Created: 4/17/1974

OCR scan of the original document, errors are possible

Soviet Borrowing from the West


Prior4 the USSR was unable to get anything better than medium-term5 years) from the West, but4 the United Kingdom broke with the Berne Union guidelines, which calledive-year ceiling on export credits to Communist countries, and provided the USSR0 million line of creditepayment period of up toears. Competition soon forced all other West European nations and Japan to also drop the Berne Union accord, and long-term creditsears) soon became the rule (see

The Soviets were quick to use their good credit rating and their ability to channel large contracts to desiredto foster credit competition among potential suppliers.esult the French, Italians, and Japanese have allespecially preferential credits in support of Soviet purchases. The United Kingdom extended large credit lines to the USSR at normally competitive rates, but the West German government has yet to subsidize export credits in support of Soviet purchases.

The USery minor role in financing Soviet tradend reported claims of US banks and other businesses


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against the USSR prior2 woremillion or lessallhort-term basis. Soviet purchases of US equipment and technology from US-based firms were limited,esult, to those items not obtainable elsewhere. US subsidiaries in Europe and Japan which are able to utilize government subsidized creditsubstantial amount of Soviet business. In some instances, the USSR was able to secure foreign government-backed credits which coveredof US-produced goods required for larger projects being undertaken by the USSR and its European partners. or example, the Soviets prevailed upon the Italians to0 million loan to cover Soviet purchases of certain equipment and technology from US-based firms in support of the Soviet-Italian construction of tho FIAT plant at ToJyattigrad.

The Emergence of the US

With the beginning of detente, however, the US quicklyajor supplier of credit to the USSR. , US coiimercial banks acting without Exirabankillion in long-term loans (see Tableo cover Soviet purchases of tractors and pipelaying equipment. Since the opening of the US Exirabank window in the fallximbank has0 million in long-term credits in


support3 million in Soviet imports. In addition, Eximbank has given preliminary commitments8 million in support of an0 million in potential US ex-.ports. Soviet requests for further Eximbankillion for exploration of natural gas reserves at Yakutsk, are currently under consideration. The USSR also drew downillion in three-year CCC credits23 toortion of8 billion in Soviet grainfrom the US during this period.

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Debt Composition

The Soviet debt structure has continued to lengthen during recent years. During thea the length of credits extended to tho USSRears, but longer credits are now being offered with increasing frequency. The increased credit lengths are due, in part, to the type of goods the USSR is seeking to inport as well as to the increased competition among Western nations to provide credits to the USSR. The USSR has requested credits of over ten years with payments deferred for several years to support imports of plant and equipment for the large scale development projectsTyumen oil, Chulman coal, Yakutsk natural gascurrently being discussed with Western firms. The US has proven to be particularly accommodating to Soviet requests, as evidenced4 million in Eximbank-dircct credits granted to support Soviet purchases for the Kama river truck plant. In this case the USSR2 year credit, with payments ofdeferred Recent British and French credit lines. In contrast,aximum repayment period of0 years.

Other Sources of Funds

The USSR has also made increasing use of the Eurodollar market in financing its trade with the West. Operating through

its European banks, the USSR has been able to attractdeposits at prime rates. The USSR made particularly good use of this sourceapping the Eurodollar mar-ket for several hundred million dollars in both medium-term and short-term credit to financa imports of machinery and groin. The burden of these loans was considerably lightened by subsequent dollar devaluations and the ability of the USSR to soil large amounts of high-priced gold.

Soviet Debt and Debt Service

The increased use of medium-term and long-term Western credits has ledapid increase in the USSR's debt to the West, which reached an6 billion by the end3 (see The actual burden of the debtunction of debt service, the percentage of total hardexports committed to the annuo] repayment of interest and principal on outstanding credits. The Soviet position in this respect has also worsened, however, rising7 to The debt service ratio would have been even larger had the USSR not been able toWestern credits at such favoroble terms.



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Soviet orders for Western plant and equipment have risen sharply in recent years, reaching irores billionp from0 million two years earlier. Long-term Soviet debt should rise substantially as these orders are filled and as other purchases are made. If the Soviets are successful in concluding some of the developmental projects currently -under discussion, long-terta debt couldillion by the end of the decade.

The ability of the USSR to manage this larger debt,will be significantly enhanced by the record increases in Soviet export earnings which are expected during the next


two or three years. Kajor price increases for traditional Soviet raw material exportsoil, coal, timber, diamonds, chemicals along with expanded deliveries of natural gas could push total Soviet exports to the developed West to perhaps S6 billion4 and S7 billioniving the USSR substantial export surpluses. In contrast, Soviet hard currency export earnings were7 billion esult,5 debt servicedepending on priceswould be no greater thannd perhaps even less. In the longer tern the outlook is less favorable, largely de-cause of an expected leveling off and eventual decline in the volume of crude oil exported to the West.

A rapid increase ir. export earnings may affect Soviet debt manageirent practices. emonstration of thestrong Soviet financial condition, the USSR recentlyajcr deal with West German firms callingash payment of0 million in plant and equipmentelletization plant and steel Dill at Kursk. The Soviet decision to pay cash vas partly notiveted by the refusal of the West Gercar.s to provide low interest credits, but it is unlikely thatUSSR would have had such an alternativeear ago. The improved Soviet financial position will


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