Nalionil Ccnlcr
Impact of Economic Denial Measures on the USSR
An InteUlfeflce AucuaMiit
Foreign
Crater
Impact of Economic Denial Measures on the USSR Q
il- ll
An IoleHlgence Assessment
Information available at0 has been used In the preparation af this report.
This paper was prepared by analysis in lheEconomic Research Comments and queriesand should be directed to
This paper was coordinated wiih the Office of Political Analysis.
O
Impact of Economic Denial Measures on the USSR (
The impact of economic denial measures on the USSR depends critically on whether (a) the United States acts alone or is joined by other major suppliers and (b) the measures are enforcedearew months or are continued for several years. Acting atone, the United States can hurt thc USSR appreciably only by its grain export embargo and.esser extent, by cutting off critical oilfield exploration and development equipment. Thc effect ofne-year denial of grain on Moscow's consumer programs will beonger term curb on US grain would be even more effective if other producing countries cooperated. These countries arc capable of stepping up production to meet Soviet import requirementseriod of severalorr.binauon of Western countries could severely impair Soviel economic growth by refusing to sell steel and steel pipe, metallurgical equipment,roader range of oil and gas equipment. Except for steel, however, the denial would have to be maintainedrolonged period toub .tantial effect. Finally,idespread boycott of the Moscow Olympics would nol hurt the USSR economically, it would tarnish the leadership's image badly.
Of thc measures introduced or suggested in thc aftermalh of Ihe Soviet invasion of Afghanistan, three (grain embargo and denial of lupcrphosphoric acid and fishing rights) would impact mainly on Sovietto upgrade consumer diets. Four measures (denial of oil and gas equipment, metallurgical equipment, communications and automotive equipment and computers, and specialized steelsupported by other Westernimpinge on Soviet efforts to eliminate bottlenecks that arc holding down Soviet economic growth. Limits on Western credits would also retard Soviet growth hy interfering with plans to modernize thc Soviet economy across the board with the hclpof Western equipment and technology.roposed boycott of Ihe Olympics wouldolitical setback for Moscow and deny thc USSR some hard currency. Q
A review of these measures suggestsne-year grain embargo would force meal consumption in the USSR down to thc level of the, which would have an immediate impact on consumerontinued denial of Western grain would severely curtail thc Brezhnev
livestock program ineriod. Losing the s'lpcrphosphonc acid would reduce the uvailability of fertilizer (and thus grain) only marginally. The impactenial of fishing rights would also be minimal, even if Canada and Japan cooperated with the United States. The Soviet Union's catch in the waters belonging to these countries has been declining, and the USSR probably can move elsewhere to maintain its production.
Although the United States is the predominant manufacturer of petroleum equipment, the USSR probably could satisfy mosteeds from other Western countries if ihey did not cooperateS embargo. In anyrief embargo would have tittle impact. Continued denial of US petroleum equipment technology andat least partially supported byore rapid decline in Soviet oil production than we now expect and greatly reduce the chances that the decline could be stowed or stemmed in thend beyond.
Because thc steel industry ranks second only to energyoviet problem area. Western denial of steel products couldubstantial impact on domestic steel supplies for several years at least. In thc longenial of Western Help in building up thc Soviet steel industry would severely impede Soviet effort; to modernize that industry and slow improvements in the technological level of machinery output, ii would delay thc completion of several projects necessary (a) to produce quality steels lhat thc Soviet economy requires in growing amounts and (b) io eliminate Sovic: dependence on imports. Inong-term denial of steel pipe would seriously interfere with Soviet pipeline construction and cut the growth of gas production inloss equal toarrels of oil per day.
Curbs on Soviet purchase of Western computers, communicationsand automotive production equipment would have little economic impact unless all important suppliers cooperated and thc curbs were maintained for an extended period of time. Thc cfTccls would be fellegree in oil exploration, and production would be disrupted in certain new plants that have been built with Western hclp.|
A short-term interruption of ofHcially supported Western credits to thc Soviet Union would have little economic impact. The USSR, if necessary, could expand commercial borrowings and sell more gold. But Moscow probably counts onarge part of its machinery imports iniih official long-term credits. If Western governments and private
IV
banks refused lo extend new credits, thc Soviet Union would not be able to buy more in thc West lhan il could pay for from currentwc expect to fall drastically as Soviet oil exportsoycott of thc Olympics by major Western nations would have almost no effect on Soviet hard currency earnings because most of thc earnings from tourism and broadcast rights have been prepaid. Butoycott would humiliate lhe leadership and deprive the USSR of the prestige and piopaganda opportunities it clearly hopes lo extractell run. nonconlroversial OlymDiCs:
;
.1
iscussion of the interests nnd vulnerabilities of ihc Western dcvclped nationsUSSR, see Political and Economic Position* rfCOCOM aad Other Developedlhe rl/gHan Crisis,
Impact of Economic Denial Measures on the USSRF
The US short-term emba rgo on grain willajor negative impact on the Soviet livestock program tnd on meal produciion. Since little grain is available from other sources, the US denial is tantamountotal Western embargo.
9 grain cropillion tons has left ihe USSR roughlyillion ions short of what we believe is needed to sustain the momentum of Brezhnev's very important livestock program while maintaining the currently low level of carryover stocks. Because of port capacity constraints, however, imports cannot exceedillion tons.
The USSR has boughtillion tons of grain, soybeans, and soybean men! for delivery during the current marketing year. Aboutillion tons remain to be delivered, Including aboulillionillion tons of grain) already contracted for from the United States. Of ibeillion tons the US authorized Ihe Soviets to buy last fall, the USSR hai contractol forillion tons for delivery by the end ofndillion ions for delivery in
Despite the embargo, the United Slates win allow shipment ofillion tons specified in ihe US-USSR Long-Term Grain Agreement. Of thisillion tons have been shipped. Even though the3 million torn are permitted under the US embargo, the Icontrols East Coast and Golfannounced it will refuse to load giain destined for the USSR. Since the West Coastunion has not yet agreed to the ILAort (if not all) ofillion tons could be shipped.
Except for Argentina, major groin exporting countries are clearly supporting the US embargo by agreeing not to sell additional grain to the USSR. In any event, large quantities of grain would not have been available from alternative suppliers before the third quarter of
0he EC is Ihc only exporter now with large uncommitted supplies. Australia and Canada could only marginally expand exports above current commitments before next summer because of logistical constraints; Argentina's harvest is already totally committed until spring,ons of com andons of sorghum may beoscow can probably pick upO.0OC tons of grain from smaller suppliers on the world market by purchasing previouslygrain at higher prices. Transshipment and diversion of embargoeduld.aximum, yield lessillion tons. Thusillion ions of additional grain might be availablee USSR before midsummer, reducing the domestic shortfall fromillion tons to betweenndillion
' milk Iht Shortfall
Moscow has the following options in adjusting to the shortfall:
down its small cushion of gra'nillion tons).'
Reduce feed rations per head of livestock by cutting rations.
Reduce livestock inventories, especially hogs and poultry.
Increase the amount of flour milledon of grain, thus reducing the quality of bread.
Increase meatalthough world supplies are tight I I
1 ArtmUni repealed ly Bill btMM* to upon lubauniiHy mar* grata after It SO
'These estimates ana me thai mJ miPios low of |taia permitted by the USOaWaMBIhese art carrpwee tiocfca aad do not include ibe rckawc/fram from atnicfkSomequantity of ftsirt if held lu awprrfy the military fortes, sa wallcivilian naiixn, "its needed rood is lime ofBaaed on pail beaaiior. wehe Soviet*not rtlcaac these reserves Is peacetime |" ']
THbt>Meiri* Tom
USSR: Purchases and Imports of Wetter. Craln. Soybeans, sod Soybraa Meal
Jt
*
0
lit :
inairyiow
Shipced
Throat)!
O
Remeinine. To b* Shipped
New Orden
Eipeeted0
I
OfwUcfc '
o 1
:
Suics
5
'
dentins
5
ountries haveIhey wlII not tiin additional iratn
' Ammlngillion loni permitted under United*lth the USSR.
emoerto are (hipped, despite Ihe ben currently Impoeed by the IInclude- estimatedn Mhlpment endn-on of
I I 11
ihe embargo. Moscow will probably drawaa far as possible and slid be forced iofeeding. This alone could lead to areduction it- meat output from IheUnder similar post situations Moscowresponded to crop shortfalls bydbtress slaughtering. Increased slaughter leads toirx esc In meat production. If ihepast patterns of behavior ir. the face of ain grainercentin hoc numbers, for example, could leadinillion-ton increase in meat ppxluc;ion. Theeffects ol decreased feed availability andslaughter rates would reduce meal outputleast vi million tonserus be aboul the level of theIn addition to the reduction in the availabilityof possibly more importance is theto ihc Soviet populationv-rns ofof Ihc embargo from Iho VOA, QBC, and
I'. i1 .
tfHger flats Outlook
Meat production problems will continueelurn to average crops01
improve the feed situation and could add up toillion tons to meal productionhe need to rebuild herds, however, would offset two-titirds of this potential gain. The higher meat output possible1 would still bo below8 level.1-
Over Ihc nexi fe# years we believe( grain import needs will range fromillion ioillion 'ons annually, assuming average weatherontinued leadership commitment to expand output of livestock products. The US-USSR Long-Term Grainpresently scheduled to end inllows tho USSK toillion tons of grain annually from the Uniied Stales. Anillion tons annually probably wouldvailable from non-US suppliers, depending on theirf cooperation with Ihe US embargo. If these imports are not enough, the resulting deficit could only be filled by additional quantities from the United Slates. Hence, even if the US exports the maximumillion tons currently permitted under the LTA Ihe Sovietmighl have to curtail the highly publicized livestock program already announced forlh five-year plan. T"
Phosphate FertlUitr
Accordingytar fertilizer exchange agreement concludedroleum Corporilion was lo sell Ihcillion tons/year of supcrphosphoric acid, purchasing in return ammonia, urea fertilizer, and potash. The Soviets werehe superphosphe.ric acid to pr jduce liquidairlyercent) phosphate nutrient content. The liquid conptcx fertilizers were to be produced in seven installations ordered from Fr-nch firmsonstruction of at least three of these plants was completed by1
The USSR has experienced citron ic shortages of phosphate fertilizers for many yean. More than half of Soviel available land is deficient in phosphorus, which Is needed for rapid seed formation, plant maturation, und resistance to coldin tne short Soviet growing season. ^
A short-termUS-only orhurt the USSR to some degree sinceertilizer would be available for Soviet crops, including grain. If the shipments of US suxrphosphoric acid tc tho Soviel Union fail to materializehe Soviet liquid complex fertilizer plants probably would be unable to operate or could operate atmall fraction of capacity. The maximum loss of such fertilizer would amount to anons,ons of nitrogen. If we assume thai all this fertilizer would have been applied lo grain, the potential leu of grain would amountillionecause of construction delays, however, the Soviets wouldubstantial shortfall In lhe embargo on shipments of luperphosphoric acid from the US. Thc potential impact on grain output ofhortfall wot'd therefore be somewhat less thanillion tons indicated above. P
The Soviets could offset lo someonger-term embargo imposed only by lhe US by importing from allernativeu concentrated formultilateral long-term embargo would foce the Soviets to produce the fertilizer raw materials themselves nnd could aet back their liquid complex fertilizer programears.
Table 2
Thouund Mettle Torn
Sottet Caleb and Quotas In US Water*
la US waiert
CMCtl i" percent of total
in US
of
laken
TheilePreliminary.
Fishing Restrictions in US Waters
President Carter's deci'.ion to reduce Soviet fishing quotas in US waters from lhe prcvh.-isly0 quotaons0 tors will havemall impact on overall Soviethe Soviet Union harvested anillion tons of fish, or roughlyercent of thc world catch ofillion tons. Of this total only about ihrcc percent,ons, came from US waters (see
9 Soviet catch in US watersharp decline from Soviel operations there In thc. Even before Ihe imposition of theile economic zoneoviet fishing vessels began lo reduce their operation* in US waters.he Soviel Union lookons of fish inons in lhe Atlanticons In lhe Pacific. Moreoviet fishing vessels operated in the Atlantic alone.
Since thc- .nlle economic zone went into effect, however, the Soviet Union has largely retreated from US fishing groundsoncentrated on other tithing areas around the world.he Soviet fish
Secret
catch In US water* hoi dropped to about one-third its former level and, more importantly, toercent of the allowed US annual quotas. Some of the reasons for this decline are:
The USSR has expanded fishing operationsest Africa, where the Sovici catch has jumped5 million tons5 toillion tonsxtensive new fishing aid agreementa in this area have given the Soviets access lo now fishing grounds as Well aj_Dolitlcol/eoonomk leverage In ihcorld, I
Sovietfleets have increased their exploitation
ofiers.he Soviet catch in home waters hns increased byons, I li
he high cost of operating In ihe Norihw -si Atnlntic has made fishing in other areas more lucrative.'
esult. President Carter's decision to gram theishing oaoia of0 tons0 will resultet eduction of onlyons from their catch lastamount that probably could be made up elsewhere. In terms of the animal protein in the Soviet diet, this shortfall represents lessercent of the present consumption of animal protein in the average Soviet diet.
A combined boycott of Soviet fishing vessels by Canada and Japnn probably would not have much of an impact of the total Soviet fish catch. Although vite Soviet fishapanese water* las; yearons, the Japanese quota In Soviet watersons.n on Sovici fishing vessels by Japan would undoubtedly lead Moscow to retaliate. The Soviet fishing quota in Canadian waters wisons last2 perceni of the USSR's total catch. Canadian fullingo not operate in Soviet waters.|
Petiolrum Equipment and Ttchnolo*}
AUS-only embargo0 would have some impact on Swiet oil production over the next several years. Much of Ihc US equipment ordered in recent years to stabilize or increase output has been delivered, for example, electric submersible pumps. The major exception is ihc siillion Dresserlant. Only about one-third of0 million In
of which will originate in Westernbeen delivered to thehort-term embargo of tho undelivered equipment would set back the plant's start-up dale
No other major US conincts which would affect production in the short-term are outstanding. Denial of other items such as additional pumps, drill bits, drill pipe, rigs, and well logging equipment would hamper oil operations but have little effect on near-term production. The impacthort-term embargo by the entire West mightomewhat greater effect on production, although Sow much is uncertain. None ofift equipment ordered from France for the Wat Siberian oilfields (aboutercent of the total package) has been delivered. The US subcontractor has shipped most of its small share of this equipment. The gas lift equipment is designed to reduce the decline in oil output by as muchnd increase the share of oil eventually recovered.
A short-termby the United Slates alone would have no impact on Soviet gas production since ihcy very little from the US. Thes induslry, howevr. is greatly dependent on other Western countries for large-diameter pipe,andhort-term embargo by ihe entire Wesl would probably begin to take effect within ihe year, depending onuipmeniutUSSR probably could recover rnthcr quicklyhort-term cut-off by accelerating in purchase of such equipment once the embargo were lifted.
A Icr.gcr term embargo couldajor imrs-ct on Sovici oil production in thenly if sustained for many year* with acme cooperation from our allies. Although US firms dominate the world mnrkci for petroleum exploration and production equipment, their position could be seriously eroded in two or three years as other Western suppliers enter ihe market. If, however,US long-term embargo were to be at least partially suppctcd by other Western countries. Soviet oil produciion probably would decline more rapidly than we now expect, greatly reducing the chances lhat the fal! could be slowed or stemmed in the
i and beyond. Moreover, the lack of Westernand expertiseean would haveimpaci in the latter half ofassistance is vitally needed for deepofTshore exploration and production. t
The effectong-term embargo of Western gas equipment would bo severe and could cut the yearly growth in gas productionnercentercent, orf oil equivalent. The impact ofecline would be magnified because Moscow is counting on rat id growth in gas production io offset stagnating oil and coalong-term cutoff would accelerate progress within CEMA to develop gas pipeline equipment comparable to lhat currently purchaseduncertain prospect at best-P
Steel aad Steel Prod acts
The United States docs not now and wilt not sell steel to theestern embargo, however, would have serious consequences for lhe USSR. Soviet steel impomveraged over il billion per year and apparently were substantially highermports were split roughly equally between (al large-diameter ateel pipe for gas and oil pipelines andide range of other specialty Heel producti. Q
Pipe imports support the USSR's ambitious pipeline construction program, especially for natural gas transmission. The amount of domestic pipe production -is unccnain, but theillion tons imported from the Weat9 probably accounted for about three-fourths of the USSR's large-diameter pipe needs,
West Germany has Ic.ig been Moscow's major source of large-diameter pipe, and West Germany's Manncsmann hasipr plant dedicattd mostly lo the Soviet market. In recent yeanports have risen sharply;9 West Germany andercent of lhe Soviel pipe market. Italy and France supplied moste remaining portion. Soviet pipe purchases until ihcainly were tied lo gas deliveries to Western Europe under gas-for-pipe deals, while purchases5 have been straight commercial transactions under long-term
Impaciipe Embargo
A multilateral short-term embargo introduced0 by the USSR's pipe suppliers would delay the pipeline construction program only marginally. We do nol know how much pipe Ihe Soviets hove stockpiled, but an inventory of several months seemsonger multilateral denial of large-diameter pipe couldisastrous impact on Soviet pipeline construction and, in turn, gas production. As notedotal embargo would halve th: rate of increase in gas
product ion J
l l
Effect of am Embargo oa Noatubatar Sleet Imports of nontubular .feci products grew steadily duringevel of moreillion tons annually as the Soviet steel industry began lo expand more slowly. Production9 actually fell for thc first time since World War II, leadingubstantial jump in steel impor*.s. Although nontubular steel imports represent less lhan three percent of rolled steel output, the substantial amount of hard currcncupenl for steel imports testifies lo their hnpor*ance.
An embargo by the USSR's steelGermany, Japan, Belgium, and FranceIdajor impact on Ihe USSR. Sieel imports are required to overcome current produciion ihortfs'ls and are probably needed soon. In thc long run lhe effectultilateral embargo would be even more serious. Moscow's dependence on lhe Westey share of its steel supply will probably continue or even increase. The embargo wr uld reduce supplies of an essential inputide range of Soviel industries.^
Metallurgical Equipment and Technology
A short-term embargo of metallurgical techn&!ngy for both the steel and aluminum industries would have little Impact if imposed only hv thc Uniicd Stales because simtl.it technology is available from other Western countries. Somesacrifiov. would be involved for thc Soviets because sot ic US technology has certain technical advantages and because of thc convenience of relyingeading supplierj
liie two most promincni ond immediate detli Inrolv-Irig ihc Uniied States arc tho Armco contract foracility at Novolipctak loon* or electrical steel and the Alcoa negotiations toon per-yenr aluminum smelter in Siberia. The So*lew would turn to Armco's French competitor or perhaps to Armco's Japanese partner if Armco dropped out. Alcoa has already canceled negotiation* wilh the Soviets: the Intler will probably opt for French technology if France does notin the embargo. I
A short-icrm embargo of metallurgical equipment and technology by the entire West would more seriou'iy affect ihe Soviet *tecl industry. The embargo would set bock schedules not only for ihe Novolipeisk projectoumber of other project* designed lo produce the quality steels needed in growing amounts and to reduce Sovici dependence on imports. The slowdown in steel industry growth in recent yean has cxaecrba'cd trie problem of import dependence. (As mentioned earlier, the Soviets arc now spending over S2 billion annually for Western steel and steel product* )
A particularly serious blow would be suffered by the USSRst Germany were to back oul of contract for the project at the Kursk integrated steel plant based on direct reduciion technology. The USSR is counting on the Kursk plantajor new source of high quality steel including bearing, spring, alloy, and structural steel graces. An embargo would also email sacrifice for the Wcs' German firms, which have already incurred substantial tipcnics in equipment nianu feet ure. Q
A longer term US-only embargo would increaseon alternative suppliers and probablyUS participation in technology andwhile having Utile eflect on theA longer term Western embargoihc on-going Soviet program to useic modernize the Soviet steel industryit lo the changing needs of theWestern equipment and technology,state of dependence on imports of itcclprolonged well into ihe
The consequencesestern cmba rgo of technology for the aluminum industry would be far less serious. The USSR already rankseading world exporter of aluminum. Western participationew Siberian smelter is linked lo increased exports, particularly lo Western markets under compensation orrnngemcnts. The Soviets would accept slower grow tii in ihc aluminum industry because domestic consumers would not be hurt In any event, the USSR would have little difficulty in espnnd'nc domestic smelling capacity as Ihc need developed. Bv doing without Westernhowever, ihc Soviets would forgo someFaced with manpower shortages in the metal! jr-gical industries and elsewhere, iheyeen particularly nltractcd by Alcoa's highlv automated
Computers, Com mun lea lions Fauipmcnt. and Motor Vehicle Production Teehnnlofy
Computers
A US-only short-term embargo of computerwould cause Ihc USSR some inconvenience, for example, the USSC. wants additional computrrfrom CDC to expand the seismic processing capabilities ofan existing CDC computer at Narofominsk (CYBER-7J) byercent. Denial of Ihis equipment will inhibit Sovici ability to process petroleum exploration data. In the lunger run US denials would have little effect since most kinds of computer equipment can be acquired from other COCOM countrica. fj^
An embargo by Ihe entire West could have aimpact For example, the USSR urgently needs help in the development of software,S firm. Applied Dala Research, has been licensed tonrovidr iho USSR with software packnges tin can be used io develop other software. In addition, computer spare parts are needed io maintain US computers r: the Kama Truck Plant. Without these pans, production at the Kama foundry could be expected lu iVw downely. Similarly the USSR hat many large Wesiern computer systems in place, and lack of spares wouldumber of civilian applications. Q
Finally, lhe USSR has been buying Westerninicomputers in fairly large numbers for several6any of (hem are used innd processM.Such purchases are certain to continue forjmany years, possibly in increasing volume. Joint Western denial of such systems wouldrogress In many areas until domestic production picks up the slackf^
j ' i ' . i 1
Communications Equipment
A unilateral embargo of communicationsthe United States would have little effect. The States isajor supplier to thc USSR,of interest to the USSR is availableCOCOM and non-COCOM countries.does import selectively from the West, bothits technology and to completeFor example, France recently contractedthe USSRultimillion dollartechnology package thai includesswitching systems and theirWith French and otherin the embargo, much of this andtechnology could be preventedthehort-term embargo wouldeffect, since by their nature significantin telecommunicationsong timeA long-term embargo would delay butthc modernization and expansion ofp""!
ij:
Motor Vehicle Production Technology Most automotive production technology isrom other Western countries, althoughpecialized instances the USSR prefers US machinery. For example, the United Slates has contracted toecond engine assembly line at the Kama Truck Plant.S-only embargo. Ihe planned expansion ofdicscl engine production would beor lhe next several years androgram to which Ihe Sovieis haveigh priority.estern embargo the delay would be even longer and more costly since ihe Soviets would have lo allocate their own resources to the effort.| j'
Credit
A trilateral cutoff of credit by thc Uniled Slates wouldegligible economic impact on thear. on US leading would apply only io US commercial banks because the US Eximbank has been prevented from extending credits to the USSRS banks ate not important lenders lo (he Soviet Union. As ofS banks and ineir foreign branches had only0 million in loans outstanding lo the Soviets,ercent of lhe USSR's total external debt. Furthermore. Soviet use of US bank credits has declined byercent over ihc past year. Foreign branches of Ui. banks account for more than halfcf US bank lending io the Soviet Union.
:
Western governments have provided the USSRillion of officially supported ercdils including those amounts committed to signed but as ycl uncompleted conlracts (secn9 billion has been offered for fuu'e orders. Moscow has borrowed an additionalillion from private sources.utoff in all Western lending would not seem io pose severe problems to thc Soviets in the shortithdrawal of credit off:rs by Western governments would have practically noon Soviet imports since these credits have not been committed to signed compels.evocation of guarantees commuted to signed conlracts would not seriously threaten Moscow. The Soviets could forgo some planned imports of machineryuipmcni in the short run since iheyacklog of already imported machinery and equipmenl awaitingThc USSR could finance priority imports by new commercial borrowings. More likely Ihe USSR would draw down deposits in Western banks and/or step up gold sales. In fact. Moscow could channel much of its reserve* and revenues from current gold salesearmarked for grain purchases lo meeting other importrceie on Soviel assets in ihe West would probably present Mo*cow wiih Ihcproblems in financing its trad: in Ihe short irrm since il would undermine its casl. position.
Billion US S
Estimated Western Financial Exposure to thc USSRofunej
j!
Commtrchl Bunk.
Guannten'
Eiiwnre
l led Kingdom Weal |" Germany
'
,|
:
.ted States
;
The ta'imateaofcourto financial eipcnoh* USSRout estimates of Soviet eitemal debt aton. ofDIoa tt own! to private lenders endtoofHoil lenders) for lhe foltonntCoauncicral bash leading ititiM.'j Indaie loan*ark (III) and latenuuoaa] BankCooperation ,
(bl Go-ernment-iuaraateed totals Htclaoe bcahdnwn credits end undrawn commitment! on signedstimated from itaiitlie* reported by Ihe Berne Union, which include both credit principal and future iatcrest payments. Wa decapluliied iheae data by assuming average credit termsear malBrllyercent taiereat rale
1 Other bank lending iododea claim* of bank* in Canada.Netherlands. Ireland, aad offshore braacacaof US baau InCaymananama, Nona Kong, andgovr inending include* commit meatsDenmark, Finland, the Netherlands, Norway. Spain,
A ions-term"tt embargo would cause serious difficultiese USSR. Moscow plans toajor share of machinery and equipment imports iniih official long-term credits. It is now or soon will be holding negotiationsjor Western governmenis on mul'iyear credit line*.
A refusal by Western governments to extend new credit would not only deny Moscow access to long-term credits at favorable rates but also would ',etrimental impaci on commercial bank lending.
Mfor its part, would probably be reluctant to
arge increase in its commercial debt given the less favorable terms available from Westernbanks. Q
An extended credit boycott would hit thc Soviel economy hard. Lacking Western credits. Moscow would be unable to acquire Western resources in excess of its own earnings from exports, services, and gold sales. In particular, the USSR would be unable to use Western credits to cushion the impact ofs expected toapid falloff in earnings from oil exports in lhe. | |
Bo> cottmt the Moscow Gam.*
US refusal io participate in the Moscow Olympicsat'er of principle wouldajort to the Soviet leadership. The embarrassment would be greatly compounded should other countries follow thc US lead. Without US participation, the Games would lose much of Ihcir importance and edge. Moscow wanted the Games in large part for political reasons and woulda USits actions in Afghanistan had cosl it at least some of Ihc prestige and propaganda opporluni'ics it had hoped to obtain.
lie Sovieu would blame lhe United Slates for politicizing Ihe Games and attempt to explain away US absence as part of an ongoing bilateralMoscow would find it difficult to explain to ihe Sovkt public the absence of several WesternIn anycaled-down version of the Games would bs. held, with "friends andhe nonaligned, and al least some developed countries participaling.
Il is too early io lell wheiher West Europeans willoycott of thc Moscow Olympics. France and West Germany have said (hey will nol but in recent consultations West Germany has left thc possibility open. Many governments point oul that Ihey cannot entirely control ihcir Olympicut ihe Netherlands has reminded its allies lhai pressure can be brought to bear (the Netherlands, among others, boycotted6 Olympics nf(cr ihc Hungarianonfidence in ii US bcycoii wouldIncrease thc likelihood of WcMcrn support.| |
All Olympic Gtmes have Important politicalpart icular ly for the host. This is especially true for Ihe Soviet Union, which views its sponsorship of ihe Gamesignificant boos: to its prestige and even lesitimacy in the eyes of other countries. Domestically, mass sport haa been an important tool of mobilization since, and finally holding the Olympic on Soviel soil will focus international attention on the USSR and generate prideopulace sensitive to the meaning of political spcrt.oycott could prove extremely troubling to the leadership and possibly could resultopular perception that the country had been humiliated by the regime's actions in
Inside theoycott could, by itself, hearten some dissidents. But the domestic policies thai might be adopied byregime determined to settle the Afghan crisis militarily would probably worsen the position of the dis' 'tsand ihe general public alike.ott would keep Ihe Afghan issue alive and force ihe Soviets toontinuing barrage of criticismome sections of the international community. The Soviets, however, wouldbe able io play the role of an aggrieved partyartially sympathetic international audience and would iry to use international disagreements over Ihe boycott lo exacerbate tensions between the Uniied Slates and other nations, including some close US allies. F^
We believe the economic impact on the USSR of an Olympic boycott woulO be small. In support of its bid to host0 Games the Soviet Union has been engagedassive S3 billion building andeffort involvingpcrts and tourist construction projects. This ambitious program has been under wayime when the country alreadyerious construct ion backlog and lias been keptk only by importing construction teams fromas of the country and overseas and by curtailing non-
Olympic building in Moscow. The USSR also is training as manyorkers to cater to the influx of tourists expected for the Games,oreign visitors. Noretbelcss. Soviel official-will claim, with some justification, that thesewill not have been wasted if the Olympic* are not held. Moscow needs public buildings and facilities, more housing, and better tourist accommodations in any case. From the beginning, the Soviets have attempted to hold down superfluous spending by not bu.Hji.ug facilities that could only be used for0
he main, lossesestern boycott of the Games would be limitededuction in the0 million in anticipated hard currrency revenues, largely from Western broadcasts rights and from tourism. Receipts from the Uniied States could5 million, and0 million could come from West European and Japaneseajor portion of this income (perhaps as much ass in hand, however, and the Soviets in thr eventoycott would balk at refunding any cash already received. Mostillion due for US broadcast rights, for example, has been paid. (NBC's contract with tbe USSRforce majeure" clause that might apply if ihe Games were boycotted. Moreover. NBC has reportedly coveredf its out-of-pocket expenses in the event the Games do not lake placeolitical risk insurance policy with Loydi oforeover. Westerners wishing lo attend the Games apparently were required to prepay Olympic tour fees by ihe endor example, all Americans traveling to Moscow were required to sign up0 tour package, including air fare. Barring an outright cancellation of the Games,would argue lhat foreign visitors are welcome regardless of individual country participation.
Seeett
Appendix ;j;
OECD Exports lo ihe USSR
Total OECD Exports to tJ USSR
if i;
US S
t ;l 4 a 1
Germany
'
Stain
18
10
Klnjdom
A-2
> I I 1
OECD Exportsgricultural Products to lhe USSR
i:
US S
"
OECD
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