Soviets Sold Off Two-Thirds of Gold Reserves
In a frantic effort to save its collapsing economy, the Soviet Union sold two-thirds of its gold reserves in the last year, spent all of its foreign currency holdings and went deeper into debt overseas, the government’s chief economist said Friday.
Grigory A. Yavlinsky, deputy chairman of the provisional committee managing the Soviet economy, said the Soviet Union, one of the world’s major gold producers, now holds only 240 tons in gold reserves, worth about $2.7 billion.
Yavlinsky, who is shaping the government’s current economic reforms, said the Kremlin sold 470 tons of gold last year, roughly twice its annual gold production, to offset the decline in its oil sales, long its major export, and finance the import of goods ordered earlier.
“Where will we be in a year’s time?” Yavlinsky asked. He appealed in a television interview for public support for a new economic union that would hold the Soviet Union’s remaining republics together in a common market based on radical free-market reforms.
The huge gold sales, even more extensive than most Western estimates, underscored the disintegration of the Soviet economy--and the failure of government efforts to halt the decline.
The Soviet economy is now shrinking at perhaps as much as 15% a year, according to government figures. Inflation is approaching 300% annually, industrial production is down 14% compared with a year ago and foreign trade has declined 30%.
Yavlinsky’s new figures illustrated the growing impoverishment of a country whose natural resources, including huge gold deposits, make it one of the world’s richest.
“Where did it all go?” asked Mikhail Berger, the economics commentator at the newspaper Izvestia. “How did we manage to squander so much money so quickly? At this rate, we will have not an ounce of gold to our name in 12 months’ time.”
As recently as a year ago, many Western analysts put Soviet gold holdings at 1,500 tons to 2,000 tons. Soviet economists, without official statistics on the country’s gold holdings, assumed this estimate to be correct. When the Soviet State Bank reported its gold reserves as 374 tons at the end of June, many Western economists had assumed the Kremlin had a larger, hidden gold hoard.
But Yavlinsky’s figures strongly indicated that Moscow had regularly been selling more gold--sometimes 500 tons a year--than it had mined over the last five years to compensate for declining oil exports and to finance its spending on new factory equipment, consumer goods and agricultural produce.
In the last three months alone, Moscow appears to have sold about 134 tons of gold--about $1.5 billion worth--to pay debts due foreign companies.
So desperate has the Kremlin been for cash this year, Yavlinsky said, that it “pawned” 110 tons of gold, worth more than $1.2 billion, to pay for its imports. Yavlinsky said there was little prospect of paying back the loan and recovering the gold.
The Soviet Union spent all of its $15 billion in foreign currency reserves last year, Yavlinsky said, and the government is about $4 billion overdrawn at its foreign banks.
Moscow’s net foreign debt is now more than $60 billion, according to Yavlinsky, and $17 billion is due in payments each year.
“These figures are not so big for a country like ours,” Yavlinsky said. “The problem is that we have no mechanism to raise the money needed to pay our debts.”
The Soviet Union’s commercial debt so surpasses its export earnings that Soviet officials have warned that the country might default on some loans before the year’s end. The government is asking its creditors to reschedule the loans for longer repayment periods.
Yavlinsky said negotiations on the new economic union are now about three-quarters complete but progressing painfully because of the complexity of the issues.
Soviet President Mikhail S. Gorbachev said earlier Friday that the heads of those republics wanting to join the new economic union would meet next week to resolve the remaining issues. Gorbachev said he hopes the treaty can be signed within two weeks.
The giant Russian Federation, led by Boris N. Yeltsin, is ready to proceed with the reforms alone, Yavlinsky said, and Byelorussia and Kazakhstan are certain to join. The Ukraine and Uzbekistan are proving to be the most difficult in the negotiations, he added.
“Russia has everything for carrying out the reforms, and it will be able to become the center of them,” Yavlinsky said, warning other republics to accept Yeltsin’s terms or be left out. “Russia can simply declare a new principle--'The union is me plus those wanting to join me.’ ”
Meantime, Russian Prime Minister Ivan S. Silayev on Friday formally resigned that post to concentrate on managing the Soviet economy as chairman of the special interim committee. Gorbachev confirmed Silayev’s appointment Friday as the committee chairman.