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Let's Curtail the Money Flow to the Soviets
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14141 |
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Section : |
CURRENT ISSUES
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| Issue
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1 / 1988 |
1,378 Words |
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John H. Fund
John H. Fund is an editorial writer for the Wall Street
Journal. |
Mikhail Gorbachev has a problem and Western banks are helping him solve it. The sluggish Soviet economy is in one of its worst slumps since the 1920s. But Gorbachev's glasnost policy has allowed him to feed a growing Soviet appetite for capital by dipping into Western credit markets. American, European, and Japanese banks are making loans to Soviet-bloc countries at the rate of a $1 billion a month. Bankers justify such loans because of the excellent debt-repayment record of those regimes. But a closer look would make them scurry to their accounting ledgers.
Lower world oil prices have put a severe crimp in Soviet hard-currency earnings. In 1984, oil and natural gas sales brought the Soviets $18.9 billion in export income. In 1986, such earnings fell to less than $11 billion. To make up for this shortfall, Soviet gross indebtedness to the West has risen from $21.8 billion in 1984 to $35.8 billion in 1986. PlanEcon, a Washington, D.C., research group, estimates that total Soviet indebtedness will reach $60 billion by 1990. The Soviets may also soon enter the Eurobond market, another source of untied loans. They are expected to apply for membership in the World Bank and the International Monetary Fund. Membership in these international lending institutions would make access to U.S. credit markets substantially easier.
A number of U.S. banks are helping to ease the Soviet hard-currency crunch at concessional rates. Last March, First National Bank of Chicago announced it was the lead bank in an untied $200 million loan to the Soviet Union at an interest rate only 1/8 percent over the London interbank offer lending rate (LIBOR). LIBOR is roughly the European equivalent of the U.S. prime rate, the rate banks charge their best customers. Roger Robinson, former senior director for international economic affairs with the National Security Council, calls the First Chicago terms "among the leanest interest rates in the history of East-West finance."
During 1986, Western banks made nearly $4 billion in such untied loans to the Soviets--money not linked to any specific trade deal or project. The danger in these transactions, of course, is that the funds can easily be diverted to pay for missiles or more bombers for Afghanistan. Anthony Zinder, a spokesman for First Chicago, admitted: "The funds could of course be used for the military, but we would hope not. I mean they do so much of that kind of thing anyway, it doesn't matter." He went on to say that the loan was made in part "to help develop peaceful relations."
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