Publication: Monitor Volume: 4 Issue: 47

As Prime Minister Viktor Chernomyrdin travels to Washington to make the case for Russia as a reliable business partner, small signs indicate that foreign investors are making progress in securing their rights in the Russian market.

Last week, it was reported that the American fast-food operator Subway began proceedings in a St. Petersburg court to win enforcement of a $1.2 million award handed down in 1996 by the Stockholm international arbitration court. Subway’s former St. Petersburg partner Bordug illegally seized control of a Subway sandwich shop in 1994. That Subway — with the active encouragement of the St. Petersburg city administration — took the case to court instead of walking away is seen as a sign that the rule of law may be making inroads in Russia’s chaotic marketplace. (Moscow Times, March 7)

During a three-day visit to Frankfurt last week, First Deputy Prime Minister Boris Nemtsov said he is taking personal charge of efforts to force local authorities in Krasnodar, a notoriously conservative province, to implement a court judgment granting Knauf, a German construction materials firm, control over the Kubansky Gips factory in the town of Psebai. The decision was taken by the Commission for the Protection of Investors’ Rights, created last August under Chernomyrdin’s chairmanship. Knauf began investing in the Krasnodar firm in 1993, buying 50 percent of the shares, but was locked out by the Russian director Alim Sergienko when they tried to fire him for corruption in 1996. Knauf won repeated court decisions against Sergienko, but these were not enforced. Meanwhile Sergienko used local Cossacks to eject German managers from the plant. Krasnodar governor Nikolai Kondratenko, who has blocked Knauf’s efforts to repossess the plant, was last week named as the head of economic policy in Gennady Zyuganov’s "shadow cabinet." (Kommersant-daily, March 7)

These isolated examples hardly prove that Russia is turning the corner towards legality. One swallow does not make a summer. Also, the fact that such reports have surfaced in the press on the eve of Chernomyrdin’s U.S. visit is "not coincidental," as the Soviet press used to say.

Legal nihilism aside, the chronic insolvency of Russian firms is an equally serious barrier to foreign businesses. Fifty German steelmakers organized an industrial fair in Moscow last week. Russian steel mills are all twenty to twenty-five years old and desperately need re-equipping. Yet last year, Russian businesses only took up one-third of the DM 1.5 billion credit line the German government opened for Russian businesses to buy machinery, mainly because Russian customers were unable to secure financial guarantees from the government, as required by the German’s Hermes state insurance scheme. (Segodnya, March 6)

Communist Clone?