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MILITARY CUTS MAY BE KEY TO HELPING SOVIETS, OTHERS

SHARE MILITARY CUTS MAY BE KEY TO HELPING SOVIETS, OTHERS

Financial leaders who are gathered in Thailand for the annual meeting of the World Bank and the International Monetary Fund face a cruel dilemma - how to help the desperate economies of East Europe and the Soviet Union without diverting scarce funds from poverty-stricken Third World countries.

Economic problems in East Europe are severe, but in the Soviet Union they border on catastrophic. In that country, foreign debt amounts to $70 billion, with $11 billion in payments due this year. Nearly worthless rubles are not accepted.In scrounging up cash to meet its obligations, the Kremlin has imposed heavy taxes on firms earning hard currencies and has simply not paid many foreign suppliers. Bills owed to Western firms total $4 billion.

This is driving away foreign investors, has cut off goods supplied on credit, and the shortage of hard currency has limited imports to basic foodstuffs and medicine. Badly needed spare parts and machinery to modernize industry can't be financed.

Several things need to be done. First, the Soviet Union must be admitted as a full member of the IMF, making it eligible for funds. Second, some kind of debt relief must be extended to take the pressure off the Soviet's meager supply of hard currencies.

No country, as bankers finally decided in Latin America, can pull itself up by the bootstraps if burdened by foreign debt that consumes all resources.

While debt relief is not strictly the province of the World Bank and the IMF, those agencies can make good arguments for governments and commercial banks to offer some relief.

Once debt relief programs were worked out with Latin countries, experience showed that private credit and investments began to flow into those areas after government reforms were made.

Debt forgiveness probably won't be necessary for the Soviets, but a temporary moratorium on foreign payments of several years might be enough to help them get back on their feet and be able to pay their bills.

Loans, foreign expertise, foreign investment and other actions also will be necessary to assist the Soviets. As U.S. Treasury Secretary Nicholas Brady urged, the World Bank and IMF may have to stretch their traditional roles and put people in-country for extended periods of time to provide help and training until the Soviet Union and East Europe can transform their economies.

But all this attention on emerging democratic states in Europe has Latin America and Africa fearing that they will be forgotten. In Africa, for example, the already-poor standard of living is deteriorating.

Again two things are necessary. First, more funds must be directed to social needs and small, people-oriented undertakings instead of large-scale government-to-government development projects. Second, developing nations must slash their military spending as a requirement for outside help. In some poor countries, military costs add up to more than the spending on education and health put together.

This is not a call for countries to totally disarm. The IMF notes that if nations kept military spending at the world average of 4.5 percent of gross national product, it would free up $140 billion that could be redirected into other programs.

Cutting military spending would ease the problem of deciding between helping Europe and helping Africa and Latin America.