Swedish furniture maker IKEA has backed off on plans to invest $25 million in Belarus after disagreements over signing a deal on a wood mill it hoped to build, officials said Friday.

IKEA will close a daughter company operating in Belarus and invest the money instead in the Russian market, where it is expanding its presence from two stores in Moscow.

The development is the latest case of a foreign company running into trouble doing business in Belarus. A McDonald's restaurant in the capital has been effectively closed after a property dispute, and U.S. Ambassador Michael Kozak has warned that "it is not safe to invest money" in Belarus.

The IKEA disagreement came after the Belarussian government pressed the company to invest its money in modernizing existing factories where it would receive only a portion of shares, instead of building new factories. Inga Laikovskaya, spokeswoman for IKEA in Belarus, said the company had been negotiating for five months on the failed deal. "This illustrates the investment climate in Belarus," she said.

The government, however, said it was not getting a fair deal.

"The Swedes only wanted to get their hands on Belarussian forests without giving anything in return," said government spokesman Ivan Znatkevich.

IKEA, which already has two large retail outlets in the Moscow region, plans to open one or two stores in St. Petersburg and is currently negotiating with the local administration on where to build the stores. Vanenkova said the company is also negotiating to build stores in other major cities, including Nizhny Novgorod, Saratov, Ufa and Kazan.

(The Moscow Times 02.ix.02)