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08/13/1998 14:04:08 Soros has strange love affair with Russia

By Andrew Priest

LONDON, August 13 (Reuters) - A call by international

financier George Soros for Russia to devalue the rouble marks

the latest twist in the Wall Street wizard's 10-year

philanthropic and commercial involvement in Russia's affairs.

Since the break up of the Soviet Union in 1991, the

Hungarian-born hedge fund manager has spun a web of interests in

Russia and Eastern Europe ranging from social and educational

projects to commercially motivated investments.

But his latest pronouncements, which fuelled a further wave

of selling on Russia's markets, have raised a few eyebrows given

his oft-stated policy of only making comments which benefit his

financial interests, Russian experts said on Thursday.

"It's very difficult to understand how this can serve his

commercial interests," said Brian Henry, professor of economics

at the London Business School.

Multi-billionaire Soros turned up the heat on Russia's

ailing financial markets on Thursday by stating in a letter to

Britain's Financial Times that the "best solution" to the

present banking liquidity crisis would be to introduce a

currency board after a "modest" rouble devaluation of 15 to 25

percent.

"The meltdown in Russian financial markets has reached the

terminal phase," Soros wrote, adding that any delay would result

in default or hyper-inflation.

In the past Soros has freely admitted his willingness to

talk up his own book to defend his vested interests, analysts

noted.

In an article in the Times of London in 1993 he said, "I

expect the mark to fall against all major currencies, including

even sterling," adding, "for the sake of full disclosure, I am

talking my book."

The financier still has plenty riding on the success of

Russia's economic reforms despite speculation he has been

reducing his commercial interests in recent months, analysts

said.

Soros, who studied philosophy at the London School of

Economics, said last October he had some $2.0 billion invested

in Russia including a stake in Svyazinvest, the state telecoms

holding company.

In March, he told journalists in Moscow he had turned down a

request by the Russian government for financial help last

December, but had loaned it several hundred million dollars to

close a short-term funding hole in June 1997.

"They were stuck. Payment was due on a Thursday and they

needed the payment on the previous Thursday," he said at the

time.

But despite his financial interests in Russia, analysts said

Soros, whose speculation helped send the British pound spinning

out of the European Exchange Rate Mechanism in September 1992,

also has an emotional attachment to the country.

Soros has invested millions of dollars of his personal

fortune in his Open Society foundation, a collection of social

and educational projects set up to promote democracy in Russia

and Eastern Europe after the Soviet Union's demise in 1991.

"Soros has been active as an investor as well as a supporter

of the reform process in Russia on the philanthropic side - I

suspect he was trying to be helpful (in the letter) and call it

as he sees it," said Charles Blitzer, chief emerging markets

economist at Dolaldson, Lufkin and Jenrette.

The financier is no stranger to criticism of his involvement

in Russian affairs.

Following his purchase of the stake in Svyazinvest, he

acknowledged he had stirred up resentment among Russia's

industrial and financial barons.

"By participating in the Svyazinvest auction, I interrupted

the division of spoils and unleashed a ferocious battle," he

said on a visit to Moscow in March.

Soros has spoken out about his concerns about policy making

in Russia on previous occasions, most recently on the way foreign

shareholders were treated by some Russian corporations and the

failure of the local supervisory authorities to act.

London-based institutional investors were largely ambivalent

about Soros's statement.

"He has as much right as you or I or anybody else to make

pronouncements. Whether people choose to listen to him is

another matter," said Mark Cooke who manages around $250 million

in Russia at Brunswick Capital in London.

((London newsroom +44 171 542 5113, fax +44 171 583 7239,

ukinvestments.news@reuters.com))

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