Boris Yeltsin Seeks US Know-How To Tame Russia's Capitalist Frontier

WHEN Russian President Boris Yeltsin and President Clinton get together in Washington this week, their common vision of a capitalist Russia will top the agenda.

Political issues will take a back seat to the nitty-gritty building blocks of a free-market economy.

``We want to use the summit to register a new emphasis on private-sector trade and investment,'' rather than government aid, says a senior US administration official.

At the highest levels, both Moscow and Washington are making positive noises about the future of foreign investment in Russia. Both governments see economic development - especially private economic development - as a key buttress to Russia's fledgling democracy.

Help is badly needed here to revitalize an economy burdened by outdated technology and poor management, and foreign investment and know-how are increasingly welcome.

``For the first time since the beginning of the reforms in Russia, the government and the president intend to take the most radical steps to improve the climate in Russia for foreign investors,'' a key economic aide to Mr. Yeltsin, Yevgeny Yasin, told US business executives at a lunch Friday.

Clinton administration officials have been working with Congress to prepare a package of incentives, due to be announced at the Sept. 27-28 summit, which are expected to boost private US investment in Russia.

``If you really want to have an impact [in Russia], you have to engage private-sector resources,'' said one senior US official visiting Moscow recently.

Some 500 to 600 US companies have set up shop in Moscow, either on their own or in joint ventures with Russian enterprises. But aside from one or two spectacular exceptions in the oil industry, they have invested relatively little money here.

New US government programs, which Mr. Clinton is due to announce this week, will provide nearly $80 million to US agencies that help private US investors in Russia, for example, by funding feasibility studies or insuring their investments.

Now that emergency aid is no longer needed in Russia, and with US technical-assistance programs encouraging market reforms, ``good signs in the Russian economy offer a good environment for trade and investment,'' the administration official says.

But doubts persist about the warmth of Russia's investment climate. ``Despite a lot being said at the government level encouraging investment, still at the practical level there are a lot of things that prevent you from going straight forward with a project,'' says Denis Kiselyov, head of his own financial services company.

And politically, ``all the promises to investors are coming from Yeltsin's mouth, but we have a parliament where the presidential orders will face opposition,'' points out Alexander Levikov, chief economic writer for the business magazine Delovie Lyudi.

For example, the powerful chairman of parliament's Economic Policy Committee, Sergei Glazyev, speaks of foreign investment in terms of an ``attack'' on the Russian economy.

Even more worrying for foreign investors may be the hostility they face from local businessmen, whose influence is growing along with their bottom lines, and who resent outside competition.

``The more powerful domestic capital is, the less it wants to see foreign investment,'' Mr. Kiselyov says. Russian banks, he points out, have so far persuaded the government to forbid foreign banks from operating here.

US companies thinking about investing in the potentially lucrative Russian market are put off by a number of obstacles, say US diplomats trying to help them over the hurdles.

The worst is Russian bureaucracy, a hangover from Soviet days that can make even the simplest administrative step a time-consuming nightmare.

Reports of corruption also often dissuade investors, in a primitive marketplace rife with organized crime, not to mention high taxes that discourage investment.

At the same time, the Russian parliament has not passed the laws needed to provide a regulatory legal framework for business - there is no law on contracts, for example, and the court system is unable to settle contract disputes.

At one session this week, Clinton will have at his side the heads of some of the biggest US companies operating in Russia, seeking to drum into Yeltsin their desire to see these obstacles removed.

By any reckoning, this will take a long time, but US officials estimate that if they have their way, US investment in the Russian economy could top $50 billion by the end of the decade - 25 times its current level.

Given Russia's immense natural resources and skilled labor force, says Julia Zagachin, a US businesswoman who has been closely involved in the privatization of the Russian economy, ``if you can break through Russia's bureaucratic hurdles, you can make a ton of money here.''