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. Last Updated: 07/27/2016

No Place for Faint-Hearted

The spectacular plunge and equally bizarre ascent of the Russian ruble this week provided the world with a clear picture of what businessmen working inside Russia have known for a long time -- this country is not a place for the faint-hearted.

For example, the crash in the ruble served almost as light relief to a key conference this week on trade and investment in Russia, organized by the U.S.-Russia Business Council and the thriving American Chamber of Commerce in Russia.

In most other major markets, a collapse of 30 percent in the currency, which was allegedly a political conspiracy by nationalists and communists to overthrow the government, would have dominated conversation. But the 600-odd U.S. executives assembled in Moscow had much more worrying things to talk about.

One small U.S. food executive, for example, described in harrowing detail how the Russian mafia had just descended on his company, probably because of a tip-off from an angry employee, and demanded protection money. He had gone to the Russia's department of organized crime, where officials shrugged powerlessly and apparently told him to try to negotiate with the gangsters.

The fact that the ruble was bouncing around like a yo-yo also paled into insignificance compared to a long litany of more conventional business woes related to the even more dizzying changes in Russia's taxes and tariffs. One car importer complained of six changes to import taxes in the past year.

All of which prompts the question: Why do businesses come to Russia at all? For the fact is that, despite all the problems, businesses are indeed coming to Russia in increasing numbers.

U.S. Ambassador Thomas Pickering gave a convincing explanation. While the economic crisis and the continuing political hijinks do make for a difficult business environment, if you step back a bit there is a clear trend of improvement over the past three years. It's a question of perspective.

Take the economy. The flutter in the ruble was the result of fears that the government had lost control. This is indeed a concern, but the degree of risk is much less than it was two years ago.

The ruble may have fallen 30 percent in a month but it declined in value by 400 times in the course of 1992. Monthly inflation is now creeping back up towards 10 percent, but at the start of 1993 inflation was running at 30 percent each month.

Institutionally, despite massive confusion, Russian is irreversibly moving toward a free-market mixed economy. Its privatization campaign has been incredibly successful. From zero three years ago, 70 percent of industrial firms have been privatized.

Even on the political front there is a trend towards relative calm. Of course, it was only a year ago that President Yeltsin sent in tanks to blow up the old parliament after rebel deputies set out to seize the Kremlin. The elections that followed have produced a new legislature where old communists and weird ultra-nationalists like Zhirinovsky can still raise a blocking majority.

Next week, these factions will use the ruble crisis to bring on a debate of confidence in the government, threatening another round of confusion. But there are plenty of other deputies who believe that parliament will gradually move toward passing real laws rather than simply engaging in an endless ideological power struggle.

Government and deputies speak with cautious but genuine hope that parliament could soon pass basic laws on land ownership, reform of the tax system, production sharing agreements for the oil industry and a host of others.

What is clear are the opportunities that are now emerging. The Russian market for imported goods has grown strongly over the past two years since the ruble became freely convertible. Russian consumers are now major customers for Western consumer goods. The Russian oil industry is poised to attract $50 billion in investment by the end of the decade. The Russian telecommunications industry recently signed a $13 billion agreement with a consortium of U.S. and European firms.

The crash in the ruble is a worrying reminder that Russia's achievements over the past three years are very fragile and very incomplete. But it seems that an increasing number of businesses, with unusual courage or unusually deep pockets, are willing to take the risk.

Geoff Winestock is a Moscow-based correspondent for the Journal of Commerce.