Soviet President Mikhail Gorbachev issued two critical emergency decrees on the economy Friday that will allow foreign businesses to own and operate enterprises on Soviet soil and will dramatically lower the commercial rate of the ruble. At a time when the Soviet economy is in a state of confusion and collapse, Gorbachev's decrees are clearly designed to attract foreign investment and to help bring the Soviet Union into the world economy.
Although the Soviet legislature has passed a comprehensive, controversial plan to begin moving the economy to a market system, Gorbachev has now used his emergency presidential powers to take immediate action intended to prevent further economic collapse and to help begin a transition that is likely to take many years.
The decree on foreign business, which addresses some of the thorniest issues facing investors from abroad, represents a major reversal of the traditional fear of the "foreign exploiter."
The new decree allows foreign businesses to establish wholly owned subsidiaries on Soviet soil. Minnesota's 3M Co. is one of several major U.S. corporations already conducting negotiations to open a subsidiary here. Foreign businesses will also be allowed to take out long-term leases on properties and land; they may not, however, buy the land.
The decree allows foreign businesses to repatriate their profits by reinvesting in the Soviet economy or by transferring the money abroad. In the past, foreign companies had to struggle to find ways to bring home their profits. McDonald's, whose joint venture with the Moscow city government opened in January, at one point was said to be taking some of its profits in Russian pickles.
The decree will almost certainly doom joint ventures, businesses in which Soviet partners were required to own, by law, a majority interest. Many foreign businesses discovered that their Soviet partners contributed very little and that their own 49 percent stake was not worth their time, money or effort. According to the business weekly Kommersant, dozens of joint ventures have closed in the past two years out of "investor frustration."
The second decree, on the ruble, will change the commercial rate that foreigners doing business here can legally get for their dollar from 56 kopecks to 1.80 rubles, a devaluation of more than 300 percent.