Dueling and Dealing with the Russians

...Since Britain, France, West Germany, and Japan depend heavily on exports, they offer these credits almost automatically...

...That makes much more sense than rattling sabers, or buying new ones for our adversaries...

...But since the Soviet bloc receives a remarkable 80 per cent of its commercial loans via the Eurodollar market, it is difficult to trace the money to its country of origin...

...Nevertheless, a look at the items actually changing hands raises some worrisome questions...

...The Johnson Act of 1934 prohibits American banks from lending money to the Soviet Union, Czechoslovakia and East Germany because those three countries are still technically in default on prewar obligations to the United States...

...Business, alas, is not always just business...

...An even greater opportunity awaits the U.S...

...Arthur Ross, an investment banker, frequently represents the United States at United Nations and NATO meetings...

...Yet as they dispense export credits today, the political heads of Western Europe and Japan must surely realize that their economies will not improve unless the world situation improves and resources, instead of being allocated for arms, are put to more rational and productive use...

...It will not be easy for the West to change its lending habits...

...Perhaps we can both give our opponent the bag of coins and have some positive influence on what he does with it...

...Could you lend me 45 gold pieces...

...And as the Kremlin's military spending has increased, the growth rate of the Soviet economy has declined...

...About one-third of the borrowed money has come from Western governments, either in the form of direct export credits granted by official agencies or as bank loans guaranteed by a government...

...they have paid little attention to how much leverage the financial power centers of their own countries could give them vis-a-vis the Soviet bloc...

...Clearly, the Soviet Union and its allies can maintain large and expanding military forces in Eastern Europe while investing in ambitious development programs only because of their ability to borrow from the West...

...In 1976, they imported $27.3 billion worth of Western goods, some $8 billion of it on credit...

...The statistics for the Soviet Union alone are even more lopsided: 85 per cent of its sales to the West consists of raw materials, and only 8 per cent of technology...

...At present, Poland and Rumania are the only Communist nations unaffected by the amendment...

...Every dollar borrowed for trade and development releases a dollar for military use...

...The massive quantities of Western pipe and equipment the project requires are being financed by a Eurodollar loan, to be repaid with gas going through the connected line to Austria, West Germany and Italy...

...there is not much loan demand in other parts of the world...

...And it is impossible to see how the trend can be stopped in the foreseeable future, because the very structure of the relationship invites Eastern bloc deficits...

...To achieve its desired high levels of industrialization, the Communist bloc must keep borrowing...

...Excuse me," says one, with a flourish of his feathered cap, "but I'm short of cash just now...

...The last would go far toward making the solving of Third World problems a joint, not a competitive, adventure...

...I'll pay you interest, of course...

...Many of the Communist imports are capital goods on long term orders that cannot be cut back without disrupting joint development projects already begun...

...In short, it is time to open our loan window wider, rattle our coins and announce our willingness to deal-if a deal can halt the armaments madness and not contribute to it...

...He then flips the bag of coins to a swordsmith and is handed back a longer sharper-deadlier-blade...

...Future credits to the Communist nations should be linked to disarmament, to detente, to peaceful solutions of border tensions and perhaps to their joining the International Monetary Fund and the World Bank...

...This modern, sophisticated hardware, obtained largely on credit, enables Moscow to upgrade its industrial capacity and sharpen its military sword...

...at present, the figures are 11-14 per cent of GNP for the USSR, 5 per cent for the U.S., although one must not forget Russia has China to think about...

...For although few people seem to make the connection, it is the Warsaw Pact members' huge debt to the West, currently about $45 billion, that is enabling them to increase their military strength...

...But the world has become too complex and dangerous for the West to allocate capital solely on financial criteria...

...Commercial bank loans at relatively low interest rates account for another $20 billion or so of the East's debt...

...The U.S., however, is prevented from granting any significant amount of official credit to the Soviet bloc by a web of legal restrictions, particularly the Jackson Amendment to the 1974 Trade Act, which linked trade to emigration policies...

...The rates remain low (about 7.5 per cent) for several reasons: The Communists pay up promptly...

...So far, Western lenders have mostly overlooked these political and military realities...

...We do know that as of last December, U.S...

...We should fill that need and stimulate our own economy-but only on condition that they satisfy our thirst for reasonable approaches to the awesome problems threatening mankind...

...With Washington and Moscow now edging toward a resumption of the stalemated salt talks, I think it is time to take a closer look at this situation...

...There will always be bankers to succumb to the lure of profit and governments to heed their constituents' clamor for export assistance, come what may...

...Of course, the increased trade floating upon the river of Western credits is assumed to be beneficial to everybody, and it is...

...Moreover, approximately half of what it is taking in from the West has a high technological value-machinery and chemicals, for instance-while the same can be said for barely 15 per cent of what it is sending out...

...We can dispense, therefore, with the popular notion that Eastern planned economies need merely push a button to reduce purchases abroad and eliminate deficits...

...Manufactured goods comprise about 80 per cent of Eastern Europe's overall imports, but only about 30 per cent of its exports...

...The Eastern nations, as they shop for the new credits they will continue to need, will doubtless thirst for more American capital...

...What is more, the above tale has a real-life parallel in the international arena: The United States, Western Europe and Japan-together, the wealthier swordsman-are financing much of the growing military power of the Soviet bloc, whose blade gets longer and sharper...

...Every year since 1970 the Soviets have spent more on defense than the U.S...

...Foreign branches of American banks, though, are exempt from that law, and in 1963, agricultural export credits-often substantial-were also freed from its restrictions...

...An example is the $6 billion Orenberg natural gas pipeline that will run 1,700 miles from fields in the Urals to an existing pipeline at the Soviet-Czechoslovak border...

...Thank you," responds the borrower...

...Here, too, the amount would probably be higher were it not for restrictive laws...

...Exhausted, they pause for a moment to catch their breaths...

...Still hobbled by archaic trade laws, we have not lent the Soviet bloc as much as our resources suggest we could...

...As East-West trade accelerates (it tripled between 1970-75) and the Communist nations continue to buy more from the industrialized countries than they can sell to them, the total indebtedness will soar ever higher...

...commercial bank lending to Communist nations totalled $4.3 billion, or about one-fifth of the East's entire bank borrowings...

...Other joint ventures under way involve similar arrangements for payment of capital equipment from projected output...

...Certainly, my good man," replies his more affluent opponent, tossing over the money...

...Taken as a whole, roughly 60 per cent of the Eastern bloc's exports is raw materials (lumber, fuels, minerals), and 25 per cent is labor-intensive products (textiles, processed food...

...By contrast, 43 per cent of its purchases might best be described as advanced technology...

...Business is business-and I know you honor your debts...

...and the Western banks compete vigorously to lend in the lucrative, active East...