SOVIET BORROWING FROM THE WEST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900020080-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 19, 2016
• Document Release Date: July 29, 2005
• Sequence Number: 80
• Publication Date: April 17, 1974
• Content Type: REPORT

 STAT
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STAT
TRANSMITTAL SLIP
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I BUILDING
DATL
17 April 1974
S-6097
Soviet Borrowing from the West
An advance copy was LDX'ed to
ROOM NO.
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F,O DEB .5.241 REPLACES FORM 36-1
WHICH MAY BE USED.
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STAT
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Soviet Borrowing from the West
Background
Prior to 1964 the USSR was unable to get anything better
than medium-term credits (1-5 years)?from the West, but in
1964 the United Kingdom broke with the Berne Union guidelines,
which called for a five-year ceiling on export credits to
Communist countries, and provided the USSR with a $280 million
line of credit with a repayment period of up to 15 years.
Competition soon forced all other West European nations and
Japan to also drop the Berne Union accord, and long-term
credits (averaging 8 years) soon became the rule (see Table 1).
The Soviets were quick to use their good credit rating
and their ability to channel large contracts to desired sup-
pliers to foster credit competition among potential suppliers.
As a result the French, Italians, and Japanese have all pro-
vided especially 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 US playe& a very minor role in financing Soviet trade
until 1972, and reported claims of US banks and other businesses
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against the USSR.prior to 1972 were $10 million or less an-
nually, all on a short--term basis. Soviet purchases of US
equipment and technology from US-based firms were limited,
as a result, to those items not obf.ainable elsewhere. How-
ever, US subsidiaries in Europe and Japan which are able to
utilize government subsidized credit; did a substantial amount
of Soviet business. In some instances, the USSR was able to
secure foreign government-backed credits which covered pur-
chases of US-produced goods required for larger projects
being undertaken by the USSR and its European partners. In
1967, for example, the Soviets prevailed upon the Italians
to provide a $25-30 million loan to cover Soviet purchases
of certain equipment and technology from US-based firms in
support of the Soviet-Italian construction of the FIAT plant
at Tolyattigrad,
With the beginning of detente, however, the US quickly
became a major supplier of credit to the USSR. In 1972-1973,
US commercial banks acting without Eximbank participation pro-
vided $108 million in long-term loans (see Table 2) to cover
Soviet purchases of tractors and pipelaying equipment. Since
the opening of the US Eximbank window in the fall of 1972,
Eximbank has approved $290 million in long-term credits in
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support of $743 million in Soviet imports. In addition,
Eximbank has given preliminary commitments of $198 million
in support of an additional $440 million in potential US ex-
ports. Soviet requests for further Exin bank credits, e.g.,
$49 million for exploration of natural gas reserves at Yakutsk,
are currently under consideration. The USSR also drew down
$500 million in three-year CCC credits during 1972 and 1973
to cover a portion of the $1.8 billion in Soviet grain pur-
chases from the US during this period.
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Debt Composition
The Soviet debt structure has continued to lengthen
during recent years. During the late 1960's the length of
credits extended to the USSR averaged 8 years, 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 import 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 projects --
Tyumen oil, Chulman coal, Yakutsk natural gas -- currently
being discussed with Western firms. The US has proven to be
particularly accommodating to Soviet requests, as evidenced
by $154 million in Eximbank direct credits granted to support
Soviet purchases for the Kama river truck plant. In this
case the USSR secured a 12 year credit, with payments of prin-
cipal deferred until 1977. Recent British and French credit
lines, in contrast, have a maximum repayment period of roughly
10 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
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its European banks, the USSR has been able to attract Euro-
currency deposits at prime rates. The USSR made particularly
good use of 'this source in 1972 -- tapping the Eurodollar mar-
ket for several hundred million dollars in both medium-term
and short-term credit to finance imports of machinery and
grain. The burden of these loans was considerably lightened
by subsequent dollar devaluations and the abi1.:;.ty of the USSR
to sell large amounts of high-priced gold in 1973.
Soviet Debt and Debt Service
The increased use of medium-term and long-term Western
credits has led to a rapid increase in the USSR's debt to
the West, which reached an estimated $3.6 billion by the end
of 1973 (see Table 3). The actual burden; of the debt is a
function of debt service, the percentage of total hard cur-
rency exports committed to the annual repayment of interest
and principal on outstanding credits. The Soviet position
in this respect has also'worsened, however, rising from 11%
in 1967 to roughly 25% in 1973. The debt service ratio
would have been even larger had the USSR not been able to ob-
tain Western credits at such favorable terms.
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Estimated Soviet: Drawings anti Scheduled Repayments
on Western Government-Guaranteed ::odium-Tern and Long-Tern Credits
Million US S
Outstanding
Scheduled Net Debt at the End
Year Drawings Reoay^ents_ Credits of the Year
Prince?al
and Interest
1966
275
170
105
505
1967
305
181
124
658
1968
510
255
255
951
1969
630
322
309
1,316
1970
700
379
321
,1,717
1971
700
463
237
2,057
2972V
1,030
562
468
2,649
1973!/ b/
1,690 893
795
3,612
a. includes
rawirgs on 3-year !.C
credits.
Prospects
Soviet orders for Western plant and equipment have risen
sharply in recent years, reaching more than $2k billion in
1973, up from about $800 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-term debt could approach $10
billion by the end of the decade.
The ability of the USSR to manage this larger debt, how-
ever, will be significantly enhanced by the record increases
in Soviet export earnings which are expected during the next
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two or three years. Major price increases for traditional
Soviet raw material exports -- oil, coal, timber, diamonds,
chemicals --'along with expanded deliveries of natural gas
could push total Soviet exports to the developed West to
perhaps $6 billion in 1974 and $7 billion in 1975, giving the
USSR substantial export surpluses. In contrast, Soviet hard
currency export earnings were about $2.7 billion in 1972. As
a result, by 1975 debt service -- depending on prices --
would be no greater than in 1973, and perhaps even less. In
..the longer tern the outlook is less favorable, largely de-
cause of an expected l'veling off and eventual decline in
the volume of crude oil exported to the West during 1977-
1980.
A rapid increase in export earnings may affect Soviet
debt management practices. As a demonstration of the antici-
pated strong Soviet financial condition, the USSR recently
concluded a major deal with West German firms calling for a
cash payment of roughly $800 million in plant and equipment
for a pelletization plant and steel mill at Kursk. The Soviet
decision-to pay cash was partly motivated by the refusal of
the West Germans to provide low interest credits, but it is
unlikely that the USSR would have had such an alternative
even a year ago. The improved Soviet financial position will
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clearly enhance the USSR's bargaining position vis-a-vvis
Western suppliers, and thereby increase its ability to play
off potential suppliers against one another.