The West Cracks Open Its Wallet

The topic was timely, the delivery smooth. At a private dinner with finance ministers and central bankers of the Group of Seven industrial countries, radical Soviet economist Grigory A. Yavlinsky delivered a gripping account of the darkening economic crisis in the Soviet Union. "Very impressive, as always," said British Chairman of the Exchequer Norman Lamont after the dinner of avocado and roast duck at Bangkok's Hilton International.

Still, Yavlinsky didn't manage completely to convince his listeners. The next day, the G-7 once again shied away from a deeper financial commitment to the Soviets in the absence of an economic reform plan and a pledge to meet current and future debt obligations. That quickly sank a U. S. proposal to let the Soviets temporarily defer debt payments. The reason was simple: Europeans are in much greater jeopardy, especially German bankers, who hold roughly one-third of the Soviet Union's estimated $68 billion in foreign debt. "That would have been the kiss of death for Soviet credibility," says German Finance Ministry Secretary Horst Kohler.

SPECIAL PACKAGE. The global money bunch did keep the window open a crack. Pieces of a special package of Soviet aid seem to be coming together should the Soviets run out of cash to service their foreign debt -- which just might happen. Gosbank Chairman Viktor V. Geraschenko announced that Soviet foreign-currency reserves may last only two months, and some analysts predict a shortfall of $5 billion by yearend. If a default seems imminent, the G-7 may swoop in with an emergency package consisting of either a Bank for International Settlements loan backed by Soviet gold or a deferral of Soviet debt payments. Worried about its own exposure to the Soviet Union, Deutsche Bank has already called for a $5 billion bridge loan from major banks.

At the same time, Western nations are pressing ahead individually with humanitarian aid and technical assistance. On Oct. 7, the European Community supplemented a $1 billion offer to the Soviets with $1.5 billion more in food and medical supplies. A day later, Japan made a surprising pledge of $2.5 billion in humanitarian and trade help. Already having pledged agricultural and other credits valued at $2.5 billion, U. S. officials are resisting calls for still more.

If the Soviets want more, they will have to meet some tough conditions. The G-7 is dispatching a team to Moscow to look for signs that economic reforms in

fact are under way. They will also be looking to see if some mechanism can be set up to service foreign debt and end the bickering between the Kremlin and the republics. "We'll want to be fully convinced that all existing debt will be repaid," says one senior Japanese official. "Without that, there will be no new loans."

Even if the Soviets make it over these hurdles, some analysts are not convinced they need more money. Lawrence Summers, chief economist at the World Bank, thinks the Soviets could earn billions of dollars more in foreign exchange by not wasting enormous amounts of oil and exporting it instead. Just the same, Soviet officials hope that once the G-7 deputies visit Moscow, the proceeds from fresh loans will start flowing."

UKRAINIAN LUCRE? The Bangkok meeting of the International Monetary Fund after the G-7 session did nothing to stifle worries about a power vacuum within the Soviet Union. Even as Yavlinsky labored to win the delegates' confidence by running through his own economic-reform plan, other Soviets undercut him. A Ukrainian delegate defiantly announced that his republic would establish its own currency and apply for separate membership in the IMF. On Oct. 15, Russian President Boris N. Yeltsin announced plans for a new Russian ruble at an unspecified future date. Oleg Bogomolov, Yeltsin's economic adviser, doused Yavlinsky's prized economic treaty delineating trade ties and duties between the central government and republics, saying it is "very unlikely" to be implemented. Yavlinsky all but acknowledged as much, noting that not much time is left before utter chaos sets in. "Spring will be the deadline for normal development," he said.

If that's the case, the world's leading industrial countries face a painful conundrum. They may see no option but to demand strict conditions for new loans. But by denying the Soviets money now, they may be setting themselves up for disaster later if the Soviet economy collapses and republics devise their own currencies and reform plans. Even so, G-7 is slipping in considerable humanitarian aid right now. If they stay on their current course, they may have to send vastly more later.

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