Gorbachev opens businesses to foreign ownership

October 27, 1990|By Scott Shane | Scott Shane,Moscow Bureau of The Sun

MOSCOW -- President Mikhail S. Gorbachev yesterday granted foreigners the right to 100-percent ownership of businesses in the Soviet Union, committing yet another heresy against Marxist orthodoxy in a move to lure investment in the ailing Soviet economy.

The decree, issued under special powers granted to Mr. Gorbachev by the Soviet parliament, also said foreign businesses would be permitted to take out profits earned in Soviet rubles. But the ruble is not freely convertible, and the decree did not make clear how repatriation of prof

its would be accomplished.

In a second decree, Mr. Gorbachev set a new rate for the ruble in commercial transactions of 1.80 rubles to one U.S. dollar, beginning Nov. 1. The rate is three times lower than the official rate of 60 kopecks to the dollar.

A "tourist rate" valid for the personal expenses of foreigners visiting the Soviet Union of nearly six rubles to the dollar remains in effect. It was

established last year to combat the black market, where a foreigner can sell a dollar for up to 20 rubles.

Foreign investors had been limited to being minority partners in joint ventures with Soviet firms. Their lack of control over such ventures, as well as fear that a fickle Communist government might confiscate their investments, have been among the factors limiting foreign moves into the Soviet market.

The decree guarantees foreigners the same legal protection for investments that Soviet citizens have.

As long as Communist ideology held sway, complete foreign control of ventures employing Soviet citizens and serving the Soviet market was ruled out as an invitation to capitalist exploiters. Mr. Gorbachev gradually has dispensed with ideological scruples in the interest of bolstering the disintegrating economy.

But the biggest disincentive for foreign businesses has been the nonconvertibility of the ruble. It is relatively easy for a foreign firm to earn large quantities of rubles on the mortage-ridden Soviet market, but it is hard to find a use for the rubles.

Foreign companies that cannot arrange to be paid in hard currency by Soviet customers often have taken payment in goods. In a major deal completed last year, Pepsico agreed to build more bottling plants in the Soviet Union and took Soviet-built oil tankers in return.

Other companies reinvest their rubles by expanding their Soviet ventures. McDonald's Corp., which opened its first restaurant in Moscow early this year, is building more restaurants with its ruble profits.

While the new decree is likely to boost foreign investors' confidence in the Soviet market, its vagueness may prevent full implementation. For instance, the decree says profits may be exported "in the manner established by the legislation of the U.S.S.R." -- but foreign businessmen here say current law does not set such a procedure.

The new commercial ruble rate replaces a set of complex rates that varied from transaction to transaction. It will make some Soviet exports more competitive on the world market, and it will be easier for a foreign investor to match the ruble contribution of his Soviet partners.

Yesterday's decrees were the latest in a series of decrees issued by Mr. Gorbachev in connection with the shift to a market economy.

Parliament last month granted Mr. Gorbachev broad powers to override current law and to impose new laws in the areas of economic reform and public order. His decrees have the benefit of speed, since economic matters have often gotten bogged down in inconclusive Supreme Soviet debates.

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