Article in the Newspaper
"Financial & Business News", # 20, November 1991, page 8.
Author - Dmitry
Lyubomudrov
Most Soviet entrepreneurs and industrial leaders still understand investment exclusively
as foreign capital injections in the Soviet economy. Few of them are aware that the term
primarily applies to the funds of their own businesses and companies that are currently
not tied up. This is how Dmitri Lyubomudrov explains the underdevelopment of the Soviet
financial market. Dmitri Lyubomudrov is one of the founders of the MOSlNKOMBANK, financial
director of the "PROFICO" industrial and financial Company, and head stock
broker at the Moscow Central Stock Exchange and the Russian Commodity and Raw Materials
Exchange.
At the moment the main assets traded at the Soviet bourses are stocks and securities of
the exchanges therriselves, and a small percentage of bank stocks. Stocks of industrial
enterprises proper are practically non-existent. Therefore, it is next to impossible to
invest in industries. "Paradoxically, many industrial enterprises still issue stocks,
but they are distributed either among the company employees in a bid to check labor
turnover, or among business partners to minimize risks of disrupted supplies and marketing
channels," Dmitri Lyubomudrov reasons.
At the moment the stock-trading division is the most active unit of the Russian Commodity
and Raw Materials Exchange. The Moscow Central Stock Exchange mostly trades in financial
assets, whereas stock-trading divisions of other exchanges are practically idle. More
often than not the buyer and seller find each other on their own, and deals are sealed
outside the trading floor. Dmitri Lyubomudrov believes that the embryonic state of the
capital market should not prevent foreign investors from finding their way into promising
Soviet industries. But he does not recommend to directly use the services of Soviet stock
brokers and exchanges.
"Although the law on foreign investment has been passed, there have been no
precedents of its application as yet. Nor there have been specific examples of Soviet
brokers' official contacts with foreign investors." In other words, he advises
against taking ungrounded risks. But there appears to be a risk-free way. Dmitri
Lyubomudrov has come up with the following scheme. A foreign investor can buy an existing
Soviet firm, or set up a new one thus becoming its sole owner. The manager appointed by
the foreign investor will act as if independently, without referring to the fact that the
firm is wholly owned by a foreigner.
"Fully accountable to the foreign owner, the manager will handle the ruble assets
accruing from transport deals, purchase/sales transactions and purely commercial
operations. The manager can use the ruble capital to buy through stock brokers shares of
banks, exchanges, industrial enterprises, etc. traded on the floor. Thus the Soviet
representative of the foreign partner will be able to act on a par with other economic
agents, and no one will place excessively high demands on his company. "This is a
sure fire way to the Soviet market," claims Dmitri Lyubomudrov.
