SPEAKING OF COVER-UPS: WESTERN EFFORT TO CONCEAL SOVIET INSOLVENCY WHILE GIVING NEW AID IS A REAL SCANDAL

(Washington, D.C.): It is striking
that, at the very moment Washington is
seized with a series of allegations about
official efforts to conceal from the
public certain unsavory (if not downright
illegal), politically motivated
financial transactions, one such
cover-up — with vastly larger
taxpayer liabilities at stake —
appears to be happening virtually
unremarked right under the noses of
Congress, the media and the electorate!

Allegations of scandalous behavior by
the Bank of Credit and Commerce
International, the Banca Nazionale del
Lavoro, the CIA, the Treasury Department,
the Agriculture Department’s Commodity
Credit Corporation and others dominate
the headlines and stimulate congressional
investigations. Perhaps preoccupation
with such allegations explains the
inattention paid to date by elected and
self-appointed watchdogs of the public
interest to a far more sinister travesty:
the evident, purposeful
dissembling by the Bush Administration —
and most of its G-7 partners — about
Moscow’s creditworthiness at a time when
additional billions in new
taxpayer-underwritten credit and
investment guarantees for the USSR are in
the works.

Collusion by the U.S. and other
Western governments in such a cover-up is
suggested by recent reports in the Wall
Street Journal and Financial
Times. In articles appearing on 7
August, senior Soviet financial
authorities confirmed that Moscow
center is so broke that it will shortly
be compelled to reschedule all
of its foreign debt — now
acknowledged even by the Soviets to total
at least $62 billion. href=”#N_1_”>⁽¹⁾

Speaking bluntly (if unduly
optimistically), the chairman of the
USSR’s State Bank (Gosbank), Viktor
Gerashchenko, told the Financial
Times on 8 August that the USSR
would be able to honor its $20 billion in
debt repayments due this year “at
least until December.”

What is so appalling, however, is that
U.S. officials evidently have
been aware of the Soviet central
authorities’ intent to postpone payment
on foreign debts for some time.
Should that prove to be the case, a spate
of recent presidential decisions and
official comments would seem to be, at
the very least, seriously misleading —
if not evidence of financial malfeasance.

For example, according to the 7 August
editions of the Wall Street Journal,
Oleg Mozhaishov, chief of Gosbank’s
foreign currency and economic department,
admitted that “The need to
reschedule [Moscow’s foreign debt]
exists.” What is more, Ivan Ivanov,
a consultant to the Soviet Parliament’s
International Relations Committee,
disclosed that: “Our specialists
have prepared a package that will allow
us to reschedule our debt….We didn’t
offer it to the G-7 [in London] because
we didn’t want to focus on financial
help.” Ivanov did acknowledge,
however, that a proposal to enter
into debt rescheduling was included in
Gorbachev’s 23-page pre-Summit letter to
the G-7 leaders.

These admissions raise a number of
important questions for American
policy-makers:

• In preparation for the London
  Summit, the G-7
  “sherpas” — those
  senior representatives of the
  industrialized democracies who do
  the preponderance of policy
  planning and logistics for the
  economic summits — reportedly
  were given an extraordinary
  opportunity to help in
  drafting the 23-page Gorbachev
  missive to Summit leaders.
  As a result, woefully
  inadequate though it was, the
  document that emerged was
  actually the product of prior
  review and critiquing by G-7
  governments. While the
  sherpas may have prevailed on the
  Soviets not to make the awkward
  move of formally tabling a
  rescheduling package in London, the
  Western leaders clearly had been
  put squarely on notice well
  before the Summit that Moscow
  intended to cross such a
  threshold on its foreign debt.
• Consequently, it seems incredible
  that President Bush could
  possibly have been ignorant of
  the true, sorry state of Soviet
  finances in the weeks leading up
  to the London Economic Summit.
  Yet, on 11 June 1991, scarcely a
  month before the meeting, he
  nonetheless certified (in the
  words of his spokesman) that:
  “[The Soviets] do meet
  the test of creditworthiness
  and…they can and will repay the
  [$1.5 billion in agricultural
  credits extended to Moscow that
  day by Washington].” It must
  be asked: What did the President
  know and when did he know it?
• Treasury Secretary Nicholas Brady
  was palpably uneasy about the
  political and economic
  implications of a formal Soviet
  debt rescheduling at the hands of
  the Paris Club when, on 15 July,
  he said:

“When you place
yourself in the hands of
the Paris Club, you do so
with the idea that you
may have an impending
problem which will not
allow you to address and
make timely payments. And
I don’t think that
the Soviet Union is
necessarily in that
category right now,
and I’m not sure that it
is a wise thing for them
to do so.” (Emphasis
added.)

• Was this mere wishful thinking —
  or a deliberate attempt to
  misrepresent facts likely to bear
  directly upon the political
  viability of additional
  government-guaranteed aid to the
  USSR, aid in the offing in the
  wake of the London and Moscow
  Summits?

• In a similar vein, Under
  Secretary of the Treasury David
  Mulford downplayed Moscow’s
  credit crisis by contending in a
  press conference in London on 16
  July that “Soviet
  indebtedness today in relation to
  the total size of the economy is not
  particularly large.”
  Was he deliberately
  “low-balling” the
  problem or simply hoping to
  discourage the Soviets from
  taking the rescheduling action
  they clearly had in mind?
• In any event, President Bush certainly
  knew the facts about Moscow’s
  incipient rescheduling before he
  stated his intention in Moscow on
  30 July 1991 to seek the repeal
  of two statutes which limit U.S.
  taxpayers’ risk exposure
  associated with
  government-guaranteed exports to
  the USSR. Currently, the
  Stevenson and Byrd amendments
  impose significant constraints on
  such exposure; they respectively
  place a $300 million ceiling on
  Eximbank loans or loan guarantees
  to the Soviet Union and restrict
  loans connected with research or
  exploration of fossil fuel energy
  sources to a total of just $40
  million.
• Is the President’s announcement
  concerning the Stevenson and Byrd
  amendments supposed to signal
  once again that all is well on
  the Soviet creditworthiness
  front? Or does the Bush
  Administration intend to argue to
  the Congress and the American
  public that, despite the present
  and prospective condition of the
  Soviet economy, these statutes
  protecting the U.S. taxpayer on
  assistance to Moscow center are
  no longer needed?

The Center for Security Policy believes
that sufficient evidence is now available
to support the conclusion that the
Bush Administration has simply found the
truth about Moscow center’s utter
insolvency too inconvenient to discuss
publicly and forthrightly.
Concealing or otherwise ignoring this
reality is, as a practical matter, the
Administration’s only hope for
what it apparently has in mind: blowing
past Congress — and the American people
— new, multi-billion dollar
taxpayer-underwritten credit guarantees
which the President and his G-7
colleagues intend to provide the USSR. This
is especially true of the executive
branch’s determination to secure
congressional approval of the U.S.
taxpayers’ share of a fifty percent
quota increase in resources for the
International Monetary Fund. A
significant portion of such an increase
will almost surely go to Moscow once the
USSR obtains full membership status at or
in connection with the Munich Economic
Summit.

The strategic and political
risks associated with this Bush
Administration policy — not to mention
the huge losses likely to accrue to
American taxpayers as a result — require
nothing less than complete candor on the
part of the Bush Administration and an
opportunity for open and informed public
debate over such a course of action. The
Center for Security Policy calls on the President
to make a full disclosure of his
Administration’s assessment of actual and
projected Soviet creditworthiness.
He should also reveal the extent
to which various commitments for
economic, financial and energy-related
assistance, notably through the device of
government-guarantees for U.S. exports,
will expose the American taxpayer to new
contingent liabilities.

Should the Bush Administration not be
immediately forthcoming, the Center
believes that it is the duty of
Congress and the media to press for a
thorough investigation of these and
related issues. It goes without
saying that until such an
investigation is completed, no
consideration should be given to
extending additional
taxpayer-underwritten assistance to
Moscow center unless it is on a fully
collateralized basis. Importantly, Gerashchenko
himself invited the Administration to
take just such an approach when he
offered on 8 August to provide
collateral, stating “We could
probably just sell the gold, or pledge
gold not just with central banks, but
with private institutions.”
Naturally, no thought should be given to
liberalization or repeal of existing
statutes (like the Stevenson and Byrd
amendments) that usefully limit the
taxpayer losses in this area.

– 30 –

1. The
Center for Security Policy believes the
actual extent of Soviet hard currency
indebtedness to be roughly $75 billion.
Whether one chooses to accept the
characteristically understated Soviet
figure or not, a prediction made eighteen
months ago by Roger W. Robinson, Jr., a
Center Board member and former chief
economist at the National Security
Council, is worth noting. On 30 January
1990, he told the House Ways and Means
Committee: “Should Soviet
indebtedness continue to rise at the
present rate and hard currency earnings
remain depressed, the need for either
formal or informal debt rescheduling
arrangements could materialize when the
gross debt level reaches $60-70
billion.”

Indeed, it seems obvious to the Center
that the Soviet Union has de facto
been in a piecemeal debt
rescheduling since last year — as
evidenced by persistent multi-billion
dollar arrearages to Western suppliers
and the conclusion of quiet “debt
refinancings” with Germany, Italy
and probably other Western nations.