RUSSIA WILL WOO INVESTORS WITH ADS

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MOSCOW-Hungry for cash and faced with flagging foreign investment, Russia is trying a new method of attracting much-needed capital from abroad: advertising.

Crime, corruption, stiff taxes and fast-changing laws have driven some investors out of Russia and given others cold feet, prompting a propaganda push aimed at plugging billions of dollars into the economy by 1996.

Even as officials were announcing Russia's first ad campaign abroad, Western businessmen were up in arms over the latest roadblock: a government letter indicating foreign representative offices would have to pay a new 38% salary tax, retroactive for 1994, by the end of the month.

"The image of Russia that has developed outside the country does not correspond with the reality on the inside," said Peter Smit, general manager of Procter & Gamble Co. here. "An advertising campaign is an effective way to deal with that."

Mr. Smit is one of some two dozen Western business representatives who sit on a council set up by Russian Prime Minister Viktor Chernomyrdin last November to seek ways to improve the investment climate.

P&G is one of four to six foreign marketers featured in the testimonial-style investment ads. Among the others are Coca-Cola Co., United Technologies and Asea Brown Boveri, an engineering supply company based in Zurich.

Mr. Smit said the companies that agreed to pitch Russia receive "no specific benefits" in return for their efforts, but that the ad campaign is part of an effort by foreign companies to get the government to lower taxes and otherwise improve the investment climate.

A print campaign and promotional video, both from Bates Saatchi & Saatchi, will be part of a $5 million public relations push that will also include opening Russian foreign investment centers in six cities in the U.S. and Europe.

The German print campaign begins in June, timed to coincide with the opening of the first investment office in Frankfurt.

The campaign will run in Frankfurter Allgemeine Zeitung, Handelsblatt, Die Welt and possibly other German publications widely read by executives, said Leo Wielaard, managing director at Bates Saatchi & Saatchi.

The government hasn't determined where it will find funding, but it hopes to have an office open in Milan in June and offices in London, Paris, Chicago and Washington by yearend.

Mr. Wielaard said his office would handle campaigns in each country served by the investment offices. Mr. Smit said he believes "95% of potential investors" in Russia will come from Germany, France, England, Italy and the U.S.

`Every intention is to have the program completed this year," Mr. Smit said. "If not, many investors will have to defer investment until 1997. This year is a crucial year to make it all happen."

Determined to decrease inflation, the Russian government has pledged not to print money to plug the budget deficit in 1995, and its tight monetary policy is likely to leave the nation thirsty for cash to balance the '96 budget.

The video and print campaign will describe the experiences of foreign companies that have successfully invested in Russia.

"We've paid our dues," said Mr. Smit, whose company has flooded the market with its products.

P&G also advertises heavily and has committed to a five-year $50 million investment in a Russian factory producing Tide, Tix and Ariel laundry detergents.

"We are more than willing to help Russia move to a market economy in terms of getting rid of tax barriers and other problems," Mr. Smit said.

The proposed employment tax and other such surprises have chronically hurt foreign investment, which is recovering slowly after a sharp decrease prompted by soaring inflation and economic instability late last year.

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