Brazil handling economic issues such as new labor laws and wages? How will these actions relate to our economy?

STEVE FORBES: There has been a rally in Brazil since the election of Lula. The key is for Lula to keep the IMF at arm's length--and then some. If he moves forward with internal reforms of labor laws, tax cuts and a more sensible money policy (interest rates are catastrophically high today) then Brazil will recover rapidly. If those reforms are not made, then Brazil will go the way of Argentina. I don't know Lula, but I'm keeping my fingers crossed!

DAN: Who will succeed Alan Greenspan and how should the new Fed chairman act differently from a policy standpoint?

STEVE FORBES: I think Mr. Greenspan will try to get reappointed next year. If he steps down, I hope President Bush would appoint somebody like David Malpas, now an economist at Bear Stearns. He is a former Treasury Department official. He knows the U.S. and international economies well. He would pay far more attention to the signals from commodities markets than Mr. Greenspan did, and therefore avoid the deflationary mistakes Greenspan made in recent years.

STEVE FORBES: That's all we have time for today. Thank you for your participation and please continue to visit our Web site, where you'll get moneymaking insights!