The Russian government approved a bill on setting up a state-owned Bank of Development, Prime Minister Mikhail Fradkov said on Thursday.

"We should try to create a financial instrument that allows solving current matters, development of the infrastructure, management of investment funds, support to exports, development segment of the economy where private investors do not come," Fradkov was quoted by the Itar-Tass news agency as saying.

The bill is hoped to be approved by the lower house of parliament in the first quarter of 2007, Fradkov said. The prime minister will chair the Bank's observer council, which will bring forward proposals to the Russian president on Bank chairman.

The Development Bank will be formed on the basis of Vneshekonombank. It will receive capital of the Russian Development Bank and assets of Roseksimbank. The bank is planned to start operation in late 2007.

The Bank for Development will finance major middle-term (over five years) and long-term (over 10 years) infrastructure and innovative investment projects.

It will also help attracting foreign investment in the economy, provide financial support to exports of industrial products and secure conditions for private investment in these projects.

Minister of Economic Development and Trade German Gref said such conditions could have the form of project insurance and provision of state collateral, as well as reduction of economic and political risks.

Under the decision of the cabinet of ministers, the Bank for Development is a noncommercial organization that will not be guided by profit in its activity. So the bank will be exempt from the profit tax.

The cabinet of ministers assumes the obligation to ensure transparency of the new bank's operations and control of it by the government and the Central Bank. All operations of the bank will be reported to the government and the Central Bank.

The government will also consider a possibility of the bank's participation in the security market.