Resistance Builds to Hard-Line Soviet Regime

West suspends aid; concern grows about the intent of new leadership in Kremlin

THE stunning seizure of power from Soviet President Mikhail Gorbachev on Aug. 19 targeted a man who carefully wooed the West for political support and financial help.Western economic leaders, who just weeks ago agreed to jointly assist Moscow through painful economic reforms, are now confounded by the Kremlin's new inhabitants, a collective leadership of Communist loyalists who say they're saving the Soviets from economic breakdown. Mr. Gorbachev's American, European, and Asian supporters have responded by suspending aid, from food to finances. It is unclear whether the coup means a complete abandonment of the limited economic and democratic reforms or whether the ro ad is blocked for further liberalization. The Group of Seven (G-7) world economic leaders, whose meetings in London last month were dominated by the prospect of an all-out Soviet political and economic crisis, are concerned that the current situation will lead to chaos. The new Soviet regime, coordinated by an eight-man committee that includes the head of the Red Army and the KGB, may represent the West's worst fears. British Prime Minister John Major, chairman of the G-7, calls the Soviet government change "ominous." The new leadership seems to favor an incongruous mixture of communist perks and production quotas with the benefits of a robust economy, including modern technology and access to world financing. If the new regime endures and reasserts central control over the economy, "it will roll back reforms and cost the country its economic stature and international aid," says Jay Mitchell, an economist with PlanEcon Inc., a group of Washington-based Soviet and East European economic analysts. The West has long-regarded a political settlement between Moscow center and the republics as essential to reforms. Mr. Mitchell says a return of Soviet hard-line rule will counter new autonomous developments, such as the republics' agitation for control over natural resources, the Ukraine's formation of its own currency, and the Baltics' erection of customs posts. "The regime's Stalinist-type leaders will, at gunpoint, make sure goods are in the stores and prevent the new capitalist cooperatives from 'price gouging," Mitchell says. "They'll make things more 'fair' so that nobody can get rich and everybody is poorer." Soviet Prime Minister Valentin Pavlov "isn't even skillful with his xenophobia," Mitchell quips. "He says, 'We want to have business with Western firms' as he accuses them of 'CIA plots to control the Soviet economy. Washington-based businessman Jonathan Halperin, president of FYI Information Resources, with Soviet affiliates and partners throughout the Soviet Union, says his colleagues are now very troubled. The roughly 2,000 registered Soviet independent joint-ventures and 500,000 privately managed businesses are under Mr. Pavlov's watchful eye. Aid from the World Bank and the International Monetary Fund is clearly in jeopardy. The G-7 offered Moscow special associate status with these lending institutions as an initiation into the international community. "We'll have to sort things out to see if it's possible to move ahead on any level," World Bank President Barber Conable said in an interview. "There has to be a consensus of our members behind anything we do for a non-member.... There's a real limit on what we can do." On Aug. 20, the World Bank Board of Governors was to consider the creation of a special three-year $25 million to $30 million Soviet trust fund, co-financed by other donor/lenders, to help Moscow pay for World Bank technical assistance. The fund was scratched from the board's agenda after the Aug. 19 forced ouster of Gorbachev. A United States Treasury official says the Export-Import Bank's consideration of lifting its $300 million cap on financing US exports to Moscow is also derailed, like all other US bilateral aid, such as grain credits and preferred trading status. Germany, Moscow's primary source of financial and economic aid, has committed roughly $30 billion to the Soviet Union's reform process. Much of the money is for the removal and relocation of the 270,000 troops still stationed in eastern Germany, an area that was, until two years ago, a Soviet satellite country. The soldiers are not eager to return to their dismal homeland, where they face unemployment, food lines, and housing shortages. Germans, however, are very anxious that the soldiers will not leave , given the return of Soviet hard-line rule. German Finance Ministry spokesman Christian Kastrop says, "Our bilateral treaties [stipulating Soviet troop withdrawal] are our first concern." He rules out increased German financial transfers as a means of ensuring troop removal. "There is no possibility for the Soviet Union to have more wishes granted by us," Mr. Kastrop says. The Soviets' "very severe economic problems" contributed to the removal of Gorbachev, Kastrop says. "But new leadership will only keep the old economic system" at the country's expense, he warns. "We have made it quite clear that we are connecting our economic help with political and economic reforms. If the democratic process is endangered, we have to rethink our approach very clearly," Kastrop says, referring to Bonn's multibillion-dollar commitment to the Soviets. All of the other Soviet fledgling Western financial relationships will be tested on this basis, he says, including those with the 12-nation European Community, the World Bank, the IMF and G-7.