Soviet Economic Leaders Court Western Investors

High-level conference leaves businessmen wary of participation

THE Exhibition of Economic Achievements of the USSR, a 500-acre park along Moscow's Peace Avenue, represents everything Soviet leaders are now struggling against.Some 400 pavilions, exhibition halls, and massive monuments were built over the past 40 years to pay tribute to Soviet economic and industrial strength. Once an obligatory stop for every Moscow visitor, the complex is now run-down; many of the halls are closed. What remains is a legacy of poor quality, high quantity production, robbed of its potential because of the great emphasis on defense spending. The electronics pavilion, once an organized display of Soviet engineering products, has been converted into a video hall. A loudspeaker, crackling and distorted, calls in visitors to see Hollywood-made movies. The country now imports most of its electronics equipment, usually second-rate clones of leading Western brands. "We have been very deficient in quality production," says Ivan Silayev, chairman of the Inter-Republican Economic Committee, and top manager of the Soviet economy. "The emphasis has only been on quantity." The former Soviet Foreign Minister Eduard Shevardnadze, now a member of President Mikhail Gorbachev's advisory council, warned "The whole economy will collapse," if today's 20 percent decline in production reaches 25 percent. m afraid that people will take to the streets in anger." The influence of the radical right, he says, is growing every day. Mr. Silayev says his bankrupt country is "counting on Western banks and businesses ... to establish a totally new economy." Silayev, Mr. Shevardnadze, and Mr. Gorbachev, are pressing for help this week from a group of businessmen and financiers visiting from the United States - state treasurers, pension fund managers, and investors - whose collective portfolio is valued at roughly $500 billion. Most of the Americans, who came for a conference on Soviet economic issues and investment opportunities, say they are wary of civil unrest in the remaining 12 republics and unresolved jurisdictional matters between the republics and the center. Dean LeBaron is undaunted. He is working with Soviet officials to solicit US pension fund investments in Soviet technology firms undergoing privatization. "This market holds the greatest promise of all the emerging markets in the world," he says. Many of the US investors interviewed here are not convinced. They say they will wait until the political and economic situation is more stable before they will consider investing over the next several years. Newly arrived US Ambassador Robert Strauss underscores the uncertainty: "It's a time for the average American entrepreneur to peek around.... For a long time there will be tremendous perils." Trying to allay Western fears, Silayev says he's confident that a provisional inter-republican economic agreement initialed last week in Kazakhstan's capital, Alma-Ata, will take hold. Nevertheless, only three republics have committed to signing the final document. "The fact that three have signed it makes it into a union of sovereign republics," Silayev says. Silayev's top priority is to convert the Soviet economy - now heavily defense-oriented - into one that services the consumer. Pointing to the West as a model, he says, "There, 75 percent of industrial production is for the consumer, and only 25 percent is for heavy industry and defense." By contrast, military and heavy machinery account for 75 percent of Soviet industrial output. "We must reverse this ratio," he says. Many of the Americans, including private and public sector financial managers, openly balked at helping the Soviets de-militarize a machine that was constructed to confront the West. "As long as they have 27,000 nuclear warheads pointed at the United States, I won't consider putting dime here," says a West Coast manager of a $12 billion pension fund. The best candidates for Western investment are sectors of the Soviet economy ready to compete internationally and reap precious foreign exchange. "We have enormous amounts of wealth to be extracted in oil, wood, gas, and coal," says Silayev, beckoning US investors. "It's possible to cooperate at the local level. We want you to work directly with producers of the oil and coal mines." But, he conceded, "we haven't gotten rid of laws prohibiting this." Silayev says such issues are part of the draft Alma-Ata treaty. "I use this word 'draft' because I want to be careful," he says, stepping back from his earlier, bold declaration that the treaty was a g iven. In the past, the Soviets guarded their raw materials as national treasures, spurning foreign involvement. But while the republics are anxious to protect their deposits from the center's exploits, they need foreign investment in this sector. Rachad Itani, head of merchant banking at Riggs Bank in Washington, says he's bullish. He signed a six-year, $4.5 billion deal in August designed to finance food production, processing, and distribution here with revenues from local mineral sales. "The Russian Council of Ministers issued us a special decree, enacting a law that gives our joint-stock company - composed of two US firms and 10 Soviet state and local organizations - the right to extract coal, oil, and timber," he says. Hard currency revenues from these raw material sales will fund the construction of more than 500 food processing plants and the creation of 100,000 jobs over the next six years, Mr. Itani says. "It's a decree, it can't be abrogated." But there's a hitch in Itani's plan, just like the complications endemic to all international deals here. Last week, the Supreme Soviet of the Russian Republic attacked the decree issued by the Russian Council of Ministers and declared it illegal. It seems the legislative body only learned of the deal incidentally and that the "law" providing for extraction of the republic's raw materials hit a raw nerve. The Supreme Soviet, charging that the proper decision-making channels were ignored, last week declared the law null and void.

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