The Soviets recognized that Germany once more had the most efficient industrial machines in the world. The country was just one big modern factory, led by men who attacked markets with the efficiency of Prussian generals, supported by engineers and technicians who were perfectionists and manned by workers who had no equivalent for devotion to duty, quality of work, and identification with their company, their products, and the success of both. He was a Marxian nightmare, this German worker with his Volkswagen, his colour TV, his vacations in Spain.
“I see really only one area that does not seem to be perfectly regulated,” said Melekov finally, breaking the twenty-minute silence which had settled over the room as he studied the financial part of the contract.
The German stiffened. He did not like this—at all. He and his people had now spent almost seven months of hard work, haggling over the most minute details, often with second-rate bureaucrats who would not have been offered any greater responsibility than driving a streetcar if they lived in Düsseldorf. In spite of this, the entire 700-page agreement, not to speak of the thousands of items in the appendices, was already initialled, ready for final signature. Except for these last ten pages.
“What area are you referring to?” was Klausen’s response. The man was obviously having difficulty.
“The mode of payment.”
“But, Herr Melekov, we have discussed this matter at least a dozen times with your people. This, finally, is your draft, not ours.”
“I am not speaking of the terms. Ten years is satisfactory. Nor am I referring to the rate of interest. Eight percent seems correct. Finally, I am not referring either to the takedown conditions or the amortization plan. What has been worked out there is quite acceptable. No, I am referring solely to the currency. We desire that the transaction be made in United States dollars and not in German marks. That’s all.”
Klausen had regained his cool. He did not twitch an eyebrow.
“That’s all?”
“That’s all,” restated Melekov.
“But you surely realize that this is not just a slight change. The entire credit scheme is based upon a most complex set of arrangements between ourselves and a consortium involving the five largest bank groups in our country. Our banks are German banks. Our currency is the mark. Our product is based upon German costs, mark costs. Therefore the entire transaction must done in marks.”
“My dear Herr Klausen, our banks deal in rubles. Our costs are calculated in rubles. Our workers are paid in rubles. But we adapt to the realities of international trade. When we sell you machine tools, and we have sold many to your company, we bill you in dollars and you pay in dollars—not rubles and not marks. When, or should I say if, we sell crude petroleum and natural gas to you after this pipeline is finished, you know as well as I that the terms will be agreed upon in dollars—just as they are on oil transactions everywhere else in the world.”
“And who will give us forward foreign exchange cover? Who will give a guarantee protecting us against currency losses ten years into the future?”
“That, my dear Klausen, is your problem, as you know full well. And it’s hardly the first time you’ve had such a problem. But I’m sure you can solve it. You’re a resourceful man. You know as well as I that you and your bankers in Germany have been deeply involved in dollar financing for many years. Availability of dollar funds should be no problem. Interest rates will likewise be no problem. At the moment long-term rates in dollars and marks are almost exactly the same. We prefer dollars. We do 90 percent of our foreign trade in dollars. We do not desire to make such a major exception.”
Klausen’s thoughts raced. This is it. Either or. Either this Melekov is serious or he has been instructed to sabotage the deal. No use stalling.
“Fine, Herr Melekov. I will give you an answer at noon tomorrow. If my answer is positive, you will agree to proceeding with the final signing of the contracts as scheduled—at five tomorrow afternoon?”
“Yes,” replied Melekov.
“No other problems?”
“None.”
“May I call you tomorrow at the bank? Say, just before noon?”
“Splendid,” agreed Melekov. His assistant, who had been sitting on Melekov’s left during the entire performance was as stunned as Klausen, but his face indicated nothing more than steadily increasing boredom. The fact that he had personally drafted the final version of the financial side of this agreement—in marks—and that both Melekov and the bank’s chairman, Stepanov, had approved it was already being relegated to that particular compartment of his memory banks which he reserved for what he privately termed Kuriosum.
After leaving the Germans, Melekov took the lift to the top floor of the hotel and treated his assistant to a sumptuous lunch. No further reference was made to business. By two o’clock both were back at the Foreign Trade Bank of the Soviet Union. And the first thing Melekov did was knock on the door of the office of his boss, the bank’s chairman—Valentajn Ivanovich Stepanov, Hero at Stalingrad, protégé of Khrushchev. A remnant of the glorious past, and a big pain in the ass. After knocking he moved right in with no further formality.
“Take a seat,” commanded Stepanov, in a voice which was harsh and raspy. “How did it go?”
“Fine. I’m shifting the whole transaction onto a dollar basis.”
“You’re what?”
“I said, quite distinctly I thought, that I’m shifting the entire pipeline purchase onto a dollar basis.”
“Are you crazy?”
“No. Hardly.”
“Who authorized you to do this?”
“My dear Valentajn Ivanovich, I do not require authorization. I am in charge of the foreign exchange operations of this bank.”
“But I am in charge of this bank. And such a decision is my prerogative. My God, the basic national interests of the entire Soviet Union are at stake. Have you gone mad?”
“I believe I’ve already covered the subject of my mental health. As to the rest, I have very carefully discussed this matter with the president of the National Bank. He fully agrees with the new policy.”
“New policy? What new policy?” screamed Stepanov, who by now had risen from behind his desk and gotten very red in the face. “What new policy, I asked?”
“The new dollar policy,” replied his deputy chairman.
Stepanov seemed to sense that something was going on here that could be very very dangerous. He sat down behind his desk once again and started to fiddle with a ball-point pen.
“Melekov, I do wish you would stop talking in riddles.”
“There is no riddle. As you quite well know, if I must repeat it, I am in charge of the foreign exchange operations of this bank. And it is my duty to coordinate all plans and operations in this area with the head of our parent institution, the National Bank of the Soviet Union. After all, they—not we—hold the gold and foreign exchange reserves of this country. They also control the money supply inside the country. Therefore they set the policy. We manage the day-to-day flows of money and credits to and from our country, according to that policy. I think I hardly need to explain this to you.”
“Melekov, I’ll ask you just one more time: what new dollar policy?” His voice had sunk to a hoarse whisper.
“It is quite simple,” replied his deputy. “We have very grave doubts about the immediate future of the dollar. We think it will be devalued again, and by an appreciable amount. We have, therefore, decided to get out of that currency.”
“Just like that!” was the sarcastic comment from the other side of the desk.
“No, not just like that. During the past weeks we have given the entire matter the greatest possible consideration, done enormous research both here and abroad, and reached the conclusion that we must act now, and with the greatest possible speed. We are selling our dollars on the open market starting today. But it is being done very carefully, according to a quite definitive plan.”
“So, you and Roskin have worked out a ‘quite def
initive plan,’ have you?”
“That’s right. And part of it is to pay for as many of our future imports with devalued dollars as possible, allowing us a one-time discount of perhaps as much as 15 percent on everything that we have contracted for. The Soviet Union will save billions of dollars. On the pipe contract alone it will come to a quarter of a billion.”
“And Germany will accept it—just like that?”
“They will have no choice, once the contract has been signed.”
“Fine. Very clever. But, my dear Melekov, just who says that the dollar is going to be devalued? You? That arrogant academic quack Roskin? Hasn’t the news seeped through to you geniuses that the dollar was devalued in 1971?”
Melekov sat there.
“And now, like that, based upon some crackpot thinking, you and Roskin are going to overthrow a key policy—no, the key policy of our bank?”
“That’s right,” was the cool response. “I think Roskin intends to call a meeting later this week to explain the full ramifications for the future to all of us here at the Foreign Trade Bank.”
“That is most thoughtful of Comrade Roskin. And so kind of you to give me advance notice. That’s all you have for me today, Melekov?” He did not wait for a reply. “Fine, fine. Then I see no reason to detain you any longer. I’m sure you have much more important matters awaiting you.”
Melekov rose and left Stepanov’s office without any further words. It was one of the most satisfactory moments of his career.
Five minutes later he was in the trading room of his foreign exchange department. The action was hectic. His chief trader hung up a telephone the moment he spotted Melekov and hurried over.
“I’m glad you’re here.”
“Anything wrong?”
“No, quite the contrary. But I must know where we go from here.”
“How much have you gotten rid of?”
“About a billion dollars.”
“Who are the takers?”
“We did about $500 million in both Zurich and London. We’re now working on Frankfurt and Paris.”
“What’s happening to the rates?”
“Well, we must be putting a lot of pressure on the forward dollar. But it’s holding damn well. We’re being matched immediately by takers every time.”
“Good. When does New York open?”
His man glanced at a large wall clock. It showed just a few minutes past three.
“Daylight saving time in the States is over now, so we’re back to ten hours difference. That would mean New York opens in three hours.”
“Right. Try to sell at least another billion in the United States. But mix it up. If necessary do the last part on the West Coast. But remember, keep exclusively to the forward market. Don’t touch spot. And keep the rates coming to me. I’ll be in the office until midnight.”
“One more item before you go. We made that transfer of $500 million to Zurich as you instructed. Now what should we tell them to do with it?”
“I’m handling that directly,” replied Melekov. “But I think you must be kept fully in the whole picture. We’re using it to buy gold bullion.”
“You mean that the Swiss government is actually selling gold?” was the response of his astonished trader.
“No. We’re going to get it in the free market.”
This time the only response was a low whistle.
Melekov added, “That, my friend, is for your ears only. Do we understand each other?”
The nod of agreement could not have been more emphatic. And the stride of Melekov as he left the foreign exchange trading room could not have been more confident. He was taking the biggest gamble of his entire career. But he was in his fifties and it was now or never. Such an opportunity would not come again.
Hans Klausen had not lunched at the Russaya. He had rushed to the German embassy minutes after Melekov had left. That was the only place from which he could hope to communicate with Düsseldorf free of a few dozen curious Russian ears.
The ambassador received him minutes after his arrival, and both of them were soon in the communications room in the basement of the building. They remained there until well past midnight. The future of the ambassador’s status in Moscow related very closely to the future of this pipeline deal. A sudden collapse of the negotiations—just hours before the signing—could set back his newly found rapport with the Soviets by years. He communicated this to Bonn in the strongest possible terms.
At one-fifteen in the morning, Moscow time, he had the answer. The transaction could be based on U.S. dollars. The German government would provide an airtight guarantee to Rhein-Ruhr covering the foreign exchange risk. The interest rate to be paid by the Russians would have to be increased by a token .25 percent, however. After all, prestige was always at stake.
Both Klausen and the ambassador were satisfied. They finished off the bottle of Steinhäger shortly after two. Klausen spent the night in one of the guest rooms at the embassy. He was too tired to move. And he needed to regain his strength for the closing of the contract later that day. Not that the signing would be particularly strenuous. But he knew his Russians. The celebration which would follow would last the entire night.
On this same evening, while the two Germans sat in the basement of the embassy, and while Melekov was directing the moves of his foreign exchange and gold people from his office in the Foreign Trade Bank of the Soviet Union, his boss—Chairman Stepanov—was dining at the Georgian restaurant on Gorky street with a friend. They had met at seven and after five courses, accompanied by much vodka and a few beers, they were now basking over the remnants, with cigars and a bottle of cold Crimean champagne.
The time had come to broach the subject.
“Josef,” said Stepanov, “tell me something. Did the committee discuss any change in our foreign exchange policy recently?”
“No. Not that I know of. I understand nothing about financial matters. You know that, Valentajn.”
“Of course. But was there no discussion about the dollar?”
“No. Of that I am sure.”
“I thought so.”
“What?”
“Roskin and especially that fellow Melekov are not only working behind my back but also behind the back of the committee. You’ve heard me talk of those two before.”
“Indeed I have.”
“Ambitious, ruthless, dangerous. Both of them. They are like twins in their thinking and in their history; educated for years outside of Russia; neither of them fired a shot, or even heard a shot, during the war. They consider men like you and me, Josef, to be Georgian peasants, people who must be removed from the system to make room for academic fancy-pants like themselves. That is exactly what they are trying to do now. I’m sure of it. If we let them get any further, neither you nor I will remain unscathed. It is an absolute outrage. We must do something.”
Stepanov was working himself up into quite a state. But in this restaurant no one noticed. As usual the atmosphere was boisterous. The alcohol was flowing faster and faster as the hour grew later.
“What have you got in mind, Valentajn?”
“I think that you and I—both of us—must approach the committee, immediately.”
“But do you really feel that it is that important?”
“There can be no doubt. A grave error is being committed.”
“Are you sure of your grounds?”
“Positive!”
“I will make the arrangements, Valentajn.”
“Many many thanks, Josef. You are a true friend.”
The orchestra, seated on the balcony against the background of a wildly colourful mural depicting the Alpine-like scenery of that corner of Russia so dear to the hearts of the majority of guests, struck up another tune with slightly off-key gusto. The two men decided that another bottle of champagne was in order, with just a touch of vodka on the side.
11
THE next morning in Zurich the banks started their foreign exchange operations as usual. On
this Wednesday, business was brisk, as usual; rumours were flying, as usual. And the Swiss were making money, as usual, in what many people regard as the most difficult of financial markets. Foreign exchange comes natural to the Swiss, and for many years they have been exploiting this natural resource to the hilt.
The development of this unusual talent stems from that fact that almost every Swiss is somehow involved in foreign exchange transactions from a very early age. Living in a small country in the centre of Europe, no Swiss is ever more than a hundred miles from some border—that of France, Germany, Austria, or Italy—and the rates of exchange between the Swiss franc and those of these neighbouring countries are as familiar a fact as the price of gasoline is to the average American, or the cost of a pint of beer to a Welshman. In fact, many a Swiss will be able to quite readily tell you the price of gasoline in all of his neighbouring countries, expressed in terms of Swiss francs or even dollars if you like, since, with his built-in frugality, he will always calculate very carefully whether he should fill up his tank at home, or abroad, when he sets out on a Sunday drive across the border with his well-polished automobile. In other words, he goes through constant and sometimes complex foreign exchange calculations as a matter of course in his daily life. Take, for instance, a citizen of Basel. This second-largest city in Switzerland borders immediately upon both France and Germany. It is quite natural for a Bâlois to go shopping in Germany, just across the border, in the afternoon, seeking bargains in the supermarkets, and then go over to France for dinner in the evening, attracted especially by the price and quality of the wine. He does not go back and forth to the bank twice a day buying the required German marks or French francs. No, he just keeps their separate compartments in his billfold—one for each of the three currencies which are part of his everyday life.
The Billion Dollar Sure Thing Page 12