CENTER DECRYPTS LONDON SUMMITEERS’ LIKELY AGENDA FOR BAILING OUT MOSCOW CENTER

(Washington, D.C.): At a press conference in Washington today, two distinguished members of the Center for Security Policy’s Board of Advisors — Representative Jon Kyl (R-AZ) and former NSC chief economist Roger W. Robinson, Jr. — joined Center director Frank J. Gaffney, Jr. in "breaking the code" on the London Economic Summit’s top agenda item: the true dimensions and terms of Western assistance to the Soviet Union.

Notwithstanding efforts by President Bush, British Prime Minister John Major and other leaders to downplay the chances that a massive infusion of aid will be forthcoming subsequent to the London meeting, the Center believes that a substantial, multilateral aid program is likely to be launched there. Such a program, a kind of "Grand Bargain on the Installment Plan," will probably have four elements:

• An effort to mask plummeting Soviet creditworthiness by extending 98-100% government guarantees — in other words, virtually full taxpayer underwriting of Western grain and equipment exports, loans and other investments. Such assistance will be said to be consistent with the claims by President Bush and others that no large-scale aid will be offered prematurely. In fact, in view of the poor prospects for repayment of Western credits by an unreformed, bankrupt Soviet economy, U.S. taxpayer guarantees amount to an impending S&L-style scandal.

 

• A near-term scheme designed to facilitate at least limited ruble convertibility — through the creation of a multi-billion dollar pool of Western funds to be used to backstop some portion of the Soviet currency. In fact, under present circumstances, this amounts to little more than alchemy, transforming worthless Soviet paper into deutsche marks, lire, francs, pounds sterling, yen and dollars — all by executive fiat.

 

• A "crash" infusion of Western government-guaranteed credits and investments into the strategic Soviet energy sector. These taxpayer guarantees — unlike their counterparts involved in subsidizing agricultural and other exports — will be said to be "secure deals," backed by abundant Soviet energy resources in the ground or under the sea.

 

• That claim is, however, based on the expectation that the hard currency revenue from new exportable oil and gas surpluses will actually be used to liquidate these Western debts. In fact, given that there is apparently no intention on the part of the G-7 leaders to apply strict conditionality to energy-related assistance — much less to the billions of dollars in revenues that would eventually flow intoMoscow center’s coffers — it must be assumed that the Kremlin will seek to divert a substantial share of such revenues for purposes harmful to vital Western interests (e.g., client state support, strategic modernization, technology theft, espionage, etc.)

   

• An effort by the United States government to use surreptitiously the "associate IMF membership" gambit — newly, and uniquely, invented for the Soviet Union — to circumvent the Johnson Debt Default Act of 1934. This statute precludes any nation from selling bonds or other securities in the United States so long as it has outstanding defaulted obligations to the American government. Such a waiver would, for the first time, open a wide array of new sources of untied borrowing for Moscow center in the U.S. (e.g., securities firms, mutual and pension funds, insurance companies, corporations, etc.) It would also allow the Soviet central authorities a means of garnering additional, politically powerful constituencies with a vested financial interest in accommodating Soviet bail-out demands down the road.

Robinson said, "The Administration keeps asserting ‘We’re not going to throw money into an unreformed, militarized command economy.’ ‘We’re not going to do anything that’s unconditioned.’ [And yet,] 2.8 billion dollars are gone with not a condition attached, much less a credible public report on Soviet creditworthiness to backstop the President’s finding [of creditworthiness]….Anybody looking at this issue closely knew that the Western markets did not view the Soviet Union as creditworthy."

Rep. Kyl — whose amendment making wholesale political and economic reform in the USSR a statutory precondition to further taxpayer-underwritten aid to Moscow center was adopted by the House of Representatives, 374-41, on 19 June 1991 — added:

"[The Kyl] amendment…will be adopted by the Senate, as well, and it will be a part of any foreign aid bill, authorization or appropriation bill [and] will constrain events by the force of law. It is a reality which cannot be ignored, by Harvard professors or presidents or State Department or Commerce Department officials, or European bankers. All of them can propose, but as someone once said ‘Only the Congress can dispose.’ And today, the Congress is not disposed to dispose of American taxpayers dollars to the Soviet Union unless and until these critical conditions are satisfied."

 

In response to a question about the possibility of the Kyl amendment serving as a consensus position for the Western leaders to take with Gorbachev in London, Gaffney observed:

"…We’ve got Japanese support; I think we could have support from the British. There’s at least a G-3 out there that could be leading the charge towards the sort of sensible approach to…Soviet assistance…that Congressman Kyl has worked out. It’s just that it doesn’t appear at this point that the Bush Administration is with that G-3. It’s at best leaning towards the G-4 and may, in fact, find itself fully leading that charge with German support."

 

Transcripts of the Center’s press conference are available through the Federal News Service.