The Soviet Deficit

There are two ways to understand Soviet Prime Minister Nikolai Ryzhkov’s announcement that the Soviet Union faces a foreign debt of $52 billion. One is that the figure is significantly larger than the CIA’s preliminary $42-billion estimate and many times larger than most Soviet citizens imagined. The other is that $52 billion is rather small for a country the size of the Soviet Union--Poland, for instance, owes the West $39 billion.

The disclosure was politically motivated. Ryzhkov made the announcement one day after a disturbing speech by economist Nikolai Shmelyev in which he warned that incipient inflation is driving the Soviet economy towards a crash. To prevent that, he prescribes borrowing enough hard currency to import $23-billion worth of consumer goods this year and $9 billion annually for several years subsequently to ease public discontent and use up unspent rubles before they inundate the rejuvenating economy.

Ryzhkov may well have intended to undermine Shmelyev’s proposal, which received a rousing response from the delegates. Understandably, Soviet consumers would prefer to buy imports than watch their rubles shrink under the pres-sures of inflation. Moreover, Soviet citizens have made store shelves their measure of the success of perestroika and filling them could do much to boost public confidence in the reform program.

But the Soviet government does not relish the prospect of being heavily in debt to the West, particularly for consumer goods. Its apprehension seems overblown when one considers that this $52 billion in foreign debt is only about 2% of Soviet GNP; Poland’s foreign debt totals 14% of its GNP.

Ryzhkov did not say how the government came up with the figure of $52 billion. American experts trying to puzzle it out say that it seems to include some items not normally included in foreign debt figures: liabilities of Soviet-owned foreign entities in the West, for instance, and servicing of short-term loans. It is also a gross figure; the Soviet Union holds nearly $15 billion in hard currency assets, which make the net debt figure significantly more manageable. It is also unclear what exchange rate was used to convert the ruble figures to dollars.

The debt figure was obviously not meant for Western consumption but to impress Soviets that foreign borrowing for consumer goods must wait until they feel the time is right. Government officials may even have deliberately ratcheted the figure as high as possible, a disturbing possibility that recalls falsifying practices of the pre- glasnost past. Unfortunately for the Soviet Union, the high number may scare off interested foreign investors, a consequence Ryzhkov either neglected or dismissed.

Although this spring Soviet leader Mikhail S. Gorbachev approved using foreign credit for the purchase of consumer goods like soap powder and panty hose, he and his minister seem to have decided that they are not willing to go further into debt to fill store shelves. If that is the case, they need to find an alternate solution to consumer woes, and find it fast.