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Foreign Firms in Russia Scale Back

September 18, 1998

MOSCOW (AP) _ Many foreign companies in Russia are cutting staff and holding off on further investment while they wait for the country to stabilize _ though they insist they are not running away for good.

The hardest hit have been in the consumer goods and financial sectors, struggling with the collapse of nationwide distribution systems and the stock market, 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, being driven toward bankruptcy by an unstable ruble rate, can’t afford to pay for goods priced in dollars.

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

Unloading goods is not the only problem. With collapsing Russian banks freezing accounts, withdrawing assets or making bank transfers has become almost impossible.

In a survey by the American Chamber of Commerce in Moscow, 72 of 101 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, have 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.

Facing losses in the billions of dollars, many companies are laying off local and foreign staff.

Compaq is not replacing people who leave and plans to cut about 10 of its 100 employees in the next few months, Bellman said.

Blacklin said other financial and retail companies have been laying off as many as half of their employees.

Still, the big foreign companies that have invested $21 billion in Russia since economic reforms began in 1992 have no plans to leave, despite Prime Minister Yevgeny Primakov’s suggestion that the government may try to protect domestic business and print rubles.

``We’re in this for the long haul,″ said Richard Weden, director of American Express’s Russia division. ``Though policies of the new government may change, open market practices will continue.″

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