THE USSR'S HARD CURRENCY PAYMENTS POSITION

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• Sequence Number: 1
• Publication Date: July 1, 1983
• Content Type: REPORT

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Er\ Directorate of secret
Intelligence
The USSR's Hard Currency
Payments Position
An Intelligence Assessment
E CW THE U. S. ;GGYER VME ' mcr
1W1 v 3t 1 %t! ;~
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Secret
SOY 83-10124
July 1983
Copy 5 4 9
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Intelligence
The USSR's Hard Currency
Payments Position
This paper was prepared by f the
Office of Soviet Analysis. Comments and queries are
welcome and may be directed to the Chief, Soviet
Economy Division, SOYA
Secret
SOV 83-10124
July 1983
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The USSR's Hard Currency
Payments Position F_~ 25X1
Key Judgments The USSR had remarkable success in slashing its hard currency debt last
Information available year, following an increase of $3 billion in 1981. The payments turn-
as of I June 1983 around-due mainly to sharply increased oil exports-will not last long,
was used in this report.
however, without a dramatic and unexpected improvement in Soviet export
prospects. Although the Soviets will probably not run into serious payments
problems in the near future, they could have their hands full sorting out
import needs.
After reducing growth of its hard currency debt during 1977-80, the USSR
was hit in 1981 by a soaring agricultural import bill, soft oil prices in its
Western markets, and the need to increase aid to Poland. Although its hard
currency position is still relatively strong-the debt service ratio is less
than 20 percent-Moscow did not take lightly the turnaround in its
fortunes in 1981. Paradoxically, Soviet willingness to depend on economic
ties with the West has declined as Moscow's domestic difficulties have
mounted and economic growth has slowed.
In 1982 the USSR cut its hard currency trade deficit to $1.3 billion,
compared with $4 billion in 1981, by strongly pushing oil exports and
reducing imports. Agricultural imports fell substantially due both to a
decline in the volume of grain purchased and lower prices for most
agricultural commodities. However, most of this decline was offset by
stepped-up imports of Western machinery and equipment and steel pipe-
underwritten by Western government-backed credits-as deliveries began
for the Siberia-to-Western Europe gas pipeline.
Moscow's success, however, was purchased at considerable cost. In 1982
the volume of oil exports sold for hard currency was increased by reducing
exports to Eastern Europe, importing increased quantities of OPEC oil for
resale in the West, and holding down domestic oil consumption and/or
drawing down oil inventories. On the import side, Moscow's apparent
decision to limit grain purchases is being felt by the Soviet consumer in
terms of per capita availability of meat and dairy products. Earlier efforts
to curb debt growth resulted in a sharp decline in the volume of Western
machinery and equipment imported during 1977-81.
One of the serious problems facing the Soviet leadership in the 1980s is re-
emerging hard currency shortages, which could limit imports at a time of
increasing economic stringency. The USSR's hard currency prospects are
poor. Not only are oil prices likely to remain soft for the next few years, but
revenues from other key export earners such as gas-and, perhaps, gold
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and arms-which are linked to oil prices, may also be affected. Although
energy prices could recover later in the decade, the USSR may not be in a
strong position to benefit. Domestic oil production shortfalls could result in
a large decline in oil exports and force the USSR to hold down imports
paid for in hard currency or to negotiate loans from the West.
Our projections indicate that-barring another round of spiraling oil
prices-Soviet hard currency purchasing power will at best remain level
through 1990. Oil exports are expected to return to the downward trend of
1979-81, and expected real increases in gas exports may fall short of
covering the decline in oil exports. In this circumstance the USSR will
have a difficult time achieving more than a modest real growth in hard cur-
rency imports in the second half of the decade, unless it is willing to accept
a sharp increase in its debt burden.
Hard currency imports are important for easing food shortages, raising
energy production, sustaining technological advances and productivity, and
making up for unexpected shortfalls of key products. Within the limits of
hard currency availability, world supplies, and political considerations,
Moscow's priorities are probably aimed at: (1) obtaining sufficient grain
and other agricultural products to maintain consumption of quality foods
at least near current levels, (2) purchasing the necessary industrial
materials-notably steel-to operate productive plant at planned levels,
and (3) importing machinery and technology to meet targets for investment
in energy and other priority sectors.
If forced to choose, the Soviets would be hard pressed to decide whether to
concentrate import cuts in the nonagricultural or agricultural areas.
Despite the recent renewed emphasis on agricultural self-sufficiency,
annual imports of 20-30 million tons of grain and 2-3 million tons of
oilseeds and oilseed meal will be needed to support livestock expansion
plans during the next several years, even with a return to normal harvests.
Agricultural imports will depend partly on domestic production but also on
the extent of the leadership's commitment to maintain or increase per
capita consumption of quality foods. The 5-million-ton decline in grain
imports and the slight decline in per capita meat consumption the Soviets
permitted in 1982, however, indicate that the present leadership is not
willing to increase imports of farm products indefinitely.
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Purchases of Western steel and other industrial inputs, meanwhile, will
also need priority. Not only will imports of large-diameter steel pipe
remain critical for the construction of oil and gas pipelines, but the Soviets
probably will continue to buy-at least for the next few years-large
amounts of cold rolled sheet steel, tin plate, and specialty steels. Mean-
while, we expect that Moscow will emphasize equipment purchases for
developing energy resources. Finally, the stepped-up investment allocations
for industries supporting the Food Program are likely to give these
industries a larger share in imports of Western machinery.
The Andropov administration will consider a range of economic policy
alternatives if import constraints prove too severe. Western credits are
one-and a relatively immediate-means of financing substantial addition-
al Soviet hard currency imports. Even so, Soviet debt management policy
would have to become less conservative, and Western governments would
probably have to provide encouragement and insurance to private lenders
to permit a large increase in lending. While Soviet debt is now relatively
low, in the longer term the USSR may find it increasingly attractive to try
to augment hard currency imports by expanding gas exports to Western
Europe. The new export pipeline now being built, when completed, will
have substantial capacity to carry additional Soviet gas to Western Europe.
If needed, the USSR would be more than willing to build additional
pipelines to supply gas for Western Europe
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aMret
Contents
Key Judgments
Developments During 1971-80
Imports
Exports
Other Hard Currency Flows
4
Weakening and Retrenchment in 1981 and. 1982
7
The Payments Position Weakens
7
Balance-of-Payments Prospects
9
Hard Currency Projections
10
Conclusion
13
Soviet Adjustments
15
A. USSR: Hard Currency Trade Partners, 1970-81
C. Estimating Soviet Hard Currency Debt
1. USSR: Growth of Hard Currency Oil Exports
2. USSR: Growth of Hard Currency Trade
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2.
USSR: Estimated Hard Currency Debt to the West
4.
USSR: Hard Currency Financing Requirements Under
Alternative Scenarios
B-3.
USSR: Estimated Price Trends in Hard Currency Trade
23
B-4.
USSR: Exports of Petroleum and Natural Gas for Hard Currency
23
B-5.
USSR: Equipment Orders Placed With Hard Currency
Trading Partners
23
B-6.
USSR: Estimated Measures of the Hard Currency Debt Burden
25
C-1.
Methodology for Estimating Soviet Debt
C-2.
USSR: Estimated Debt on Western Government and
Government-Backed Credits
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The USSR's Hard Currency
Payments Position
Introduction
The USSR has moved vigorously since mid-1981 to
deal with a deteriorating hard currency ' position
caused by soft energy prices and weak demand for
Soviet goods. This paper provides an estimate of the
USSR's hard currency payments position and reviews
the steps Moscow has taken to strengthen this posi-
tion. It also analyzes the outlook for Soviet hard
currency earnings through the rest of the decade and
discusses the options available to the USSR in view of
the likely need to curb import growth
Developments During 1971-80
The USSR has capitalized on its economic relations
with the West to expand its resource base, raise the
technological level of its industry, relieve industrial
bottlenecks, increase domestic food supplies, and less-
en the burden of defense. This policy reached its
zenith in the early and mid-1970s, as postwar produc-
tivity gains evaporated and Moscow turned to the
West for equipment and technology to spur its indus-
try and for grain to offset shortfalls in its inefficient
farm sector.
Expectations were similarly high in the West, where
businessmen hoped to sell equipment and technology
from underemployed capital goods industries and to
develop a large and growing market in the USSR for
consumer goods. The Politburo's decision to give full
support to the Brezhnev program for upgrading the
Soviet diet was an added sign that more attention
would be given to the consumer, who would in turn
require large Soviet imports of Western agricultural
goods. For its part, the West viewed the USSR as an
important new source of energy supplies as well as a
supplier of timber, various ores and metals, diamonds,
and other raw materials.
'Unless otherwise noted, references to the USSR's trade and debt
are to its hard currency position with non-Communist countries (see
appendix A). Reporting on that part of Soviet trade and payments
with other Communist countries that is conducted on a hard
currency basis is far from complete.
Because of increasing reliance on the West for equip-
ment and grain, the USSR incurred large trade
deficits in the mid-1970s. Concern over these deficits
and the rapidly rising hard currency debt led Moscow
in 1977 to begin to limit growth in imports from the
West. The main impact was on imports of machinery
and equipment, which in real terms fell an estimated
20 percent during 1977-80 (see table B-1 in appendix
B). Moscow was greatly aided during its efforts to
narrow the trade gap by good harvests in 1977 and
1978 (permitting a reduction in agricultural imports). 25X1
But the dominant factor was spiraling world oil prices
in 1979 and 1980, which resulted in large increments
in the value of oil exports in spite of falling volume.
During 1979 and 1980, for example, nearly two-thirds
of the $10 billion rise in hard currency commodity
export earnings was due to increased prices for oil (see
table B-2 in appendix B and figure 1). With these
trends in the trade accounts, by 1979 the hard
currency trade deficit had dropped to $2 billion as
compared with $5.8 billion a year in 1975 and 1976
(see table 1). 25X1
LZDAI
Imports. Purchases from the West rose nearly eight-
fold in value terms between 1970 and 1980, boosting
the share in total Soviet imports from 23 to 38
percent. In volume terms, however, hard currency
imports increased only twofold and were roughly 30
percent of total imports in 1980. Purchases of machin-
ery, ferrous metal products, and farm products-
especially grain-have dominated Soviet imports.
Imports of Western equipment and technology have
undoubtedly helped Moscow deal with some critical
problems, even though these imports account for less
than 5 percent of the machinery and equipment
component of Soviet fixed investment, and many of 25X1
them have been difficult for the USSR to assimilate.
In the 1970s, imported chemical equipment, account-
ing for about one-third of all Western machinery
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Figure 1
USSR: Growth of Hard Currency Oil Exports
15 Nominal Exports
Current US $
12
9
6
3
Real Exports
1970 US
1970 72 74 76 78 so 82
300088 7-83
purchased by the Soviets, was partially or largely
responsible for doubling the output of ammonia,
nitrogen fertilizer, and plastics and for more than
tripling synthetic fiber production. In the late 1970s,
for example, half of Soviet ammonia output was from
Western plants.
Nor could the Soviets have accomplished their ambi-
tious 15-year program of modernization and expan-
sion in the motor vehicle industry without Western
help. The Fiat-equipped VAZ plant, for example,
produces half of all Soviet passenger cars, and the
Kama River truck plant accounts for a similar share
of Soviet heavy truck output. Moreover, the Soviets
have imported large numbers of Western computer
systems and minicomputers.
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Figure 2
USSR: Growth of Hard Currency Trade
Imports from the West also have played a key role in
supporting the energy sector: Soviet deficiencies in
drilling, pumping, and pipeline construction equip-
ment led the USSR to purchase about $5 billion
worth of oil and gas equipment in the 1970s. In
addition, West Germany and Japan provided virtually
all the large-diameter pipe needed for gas pipeline
construction.
In the case of agricultural imports, Soviet hard cur-
rency grain imports jumped from an average of 11
million tons a year during 1971-75 to 17 million tons a
year during 1976-78 and 26 million tons a year in
1979 and 1980. By 1980 grain purchases coupled with
record imports of meat, sugar, and vegetable oil
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oV. LVL
Table 1
USSR: Estimated Hard Currency Balance of Payments
Current account balance
Trade balance
Exports, f.o.b.
Imports, f.o.b.
Additional military
deliveries to LDCs,
f.o.b. a
Net interest
Other invisibles and
transfers
Capital account balance
Gross drawings b
Government backed
Commercial
Repayments
Government backed
Commerical
Net change in assets
held in Western banks
Gold sales
Net errors and omissions c
260
-4,607
-3,216
458
425
2,177
1,904
-100
4,206
-560
-6,297
-5,253
-2,942
-3,690
-2,018
-2,486
-4,000
-1,294
2,424
8,280
10,225
11,863
13,336
19,417
23,584
23,778
26,152
2,984
14,577
15,478
14,805
17,026
21,435
26,070
27,778
27,446
400
1,500
1,850
3,220
3,965
3,855
4,200
4,200
5,900
-80
-570
-724
-850
500
760
911
1,030
NA
6,520
3,888
2,830
1,736
340
1,630
5,810
-1,240
NA
6,371
5,495
2,857
3,097
4,475
2,865
6,200
2,650
450
1,972
2,450
1,991
2,565
2,410
2,195
2,900
2,850
NA
4,399
3,045
866
532
2,065
670
4,200
-200
NA
969
1,365
1,955
2,331
2,800
3,050
3,200
3,415
160
730
1,035
1,285
1,456
1,700
1,915
2,000
2,100
NA
239
330
670
875
1,100
1,135
1,200
1,315
25
-395
1,610
-310
1,550
2,825
-235
-140
1,575
NEGL
725
1,370
1,620
2,520
1,490
1,580
2,700
1,100
NA
-1,913
-672
-3,288
-2,161
-2,517
-3,534
-5,740
-2,966
a These estimates exclude the value of arms-related commercial
exports included in the reporting on Soviet exports to individual
LDCs, which we estimate at about $2 billion in 1981. These
estimates are based on the reported export residuals in published
Soviet data on trade with LDCs (that is, the difference between
Soviet reported aggregate exports to the LDCs and Soviet reporting
on exports to individual LDCs). The export residuals were reduced
by the estimated value of Soviet exports of major arms systems to
soft currency paying LDCs on an f.o.b. basis. The estimates also
exclude the value of follow-on services, which may be substantial.
b Including additions to short-term debt.
c Reflects hard currency assistance to other Communist countries;
hard currency trade with other Communist countries; hard currency
credits to LDCs to finance Soviet sales of machinery and equipment
(including military equipment); credits to developed Western coun-
tries to finance sales of oil and other commodities; and errors in other
line items of the accounts.
pushed total agricultural imports to more than $9
billion, accounting for 36 percent of hard currency
merchandise imports. Without Western grain, Soviet
consumers would not have had the increase in meat
consumption they realized in the early 1970s, and
there would have been a sharp drop in per capita
consumption of meat in the late 1970s instead of a
leveling off
Exports. Price increases have accounted for more
than nine-tenths of the tenfold rise in Soviet hard
currency exports since 1970 (see figure 2). Because
export prices grew on average twice as fast as import
prices, the terms of trade improved at an average
annual rate of 8 percent (see table B-3 in appendix B).
Soaring prices for oil accounted for more than one-
half of the rise in total exports and increased gas 25X1
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prices for another one-tenth. The volume of Soviet
hard currency exports grew by only 45 percent be-
tween 1970 and 1980-an average of 6 percent a year
during 1971-79 followed by a decline of 7 percent in
1980
The volume of oil exports (crude oil and petroleum
products) to hard currency trading partners peaked at
1.1 million b/d in 1978 and dropped to 975,000 b/d
by 1980 (see table B-4 in appendix B) as domestic
output growth tapered off. (Crude oil accounts for just
over one-half of Soviet oil exports to hard currency
countries.) As a result of the much greater increase in
oil prices (seventeenfold between 1970 and 1980) than
in prices of nonoil exports (less than fivefold), the
value of oil in total Soviet hard currency exports
climbed from 18 percent in 1970 to 52 percent in
1980. In real terms, oil remained at less than 20
percent of total real hard currency exports
The annual volume of natural gas exports, which
climbed from only 1 billion cubic meters in 1970 to 22
billion cubic meters in 1978, leveled off at an annual
average of about 23 billion cubic meters in 1979 and
1980. The volume of exports of wood and wood
products and diamonds stagnated throughout much of
the period, while sales of ferrous metals and agricul-
tural products rose moderately during 1971-75 before
falling through 1980. In the case of wood and wood
products, labor and equipment shortages have limited
the harvesting of timber, which must come from
increasingly remote areas, while rising domestic de-
mand for lumber and paper products has caused
persistent domestic shortages of these products in the
past several years
Chemical exports grew dramatically in the 1970s but
still account for only 3 percent of total hard currency
exports. Most of the growth resulted from buy-back
deals under which Western firms provided the plant
and equipment in return for future product exports. In
fact, Western help has allowed the USSR to become
the world's leading ammonia exporter-about 2 mil-
lion tons were exported in 1981. Exports of other
chemicals are not as large. Nevertheless, Western
chemical exporters already have begun to worry about
the rising sales of Soviet polyethylene in their mar-
kets.
Exports of machinery and equipment-sold mainly to
LDCs-tripled in real terms during 1971-79 and then
declined somewhat as sales to Iraq fell. Iraq has, in
fact, been the largest customer for the USSR's ma-
chinery and equipment. In 1980 transportation equip-
ment accounted for 32 percent of Soviet hard curren-
cy exports of machinery and equipment, with
automobiles alone accounting for 13 percent and
trucks, helicopters, and other items intended for mili-
tary use an estimated 16 percent.
Most Soviet machinery is not well suited to Western
markets, nor is it backstopped by a developed network
for service or spare parts. While the Soviets can mass-
produce, at low cost, simple machinery and equipment
such as standard machine tools and have enjoyed
some success in exporting such products to the West,
the market for these products has been stagnant in
recent years and competition from newly industrial-
ized countries is growing. In addition, given the
growing stringencies in steel and other raw material
supplies within the USSR, Soviet machine builders
are barely able to meet the demands of the domestic
economy.
Other Hard Currency Flows. Since the mid- I970s,
sizable earnings from sales of gold and arms have
permitted the USSR to limit its use of Western
credits, while interest earnings on Soviet assets in
Western banks and from invisibles and transfers have
usually offset interest payments on the debt. Gold
traditionally has ranked as one of the USSR's top
hard currency earners, with cumulative receipts in the
1970s netting Moscow $15 billion-an amount equal
to about 10 percent of Soviet hard currency outlays in
the decade. The USSR has a gold inventory of about
2,000 tons, worth some $28 billion at the late May
1983 price of about $440 per ounce.
Beginning in the early 1970s, the USSR became a
major supplier of military equipment to the LDCs,
with most of the business coming from the Arab
countries. We estimate that total hard currency sales
rose from $600 million at the beginning of the decade
to about $6 billion in 1980. These exports are believed
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to consist almost entirely of major weapon systems
such as fighters, missiles, and tanks. Military sales
included in the data for exports to individual LDCs
consist primarily of trucks, helicopters, spares, and
other support items.
When all of the hard currency current account items
in table 1 are added up and net financing received is
taken into account, the identified receipts exceed
identified expenditures (by an average of $4.1 billion
during 1980-82). This calculated residual, "errors and
omissions," implies that we have not taken into
account all Soviet hard currency outlays. Apart from
the likelihood that estimating errors are substantial,
the residual reflects the exclusion from the accounts
(because of substantial information gaps) of the
USSR's:
? Hard currency assistance to other Communist
countries.
? Net outlays in hard currency trade with the other
Communist countries.
? Net credits granted to LDCs to finance Soviet sales
of machinery and equipment, including military
equipment.
? Net credits-mainly short term-provided to the
developed West to finance sales of oil and other
commodities.
? Hard currency expenditures to support Communist
parties and terrorist activities in the West.
We have been able to estimate values for only part of
the items believed to be included in "errors and
omissions." In the case of hard currency assistance to
Poland, such assistance may have totaled $300 million
in 1980 and close to $1 billion in 1981. The USSR
incurred a $500-600 million deficit in 1981 in its hard
currency trade with Hungary, the only East European
country that provides sufficient data to enable us to
make such an estimate. Soviet hard currency pur-
chases (mainly sugar) from Cuba totaled $400 million
in 1981 and $500 million in 1982. Estimated drawings
on Soviet hard currency credits covering sales of
machinery and equipment to the LDCs averaged
about $500 million a year during 1976-81.1 LDC
2 It has been assumed that credits were used to finance 60 percent
of machinery and equipment delivered to the USSR's multilateral
LDC partners. Repayments were assumed to be spread over eight
years on average. The amount ow 1981 is
estimated at more than $2 billion.
repayments to the USSR averaged an estimated $225
million a year, yielding net credits of $275 million a
year. The amount outstanding at any one time-
assuming 30-day terms-on credits for oil sold to
developed Western countries could have been as high
as $1 billion in 1980 and 1981, up from $800 million
in 1979 if the same terms are assumed. If in 1981 soft
world demand forced the USSR to offer more favor-
able credit terms for oil, the amount outstanding
could have been substantially higher.
Debt. Soviet net hard currency debt rose from $600
million at the end of 1971 to $11.2 billion at the end
of 1975 (see table 2).' A determined campaign to curb
the rise in net debt resulted in a drop to $9.3 billion by
the end of 1980. About three-fifths of the increase in
the USSR's gross debt since 1971 originated in
private borrowing from commercial banks and other
commercial sources. Much of the increase in the
Soviet commercial debt in the mid-1970s was the
result of large syndicated general purpose loans.
Because of its wish to hold down its debt and avoid
prevailing high interest rates, the USSR has not
engaged in such borrowing since 1979, when it con-
solidated earlier syndicated loans into one large
credit.
Soviet debt on Western official and officially backed
credits-which since 1976 has grown more rapidly
than debt arising from commercial credits-accounts
for two-fifths of total gross debt. Since the USSR
began large purchases of Western technology in the
early 1970s, Moscow has used official and officially
backed credits to finance one-third of its imports of
plant, equipment, and large-diameter pipe from the
West. Annual Soviet drawings on government-backed
credits jumped from an average of about $475 million
during 1971-73 to nearly $2 billion by 1975 but have
been held at an annual average of about $2.2 billion a
year since 1977. The volume of new commitments fell
from a peak of $4 billion in 1976 to less than
$2 billion in 1980, reflecting falling Soviet orders for
Western machinery and equipment (see table B-5 in
appendix B). Subsidized interest rates and the long
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Table 2
USSR: Estimated Hard Currency Debt to the West
10,577
14,707
15,609
16,375
18,050
17,865
20,865
20,100
9,515
10,480
10,015
13,015
11,500
Government and
government-
backed debt
3,630
5,045
5,751
6,860
7,570
7,850
7,850
8,600
Assets in Western
banks
3,125
4,735
4,425
maturities attached to most government-backed cred-
its have considerably helped Moscow to conserve
scarce hard currency. The interest rate subsidy
reached a record level in 1981-on the order of $300-
400 million-as commercial rates in most Western
countries averaged 6 percentage points more than
those charged on official loans.
Sufficient information is not available to estimate the
breakdown of the USSR's hard currency debt by
major Western creditor. As of mid-1982 the Soviet
Union owed $550 million to US banks (in both
domestic and foreign branches and net of Soviet
deposits in those banks), $400 million to the Export-
Import Bank, and $662 million on lend-lease extended
in 1945.? A West German Bundesbank report indicat-
ed that, as of 31 March 1982, net liabilities to
German banks and their foreign branches were $1.5
billion. From Bank of England data, we estimate
Soviet net debt to British banks was $1.8 billion as of
30 June 1981.
In accordance with an October 1945 agreement, the USSR made
cumulative repayments on its lend-lease debt of $199 million during
1954-71. In 1972 the two countries agreed that the outstanding
Soviet debt on lend-lease would be fixed at $722 million and would
be repaid over a 30-year period. However, after making payments
of $60 million during 1972-74, the USSR-in renouncing the 1972
Trade Agreement-made additional repayments contingent on
renewed access to US Export-Import Bank credits and most-
Debt size reveals little about a country's ability to
meet its financial obligations and to sustain needed
imports. To provide perspective on the USSR's situa-
tion, several indicators of the hard currency debt have
been calculated-all of which show that the Soviet
position remains quite manageable (see table B-6 in
appendix B). Using the ratio of repayments on
medium- and long-term debt plus interest on total
debt to merchandise exports shows that, after rising to
about 27 percent in 1977 and 1978 following heavy
borrowing in the previous two years, the debt service
ratio fell to 20 percent in 1980 but rose to 23 percent
in 1981 as exports stagnated. This ratio still compares
extremely favorably, however, with the 1981 debt
service ratios for most East European countries, which
we estimate as ranging between 22 percent for
Czechoslovakia to about 33 percent for Bulgaria,
Hungary, and Romania, 69 percent for East Germa-
ny, and 148 percent for Poland. Soviet debt service as 25X1
a share of total hard currency receipts was 16 percent
in 1982.
The maturity structure of Soviet medium- and long-
term debt is also fairly comfortable from the USSR's
viewpoint. Estimates indicate that, of total gross debt
at the end of 1981, about two-fifths would fall due by
the end of 1983. The weight of short-term debt has
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risen sharply, however, from about 20 percent of gross
debt in 1978 to nearly 30 percent in 1981 because of
heavy use of short-term grain credits. Although such
a large short-term debt does not present an immediate
problem for Moscow, it could if Western banks were
to balk at requests to roll it over.
Two additional indicators reflect the impact of new
borrowings and debt service payments upon a coun-
try's import capacity. The net transfer measure-new
drawings less repayments of principal and interest-
shows the increase (or reduction) as a result of
borrowing. The USSR's heavy borrowing in 1975 and
1976 produced a net inward resource transfer of
nearly $4 billion a year but carried with it the cost of
rising debt service. Moscow's policy of slowing down
new borrowings during 1977-80-coupled with the
decision to prepay some of its Eurodollar syndica-
tions-practically eliminated the inward transfer dur-
ing 1977-79 and resulted in an outward flow of about
$1.8 billion in 1980. In 1981 the trend was reversed
with a net inward transfer of $900 million. We also
calculate that portion of new drawings-90 percent in
1981-used to service existing debt in order to meas-
ure the extent to which Moscow is rolling over its
debt.
Weakening and Retrenchment in 1981 and 1982
The Payments Position Weakens. After holding its
hard currency debt down during 1977-80, the USSR
was hit in 1981 by a rising agricultural import bill,
soft oil prices in the West, and the need to provide
hard currency assistance to Poland. The deficit on
merchandise trade rose to $4 billion, compared with
$2.5 billion in 1980 (see table 1). The gap would have
been even higher had Moscow not pushed exports-
mainly oil-and trimmed imports-mainly machinery
and equipment-in the last half of 1981. For the year
as a whole, the Soviets managed to maintain the value
of oil exports at the 1980 level as a 5-percent oil price
rise offset the drop in volume
The value of machinery imports fell by 25 percent
during 1981, while imports of steel other than pipe
dropped by 10 percent, and purchases of chemicals
leveled off. In real terms, the cutbacks were even
larger. At the same time, however, imports of agricul-
tural goods increased by more than one-fourth-to
$11.7 billion-and pipe imports rose by more than
one-fifth. The surge in the agricultural bill resulted
mainly from a jump in grain imports to 39 million
tons.
The unfavorable developments in the first half of
1981 forced Moscow to draw down its assets in
Western banks by an unprecedented $5 billion. To
ease its financial situation and rebuild its assets, the
USSR borrowed heavily-mainly on short-term cred-
its for grain-and sold substantial amounts of gold in
the second half of the year. By the end of the year,
assets were back up to $8.4 billion and the gross hard
currency debt had climbed to nearly $21 billion.
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Reaction in 1982. Moscow continued its efforts to 25X1
improve its payments position into 1982. By strongly
pushing oil exports and holding down imports, the
USSR slashed its hard currency trade deficit to $1.3
billion, or one-third of the $4 billion deficit incurred
in 1981. Exports were up 10 percent, with about four-
fifths of the $2.4 billion rise coming from the sharp
jump in oil sales. The volume of oil exports in 1982 for
hard currency probably was 280,000 b/d higher than
the 920,000 b/d the USSR exported to hard currency
customers in 1981 (see table B-4 in appendix B). Even 25X1
with prices about 10 percent below the 1981 level, the
Soviets realized a pronounced increase in oil earnings,
and total hard currency merchandise exports for the
year exceeded $26 billion.
The Soviets reduced imports by 1 percent compared
with those in 1981 by paring purchases of Western
grain, chemicals, and nontubular steel. Compared
with a year earlier, Soviet hard currency grain im-
ports fell off by 3 million tons to an estimated 36
million tons. Average prices paid for grain declined by
roughly 15 percent, with the monthly volume shipped
falling substantially after May
The estimated volume of agricultural imports other
than grain increased substantially, on the other hand,
due mainly to a sharp rise in purchases of Western
sugar. Because of overall lower prices, total Soviet
hard currency expenditures on agricultural products
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fell by an estimated 15 percent. Partial-year Western
trade data suggest that purchases of chemicals and of
steel other than pipe also fell. Imports of machinery
and equipment and of steel pipe, however, rose
sharply-to an estimated $6 billion and $2.5 billion,
respectively-as deliveries began for the Siberia-to-
Western Europe gas pipeline. Total hard currency
imports were $27.4 billion, down $300 million from
1981.
Soviet trade data indicate that deliveries of major
weapon systems to hard currency LDC customers rose
substantially. This, together with the improvement in
the trade picture, should have allowed the USSR to
realize a current account surplus of more than $4
billion, up from a small deficit in 1981. It is possible,
however, that much of the rise in arms deliveries went
to Syria (which, in the case of arms, is considered to
be a hard currency customer) on credit and thus did
not represent real hard currency inflows. In addition,
the Soviets may have earned about $1.1 billion from
sales of perhaps 100 tons of gold.
The improvement in its current account position
coupled with a probable fall in hard currency assist-
ance to Poland-which may have totaled as much as
$1 billion in 1981-allowed Moscow to reduce its
debt in 1982. By the end of 1982 the gross hard
currency debt fell by an estimated $800 million, to
$20.1 billion. The amount outstanding on Western
government-backed credits rose by $750 million to
$8.6 billion as deliveries of pipe and equipment for the
Siberia-to-Western Europe pipeline began.
From Bank for International Settlements (BIS) data,
we estimate that the USSR's commercial debt de-
clined by roughly $1.5 billion to $11.5 billion by the
end of the year. All of this decline probably occurred
in the short-term debt. Drawings on medium- and
long-term bank credits are estimated at $1.3 billion or
about the same as repayments. Moscow's assets in
Western banks-which fell by $1.8 billion during
January to June-hit a record high of $10 billion by
the end of 1982
The Cost to Moscow. Moscow has had to pay a
substantial price for the improvement in its hard
currency position. The 1982 increase in oil exports for
hard currency was achieved largely by cutting back
exports to Eastern Europe, increasing imports for
resale in hard currency markets, and holding down
Soviet domestic oil consumption and/or drawing
down oil inventories. In late 1981 the USSR decided
to reduce-perhaps by 10 percent-its highly subsi-
dized exports of crude oil to Czechoslovakia, East
Germany, and Hungary. (Originally, Moscow had
promised to maintain oil exports to its East European
allies at the 1980 level through 1985.) At the same
time, Poland apparently reduced its imports of oil-
especially of oil products-from the USSR as its
domestic requirements were down because its indus-
trial plant was operating way below capacity. Thus, a
major share of the 1982 increase in oil exports to hard
currency countries came from the reduction in exports
to Eastern Europe. In addition, the Soviets are be-
lieved to have substantially increased oil imports for
sale in the West; purchases of Libyan crude oil-
presumably in payment for arms deliveries-rose to
an estimated 140,000 b/d in 1982 from an estimated
40,000 b/d in 1981. This brought total oil imports in
1982 to an estimated 250,000 b/d. Although part of
this oil went to soft currency countries such as
Finland, most of the additional imported oil presum-
ably was used to boost Soviet oil exports to hard
currency countries.
Since Soviet oil production increased by only 70,000
b/d in 1982, the approximate leveling off of total net
oil exports implies either very little growth-perhaps
on the order of 0.5 to 1 percent-in domestic oil
consumption and/or a drawdown of oil stocks. Be-
cause of the frequency of reports of fuel shortages in
the USSR in the past few years, we believe that
inventories have been taut. If domestic oil consump-
tion did grow by 1 percent or less in 1982, the USSR
probably found it exceedingly difficult to obtain the
2.2-percent rise in industrial production and the
2-percent increase in GNP realized for the year
without making remarkable strides in conservation or
interfuel substitution, or both. We do not believe,
however, that the Soviets made such strides in such a
short period. On the contrary, regime attempts to
impose conservation through rationing very likely held
down production in industry and other sectors of the
economy.
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In addition, Moscow has forgone substantial imports
of grain and nonagricultural commodities. Imports of
machinery and equipment declined in volume by more
than 40 percent during 1977-81. Continued import
cuts clearly would interfere with regime efforts to
improve productivity. The USSR's apparent decision
to limit imports of grain will be felt by the Soviet
consumer in terms of per capita availability of meat
and dairy products.
Balance-of-Payments Prospects
In spite of the substantial help the USSR received
from hard currency imports in the 1970s, a poor
outlook for Soviet exports suggests that the USSR
will be compelled to limit severely the growth of hard
currency imports in the 1980s. Although the USSR
could obtain some additional relief by further tighten-
ing the screws on Eastern Europe, as it did last year
with oil, such a course would be politically difficult
for Moscow, given the economic problems already
confronting that area. In limiting or cutting imports,
Moscow faces hard decisions regarding who at home
should bear the burden-the Soviet consumer, the
partisans for more investment, or industrial managers
who need intermediate materials such as steel and
chemical feedstocks.
Export Trends in the 1980s. The improvement in
Soviet hard currency oil exports recorded in 1982
probably will not last long. Oil production of 12.3
billion b/d last year was only 0.7 percent above the
level in 1981. Output is expected to show little if any
growth through mid-decade before starting to decline.
The ability of East European or Soviet consumers to
absorb further cuts in oil supplies is one of the critical
factors determining the level to which oil revenues
will fall. Although Moscow probably has given some
thought to making further cuts in oil deliveries to
Eastern Europe, it apparently is holding off for the
time being
Additional cutbacks in deliveries of Soviet oil would
be a blow to the East Europeans, who could ill afford
to buy oil on the world market or from the Soviets for
hard currency. Although in 1983 the East Europeans
will be paying close to world market prices for Soviet
oil, they will continue to obtain this oil mostly in
exchange for soft goods, that is, goods not readily
salable in Western markets. Attempts to hold down
oil consumption within the Soviet Union also are
likely to fall short of plans, especially since extensive
substitution and conservation depend on large invest-
ments.
Natural gas offers the only hope for sharply increased
Soviet exports over the next few years. Deliveries
through the Siberia-to-Western Europe gas pipeline
now under construction should begin on a small scale
by 1984, and the line could be operating near full
capacity a couple of years later. The sharp increase
expected in earnings from natural gas exports, how-
ever, probably will fall short in real terms of covering
the decline in oil exports, even if Western demand is
higher than we now foresee. However, although the
Soviets have their hands full for the time being
juggling construction schedules for the Siberia-to-
Western Europe and other domestic gas pipelines,
they would certainly agree to build a second or even a
third line if they felt the West Europeans would buy
more gas.
Commodity exports other than oil, gas, and gold,
meanwhile, are likely to show little, if any, early
growth.' Of the thousands of products and services on
the Soviet export list, only a few offer much chance
for increased hard currency earnings during the
1980s. In a number of industries (for example, nonfer-
rous metals and timber), domestic production is stag-
nating and domestic requirements are rising, squeez-
ing the exportable surplus. Platinum-group metals,
nickel, and chemical fertilizer offer the greatest op-
portunities for export expansion. Chances are poor
that the Soviets will be able to boost their hard
currency earnings from sales of machinery. Sales of
timber, diamonds, and cotton are expected to remain
substantial but not to increase much because produc-
tion of these goods is leveling off or, in the case of
timber, declining.
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We calculate that earnings from exports other than
oil, gas, arms, and gold could increase at best by
roughly 4 percent a year in real terms. This estimate
assumes that Soviet planners are willing and able to
increase investment and allocations of labor to sustain
an export push on a broad front. It also assumes that
Western demand will be robust enough to accommo-
date a large volume of Soviet sales. Because of these
factors, we believe a more realistic real growth rate
for these exports is between 0 and 2 percent per year.
Although Moscow could step up gold sales-it could
sell about 300 tons a year without dipping into
reserves-it would have to be careful not to push too
hard on the market because of the effect on prices
The outlook for Soviet export earnings is colored in
the short term by weakness in Western markets.
World oil prices may remain soft for a few years. The
roughly $3 a barrel drop in price already experienced
by the USSR in 1983 could reduce hard currency
earnings from oil sales by about $1.5 billion. More-
over, continued soft oil prices could also impact
severely on Soviet earnings from other sources. In the
case of natural gas, the $3.35 per million Btu that
Italy agreed in March 1983 to pay the Soviets was
roughly $1.35 below the base price negotiated for
1982 sales. Moreover, Moscow may earn less hard
currency from arms sales because of large declines in
oil earnings in the Middle East.
Higher oil prices would once more yield windfall
profits for the USSR. Increased oil revenues might
also help the Middle Eastern countries to increase
their purchases of Soviet arms for hard currency. A
spurt in Soviet oil earnings probably would much
more than offset the likely slowdown in Western
demand for Soviet nonenergy commodity exports
because of increased competition from LDCs and
newly industrialized countries.
Hard Currency Projections. At this time, we foresee
little if any increase in the real value of the USSR's
hard currency purchasing power through 1990. Much
depends on oil price trends, however. A great deal
more uncertainty attaches to our estimates for the
second half of the decade than to those for the next
three years.
We have made projections on the basis of our esti-
mates of Soviet export capabilities to suggest the
magnitude of the hard currency constraints facing the
USSR through the rest of the decade. With the help
of a series of standard accounting identities, we have
calculated trends in Soviet financing requirements on
the basis of specified values for key earnings items
such as the volume and price of oil and gas exports
and sales of arms and gold.
The key unknown in the calculation is, of course,
Soviet hard currency oil exports, which we have
projected to decline annually by 70,000 b/d a year on
average to some 600,000 b/d in 1990, about one-half
the 1982 level. This assumes that:
? Soviet oil production averages about 12.5 million
b/d a year in 1984 and 1985 and about 12 million
b/d during 1986-90.6
? Domestic requirements for oil-estimated at about
9.2 million b/d in 1982-rise no higher than 9.5
million b/d in 1990.
? Oil imports average 250,000 b/d.
? Oil exports to Communist countries remain at the
1982 level of about 1.85 million b/d.
? Oil exports for soft currency to non-Communist
countries (mainly Finland and India) remain at the
1982 level of roughly 300,000 b/d.
Because of soft demand in Western Europe for oil,
nominal prices are projected to fall in 1983, level off
in 1984, and rise with the rate of inflation for the rest
of the decade. We estimate that gas exports for hard
currency will rise to 32 billion cubic meters (m') per
year by 1985 and to 52 billion m' by 1990 as gas sales
to Western Europe rise. This assumes that West
European demand for gas picks up substantially and
that contracts for gas coming through the new pipe-
line are not scaled back significantly. Although some
forecasters are projecting much softer demand for
gas, we believe it likely that this demand will pick up
again in the second half of the decade as economic
6 According to the recent CIA oil estimate, we expect Soviet oil
production to rise to 12.6 million b/d in 1985 and then level off
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Assumptions Underlying Hard Currency
Balance-of-Payments Projections
Oil exports rise to 1.2 million b/d in 1982 and decline
by an average of 70,000 b/d a year during 1983-90.
Gas exports from existing pipelines drop from an
average of 28 billion cubic meters (m3) a year during
1981-83 to 25.5 billion m3 a year during 1984-90.
Deliveries through the Siberia-to-Western Europe
pipeline rise from 3 billion m' in 1984 to 27 billion m3
by 1990.
Real nonoil, nongas exports grow by 1 percent a year
Nominal gas prices for gas piped through existing
lines drop from $145.80 per thousand m3 in 1982
(equal to $4.13 per million Btu) to $137.13 in 1983 25X1
before rising to $166.95 in 1984 and $198.35 in 1985.
They then rise with the rate of inflation. The nominal
price of gas going through the new Siberia-to-West- 25X1
ern Europe pipeline starts at $186.39 per thousand m'
in 1984 and then rises with the rate of inflation.
The nominal gold price rises from $356 a troy ounce 25X1
in 1982 to $395 in 1983 and then rises with the rate
of inf7ation.l 25X1
Additional real arms sales hit an extraordinary $5.9
billion in 1982 before dropping off to $4.5 billion a
year during 1983-90.
Real net earnings from invisibles (excluding interest)
grow by 5 percent a year during 1983-90.
Gold sales rise from 100 tons in 1982 to (1) 200 tons a
year or (2) 300 tons a year during 1983-90 depending
on the need for such sales.
Real imports are (1) held constant or (2) allowed to
rise 2 percent a year during 1983-90.
Real unrecorded expenditures (errors and omissions
are held constant at $3.5 billion during 1983-90.
The overall annual inflation rate applying to all trade
except oil and gas is 5 percent in 1983 and 7 percent
during 1984-90.
Nominal oil prices drop from an average of $32.25
for the mix of crude oil and petroleum products
exported to hard currency countries in 1982 to $29.50
a barrel in 1983 and 1984 and then rise with the rate
of inflation.
Drawings on nonpipeline Western government-
backed credits are held at $2 billion a year in real
terms during 1983-90.
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Drawings on credits for the pipeline are $800 million
in 1982, $2.5 billion in 1983, $1.7 billion in 1984, and
$1 billion in 1985.0 25X1
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Nominal short-term commercial debt remains at the
estimated 1982 level of $5 billion.
Drawings on commercial medium- and long-term
credits vary to fill the annual financial gap.F~ 25X1
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Interest rates run at an average annual rate of about
11 percent.0 25X1
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The average maturity structure is eight years on
nonpipeline official credits, 11 years (with a three-
year grace period) on credits for pipeline equipment,
and five years on medium- and long-term commercial
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recovery in Western Europe picks up.' We allow the
nominal price of gas, meanwhile, to increase by 28
percent as contracts under the Siberia-to-Western
Europe pipeline start to be filled and then rise with
the rate of inflation. In all, the gas project will add an
average of about $6.4 billion annually in nominal
terms to Soviet hard currency earnings during 1987-
90. Nominal earnings from oil exports, however, will
be about $9 billion a year lower on average than if the
volume of oil exports had remained at the 1982 level.
Table 3
USSR: Hard Currency
Purchasing Power
In our calculations, the volume of projected gas sales
is set equal to the amounts: (1) currently contracted
for through existing lines, and (2) likely to be pur-
chased through the new export line. In fact, the
USSR probably could sell substantially more gas than
this should European customers seek additional sup-
plies. The USSR has roughly 10 billion m' of surplus
capacity available now in existing lines and could
increase this amount markedly by adding to Czecho-
slovakian transit capacity.
As noted earlier, we allow commodity exports other
than energy, arms, and gold to rise by roughly 1
percent a year in real terms from their 1982 level of
$8.3 billion. Even this assumption may be too optimis-
tic. The volume of these exports was lower in 1980
than in 1978, and further slippage occurred in 1981.
The volume of wood and wood product exports fell by
more than half during 1977-81. Real exports of
machinery and equipment leveled off during 1979-81,
and sales of ferrous metals and agricultural products
fell sharply during 1978-81.
Given our assumptions regarding the volume and
relative prices of the USSR's hard currency exports-
and assuming annual gold sales of 300 tons-Soviet
hard currency purchasing power would at best remain
level through 1990 as shown in table 3 where nominal
earnings have been deflated by the assumed rise in
import prices-5 percent in 1983 and 7 percent per
year thereafter.
Using these assumptions, we estimated financing re-
quirements to: (1) maintain the volume of imports at
the 1982 level and (2) increase import volume by 2
Total
34.9
32.9
33.4
Merchandise exports
26.2
22.8
22.9
Additional arms sales a
5.9
4.5
4.5
Gold sales b
1.1
3.6
3.6
Invisibles c
1.8
2.0
2.4
a Sales not included in reported exports to hard currency countries.
b This assumes gold sales of 300 tons a year during 1983-90.
c Includes interest receipts.
percent per year during 1983-90. As shown in table 4,
the USSR's debt remains quite manageable through
1985 in both cases and through 1990 in the case
where real imports are held constant. If real imports
rise by 2 percent a year, by 1990 the debt service ratio
would approach 40 percent, a level the Soviets would
probably deem too high unless they modified the
present conservative attitude toward borrowing
Our projections are highly sensitive to the volumes of
oil, gas, and gold sold. Each additional 100,000 b/d of
oil sold would increase annual purchasing power by an
average of roughly $1 billion, using the real prices we
hive assumed. Each additional billion m' of natural
gas sold would yield about $165 million in real terms.
And for each additional 50 tons of gold sold, real hard
currency receipts would rise by $575 million.
Finally, we have assumed that export prices-except
for oil, gas, and gold as noted above-and import
prices move together. Because of the decline in real
oil, gas, and gold prices in 1983, Soviet terms of trade
deteriorate in that year but improve in 1984 and 1985
because of the rise in real gas prices. They then show
no change through the rest of the decade. The
situation could be far different, however, if a battle
among the world's major oil producers over prices and
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Table 4
USSR: Hard Currency Financing
Requirements Under Alternative
Scenarios
Billion Current US $
(except where noted)
Real Imports
Constant
Real Imports
Growth
(2 Percent
per Year)
Total exports
26.2
27.4
38.6
27.4
38.6
Total imports
27.4
33.1
46.4
36.3
54.1
Gold sales
1.1
2.9
4.1
4.3
6.1
Net credits
drawn
-2.4
2.6
3.4
5.0
12.5
Net debt
10.1
14.2
20.8
19.4
51.8
Debt service ratio
(percent)
16.0
18.5
21.5
21.0
38.2
market shares becomes a reality. And, although it is
unclear where prices resulting from such a struggle
would ultimately settle, the USSR would clearly be a
major loser if prices fell by $5 to $10 a barrel. As a
rough rule of thumb, every $1 fall in the price of oil
costs the USSR $450 million in hard currency reve-
nues, assuming volume remains the same. On the
other hand, the USSR as a raw materials supplier
could derive some near-term benefit from a boost in
Western economic growth rates that could follow a
reduction in global energy prices. On balance, how-
ever, the USSR would be hurt far more than it would
be helped by a decline in oil prices
Conclusion
Paradoxically, as Soviet domestic difficulties mount
and economic growth slows, Moscow has been less
willing to rely on economic ties with the West.
Aversion to the rapid growth of hard currency debt in
the mid-1970s led to a sharply slower growth in real
imports-2 percent a year during 1977-82 compared
with more than 18 percent a year during 1971-76-
and restraints on new borrowing. Western trade sanc-
tions following the Afghanistan invasion almost cer-
tainly dampened the enthusiasm of planners for rely-
ing on imports from the West. Meanwhile the Polish
crisis has reinforced the position of those opposing too
much dependence on East-West trade.
In remarks to the Supreme Soviet in November 1981,
State Planning Committee Chairman Baybakov im-
plied that the volume of non-Communist country
trade would grow by only 2.3 percent a year during
1981-85. This compares with just over 5 percent a 25X1
year during 1976-80. Provisional estimates indicate
that the five-year plan for trade with non-Communist
countries is ahead of schedule with the sharp rise in
imports in 1981 and in exports in 1982.
Import Priorities. The question is whether Moscow is
in a position to forgo the benefits that would accrue to
the economy from expanding its trade with the West
during the remainder of the 1980s. Within the limits
of hard currency availability, world supplies, and
political considerations, the USSR will at a minimum
want to: (1) import sufficient quantities of farm
products to keep per capita consumption of quality
foods near present levels, (2) purchase necessary in-
dustrial materials, and (3) buy enough machinery and
technology to meet priority investment goals.
Although Moscow is likely to place great emphasis on
increasing agricultural self-sufficiency, imports of 25X1
20-30 million tons of grain and 2-3 million tons of
oilseeds and oilseed meal will be needed annually to
support livestock expansion plans during the next
several years even with normal harvests. The Soviets
could reduce average grain imports to less than the
projected level in the unlikely event that: (1) plans to
increase the share of roughage in the average feed
ration are achieved, and (2) plans to increase feed
efficiency are met. Imports of other farm products-
sugar, vegetable oil, meat, and butter-will depend
partly on domestic production but also on the extent
to which the leadership is committed to maintaining
per capita consumption levels. The 1-percent decline
in per capita meat consumption the Soviets permitted
in 1982-as imports of meat were cut back slightly
from the record 1981 level despite stagnating domes-
tic production-suggests that the present leadership is
not willing to increase imports of farm products
indefinitely.
A reduction in the value of farm imports would allow
at least moderate increases in nonagricultural im-
ports. Purchases of Western steel and other industrial
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inputs will continue to be given priority to keep
productive capacity operating as fully as possible.
Imports of large-diameter steel pipe will remain criti-
cal for the construction of oil and gas pipleines. We
estimate that the Soviets will need to import at least 3
million tons of steel pipe a year during the 1980s at a
cost of about $2 billion a year (1982 prices)-or about
the same as in 1982. By the late 1980s, Moscow
should be able to lower annual pipe imports because
of increased domestic production. The Soviets are well
along in building new steel plants to produce large-
diameter pipe. We expect these facilities to become
operational during the 1986-90 plan period.
In addition, the Soviets will continue to buy-at least
for the next few years-large amounts of cold rolled
sheet steel for the machine-building, automobile, and
consumer durables industries; tin plate for canning
and packaging; and various types of high-quality
products for use in transformers and electric motors.
Purchases of these products are expected to remain at
about $2 billion a year until 1986 or 1987, when the
Novolipetsk metallurgical plant is expected to go into
full operation. If the Soviets decided to import from
the West iron ore, coking coal, and scrap metal in the
amounts necessary to meet planned 1985 steel produc-
tion, an additional $1 billion could be added to the
annual import bill.
In reviewing the USSR's machinery and equipment
requirements, we expect that Moscow will continue to
give priority to importing equipment necessary for
developing energy resources. The allocation of Soviet
investment resources is heavily skewed toward energy
while neglecting other sectors that are also important
to economic development. Although it is too early to
know what the 1986-90 Soviet investment plan will
look like, energy development will in all likelihood
continue to receive priority. To a large extent, the
current Soviet energy strategy is driven by an aware-
ness on the part of the leadership that it may have to
accept an oil production decline in the late 1980s. In
addition to heavy emphasis on West Siberian oil and
gas, the major elements of Soviet energy policy
include increased substitution of gas for oil, conserva-
tion, and modernization of industrial facilities. The
energy sectors, including associated infrastructure,
are scheduled to receive more than one-half of the
increment in total investment during 1981-85. This
share will have to rise still further in the second half
of the 1980s unless total investment growth is in-
creased sharply.
Our analysis of Soviet equipment manufacturing ca-
pabilities and the continuing problems in the oil
industry indicate that requirements in the 1980s will
center on Western equipment and technology for
deeper drilling, fluidlift, and well completion and
servicing. In addition, the Soviets will need sophisti-
cated exploration equipment, offshore drilling plat-
forms, and secondary oil refining technology. Because
gas is critical to maintaining total Soviet energy
production growth in this decade, continued imports
of pipelayers, turbines and compressors, and other
gas-exploitation equipment will be necessary. Western
equipment and technology will be especially crucial
for exploiting "sour" gas deposits, such as those at
Astrakhan and Tengiz.
The recent greatly increased emphasis on the Food
Program suggests that agriculture and the food indus-
try are also likely to receive special attention over the
next few years. This program gives top priority to
upgrading capital stock in all phases of food produc-
tion. Investment allocations have been sharply in-
creased for industries that produce machinery for
farming and animal husbandry, fertilizer, equipment
for food processing, and storage and transportation
equipment. Soviet Ministry of Agriculture and trade
officials have indicated that imports will play an
important role in this food-related investment pro-
gram. Soviet officials have expressed interest in ac-
quiring Western farm machinery, road construction
equipment, food processing and packaging installa-
tions, as well as storage facilities for perishable
products. Increasing imports of superphosphoric acid
from the West for producing phosphate fertilizer are
also viewed as important. In addition, Moscow has
shown renewed interest in completing factories that
were proposed or started in the 1970s with Western
assistance. These include the Cheboksary tractor
plant, grain combine manufacturing facilities at
Taganrog, and a slaughterhouse/meat packing plant
near Moscow that would serve as a prototype for
future construction.
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As in recent years, imports of Western machinery for
other sectors of the economy probably will suffer if
hard currency constraints continue. Moscow probably
will try to continue its imports of necessary spare
parts and other maintenance items. For the remainder
of the current five-year period, at least, the invest-
ment plan calls for increased emphasis on renovation
and modernization at the expense of new construction.
Modernization efforts are to be directed particularly
at labor-intensive auxiliary processes, such as materi-
als handling, loading and unloading, and warehous-
ing, which absorb more than one-third of the USSR's
industrial work force.
Soviet Adjustments. The need to curb the growth of
hard currency imports comes at a time when slower
domestic growth is making resource allocation deci-
sions more difficult year by year. Although they may
try, Soviet leaders probably calculate they cannot
count on the East European countries for much help.
Although it could provide more consumer goods and a
limited range of industrial and investment goods,
Eastern Europe's capacity to provide significant as-
sistance is limited by its own economic and financial
problems.
The possibilities for expanding Soviet hard currency
imports in the latter part of the decade and beyond
are greater. Apart from the possibility that oil prices
will again rise, the main questions concern West
European imports of Soviet natural gas and both
Soviet and Western policies concerning use of and
access to Western credits. The Andropov administra-
tion, faced with severe economic difficulties, is likely
to consider a wide range of economic policy alterna-
tives, including steps to expand imports from the West
to facilitate improvements in productivity and tech-
nology.
One way to increase hard currency imports would be
to expand gas exports to Western Europe well beyond
presently contracted amounts. When the export pipe-
line now being built is completed, it will have enough
capacity for additional Soviet gas deliveries. Unless
alternative sources are developed, West European gas
demand should be sufficient to cover these additional
deliveries in the late 1980s and early 1990s. And even
if alternative sources are developed, the USSR could
offer gas at substantially lower prices than those
projected for new Norwegian gas, make a profit, and
obtain a great deal of hard currency. Beyond 1990,
the Soviets have ample gas reserves to justify one or
several additional gas pipelines of the size of the one
under construction. The main constraint will be what
Western Europe and, on a much smaller scale, Japan
need and are willing to buy.
Western credits are a potential source of substantial
additional Soviet hard currency imports, but only if
Soviet debt policy becomes less conservative and
Western governments provide encouragement and
insurance to the lenders. The Soviet debt position is
currently easily manageable-with a ratio of debt
service to hard currency earnings of 17 percent-and
probably will remain so at least through 1985. Mos-
cow could, if it wished, increase the debt service ratio
substantially before it reached troublesome levels.?
The main impact of an increase in Soviet hard
currency earnings or credits would probably be on
imports of Western machinery and equipment, which
have declined substantially in recent years. Soviet
imports of Western machinery and equipment now
consist mainly of equipment for the oil, gas, chemical,
and metallurgical industries. The main purpose of this
equipment is to alleviate severe bottlenecks in the
supply of fuels and key industrial materials. A sub-
stantial increase in hard currency receipts could mean
a growth in imports of machinery and equipment
large enough to significantly affect the modernization
process. By the same token, a further decline in 25X1
imports of machinery and equipment would make it
even more difficult to reduce the kinds of bottlenecks
that have been hampering Soviet economic growth.)
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aerzret
Appendix A
USSR: Hard Currency Trade Partners, 1970-81 a
(as Reported by Partner Countries to the IMF) b
Developed West
European Community
Belgium
Denmark
Federal Republic of Germany
France
Greece (1978 on)
Ireland
Italy
Luxembourg
Netherlands
United Kingdom
Austria (1971 on)
Iceland (1977 on)
Malta
Norway
Portugal
Spain
Sweden
Switzerland
Australia
Canada
Japan
New Zealand
United States
Less developed countries
Africa
Algeria (1980 on)
Angola (1977 on)
Benin
Burundi
Cameroon
Cape Verde Islands (1978 on)
Central African Republic
Congo
Ethiopia
Equatorial Guinea
Gabon
The Gambia
Ghana (1976 on)
Guinea Bissau
Africa (continued)
Ivory Coast
Kenya
Liberia
Libya
Madagascar
Malawi
Mali (1978 on)
Mauritania
Mauritius
Mozambique
Niger
Nigeria
Rwanda
Senegal
Sierra Leone
Sudan
Tanzania
Togo
Tunisia
Uganda
Upper Volta
Zaire
Zambia
Argentina
Bolivia
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
Ecuador
El Salvador
Guatemala
Guyana
Honduras
Jamaica
Mexico
Nicaragua
Panama
Paraguay
Peru
Trinidad and Tobago
Uruguay
Venezuela
Burma
Cyprus
Hong Kong
Indonesia
Iraq
Israel
Jordan
Kuwait
Lebanon
Macao
Malaysia
Nepal (1977 on)
Philippines
Saudi Arabia
Singapore
Sri Lanka (1977 on)
Thailand
Yemen, Arab Republic
Yemen, People's Democratic Republic of
We have used data on Soviet trade with the multilateral trade b Annual Report on Exchange Restrictions, International Monetary
partners in calculating hard currency trade with non-Communist Fund, Washington, D.C. Unless otherwise stated, a multilateral
countries. Some of the Soviet trade with the multilateral LDC trading relationship was in effect throughout the 1970-81 period.
partners, however, probably is on a barter basis. Conversely, part of
the trade with bilateral LDC partners may be on a hard currency set-
tlement basis.
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Appendix B
Statistical Tables
Table B-1
USSR: Hard Currency Imports a
1970 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
Million current US $ b
Total c 2,984 3,093
4,342
6,744
8,695
14,577
15,478
14,805
17,026
21,435
26,070
27,778
Grain 101 185
770
1,423
635
2,323
2,627
1,356
2,353
3,279
4,548
6,378
Other agricultural 657 600
543
1,118
1,388
1,760
1,665
2,005
1,721
2,854
4,717
5,320
products
Machinery and 967 960
1,283
1,739
2,334
4,593
5,074
5,117
5,970
6,032
6,039
4,523
equipment d
Ferrous metals d 303 374
498
899
1,942
2,627
2,296
1,819
2,588
3,536
3,606
3,597
Chemicals 215 206
249
270
707
722
609
658
815
1,190
1,646
1,590
Other c 741 768
999
1,295
1,689
2,552
3,207
3,850
3,579
4,544
5,615
6,370
Million 1970US$e
Total c 2,984 2,851
3,677
4,349
5,223
7,419
8,325
7,531
7,294
8,324
9,095
9,130
Grain 101 185
726
783
245
997
1,257
671
934
1,100
1,188
1,600
Other agricultural 657 611
383
406
671
862
816
709
548
945
1,522
1,700
products
Machinery and 967 946
1,150
1,353
1,622
2,700
2,929
2,829
2,716
2,513
2,350
1,675
equipment d
Ferrous metals d 303 220
327
593
1,095
1,055
1,170
945
1,151
1,474
1,383
1,305
Chemicals 215 204
245
233
501
448
363
302
340
430
610
575
Other c 741 685
846
981
1,089
1,357
1,790
2,075
1,605
1,862
2,042
2,275
a Includes all countries trading with the Soviet Union on a hard
d Excluding imports associat
ed with the Orenburg pipeline.
currency basis as of 1 January 1980.
a The constant pr
ice series w
is estimated by
using actual quan
tity
b Official Soviet foreign trade statistics.
data where available (for exa
mple, for wheat
and corn) or by
c Includes the following imports which the USSR reported in
deflating the valu
e series by
N and other Western price indexes for
footnotes and which we believe are associated with the Orenburg
various commodi
ty groups.
natural gas pipeline: $420 million in 1976, $888 million in 1977,
$286 million in 1978, $30 million in 1979, $18
million in 1980, a
nd
zero in 1981.
19
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Table B-2
USSR: Hard Currency Exports a
1970 1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
Million current US $ b
Total 2,424 2,777
2,954
5,009
7,869
8,280
10,225
11,863
13,336
19,417
23,584
23,778
Petroleum c 430 608
600
1,304
2,741
3,391
4,748
5,583
5,710
9,585
12,295
12,232
Natural gas 14 21
24
32
95
220
358
566
1,072
1,404
2,704
3,968
Coal and coke 106 127
124
139
256
402
377
366
295
315
366
179
Machinery and 193 207
i
267
360
398
647
803
905
1,299
1,574
1,468
1
534
equ
pment
,
Ferrous metals 137 131
130
216
236
164
171
181
129
216
246
169
Wood and wood 389 379
products
421
747
1,046
739
889
1,084
991
1,370
1,500
1,016
Chemicals 64 65
70
110
246
243
198
215
287
542
758
770
Agricultural 192 340
360
367
677
547
553
652
447
457
458
553
products
Diamonds d 175 257
371
515
545
478
511
606
773
1,043
1,304
Other 724 642
587
1,219
1,629
1,449
1,617
1,705
2,333
2,911
2,485
3,357
Million 1970 US $ r
Total 2,424 2,589
2,541
2,939
2,910
2,946
3,342
3,359
4,075
4,018
3,747
3,469
Petroleum 430 490
453
487
417
530
655
729
764
694
676
639
Natural gas 14 14
28
28
70
98
168
196
238
294
294
322
Coal and coke 106 81
80
85
93
88
91
90
70
65
59
25
Machinery and 193 172
201
235
232
320
390
360
562
628
535
560
equipment
Ferrous metals 137 167
172
182
99
82
109
143
93
102
110
105
Wood and wood 389 380
420
466
401
375
468
443
415
384
333
200
products
Chemicals 64 69
91
106
177
151
119
134
188
316
393
385
Agricultural 192 330
227
153
249
252
200
229
144
111
106
160
products
Diamonds 175 252
346
359
315
282
284
291
376
380
376
Other 724 634
523
838
857
768
858
744
1,225
1,044
865
1,073
a Includes all countries trading with the Soviet Union on a hard
d OECD statistics.
currency basis as of 1 January 1980.
e For 1981 only, dia
mond ex
its are included with "Other."
b Official Soviet foreign trade statistics.
r The constant price
series w
s estimated by using actual quantit
y
c These data were calculated by adding estimates for oil exports
to
data where available (for exa
ple, for oil and natural gas) or by
those LDCs for which there are no Soviet data to the total calculated
deflating the value series by
N and other W
estern price indexes
for
from Soviet statistics.
various commodity groups.
21
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Table B-3
USSR: Estimated Price Trends in Hard Currency Trade
Exports
7.2
8.5
46.6
58.7
4.0
8.9
15.4
-7.3
47.7
30.2
7.9
Imports
8.6
8.8
31.3
7.3
18.0
-5.3
6.1
18.3
10.3
11.3
5.7
Terms of trade a
-1.3 -
0.3
11.7
47.9
-11.9
15.0
8.8
-21.6
33.9
17.0
2.1
Table B-4
USSR: Exports of Petroleum
and Natural Gas for Hard Currency a
Petroleum and
Petroleum Products
Thousand Million
barrels/day b US $ C
Billion cubic Million
meters/year b US $
1970
620
430
1
14
1971
706
608
1
21
1972
653
600
2
24
1973
702
1,304
2
32
1974
601
2,741
5
95
1975
764
3,391
7
220
1976
944
4,748
11
358
1977
1,050
5,583
14
566
1978
1,100
5,710
22
1,072
1979
1,000
9,585
24
1,404
1980
975
12,295
23
2,704
1981
920
12,232
28
3,968
1982
1,200
14,500
26
3,800
a Excluding hard currency exports to Communist countries.
b From official Soviet foreign trade statistics through 1976 and
estimated thereafter.
c Based on official Soviet foreign trade statistics with an estimate for
deliveries to those hard currency LDCs for which Soviet exports of
oil are not reported.
Table B-5
USSR: Equipment Orders Placed
With Hard Currency Trading
Partners a
Oil and Natural
Gas Projects
Other
Projects
1971
850
140
710
1972
1,700
325
1,375
1973
2,600
200
2,400
1974
4,300
600
3,700
1975
4,650
525
4,125
1976
6,000
1,700
4,300
1977
3,800
300
3,500
1978
2,800
825
1,975
1979
2,675
200
2,475
1980
2,600
400
2,200
1981 b
6,700
3,800
2,900
1982 c
3,407
1,254
2,153
a Data on Soviet orders are collected from a variety of sources,
including trade journals and Western newpapers.
b The value for 1981 includes about $4 billion in orders for the gas
export pipeline project. Some of this-such as pipelayers-is
included under categories other than oil and natural gas equipment.
c Including about $600 million in French and German equipment
contracts for the Astrakhan' Gas Project. Because of lags in
reporting, information for 1982 is incomplete.
25X1
LOA1
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Table B-6
USSR: Estimated Measures of
the Hard Currency Debt Burden
Merchandise exports (f.o.b.)
Total hard currency earnings a
Gross debt (end of year)
Principal payments b
Interest payments
Drawings c
2,954
5,009
7,869
8,280
10,225
11,863
13,336
19,417
23,584
23,778
26,152
4,300
8,600
11,900
11,700
14,900
18,400
21,500
26,500
30,900
32,600
35,200
2,408
3,748
5,175
10,577
14,707
15,609
16,375
18,050
17,865
20,865
20,100
306
397
625
969
1,365)
1,955
2,331
2,800
3,050
3,200
3,415
170
332
508
804
1,012
1,140
1,219
1,430
1,620
2,200
2,200
906
1,737
2,052
6,371
5,495
2,857
3,097
4,475
2,865
6,200
2,650
Net transfer 430 1,008 919 4,598 3,118; -238 -453 245 -1,805 800 -2,965
Percent
Ratio
Debt service to merchandise 16 15 14
21
23
26
27
22
20
23
21
exports
Debt service to total hard 11 8 10
15
1
17
17
16
15
17
16
currency earnings
Gross outstanding debt to total 56 44 43
90
99
85
76
68
58
64
57
hard currency earnings
Debt service to drawings 53 42 55
28
43
108
115
95
163
87
212
Short-term debt to total gross NA NA NA
NA
NA
NA
19
18
20
29
20
debt
a Hard currency earnings from merchandise exports, sales of gold
and arms, invisibles, and transfers.
b On medium- and long-term debt.
c Gross drawings on medium- and long-term credits plus additions to
short-term debt.
25
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Appendix C
Estimating Soviet
Hard Currency Debt
Because the USSR does not release information re-
garding its financial position vis-a-vis the West, esti-
mates of Soviet indebtedness must rely on Western
financial reporting. Such reporting, however, contin-
ues to be seriously deficient in both scope and quality
of coverage. This paucity of data has necessitated
numerous, and sometimes tenuous, assumptions in
calculating the structure and size of Soviet debt to the
West. See table C-1 for a summary of the methodolo-
gy used in estimating Soviet debt.
Commercial Debt
We use as the basis of our estimates of Soviet
commercial debt reporting by the Bank for Interna,
tional Settlements (BIS) on the asset and liability
positions of Western commercial banks vis-a-vis the
USSR. The BIS series is adjusted to account for: (1)
reported bank lending supported by official credit
guarantees, (2) Swiss and Japanese bank positions
reported to the BIS but not broken out with respect to
the USSR until 1978, (3) Austrian bank positions not
reported to the BIS until 1977, (4) net Soviet borrow-
ing from outside the BIS reporting area, (5) Soviet
promissory notes held in the West but not included in
BIS reporting, and (6) net borrowing by the interna-
tional banks of the Council for Mutual Economic
Assistance (CEMA), which Western banks include in
their position relative to the USSR
From available data on officially backed export cred-
its, we estimate that portion of bank lending that also
is counted under our estimates of officially supported
debt. Since we lack authoritative information on the
amount of double counting, our estimates are subject
to a wide range of error. For example, in 1981 we
allowed for $750 million in double counting in esti-
mating the USSR's debt. We believe that the actual
total probably ranged between $500 million and
$1 billion.
In the case of borrowing by CEMA's international
banks, Western banks include their positions vis-a-vis
the International Bank for Economic Cooperation
(IBEC) and the International Investment Bank (IIB)
Table C-1
Methodology for Estimating Soviet Debt
Soviet liabilities=
Soviet official debt to NATO countries estimated from drawings
data provided by NATO
Soviet official debt to Sweden, Switzerland, Austria, and Japan
estimated by annual drawings based on machinery, equipment, and
pipe trade
Commercial bank assets vis-a-vis the USSR as reported to the Bank
for International Settlements (BIS)
Austrian bank assets for 1971-76
Swiss, Japanese, and Dutch bank assets estimated from the
USSR-East European residual given in the quarterly BIS
reports for 1971-76
Soviet promissory notes held in the West but not included in
reporting to the BIS
Net Soviet borrowing outside the BIS reporting area
Member bank assets held in the CEMA international banks
Government-supported credits included in member bank sub-
missions to the BIS
Soviet Assets=
Commercial bank liabilities vis-a-vis the USSR as reported to the
BIS
Austrian bank liabilities for 1971-76
Swiss, Japanese, and Dutch bank liabilities estimated from the
USSR-East European residual given in the quarterly BIS
reports for 1971-76
in their position with the USSR. Using published
IBEC and IIB balance sheets, we estimate that
portion of Western bank net assets with the USSR
that actually represents lending to the two interna-
tional banks. We subtract these amounts from report-
ed Western bank claims against the USSR to derive
the position against the USSR alone.
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Table C-2
USSR: Estimated Debt on Western Government
and Government-Backed Credits
New
Commitments
Drawings
Undrawn
Commitments
Principal
Repayments
Interest
Payments
Yearend Position
Outstanding
Debt
Total
Commitments
1970
612
450
691
160
83
1,113
1,804
1971
373
511
616
223
106
1,401
2,016
1972
777
425
1,020
276
119
1,550
1,571
1973
1,415
495
2,704
338
133
1,707
4,412
1974
3,585
1,164
4,959
483
187
2,388
7,348
1975
2,311
1,972
5,394
730
284
3,630
9,025
1976
4,404
2,450
6,395
1,035
424
5,045
11,581
1977
2,892
1,991
7,923
1,285
492
5,751
13,736
1978
1,998
2,565
8,557
1,456
590
6,860
15,517
1979
2,292
2,410
6,748
1,700
670
7,570
14,396
1980
1,510
2,195
7,471
1,915
730
7,848
15,702
1981
4,900
2,000
10,200
2,000
750
7,850
18,600
With regard to double counting, apparently neither
the BIS nor those familiar with Western bank report-
ing procedures can identify that portion of assets that
member banks report to the BIS that is backed by
government-credit guarantees. Reporting procedures
and conventions appear to vary by country. We have
assumed that officially supported credits have not
constituted a sizable share of Western bank claims on
the USSR. There are indications that a portion of
officially supported credits held by French and Japa-
nese banks is reported to the BIS, as are all officially
supported nonsterling credits held by British banks
and all officially guaranteed US credits. To date, the
amount of UK loans not denominated in pounds
sterling has been minimal, and US banks have not
requested official credit guarantees on their loans to
the USSR.
Soviet Debt Backed by Western Governments
Annual NATO reporting on official credits and on
government-guaranteed Western credits to Commu-
nist countries is the primary data source for estimat-
ing the official portion of Soviet debt. Although the
NATO reporting does not provide separate totals for
each lender, it is preferred to that made available by
the OECD because it contains more comprehensive
reporting by member governments. Because of lags in
the OECD reporting, we draw upon machinery and
pipe trade data to supplement the NATO data for
countries outside NATO. The separate estimates for
the NATO group, Japan, Austria, Sweden, and Swit-
zerland are then combined to derive total Western
government-guaranteed debt (see table C-2).
From the aforementioned statistical sources, we have
derived new commitments of guaranteed credits,
drawings on these credits, outstanding undrawn com-
mitments, outstanding debt, and total exposure. Since
we must make a number of simplifying assumptions in
computing these totals, we ascribe a 10-percent range
of error to our estimates. The information on commit-
ments apparently refers, in part, to offers of Western
credit for specific projects. The estimate of Soviet
exposure-as measured by total commitments report-
ed by the West-is inflated to the extent that Western
commitments have not been matched by Soviet orders
for Western equipment, pipe, or other products that
have yet to be delivered.
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Secret
reports, but an aggregation of these reports into a sure totals yielded undrawn commitments.
The NATO Countries. The NATO Economic Direc- credit terms against estimated drawings in turn gener-
torate mechanism of reporting on official credit exten- ates repayment schedules for both principal and
sions to the USSR has proved to be very useful in interest. We estimated a beginning value for the debt
determining the hard currency debt position of the series by computing the level of debt that would
USSR. This reporting relies on data collected by produce-given the assumed credit terms-NATO's
NATO from member countries on a semiannual basis. published data on debt service for 1971. We con- 25X1
The NATO report provides information both on 'structed the debt series by adding cumulative draw-
officially guaranteed supplier and buyer credits as ings through each year to the 1970 base value and
well as direct government export credits. NATO's subtracting cumulative repayments of principal. Sub-
report is not a reprint of individual member country tracting estimated debt from the decapitalized expo-
series of tables with analysis that highlights key
aspects of the Soviet debt and finance position.F
From the NATO and OECD data, we compile a time
series composed of (1) new commitments of guaran-
teed credits, (2) total Soviet exposure (debt and un-
drawn commitments), (3) drawings on commitments,
and (4) debt service payments. NATO does not report
a total for Soviet debt on drawn commitments from
member governments. Furthermore, debt cannot be
directly computed from reported data because the
NATO statistics are capitalized-that is, principal
and interest are included in the totals reported by
The Non-NATO Countries. Estimates of Soviet draw-
ings on credits from major government lenders outside
NATO (Japan, Sweden, Switzerland, and Austria)
were derived by applying to imports of machinery and
equipment from these countries the ratio of imports of
machinery and equipment from the NATO countries
to the drawings reported by NATO. Repayments of
principal and interest on drawn credits were computed
using the same average terms applied to the NATO
drawings series. OECD reporting is the basis for data
on new commitments from Sweden, Austria, Switzer-
Thus, we must also decapitalize the NATO total,
which requires making an assumption about average
terms of Western credits extended to the USSR.
Because NATO does not report lending by individual
member country nor does it report average interest
rates and maturities, we have had to develop a series
of average credit terms to apply against the aggregat-
ed data. To this data we apply as average terms a
maturity of eight years with repayment of principal in
equal installments. On the basis of information on the
terms of individual credits to the USSR, we apply a
6.5-percent annual interest rate for credits committed
before 1976, 7.2 percent for those committed during
1976-79, 7.6 percent for 1979 and 1980, and 7.8
percent for 1980. When used to decapitalize the
NATO series, except for the years 1974 and 1975,
these terms yield a debt service total that closely
approximates the figures reported by NATO.
Using the average credit terms, we compute directly
for the NATO time series: (1) new commitments of
principal, (2) drawings of principal, and (3) total
exposure on principal. Application of the average
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land, and Japan.
25X1
25X1
The computed initial value for each nation's debt
series was constructed to conform with debt service
estimates for 1971 and reported commitments. The
debt estimates for subsequent years were computed in
the same way as those for the NATO group. Undrawn
commitments from Austria, Sweden, Switzerland, 25X1
and Japan are calculated by subtracting total debt
from total financial claims as reported to OECD. F_~
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