7 Rich Nations Tie Soviet Aid to Free Market

BRUSSELS —  Finance ministers and central bankers of the seven largest industrial democracies threw cold water Sunday on proposals for massive financial assistance to the Soviet Union before the Soviets inject free-market reforms into their disintegrating economy.

Instead, the officials agreed that the Soviet Union should quickly become an associate member of the International Monetary Fund. That would qualify the Soviets for technical assistance, but full IMF membership--and direct IMF aid--would have to wait for establishment of a free-market economy in the world’s first Communist country.

Meeting in London, the officials also reaffirmed their commitment to cooperate in world currency markets. But they fell far short of endorsing immediate action to stem the rise of the dollar, which has gained about 20% in four months against major European currencies.

The leaders of the same seven nations--the United States, Japan, Germany, Britain, France, Italy and Canada--will hold their annual summit in London in three weeks to review the same issues. They have invited Soviet President Mikhail S. Gorbachev to appear before them and make his case that the Soviet economy will disintegrate without prompt and massive support.

A concern that the seven leaders would be swept away by Gorbachev’s passionate plea placed the Soviet issue at the top of Sunday’s agenda of the finance ministers and central bankers.

“There is the danger that the incentive (at next month’s summit) will be to do something to grab the headlines,” said a senior U.S. official before Sunday’s meeting. He said the finance ministers and central bankers had called for the meeting to emphasize that the Soviets could expect massive aid only after they had overhauled their disintegrating economy.

That was exactly the outcome. U.S. Treasury Secretary Nicholas F. Brady, speaking with reporters after the session, said: “Large sums of money were not what we were talking about here.”

The communique adopted by the officials offered the Soviets nothing concrete. Instead, it said the officials “noted the economic situation in the Soviet Union and the need for sustained economic reform.”

Canadian Finance Minister Don Mazankowski told reporters before Sunday’s meeting, “Aid to the Soviet Union will have to be conditional on a clear program of reform.”

U.S. officials led the go-slow movement on Soviet aid, arguing both that the industrial nations could not afford a major aid package and that the Soviet economy as now constituted could not absorb it.

A senior Bush Administration official, speaking anonymously, said in Washington that the Administration was trying “to pull together a package of things that we think we could do to assist the Soviet Union that do not involve substantial amounts of finance.”

A team of Soviet and American economists built pressure for a massive aid program this month by drafting a reform plan for the Soviet economy that would include foreign assistance of $25 billion to $30 billion a year. Harvard economist Graham Allison, an author of the plan, warned that the alternative was probably “the disintegration of the Soviet Union, perhaps in a violent manner.”

At least for U.S. officials, the dollar’s recent strength was a secondary concern at Sunday’s London meeting.

“Over a period of three or four years now we have had orderly markets,” Brady said after the meeting. “This recent movement fits within those orderly markets.”

In their communique, the officials simply “reaffirmed their commitment to cooperate closely, taking account of the need for orderly markets, if necessary through appropriately concerted action in exchange markets.”

As usual, officials refused to be pinned down on when action would become necessary. “That would spoil the charm a bit,” said Karl Otto Poehl, president of Germany’s Bundesbank.

Japanese Finance Minister Ryutaro Hashimoto said the officials had agreed that the dollar, now trading at about 1.8 marks and 139 yen, was “nearing its ceiling.” At its lows in February, a dollar bought only 1.44 marks and 127 yen.

The strong dollar is aggravating inflation outside the United States because it requires foreigners to put up more of their own money to buy American goods.

Havemann reported from Brussels and Tumulty reported from Washington.