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. Last Updated: 07/27/2016

Foreigners Offered Reassurance, T-Bills

The Russian government courted foreign capital on two fronts Monday, announcing plans to open the lucrative government securities market further to nonresidents and seeking to reassure jittery investors about a commitment to reform.

Yet the long-awaited opening of the T-bill market came with strings attached: yields for foreigners will be capped at a small fraction of what domestic buyers earn. And even a senior member of the government admitted that the climate for investment has grown more risky.

The Central Bank announced the easing of some restrictions on foreign purchase of state securities in a statement late Monday. (Story, Business Review, Page III.)

But Dirk Damrau, newly appointed managing director of research at Renaissance Capital, a Moscow-based investment bank, said the expected moves were "not a market-oriented solution. It just means that foreigners wouldn't participate in the market."

Earlier at the Kremlin, Pres Council, a body made up of top ministers and influential foreign firms in Russia such as ABB, Coca-Cola and Ernst and Young. "As president, I guarantee you that," he said, Reuters reported.

Large-scale privatization -- feared to be at risk since the sacking of First Deputy Prime Minister Anatoly Chubais, who headed the privatization campaign -- will continue at full strength, with attempts made at increasing the population's economic stake in reform, Yeltsin said.

"[Chubais]was not the only one involved in privatization, but he was the only one making certain mistakes," the president said, according to Interfax.

Prime Minister Viktor Chernomyrdin also picked up on the theme of post-Chubais privatization earlier in the day with a promise to the council that the auctions of state-owned enterprises would be reorganized to allow for greater participation of foreign capital.

"The mass and fast sell-offs of enterprises should be replaced by pinpoint sales aimed at enhancing the effectiveness of the full participation of foreign investors," Chernomyrdin said in an opening address to the council.

Revenues from recent cash sales of shares in state-owned firms have fallen well short of their target level, sparking criticism that auction rules kept the sales off-limits to many potential investors. Chernomyrdin did not explain how the auctions would be rendered more effective and accessible for foreign investors.

Outside the council, however, Economics Minister Yevgeny Yasin conceded that foreigners might not be beating down the door to pour money into Russia. "Unfortunately, the risk for investment is now growing, especially after the parliamentary elections, and therefore in terms of investment we are in a more difficult position than we were a year ago," Yasin told Itar-Tass.

For the most part, foreign investors reacted positively to the government's flood of reassurances, saying they added "extra value" to the council's meeting.

"We were very satisfied with the outcome," said Percy Barnevik, president and CEO of Asea Brown Boveri, a Swedish-Swiss multinational engineering group. "It was important to get a reassurance that in spite of people changes the course was the same, the government policy was unchanged and that was confirmed also by President Yeltsin."

At a press briefing later, Barnevik added that Yeltsin was "extremely well-prepared ... fit, relaxed and confident" during his 90-minute session with the council. "It's not what we'd expected, frankly."

One prominent investor added a word of caution about the government's program: "These efforts will only be successful if investment finds an environment that's attractive," said E. Neville Isdell, president of Coca-Cola's Eur-Asian division.

Chernomyrdin said he hoped foreign investment would rise by 5 percent in 1996. Inflow of $1.57 billion for the first nine months of 1995 fell short of the government's earlier announced goal of attracting $2 billion annually for the next five years, Yasin said.

The prime minister also took special care to address worries over Chubais' resignation last week, telling council members that "it wasn't easy to part with him."

Deputy economics minister Yakov Urinson refused to comment at the session on possible candidates for Chubais' post, dismissing rumors in the Russian press that Chubais' exit had nearly sparked the resignation of the government's entire economic team.

-- Sergey Lukianov and Natasha Mileusnic contributed to this report.