Entree to Global Economy Now Faces Blackball

The conservative coup that ousted Soviet President Mikhail S. Gorbachev has brought to a sudden halt wide-ranging international efforts to integrate the Soviet Union into the modern global economy.

On Monday, senior officials in the United States and other major Western powers issued warnings that they are likely to freeze current Soviet aid programs, as well as their plans to expand trade and investment ties with Moscow, if the coup brings democratic reforms to an end.

A senior Bush Administration official said that the White House is likely to put “everything on hold” in terms of the expanding economic ties between the United States and the Soviet Union, “until events are clarified.”

“If a hard-line faction gains control, it’s going to be very difficult to proceed on bilateral economic programs,” the official said.

The official also warned that a severe crackdown may prompt the Administration to impose tough new economic sanctions on the Soviets.

In addition, the Administration’s proposal to extend most-favored-nation trading status to the Soviet Union, giving Soviet goods greater access to American markets, is now virtually certain to be killed in Congress, Administration and congressional officials said.

“As of right now, no one is going to give them most-favored-nation status unless we see some very big changes,” warned Sen. Orrin G. Hatch (R-Utah) in an interview.

America’s European allies also warned that further assistance to the crumbling Soviet economy is now in doubt. German Chancellor Helmut Kohl said in a press conference that Germany, which has been the biggest donor to the Soviets, will not provide more aid unless internal political and economic reforms are allowed to proceed.

Kohl’s tough stance is significant, because the Germans, more than any other Western nation, have tried to push the Bush Administration toward providing the Soviets with more cash assistance as a way of rewarding Gorbachev’s reform efforts. But Kohl’s statement makes it clear that Germany will follow the lead of the Administration in freezing aid if the coup holds.

Meanwhile, Soviet efforts to gain entree into many of the West’s most elite international economic organizations--which not only could give the Soviet economy greater legitimacy but also could provide access to badly needed Western loans--seemed endangered Monday. In July, Gorbachev’s government applied for membership in both the World Bank and the International Monetary Fund, but the United States and its allies have enough voting power to keep the Soviets out of both lending agencies.

The coup also will worsen the Soviet Union’s mounting international debt problems, while prompting foreign businesses to put all new investment plans on hold, analysts said.

Even before the conservative takeover, leading Western banks were refusing to finance projects in the Soviet Union and were said to be reluctant to extend credit for Soviet purchases of grain and other agricultural products in the West.

So while the outcome of the coup remains in doubt, it seems clear that the growing political chaos in the Soviet Union has severely undermined Moscow’s ability to gain membership in the global economic community.

“This is a serious blow,” said Gabriel Schoenfeld, a senior fellow in Soviet and East European studies at the Center for Strategic and International Studies in Washington. “These people who have taken control are the same people who a few months ago publicly blamed the problems of the Soviet economy on the CIA--so that can’t help attract Western investment. These are not people who have much sense of what the Soviet economy needs. So I think Western investment will be put on hold, and I think the economic slide will continue.”

While Gorbachev largely had failed to get his nation’s economy on a sound footing, he at least had been pushing the country slowly toward reform. He labored long and hard to drag his rickety economy into the modern age to gain access to Western technology and foreign investment.

But his refusal to fully embrace free-market economics--along with the thicket of legal, political and bureaucratic problems facing Western firms trying to do business in the Soviet Union--meant that foreign investment efforts had not gained much momentum even before Monday’s coup.

Many firms that had not yet invested in the nation were waiting for the implementation of a treaty between the Soviet central government and the nation’s republics--a pact that now appears dead--before deciding to move forward.

Chevron, for instance, was developing plans for a major oil exploration project in the Soviet Union but was holding back until the treaty determined whether natural resources such as oil were owned by the republics or the central government. That treaty, which would have turned over resources and power from the central government to the republics, was due to be signed by Gorbachev today and apparently was the key reason for the timing of the coup.

With American companies scared off by legal questions over ownership of assets and their ability to send their profits home in hard currency, U.S. investment in the country has never gained much momentum. U.S. businesses have invested a total of just $360 million in 247 projects in the Soviet Union since 1989, according to PlanEcon, a Washington-based research firm. Foreign investment by all nations during the same period has totaled just $3 billion.

So while the West loudly applauded his reformist efforts, Gorbachev was frequently rebuffed by the United States and other industrial powers. With the exception of Germany, the West repeatedly held back from opening its coffers to help Gorbachev’s reform efforts, limiting aid primarily to agriculture loans and technical assistance.

But in the wake of Gorbachev’s ouster, the West’s refusal to provide greater financial aid is likely to come under greater scrutiny. In fact, some analysts argued that the West may be partly to blame for weakening Gorbachev. His domestic political standing was hurt after he repeatedly sought Western financial assistance--and was publicly turned down.

“It can’t have helped that Gorbachev went cap in hand to the West and didn’t get much for it,” observed John Williamson, an economist at the Institute for International Economics in Washington.

But others argue that the Administration has now been vindicated in its decision to hold back. Western assistance, they said, never could have made much of a difference in solving the massive problems of the Soviet economy. And greater foreign investment in the nation, they added, would have only heightened fears among Soviet conservatives that the West was exploiting their domestic problems.

“The scale of Western aid was not driving these things,” said Schoenfeld.