MALTA AND EAST-WEST FINANCE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001100810001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: August 18, 2010
• Sequence Number: 1
• Publication Date: October 15, 1984
• Content Type: REPORT

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Malta and East-West Finance
The limited growth prospects for East-West finance offer
little scope for Malta to find a niche in a market dominated by
West European money centers and export credit agencies. The
roughly $10-billion drop in Western bank exposure to the Soviet
bloc between 1980 and 1983 has reduced East-West lending to less
than 3 percent of total international bank activity. Despite
some revival in East-West banking this year, new credits will be
no more than 20 percent to 30 percent of the level of annual new
lending during the 1970s, and the stimulus for much stronger
growth will be lacking for the foreseeable future. The serious
economic and financial woes of some East European countries will
continue to dampen banker interest. Moreover, the more
financially sound East European countries and the USSR seem
intent on holding down their borrowing requirements. Several
East European regimes plan to keep reducing their debts through
large trade surpluses while Moscow has cut orders for Western
machinery to the lowest level in 10 years.
With a depressed market outlook, lenders who have pared back
their East-West operations are unlikely to see much reason for
setting up shop on Malta. A Maltese offshore banking center,
moreover, would face well-entrenched competition from Western
Europe and the Middle East in trying to capture a market
segment. Excluding the IMF and World Bank, Western official and
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officially-backed lending has been the only growth sector for
East-West finance since 1980. It has accounted for almost 60
percent of gross credit drawings, and outstanding claims have
increased by $6.8 billion. By contrast, the commercial sector in
which Malta would compete has contracted by $11.6 billion over
the same period.
The small revival of untied lending in 1984 has centered
largely in West Germany, Switzerland, Austria, and London--
markets with the closest ties to the Soviet bloc. With respect
to the a forfait market,
existing institutions would provide as much as $600 million to
the USSR this year, but the Soviets seems likely to draw only
$100 million. There is almost no a forfait activity for Eastern
Europe with the possible exception of small loans to
Czechoslovakia which Prague probably prefers to market through
long-established contacts in Austria, West Germany and
Switzerland.
Only the Soviets, the Hungarians and the East Germans have
shown much interest in tapping new credit markets, in particular
Middle Eastern offshore centers. Arab banks have been managers
of Hungary's cofinancing syndications done with the World Bank
while a couple of Middle Eastern banks took shares in a small
East German loan this year. Kuwaiti financial institutions may
soon show more receptiveness to long-standing Soviet loan
requests. The Hungarians have entered the Japanese bank loan
market in the past two years and may soon float a yen bond
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issue. Budapest is attracted by Japan's economic power and
growing financial clout, attributes with which Malta can hardly
compete.
The Soviet and East European banks in the West are unlikely
to help establish a Maltese banking center. We doubt these banks
would enter such a market until its viability is proven.
Although Moscow Narodny Bank (MNB) recently established a
Netherlands branch, the past misadventures and financial weakness
of some Soviet banks have convinced Moscow to allow its second-
tier banks in Vienna, Luxembourg, and Frankfurt to go largely
dormant. The Soviets are devoting their attention to tapping
well-established markets in London and Paris through MNB and
Eurobank. The loss of MNB's Beirut branch might make a Maltese
office useful for approaching Middle Eastern financial markets,
but the Soviets probably would continue to rely on MNB/London to
canvas Gulf lenders. With the exception of Hungarian banks in
London and Vienna, the East European banks in the West seem a
largely moribund group that is unlikely to take risky
initiatives.
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SUBJECT: Malta and East-West Finance
Prepared for Roger Robinson, NSC. Author
Distribution:
Original - Addressee
1 - D/EURA
2 - EURA/PS
4 - CPAS/IMC/CB
1 - Chrono file
1 - Production file
1 - Author
1 - C/EURA/EE
1 - DC/EURA/EE
Date fD s~~~~
5-75101 PFIEVVA
EMM
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