Former Soviet Union

Burdened with debt and plagued by economic and political uncertainties, the successor states of the former Soviet Union are not creditworthy and are at high risk for default on billions of dollars in U.S. agricultural export credit guarantees. Arrears on the debt of the former Soviet Union have continued to mount since 1989--notwithstanding debt deferral, debt rescheduling, and other foreign assistance provided by creditor nations. Although Western nations have indicated a willingness to provide more debt relief and other assistance, much of this aid depends on Russia's implementing difficult macroeconomic and structural reforms. Whether, and when, Russia can or will implement such reforms is questionable. During the period when the Agriculture Department (USDA) provided more than $5 billion in export credit guarantees to the former Soviet Union, Russia, and Ukraine, USDA's own evaluations found that these states were very risky in terms of their ability to repay such debt. As a result of the large amount of credit guarantees made to the former Soviet Union and its successors and their poor creditworthiness, the export credit guarantee program is heavily exposed to default.

GAO found that: (1) most of the FSU successor states are not creditworthy because of their heavy debt burdens and severe liquidity problems; (2) as a block, FSU and its successor states hold the largest portion of program credits; (3) USDA extended $5 billion in credit guarantees to FSU, Russia, and Ukraine despite their high risk because it believed the states could service the debt; (4) the poor creditworthiness of FSU countries heavily exposes the GSM-102 loan portfolio to default; (5) FSU and Russian loan defaults have already occurred and the U.S. government has expended over $1 billion to settle loan guarantee claims; (6) the countries' continued ability to import food due to credit extensions may have hampered their agricultural reforms and food production and prolonged the existence of state-owned processors; (7) FSU debt arrearages continue to increase despite efforts to defer and reschedule debt and foreign economic assistance; (8) the countries' debt burden has grown out of their increased reliance on imports and credit programs, particularly for food; (9) Russia's debt burden increased significantly when it accepted responsibility for all FSU debt; (10) much of the foreign assistance provided to Russia in 1992 was contingent on Russia's implementation of additional economic reforms; and (11) the successor states are expected to experience further economic decline despite some progress in market reforms.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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