THE COMING SOVIET CRASH: Gorbachev's Desperate Pursuit of Credit in Western Financial Markets

An unsparing audit of Kremlin finances, which attests that voodoo economics has an Eastern variant. Casting a cold eye on official Soviet budget statements, Shelton (a senior research fellow at the Hoover Institution) argues that the economy has been running on empty for many years. Indeed, she asserts, persistent budget deficits and inflation (manifested by shortages rather than price increases) have forced Gorbachev and his Politburo comrades to seek Western help in underwriting planned reforms--and advances. If perestroika is to have any chance of succeeding at a time when demand for such key USSR exports as gold, oil, and weapons systems is slumping, the author concludes, Moscow must secure Western credits, imports, and technology that will enable it to make long-term investments--as well as mollify an increasingly disaffected populace--while keeping funds available for high-priority military programs. Having provided by-the-numbers reasons as to why the Soviets need to borrow, Shelton explains just how they are managing to do so in the face of figures that don't add up. For openers, she notes, commercial banks in general and US institutions in particular labor under precious few restraints in making loans to Socialist Bloc nations. Nor, it seems, do their governments; thanks to trade and related credits, the Soviet Union at last count ranked as the world's third largest hard-currency debtor (exclusive of the 16 industrial powers and Liechtenstein, which report to the OECD). Meanwhile, Moscow has tapped the all-but-unregulated Eurobond market and made overtures to the IMF, which it long disdained in favor of a rival organization--the Council for Mutual Economic Assistance. In her final analysis, the author (something of a closet cold warrior) warns that the West/East flow of capital now in evidence constitutes the transfer of a strategic resource. Accordingly, she cautions against bartering financial aid for putative political concessions (e.g., less spiteful policies on human rights) or engaging in other forms of wishful thinking. In her tough-minded judgment, the Soviets should be required to obtain economic assistance the old-fashioned way--by earning it. The bottom line: a responsibly documented and soberingly persuasive appreciation of the implications as well as realities of the financial quagmire from which the USSR is trying to extricate itself.