Russian Privatization Plan Needs New Cash Infusion Moscow Looks to Aid from G-7 Meeting to Keep Reforms on Course

Article excerpt

WITH Russia's privatization effort facing a capital crunch, government reformers are counting on aid from the Group of Seven industrialized nations to provide crucial support.

G-7 leaders gather for their annual summit tomorrow in Tokyo. At the meeting, the group is expected to finalize a privatization aid package for Russia, totaling as much as $4 billion. American officials, however, say the figure is likely to be around $2 billion.

Both foreign and Russian officials say the money is urgently needed to maintain privatization's momentum. To date, privatization, the cornerstone of Russia's overall reform strategy, has met expectations with the state selling off more than 70,000 enterprises nationwide since January 1992, Privatization Minister Anatoly Chubais says.

But now officials say that simply distributing shares will not guarantee privatization's success. The key is attracting investment, Mr. Chubais says, adding that most newly privatized enterprises lack the money to restructure and thus make themselves profitable.

"The Russian State Property Committee's efforts on privatization have been valiant, but they never had the time, or the resources to think post-privatization," says Roger Gale, the Moscow representative of the International Finance Corporation, a World Bank affiliate that has been advising the Russian government on privatization. "What has to happen now is to help enterprises turn themselves into efficient, open and honest ventures," Mr. Gale continued.

In trying to guide enterprises down the path to profitability, Russian reformers have come up with a plan to establish regional privatization funds. G-7 aid money would be used to stock the funds, which would selectively provide investment to enterprises showing the most profit potential.

The goal is to establish up to 30 regional funds throughout Russia, each comprising as much as $75 million, Chubais says. To promote peak operating efficiency, both Russian and foreign specialists would be eligible to run the funds and compensation would be based on performance.

By creating the funds on the regional level, Chubais says he hopes to bypass the Moscow bureaucracy which has gained a reputation for gobbling up foreign assistance while producing few tangible results. Some regional officials caution the concept can work only if the regions to receive privatization funds are carefully chosen.

"Aid should be extended only to the people who are ready to accept it," says Boris Nemstov, governor of Nizhny Novgorod, perhaps the most progressive of Russia's regions. …