Treuhand Nears End Of Its Thankless Job

Privatizing enterprises has caused upheaval in eastern Germany

OVER the years, the agency set up to privatize east German industry has been pelted with eggs, stones, and bottles - "gifts" from east Germans furious over massive job loss brought on by privatization.

But the Treuhand, the Berlin-based agency entrusted with the privatization task, has never faced such a disturbing display of anger as now.

In the small east German mining town of Bischofferode, 25 men and four women are on a hunger strike to save their jobs. Four people, collapsing from weakness, have been hospitalized. Due to a Treuhand-brokered deal, the potash mine at Bischofferode is to be closed at the end of this year, eliminating 700 jobs. (See story below.)

The hunger strike illustrates the depth of despair felt in the East as people watch the illusory industrial greatness of the former German Democratic Republic vanish in the presence of the market economy.

Through Treuhand restructuring, liquidations, and closures, about 2 million jobs have been eliminated in the East. This is half the total number of jobs originally in the keeping of the Treuhand, which was first set up in 1990 as owner and auctioneer of eastern Germany's vast network of industrial and service enterprises.

At the start, no one at the Treuhand thought the job cuts would be so drastic. At that time, trade with the Soviet Union had not yet collapsed, Germany was not yet in recession, and the extent of east German industrial decrepitude was not yet known. Half of jobs saved

Treuhand employees tend to view the agency's record as a glass half-full, instead of half-empty. Two million jobs have been lost, but 2 million have been secured. And the Treuhand has been able to sell off companies with remarkable speed, privatizing 12,581 businesses since July 1990. It still has 1,688 companies to go, but 1,000 of these are under negotiation with buyers.

Hero Brahms, Treuhand vice-president, is particularly proud of some of the privatizations that have been worked out in hard-to-sell industries.

"If you look at some of the branches which we've privatized already, like shipbuilding, no one would have betted a dime that we could have done it," said Mr. Brahms recently at Treuhand headquarters in Berlin.

Brahms identified hotel privatization as the Treuhand's greatest success since it was able to sell the state-run hotels for more than market value. Investors, he said, were paying "just to get a market position here."

This is one bright spot in a rather dismal financial picture. The Treuhand's debt stands at $75.6 billion. By the end of 1994 that will more than double. Treuhand debt is one reason Germans will pay higher taxes in 1995.

The Treuhand does not expect to sell all its remaining companies by the end of this year, when the agency is scheduled to close down. Remaining businesses will be divided into 10 to 15 branches - such as steel, machine tools, or consumer goods - that will be managed by Western "experts." These managers are expected to restructure the businesses and prepare them for sale.

There is no guarantee that the road for these experts will be any less rocky than the one already traveled by the Treuhand:

* Since its inception, the Treuhand has been plagued by various scandals. Investors have plundered millions of dollars from their newly bought Eastern companies. Investigators are examining about five to six of such cases, as well as about 40 cases of dirty dealings by Treuhand employees. The scandals, Brahms worries, "could scare off new investors."

* Privatizations have not always worked out as planned. About 400 privatized companies are back at Treuhand headquarters, trying to renegotiate their contracts. As recession bites, the Treuhand has also discovered, more buyers are failing to live up to their promised investments in their new purchases. Broken promises

"So far, we've seen nothing new financially from our new owner," says Gisela Pleger, general manager of the east German cracker company Burger Knacke GmbH.

The new owner is a west German company and, according to its contract with the Treuhand, is supposed to invest $7 million in Burger Knacke. "There's what's stated in the Treuhand contract, and then there's reality," Ms. Pleger says.

Reality is one factor prodding the Treuhand toward creative solutions. Last month it announced a barter agreement with the Russian area of Tjumen, in which the Tjumen region ships oil to Germany in exchange for east German machine tools and equipment. The Treuhand, backed by federal credit guarantees, finances the east German exports.

The Russians "are in an awful mess as far as their foreign trade is concerned," says Ulrike Grunrock, a Treuhand spokeswoman. "If we cannot switch at least partly to barter, this will mean a lot of trouble for our exports to the East."