Banks in U.S. Want No Part Of Soviet Loans
U.S. banks have long been unwilling to lend money to the Soviet Union unless they got the right kind of government guarantees.
But ironically, with democracy breaking out all over after 70 years of Communist Party control, even the guarantees aren't enough anymore.
Bankers say fresh credits to back a Bush administration initiative for grain to stave off shortages this winter are ruled out by political and economic turmoil in the Soviet Union since August's failed coup.
Many American bankers are worried that an increasingly fractured central government will default on its debts - an outcome they could ill afford, considering the fragile state of the U.S. economy. "The reality of the marketplace is that no [U.S.] banks are going to participate in these transactions," said David Kling, a First Chicago Corp. vice president.
First Chicago is one of a handful of U.S. banks that have either originated or participated in loans taken out by the Soviet Union to finance grain imports in the past.
CoBank's Similar Position
Another institution that has lent money to finance Soviet grain purchases, Denver-based CoBank-National Bank for Cooperatives, is taking a similar stand.
"The issue is the creditworthiness of the Soviet Union," said Verone Gibb, executive vice president in charge of international banking.
CoBank was have been willing to take on Soviet risk until a few months ago but isn't any longer, he said.
In response to Soviet appeals, the administration allocated $1.9 billion last December and $600 million this year to guarantee bank loans to finance grain sales.
The decision was viewed as a breakthrough, something that would permit U.S. banks to resume lending to the Soviet Union.
More recently, President Bush promised to speed up aid to the Soviet Union. And Treasury Secretary Nicholas F. Brady, Federal Reserve Chairman Alan Greenspan, and Agriculture Secretary Edward Madigan are in Moscow this week to identify specific needs.
But unable to find enough U.S. banks to supply the needed credits, the administration has turned to more strongly capitalized foreign banks, better able to take on Soviet risk.
Now, even foreign banks say they are reluctant, throwing the U.S. initiative into limbo.
|Too Much Uncertainty'
"No one is doing anything," said Hugo Steensma, general manager in New York for Rabobank Nederland, a Dutch bank that has supplied more than $500 million in export credits backed by U.S. guarantees. "There's too much uncertainty down the line."
Increased reluctance among U.S. and foreign banks to give the Soviet Union fresh credits makes it unlikely that some $800 million in remaining guarantees will be used.
U.S. bankers said that to change their minds the administration would probably have to guarantee 100% of principal and interest on Soviet loans.
Under existing guidelines, 98% of the principal, with a maximum interest rate of 4.5%, is guaranteed.
A U.S. move to back Soviet credits fully "would certainly be a much different situation," said Mr. Gibb of CoBank.
Some Changes Possible
U.S. officials said Wednesday that the Bush administration was trying to make it easier for the Soviet Union to use the already promised agricultural credits by making the unused portion of $2.5 billion in guarantees available sooner and to make terms more attractive to western banks.
The officials did not specify what changes the administration is seeking.
Even if the administration agrees to extend coverage, banks wouldn't automatically step forward. "Most banks just aren't interested in putting assets on their books," said Mr. Kling of First Chicago.
"American banks and other banks face a host of constraints, including capital constraints, a recession, and rising loan problems," said David Kern, chief economist at National Westminster Bank in London. "That alone makes them extremely cautious."
The upshot is that the administration probably must look elsewhere if it wants to help the Soviets.
"The only way they are going to get anything is if it's all public-sector risk," Mr. Kern said of the Soviets.
And that, bankers explained, means the administration must either juggle its precarious budget agreement with Congress in order to provide its own export financing or ship grain free to the Soviet Union as part of a food aid package under Public Law 480.
"Those are certainly choices we would consider," said an Agriculture Department spokesman.