'We're Ready,' Russians Tell Foreign Investors
In its transition to a free-market economy, Russia has often stumbled. The government said production would finally begin to increase in 1995. Then it was 1996.
Now, Russian experts say the country will turn the corner in 1997.
They took this message of optimism on the road last week, as Harvard University hosted a symposium on US investment in Russia.
Vladimir Kossov, Russia's deputy economic minister, told Americans that a top government priority is to make the case that Russia is a "worthy recipient" of foreign money.
Some investors, watching falling inflation and President Boris Yeltsin's reelection, are already believers. Russia was the world's top stock market in 1996, up about 143 percent, according to Bloomberg Business News.
But Russian officials want to do more to lure not only stock investors but also corporations that will invest in factories and help create jobs. Faced with images of mob corruption and political instability, the task is not easy.
Mr. Kossov cites government guarantees for foreign investors as a major step that will make the country more attractive to foreign companies.
Spending money to attract foreign investment is not new in independent Russia. What is new, Kossov says, is that this money, some $10 billion, will be protected from later cuts. The government guarantees will provide insurance for up to 40 percent of an investor's money, Kossov says. For Russia, the government giving money to private investors represents an ideological about-face from Soviet days, he notes. In addition, regional authorities can issue their own incentives.
"We hope that this breakthrough in our attitudes will be appreciated by investors," Kossov says.
In addition to financial reforms, two political events should make for a more stable climate: The Russian election is over and so is the Chechen war.
Inflation is now under control, at 1 percent a month, and interest rates are coming down, says Abel Aganbegian, the rector of Russia's Academy of the National Economy, a government research institution.
But new government attitudes are not all investors in Russia are seeking. A safe business environment and safe streets would do a lot more to reassure Americans seeking to invest in Russia, especially after the mob-style murder of US businessman Paul Tatum in Moscow in early November. Many American investors have lost businesses in disputes with Russian partners or have pulled their money out of the country because it lacks the legal framework to protect them from extortion.
"The government obliges law enforcement to solve these problems," says Sergei Kolesnikov, chief of staff to Russian Prime Minister Viktor Chernomyrdin. But foreign investors have often found law-enforcement officials and the courts, whose officers are usually underpaid and susceptible to bribes, to be more a part of the problem than the solution.
Despite such obstacles, foreign direct investment in Russia is the highest it has ever been, $4.4 billion in 1995. That's still far less than the $10 billion to $12 billion the government seeks.
One of the most important obstacles to investment in Russia is its Soviet-era tax system, says US Deputy Treasury Secretary Lawrence Summers. "Despite some of the highest tax rates in the world, Russia has one of the lowest rates of overall tax collections," he says.
A new federal tax code this year, Kossov says, "will cancel the worst taxes."