For Yeltsin, a Capital Opportunity Clinton and Corporate Leaders Promise Billions in New Investment If Barriers Fall

Peter Behr (Washington Post Staff Writer)

(C) 1994 The Washington Post (LEGI-SLATE Article No. 212795)

    President Clinton has invited U.S. business leaders into a meeting with
Russian President Boris Yeltsin   next week to deliver a pointed message:
Billions of dollars in new corporate investment will flow to Russia if only
the Russian leader could tackle problems ranging from high tariffs and the
lack of laws governing commercial transactions to the menace of organized
crime.

    The unprecedented participation by the corporate executives in an Oval
Office summit is intended to underscore a change in economic policy toward
Russia.
    "There is a shift from a government-driven, aid-oriented relationship to
a private-sector, trade-oriented relationship," said Jan Kalicki, a Commerce
Department officer who deals with energy and commercial projects in Russia.
"That is a turning point that will be reflected in the Washington summit."
     Joining Clinton and Yeltsin for the extraordinary session will be Robert
S. Strauss, former U.S. ambassador to Russia and head of the U.S.-Russia
Business Council; General Motors Corp. Chairman Jack Smith; Jack Murphy,
chief executive of Dresser Industries Inc., a Dallas-based energy services
company, and Richard McCormack, president of US West Inc., the Colorado-based
regional telephone company.
     "Each of these companies (represented at the meeting) has particular
concerns," a Clinton administration official said.
    While praising the economic reforms of Yeltsin and Russian Prime Minister
Viktor Chernomyrdin, the administration wants to stress how much further
Russia must go to create a safe, reliable climate for investment,
administration officials said.
    "Call it a 'tough love' message," one official said.
    "The problems people talk about - the lack of legislation on taxes or
property rights, or mafia activities - generally speaking those are real
problems that manifest themselves every day," Strauss said in an interview
yesterday. If these issues were addressed, he added, "Western capital would
flow so fast you couldn't get out of the way of it."
    U.S. firms have about $2 billion invested in Russia - more than any other
nation's private investment, an administration official said.
    "If Russia's economic reforms continue, we could expect $50 billion or
more (in total investment) by the end of the decade," the official said. "The
energy projects alone could total more than $20 billion."
    The U.S. Export-Import Bank is in the process of approving almost $1
billion in exports of U.S.-made oil and gas production equipment and services
to Russia, with other deals in the pipeline, an Eximbank official said.
    In preparation for the Yeltsin visit, the White House yesterday said that
Russia will now be automatically qualified for the lowest possible tariffs on
its exports to the United States.
    Under a Cold War era law, Russia's eligibility for "most favored nation"
status and its preferential tariffs depended on its willingness to allow Jews
and others to emigrate. As Russia's policies have liberalized in recent
years, it has received annual MFN approval. Now that qualification will
become automatic.
    The administration was unable to deliver, however, on one of Yeltsin's
highest priorities - a new policy that would head off prohibitively severe
trade sanctions against Russian mineral and metal manufacturing companies
accused of "dumping" exports at unfairly low prices in this country.
   Administration officials drafted such a policy but Congress refused to
accept it. A new attempt will be made next year, officials said.
   The administration also hopes that as much as $1 billion in new U.S.
investments in Russia will be ready to announce next week during Yeltsin's
visit to Washington and later, Seattle. Most would be backed by government
guarantees from the U.S. Overseas Private Investment Corp.
    Among the major ventures either nailed down or close to completion
yesterday were a $400 million petroleum project involving Texaco Inc.; a $90
million computerized airline reservations and baggage handling project led by
International Business Machines Corp., AT&T Corp. and American Airlines Inc.;
a $250 million jet engine venture for "Call it a 'tough love' message."

 -  An administration official
Russia's Aeroflot airlines led by United Technologies Inc.'s Pratt & Whitney
division; a major seafood processing plant in Vladivostok, with All Alaskan
Seafoods of Seattle, and a project to establish Subway sandwich shop
franchises.
    According to a senior administration official who briefed reporters
yesterday, it is Russia's dramatic progress on economic reforms that permits
the shift in policy from direct governmental assistance to trade and
investment issues.
    "Russia has come a long way in economic reform," the official said.
   "Half the work force is now privatized - works in the private sector; the
monthly inflation rate for the last two months running has been below 5
percent. This is not an economy that is heading downward. It is an economy
that many people think may be bottoming out and beginning to rise slightly."
     The International Monetary Fund is close to granting its approval of
Russia's economic reforms following protracted, contentious negotiations,
making Russia eligible for $8 billion in new loans, the senior administration
official said yesterday.
    "It could happen. It would be a remarkable achievement if it did," the
official said.
    But many private economists caution that the continuation of reforms in
Russia will be difficult, at best.
   "We are pretty much still waiting before committing a lot of new
investment funds," said Klaus Friedrich, chief economist of Dresdner Bank in
rankfurt.