Goldman Sachs Will Help Locate Capital for Russia : Finance: The country hired the U.S. investment banker because it needs money to help it rebuild its crumbling economy.
The Russian government announced Monday that it has hired Goldman, Sachs & Co., the Wall Street investment banking firm, to help attract the foreign capital it needs to rebuild its collapsing economy.
The move is intended both to reassure Western investors nervous about putting money into a country in the midst of such a huge political and economic transformation and to ensure that the needs of foreign capital are taken into account in the government’s policy-making at the highest level.
“We want to create a new image of Russia for foreign investors,” Leonid Grigoriev, deputy economics minister and chairman of the government’s foreign investment commission, told a news conference. “We want to attract serious Western business investment in Russia and speed up the country’s economic transformation.”
Goldman Sachs will be “a new force inside the country working on the side of the Russian government,” Grigoriev said. As Moscow’s investment banker, it would also advise the government in dealings with the West and help protect Russian interests in negotiations, he added.
Robert E. Rubin, a senior partner at Goldman Sachs, said his firm’s reputation should give Western companies “greater comfort and greater optimism in terms of their ability to invest successfully in the Russian Federation.”
But the deal with Goldman Sachs could prove controversial politically. Hard-line Communists, searching for whatever vulnerable areas they can find in Russian President Boris N. Yeltsin’s government, have contended recently that Western advisers, ranging from the International Monetary Fund to a team of American, British and other foreign economists, are taking over control of Russia’s economy.
The Moscow press has also published a number of stories on questionable deals signed by naive Russian managers with Western firms. The firms are alleged to have gotten incredible bargains through the inexperience--or corruption--of Russian businessmen. “We will work to get the fairest deal--a deal that . . . does not take advantage of Russia,” Rubin said.
Although Western companies have shown increased interest in investing in Russia after the collapse of the Soviet Union, they have been put off by the continuing political confusion as well as uncertainty about ground rules for foreign investment, taxation, protection of foreign capital and convertibility of earnings here into other currencies.
“The risks here are obvious to an outside firm,” Rubin added. “The opportunities may be less obvious, but they are enormous. . . . Our job is to get them to look favorably on investment in the Russian Federation.”
Rubin said Goldman Sachs, with its Wall Street prestige, expects to get a fairer hearing for Russia from major investors. Its presence as Russia’s adviser will give Western firms “the sense that there is someone on this side of the table, on the Russian Federation side, who speaks their language, who understands the kind of considerations that concern them.”
Although Russian officials declined to disclose terms of the contract with Goldman Sachs, which won over three rival investment banks, they said it would be paid in part on a commission basis linked to the investment it brings in.
Rubin said his firm will promote “a relatively small number of realistic projects that we think have a good chance of success” and would not be engaged in attempting to restructure the entire Russian economy on a free-market basis. Those ventures will likely be concentrated in natural resources, food processing, consumer goods and clothing, Rubin said.
Yegor T. Gaidar, the deputy prime minister in charge of economic reform, said the government wanted Goldman Sachs’ advice in developing the oil and gas industries because of their critical importance for overall economic growth.
Rubin said Goldman Sachs will advise the government on making Russia’s tax laws, which seem to change almost every week in one way or another, more attractive to foreign businesses, on when to offer greater concessions such as tax breaks or longer leases and on ways simply to speed up the investment process here.
“We need teachers, in a sense, in practical things,” Grigoriev said. “We receive a lot of intellectual help in terms of legal acts, strategic concepts and so on from international agencies, but we need permanent financial advisers in practical terms.”
