Credit Coup

Nikita Khruschev's latest financial gambit has won officially enthusiastic backing in Russia and has somewhat puzzled the staff of the Russian Research Center here. The Party's First Secretary has suggested that the Soviet Union suspend repayment of bonds worth 265 billion rubles (about $65 billion). Though a member for twenty years of the Russian Research Center has termed it "a breach of confidence unparalleled in Soviet economic history," the new moratorium will probably not change the Soviet economic system radically. For, coupled with his announcement April 8, Khruschev also anounced that for this twenty-year period the government would not float any new loans. Since the average worker in Russia has usually been encouraged to buy bonds totalling about three weeks' worth of his annual salary, this is an economic blessing. In return for this boon he can virtually bid his present investments farewell. Yet the worker who has been buying his quota every year probably never had much hope for his future investment.

Besides the government bonds' shaky redemption value, most of them don't pay interest. Instead, there are six-month lotteries where 35 per cent of the bonds bring cash prizes and give their holders the opportunity to cash them immediately. Ordinarily the bonds have been for twenty-year maturity.

The non-winning bonds have not been worth much and are traded at discounts down to one-tenth of their original value. For most workers the annual long-term investment in the fluctuating Soviet economic structure has been equivalent to a euphemistic tax measure.

The reason for the Russian move is far from clear. If the present system were continued, the government would float bonds every year in order to cover the repayments on matured issues, as is done in most western nations. The government probably faces an especially heavy load of bonds due in the next few years. A short-term moratorium, however, would relieve this difficulty.

It is the radical approach of calling a halt to the perpetual merry-go-round that surprises the economists. The present method of circular borrowing-to-repay-borrowing would probably accomplish almost equivalent results to those of the new scheme, which is, in essence, to stop all borrowing and repayment.

This is, in effect, what the Russians have done. Though they pledge to repay the 265 billion rubles outstanding in twenty years--a promise far from being sacrosanct--inflation and expansion will probably have made this sum insignificant. By 1980 the Soviet gross national product can possibly quadruple from its present value of one trillion rubles. At the legal rate of exchange this is $250 million, but at the actual consumer value of the ruble it is closer to $100 million.

Khruschev has begun his present maneuver with the same suddenness found in many other Russian policy decisions. Last February's budget provided no indication of the move. The last large financial readjustment was the post-war currency reform in 1947. Most of the present outstanding bonds have been selling since then, but there are still some old, devalued debts to be repaid.

Besides freeing the Soviet regime from mounting debt charges, the action is also equivalent to docking the people's savings to raise their wages. The money saved from the necessity to invest in bonds will serve to increase consumption, thereby boosting the economy.

The bond moratorium is just one aspect of a large-scale economic re-evaluation Khruschev is leading. He also suggests decentralization of industrial administration to increase consumption. Although the Kremlin has moved toward restoring the Stalinist foreign affairs technique, economic affairs are moving in new directions.

Khruschev's announcements have been received by unanimous resolutions of approval from factory and shipyard workers. The press has also begun to educate the people on the necessity of the move. The First Secretary said to the workers when he announced his plan, "The capitalist worker will never believe that you are doing this of your own free will....They do not understand the soul of the Soviet People."

It is clear that the extent of free will is difficult to determine in a country where patriotism and totalitarianism often operate together. As Khruschev notes, Western observers are far from comprehending the Slavic Soul. To many economists, though, the tactics behind Khrushchev's gigantic game of monopoly are as hard to interpret as the Russians' unanimous approval.