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How to Respond to the Soviets' Economic Initiative
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11764 |
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CURRENT ISSUES
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4 / 1987 |
2,618 Words |
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Roger W. Robinson
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Declining hard currency earnings threaten the success of Mikhail Gorbachev's economic modernization program and are hobbling the USSR's ability to compete in the high technology race with the West. The Soviet leadership has responded to its foreign exchange shortfall by cutting imports, stepping up borrowing in international financial markets, and by launching a broad economic offensive toward the West. At the same time, the ability of the Reagan administration's national security agencies to help manage East-West economic and financial issues has been seriously weakened by the establishment of an Economic Policy council that periodically excludes them.
Last May, our West European allies administered a major setback to Moscow's long-term strategy of dominating Western Europe's gas markets and increasing its hard currency earnings. The allies decided not to participate in another major gas-for-pipe compensation deal involving the proposed second strand of the huge Soviet gas pipeline that runs from the Siberian fields to Western Europe. The West Europeans instead concluded a $64 billion agreement to develop the Norwegian Troll gas field, as a way of strengthening Western Europe's energy security. That decision alone will eliminate billions of dollars in annual hard currency earnings that Moscow had been counting on for the mid-1990s and beyond. This important development, catalyzed by the so-called "pipeline dispute," is a major policy achievement for the Regan administration and the Atlantic alliance.
Total Soviet hard currency income will fall from about $32 billion in 1985 to an estimated $26 billion in 1986, further reducing the cash available to Gorbachev to bolster his economic modernization program, to support Moscow's client states, to promote international terrorism, and to run a worldwide intelligence network. The hard currency shortfall also compels Moscow to squeeze the economies of its East European satellites even more than usual.
Unfortunately, the reaction of several Western banks and governments to Moscow's economic and financial overtures has been to offer the Soviets subsidized grain and other products and large untied loans (not tied to a specific purpose) at extremely favorable rates.
Concerning East-West trade, the ability of the USSR to expand nonstrategic trade with the West will be seriously constrained if world energy prices and demand remain depressed. In 1985, exports of oil and gas presented over half of the USSR's total hard currency earnings. When one adds estimated earnings from arms sales of about $6 billion, these combined earnings jump to between two-thirds and three-quarters of Moscow's total annual hard currency income.
The remainder of Soviet hard currency earnings are comprised of gold sales, interest on assets, and miscellaneous exports. With a drop of roughly $6 billion in oil and gas income last year, the USSR's projected hard currency earnings of $26 billion hardly represent an impressive annual income for a superpower.
Western banks to the rescue
The Soviet Union has three major ways of responding to this sharp decline in hard currency earnings. It can:
·sharply curtail Western
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