Doing Business in Russia. Котова К.П - 32 стр.

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insolvency. Dozens of cases of bankruptcy have been examined, but the federal
department has not yet made statements about the bankruptcy of these enter-
prises.
        Are there differences in the dynamics of potential bankruptcies in various
sectors or regions?
        Whatever differences in regions there may be depend on the geography of
the sectors. But here again we can only speak about certain specific features of
the restoration of solvency. The situation of enterprises in the defense industry is
especially difficult. In the first place, diversification was not carried out in time.
Secondly, conversion to non-military production, on which everybody relied so
heavily, is proceeding much too slowly. Still another problem is the expectation
of new state defense contracts, but on the whole they are either nonexistent or
they pay very slowly. Machine-building enterprises are also in a difficult situa-
tion.
        From a financial point of view the bankruptcy process has two aspects:
first, the cost of improvements and second, the potential income from sale at a
commercial competition. Do you expect any economic effect from this process?
        I certainly do. First of all, under the threat of potential bankruptcy we will
at last begin to resolve the nonpayment situation. Enterprising managers who
want to keep their jobs will seek hidden possibilities and will produce what has
been stashed away for a rainy day. I am referring to the many bank accounts
which do not always appear on the accountants’ books, to hard currency ac-
counts intended for profiting on exchange rate margins to branch firms, etc.
Secondly, there is the effect of the sale of debtor enterprises. Here debts are
eliminated by the new owner. This is very important because this effect will be
practically equal to the credits which the heads of many enterprises demand to-
day. Lastly, there is the part of the proceeds from sales at a commercial competi-
tion which exceeds the necessary minimum of investments and which we chan-
nel to the budget.