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World View : Taking a Hard Look at Soviet Ledgers : * Gorbachev seeks more aid, but donors first want to know where the money went.

July 09, 1991|ELIZABETH SHOGREN | TIMES STAFF WRITER

MOSCOW — As the leaders of the world's seven greatest industrial powers prepare to meet with Soviet President Mikhail S. Gorbachev next week at the West's economic summit in London, they are bracing themselves to hear a request for massive financial support.

With some Soviet and Western economists talking about assistance of $15 billion to $30 billion a year for five or six years to underwrite the Soviet Union's transition to a free-market economy, Gorbachev could be asking for as much as $150 billion in all.

Given the sums potentially involved, it's no wonder potential donors are looking to past performance as they weigh any new commitments.

Over the last two years the Soviet Union has already received pledges of at least $41 billion in loans, trade credits and outright aid, and those countries that provided the assistance now want to be sure their money brings real change and is not used simply to keep the old, failed economic system functioning.

Their experience has shown them:

* Large credits often disappear in the gluttonous Soviet budget without a trace. Soviet officials, given unrestricted funds, will use the money to save state monopolies.

* Trade credits can be used to keep commerce flowing, but they do not push the Soviet Union into fundamental economic changes.

* Assistance is better directed to specific projects, preferably those that promise quick profitability or that help transform the state-run Soviet economy to reliance on market forces.

* Groups like the European Community or the new European Reconstruction and Development Bank can put together more effective programs to promote a free-market economy than individual countries can.

* Foreign assistance can be given in programs that foster entrepreneurship and competition, but not given to the central government.

Germany, which has provided some $25 billion in the past two years in various forms of assistance to the Soviet Union--more than any other country--is less than happy with the way that Moscow used some of the money.

"It was certainly a frustrating experience. All that money seemed to just disappear," Enno Barker, the press attache at the German Embassy in Moscow, said. "It's only a small comfort to know that eventually we may get the money back in repayments."

But Germany, Barker said, will not make the same mistake again. "We don't think we should continue to invest in the Soviet state budget, because we cannot control what the money is used for," he said. "We favor very specific, earmarked investments."

Other foreign countries have had trouble tracking exactly how their money--Italy provided $5.3 billion, Spain $1.5 billion, Saudi Arabia $1 billion--has been used.

Vladimir N. Sterlikov, who heads the international department of the Soviet Bank for Economic Relations with Foreign Countries, acknowledged that there is a serious problem, and considerable frustration as a result, because the country's banking system is caught up in the Soviet Union's overall economic turmoil.

"At the current time," Sterlikov said, "there is no specific person responsible for credits."

Another obstacle is that the old state-monopoly bank system is breaking down, and there is no new system to take its place. "I realize," Sterlikov continued, "that it's not possible to explain that a country of this size lacks a banking system."

Germany, however, also had difficulties in tying its assistance to specific projects--and trying to ensure that a good portion is spent for German goods.

With $4.4 billion earmarked for the resettlement of the 380,000 Soviet troops leaving eastern Germany, Bonn had expected that German companies would get most of the contracts to build new Red Army housing.

To the Germans' surprise, Soviet officials chose mostly Turkish and Finnish companies for the first four complexes, saying this plan is cheaper but also acknowledging that Moscow wants to improve its trade balance with those countries.

The German government sent its finance minister to Moscow to protest, and now about half of the work will be done by German firms. "We have an interest to have German firms involved," Barker said, "provided they make good bids."

While German officials have been disappointed in the apparently limited impact of German credits on the Soviet Union, they were pleasantly surprised that the humanitarian aid they sent seemed to be well used. "Overall we are very satisfied that the goods we provided reached the right people," Barker said.

Alarmed by news of a potential famine last winter, the world poured 260,000 tons of food, medicine and clothing into the Soviet Union. Although Germany was responsible for about 90% of the humanitarian aid, many other countries contributed. Even China and India sent food.

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