Out of debt and into the free market. Soviet Union begins negotiations with US to settle czarist bonds

The Soviet Union appears to be cutting the red tape keeping it from closer financial ties with the United States. But there is no guarantee that once the obstacles are removed either country will want to tie an economic knot. A month ago, Soviet and US negotiators met to settle a 70-year-old debt incurred by Russia before the 1917 Bolshevik Revolution. The Soviet Union has long maintained that the czarist bonds - representing about $900 million of debt today - were sold by a previous regime, and it has no obligation to pay them. The issue was not resolved, but negotiators will meet again soon, according to the State Department.

Clearing off the czarist debt is the latest attempt by the Soviets to remove the barriers to their country becoming a full player in world financial markets. By agreeing to pay off the bonds, the Soviets would become eligible to raise money by selling bonds on the New York Stock Exchange or other US markets.

Until the old debts are paid, US financial institutions won't issue new bonds because of a 1934 US law that puts penalties on anyone making an untied, or general-purpose, foreign loan to a country that has defaulted on its obligations to the US government.

``The Soviets want an unhampered entry into the world financial community,'' says Jan Vanous, research director for PlanEcon, which follows the Soviet economy. ``They want to put all these things behind them.''

Over the last year, the Soviet Union under Mikhail Gorbachev has displayed a robust appetite for Western money. It has signed agreements for lines of credit - which it may or may not draw upon - from West Germany and Italy. It is considering opening more pipelines to British, French, and other West European money. And it has sold bonds in Switzerland and West Germany.

Western money is important for Mr. Gorbachev's goal of perestroika, or economic restructuring to build a more flexible and market-oriented economy.

``The dirty little secret of perestroika is there's not money enough to finance it,'' says Leon Aron, a Sovietologist at the conservative Heritage Foundation.

As the USSR goes about financing reform, the Soviets and Americans are doing a cautious shadow dance before becoming economically entwined. There are pluses and minuses to the relationship for each country.

US financial institutions are being left behind in a potentially attractive market. Currently, US banks hold one-half of 1 percent of all the outstanding Soviet debt in the world, lagging behind West Germany, Japan, Britain, France, Italy, and Switzerland.

According to a special Reagan administration task force, ``the Soviet Union is expected to remain the most active borrower in absolute terms among [Eastern] Bloc countries, and the best credit risk.'' The Soviets have historically been prudent borrowers, and have more than $30 billion in gold reserves to fall back on.

The report adds that the timing is good for the Soviet Union, since there is ``a relative lack of attractive international demand'' for bank financing; that is, Western banks are hungry and want to lend money to good credit risks.

As US companies show more interest in trading with the Soviets, US banks will want to finance those transactions. ``Banks are customer-driven, and a lot of our customers are interested in exploring business with the East bloc,'' says Anthony Zehnder, a spokesman for First Chicago Corporation, which has been the most active US bank in East-West trade.

Ironically, he says, when the Soviet Union needs financing to buy US exports, other countries get to do the financing. First Chicago has been involved in two, $200-million syndicated loans that financed US grain and other exports to the Soviet Union; the other banks were West European.

But there are downsides to being involved - among them, criticism from conservatives and many in the Jewish lobby for helping to finance the Soviet economy.

``Banks don't want to be the b^ete noire of public opinion,'' says Mr. Aron at the Heritage Foundation.

The US also has several legal barriers to involvement. The 1934 Johnson Act restricts financial dealing with the country because of the czarist bonds. A 1974 amendment to that law, called the Stevenson amendment, limits credits and loan guarantees to the Soviet Union to $300 million. And another 1974 law, the Jackson-Vanik amendment, denies trade preference to the Soviet Union because of its restriction on emigration, especially for Jews.

US policymakers have mixed feelings about such restrictions. On one side, the Senate recently expressed its concern, in a resolution, about the danger to national security of relaxing trade restrictions.

At the same time, says Margaret Chapman at the American Committee on US-Soviet Relations, ``With the three B's'' - future President George Bush, Secretary of State Jim Baker, and current Sen. Bill Bradley - ``there's a more pragmatic economic outlook than in the current administration.''

Whether the Soviets would jump at snug ties with the US is another matter. The Soviet Union has shown some reticence of late, pulling back, for example, from signing $1.8 billion line of credit with British banks.

Mr. Vanous at PlanEcon notes there would be some sacrifices to further immersion into the financial markets. The Soviets would have to disclose more information about their economy, balance of payments, and other statistics. And once a country is rated in the bond market, it loses some autonomy.

``You have to act like a responsible country,'' Vanous says. ``You can't go invade Afghanistan.''

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