U.S., Allies May Clash Over Large Soviet Bank Credits

Times Staff Writers

The United States is facing another potential spat with its allies over their decision to provide billions of dollars’ worth of new bank credits to the Soviet Union, and some analysts say the dispute could mushroom when the next President takes office.

Over the past few days, senior Administration officials have privately expressed their concern to the governments of Europe and Japan about the large volume of new bank credits they have extended to the Soviets. Current estimates place the total as high as $10 billion--"rather extreme,” a senior U.S. official said.

If the Soviets actually draw down their new lines of credit, they may use the loans only to buy goods--ostensibly, consumer goods--from the lending country. But hard-liners in the United States worry that this will enable the Soviets to use more of their own money to bolster their military.

“What does it take to get this Administration off the dime on the undisciplined, gratuitous underwriting of Soviet global operations . . . by our allies?” Sen. Steve Symms (R-Ida.) demanded recently.


That is a view shared by many at the Defense Department, which has long mistrusted Soviet intentions. State Department officials generally disagree, although they have concerns of their own.

Allan Wendt, the State Department’s senior representative for strategic technology policy, voiced apprehension that the increased lines of credit to the Soviet Union would tempt the Western Europeans and Japanese to seek a relaxation of current export restrictions so they could increase sales to the East Bloc of technology that might prove militarily useful.

“I guess this problem may become more acute as time goes on,” Wendt said.

Most U.S. analysts agree on one point: Soviet President Mikhail S. Gorbachev wants to use the show of support from the West to bolster his flagging program of perestroika , or economic restructuring, which is facing skepticism, if not outright hostility, at home.


Abel Aganbegyan, head of the Soviet Academy of Science’s economic branch and a key Gorbachev adviser, virtually conceded recently that Moscow’s quest for credits has a domestic political objective.

“We plan within the next two, three years to make a big jump forward . . . toward satisfying the social needs of people,” he said.

During a subsequent visit to the United States, he said time is working against perestroika. “It is very important that people should see that something is being done. . . ,” he said. “I believe we should double the imports of consumer goods.”

Pay-Back at Home

A State Department Sovietologist was more blunt: “What (Gorbachev) is looking for is the most favorable announcement possible from the banks to provide maximum political pay-back at home. He’s got to convince the Soviet people that perestroika is working for them , not just for the next generation.”

Symms and others in Congress are demanding that the Administration intervene actively, both to dissuade the allies from continuing their lending and to discourage any American banks that might be tempted to follow suit. They plan to press the new Administration to bring it up at next year’s seven-nation economic summit in France.

And Sen. Bill Bradley (D-N.J.), one of Congress’ most thoughtful critics of current East-West policy, is pressing the seven summit nations to draft a “common approach” for Western lending to the Soviets and work out some guidelines for export controls, Soviet participation in Western capital markets, East-West trade and joint-ventures with Western firms.

The Senate adopted a resolution earlier this month calling on the President to “consult immediately” with allied governments on the implications of substantial new credits for national security and for “prudent commercial banking.” The measure was approved 64 to 2.


Congressional Critics

Top Reagan Administration policy-makers are scrambling to turn out a new official policy statement that will satisfy congressional critics. But the Treasury, State and Defense departments and the National Security Council have been unable to agree on any one assessment. Planners still hope to have agreement sometime this week.

The allies have essentially dismissed the U.S. government’s concerns, pleading that the spate of new credit lines is “a matter for the private sector.”

And the Administration seems to be straining to avoid any overt confrontation with the allies. Until the United States knows for sure what the new credits will be used for, “we see no real cause to worry about it,” a State Department Soviet expert asserted.

While American banks have taken a lead in arranging some of the new loan syndicates, U.S. bankers insist that they have generally not participated in them.

“We’re out of this entirely, which is one of the anomalies,” said George J. Clark, executive vice president of Citicorp, the nation’s largest foreign lender. “We do have to watch the public relations aspects.”

Gradual Credits

The new credits are to be made available gradually over a period of several years. Despite their size, they are “small compared to the total Soviet budget,” the State Department official said.


And some private economists doubt that the lending will have much long-term effect. “Foreign borrowing may provide something of a ‘quick fix’ for the Soviets,” wrote Meryl Kessler in the current World Policy Journal, " . . . but it ultimately fails to address the underlying structural and organizational problems plaguing the Soviet economy.”

Complicating assessments of the borrowing is that no one knows for sure precisely what the rash of new bank-credit deals involves.

Jan Vanous, research director for PlanEcon, a Washington-based Soviet-watching group, notes that the $10-billion figure reflects lines of credit potentially available to the Soviets. The Soviets could end up borrowing far less--and thus buying far less from the lending countries.

Unrealistically Large

“Some of these figures are unrealistically large,” he noted. “The British, for example, have lent them $1.7 billion, but they haven’t been a very big exporter to the Soviet Union in the past, and they aren’t very competitive with Japan.”

Most analysts expect the Soviets to use the money both to buy consumer goods and to build up their capacity to manufacture such goods themselves. But they question how effectively the Soviet economy can absorb such a large volume of imports.

In the detente of the mid-1970s, said Marshall Goldman, a Harvard University Soviet expert, much of the Western equipment that was sent to the Soviet Union languished in warehouses. “I would expect that a good portion of the equipment is still going to be used inefficiently,” he said.