Soviet Far East Ripe for Picking

BOXES of Czech bathroom porcelain are collecting dust in the lobby of the run-down Hotel Sakhalin, closed for reconstruction. However, the bathtubs, toilets, and sinks are considered unusable because of the wide mix of colors. The hotel managers, who talk of transforming it into a ``first class'' establishment, have found a better solution. Their new Japanese business partners will ship in fully assembled bathrooms, along with the workers to install them. If Japanese entrepreneurs are desired, the Japanese told the Russians, they should provide hot baths and clean facilities - and a Japanese-staffed restaurant, which the Japanese would contribute.

Wherever a visitor goes in the Soviet Far East - from the city of Khabarovsk on the shore of the Amur River near China to Sakhalin Island - Soviets are enthusiastically seeking foreign business partners. But, with a handful of hopeful exceptions, they are largely coming up empty-handed.

The response of Japanese business, the main target of Soviet efforts, has been particularly cool. The Soviets are eagerly promoting visits from South Korean businessmen, clearly hoping the Japanese will respond to the presence of their Korean rivals. So far, only 20 joint ventures have been established in the Soviet Far East, five of them with Japanese firms and most with small companies.

Potential foreign investors complain the area lacks the most basic infrastructure - roads, dependable electricity, and telephones - and the commitment from Moscow to develop it. Despite promises of liberalization, investors face obstacles getting profits out, while the Soviets lack the foreign currency to buy their goods or machinery.

The Soviet Far East is a vast region of tundra and forests, frozen under snows for half the year and water-drenched and mosquito-ridden during the spring and summer. Only 7.9 million people live in an area of nearly 4 million square miles stretching from Yakut, a republic larger than Western Europe, to the Bering Strait. It is also a land of great natural wealth - of endless forests, of rivers and coastal waters teeming with fish, of rich reserves of coal, oil, gas, and minerals.

In 1986 Soviet leader Mikhail Gorbachev visited the Pacific port of Vladivostok and delivered a speech envisioning the development of the region's resources, offering to open the area to foreigners. A plan was drafted proposing to invest 200 billion rubles (about $320 billion) by the year 2000, more than doubling the size of the economy.

Soviet officials talked of establishing a ``special economic zone'' where foreigners, with tax incentives, could set up factories and take out the foreign-currency earnings from exports. And Moscow promised to let local enterprises and governments make their own deals with foreigners.

Soviet economic planners and local officials admit these ideas remain largely on paper.

``It would be idealistic to wait for Moscow to provide money,'' says economist Nadezhda Mikheeva of the Institute for Economic Research in Khabarovsk, part of the prestigious Academy of Sciences. Development must come from ``local resources.''

The region earns profits from its raw materials, including exports worth 900 million rubles (about $1.4 billion). Half the exports go to China and Japan.

But, says institute director Piotr Baklanov, the ministries in Moscow ``take the profit.'' In Sakhalin, a major source of the valuable exports, officials say only half of the value of what they give to Moscow comes back to them.

The answer, the far easterners hope, lies in foreign ties. But the bureaucrats in Moscow have shown little enthusiasm for the limited efforts in that direction.

Last year, permission was given to far eastern enterprises to engage in foreign trade, which resulted in a boom in cross-border barter trade with China. Enterprises traded timber, steel, fish, and coal for Chinese consumer goods, selling them back home for healthy profits.

But the ``magic of the market'' was too chaotic for authorities in Moscow. They complained that the enterprises were selling Soviet goods too cheaply, paying too much for Chinese products, and creating shortages of building materials. On March 7, Moscow clamped down on this brief experiment, forcing each enterprise to get a license from a ministry in Moscow to be able to sell. Virtually every community in the region looks to the special economic zones as a salvation, hoping Moscow will give permission. Plans to create a first experiment in the port of Nakhodka, near Vladivostok, are still being ``studied.''

In China, such special zones brought in Japanese businessmen and others attracted by cheap labor to assemble electronics and other consumer goods for export. But labor in the Soviet Far East is expensive and scarce. Tens of thousands of Chinese, North Koreans, and Vietnamese are imported to work here. The Soviets have also been slow to allow convertibility of the ruble, making it impossible for foreigners to bring out profits in hard currency.

Japanese businessmen repeatedly raise these complaints in explaining their reluctance to invest in the Soviet Far East.

Also, the Japanese government quietly pressures business to restrain activity, providing leverage for Japan's demands for return of a group of islands in the Southern Kuriles. The Soviet Union seized the islands at the close of World War II. Some Soviet officials say Japanese investment will boom if the issue is solved.

But most agree with Sakhalin Oblast (Region) chief executive Ivan Kuropatko who says, ``The main thing is the economic benefit of the Japanese - they do not want to lose money.''

High economic growth in Japan is renewing interest in Siberian raw materials, says Hisao Kanamori, chairman of the Japan Center for Economic Research. Mr. Kanamori is an active participant in Japan-Soviet business discussions. He says he foresees a triangular combination of Chinese labor, Soviet resources, and capital from Japan and South Korea.

Japanese and Soviet entrepreneurs met for three days at the end of August. The Japanese agreed to a feasibility study of a 200,000-ton paper plant in southern Sakhalin, which would reportedly be the largest joint venture to date for the Soviet Union. Interest has revived in a moribund project to develop offshore oil and gas reserves.

Japanese involvement in Sakhalin harks to the era from 1905 to 1945 when Japan controlled the southern half of the island.

But Soviet economic planners worry that the Japanese and the South Koreans ``want to make the Soviet Union play the everlasting role of an underdeveloped source of raw materials,'' says Pavel Minakir, deputy director of the Institute for Economic Research. The institute's planners express a sentiment heard many times in Sakhalin - their preferred partners are Americans.

``It is psychologically easier for us to understand the Americans - and they can understand us more easily as trade partners,'' Mr. Minakir says. In Sakhalin, authorities await a visit this month of the governor of Alaska and the possibility of links with their neighbors in the frozen north.