Chapter

Chapter III.4 The Exchange and Trade Systems

Author(s):
International Monetary Fund
Published Date:
December 1991
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1. INTRODUCTION AND OUTLOOK1

The exchange and trade system has continued to be largely shaped by central planning. Most trade and capital transactions are determined within the framework of the annual foreign exchange plan which has been derived from the state plan. Similarly, the policies governing external borrowing and reserves are specified in the foreign exchange plan and executed by the Vneshekonombank (VEB). In this system, the exchange rate has played only a minor role in the allocation of resources. For most products, differences between foreign and domestic prices at the prevailing exchange rate have continued to be compensated by so-called price equalization taxes or subsidies. Since 1986, however, several steps have been taken towards decentralizing trade and foreign exchange operations. Foreign trade has been partially liberalized, and enterprises have been allowed to borrow abroad against a license obtained from the VEB. So-called differentiated foreign exchange coefficients (DVKs) were established for many products in 1987 with the intention of making enterprises more sensitive to changes in foreign currency prices. Moreover, foreign exchange retention quotas were introduced in 1987, and foreign exchange auctions established in 1989.

The liberalization measures were accompanied by a relaxation of domestic financial policies leading to a sharp increase in imports and external borrowing by firms which were not in a position to honor their debt service obligations on a timely basis. Moreover, the official exchange rate was kept largely unchanged throughout this period at a level which did not reflect market conditions. As a result, excessive demand for foreign exchange has increased rapidly in recent years, as reflected in movements of the parallel market exchange rate. Moreover, frequent—and often ad hoc—changes in the trade and foreign exchange regulations have made the system highly complex and lacking in transparency, which has added to uncertainty among the rapidly growing number of foreign traders as well as foreign trading partners. By contrast to a number of other CMEA countries, however, the liberalization of the exchange system has not yet given rise to a substantial amount of foreign exchange deposits or foreign retention rights by enterprises and households (3.1 billion valuta rubles in October 1990), which tend to complicate the conduct of monetary policy.

Given the existence of the foreign exchange allocation system and multiple exchange rates, external transactions generally have not been guided by market signals or by efficiency considerations. For transactions in convertible currencies, several exchange rates have been in effect: the official exchange rate, the special exchange rate (mainly for tourist transactions), an auction rate (for a very limited number of transactions), and since November 1, 1990, a commercial exchange rate. In addition, the existence of the DVK system has effectively resulted in a multiplicity of exchange rates applying to different foreign trade transactions. For transactions with CMEA countries, special trade, pricing, and settlements provisions have been in place, with different exchange rates for commercial and noncommercial transactions which also have had little—if any—relation to market levels. These arrangements will change in 1991 with the dismantling of the CMEA system.

Under the presidential guidelines for reform, the ruble is to become convertible in time, but steps and a timetable for achieving this objective have not been described. Initial reforms were introduced in November 1990 with the introduction of a commercial exchange rate which was substantially depreciated compared with the official exchange rate. The commercial exchange rate would be used for export receipts surrendered and all capital inflows, as well as for imports for the use of government agencies or arranged on the basis of state orders, most business services and all government debt service in accordance with the foreign exchange allocation plan. At the same time, a number of other changes were made in the exchange and trade system. Specifically, the DVKs were eliminated, higher retention quotas were granted for some exports, import taxes were substantially reduced and export taxes were introduced for the main raw materials. The introduction of the commercial exchange rate at a sharply depreciated level compared with the previous official exchange rate and the simultaneous removal of DVKs would tend to promote a more efficient and transparent foreign exchange system. The overall impact of the reforms on competitiveness is, however, less clear. On balance, it is unlikely to be a major improvement.

The presidential guidelines also foresaw that some portion of the foreign exchange retained by enterprises, supplemented by official foreign exchange holdings, would be sold in the free market to economic entities wishing to import and make other payments not included in the foreign exchange allocation plan. Except for a small list of banned items, there would be no quota restrictions on imports. Exports of goods of national importance would be subject to quotas. According to the guidelines, state orders would continue to be in effect for basic export goods in 1991 and 1992 at a level sufficient to meet the country’s minimum foreign exchange requirements.

If the objective of establishing convertibility of the ruble for current account transactions is to be achieved, several further steps of reform will be necessary. Export quotas would need to be liberalized and lifted in line with progress in domestic reforms. Similarly, payments for current invisibles would need to be liberalized progressively. At the same time, the different exchange rates would need to be unified. In particular, the commercial exchange rate and the free market rate, which together account for most of the foreign exchange transactions, should converge. The convergence would be facilitated by the elimination of the monetary overhang and the tightening of financial policies, which would tend to appreciate the free market exchange rate. More specific measures to achieve convergence would include the shifting of a progressively larger share of transactions, including imports by the government and those heretofore subject to state orders, toward the free market and the sale of official foreign exchange holdings in the free market (subject to the reserves objective). Exporters should also be required to tender to the foreign exchange market, within a set time, the foreign exchange they are allowed to retain, and not be allowed to hold balances indefinitely in retention accounts. In the context of price liberalization, the convergence of rates is also likely to require a further depreciation of the commercial exchange rate.

2. EXCHANGE RATE ARRANGEMENTS

Exchange rate arrangements in the USSR are complex, and responsibilities for setting and monitoring exchange rates are divided among several institutions. Given the derived nature of most exports and imports as part of the national production plan, exchange rates have until recently not played a significant role in stimulating foreign trade flows, the bulk of the latter instead being assured by state orders irrespective of profitability. The system of price equalization taxes and subsidies has been used to offset the profits or losses accruing to enterprises as a result of the differences between foreign currency prices for traded goods (converted at the official exchange rate) and domestic wholesale prices. Beginning in 1987, however, many products were assigned differentiated foreign exchange coefficients (DVKs). By keeping DVKs unchanged in a situation of changing foreign prices, importing or exporting enterprises would experience changes in their profits which might make them more responsive to changes in world market conditions. Responsibility for determining exchange rates with the convertible currency area is vested in Gosbank (the official rate, the commercial rate and the special exchange rate) and the Vneshekonombank (the auction rate and forward rates). For the nonconvertible area, both commercial and noncommercial exchange rates with the CMEA countries and other socialist countries are set by the Council of Ministers on the basis of intergovernmental agreements negotiated by the Ministry of Finance.

a. The official exchange rate

The official exchange rate of the ruble for transactions with nonsocialist countries2 is derived on the basis of a peg to a basket of currencies (Table III.4.1). A change in the level of the peg requires a decision by the USSR Council of Ministers based on a proposal by the principal financial authorities, notably, the Ministry of Finance, Gosbank and the Vneshekonombank (VEB).3 For a given level of the peg, the setting of official exchange rates for the ruble is entrusted to Gosbank in accordance with its statutes as approved by Decree No. 1061 of the USSR Council of Ministers of September 1, 1988. Because of the system of price equalization taxes and subsidies under the traditional system of central planning, the rubles converted at the official exchange rate (so-called valuta rubles) were simply accounting units. Historically, Soviet trade statistics have been published in terms of valuta rubles.

Table III.4.1.USSR: Exchange Rate of the Ruble Against the U.S. Dollar, 1985-90(In rubles per 100 U.S. dollars)
198519861987198819891990
End of Period
January87.9575.8564.4959.7861.7559.95
February92.0073.5564.6660.3861.5960.10
March88.1572.7564.0759.3862.5661.20
April85.7572.6062.6759.3762.3060.74
May85.6571.1562.8059.7165.3559.74
June86.1071.4563.8962.0664.3059.76
July82.3069.0064.1862.0663.4458.61
August80.6067.8563.3962.9164.4456.40
September79.5767.7163.3763.1663.30
October78.7068.2662.3361.1962.89
November77.1868.4160.1759.8462.24
December76.4267.8358.4360.6760.88
Period Average
January87.4775.5565.6959.1461.4460.68
February89.9073.2064.8060.3662.1260.00
March90.3271.9564.4859.7362.1360.96
April86.1572.4163.3959.2362.6060.76
May86.1270.4562.7159.4964.1259.96
June85.8771.1363.6460.6864.9759.97
July83.8069.6364.1762.3863.7259.08
August81.1268.2564.3263.0563.8257.55
September81.8067.7663.1362.8664.4556.92
October78.5467.4463.0162.2363.00
November77.6068.4360.7560.3262.74
December76.4267.8059.2660.0861.60
First quarter89.2373.5764.9959.7461.9060.55
Second quarter86.0571.3363.2559.8063.9060.23
Third quarter82.2468.5563.8762.7664.0057.85
Fourth quarter77.5267.8961.0160.8861.13
First half87.6472.4564.1259.7762.9060.39
Second half79.8868.2262.4461.8262.57
Year183.7670.3463.2860.8062.74
Source: Gosbank.

There are small discrepancies with the annual average for the U.S. dollar given in Table III.4.2. For conversion purposes the average rates contained in Table III.4.2. have been used in this chapter.

Source: Gosbank.

There are small discrepancies with the annual average for the U.S. dollar given in Table III.4.2. For conversion purposes the average rates contained in Table III.4.2. have been used in this chapter.

(1) Background

A decree of the USSR Council of Ministers of November 15, 1961 set the gold content of the ruble at 0.987412 grams of fine gold, yielding an official exchange rate of rub 0.90 per U.S. dollar. The exchange rates for other foreign currencies were also altered at that time in accordance with the ruble’s new gold content and Gosbank was instructed to modify them subsequently in accordance with any changes in the gold content of these currencies. At the same time, the practice of establishing premia or discounts to the official exchange rates of freely convertible currencies for noncommercial transactions was discontinued and hence, from 1961 to November 1989, when a special exchange rate for foreign tourists and various noncommercial transactions was introduced, the USSR used the same exchange rate for both commercial and noncommercial operations in the currencies of nonsocialist countries.

The devaluation of the U.S. dollar in 1971 and its transition to floating in 1973 led to an adaptation of a new methodology for setting the exchange rates. From March 1973, the unweighted average percentage deviation of the current market exchange rates of 14 major freely convertible currencies from their settlement parities or central rates against the U.S. dollar was used to determine the exchange rates of these currencies against the ruble. Later, the current market exchange rates of the 14 foreign currencies, taken as the basis for calculating the rates against the ruble for the preceding month, replaced the settlement parities or central rates as the basis for determining the exchange rate.

A new method of exchange rate determination that was more appropriate to the changed conditions in international currency markets and to the pattern of the USSR’s settlements with the nonsocialist countries was adopted in November 1977 pursuant to a decision of the Chairman of the Gosbank Board dated September 14, 1977. Since then, the value of the valuta ruble has been determined on the basis of a weighted basket of currencies. Under the new method, relative basket weights and base rates are used to calculate a foreign exchange component for each currency in the basket and then to compute a settlement rate against the ruble for one of the basket currencies, such as the U.S. dollar. Exchange rates for the other basket currencies are then derived from their current market exchange rates against the U.S dollar and the latter’s rate against the ruble (Table III.4.2).

Table III.4.2.USSR: Average Annual Exchange Rates of the Ruble Against Major Convertible Currencies, 1979-89

(In rubles per one hundred currency units) 1

YearU.S.

dollar
Deutsche

mark
Swiss

franc
French

franc
Pound

sterling
Japanese

yen
(Average period)
197965.4935.8039.4715.40140.072.99
198065.1535.8338.8915.45152.032.93
198172.0232.1236.8013.43145.463.29
198272.5130.0135.8211.81126.123.04
198374.2529.2835.489.84112.573.12
198481.6928.8134.819.37109.623.43
198583.7028.5034.259.34108.043.52
198670.3532.0339.1510.36105.754.18
198763.3435.1942.4110.51103.384.37
198860.7534.7241.7310.23108.244.75
198963.0033.5538.609.88103.354.58
Source: Gosbank.

1,000 currency units in the case of the Japanese yen.

Source: Gosbank.

1,000 currency units in the case of the Japanese yen.

The original currency basket contained 14 currencies. Each of these currencies accounted for at least 0.5 percent of the USSR’s external settlements and the basket covered the bulk of these settlements. Several changes, none of them fundamental in nature, have been made in the methodology since then. In particular, the structure of the basket and the relative weights of its constituent currencies have undergone certain revisions.

(2) Current method of calculation

On September 1, 1981, the number of currencies included in the basket was reduced from 14 to 6. While these currencies retain the same proportion to each other in the new basket as they had before, their relative weights were normalized to add up to 100 percent. Thus, the current basket composition is as follows: U.S. dollar - 42 percent; deutsche mark - 19 percent; pound sterling, French franc and Swiss franc - 10 percent; and Japanese yen - 9 percent. Changes have also been made in the base rates used for calculating the ruble rates against foreign currencies. Initially, the average of market exchange rates in the three months preceding the date of calculation had been used. In view of the sharp fluctuations of the cross rates of the other currencies against the U.S. dollar, the base rates were changed to the exchange rates set by Gosbank on the date immediately preceding the calculation.

Proposals to change the exchange rates for foreign currencies against the valuta ruble are prepared by Gosbank. At first, new rates were set at the beginning of each month, then on the first and sixteenth day of each month and—since September 1986—each week. Proposals to change the exchange rates of foreign currencies against the valuta ruble are made official through orders of Gosbank’s Board, signed by its Chairman or his first deputy. Based on these orders, a foreign exchange bulletin—currently containing exchange rates for 35 currencies (including the ECU)—is issued at the beginning of each month and distributed to interested organizations in the USSR and abroad. Weekly changes in the exchange rates are published in Izvestiia. In addition, exchange rates for another 80 currencies (including the SDR) that are not officially quoted by Gosbank are published once a month for information purposes. This bulletin is sent to interested organizations.

The current practice in changing exchange rate quotations is as follows. For 17 currencies and the ECU the exchange rates are changed weekly.4 For another six currencies the exchange rate is recalculated only once a month and a new rate is promulgated only if it deviates by more than 1 percent from the existing rate.5 For the remaining 11 currencies, a new rate is set once a month provided that the new rate deviates by more than 5 percent from the existing one.6 For six of the 34 currencies, banknotes and coins are not bought by Gosbank.7 There are no prescribed commissions on the buying and selling of foreign exchange at the official rates and buying and selling rates are identical with the official ones.

Changes in the list of currencies included in the official bulletin are made from time to time. Thus, the currencies of Algeria, Guinea and Iraq were removed during 1987-88 and shifted to the list of currencies not officially quoted. This made it possible to appreciate the ruble against these currencies in an attempt to encourage the use of local currency balances accumulated in the accounts of Soviet organizations operating in those countries. Another change was the inclusion from November 1989 of a special exchange rate for 17 of the currencies in the official bulletin. The bulletin is expected to be revised shortly to reflect the introduction of the commercial exchange rate on November 1, 1990.

Since March 1988, Soviet enterprises and organizations have been offered forward exchange contracts to hedge against exchange rate risks. Forward exchange contracts can be arranged through the VEB for the principal 17 currencies and the ECU. Contracts offered range from 1 to 12 months. The volume of hedging operations has so far remained small. Alternatively, Soviet exporters or importers have been using foreign exchange reservations, often in SDRs and Swedish kronor.8

b. The commercial exchange rate

A new commercial exchange rate was introduced from November 1, 1990 at a rate of initially rub 1.6624 = US$1.9 The commercial rate was to apply to the settlement of most current account transactions (other than those involving retained export earnings or imports not covered by the foreign exchange allocation plan), inward and outward capital investments, and nontrade transactions carried out by juridical persons. It was also to be used for most accounting and customs valuation purposes.10 The rate was set at a level that was estimated to ensure that 90 percent of exports were profitable (in the sense that at this rate, the exporter’s local currency proceeds were at least as high as the domestic wholesale price). As domestic prices were not adjusted to pass on the new exchange rate to consumers and industrial users, the so-called budget efficiency was reduced to a lower level.11 Gosbank was to adjust the commercial rate, which is depreciated by two thirds in relation to the official rate, in line with the basket of the six currencies governing the official exchange rate.

c. Special exchange rates

Since November 1989 a special rate (equivalent to ten times the official rate) has been in effect for the purchase of foreign exchange from foreign tourists and various noncommercial transactions such as sales of foreign exchange to enterprises for business travel abroad—up to the amount of foreign exchange surrendered by these enterprises—and to natural persons for the purposes indicated in section 4.b below. This rate is quoted for the 17 exchange rates that are changed weekly.

Special foreign exchange rates also exist with a number of countries for the crediting of debt service payments to the USSR to special accounts that are used for payment for Soviet imports from those countries. In the case of India, ruble credits are repaid in rupees at a rate calculated by correcting the 1979 gold parity of rub 1 = Rs. 10 on the basis of daily calculations by the Reserve Bank of India of a 16 currency basket (the original SDR basket). As a result of this correction, the special rate was rub 1 = Rs. 21.22 (or about rub 4.71 = Rs. 100) in early September 1990, compared with a rate of rub 3.40 = Rs. 100 in effect for commercial transactions on September 5, 1990. In the case of Syria, the pre-1971 gold parity of the ruble and the pound sterling is adjusted monthly by the average of weekly calculations of the deviations of the exchange rates of 15 currencies against the pound sterling from their base period exchange rates. Similar arrangements exist with Algeria and Libya.

d. Market-determined exchange rates

Since November 1989, foreign currency auctions have been conducted on the basis of Decree No. 1,405 of the USSR Council of Ministers of December 2, 1988 (on Measures to Establish an All-Union Foreign Exchange Market).12 The auctions, which were until recently conducted about once a month, are organized by the VEB and carried out by an auction committee composed of representatives of Gosplan, the Ministry of Finance, Gosbank and VEB.13 The auctions are governed by the rules and regulations adopted for this purpose by these ministries and agencies. These rules and regulations have been modified as experience has been gained with the auctions.

The circle of parties authorized to participate in the auctions has grown over time to include state production and scientific production enterprises, associations and organizations; commercial associations established by these bodies; production enterprises of public organizations; design, research and development organizations operating on a self-financing basis; and state and collective farms and other organizations in the agro-industrial sector. Joint ventures and production cooperatives were admitted from October 25, 1990. Since April 1990, a single price (in terms of rubles per valuta ruble) has been established in each auction. As a result, all participants end up buying or selling foreign currency on the same terms. The foreign exchange acquired in the auctions can be used without limitation except that only 25 percent of foreign exchange holdings can be used to purchase consumer goods for the workers of the organization.

Purchasers must pay an auction fee of rub 200 while sellers pay a commission of 1 percent (but not exceeding rub 1,000 per transaction) of the amount sold. With the introduction of the commercial exchange rate on November 1, 1990, the minimum amount for sales at auction was raised from 50,000 to 150,000 valuta rubles and the minimum amount for purchases was raised from 10,000 to 30,000 valuta rubles.

The amounts sold at auction to date have remained modest (about US$150 million, or about 0.3 percent of estimated 1990 convertible currency imports, in the 11 auctions held until November 15, 1990 (Table III.4.3)). The foreign exchange premium over the official rate rose steadily in the first seven auctions from 1,400 percent to 4,000 percent (from rub 15.2 to rub 41.2 per valuta ruble, or rub 9.5 to rub 24.2 per U.S. dollar), but stabilized in the eighth auction, which was the largest so far (some US$20 million) and included 60 sellers and 37 buyers. In October-November 1990, the exchange rate appreciated slightly.

Table III.4.3.USSR: Foreign Currency Auctions, 1989-90
Amount SoldPrice 1 in Rubles per
Date(In millions of

valuta rubles)
Valuta

ruble
U.S.

dollar 2
1989
November 88.415.29.46
1990
January 178.217.510.50
February 219.021.312.80
April 59.623.114.00
May 109.827.116.20
June 226.835.120.98
July 199.041.224.15
August 2111.741.223.24
October 99.540.024.00
October 253.938.020.88
November 158.138.020.88
Total94.0
Source: Vneshekonombank; Ekonomika i zhizn’, various issues; and calculations.

Average of successful bids until April; uniform price thereafter.

Approximate, using end-of-month exchange rates.

Source: Vneshekonombank; Ekonomika i zhizn’, various issues; and calculations.

Average of successful bids until April; uniform price thereafter.

Approximate, using end-of-month exchange rates.

The presidential decree that introduced the commercial exchange rate also called for the introduction of a free exchange market for juridical persons with effect from January 1, 1991 in the form of an interbank market, a trading floor for foreign exchange, an auction or in another form. The new arrangement would replace the VEB auctions. Only licensed commercial banks (which had hitherto been prevented from participation) and brokers would be able to trade in the auctions.

e. The black market exchange rate

Parallel market transactions are illegal and the purchase or sale of foreign exchange by individuals is punishable, e.g., under Article 88 of the penal code of the RSFSR. Available data indicate that the exchange rate for the U.S. dollar in mid-October 1990 was rub 15-16 (buying) and rub 18-20 (selling) in Moscow and rub 10.6 (buying) and rub 30.0 (selling) in Vienna (Table III.4.4). Apart from Moscow, major domestic black markets are in Leningrad, Klaipeda and resort towns with foreign visitors. The black market rates abroad appear to be more volatile than the domestic ones. Thus, the black market ruble in Vienna appreciated temporarily in July 1990 (by some 24 percent on a mid-point basis) after the Soviet authorities restricted travel to the Czech and Slovak Federal Republic, Hungary and Poland. Reported cross rates between the U.S. dollar and other foreign currencies are broadly consistent in the black markets, which testifies to their comparative efficiency. Nonetheless, buying-selling spreads remain large.

Table III.4.4.USSR: Black Market Exchange Rates for the Ruble in Moscow and Vienna, 1990(In rubles per currency unit indicated)
In Moscow
U.S. DollarDeutsche Mark
DateBuyingSellingBuyingSellingCross Rate 1
End January1014.5-1577.7-81.67
End February1016-206.5-7.58.5-101.72
End March10-1116-207-7.59-101.70
End April11-1317-207.5-8.510-11.51.63
End May11-1317.8-20810.5-11.51.63
End July1518-258-8.511.5-121.82
End August1719-23912-131.77
Mid September15-1820-2510-1215-161.47
Mid October15-1618-208-910-11.51.79
End October1619-20911-121.73
In Vienna
U.S. DollarDeutsche Mark
DateBuyingSellingAppreciation/

Depreciation2
BuyingSellingAppreciation/

Depreciation 2
End January8.7116.575.099.92
End February8.7516.64-0.45.099.92
End March10.2523.40-24.55.9313.88-24.2
End April8.4115.4740.94.919.2539.9
End May9.8021.18-22.95.7012.62-22.7
End June10.5725.67-14.56.1915.41-15.2
End July9.2820.0023.85.7012.6217.9
End August10.3627.00-21.66.4717.34-23.1
End September10.8630.86-10.56.7819.82-10.5
Mid October10.5730.002.86.7819.82
Sources: Kommersant, various issues; Wiener Zeitung, various issues.

DM per US$1; on a mid-point basis.

In percent, on a mid-point basis from the preceding date; appreciation (+).

Sources: Kommersant, various issues; Wiener Zeitung, various issues.

DM per US$1; on a mid-point basis.

In percent, on a mid-point basis from the preceding date; appreciation (+).

f. Exchange rates with the nonconvertible currency area

(1) The transferable ruble

Since 1964, commercial transactions with member countries of the CMEA have been conducted in terms of transferable rubles through accounts maintained by the International Bank for Economic Cooperation (IBEC). The official exchange rate of the transferable ruble (TR) in terms of the valuta ruble has been maintained at rub 1 = TR 1, except for a brief period in 1973-74 when it was set at rub 1.2 = TR 1. Other CMEA member countries also have set, and occasionally changed, the exchange rates of their currencies vis-à-vis the transferable ruble. Initially, the exchange rate between the transferable ruble and the U.S. dollar was determined on the basis of the gold content of the two currencies, with the gold content of the transferable ruble being identical to that of the ruble (TR 1 = 0.987412 grams of fine gold). Hence, the exchange rate was TR 0.9 = US$1. After the U.S. dollar began to float in 1973, the method of calculation for the transferable ruble was changed to an 11 currency basket and the U.S. dollar exchange rate for the transferable ruble reflected the unweighted average of deviations of the market exchange rates of the basket currencies from their settlement parities or central rates. In 1978, the transferable ruble was pegged to a basket of 12 currencies, each of which represents at least 1 percent of convertible currency settlements of CMEA member countries. The basket, which in principle is to be updated every year, has since January 1, 1988 had the following composition:

CurrencyWeight in percent
U.S. dollar49
Deutsche mark18
French franc6
Pound sterling5
Austrian schilling5
Italian lira4
Japanese yen3
Swiss franc2
Dutch guilder2
Belgian franc2
Swedish krona2
Canadian dollar1

The base rate of the transferable ruble against the U.S. dollar was determined on the basis of the average exchange rates of the 11 other currencies in the basket during the three months preceding the changeover to the new basket. The IBEC recalculates the basket each day.14 If the calculated exchange rate for the U.S. dollar deviates by more than 1 percent from the existing one, all of the posted exchange rates for the transferable ruble are changed. It should be noted that non-dollar exchange rates are changed only if the threshold value for the U.S. dollar is exceeded.

The adoption of different weighting schemes for the determination of exchange rates of the valuta ruble and the transferable ruble for convertible currencies has produced cross rates between the ruble and the transferable ruble that deviate from parity. As in the case of exports paid in convertible currencies, there is a retention scheme for exports against transferable rubles. While no auctions of transferable rubles have been held so far, the VEB has arranged bilateral deals among enterprises and organizations.15 The exchange rates agreed in these deals carried premia for the transferable ruble in the range of 30 to 100 percent.

(2) Other exchange rates for transactions with socialist countries

Bilaterally agreed exchange rates for commercial transactions settled in national currencies exist for the Bulgarian lev, the North Korean won, the Mongolian tugrik, the Polish zloty and the Czechoslovak koruna.

Decree No. 664 of the USSR Council of Ministers of April 9,1984 empowers the Ministry of Finance to set the exchange rates of the socialist countries’ currencies against the ruble for noncommercial transactions, as defined in a 1971 agreement among the participating socialist countries.16 Under a methodology agreed among the socialist countries, the noncommercial exchange rates are to reflect the purchasing power of each currency. Initially, a basket representative of the living expenses of a diplomat’s family of four was used. Later, allowance also was made for tourist expenditures. The basket currently used for these calculations distinguishes three groups: foodstuffs, durable consumer goods, and services. Both volumes and prices are agreed at the level of the CMEA. In principle, the purchasing power rates of the resulting matrix are not allowed to deviate by more than 20 percent (previously 10 percent) from the corresponding transferable ruble cross rates for each pair of countries. In fact, exchange rates have been set on a bilateral basis in recent years and have resulted in large breaks in cross rates (Table III.4.6).

Table III.4.5.USSR: Exchange Rate of the Transferable Ruble Against the U.S. Dollar, 1985-90(In transferable rubles per 100 U.S. dollars at end of period)
198519861987198819891990
January82.6674.5564.9061.7664.2763.68
February85.1973.2064.5362.3164.7263.09
March84.8171.8164.9062.1065.1663.67
April81.2871.6064.4961.4865.5763.75
May82.5771.4464.1761.5067.5562.68
June82.2871.1964.4263.4367.8462.86
July80.9170.2965.0564.7866.4862.20
August79.5268.8064.9365.6066.7561.68
September80.4568.3364.7765.4767.12
October77.7067.7164.8864.2766.27
November77.6468.5262.1163.0565.57
December76.0968.0761.2263.0464.31
Source: International Bank for Economic Cooperation (IBEC).
Source: International Bank for Economic Cooperation (IBEC).
Table III.4.6.USSR: Exchange Rates of the Ruble Against CMEA Country Currencies for Noncommercial Transactions, 1985-90(In rubles per number of national currency units indicated)
Number of currency unitsDecember 31,June 30, 1990 Bilateral
19851986198719881989
MultilateralBilateral1MultilateralBilateral1MultilateralBilateral1MultilateralBilateral1MultilateralBilateral1
Bulgarian lev100113.64100.00113.64100.00113.64100.00113.64100.00113.64100.00100.00
Cuban peso10090.0090.0090.0090.0090.0090.00
Czechoslovak koruna10010.0010.0010.0010.0010.0012.5012.50
GDR mark10031.2531.2531.2531.2531.2531.25
Hungarian forint1,00067.8056.5067.8056.5067.8056.5067.8056.5067.8052.63252.36
Mongolian tugrik10023.9223.9223.9223.9223.9223.92
Polish zloty10,000129.53142.86119.05104.1774.0761.738.336.946.94
Romanian leu10012.0512.0512.0512.0512.0512.05
Vietnamese dong10,0001,000.00900.00250.00222.2245.4541.6711.119.2611.119.269.26
Source: Ministry of Finance.

Bilateral rate given only if different from multilateral rate.

Exceeds the 20 percent maximum deviation permitted under the multilateral agreement.

Source: Ministry of Finance.

Bilateral rate given only if different from multilateral rate.

Exceeds the 20 percent maximum deviation permitted under the multilateral agreement.

The noncommercial transactions are settled through the central banks of the countries participating in the agreements of 1963 and 1971 (or banks authorized by the respective central banks). Accumulated balances in the interest-free accounts opened for this purpose are consolidated at the end of each year by applying a conversion coefficient which is designed to adjust for the difference between the average levels of CMEA prices (as reflected in the above described basket) and world market prices outside the CMEA area. Because of differing rates of inflation over time, the coefficient has been reduced from 3.4 in 1963 to 2.3 in 1971 and 1.6 now. The consolidated and converted balances are added to each pair of countries’ accounts with IBEC. The USSR served notice that it wanted to terminate the arrangement for noncommercial transactions from November 1, 1990.

3. FOREIGN EXCHANGE ALLOCATION AND PAYMENTS

a. General principles of Soviet foreign exchange law

The authority to make basic changes in the foreign exchange control regulations lies with the Supreme Soviet. The President and the Council of Ministers may also regulate exchange control matters by way of decrees. The State Foreign Economic Commission (GVK), a standing body of the USSR Council of Ministers established in August 1986, coordinates all foreign economic relations and oversees the activities in this area of Gosplan, Gosbank, the Ministry of Finance, the Ministry of Foreign Economic Relations (MVES), the VEB, the Central Customs Office, Intourist, and other organizations dealing with foreign trade and economic relations. Implementing regulations in the exchange control area are prepared and issued by various central bodies, particularly the Ministry of Finance and the VEB. Responsibility for implementation of foreign exchange regulations is vested in the Ministry of Finance and the VEB.

Exchange control regulations differentiate between the treatment of juridical and natural persons. Except for some liberalization for natural persons initiated in July 1990, the regulations have remained highly centralized and restrictive. A draft foreign exchange control law that, inter alia, would introduce the internationally accepted distinction between residents and nonresidents, is before the Supreme Soviet of the USSR. Under the provisions of the draft law, the powers of Gosbank would be strengthened, in part at the expense of the VEB. Thus, it is foreseen that Gosbank would regulate the foreign exchange market and government indebtedness, and determine the criteria for permitting commercial banks to undertake foreign exchange operations and exercise general control over their activity.

All transactions in foreign exchange between juridical persons in the territory of the USSR must be made through the VEB or, with its permission, through other banks. In November 1990, six out of some 300 banking institutions had been licensed to carry out such transactions. All transactions between juridical persons in the territory of the USSR must be carried out on a noncash basis (i.e., by crediting and debiting accounts). All juridical persons established in the USSR must keep their foreign exchange in accounts maintained with the VEB. Funds may be kept in banks abroad only with the permission of the VEB. All transactions in the territory of the USSR between Soviet juridical persons and foreign companies have international character and must be made in foreign exchange, with the following two exceptions: the Ministry of Finance may allow transfers in rubles if they are up to rub 100,000 in the case of foreign companies from the convertible currency area, and up to rub 500,000 if they are from socialist countries. All payments between Soviet juridical persons in the territory of the USSR must be denominated in rubles except that (i) joint ventures can buy and sell against foreign exchange on the basis of agreed prices and currencies, and (ii) subcontractors can receive payment in foreign currency from a Soviet exporter up to the value of their own sale to the exporter.17 Soviet juridical persons, have the right to participate in foreign currency auctions at freely determined exchange rates. All Soviet juridical persons are eligible to obtain foreign currency credit through the VEB, except for joint ventures, which may get such credit from foreign banks with the permission of the VEB.

The following principles govern foreign exchange law for natural persons. All foreign exchange must be obtained from the VEB. Soviet law does not make a distinction between residents and nonresidents. However, for natural persons there is such a distinction in practice. Foreign citizens as well as stateless persons who have been given the right to reside in a foreign country or in the USSR may open accounts “A”. Foreign exchange can be credited to accounts “A” without limitation and these accounts can be debited to make payments abroad or to other accounts “A” and, with the permission of the Ministry of Finance, to the accounts of Soviet citizens. The latter, as well as foreigners living permanently in the USSR (“residents”), may have either of two types of accounts: accounts “V”—denominated in valuta rubles—to accumulate foreign exchange from wages, grants, prize money, and honoraria from sports, cultural or literary events or accounts “B”—denominated in foreign exchange—for legacies, pensions and alimony receipts. Balances in either type of account can be (i) taken out of the country in the form of cash with a certification of withdrawal; (ii) transferred abroad with the permission of the Ministry of Finance; or (iii) spent in foreign currency stores. Special conversion coefficients are applied when funds in those accounts are spent in shops selling imported goods for rubles or when they are converted to rubles. With the introduction of the commercial exchange rate on November 1, 1990, the conversion rate for purchases in shops selling imported goods for rubles was changed from rub 4.6 to rub 1.53 per valuta ruble and the conversion rate for rubles was changed from rub 10 to rub 3.3 per valuta ruble.

The distinction between accounts “B” and “V” has been blurred since Soviet citizens and foreigners living permanently in the USSR were given the right, by a decree issued in July 1990,18 to open foreign exchange accounts without disclosing the provenance of the funds deposited. In October 1990, balances held in accounts “A”, “B” and “V” amounted to rub 0.5 billion.

b. Prescription of currency

Payments to and from countries with which the USSR maintains multilateral or bilateral payments agreements are made in the currencies and in accordance with the terms and procedures set forth in these agreements. If there are no specific agreements, or if transactions take place outside the scope of the agreements, settlement is made in convertible currency. Barter deals are generally discouraged (but see the discussion of licensing for barter deals in section 4.a.(2) below) and require the approval of the Council of Ministers.

(1) CMEA arrangements

Since its inception in 1964, the multilateral payments agreement managed by the IBEC under the aegis of the CMEA has been by far the predominant prescription of currency arrangement. The transferable ruble19 is used widely in the economic and financial cooperation of CMEA member countries, in particular to express prices and denominate transactions and bilateral balances within IBEC. Transactions settled in transferable rubles include most intra-CMEA commodity trade, services, credits, consolidated and converted balances of past noncommercial transactions, and certain other transactions. Some transactions, including trade in the form of so-called currency goods, are carried out on the basis of bilateral agreements for goods expressed at world market prices. An example is an agreement between the USSR and Poland to channel about 15 percent (or some TR 800 million) of protocol trade in 1990 through bilateral accounts.20 The bilateral transferable ruble accounts maintained by IBEC for CMEA members have no explicit limits. Efforts are made to avoid imbalances—and where they arise, to reverse them—through trade flow planning within the framework of five-year plans and annual protocols. However, in recent years deviations of annual results from plan indicators have become more sizeable as intra-CMEA trade has begun to move away from quotas and state orders intermediated by foreign trade organizations to nonquota trade conducted directly by producers and end-users in the USSR and/or some of the European CMEA member countries.

Payments deficits of individual CMEA countries are covered by IBEC credits to the authorized bank of the debtor country, the sources of which are the IBEC’s own funds or transferable ruble assets of other member countries. Two types of credit are extended. First, transfer credits are granted automatically at an interest rate of 3.5 percent a year up to annually approved limits equivalent to 2 percent of the value of CMEA trade of the corresponding country in the preceding calendar year. These credits are automatically reduced by payments surpluses. Second, term credits are granted for a period of six months to three years at interest rates of 3.75 percent to 5 percent a year (Table III.4.8). They are extended on the basis of an annually approved credit plan, with general limits for individual countries, which is compiled on the basis of projections of receipts and payments during the year with a breakdown by countries and types of transaction. After the limits on transfer and term credits are exhausted, the authorized bank of the debtor country can turn to the IBEC with a detailed substantiation of the need for additional credit. Such credit can be granted with approval of the IBEC Council. In exceptional cases, when a member country has a persistent deficit, credits with terms in excess of three years can be negotiated bilaterally with surplus countries.

Table III.4.7.USSR: Settlement Balances with Socialist Countries,1 1988-90
December 31,

1988
December 31,

1989
June 30,

1990
(In millions of transferable rubles)
CMEA countries
Bulgaria289.3-491.9-452.4
Cuba773.6896.0500.5
Czechoslovakia-795.4-666.4-1,038.0
German Democratic Republic70.5-851.2-2,576.4
Hungary-180.9-800.0-887.7
Mongolia37.87.186.8
Poland539.2-392.6-2,613.1
Romania-325.7-240.2140.9
Viet Nam814.7556.7659.9
Subtotal21,223.1-1,982.5-6,179.5
Other operations 3-12.2-36.8-154.7
Total21,210.9-2,019.3-6,334.2
(In millions of rubles)
Other socialist countries
China-140.1-51.0-248.2
Kampuchea95.094.757.4
6.97.514.2
North Korea340.7445.1364.7
Yugoslavia-1,005.6-989.6-1,174.6
Poland (clearing)-91.1
Total2-703.1-493.3-1,077.6
Source: Vneshekonombank.

Balance in favor of the USSR.

Subtotals and totals have been added for illustrative purposes only. Claims and liabilities cannot be netted against each other.

Represent transactions with international organizations (IBEC, IIB).

Source: Vneshekonombank.

Balance in favor of the USSR.

Subtotals and totals have been added for illustrative purposes only. Claims and liabilities cannot be netted against each other.

Represent transactions with international organizations (IBEC, IIB).

Table III.4.8.USSR: Financing Terms for IBEC Credits to European CMEA Members1, 1990
Type of CreditMaximum TermInterest Rate

(In percent per year)
Transfer creditautomatic within calendar year3.50
Term credit6 months3.75
1 year4.25
2 years4.50
3 years5.00
Source: Vneshekonombank.

Preferential interest rates are in effect for transfer and term credits to Cuba, Mongolia, and Viet Nam.

Source: Vneshekonombank.

Preferential interest rates are in effect for transfer and term credits to Cuba, Mongolia, and Viet Nam.

Specified noncommercial transactions are effected under a 1971 agreement. As described above, these transactions are effected at special exchange rates and the accumulated balances at year-end are converted to transferable rubles using conversion coefficients and added to creditor and debtor positions vis-à-vis the IBEC.

(2) Bilateral payments agreements

Bilateral payments agreements exist with socialist countries that are not members of CMEA (Albania, Cambodia, China, Lao P.D.R., North Korea, and Yugoslavia) and, since 1990, Poland. Other bilateral payments agreements are in effect with Finland and a number of developing countries (Afghanistan, Egypt, Ethiopia, India, Iran, and Syria). The most important of these agreements in terms of turnover are those with Finland and India.

The first bilateral payments agreement with Finland was concluded in 1940. Since 1950, trade and payments agreements have been negotiated on a five-year cycle. Detailed commodity lists are agreed within annually negotiated protocols. Prices are based on cash world market prices prevailing at the time of delivery. These prices are converted to clearing rubles (the currency of the clearing accounts) at Gosbank’s official exchange rate. With the recent introduction of the commercial exchange rate, new practices in this regard are being discussed. The present clearing arrangement with Finland is based on a five-year agreement covering 1986-90. Under its 1989 protocol, the USSR’s exports and imports amounted to about US$2.8 billion and US$3.4 billion, respectively. About one fifth of these transactions were settled in convertible currency. In 1987, a special interest-bearing medium-term account, repayable in quarterly installments in convertible currency, was introduced to accommodate Finland’s substantial claims beyond the swing limit (of currently rub 200 million). Since 1988, all claims beyond rub 100 million earn interest at prevailing international money market rates, and all balances beyond the swing limit are protected by an exchange rate guarantee. In October 1989, a new five-year agreement covering the period 1991- 95 was signed. The new agreement envisaged that the clearing system would continue to serve as a basis for settling payments between the USSR and Finland. However, more extensive possibilities to settle commercial transactions in freely convertible currency were to be developed. In early December 1990, agreement was reportedly reached to settle bilateral trade in convertible currencies from 1991, although outstanding orders would be settled in an offsetting fashion.

The agreement with India has been in affect since 1953. Annual trade plans within the framework of five-year agreements have in recent years been drawn up in such a way as to permit India to service its debt arising from Soviet export credits for military equipment, technical services and the construction of industrial plants. Thus, data for the Indian fiscal year ended March 1990 indicate planned Soviet exports of US$1.7 billion and imports of US$2.5 billion. Actual trade values came close, with exports slightly exceeding, and imports slightly trailing, planned values. While prices may be quoted in third-country currencies (e.g., Soviet oil exports in U.S. dollars), accounts are maintained, and payments are made, in Indian rupees. The USSR maintains working balances with commercial banks in India. Excess balances are transferred to a central account with the Reserve Bank of India, which invests them in Indian Treasury bills. When the USSR makes payments, the Reserve Bank discounts the bills and transfers Indian rupees to the designated commercial bank. If India has payments surpluses, a technical credit in rupees is provided to the USSR at an interest rate comparable to the Treasury bill rate. Outstanding balances are revalued whenever the value of the Indian rupee changes by more than 3 percent against the original SDR basket of 16 currencies.

From January 1, 1991, commercial transactions with Yugoslavia are also scheduled to be switched from clearing dollars to convertible currency. Under an agreement signed in October 1990, trade with China is to be conducted from January 1, 1991 in convertible currencies.21

4. TRADE IN GOODS AND SERVICES AND TRANSFERS

a. Exports and imports22

Recent years have witnessed considerable changes in the regulatory, organizational and incentive structures of foreign trade. As a result, the trade system has moved from one of strict state monopoly, which had been established as early as April 1918 and under which foreign transactions were tightly controlled through the annual plan and quarterly foreign exchange budgets, to a more decentralized one involving more than 20,000 registered agents with trading rights.

(1) Trading rights

While Gosplan and, since its creation in August 1986, the State Foreign Economic Commission (GVK) continue to be responsible for preparing the annual foreign trade plan, the Ministry for Foreign Economic Relations (MVES) has been the main executive body for the coordination of foreign trade since the beginning of 1988. Until then, this function had been discharged jointly by the State Committee for Foreign Economic Relations, which oversaw 12 specialized all-union Foreign Trade Organizations (FTOs), and the Ministry of Foreign Trade, which oversaw 30 FTOs. Separate trading rights had been enjoyed by the Ministries of Civil Aviation, Ocean Transportation, Railways, Communication, and Finance (for planned noncommercial operations), Intourist, Gosbank, and a few others. Also, in August 1986 the Government had decided to give trading rights to other organizations.23 As a result, some 100 new trading organizations (many of them for machinery) had appeared by April 1, 1989 when all enterprises (including joint ventures), associations, production cooperatives, and other organizations whose products (works, services) were deemed competitive in foreign markets were allowed to register with the MVES to import or export any product contained in a list approved by the Council of Ministers.24 By the second half of 1990, more than 20,000 firms had been registered, including 7,500 state enterprises, 3,500 cooperatives and 1,800 joint ventures. However, the number of firms actually engaged in foreign trade was significantly smaller (perhaps only one third as many).

MVES currently controls 25 FTOs, which account for some 70 percent and 50 percent of total exports and imports, respectively. The high share of these FTOs in foreign trade—it is higher still in trade with the convertible currency area—is due to the fact that they cover raw materials (ores and metals) and energy products (oil, gas, and coal). MVES is also responsible for the implementation of construction projects abroad (mostly in CMEA countries and countries with bilateral payments agreements), and those in the USSR that are based on government-to-government agreements. Other FTOs have been assigned to branch ministries and offices. In addition, republics, some local government bodies (Moscow and Leningrad) and various associations have formed their own specialized FTOs.

Enterprises can avail themselves of the services of existing FTOs or apply to the MVES for direct trading rights. To register, a firm must state the product or products in which it intends to trade and pay a one-time registration fee of rub 250. The registration process includes the following steps:25 submission of the application form; assignment of a registration number that is to be used for customs purposes and license applications; entry into the official State Register of Participants in Foreign Economic Relations; issuance of a registration certificate; and notification on the part of the MVES of the appropriate government bodies. The registration process is to be completed within 30 days from the date the application is received. Registration of joint ventures is automatic with their authorization to operate by the Ministry of Finance.26 There is a short list of prohibited items that includes precious stones and metals, drugs, nuclear materials and weapons. Also, the purchase of domestic goods for resale abroad or the import of goods for domestic resale or re-export is generally not permitted.

(2) Trade licensing

The MVES, with the approval of the State Foreign Economic Commission, is empowered to administer for specified time periods restrictions on exports and imports of certain goods and services and to certain countries or groups of countries, as required by balance of payments or other considerations, including in particular the regulation of supply and demand in the internal market, the compliance with export or import commitments, the achievement of advantageous understandings in commercial negotiations, and retaliation against discriminatory actions. The restrictions take the form of quantitative or value quotas. Exempt from the quotas are (i) commodities imported to service foreign loans extended by the USSR or needed for the construction of projects in the territory of the USSR, and (ii) the imports and exports of joint ventures and international associations and organizations.

Trade falling under such restrictions as well as products (works, services) included in the list of goods of general state importance are subject to licensing. Licenses can also be required as a punitive measure for participants in foreign economic relations that have practiced dishonest competition or caused harm to the interests of the state. Licenses, which are nontransferable, can be issued as either general licenses for certain types of transactions with a validity period of, as a rule, up to one year or as one-time licenses for a specific transaction with a validity period limited to the time necessary to complete the transaction, but not to exceed one year. Where justified, the validity period of either type of license may be extended.

Licenses for exports or imports of goods of general state importance are issued by the appropriate government bodies in accordance with the responsibilities assigned to them in the lists of products (works, services) approved for 1989 and 1990 by the USSR Council of Ministers (Tables III.4.9 and III.4.10). Such licenses are issued for a specified quantity or value of deliveries (where necessary, with price recommendations). Specialized FTOs receive, as a rule, general licenses under the state planning targets to export or import the corresponding item. Enterprises, associations, production cooperatives, and other Soviet organizations receive one-time licenses.

Table III.4.9.USSR: Imports Subject to Licensing in 1989-90
Name of Products (Works, Services)Organizations Issuing Licenses
MedicinesUSSR Ministry of Health
Chemical insecticides and herbicidesUSSR Ministry of Mineral Fertilizer Production
Printed products and publication services in the Soviet UnionUSSR State Committee for Publishing Houses
Film, video and audio productionUSSR State Committee for Cinematography; USSR State Committee for Television and Radio Broadcasting; USSR State Committee for Publishing Houses; USSR Ministry of Culture; Councils of Ministers of Union Republics (for respective product list)
Services for construction of facilities on USSR territory with involvement of foreign firms through resources from central sourcesUSSR Ministry of Foreign Economic Relations
Employment of foreign laborUSSR State Committee for Labor and Social Problems
Theatrical, concert and other artistic activityUSSR Ministry of Culture
Operations to attract foreign currency resources in the form of credits, loans, deposits, investments, and in other formsVneshekonombank
Source: USSR Council of Ministers.
Source: USSR Council of Ministers.
Table III.4.10.USSR: Exports Subject to Licensing in 1989-90
Name of Products (Works, Services)Organizations Issuing Licenses
Crude oil, natural gas, gas condensate, petroleum products (gasoline, kerosene, jet fuel, diesel fuel, fuel oil, paraffin wax, lubricants)USSR Ministry of Foreign Economic Relations
Ores and concentrates of ferrous metals, pig iron, ferrous metal rolled products, steel pipes, ferroalloys, vanadium pentoxide, ferrous metal scrap and waste productsUSSR Ministry of Foreign Economic Relations
Ores, concentrates and industrial products of nonferrous metals, ores and concentrates of precious metals, nonferrous metals, including secondary metals, their alloys, powders, oxides, salts, solutions, semi-finished products, rolled products, nonferrous metal scrap and waste productsUSSR Ministry of Foreign Economic Relations
Rare and rare-earth metals, their compounds and semiconductive materialsUSSR Ministry of Foreign Economic Relations
Industrial products from precious metalsUSSR Main Directorate for Diamonds and Gold
Apatite concentrate, ammonia, mineral fertilizers, sulphur, sulphuric acid, boron-containing raw materials and products made therefrom, acetic acid, acetic anhydride, cyclohexane, cyclohexanon, methanol, caprolactum, polyutheranes
Benzene (other than crude, coal-bearing benzene)USSR Ministry of Foreign Economic Relations
Phenol, styrenes, carbon black (industrial carbon)USSR Ministry of the Petroleum Industry
Polyethylene, polypropylene, polystyrene, polyvinyl chloride resin, ion-exchange resins, plasticizers, dimethyl terephthalate, acrylonitrile, ethylene glycol, dies and semi-finished products for their production, chemical textile threads and fibers, plastic pipes, food industry, ethyl alcoholUSSR Ministry of the Chemical Industry
Lumber and cellulose-paper products (other than low-grade wood and wood processing waste)USSR Ministry of the Timber Industry
Waste paperUSSR Gossnab; Councils of Ministers of the union republics
CementUSSR Ministry of Construction Materials
Gemstone raw materials, products made therefrom, collection materials, paleontological specimensUSSR Ministry of Geology; USSR Academy of Sciences (for corresponding product list)
Cotton (except for low grades), flax fiber, natural wool, fur and hidesUSSR Ministry of Foreign Economic Relations
Grain (including groats), flour, feed concentrates, oil-yielding seed, vegetable oil, edible animal fats (including butter), sugar, meat and meat products, milk and milk productsUSSR Ministry of Foreign Economic Relations
Fish and fish products (except for fish from inland waters, other than sturgeon)USSR Ministry of the Fish Industry
Fish from inland waters, except for sturgeonCouncils of Ministers of the union republics
Liquor and vodkaState Agroindustrial Committee
WineCouncils of Ministers of the union republics
Wild game and birdsCouncils of Ministers of the union republics
Wild vegetationCouncils of Ministers of the union republics
Medicines (including medicinal plant raw materials)Councils of Ministers of the union republics
Products of Tibetan medicineCouncils of Ministers of the union republics
Medical equipmentUSSR Ministry of Health
Soviet inventions and other results of scientific and technical activityUSSR State Committee for Science and Technology
Theatrical, concert and other artistic activityUSSR Ministry of Culture
Operations to allocate foreign currency resources in the form of credit, loans, deposits, investments, and in other formsVneshekonombank
Source: USSR Council of Ministers.
Source: USSR Council of Ministers.

Licenses for items subject to restriction are issued by the MVES for the quantity or value of delivery (where necessary, with price recommendations) for each separate transaction (one-time licenses). Preference in filling the quotas covering restricted items is given to specialized FTOs and exporters or importers that offer the best trading conditions.

A copy of the license must be attached to the customs declaration and serves as the basis for permission for the licensed freight to cross the USSR state border. Licensees must notify the issuing government body of the conclusion of the trade transaction. Licenses are generally issued within 7-10 days but must be approved or rejected with justifications within 30 days of the receipt of the application. There is a fee of rub 50 per license application.

MVES informs other issuing bodies regularly about adverse developments in trade relations with individual countries or groups of countries, market conditions for individual products (works, services), and other factors relevant for making decisions on the issuance of licenses. Thus, on October 15, 1990, licensing requirements were imposed on imports from the Czech and Slovak Federal Republic and Hungary in an effort to stem growing trade deficits with these countries by restricting imports above protocol limits.

In addition to general and one-time licenses which monitor foreign trade on a countrywide basis, a new type of license was introduced in 1990 to give effect to a December 1989 decision to give each republic the right to export on a barter basis, mainly to stimulate border trade. The size of the baiter quotas was limited to 1 percent of each republic’s domestic market. Thus, the RSFSR was allowed a quota of rub 240 million for exports (other than foodstuffs, construction materials, and fertilizers) that can be withdrawn from that republic’s market in 1990 and exchanged for an equal value of imports. By mid-1990, the RSFSR had obtained licenses equivalent to 22 percent of its quota. At the same time, rates of utilization ranged from 2 percent in Kazakhstan to 100 percent in Azerbaidzhan.

Altogether, in the period January 1-August 23, 1990, about 12,200 licenses for exports and imports had been issued, including about 9,000 by the MVES and about 100 by the republics. Within the overall total, about 700-1,000 were general licenses and the remainder, one-time licenses. Reflecting the primary objective of licenses to ensure domestic supplies, about 70 percent of exports were subject to license, compared with only 6 percent of imports.

(3) Trade taxation

The existing import tariff, which has zero rates for about one half of all items and very low ones for the remainder, is not being enforced. Since August 1990, with retroactive effect from July 1, 1990 and until the end of 1990, special import taxes ranging from 130 percent to 2,090 percent were applied to 95 groups of consumer goods.27 Exempt from this tax, which for most products has lower rates for imports from CMEA countries, are temporary imports, imports for resale in foreign currency stores and imports representing capital subscriptions by foreign producers to joint ventures in the USSR. The Ministry of Finance, in consultation with Goskomtsen and the MVES, was empowered to adjust these tax rates in the light of changes in business conditions for the individual commodities in the external and domestic markets. With the introduction of the commercial exchange rate, the import tax rates were reduced to less than one third the previous level. A new import tariff, replacing the nomenclature of the CMEA’s Unified Classification System with that of the Harmonized System, has been prepared for introduction at the beginning of 1991. The rates under discussion included MFN rates averaging 15-20 percent and maximum rates of 100 percent.

Exports of raw materials and fuels are subject to implicit (i.e., price equalization) taxes with an average rate of about 60 percent. From January 1, 1991, explicit export taxes were to be introduced for main raw materials (i.e., oil, gas, metals and wood) on the basis of the export value converted into rubles at the commercial exchange rate and ranging from 5-50 percent. These taxes were meant to tax away part of the windfall profits arising from the introduction of the commercial exchange rate.

(4) The system of differentiated foreign exchange coefficients

Through the end of 1986, domestic wholesale prices were insulated from movements in the foreign currency prices of exports and imports, with differences being effectively subsidized or taxed away through the mechanism of price equalization. As a result, there was no particular incentive for enterprises to produce for export since they received the same domestic wholesale price regardless of whether they sold to the domestic market or to an intermediary FTO. Similarly, end-users in general had no price advantage from using imported goods.

Decree No. 991 of the Council of Ministers of August 1986 established a system of differentiated foreign exchange coefficients (DVKs) that entered into effect on January 1, 1987. The coefficients, ranging initially from 0.1 (e.g., exports of ginseng to country group 2) to 15.9 (imports of yarn from country group 2), were applied multiplicatively to the valuta ruble value obtained from converting the foreign exchange surrendered or purchased at the official exchange rate. The original DVK system, which was administered by the Ministry of Finance, was rather complex with some 3,000 coefficients for exports and imports (virtually all items participating in foreign trade except oil, its derivatives and other energy products, which remained subject to classical price equalization) that differentiated by type of product and country group of origin or destination.28 As mentioned above (section 2), this system was intended to make domestic enterprises more sensitive to fluctuations in foreign prices. But in practice DVKs were not kept unchanged if enterprise profits were curtailed, and the system degenerated into an ad hoc and nontransparent system of implicit taxation or subsidy.

Reflecting a decision in late 1988 by the Council of Ministers to phase out the DVKs, their number was reduced beginning in 1989 and by October 1990 they only applied to exports of machinery. Fewer imports than exports were covered; other imports, especially those outside the plan, were subject to import taxes. The dispersion of coefficients also was reduced, with DVKs ranging from 0.4 to 1.5 in late 1990. DVKs were withdrawn with the introduction of the commercial exchange rate on November 1, 1990.

(5) Foreign exchange retention

To encourage self-financing of foreign exchange transactions, a foreign exchange retention scheme was introduced in 1987,29 thus effectively bringing to an end the state foreign exchange monopoly that had existed after the short-lived experiment with free foreign exchange trading in the 1920s. The retention scheme applied to exports settled in convertible currencies, transferable rubles, the currencies of other socialist countries and clearing currencies under bilateral agreements. With the introduction of the retention scheme, the centralized provision of foreign exchange through the foreign exchange allocation plan was reduced. In 1990, retention rates for convertible currency exports ranged from 0 percent to 100 percent of export value, with higher rates generally provided for more processed goods, e.g., timber, 25 percent; surgical equipment, 95 percent; and radio and television sets, 100 percent. Most raw materials and oil products received no retention rights, although exporters of crude oil, natural gas and coal were given retention rights of up to 20 percent during 1990 in an effort to stimulate production. Preferential arrangements existed for exports under economic cooperation agreements, border trade exports, and exports from the Far Eastern economic region. However, because of the exclusion of most raw materials and energy products, the average retention rate was only 7-8 percent. Rates are set at the enterprise level, which could result in two similar products produced by different enterprises obtaining vastly different retention rights.

The original retention scheme has been liberalized over time. Instead of repurchase rights (without exchange rate guarantee) that were carried as contingent liabilities of the VEB in valuta rubles (off-balance sheet), exporters were given the option to maintain accounts in foreign currency or in valuta rubles30 with the VEB (on-balance sheet). In addition, off-balance sheet repurchase rights can now be converted at any time (e.g., at the time foreign exchange is surrendered) into outright ownership of foreign exchange in the form of interest-bearing accounts maintained with VEB. The requirement to service foreign currency loans from VEB out of retained amounts (rather than all export proceeds) was abolished. And since 1989, enterprises can use retained amounts immediately (rather than in the year following the receipt of payment from abroad, without interest compensation) and use a specified proportion of amounts retained for consumer goods, medicine and medical equipment for their workers (rather than exclusively for capital goods as previously). In December 1988, the proportion of retained convertible currency funds that could be spent for the benefit of workers was set at 10 percent but shortly thereafter it was raised to 25 percent. Retained balances in transferable rubles or the currencies of other socialist countries can be used for imports for the benefit of workers in their entirety while those under bilateral agreements can be used up to 10 percent for that purpose. Higher proportions can be used by entities in the Far Eastern economic region. Retained foreign exchange may also be used for business trips abroad (see section 4.b below). In October 1990, the VEB’s on-and off-balance sheet obligations under the retention scheme amounted to 2.6 billion valuta rubles.

According to a presidential decree issued on November 2, 1990, foreign exchange receipts from exports are to be surrendered from January 1, 1991, at the commercial exchange rate, as follows. Forty percent are to be surrendered to a joint union-republic fund mainly for servicing the USSR’s external debt. Retention quotas would then be applied to the remaining 60 percent. Of the 40 percent surrendered, 90 percent would be surrendered to the joint union-republic fund, without earmarking, and 10 percent, to republic, regional and local funds. A foreign exchange committee with union and republic representation and chaired by the USSR Prime Minister would develop and implement foreign exchange policy, including the disposition of the resources surrendered to the union-republic fund.

To make the retention scheme more consistent and transparent, efforts were underway to introduce new product-specific rates in early 1991 ranging from 20 percent to 80 percent of export proceeds (net of surrender for external debt servicing) in direct proportion to the amount of domestic processing (Table III.4.12). Because of the critical situation in the oil and coal mining sectors, relatively high retention rates were proposed for exports of crude oil and coal. For oil exports in excess of the agreed state procurement level of 61 million tons for 1991, the authorities intended to allow retention of 50 percent of the full value of export proceeds.

Table III.4.11.USSR: Selected Foreign Trade Items Subject to Differentiated Foreign Exchange Coefficients1, August 1990
Customs

Classification
ItemCountry Group2
IIIIIIIVV
Exports
191Trucks and garage equipment30.60.60.60.60.6
KamAz trucks0.71.00.90.70.7
19103Buses0.80.81.2
192Ships and port equipment30.81.61.21.00.6
19201Passenger ships0.40.4
19225Boats1.21.21.2
Imports
100Metal-cutting machine tools30.91.31.11.00.9
10010Lathes1.01.2
101Presses31.01.31.01.01.0
10117Hydraulic presses for testing pipes0.91.0
Source: Ministry of Finance.

The coefficient scheme was abolished on November 1, 1990.

Group I: European CMEA member countries; group II: convertible currency settlements plus payments agreements with China, Finland, and India; group III: payments agreements with Egypt, Iran, and Yugoslavia; group IV: non-European CMEA members; group V: all other countries.

Unless otherwise specified.

Source: Ministry of Finance.

The coefficient scheme was abolished on November 1, 1990.

Group I: European CMEA member countries; group II: convertible currency settlements plus payments agreements with China, Finland, and India; group III: payments agreements with Egypt, Iran, and Yugoslavia; group IV: non-European CMEA members; group V: all other countries.

Unless otherwise specified.

Table III.4.12.USSR: Selected Foreign Exchange Retention Rates, 1990-91(In percent)
199019911
Crude oil5-2060
Oil products35
Coal2040
Gas, electric energy3.520
Ferrous and non-ferrous metals30
Information processing70
Instruments70
Transportation equipment65
Machinery and equipment60
Textiles and shoes55
Source: State Foreign Economic Commission, USSR Council of Ministers.

Rates applicable after deduction of 40 percent of export proceeds for the servicing of external debt.

Source: State Foreign Economic Commission, USSR Council of Ministers.

Rates applicable after deduction of 40 percent of export proceeds for the servicing of external debt.

(6) Trade financing

To facilitate the increasing number of direct exporters’ and importers’ trade transactions and arrange financing, the VEB has been expanding its network of domestic branches. Trade in raw materials, energy products, and foodstuffs in convertible currencies is generally conducted on a cash basis. Thus, payment for oil exports is usually received within 30 days after shipment. Recently, under a German agricultural credit, some foodstuffs have been imported with payment terms of one year. Also, reflecting recent payment difficulties, foreign suppliers who used to deliver on open account now require documentary credits. The VEB, in turn, requires a full cash deposit at the time it opens an import letter of credit. Deposits held for commercial letters of credit issued in favor of foreign suppliers amounted to rub 0.5 billion in October 1990. Machinery and equipment are usually imported on the basis of bank credit and suppliers’ credit. Guarantees are increasingly sought for such loans by the foreign lender.

b. Current invisibles

Payments for services and transfers in convertible currencies other than those related to merchandise imports are generally highly restricted. On the basis of a personal invitation from abroad, Soviet citizens are entitled to convert up to rub 2,000 a year into convertible currency at the special exchange rate for travel abroad.31 Higher amounts are available for travel to socialist countries. However, travel to the Czech and Slovak Federal Republic, Hungary and Poland was restricted in July 1990. Insurance against commercial risk is being offered by Gosstrakh, an agency of the Ministry of Finance. Except for forward foreign exchange cover offered by the VEB, there is no insurance yet for other types of risk. As mentioned, enterprises can use their own foreign exchange to send employees on business trips abroad, including stays for training purposes. Receipts from foreign travelers for hotel accommodation, transportation, and certain other services are converted at the official exchange rate.32

Under a 1963 agreement among 12 socialist countries (including the GDR) and its 1971 amendment, payments for 22 listed types of services and personal transfers are channeled through bilateral accounts at special exchange rates. These services and transfers include, inter alia, diplomatic expenses, international passenger transport, educational and medical expenses, and personal transfers such as wages and salaries, pensions, honoraria, royalties, child support and savings. In July 1990, the USSR served notice that it intended to withdraw from the agreement with effect from November 1, 1990. The export or import of Soviet banknotes and coin is prohibited. Unspent ruble balances may be reconverted up to the amount exchanged at the special exchange rate. Foreign means of payment must be declared upon entry into the USSR. Foreign currency may be re-exported by foreign visitors up to the amounts declared upon entry.

5. CAPITAL TRANSACTIONS

a. Capital

(1) Foreign direct investment33

Apart from joint construction projects within the framework of the CMEA, inward investment has since January 1987 taken the form of joint ventures.34 Investment must be in hard currency, but reinvestment of ruble profits is also permitted. The initial legislation was liberalized significantly in late 198835 by permitting majority foreign participation, and giving enterprises the freedom to appoint non-Soviet citizens as chief executive officer or chairman of the board and to hire and fire labor. Under a new investment law adopted in July 1990, the tax liabilities of joint ventures with no more than 30 percent foreign participation were set equal to those of state enterprises (e.g., 45 percent for the company profit tax). If foreign participation exceeds 30 percent, no profit tax is due for the first two calendar years after the first profit is recorded (exception: trading and fishing companies). Profit tax is 30 percent and there is an additional 15 percent for profits remitted abroad.36

The Ministry of Finance is responsible for issuing registration numbers for joint ventures, which then must register with the MVES.37 The MVES must ensure that Soviet laws and regulations are complied with. There are no lines of economic activity that are proscribed for joint ventures. The foreign partners must be juridical persons and present documentation as to their financial solvency from a bank of their country of residence. As of early August 1990, 2,020 joint ventures had been registered, but the number of companies in operation was much smaller.

On October 26, 1990, a presidential decree was issued permitting foreign investors to buy Soviet securities and to acquire 100 percent ownership in Soviet companies. The decree also permitted the reinvestment or transfer abroad of profits realized by foreign investors in accordance with Soviet law and it guaranteed foreign investors treatment not less favorable than that accorded to Soviet enterprises. The decree anticipated the adoption by the Supreme Soviet of a new investment law with identical provisions.38

On the basis of a July 14, 1990 resolution of the RSFSR Supreme Soviet “On Setting Up Free Enterprise Zones in the Territory of Russia,” the RSFSR Supreme Soviet decided in October 1990 to set up such a zone in the Far Eastern port of Nakhodka. Enterprises in the zone were to enjoy a five-year tax waiver on reinvested profits and a reduced tax rate of 10 percent on profits transferred abroad. Goods were to be imported into the zone duty free and measures to take foreign investments by force, such as nationalization, requisition, confiscation and other measures similar in their consequences, were declared inadmissable in the zone’s territory.

Investment protection agreements have been signed (but not necessarily ratified) with several countries including Austria, Belgium, Canada, China, Finland, France, Germany, Italy, Netherlands, Spain and the United Kingdom. Agreements with several other countries are either ready to be signed or in the process of negotiation. Double taxation agreements exist with 25 countries. The most recent one, with China, was signed in July 1990.

Outward direct or portfolio investment is permitted in accordance with Decree No. 412 of the USSR Council of Ministers of July 1989 and requires a license from the VEB. The investment must be financed with the Soviet enterprise’s own foreign exchange or a loan extended or authorized by the VEB. The VEB has full branches in Zürich and Cyprus and representative offices in 11 other countries, including the United States since 1989. Together with Gosbank, VEB also owns five banks in Paris, London, Vienna, Luxembourg and Frankfurt. Of these, the Moscow Narodny Bank in London in turn has a branch in Singapore.

(2) Loans

External loans are contracted in accordance with the annual plan. Financial loans may be contracted only by the VEB. Since 1988, bonds have also been issued in foreign markets. Subject to an overall ceiling, the VEB grants licenses for nonfinancial borrowing operations abroad. Most licenses issued are one-time licenses but a few large enterprises are given general licenses. Licenses are also required for suppliers’ credits exceeding either the equivalent of rub 1 million or a maturity of one year. A brief examination of the borrower’s dossier is made in the case of license applications for suppliers’ credits. The granting of a license does not entail any responsibility of the VEB or the state vis-à-vis foreign suppliers or other creditors. There is no registration requirement for the amounts and terms of financing actually obtained.

The VEB also provides foreign currency loans to Soviet enterprises under a global annual ceiling and in accordance with policy guidelines established by the government.39 Loans with a maturity of up to eight years can be extended for projects that generate foreign exchange earnings. Loans for current operations are limited to a maturity of two years. In either case, debt service is expected to be made from the borrower’s enhanced foreign exchange flow. Both types of loans are granted on the basis of a thorough analysis of the borrower’s creditworthiness and of the self-liquidating nature of the operation to be financed. The latter condition can be waived if the borrower is judged to be particularly creditworthy. In any case, adequate collateral or third-party guarantees must be provided in order for loans to be approved. In a break with past practice, the VEB can refuse to comply with requests by superior organs (e.g., branch ministries) to extend such loans. The outstanding volume of such foreign currency loans to state enterprises is about rub 1.5 billion. Loans to joint ventures may be made outside the annual global ceiling for foreign currency loans. VEB may also provide guarantees to these enterprises and license them to borrow abroad provided that the terms obtained do not deviate significantly from market conditions. As of January 1, 1990, joint ventures had received foreign currency credits amounting to rub 750 million. About rub 110 million of these credits (15 percent) had been extended by the VEB; the remainder had been received from foreign banks, including rub 180 million (27 percent) with the VEB’s guarantee. The maturities of these loans ranged from several months to more than 10 years.

b. Gold

Soviet citizens may buy, sell and hold gold in any form. However, they may not take gold (except jewelry) abroad. Gold is exported exclusively on the basis of decisions by the Council of Ministers. As with other precious metals, the VEB acts as the broker in these transactions. Gold jewelry is exported by Glavalmazzoloto.

NOTES
1.Several issues related to the foreign exchange and trade system are discussed in greater detail in Chapter IV.3.
2.All countries except CMEA member countries, Albania, and the Democratic People’s Republic of Korea, Lao, P.D.R., and Yugoslavia. In addition to the USSR, CMEA member countries in 1990 were Bulgaria, Cuba, the Czech and Slovak Federal Republic, the German Democratic Republic, Hungary, Mongolia, Poland, Romania, and Viet Nam.
3.Under a draft foreign exchange law currently before the Supreme Soviet, the level of the peg would be set by the Supreme Soviet of the USSR.
4.Australian dollars, Austrian schillings, pounds sterling, Belgian francs, deutsche marks, Dutch guilders, Danish kroner, Italian lire, Canadian dollars, Norwegian kroner, U.S. dollars, Finnish markka, French francs, Swedish kronor, Swiss francs, Yugoslav dinars, Japanese yen and the ECU.
5.Greek drachmas, Spanish pesetas, Kuwaiti dinars, Lebanese pounds, Portuguese escudos, and Turkish lira. No rate is being quoted for the Kuwaiti dinar for the time being.
6.Afghan afghanis, Egyptian pounds, Indian rupees, Iranian rials, Irish pounds, Icelandic kroner, YAR dinars, Malaysian ringgit, Persian rupees, Singapore dollars, and Sudanese pounds.
7.Egyptian pounds, Indian rupees, Iranian rials, Pakistan rupees, Sudanese pounds and Yemeni dinars.
8.Foreign exchange reservations are contract clauses insuring against foreign exchange risk by providing for a proportional adjustment in the contract price in the event that the exchange rate in question changes beyond established limits. As the basket compositions of the SDR and the Swedish krona are broadly similar to that of the ruble, this technique provides a high degree of stability for export and import prices in rubles.
9.Presidential decree of October 26, 1990. The decree mentioned a commercial exchange rate of rub 1.8 per U.S. dollar, but reflecting the cross rates of currencies of the basket at the time of its introduction, the actual exchange rate was slightly different.
10.The official exchange rate would remain in effect for ruble-denominated claims of the USSR on developing countries.
11.Budget efficiency results if a valuta ruble of imports yields more than one ruble upon domestic resale.
12.The legal basis for the establishment of a foreign exchange market was laid by a decree of the USSR Council of Ministers of September 1987.
13.The VEB began to hold the auctions twice a month in October 1990.
14.The calculation comprises the following steps: First, the moving five-day arithmetic average of the market exchange rates of the U.S. dollar against the 11 other currencies in the basket is calculated. Second, these average rates are divided by the base rates of the U.S. dollar against the 11 currencies. Third, the resulting 11 indices are multiplied with each currency’s share in the basket to obtain a weighted average index. Fourth, the base exchange rate between the transferable ruble and the U.S. dollar is multiplied with the average index. Finally, exchange rates for the non-dollar currencies are derived by multiplying the U.S. dollar rates with their cross rates.
15.There were 50 such transactions from December 1989 to February 1990.
16.The 1971 agreement, which amended the original agreement of 1963, enumerates 22 groups of invisibles payments and personal transfers, including passenger transportation, medical and educational expenses, and wages, that are eligible for settlement at the special noncommercial exchange rates.
17.Under the draft foreign exchange law, only domestic banks would be authorized to make payments in foreign currency in the territory of the USSR.
18.Decree “On Improving Retail Trade and the Performance of Services for Foreign Currencies” of July 1990.
19.For a description of the CMEA trading arrangements see Appendix II.3 and Chapter IV.3.
20.On the Polish side, a more appreciated exchange rate (of Z1 7,500 instead of Z1 9,500 per US$1) was introduced for transactions channeled through this account. For the balance in the bilateral account as of mid-1990, see Table III.4.7.
21.As part of the agreement with China, the USSR’s debts to that country are to be paid with exports of goods valued at world market prices.
22.The foreign trade regime is described and analyzed in greater detail in Chapter IV.3.
23.Decrees No. 991 and 992 of the Central Committee of the CPSU and of the USSR Council of Ministers of August 19, 1986.
24.Decree No. 1405 of the USSR Council of Ministers dated December 2, 1988.
25.The USSR Council of Ministers authorized the Baltic republics in the Spring of 1990 to register firms located in their territories. From January 1, 1991, all firms were scheduled to register with the appropriate republics.
26.In the case of infraction of rules, trading rights can be suspended or entities may become subject to stricter regulation of all their foreign trading operations, including the requirement of one-time licenses for each transaction.
27.Decree No. 815 of the USSR Council of Ministers of August 13, 1990.
28.There were five country groups. For an illustrative example of rates in effect in 1990, see Table III.4.11.
29.Decree No. 991 of the Central Committee of the CPSU and the USSR Council of Ministers dated August 19, 1986. The retention scheme was subsequently modified on the basis of Decree No. 1074 of the Central Committee of the CPSU and the USSR Council of Ministers dated September 17, 1987 and Decree No. 1405 of the USSR Council of Ministers dated December 2, 1988.
30.Valuta ruble accounts bear interest at a rate corresponding to the average of the interest rates of the six currencies in the basket used for valuing the ruble. Their value is stable vis-à-vis the basket of these currencies. Thus, when the commercial exchange rate was introduced on November 1, 1990, the amounts kept in valuta ruble accounts were increased threefold in order to maintain the foreign currency value of these accounts unchanged.
31.Foreign exchange at the special exchange rate is also made available for approved medical treatment abroad and for persons settling permanently abroad.
32.Since November 1, 1990, the commercial exchange rate is being used for conversion.
33.The regulations governing inward foreign direct investment are described in greater detail in Chapter IV.4.
34.Decree No. 49 of the USSR Council of Ministers dated January 13, 1987.
35.Decree No. 1405 of the USSR Council of Ministers dated December 2, 1988.
36.The remittance tax was lowered from 20 percent to 15 percent on July 1, 1990.
37.In anticipation of the transferral as of January 1, 1991 of registration procedures to the republics in which the respective firms are located, the Ministry of Finance ceased to accept documents from applicants on November 15, 1990.
38.The draft law goes further than the decree, however, in (i) allowing foreign investors to open ruble accounts and engage in economic activities involving Soviet currency, and (ii) protecting foreign investment against adverse shifts in subsequent Soviet legislation.
39.Under the provisions of Decree No. 1405 of the USSR Council of Ministers dated December 2, 1988, individual loans are not to exceed rub 5 million.

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