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. Last Updated: 07/27/2016

Jittery businessmen pan Yeltsin's decrees

A flurry of new decrees signed by President Boris Yeltsin have been given negative reviews - ranging from "worthless" to "scary" - by Moscow's foreign business community.


The view here is that the June 14 decrees on bankruptcy, land purchases and currency stabilization were thrown together to appease the West as Yeltsin left for the United States. They are expected to be revised in the next few weeks.


The one bright spot, "On the Order of Selling Plots of Land for Privatization", will allow privatized enterprises to purchase the land underneath them, previously prohibited. While it is unclear whether foreigners can own such land, according to Nezavisimaya Gazeta, the law is the first step toward increasing foreign investment and instituting a policy on land sale in general.


The second decree, "On Steps to Support and Improve Unprofitable Government Enterprises", deals with the long ignored issue of bankruptcy, but for now is not regarded seriously.


The decree states that enterprises which fail to meet their debts over a certain period of time will be subject to sale at auction or through a competitive bid system, but gives no indication of specifics, including social protection.


"It's worthless", said a business source who requested anonymity. "It


was put together in 24 hours and will be revised. There are serious questions, if not criticism".


Probably of most concern is a decree on forced hard-currency sales.


The new decree, effective July 1, states that all enterprises regardless of foreign ownership must sell 50 percent of hard-currency receipts at the market rate set by the Central Bank. Proceeds are to support the ruble. It replaces a previous decree forcing enterprises to sell 40 percent at the commercial rate (now 55 rubles per dollar) and 10 percent at the market rate.


For ventures with more than 30 percent foreign ownership, only the latter was required.


Yeltsin, however, has a formidable opponent in the Central Bank, which is now exerting its independence by failing to support the ruble. As a result the ruble auction rate, which enterprises use to buy and sell rubles, plummeted roughly from 112 to 129. 5 rubles per dollar last week, while the market rate remains at 85 rubles. The discrepancy between the two rates transforms the forced sale of hard currency into what amounts to a tax, at present roughly 20 percent.


"The penalties will increase as the auction rate drops", said George Marquart, managing director of Svetozor, a joint venture between the Polaroid Corp. and three enterprises within the Russian Ministry of Atomic Energy. "It's been so predictable. It's insane to prop up a ruble that is made of butterfly wings".


He added, "The government has the notion that they should be the beneficiary of all economic activity. When you first read the decree, it scares you".


The decree contradicts foreign investment legislation that states that enterprises with more than 30 percent foreign ownership are not subject to any forced sales. Does a decree take precedent over legislation? Nobody knows.


"It's unclear what application there is going to be", said Robert Langer, an attorney with Chadborne, Hedman, Raabe & Advocates CCCP, a joint venture.


In general, what seems certain at this point is long-awaited hyperinflation, given the Russian government's inability to support the ruble or even service its debt, as well as plans to print more rubles and declining production, which undermine the ruble's value.