	Introduction

Two Department of Agriculture (USDA) programs—the Office of the General Sales Manager (GSM)-102 and GSM-103 export credit guarantee programs—are intended to promote the export of U.S. agricultural commodities. 117) recommending that the administration extend another $1.5 billion in agricultural credit guarantees to the Soviet Union—assuming the administration found the country could service the debt—if certain foreign policy objectives would also be realized. In addition, we (1) considered the general economic and political environment in the FSU and its successor states; (2) reviewed how the Soviet debt crisis developed and the relationship between debt problems, on the one hand, and economic reform and creditworthiness on the other; (3) examined how USDA assessments of creditworthiness and market considerations affected USDA’s decisions on providing the FSU/successor states with credit guarantees; and (4) estimated the exposure of the GSM-102 portfolio to default by the FSU and its successor states. To assess the creditworthiness of the FSU and its successor states, we (1) analyzed their debt burden and liquidity situations, using historical and forecast data; (2) considered the importance of arrears, debt relief, and International Monetary Fund (IMF) arrangements as measures of creditworthiness; (3) applied USDA/TEID criteria for measuring the relative creditworthiness of countries to the successor states; (4) reviewed secondary market prices of FSU loans and bonds; and (5) analyzed several country risk ratings of the creditworthiness of the FSU and its successor states, including preparing a composite rating for each of the states. Of this amount, $3.6 billion, or 40.9 percent, was accounted for by guarantees provided to the FSU, Russia, and Ukraine. Russia has agreed with its official creditors to accept responsibility for the FSU debts. Five of the former Soviet republics have experienced significant armed conflict within their borders. The IMF found that most countries in transition have made substantial progress in structural reform. He had spearheaded the government’s radical economic reform program. This situation would reduce their debt burden but increase Russia’s. Reserves-to-Imports Ratio. (See prior discussion on debt burden.) For the forecast period, 1993 through 1997, 8 of the 15 states are expected to experience severe liquidity problems. The GSM-102 portfolio is exposed to a high level of risk of default because a large portion of the portfolio includes FSU debt and because of Russia’s lack of creditworthiness.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the creditworthiness of the former Soviet Union (FSU) and its successor states in the context of the Department of Agriculture's (USDA) Office of the General Sales Manager (GSM)-102 Export Credit Guarantee Program, focusing on: (1) the countries' general economic and political environment; (2) the relationship between the Soviet debt crisis and Soviet economic reform and creditworthiness; (3) how assessments of creditworthiness and market considerations affect USDA decisions on providing credit guarantees; and (4) the GSM-102 portfolio's exposure to default by FSU and its successor states.

What GAO Found

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.