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THE SOVIET IffTERMEDIATE CREDIT PROGRAM 



In structuring an assistance program for the Soviets that 

 includes sales of U.S. agricultural ccnnodltles, we believe 

 several factors must be considered. 



First, analysts believe that restructuring the Soviet economy 

 will be a 5-10 year process. 



Second, current Soviet liquidity problems do not mean that the 

 Soviets' long-term balance sheet is a problem if reforms are 

 being put In place under international guidance. 



Third, coomerciaj banking practices provide longer term loans to 

 companies going through restructuring; this avoids debt 

 rescheduling that may be necessary with short-term maturities. 



The GSU 103 and/or Intermediate term direct credits could provide 

 a viable mechanism to: 



— Sell U.S. agricultural comnodities to the Soviets during this • 

 major economic transition period; 



— Assist the development of a private sector infrastructure In 

 the food and agricultural sector; 



— Provide technical assistance from U.S. agribusiness and build 

 future markets through developing these private relationships. 



The current GSU 103 program is not used for the most part because 

 it Is not attractive to recipients. Despite the 3-10 year 

 payback provisions, there is no longer that a one-year grace 

 period before payments must begin (In equal Installments). Uost 

 countries believe that makes the program far too costly if they 

 are purchasing coanodltles consumed Inned lately. 



GSU 103 regulations could be revised to provide for either: 



— a longer than 1 year grace period on principle and interest; or 



— a 10 percent payment of the total principle paid during a 3 

 year grace period. 



The second option compiles with coanerclai bank practices which 

 favor repayment plans that require countries to "recognize the 

 debt" in every year by showing a capacity to pay; however, this 

 approach of token payments does not put an undue strain on the 

 borrower's balance of payments. This would remain a coanerclai 

 program. We note that the EC under its 3-year credit guarantee 

 provides a 20 month grace period to the Soviets; and Coface, 18 

 months. 



May 30. 1991 



