Bail-Out Of Soviet Cash Crunch By Western Central Banks? : A Bridge Loan To Nowhere

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The Center for Security Policy warned Western central banks against entering into bilateral or coordinated gold-swap arrangements with the Soviet Union as a means of providing short-term liquidity for Moscow. In an analysis released by the Center today, entitled Bridge Loans to Nowhere: A Central Bank Safety Net for Moscow?, the Center disclosed that such untied (albeit collateralized) lending to the USSR may be in the offing as a result of discussions now underway at the Bank for International Settlements (BIS) in Basel, Switzerland.

The Center believes that this potential safety-net by at least some Western central banks would have the effect of helping preserve the Soviet Union’s present fatally flawed and highly secretive command economic system. In addition it could easily lead to yet another open-ended liability for Western taxpayers.

Frank J. Gaffney, Jr., the Center’s director, said, "It would be preposterous for Western governments to consider advancing the Soviet Union cash — whether backed by gold, promissory notes or otherwise — when Moscow has thus far failed structurally to transform its economy or to curtail the billions of dollars it squanders annually to support Cuba, the war in Afghanistan, weapons modernization, and a host of other activities inimical to vital Western security interests."

Interestingly, the Bush Administration has made a similar observation. On the 27 May 1990 program of "This Week with David Brinkley," National Security Advisor Brent Scowcroft stated that "Our estimate is that the Soviets may be spending as much as $15 billion [per annum] on aid to states which are contributing to problems around the world. We think a good place to start would be rectifying that, and Cuba would be at the beginning." Given this sentiment, it would be positively bizarre were the Administration to acquiesce in a gold-swap bail-out program for Moscow.

Roger W. Robinson, Jr., former Senior Director for International Economic Affairs at the National Security Council and a member of the Center’s Board of Advisors noted, "From a financial perspective, general purpose lending to the Soviet Union by Western governments, even on a collateralized basis, is a losing proposition for taxpayers. Cash advances simply will not generate hard currency revenues required for eventual repayment by Moscow."

Robinson added, "As a practical matter, the Bonn government, for example, is unlikely to demand the liquidation of Soviet gold collateral on the date that a repayment deadline is missed by Moscow. In reality, the repeated extension of deadlines is considerably more probable which would have the effect of transforming ostensibly short-term liquidity loans into medium-term balance-of-payments support for the Soviets with taxpayer funds."

Center for Security Policy

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