The dramatic return to power yesterday of Soviet President Mikhail Gorbachev means a plan to bring public finance to the Soviet Union will proceed "full steam ahead," according to officials involved in the effort.
"As long as the constitutionally elected government is in charge, we're going to go forward," said Jeffrey Sachs, president of EcoLink Inc., a company he founded last year to introduce American-style municipal bonds to the Soviet Union. "I think the Soviet Union is on much stronger ground now."
The three-year project, intended to help the Soviets use bonds to solve some of their most intractable economic problems, stalled Monday, when an eight-member "emergency committee" of hardliners placed President Gorbachev under house arrest and attempted to assume the reins of power in Moscow.
Mr. Sachs said Tuesday he had decided to put the project on hold until the nation's legitimate leadership had been reinstated. "If you don't honor the covenants of your own constitution, then it's senseless to create a public finance system where you have to honor the covenants of the bonds," he said.
But following yesterday's dramatic turnaround, which saw tanks and troops abandon Moscow and the coup's plotters leave their posts, Mr. Sachs said that problem appeared to be resolved. Wire service reports said President Gorbachev expects to return to Moscow today from his vacation home on the Black Sea, where he had been detained.
"The Soviet people have proven by putting their lives at stake that they're willing to fight to live under the rule of law," Mr. Sachs said.
"Now that they have reinstated the rule of law, there's no reason why the project shouldn't go forward," he said, adding that the week's events may have weakened right-wing opposition to President Gorbachev's government, thereby strengthening its ability to move forward with economic reforms.
Alexei Popov, a director at Moscow's Institute for U.S.A. and Canada who has been very active on the Ecolink project, agreed yesterday that the restoration of President Gorbachev would give a boost to the EcoLink project.
"Now we have no other choice but to go ahead with reforms," said Mr. Popov, who has been in the United States for the past three months studying U.S. labor laws. "In a move to a modern economy, we have to develop new financial instruments."
The timing of the coup had been particularly disheartening, Eco-Link officials said, because a team of bankers from several major securities firms is slated to go to Moscow next month to finalize arrangements for the nation's first-ever municipal bond sale. EcoLink hopes to sell the bonds before the end of the year.
Mr. Sachs said he has decided that trip is on again, although it might have to be pushed back a week or two.
Representatives of Goldman, Sachs & Co.; Lehman Brothers; Salomon Brothers Inc.; and Security Pacific are part of the team planning to make the trip at the invitation of Soviet officials.
Promstroibank U.S.S.R., the largest state commercial bank in the Soviet Union, and two agencies involved in assisting small enterprise already have agreed to buy about 500 million rubles worth of bonds, or about $17 million at the exchange rate available to Americans traveling to the Soviet Union, according to Andrej Orlov, first deputy chairman of the Committee for Assistance to Small Enterprises and Business in the U.S.S.R.
Under one plan already approved by the Soviet Ministry of Finance, proceeds would be used to purchase grain storage facilities.
Although the Soviet Union is a major grain producer, experts on the Soviet economy estimate that as much as 30% of the crop rots in the fields each year, due to inadequate storage. Under the EcoLink plan, the Russian republic would issue bonds to raise a yet-to-be-determined sum of rubles that would be used to purchase modern storage facilities, explained J. Chester Johnson, president of Government Finance Associates and an EcoLink consultant.
Investors have little incentive to earn more of the nation's virtually worthless rubles, so yields would be paid in hard currency supplied by the central government's Ministry of Finance, Mr. Johnson said.
The Soviet Union spends about $8 billion a year in hard currency importing grain to replace its lost harvest. The hard currency saved by the use of modern storage facilities would be used to repay the Ministry of Finance.
A second EcoLink bond plan -- the construction of an AIDS hospital in Moscow -- was nearing fruition prior to the attempted coup.
The original plan involved an allocation of about $120 million in hard currency by the Ministry of Finance. Funds would be raised internally through ruble-denominated bonds with the proceeds used to repay the Ministry.
Soviet officials are considering a range of options, from building just one hospital to generating a 30 billion ruble pool of money to be used by numerous medical facilities around the country.
"The 30 billion ruble fund would be very attractive if it comes to fruition, because it establishes an ongoing mechanism for internally financing medical facilities," Mr. Johnson said.
He said the pool could be an interim step between the current systems of complete central planning for hospital finance and a system more closely resembling project-specific financing, in which the flow of funds from each project is used to pay debt service.
