U.S. Firms Still Bullish on Yeltsin : Hard-Liners' Loss Viewed as Victory for Reform Effort


When tanks loyal to Russian President Boris N. Yeltsin attacked the Parliament building in Moscow on Monday, California businessman Paul E. Tatum could see the glow of flames and hear the report of machine guns from his window a kilometer away.

But Tatum, who is a principal in a joint-venture hotel and business center not far from the Russian White House, saw the fighting not as the latest crisis for U.S. investors in the beleaguered nation, but rather as their best opportunity.

The victory of Yeltsin and the defeat of hard-line opponents will ultimately be good for Western investors, he said from his home in Moscow: "It's a much better condition now for business to move forward, having fewer of the blockers being in power."

Indeed, businesses and analysts generally agreed Tuesday that Yeltsin's apparent victory will loosen 18 months of economic gridlock--although continuing political instability and the prospect of civil war could make investors cautious.

"What happened raises the specter of political risk" for investments, said Thomas McManus, economist and investment strategist for Morgan Stanley & Co. in New York. "But investors seem to be saying this might actually be pointing toward its elimination. It seems clear to public investors that Yeltsin has the army behind him and that Yeltsin is the best capitalist answer."

On Tuesday, companies--from Pepsico to Rockwell International to Levi Strauss to Ben & Jerry's--said the political turmoil has altered neither their current Russian operations nor their investment plans.

"We are comfortable . . . that the Yeltsin government will be in control," said Eric Leaver, senior vice president of a San Diego-based group of real estate investors studying the feasibility of building corporate housing in Siberia and other parts of Russia. "If anything, the situation demands more from us to support him economically by pushing investments in the country."

U.S. business people also drew comfort from recent moves by the Clinton Administration to support Yeltsin, including a proposal approved by the Senate last month for $2.5 billion in aid.

"We are committed to doing everything we can to help the people of Russia," Commerce Secretary Ronald H. Brown said Tuesday. Brown announced a $12-million program setting up business centers in the former Soviet Union to help U.S. companies get established.

There was also guarded optimism among Wall Street investment banks that have been raising money from big U.S. institutions for investment in Russia.

The turmoil will probably delay by weeks or months efforts by PaineWebber Inc. to raise $100 million for a Russia investment fund jointly sponsored by the U.S. and Russian governments.

But Drew J. Guff, a senior PaineWebber official in charge of the project, said he is very optimistic and believes Yeltsin's seizure of power will create a more favorable atmosphere for U.S. investment.

Political instability and uncertainty have always come with the territory when doing business in the former Soviet Union, executives said.

Tatum, founder of Americom Business Centers Inc. of Irvine, was on a business trip to Moscow in 1991 when he first found himself near the firing line. That time, it was Yeltsin holed up in the White House, staving off a coup attempt by former communists. Tatum made his way into the Parliament building and gave Yeltsin aides the use of his cellular telephone.

Less dramatically, it took years for Vermont ice-cream maker Ben & Jerry's to build its first Ben i Dzherris plant and ice-cream shop in July, 1992, in a region of Russia near the Finnish border.

For Leaver, senior vice president of the Hardage Group in San Diego, the continuing game of political brinkmanship "makes it tough to make plans."

Said Leaver: "One of my concerns over the weekend was that the people we have been establishing relationships with may ultimately be the wrong people, and we may have to start all over again."

Such uncertainty, in part, has held U.S. investment in Russia and its neighboring states below levels in Eastern Europe.

Since 1987, when the Soviets began allowing direct foreign investment, U.S. companies have invested about $400 million in Russia, Commerce Secretary Brown estimated in a speech to the annual meeting of the U.S-Russia Business Council and the Council on Trade and Economic Cooperation in Washington on Tuesday. That compares to $2.5 billion in Hungary alone, a nation with 1/20th Russia's population.

Still, Brown said Russia remains a promising business opportunity. In the last 12 months, manufacturing exports to the former Soviet republics have more than doubled, to $1.5 billion a year, he said.

Pepsico Inc.--the giant beverage, snack food and restaurant concern that has been operating in Russia since 1974--said plans remain on course to expand its operations to sell the whole range of Pepsi products from carts and kiosks in Moscow's Metro stations.

"We don't have any reason to think there will be any long-term impact on our business there," said spokesman Brad Shaw. "We're still bullish on the (Russian) market."

Another food giant, McDonald's, was positively gushing Tuesday about the fast-food chain's prospects in Russia. "The outlook for us is fantastic," said Ram Langan, a spokesman for McDonald's Canada, the unit handling the company's investment in Russia.

Langan said McDonald's expects to proceed on schedule with an agreement signed with the Moscow City Council in 1988 calling for a gradual expansion to 20 restaurants in the city--part of an overall plan to eventually open hundreds of McDonald's in Russia.

Monday's turmoil forced the chain's three existing restaurants to close briefly. But they have reopened and "business is booming," Langan said.

"Customers are back," he said, "and they're happy to be enjoying Big Macs."

Patrick Lee reported from Los Angeles; Scot J. Paltrow reported from New York.


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