The Multinational Monitor

NOVEMBER/DECEMBER 1987 - VOLUME 8 - NUMBERS 11 & 12


E A S T - W E S T   T R A D E

An Interview with Roger Robinson

Roger W. Robinson, Jr. is President of RWR Inc., a Washingtonbased consulting firm specializing in international trade. Robinson formerly served as Senior Director for International Economic Affairs at the National Security Council (NSC) from 1982 to 1985. Prior to joining the NSC staff, Robinson was a Vice President of Chase Manhattan Bank, where for five years he managed Chase's East European and Soviet portfolio.

Multinational Monitor: What are the incentives and disincentives for loans to the East bloc by Western banks?

Roger Robinson: One of the major commercial incentives for lending to the Soviet Union is that it has maintained a meticulous record of repaying its debt. I have never argued that the Soviet Union lacks credit-worthiness today. When you look around the world and see the number of countries in reschedulings from Latin America, to the Philippines, to African nations, one notes that there are not an abundance of sovereign borrowers in the world today that remain creditworthy and which at the same time need new credits from Western commercial banks.

Although the Soviet Union's track record of repaying its debt remains a very good one, this has not been universally true throughout the East bloc. For example, most banks around the world have totally written off their debt to Poland which now has $35 billion in outstanding debt which is not likely to be repaid any time in the foreseeable future. In 1981, Romania sent a cable to its creditors stating that it could no longer meet its original repayment obligations and forced the rescheduling of its debts. As far as disincentives are concerned, untied lending to sovereign borrowers was one of the principal underlying causes of the current international debt problem, along with disinflation, the collapse of commodity prices and capital flight. Accordingly, we learned in the 1970s the harsh lesson that undisciplined lending to sovereign borrowers was not a commercially prudent strategy, because the loans were not linked to productive purposes such as export-oriented industries. With the East bloc having a total indebtedness of about $112 billion, equivalent to the size of Brazil's debt, I think a number of observers are concerned that if the rapid pace of Soviet borrowing and that of East European countries should continue, the practice of untied lending could again affect the credit-worthiness of at least some of the East European borrowers if not the Soviet Union itself. I would point out, however, that the Institute of International Finance, a Washington-based organization including as its members about 170 of the world's leading commercial banks, issued a report this June calling on Western commercial banks to phase out untied general purpose lending in favor of a return to traditional, specific-purpose lending.

Monitor: How do you view West European and Japanese banks increasing theirpresence in Eastern Europe?

Robinson: In principle, I don't have a problem with Western loans in support of joint venture activities, so long as well-established commercial banking practices and techniques are employed to ensure that the proceeds of the Western loans are verifiably linked to the joint venture in question. I believe that taking these prudent steps is better for both the lender and the borrower. For example, in recent discussions I have had with Hungarian officials, they have responded positively to the idea of more disci plined lending and borrowing in the context of Hungary's banking relationships. The Hungarian gov ernment is under pressure now from critics in their own country to explain how the Western borrowings by Hungary, which has a heavy debt on a per capita basis, were employed in the past. There are a lot of questions being raised, such as, where did that money go, and why the debt is so heavy today. This situation might have been alleviated had there been more discipline in their own borrowing activities in the past. I also believe that the East bloc would profit by a better use of borrowed funds than has been the case in the past and that more disciplined lending practices by Western banks could help improve the economic modernization programs of East bloc countries.

Monitor: Romania, Poland and Hungary are members of the World Bank and the IMF. How do you view Soviet membership in the IMF and the World Bank, How does IMF and World Bank lending policy fit into your view of East West finance?

Robinson: First, in terms of the East European members of the IMF and World Bank compared to potential Soviet membership it's largely a matter of scale. For example, any IMF disbursements to Poland in the future would presumably be urgently needed by that country which is in very serious financial shape. The likelihood of IMF funds being diverted for other purposes outside of Poland would be somewhat less likely. Romania, Hungary and Poland are also not sufficiently large players in the IMF and the World Bank to have a serious disruptive effect. In the case of the U.S.S.R., I believe that it's premature to have the Soviets considered for member ship in either institution for two basic reasons. First, the large centrally controlled, command economy of the U.S.S.R. is fundamentally incompatible with the market oriented philosophy that underpins the IMF and the World Bank. Second, the U.S.S.R. has not demonstrated a sufficient track record of economic reform at this time to be considered for mem bership. For example, China embarked on a serious program of economic reform 10 years ago and has the kind of established track record required to be seriously considered for observer status and eventual membership in institutions like the GATT, the IMF and World Bank. The Soviet Union is long in pronouncements and expectations, but rather short on reform-minded actions at the present time. I think it is only prudent to permit the passage of time to see the extent to which the U.S.S.R. is willing to move in a direction more compatible with the basic philosophy and operations of these institutions.

As far as the kind of credits offered by the World Bank and IMF, the World Bank is basically set up for projectspecific purposes and hence I would not see that kind of lending to East bloc countries as an issue. Any large-scale untied lending by the IMF, however, I would consider unwise because it could invite the diversion of those funds for purposes potentially harmful to vital Western security interests. I believe that when dealing with potential adversaries there are some necessary adjustments we have to make, just as we do in our trade relations with these countries. For example, we have never had "free trade" with the East bloc, as is evidenced by the existence of COCOM and other export controls. Accordingly, I think that IMF lending to that group of countries would be best served by having a more project-specific orientation similar to that of the World Bank.

Monitor: How do you explain the greater amount of . activity in providing finance for the Eastern bloc on the part of Japanese and West European banks relative to U.S. banks?

Robinson: It's true that the bulk of Western lending to the East bloc today is from West European and Japanese banks. In the case of Western Europe, that is consistent with a traditional pattern of greater trade relationships with the East bloc in general. In large part this is because of proximity, cultural ties, political interests and, at the base of things, greater economic interaction. In the case of Japan, it has sharply expanded its lending to the East bloc over the past two years, in part because of large yen surpluses, its role as the largest creditor nation in the world, along with the fact that there is a dearth of creditworthy sovereign borrowers in the world.

As far as trying to achieve an allied consensus on phasing out untied loans to East bloc borrowers, for what I think are sensible commercial and national security reasons, this would probably be best achieved by a discussion at the annual economic summit of the heads of state of the industrialized countries. The heads of state could agree on a voluntary approach to resolving this financial security issue and task the Organization for Economic Cooperation and Development (OECD) to supervise and monitor the voluntary, multilateral adoption of more disciplined lending practices by Western commercial banks. There are precedents for the OECD successfully accomplishing similar undertakings. For example, it was agreed in the OECD on July 1982 to eliminate subsidized terms on government-backed credits to the U.S.S.R. More recently, the OECD reached an agreement on socalled "tied" credits designed to discourage the excessive use of grant money in development loans. So, although this may seem a difficult undertaking, we have, as an alliance, successfully tackled and accomplished these kinds of economic security agreements in the past. I believe that if the political will is there to do so, we can succeed again.

Monitor: What is the single most important objective for the Soviet presence in the Western financial markets?

Robinson: I believe that the Soviets are striving to expand their options for untied cash borrowing from the West, which areas inexpensive and nontransparent as possible. The issuing of Euronotes and bonds can raise large sums of either short- or medium-term money for the Soviets at extremely favorable rates. The use of these kinds of debt instruments could also help the Soviets evade current Western statistical reporting. For example, the loans of non-banking institutions are currently not reported by the Bank for International Settlements. At the same time, going into the international securities markets would significantly broaden the types of Western institutions involved in lending to the U.S.S.R. Today, almost all Soviet hard-currency debt is owed to Western governments and banks. From Moscow's perspective, issuing Euronotes and bonds could eventually recruit pension funds, insurance companies, corporations and possibly other organizations to become holders of Soviet debt instruments for the first time, thereby giving these new holders a vested interest in politically supporting continued Western economic and financial concessions to the U.S.S.R. In this connection, Dr. Herbert Stein, former chairman of the Council of Economic Advisors under Presidents Nixon and Ford, has called for an international agreement among the leading allies that we should decide jointly whether to allow the offering of such Soviet notes and bonds. I think that this is a very interesting idea that deserves serious study and implementation.

Monitor: What impact has the Stevenson amendment, had on U.S.-Soviet trade ?

Robinson: I think that the Stevenson amendment is more important, for example, than the Jackson-Vanik amendment which restricts Soviet access to most-favored-nation status. Clearly, a restored access to U.S. Export-Import Bank credits is also a more important feature for U.S. companies and banking institutions interested in expanding their business relations with the Soviet Union. This is, in large part, because the Soviets export relatively few manufactured goods adversely affected by higher tariffs to the American market. Another reason that the Soviets would be more interested in having the Stevenson amendment waived is that it would send a signal to West European and Japanese governments and banking institutions likely to stimulate even greater financial flows from those countries. That is more meaningful to the Soviet Union than what the U.S. government and U.S. banks would do in response to such a waiver. As we all know, the Stevenson amendment is the law of the land and is linked to levels of Soviet emigration to the West. We also know that emigration levels from the U.S.S.R. have been in the area of only 1,000 or less over the past three years, with some increase likely this year. Nevertheless, this is down from a high point of 51,000 emigres in 1979. Therefore, I believe that most members of Congress would argue that the level of emigration has to be considerably higher than it has been in order to consider seriously a waiver being granted.


Western Banks Involved in East-West Trade and Finance

Country Bank
Austria Creditanstalt Bankverein
Canada Royal bank of Canada
Finland Korsallis Osake Pankki
France Banque Nationale de Paris
Credit Industriel de Commercial
Credit Lyonnais
Italy Banca Commerciale Italiana
Banco di Napoli
Credito Italiano
Japan Bank of Tokyo
Fuji Bank
Mitsubishi Bank
Sweden Svenska Handelsbanken
Country Bank
United Kingdom Barclays Bank
Lloyds Bank
Midland Bank
National Westminster Bank
United States Bank of America
Chase Manhattan bank
Chemical Bank
Citibank
First National Bank of Chicago
Manufacturers Hanover Trust
Morgan Guaranty Trust Co.
security Pacific National Bank
West Germany Bayerische Vereinsbank
Commerzbank
Deutsche Bank
Dresdner Bank


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