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Allies’ Loans to Soviets Not Alarming, U.S. Says

Times Staff Writer

The Reagan Administration, in its first formal response to conservative criticism of increased lending to the Soviet Union by non-Communist nations, said Tuesday that the spate of new credits from Europe and Japan follow guidelines set by Washington and its allies and pose no cause for alarm.

In a special report to be sent to Congress next week, an interagency task force seeks to play down the issue, saying Washington has “no evidence” that any of the billions of dollars in new bank credits violate the rules established by the Western powers.

The report notes that the money now being loaned by U.S. allies is “largely” being earmarked for Soviet purchases of consumer products and other non-strategic goods--as opposed to the “untied” lending of previous years that also could be used for weapons technology.

Decline of Dollar

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The report also dismisses fears that the amount of new lending is excessive. The document asserts that the recently announced $6 billion in new lending reflects long-term lines of credit, which may not all be used. And it says that cumulative figures have been bloated by the decline in the value of the dollar, which makes the overall value of the loans seem larger.

Meanwhile, President Reagan’s national security adviser, Lt. Gen. Colin L. Powell, Tuesday rejected calls by critics for tighter controls on U.S. bank lending to the Soviets, warning that such restraints could prove “counterproductive.”

In a speech before an American Stock Exchange conference here, Powell said that, despite the recent liberalization in the Soviet Union, the allies must continue to regard Moscow as an adversary and must limit their exports of strategically important goods.

But, he said, “leaving strategic trade aside, there is substantial scope for more trade between the West and the Soviet Union” in areas such as medical technology, consumer products, energy and food, which do not directly affect Soviet military or political power.

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Could Hinder Reforms

Withholding loans for economic development could dampen prospects that the current Soviet economic reforms, which the West is encouraging, will succeed, the Administration believes.

The 22-page report, hammered out by a task force representing several key departments and the National Security Council, is intended as a formal reply to hard-liners in Congress, who have called on Washington to intervene to dissuade America’s allies from making such loans.

Sen. Steve Symms (R-Ida.), who is leading the opposition in Congress, has charged that the lending amounts to an “underwriting of Soviet global operations.” Many contend that providing the Soviets with any new money merely makes it easier for them to afford new weapons as well.

Analysts predicted that the report is unlikely to appease critics of the lending. And although the report has been endorsed by all the major departments that deal with Soviet trade--Treasury, State and the Pentagon--top Administration officials are far from unanimous in their assessment of the past few months’ developments.

U.S. Banks Already Hurting

Washington already has told European and Japanese officials of its concern that the new lending to the Soviet Union may get out of hand. The allied governments, however, have argued that the credits are “a private sector matter” beyond their control.

Ironically, after a surge of U.S. lending in the early 1980s, American banks have stayed largely out of the new lending spree. U.S. banks already are hurting because of soured Third World and energy-related loans, and they fear an adverse reaction from Congress.

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The growing differences between the United States and its allies on the credits issue is an on-again, off-again dispute that has spanned 7 1/2 years.

At Washington’s urging, the United States and its major economic allies have established a set of specific guidelines governing trade and lending to the Soviet Union: first, that any such transactions be made on a sound commercial basis; and, second, that no subsidies be provided.

More Enforcement Due

The allies also have agreed to step up the enforcement of long-standing restrictions on the kinds of products that companies in non-Communist industrialized nations may legally export to the Soviet Union, to prevent the compromise of technology strategically important to the United States and its allies.

But critics of the new, increased allied lending to the Soviet Union say that adherence to the rules has been spotty and contend that the Europeans and Japanese are becoming so blinded by the vision of lucrative new East Bloc export markets that they are unlikely to pay much attention to these rules unless Washington takes a firmer stand.

As a result, many analysts are predicting that the issue will take on new urgency during the next Administration. Vice President George Bush has said that he favors some lending but opposes unrestricted credits that can be used for strategic materials.


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