Soviets Would Pay for Gunfire in Lithuania

What’s the connection between Soviet soldiers in Lithuania and bankers in Frankfurt, London, Tokyo and New York? Simply this: The bankers may be the most effective restraint on the troops, because if the Soviet army takes to shooting Lithuanians, the Soviet Union can kiss its credit rating and its economy goodby.

The Soviet Union has been borrowing heavily--$6 billion last year and $6 billion in 1988--and it now owes $49 billion to Western banks. That’s not excessive for a big economy, and the amounts Moscow must pay annually in principal and interest are still at affordable levels, says Keith Savard of the Institute of International Finance--a Washington-based credit research agency for international banks.

But the fact that the Soviets have been borrowing to import consumer goods--trying to put something in the shops to quell popular complaints--is worrying Western bankers. Consumer goods are not capital goods--machines that produce exports, enabling the Soviet Union to pay back the loans. The current Soviet pattern reminds bankers uncomfortably of Latin America in the 1970s, when many countries borrowed to subsidize the price of food for their people. Once the meal was eaten there was nothing to pay back debt.

Adding to the bankers’ concern is that the Soviets are beginning to be late with interest payments. Explanations that administrative upsets of glasnost and perestroika are to blame for late payment sound to creditors suspiciously like “the check is in the mail.”

Against that background, violence in Vilnius would chill Soviet chances for further loans, just as the invasion of Afghanistan in 1979 halted Soviet access to Western capital markets. And that would spell the end of perestroika, the program of economic and political change that is about to enter a critical period.

This summer, according to word out of Moscow, President Mikhail S. Gorbachev and his economic lieutenants will launch a massive shift to a free market economy. They will privatize state companies by selling shares to the Soviet public, liberalize prices in an attempt to get supply and demand working and move rapidly toward making the ruble convertible--a necessary step if the Soviet Union is to join the international economy.

But doing all that will need Western financing, since the ruble right now is a virtually useless currency--pegged officially at $1.61 but trading between a special tourist rate of 16 cents and a black market rate of 6 cents.

Thus, the “Soviets can afford a crisis less today than they ever could,” says Alan Stoga, chief economist of Kissinger Associates, a New York consulting firm.

The Soviet economy is in worse shape than studies over the years have pictured it. A new book, “The Impoverished Superpower,” edited by Charles Wolf Jr. of RAND Corp. and Henry S. Rowen of Stanford Business School, reveals that the Soviets have been devoting more than one-fourth of their economy to military spending (compared to less than 6% for the United States). Furthermore, the Soviet economy may be smaller than previously thought--only a third or less the size of the U.S. economy.

The truth is, it’s an economy that would be laughable if it weren’t so tragic. Soviet economists acknowledge that in agriculture, up to half of the total crop is lost through waste--from lack of storage to sloppy work. And so the Soviets must pay scarce hard currency to buy U.S. grain--although lately they’ve been buying on credit where they used to buy for cash.

The signals all point the same way: The Soviets need money. So much so that Thomas H. Naylor of Duke University, author of “The Gorbachev Strategy,” says that the Soviet leader’s ultimate aim is to reap hard currency from the West in exchange for granting Lithuania, Latvia and Estonia independence. “Gorbachev asked Lithuania for $33 billion in compensation--an opening bid for bargaining,” says Naylor. “But he knows Lithuania has no money; he’s really looking for some sort of payment from the West, whether delivered through banks or governments.”

Why should Gorbachev get any kind of compensation? Ostensibly for Soviet state property in Lithuania and to relocate ethnic Russians. In Naylor’s scenario, Gorbachev doesn’t oppose self-determination for Lithuanians and other ethnic minorities. It is historical fact, after all, that such self-determination was granted by Lenin himself. Gorbachev just wants to make a much needed buck out of the situation.

And while most Soviet experts don’t think, as Naylor does, that Gorbachev wants to “sell” other Soviet republics such as Georgia and Armenia, they do see possibilities in the Baltic states. “We should make clear we do not condone any violence,” says Wolf of RAND Corp., the Santa Monica research firm that often works for the U.S. government. “But if a $10-billion investment would get independence for Lithuania, that’s not a bad price.”

So for all the threats from Moscow and tanks in Vilnius, Lithuania comes down to a simple equation: Either Gorbachev keeps a tight rein on his soldiers, or he can watch the Soviet economy continue to die.