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Foreign Firms Scale Back in Russia

September 18, 1998

MOSCOW (AP) _ Facing billions of dollars in losses, many foreign companies in Russia are cutting staff and halting further investment as they wait for the country to stabilize _ though they insist the latest financial crisis will not send them running away for good.

The hardest hit have been in the the consumer goods and financial sectors, as nationwide distribution systems and the stock market alike collapse, Scott Blacklin, president of the American Chamber of Commerce in Russia, said Thursday.

``In some ways the business community feels like it was hit by a neutron bomb and we’ve all been irradiated,″ he said. ``Which means we’re all alive today, but in 30 days, 60 days, 90 days, some of them are going to die.″

The biggest problem for many foreign companies dealing in consumer goods is that their clients can’t afford to pay for goods priced in dollars as the unstable ruble rate drives them closer to bankruptcy.

``It’s a serious hit to our market share,″ said Robert Bellman, country director for Compaq Computer Corp. ``We don’t want to bring in a shipment if payment isn’t 100 percent guaranteed.″

Unloading goods is not the only problem. As Russian banks collapse and freeze bank accounts, withdrawing assets or making bank transfers has become almost impossible.

In a survey released by the American Chamber of Commerce in Moscow, 72 percent of both large and small foreign businesses said they could not access some funds because of bank restructuring and government decrees.

The bank failures, coupled with a government moratorium on repaying foreign debt, has eroded foreigners’ faith in the government’s desire to carry out economic reforms. Many are delaying new investment decisions until the dust settles.

``It is clear that the Russian government, whoever is comprising it, does not have the credibility necessary to maintain an attraction for foreign capital,″ Blacklin said. ``There seems to have been a profound break in the former belief in the reform process in this country.″

Russia’s stock market, a good reflection of investor attitude toward the government, is down more than 80 percent since the start of the year.

With extensive losses, frozen assets, and investments delayed, many companies are now laying off both local and foreign staff.

``We are not replacing those people who are going to leave,″ said Bellman, of Compaq. He added that in the next few months, Compaq would also cut about 10 percent of its 100 employees.

Other firms in the financial and retail sector have been forced to shed as many as half of their employees, Blacklin said.

Still, the big foreign companies that have invested $21 billion in Russia since the country began its economic reforms in 1992 have no plans to close up shop, even with Prime Minister Yevgeny Primakov’s suggestion that the government may try to protect domestic business and possibly print rubles.

``When push comes to shove and they are going to continue to need investment from the West, I think some of these things will be modified over time,″ said Richard Weden, director of American Express’s Russia division.

The government said Thursday it would try to work out a new deal over $40 billion in bad loans with foreign lenders, who face huge losses.

``We’re in this for the long haul,″ Weden said. ``Though policies of the new government may change, open market practices will continue.″

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