U.S. RUSSIA FUND ADJUSTS TO THE BANKING CRISIS

 

By Lisa C. Torch

 

The U.S. Russia InvestmentFund, a U.S. Government-supported investment firm that makes equity capital,loans, and technical assistance available to private businesses operating inRussia, has retailored its strategy in the wake of the August 1998 Russianbanking crisis. The fund is in the process of reevaluating its Russian bankingpartners, adjusting its lending approach, and providing guidance to Russianbusinesses on how to weather the crisis and emerge more fiscally responsible. 

 

Immediately following thedevaluation of the ruble last August, the fund temporarily halted all of itslending and investment programs, including the Bank Partner Program, whichworks in conjunction with a consortium of Russian banks to provide smallbusiness, microcredit, auto, and mortgage loans in various Russian regions. 

 

Adjusting Programs

The fund’s programs werereactivated in late October 1998. Over the past nine months, however, Fundmanagement has closely monitored the financial condition of the banksparticipating in the Bank Partner Program. Part of this process was to assignbanks to risk categories. Based upon these rankings, loan portfolios were movedout of troubled banks and were placed with more stable banks. Recently, thefund has pursued a strategy to attract new bank partners. Three new banksjoined the program as of March 1999—**Bankof Moscow**, **NBD Bank** in NizhnyNovgorod, and the **St. Petersburg Bankfor Reconstruction and Development**. Negotiations are under way with severaladditional banks that have proven stable following the crisis and that havelong-term growth potential. These banks include three in the Russian Far East,two in Moscow, four in St. Petersburg, and one in Yekaterinburg.

 

After an initial pilotprogram, the fund is launching a mortgage-lending program with partner banks inMoscow, St. Petersburg, and Yuzhno-Sakhalinsk. **FannieMae**, the largest originator of mortgage loans in the UnitedStates, is working closely with the fund to develop a mortgage subsidiary inRussia.

 

In addition, the fund’s DirectInvestment Program plans to capitalize on the need for revitalizing Russia’sfinancial sector following the crisis. The fund will deploy capital in thebanking, leasing, and mortgage industries where there are promisingopportunities to infuse Western knowledge and expertise. The fund will alsocontinue to selectively make direct equity investments in core industries whereit can add the most value and minimize risk, such as consumer products,packaging, food and beverage, communications, broadcasting, andpharmaceuticals. 

 

Crisis Support

As part of the fund’s responseto the Russian economic crisis, it has launched a “Survival and Recovery Guidefor Small Business” on the Internet (www.tusrif.ru). The guide benefits Russiancompanies that lack the capital and turnaround management skills to effectivelymaneuver through a fiscal crisis. The guide offers advice and financial modelscovering cash management, cost reduction, financial management, debtrestructuring, payroll, tax and legal issues, and third-party relationships. 

 

The fund also plans to co-hosta corporate governance symposium geared toward both Russian and U.S. businessesin autumn 1999 in Moscow. The conference will cover such subjects as U.S. GAAP(generally accepted accounting principles), the roles of boards of directors,tax policy and reforms, and management issues. 

 

*For further information on the fund, visit its websiteat www.tusrif.ru or call (212) 818-0444.*

 

*Lisa C. Torch is Director of Communications for theU.S. Russia Investment Fund in New York, New York.*