(FORTUNE Magazine) – IT WAS A TYPICALLY GRAY, overcast December day in Moscow. He had just come from addressing the 542-member Supreme Soviet. He had answered questions from the floor -- some barbed and critical, others friendly -- about his campaign to forge a new treaty of union among the 15 increasingly fractious republics of the U.S.S.R. He is also laboring to ease his country through the worst economic crisis it has faced since World War II ended in 1945, partly by inviting foreign aid and help from business. He was about to confer with his top military adviser, Marshal Sergei Akhromeyev, and to take a phone call from Helmut Kohl, the newly elected German chancellor. In between, President Mikhail Gorbachev found 45 minutes to meet around a small table in one of his large Kremlin offices for an interview with Time Warner editor-in-chief Jason McManus and FORTUNE managing editor Marshall Loeb. Here are some excerpts:

FORTUNE: There is enormous support, both in the American government and among the American people, for the progress that you are trying to make in the Soviet Union. As friends and equals, what specifically can we do to help in terms of aid or technology?

GORBACHEV: First of all, I would like to applaud the interest shown in our progress by ((American)) political and business circles and the population. I can share, and I don't think I will be disclosing a big secret, that President George Bush and I have discussed the situation from this very angle. We, of course, are making a radical turn. Ours won't be a copy of the American economy. Or of the West German economy. It will be our own version, with many special quirks. This is a tremendously complicated world, and you can't impose rigid patterns or a Procrustean bed. And now we are entering a critical stage, and you are asking me: ''What should be the reaction of the American business community?'' First of all, understanding what is happening here is very important. Second, we have submitted a number of proposals to the ((Bush)) Administration, so that in this difficult transition period, when these changes will be particularly painful, cooperation ((between the U.S. and the U.S.S.R.)) could be more concrete, more precise. Because I think the potential is tremendous for both of us. Our economies are so enormous that they need each other. They need to cooperate. Often, when we start to work together with other ((countries)), we find we cannot carry out a certain project unless America takes part in it. Of course, there are still various limitations ((imposed by Congress on trade)). Instead of the status of a most-favored nation, we have the status of a most-unfavored nation. The instruments of cold war remain. And they are being applied today to a partner who yesterday was an opponent. Doesn't the business community have any influence at all? You remember the expression ''rapid deployment forces''? This is what business should do. They should use the methods of rapid deployment ((of investment)). Meanwhile, some people arrange symposiums and seminars, bringing together important experts and economists, and they hold discussions and deliberate, while we are thinking, When will Americans do something real? What we need now is cooperation. Not charity. Cooperation, but on more or less favorable terms regarding interest rates and the duration ((of loans)) so that we could strengthen our consumer market. That is the most important thing. Our requests, our applications, our special considerations -- the ((Bush)) Administration has them all.

FORTUNE: What in particular would be helpful from American corporations and private business in terms of loans, investments, and trade?

GORBACHEV: We are cooperating with the Europeans in the following manner: We get credits, and through those credits, specific food supplies. This is going on right now. And there's a second part of this cooperation: the reconstruction of the food-processing and light industries. We get credits, and through those credits, equipment. And a third: There are large-scale projects that will take five or more years ((to be completed)). We have near- term, medium-term, and long-term objectives. As far as the long-term projects are concerned, things are moving ahead with the Americans. There is the Tengiz project ((a pending joint venture with Chevron to explore for oil and gas in Soviet Kazakhstan)). Then there is an idea for cooperation among ourselves, the Americans, and the Israelis to ((develop)) a ((commercial)) passenger aircraft. ((Pratt & Whitney is negotiating to make the engines for it; that part of the deal alone could run to $7 billion.)) These are all large-scale projects. And there are many more.

FORTUNE: Many American business people say they would like to do business in the Soviet Union, but they really don't know if this is the right time. They also don't know how they will get their money out in the form of hard currency. Perhaps you have an answer.

GORBACHEV: Speaking about convertibility -- or rather nonconvertibility ((of the ruble)) -- first of all, I have issued a decree on foreign investment. There is an important new feature in this ((decree)). Together with joint ventures, there can be foreign businesses with 100% foreign capital. And it also provides for the export of the profits. We must head toward convertibility of the ruble. We thought that this process would take a long time. Now we are cutting it shorter. Otherwise, it will be difficult for us to carry out our economic cooperation. We have already taken the first steps. We have changed the ruble-dollar rate ((to more realistic levels)). And our plan will be to move faster in the beginning to achieve domestic convertibility ((which would allow Soviet citizens to buy some hard currency with rubles)), and then international convertibility ((which would permit foreigners to exchange rubles for hard currency and export it)). Now we face the task of stabilizing the ((consumer)) market. Here, a lot of ((issues)) are mixed together. First, we want economic ties to be formed through a market instead of being imposed by the central government. We want to introduce new proprietors, new managers to the market arena. Yesterday, if you received an order from Gosplan ((the state economic planning agency)), you had to sign a contract with a designated partner, whether you wanted to or not. Now you do what you want. You have received your freedom. The process of looking for new partners is under way. For the most part, this is a healthy process. But until they all find each other, this will be accompanied by a certain period of ((economic)) decline. This is quite understandable.

The biggest difficulty today is the instability of the ((consumer)) market. The first thing to be done is to tie up the mass of ''hot money'' or ''crazy money'' ((in effect, too much money chasing too few goods)). There is agitation in the market because, on the one hand, more is being produced than before. But on the other hand, there is nothing on the shelves. And the situation becomes panicky. Those who look at us from the outside may be scared and would say, ''Why should I get into that anthill?'' Yes, you should. The Soviet Union will not go away. There might be some regrouping, some changes, and some new partners for foreign trade. But all this industrial and scientific potential and these resources will still be here. I'm in favor of not wasting time. We are also watching to see who is moving toward us, and who is sitting on the fence. Of course, the big problem is conversion ((of defense industries to civilian production)). It's both your problem and our problem. You have to find a way out, how to use the potential of your defense industry, which is shrinking as a result of the reduction in military contracts. For us, the problem is even more acute. The strain ((of defense spending)) on our economy was even greater because our economy is smaller. And it is good that we have begun cooperating here, and we are exchanging our experiences about how to convert. There are a lot of interesting projects. The main thing is that we should move toward each other. You yourself have to figure out whether to take two steps ahead -- or three steps backward and wait and look around. Frankly speaking, with what is happening now in the world, we believe we have arrived at cardinal changes -- changes for the better -- in international relations, disarmament, and economic relations. That would hardly have happened if our relations -- Soviet-American -- had not taken on a new character. This is not pretentiousness or some excess of self-satisfaction. No, this is a statement of the real weight of these two countries. We have judged it this way: Strategically, it is not to the Soviet Union's advantage for things in America to go badly. Not only for us. It would affect us all. I am also confident that if something goes wrong with us ((in the U.S.S.R.)), it will affect the entire range of relations in all the spheres of international politics. % In other times, some people in America would have rubbed their hands and said, ''Oh, great! Things are bad in the Soviet Union!'' And we would be saying, ''Aha! The first signs of an economic recession have appeared in the U.S.!'' Now we are thinking how to change the situation, how to move along the road we have taken, and how by cooperating we can diminish those negative tendencies that appear. This is a colossal change, and I don't think everyone has yet recognized it. There are critics -- in the American Administration and in America itself -- whose advice smacks of mothballs. We also have such critics, people who give this kind of advice. Nonetheless, I believe that what is happening between us is very important.

FORTUNE: Are there specific industries in which cooperation could be particularly beneficial? Are there American industries or companies that you would particularly welcome to the Soviet Union or that you think would find notable opportunities here?

GORBACHEV: We have already made some proposals. They include cooperation in the food-processing industry, in agriculture, transportation, electric power -- as well as conversion ((of defense industries)). It's important that the process continues moving ahead. The proposals have been made. Now we should cooperate so our transition to a market economy is less painful. There are many enterprises that need to be modernized, and we should find ways to cooperate in order to modernize them and turn out products. Recently, I went to the Sverdlovsk region ((in the Ural Mountains)) and visited a military plant that builds instruments for aerospace. I found that the Germans are already very busy working there. It is a well-designed factory with a well-trained work force.

The Germans have taken it upon themselves to aid the factory financially, and two years from now they plan to start making products that will be competitive in both the domestic market and foreign markets. As a result of this cooperation, the relationship between defense and civilian production in this factory will be reversed. Now military production makes up 65% and civilian production 35%. In two years it will be the opposite. The Germans know us better ((than the Americans)), especially now, because of the 17 million former East Germans. Practically all of their factories were connected with us. But I can tell you plainly that there are many projects where there is a lot of room for cooperation with American business.

FORTUNE: Do you think the Germans and the Japanese have been more affirmative and perhaps wiser than the Americans in coming in and making investments in the Soviet Union?

GORBACHEV: I would characterize the mood and even the results on the part of American business as very positive. The thinking has changed much in the last few years. And, quite the opposite, so far nothing has worked out with the Japanese. They are waiting for permission from their Foreign Ministry.

FORTUNE: Americans read about problems in the Soviet Union. They want to help, but they don't know what to do. There is talk of foreign aid, there is talk of low-interest loans. Would you welcome those, or do you think that they would actually slow your movement to reform?

GORBACHEV: Long-term loans on favorable terms with payments after seven or more years are particularly important now. But so is cooperation in modernizing factories, in light industry, in food processing, in electric power engineering, and in the defense industry.

FORTUNE: Private investment even in defense?

GORBACHEV: Yes. Private investment. As the Greeks said, everything flows and everything changes.

FORTUNE: Fortunately, it is changing for the better. Do you have any last message that you would like to pass on to the U.S. business community?

GORBACHEV: I appreciate those contacts which have been established with them, with a wide range of people. But even more, I appreciate the fact that the American business world has expressed a lively, businesslike, and healthy interest in cooperation. Before us lies a promising future, and I think that this will be beneficial both for the Soviet Union and for the U.S. In the past we tried to exhaust one another through the arms race. Now, through cooperation, we will help each other. But we have to learn how to do this. And I believe that we will learn.