Economic Leaders Try to Accommodate 900-lb Gorilla : IMF: The West’s capitalist economies try to figure out just where the Soviet Union should sit. For, if Moscow falters, it could unseat everyone.

Conventioneers in Bangkok got key rings with condoms last week, part of the Thai government’s anti-AIDS campaign. But the delegates and journalists crowding the Thai capital for the last two weeks had more on their minds than the city’s notorious night life. They were there for the biggest financial jamboree of the year. Annual meetings of the International Monetary Fund and the World Bank, held concurrently with a meeting of finance ministers of the world’s seven largest capitalist economies, have become a ritual, like a medical checkup, when the world’s policy-makers try to measure the global economic health.

The results of this year’s exam were discouraging or worse. U.S. Treasury Secretary Nicholas F. Brady started off by warning that most experts were too optimistic. The Japanese added to the gloom with predictions of slow growth, or even recession, in the island nation. Overall, the conferences showed a world financial Establishment reeling from the shocks of the ‘80s, and facing up to the signs that the ‘90s will be even more scary and risky.

Not that all the news was bad. Ten years ago, the international financial community was getting its first good look at the Third World’s debt crisis. The debt is still there, but it is no longer a crisis. Latin debt won’t break the world’s banks, and, after the most disastrous decade in their history, some debtors are beginning to grow. This is good news for these countries, and good news also for places like the U.S. Southwest, where Mexico’s economic recovery is helping to cushion the U.S. recession.

The most riveting presentation in Bangkok came from Grigory A. Yavlinsky, the latest and most radical of the series of gurus-of-the-month in the Soviet Union and top economic adviser to what is left of the Soviet government. His bleak assessment of his country’s prospects shocked the assembled bankers and bureaucrats. The Soviet Union’s economic problems, he said, were far worse than the West--or many Soviets--had realized. Soviet output, he said, is likely to fall 10% this year; the government now funds 50% of its budget by printing rubles.

But Yavlinsky really woke up the bankers when he talked about gold. The Soviet Union’s gold reserves, he said, were only 5% to 10% as large as Western creditors believed. With the republics refusing to hand their foreign exchange over to the authorities in Moscow, the Soviet Union might begin to default on its debts by the end of November. The most immediate threat was that the failure of various Soviet banks that operate in the West might trigger a chain reaction, paralyzing the global bank-clearing system and wreaking more havoc in one day than Third World debt had in 10 years.

The assembled finance ministers and bankers responded rapidly to the threat of a bank collapse: Western governments are now committed to provide emergency aid should the Western branches of the Soviet banks run out of cash. The threat of a global financial collapse sometime between Halloween and Thanksgiving has now been resolved--sometimes central bankers earn their pay. However, when it came to dealing with the broader crisis in the East, the Western world’s economic policy-makers seemed almost pathetic in their inability to cope.

One reason, of course, is that nobody has the faintest idea what to do with the Soviet Union. Soviet officials harp constantly on the need for more aid, but it is unclear what money will do for a country with a ruling elite that is demonstrably inept and ferociously crooked. This problem is aggravated by the lack of central authority in the Soviet Union, and there is no reason to expect change soon. It took the United States 21 years to get from the Declaration of Independence to the ratification of the Constitution--and that was in a culturally homogenous and prosperous nation with a tradition of democratic institutions.

On the other hand, the bankers and finance ministers can’t wash their hands of this mess. It has, of course, little to do with the humanitarian implications of social and economic breakdown in a country with the climate of the Soviet Union. After all, the world financial system condemned hundreds of millions of people to poverty and misery during the ‘80s with scarcely a thought.

But that won’t work with the Soviet Union. It is too large, too strong and too close to Western Europe to be treated the way the IMF treats countries like Peru and Botswana. There is another factor: those thousands of nuclear weapons. Forget the possibility of nuclear blackmail. Think only about a vast flea market in warheads, bomb-making equipment and expertise, as desperately poor Soviet ex-military men and scientists fan out across the world to make a living.

It is difficult to decide which is more depressing: the immensity of the problem or the inadequacy of the Western policy-makers who seem to be paralyzed by the sight--like rabbits in the headlights of an oncoming truck.

The Western leaders in Bangkok spent much of their time squabbling and trying to score political points. The French made their usual disingenuous pleas for the IMF and the World Bank to give more money to the world’s “poorest countries.” What they never mention is that a disproportionate number of these unhappy countries are in the moth-eaten and misgoverned remnants of the French African empire. This empire does little for the French, and the French, God knows, have done little for Africa. But having an empire helps persuade the French that they still live as a great power. They would like to do this on the cheap, however, and this means getting financial aid from the other rich countries.

Meanwhile, the United States was not exactly distinguishing itself, either. Besides the usual and, as usual, totally ineffective pleas for lower world interest rates, the main U.S. contribution to the party was a self-serving--but generous-sounding--proposal that the world write off some of the $70 billion in Soviet debt. It sounds nice, and would be a good idea, but, as the infuriated Germans acidly remarked, Washington was being generous with other people’s money. It is the Europeans--above all, the Germans--who would pay for such a debt writedown. Why? The United States has, despite years of pleading from its allies, refused to lend large sums to the Soviets.

The U.S. delegation rubbed salt on the wounds when a spokesmen intimated that the United States regretted Germany’s “lack of leadership” on the issue of Soviet debt. This sent the Germans over the top: Two years ago, we called them communist dupes for wanting to help Mikhail S. Gorbachev; a year ago we refused to go along with their plans for stepped-up aid. Now U.S. spokesmen say Germans are tightfisted and mean, less generous and farsighted than our wonderful selves.

Behind all the squabbling is a reality nobody wants to face. The Soviet Union wants to trade up--to leave the Second World of communism for the First World of rich industrial democracies. Unfortunately, economics, often called “the dismal science,” predicts something else: The Soviets will be trading down, and joining the Third World. How do you tell 300 million people that economic reform will make most of them poorer for a long time, and many poorer forever? How do you say “service entrance only” to a country with thousands of nuclear warheads? How do you, in short, tell a 900-pound gorilla where to sleep?

This is the great economic policy question of the next decade, and one sympathizes with policy-makers who don’t want to think about it. But there is no time left for shenanigans: The 900-pound gorilla is at the door and wants to see what kind of bed we have prepared for it.

What are we going to say? The bankers and bureaucrats gathered in Bangkok haven’t the slightest idea.