On The Threshold Of A New Order

But what did Gorbachev take home from London? Not much

It seemed like old times. To the applause of the world, a smiling President George Bush and ebullient Soviet Leader Mikhail Gorbachev emerged from a chat at Winfield House, the U. S. ambassador's London residence, pledging to conclude a major arms-control pact and agreeing to yet another superpower powwow in Moscow before July is out. Ronald Reagan would have loved the scene, another chapter in the Big Thaw in East-West tensions. But Gorbachev's visit to the 17th annual Economic Summit of Industrial Nations isn't just another chapter. It's a whole new book.

The Big Thaw is officially over. Now comes the New Economic Order, and it promises to be even more slippery and perilous than what preceded it. The Group of Seven gathering ended on a high note--welcoming the Soviet leader, stressing unity on a host of global problems but papering over deep disagreements (table).

Gorbachev stayed behind in London to press his appeals for greater Western involvement in Soviet economic reform. The G-7 stage managers left town smiling, but wondering if the West will ever commit substantial amounts of its wealth to help the Soviets carry out the massive reform they envision. "It's still not clear that they have, at the political leadership level, the kind of understanding of the workings of a modern economy that is really necessary," says National Security Adviser Brent Scowcroft. Unofficial observers put it more bluntly. Said Harvard University political scientist Graham Allison, who co-authored a widely cited study on Soviet aid: "These guys are trying to fix a car, and they have been riding on a horse."

The summit was historic on several counts. The two superpowers agreed to settle technical differences and sign a sweeping Strategic Arms Reduction Talks (START) treaty in Geneva later this year. The most significant arms-control pact in 20 years, it would be the first to cut, not just limit, the number of long-range missiles. It would also make it easier for the Soviet Union and the U. S. to reduce military spending, boosting U. S. efforts to cut its deficit and aiding Soviet plans to convert weapons plants to civilian use.

And with Gorbachev's ground-breaking visit, the economic affairs of eastern Europe and the Soviet Union will become a fixture at future G-7 meetings. The Seven agreed to grant the Soviets a sort of permanent-observer status in which the annual chairman of the group will maintain regular contact with Gorbachev or his successor.

FLYING SOLO. The assembled world leaders didn't strike a Grand Economic Bargain, though. With a cautious Bush leading the hard-liners, the G-7 withheld direct aid until the Soviet Union is ready to take radical economic steps. "We believe President Gorbachev has made an irrevocable commitment" to open markets, said Bush at a post-summit press conference. But he's waiting for the follow-through. Even some senior Soviet officials believe that Western financial aid is premature. Says Leonid Abalkin, a senior Soviet economist: "If we can't achieve political stability and carry through radical reform on our own, no one is capable of helping us."

Gorbachev probably advanced his cause by avoiding any outright request for money. After Western leaders rejected detailed aid requests from top Kremlin bureaucrats in the weeks leading up to the London summit, Gorbachev used a soft sell. Bush and the other summiteers expressed their appreciation of Gorbachev's restraint by not ruling out substantial future aid.

The West also pledged to send advisers to help overhaul the Soviet energy, transportation, and agriculture sectors. All are key to reviving the imploding Soviet domestic economy and creating a fully convertible currency, which could be the most effective incentive for Moscow to get its economic house in order and keep it that way.

The touchstones for the new era of East-West coordination will include regular consultations between high-ranking Soviet officials and G-7 economic advisers on such issues as the ruble and rationalizing prices. But the real task of helping a Soviet economic turnaround will fall to the International Monetary Fund. By giving the Soviet Union a special status in the international lending agency, the IMF will become the key overseer of Soviet progress.

Gorbachev will now use the promise of Western aid to shore up his support at home. "This is a very important matter for the internal situation in the Soviet Union," says Yevgeny Primakov, Gorbachev's point man in London. "If we find support not just in words but in deeds from the West, it will absolutely strengthen the position of reformers."

Greater political stability would provide one of the preconditions the Soviets need to hit their target of making the ruble internally convertible on Jan. 1, 1992. And they're betting that the IMF and the West will eventually kick in $12 billion to create a pool of funds to prop up their virtually worthless currency.

While U. S. officials remain wary of any sudden lurches toward direct cash aid, Bush is likely to give Gorbachev an additional boost when he visits Moscow for a July 30-31 summit. A senior Administration official who was in on Bush's discussion with Gorbachev says there is now a "chemical relationship" between Bush and Gorbachev that makes it easy for the two to talk frankly. That rapport helped them come close to nailing down the long-promised START agreement, which will cut by about 30% the number of nuclear weapons in each side's arsenal, including a 50% reduction in the number of Soviet SS-18s. Those are the most threatening Soviet weapons because of their accuracy and power.

With START out of the way, Bush can turn his attention to cutting economic deals with Gorbachev and the Europeans. When Congress returns from its August recess, the President will press for Senate ratification of a treaty that would give the Soviet Union most-favored-nation trade status, freeing the Soviets from punitive import tariffs.

CLOSER LOOK. Jawboning Congress may be an easier task than persuading the Europeans to eliminate agricultural subsidies. While the G-7 leaders pledged to settle their differences on the issue, they made the same promise last year in Houston--before the General Agreement on Tariffs & Trade talks foundered over the question of farm aid.

Bush may find those problems mere small fry once he gets a firsthand look at Gorbachev's plight in Moscow. Achieving serious reform without inciting social upheaval could faze even so skilled an operator as Gorbachev. He faces "a truly enormous task," says Treasury Under Secretary David Mulford. "The transition will be difficult, comprehensive, and time-consuming."

That's why the Europeans, with the Soviet Union on their doorstep, are far more eager to invest in reform than are the Americans or Japanese. And while the Kremlin's military threat has faded, the fear that the Soviet Union will devolve into a Yugoslavia with nuclear weapons gives Western leaders a compelling reason to help Gorbachev weather the transition.

Any number of domestic crises could weaken Gorbachev's stubborn hold on power. He returns home to a comatose economy, with output falling at an annual rate of 24% and inflation running at a 100% clip. Some Western bankers worry that when about $12 billion of the Soviets' $65 billion in external debt comes due this year, they may not be able to meet the payments, raising the specter of a demeaning rescheduling program. Public and private Western aid--which has amounted to about $50 billion over two years--has virtually dried up.

The most immediate funding is likely to come from the new European Bank for Reconstruction & Development. Political uncertainty, along with conflicting national and regional laws on ownership and regulation, is turning off other investors. "Western companies are hanging fire," says Ronald Freeman, the EBRD's first vice-president, who in early July accompanied 16 U. S. oil executives to the Soviet Union. "Gorbachev needs to tell his comrades that the message from the G-7 is that it's time to clarify legal issues and proceed to the market."

For Gorbachev, there's no turning back. When he returns home, he faces fierce hard-line opposition to his new engagement with the West. But at the least, Gorbachev has been invited to sit at the G-7 table. It took 20 years for the U. S. and the Soviet Union to work out a reduction in nuclear arms. Neither side can afford to wait that long for economic assimilation.


AIDING MOSCOW The G-7 agreed to give technical economic assistance and offered the Soviets special status in the International Monetary Fund, which could lead to making the ruble convertible. But there is no consensus on paying to aid Soviet reform

ARMS CONTROL U.S. and Soviet officials agreed to reduce strategic weapons, setting the stage for a Bush-Gorbachev summit in late July


WARNING IRAQ President Bush emerged with support for another possible military strike aimed at Saddam Hussein's nuclear facilities

NEGOTIATING PEACE The G-7 endorsed Bush Administration efforts to broker a Middle East peace


CUTTING FARM SUPPORTS The leaders couldn't break the deadlock over agricultural subsidies, raising the specter of hostile regional trading blocs

PROPPING UP EASTERN EUROPE The U.S. had hoped to promote reforms in former Soviet satellites. But Gorbachev's visit overshadowed that effort

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