Soviet Republics Claim Assets, But Balk on Debt
Gorbachev trying to build Western confidence in economic treaty
WHILE the world's leading bankers debate how to ease the Soviet debt burden, central and local leaders here disagree over just what that burden is.The disintegration of the central Soviet power base has created a controversy over who is responsible for the country's $70 billion debt - a sum the Soviets are increasingly unable to pay. "We know many of our partners are concerned about how the new union, the new community will honor its debt to foreign creditors," Ivan Silayev, chairman of the all-union inter-republican economic committee told visiting Western businessmen here last week. "It will be repaid through structures that are successors to the previous government," he assured them. Soviet President Mikhail Gorbachev is desperately trying to win Western confidence with an all-union economic treaty, which he says will be signed today. But that accord, like its unsuccessful predecessors, fails to specifically assess each republic's role in repaying the Soviet Union's foreign debt. Republic leaders are anxious to assume their share of financial, gold, and diamond reserves, but they have retreated from similar responsibility for debt. Grigory Yavlinsky, the architect of the economic treaty, argues that the republics should pool their responsibilities rather than divide the debt among themselves. It would "violate creditors' trust" and "commonly accepted norms," he warns. "Money was loaned in a centralized manner, and should be repaid in a centralized manner." Leonid Grigoriev, coauthor with Mr. Yavlinsky of an earlier plan to restructure the Soviet economy, stresses that the West supports this centrist approach. "A common economic space is rational and important for our continued relations externally. But it doesn't take into account political realities," he says. The current grim reality, comments Commersant, the Soviet business weekly, includes republics that subordinate central economic management to their own immediate interests. Armenia is one example among many. The republic passed a law in September stipulating that, as an autonomous nation, it is entitled to its share of the former Soviet Union's gold, diamond, and monetary reserves, regardless of the location of these assets. Armenia avoided mentioning its portion of the debt. Several republic leaders oppose transferring part of their export earnings to the Soviet foreign trade bank so that the central institution can service the collective foreign debt. These expressions of autonomy threaten inter-republican cooperation on many levels. But if republics do not pool at least some of their resources, they will destroy the widely held hope among foreign creditors that, although the Soviets are cash-poor in the short term, they are asset rich in the long run. Earnings from energy, minerals, and other export sales will be generated faster if production and transportation are coordinated. Creditors recognize that without this foreign exchange, prospects for de bt repayments are slim. Germany, the biggest Soviet creditor, is strongly supporting this view. With more than $20 billion extended, German financiers are worried about the breakdown of their debtor. German Finance Minister Theo Waigel repeatedly points to the need to preserve a central Soviet foreign trade bank to monitor and streamline republics' transactions with international creditors. "We've seen a sequence of economic plans and they're all inactionable," says Norbert Walter, chief economist of Deutschebank, Germany's largest commercial bank. "Some politicians in the country do not understand how dangerous it would be to repudiate their debt, and until the Soviets settle old, trade-related debts, commercial banks won't extend new money." Viktor Gerashchenko, head of Gosbank, the Soviet central Bank, faults international lenders such as Germany for exacerbating Soviet credit problems. He says during the past year and a half, the Soviets have lost more than $15 billion in needed credits because Western banks have pulled back from the Soviet market. Political instability in the disintegrating union coupled with the failure of some Soviet companies to repay debts to foreign suppliers has sharply reduced foreign lending. At a minimum, Mr. Gerashchenko says, $3 billion is needed to bridge the gap. This request is not new to the world's bankers. "Gorbachev served notice at the London Economic Summit in July that he wanted debt restructuring," says Robert Hormats, vice chairman of Goldman Sachs International. "Banks are unwilling to extend credit in this environment. They don't even know who the debtor really is." Mr. Hormats, an investment banker, says he would advise would-be creditors "to wait until there is an underlying economic and legal framework." At the very least, he adds, "the republics themselves must figure out who bears responsibility for the debt."