World View : Taking a Hard Look at Soviet Ledgers : * Gorbachev seeks more aid, but donors first want to know where the money went.

MOSCOW —  As the leaders of the world’s seven greatest industrial powers prepare to meet with Soviet President Mikhail S. Gorbachev next week at the West’s economic summit in London, they are bracing themselves to hear a request for massive financial support.

With some Soviet and Western economists talking about assistance of $15 billion to $30 billion a year for five or six years to underwrite the Soviet Union’s transition to a free-market economy, Gorbachev could be asking for as much as $150 billion in all.

Given the sums potentially involved, it’s no wonder potential donors are looking to past performance as they weigh any new commitments.

Over the last two years the Soviet Union has already received pledges of at least $41 billion in loans, trade credits and outright aid, and those countries that provided the assistance now want to be sure their money brings real change and is not used simply to keep the old, failed economic system functioning.

Their experience has shown them:

* Large credits often disappear in the gluttonous Soviet budget without a trace. Soviet officials, given unrestricted funds, will use the money to save state monopolies.

* Trade credits can be used to keep commerce flowing, but they do not push the Soviet Union into fundamental economic changes.

* Assistance is better directed to specific projects, preferably those that promise quick profitability or that help transform the state-run Soviet economy to reliance on market forces.

* Groups like the European Community or the new European Reconstruction and Development Bank can put together more effective programs to promote a free-market economy than individual countries can.

* Foreign assistance can be given in programs that foster entrepreneurship and competition, but not given to the central government.

Germany, which has provided some $25 billion in the past two years in various forms of assistance to the Soviet Union--more than any other country--is less than happy with the way that Moscow used some of the money.

“It was certainly a frustrating experience. All that money seemed to just disappear,” Enno Barker, the press attache at the German Embassy in Moscow, said. “It’s only a small comfort to know that eventually we may get the money back in repayments.”

But Germany, Barker said, will not make the same mistake again. “We don’t think we should continue to invest in the Soviet state budget, because we cannot control what the money is used for,” he said. “We favor very specific, earmarked investments.”

Other foreign countries have had trouble tracking exactly how their money--Italy provided $5.3 billion, Spain $1.5 billion, Saudi Arabia $1 billion--has been used.

Vladimir N. Sterlikov, who heads the international department of the Soviet Bank for Economic Relations with Foreign Countries, acknowledged that there is a serious problem, and considerable frustration as a result, because the country’s banking system is caught up in the Soviet Union’s overall economic turmoil.

“At the current time,” Sterlikov said, “there is no specific person responsible for credits.”

Another obstacle is that the old state-monopoly bank system is breaking down, and there is no new system to take its place. “I realize,” Sterlikov continued, “that it’s not possible to explain that a country of this size lacks a banking system.”

Germany, however, also had difficulties in tying its assistance to specific projects--and trying to ensure that a good portion is spent for German goods.

With $4.4 billion earmarked for the resettlement of the 380,000 Soviet troops leaving eastern Germany, Bonn had expected that German companies would get most of the contracts to build new Red Army housing.

To the Germans’ surprise, Soviet officials chose mostly Turkish and Finnish companies for the first four complexes, saying this plan is cheaper but also acknowledging that Moscow wants to improve its trade balance with those countries.

The German government sent its finance minister to Moscow to protest, and now about half of the work will be done by German firms. “We have an interest to have German firms involved,” Barker said, “provided they make good bids.”

While German officials have been disappointed in the apparently limited impact of German credits on the Soviet Union, they were pleasantly surprised that the humanitarian aid they sent seemed to be well used. “Overall we are very satisfied that the goods we provided reached the right people,” Barker said.

Alarmed by news of a potential famine last winter, the world poured 260,000 tons of food, medicine and clothing into the Soviet Union. Although Germany was responsible for about 90% of the humanitarian aid, many other countries contributed. Even China and India sent food.

Germany and other Western countries, hoping to promote their companies’ business with the Soviet Union as well as to ease Moscow’s economic plight, have also begun providing insurance for the firms doing business here. If a Soviet company fails to meet its contract, its Western partner can claim compensation under its government’s trade or investment-guarantee programs.

“The problem is that in recent decades, German firms have seen the Soviet Union as a reliable debtor,” Barker said. “But now they’ve lost confidence due to the Soviet Union’s recent behavior. Our companies say, ‘Unless we have a guarantee, we won’t do business with the Soviet Union any longer.’ ”

Over the past year alone, Germany has spent $2.9 billion for its guarantee program, the press attache noted, as Soviet enterprises have been unable to pay for equipment they have purchased or to make deliveries of goods they have bartered. “We’ve almost given up hope that the Soviet Union will come around to paying its debts,” Barker said. “We will have to write it off under economic aid to the Soviet Union.”

Soviet officials, too, are coming to think that foreign aid should be designated for projects that will help accomplish systemic changes. “Of course, the assistance should be intended for something specific,” Alexander Y. Voitenkov, deputy director of Soviet State Bank’s hard currency division, said. “Just to send it to the budget does not accomplish much.”

Voitenkov explained that government credits not earmarked for specific projects can be given to unprofitable factories, which might operate at a loss but make something important for the Soviet consumer market. “In the case of non-directed government credits, the state has the right to use the money however it sees fit,” according to the Soviet State Bank official.

Soviet officials and Western diplomats who specialize in economics emphasized that Western money could, if used judiciously, play a substantial role as the Soviet Union makes the complicated transition to an economic system based solely on the market forces of supply and demand.

Stepan Stephanini, the economic counselor at the Italian Embassy, said there are two main reasons why the West should help the Soviet economy. “First, because of this county’s great resources, the economy has great potential,” Stephanini said. “Now that political restraints are being cast off, this potential can be realized. Secondly, once the Soviet Union has decided to become part of the world economy, the West can’t ignore it.”

Italy has given large credits for the purchase of Italian goods to keep bilateral trade flowing, even though Moscow’s earnings from exports have been declining sharply.

Most of the U.S. assistance--a total of $2.8 billion in government credits and loan guarantees--is similarly tied to Soviet purchases of American grain.

But Italy’s Stephanini said that the Soviet Union would benefit more from Western assistance that might come from the European Community or the Group of Seven leading industrial countries for joint projects to develop free-market economic structures.

Jacques Attali, president of the European Reconstruction and Development Bank, said his organization would invest its funds in projects that promote privatization or improve the Soviet Union’s telecommunications network, transport services or food processing industry--and that promises “a very quick return.”

Attali stressed during a visit to Moscow that the bank, whose lending to Moscow is limited to about $800 million, would only finance projects that “had good operations and good profits. We are not giving money away like a European Gosbank (the Soviet State Bank).”

The European Community is taking a similar approach with its technical aid. With a new office in Moscow to manage its assistance program, it plans to direct its credits to projects that it feels encourage a free-market system, such as Western-style business training, according to Catherine Magnant, a member of the new EC mission here.

“The philosophy behind it is to help the Soviet Union move toward a free-market economy,” Magnant said. “The money will be used for a transfer of know-how from Europe to the Soviet Union.”

Although Soviet officials and economists have various ideas of how Western credits should be used, none is certain what Gorbachev may propose in London next week.

“We definitely need help from the world now, but my idea is to create a fund to support the rate of the ruble,” Voitenkov, the State Bank official, said. “As I see it, no real reform is possible unless the ruble becomes convertible. But first we need to stabilize the ruble rate. Poland got this kind of help for its zloty, and it has been very successful.”

Vladimir A. Tikhonov, a member of the Soviet Parliament and president of the Union of Cooperatives, said he believes it would be a serious mistake for the West to give any financial credits to the Soviet government.

“If the national government gets credits they will be used to try to strengthen the collapsing state economy,” Tikhonov said. “These credits will not go to good uses. I think our economy needs help, but I think there’s only one realistic form of support--mutually beneficial cooperation between Western and Soviet firms. I mean advantageous technical investment by Western companies--not financial credits from Western countries.”

Tikhonov said the West should not listen to the argument that democratic reforms will crumble, perhaps bringing a dictator to power and resuming the Cold War, if it fails to provide Gorbachev with massive financial support.

“Gorbachev will try to frighten the Group of Seven that if they don’t give lots of credits the kind of tragedy that is going on in Yugoslavia could happen in the Soviet Union, and that would be very dangerous for the whole world,” Tikhonov said. “You should not be frightened by what he says--there are already very strong democratic forces in the Soviet Union.”

But Nikolai P. Shmelev, a prominent economist and member of the national Parliament who has advocated massive Western credits for two years, said the West could be sorry if it does not act now.

“Maybe it sounds rather cynical,” Shmelev said, “but I think it will cost much less to help Mr. Gorbachev a little at this moment than to deal with something monstrous and unpredictable in the near future.”

Shmelev favors massive Western credits to import Western goods and flood the Soviet consumer market. This would help support the value of the local currency while soaking up the billions of extra rubles in circulation, he contends, thereby decreasing inflation.

The credits, Shmelev stressed, should only be given if the Soviet leadership provides guarantees that there will be no political repressions and puts up something as collateral, such as Soviet gold reserves.

“Something should be pawned,” Shmelev said. “There should be no charity--any charity can be corrupting.”

Some Western countries are skeptical of investing now in Soviet reform because the country’s leadership has already gone through 15 versions of an economic reform program over the past three years.

But the latest proposal presented to Gorbachev by the radical, pro-market economist Grigory A. Yavlinsky is drawing some support in the West, even though it envisions at least $15 billion a year in assistance over five years and perhaps twice that amount in some years.

Yavlinsky proposes that the Western assistance be used to finance the privatization of state-owned enterprises, to make the ruble convertible into Western currencies and to assure sufficient goods in Soviet stores during the transition.

“A good plan is not enough,” Germany’s Barker commented. “We want to see that its implementation has already started. We have had a long phase of the Soviet Union saying we are going to do this or that. Everybody has become wary of this.”

Researcher Cindy Scharf in Moscow contributed to this article.

Feeding the Soviet Bear

Countries have already pledged a total of about $41 billion in loans, grants, credits and debt forgiveness to the Soviet Union, most of it during the 1990-1991 period.

What the top five major contributors have pledged:

GERMANY: 45 billion deutschemarks ($24.5 billion) split about evenly among payments connected with Soviet troop withdrawals from the former East Germany, credit guarantees and forgiveness of Soviet debt to the former German Democratic Republic.

ITALY: 7.2 Trillion lire ($5.3 billion), including loans, credits and refinancing of existing commercial debt arrears.

UNITED STATES: $2.8 billion, including a $300-million credit with the Export-Import Bank and $2.5 billion in loan guarantees for grain purchases.

SPAIN: $1.5-billion credit for 1990-1993, half for food and half for manufacturing equipment.

KUWAIT: $1.3 billion in credits. SOURCES: Los Angeles Times Moscow Bureau, foreign embassies in Moscow

Other Leading Contributors EUROPEAN COMMUNITY: 900 million ECUs ($1 billion) in credit guarantees for food and agricultural products and technical assistance FRANCE: 5 billion francs ($804 million) in debt forgiveness, credits for grain purchases, and allowances for the purchase of French products. CANADA: $733 million credit for food. CHINA: $730 million commodity loan to buy Chinese products. TURKEY: $600 million in export credits. UNITED ARAB EMIRATES: $500 million in loans. AUSTRALIA: $400 million in loans. JAPAN: $101 million, mostly in loans to buy Japanese equipment, but also including technical assistance. BRITAIN: 10 million pounds ($16 million) in technical assistance for energy, small business development and food distribution.

Humanitarian Aid to the Soviet Union Food, medicine, and clothing received from Nov. 1990 to present:

COUNTRY TONS OF AID Germany 230,000 Netherlands 6,000 France 4,100 Austria 3,600 Belgium 2,600 Sweden 1,400 Italy 1,100 Norway 760 Finland 730 India 660 Poland 640 Switzerland 630 United States 590 United Arab Emirates 365 Japan 310

(The Soviet Union received 260,000 tons of aid from 51 countries during the period from Nov. 1990 to the present.) SOURCES: Los Angeles Times Moscow Bureau, foreign embassies in Moscow