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Administration Move To Normalize Relations with Castro’s Cuba Bucks Tide of History, Business

July 8, 1999Center for Security Policy

Will Gambit Be Next Source of Conflict Between Clinton and Gore?

(Washington, D.C.): The truth is finally out. An unnamed Clinton Administration official spilled
the beans yesterday to the New York Times, saying that “There is a conscious decision in this
Administration to do what needs to be done” to expand relations with Fidel Castro’s Cuba.
According to the Times, “American officials say they are now determined to go forward even
if Castro responds by cracking down on dissent….”

Not So ‘Modest’

While the front-page article tried to low-ball the sweep of this initiative (e.g., calling it a “modest
opening”), the anonymous official could not contain himself. He declared: “This is a policy that
has been held hostage to interest groups for way too long.” The clear implication is that Mr.
Clinton is determined to make part of his legacy normalized ties with (read, providing life
support to) not only the odious Communist governments of China, ¹ Vietnam ² and North
Korea ³ but also that of Cuba.

As the Times notes, the opening gambit of this new policy approach — which involves expanded
anti-narcotics cooperation, ⁴ travel opportunities and money transfers to Cuba — “recall the
largely secret White House effort in late 1995 and early 1996. Officials said that initiative which
focused more directly on the [Castro] Government, was approved by Mr. Clinton and managed
by Samuel R. Berger, deputy national security advisor at the time.” (Emphasis added.)

(A prime mover behind Mr. Berger’s efforts — which included according to the Times “a
choreographed…series of possible steps to ease American sanctions if Cuba continued to open up
its economy and to promote a more cooperative relationship with the Cuban Government” —
during this period was Morton Halperin, at the time a senior member of the NSC staff.
Halperin’s enthusiasm for Castro dates to his years as a radical left-wing activist associated with
the Institute for Policy Studies and related organizations. ⁵ Indubitably, Halperin is also actively
involved in the present initiative — if not the source of the New York Times leak — in his present
capacity as director of the State Department’s Policy Planning Staff. ⁶)

The earlier Berger-Halperin bid to help Castro came a cropper when the latter deliberately
murdered four American citizens flying in international airspace. Now, fearful that time is
running out on the Clinton Administration, its authors evidently intend to make a final
push to save Fidel by ending the U.S. campaign to isolate his regime — despite the fact that
the Cuban dictator is continuing to deny his longsuffering people fundamental human rights and
refuses to open up his economy. In fact, according to the Times, “American officials say they
are now determined to go forward even if Castro responds by cracking down on dissent….”

Even the Canadians Get It: Don’t Go There

This move to save Castro’s bacon is all the more troubling since it comes as evidence continues
to accumulate that the U.S. embargo is working, not only with respect to containing his external
aggression and subversion but in undermining his regime. In recent days, the Wall Street
Journal and Los Angeles Times have published reports documenting the fact that Canadian,
European and Latin American governments and companies that were convinced they could make
a killing investing in Cuba (with the Americans held at bay) have been sobered by hard
experience with the Cuban government.

As the Journal reported on 28 June, “‘[In 1993], there was an effervescent feeling that Cuba had
opened up a process of change,’ says Archibald Ritter, a prominent Cuba scholar at Carleton
University in Ottawa.” Now, however, in light of Fidel’s double-dealing (e.g., giving proprietary
information developed at one company’s expense and contracts based upon them to competitors),
capriciously instituted impediments to doing business (e.g., confiscation of portable copiers on
the grounds that they could be “subversive tools”) and determination to maintain control over
foreign investments, even the companies that seemed to delight in defying U.S. policy — like
Canada’s Sherritt International Corporation — have pulled back. The Journal reported that
Sherritt “had raised nearly $500 million three years ago to invest on the island. Now the mining
and energy company is looking elsewhere; it just bought a share of a nickel mine in Australia for
about $35 million. ‘There’s a limit to the rate you can invest in Cuba,’ Sherritt Chairman
Ian Delaney told reporters after the company’s annual meeting in May.”

In words that were intended to be prescriptive to other businessmen, a Canadian entrepreneur
who once was enthusiastic about investing in Cuba recently wrote in a financial newsletter
quoted by the Wall Street Journal that “The best way to see Cuba is on a holiday package to the
island’s beautiful beaches. Don’t waste time in the business district.” (Emphasis added.)

Guess What: Unilateral Economic Sanctions Can Work

Importantly, this advice is sound for one other reason: America’s policy is succeeding. As the
Journal observed: “Finding money for Cuban investment projects isn’t easy. The country has
defaulted on much of its $11 billion foreign debt, and the U.S. blocks its access to the
International Monetary Fund and the World Bank. Helms-Burton has made most banks
skittish about lending to Cuba. ⁷

As the Los Angeles Times reported in a 29 June article on the first-ever European Union-Latin
America summit held in Rio de Janeiro, a Swedish government delegate to the summit declared
that “I’m sure European companies think about Helms-Burton more than once before trading
with Cuba.” What is more, the Cuban ambassador to Brazil was forced to admit that “The U.S.
embargo is the biggest reason Cuba has been able to attract only about $2 billion in foreign
investment during all the 1990s…Brazil, by comparison, currently averages that amount each
month.”

‘Trump Card’

As it happens, the case for preserving the U.S. embargo — and rejecting the craven Clinton-Berger-Halperin bid to normalize relations with Fidel’s regime — has rarely been more forcefully
and effectively made than was done on 27 June by Donald Trump, a man who readily
acknowledges he could “earn millions of dollars in Cuba” by forming an investment corporation
with European partners to skirt the U.S. embargo. In an op.ed. article in the 27 June editions of
El Nuevo Herald, the Spanish-language version of The Miami Herald, Mr. Trump made the
following observations:

All those arguments are totally false.

uld be timely to remember the
role that Fidel Castro had in that confrontation between — yes — good and
evil.

he converted his nation into a maximum security prison.

The real cause of the Cuban people’s misery is Castro’s economic system,
not the American embargo.

I prefer to lose those millions than to lose my self-respect

I prefer to
dispense with that type of profit than to become a financial supporter of one
of the most brutal dictators in the world,

Of course we must keep the embargo. We must keep
it until Castro goes.

Clinton vs. Gore?

Not only is President Clinton’s new effort to normalize relations with Castro morally repugnant
and unjustifiable on the basis of economic considerations, it may also further exacerbate Vice
President Al Gore’s political difficulties. On the one hand, as the New York Times put it,
“Administration officials say they see the strength of conservative Cuban-American groups
waning, while opposition to the embargo continues to grow among business people farmers,
religious groups and younger Cuban-Americans.” Therefore, Mr. Clinton feels he can afford to
disregard the powerful, principled opposition to the Castro regime of organizations like the
Cuban American National Foundation. With much more on the line, however, Mr. Gore is
described by the Times as “highly aware of the considerable influence that Cuban-American
voters may have in two pivotal states, Florida and New Jersey.” ⁸

The President has made no secret of his fury at the Veep’s recent efforts to disassociate himself
from Mr. Clinton’s reprehensible personal misconduct. Perhaps his decision to proceed with the
latest Berger-Halperin effort to upgrade ties with Fidel’s government without regard for the
potentially large costs it might entail for his chosen successor’s electoral prospects is partially
motivated by the desire to punish Mr. Gore for his (very belated) apostasy. Alternatively, it may
simply reflect the true ideological bent of an Administration whose senior ranks are heavily
populated by those who cut their policy teeth in the counter-culture admiring Fidelissimo and his
lieutenant, Che Guevara.

The Bottom Line

Whatever the motivation, the latest Clinton Administration bid to prop up Fidel Castro is
inconsistent with long-term U.S. national security and other interests. ⁹ If loyalty to Al Gore is
not sufficient cause for the President to forego this odious initiative, that consideration should be
determinative.

¹ See Center’s Decision Brief entitled Clinton Legacy Watch # 28: ‘Peace In Our Time’ With
China (No. 98-D 122, 6 July 1998).

² See the ‘The Truth Will Out’: As Clinton Lifts Vietnam Embargo, American Spectator
Reveals New Clinton Scandal — On POW’s (No. 94-P 15, 3 February 1994) and Putting
Clinton’s Vietnam Policy on the Spot: ‘Cold Spot’ Files Cry Out for Inquiry on POW Cover-up (No. 94-D 07, 25 January 1994).

³ See the Center’s National Security Alert (No. 99-A 8, March 15, 1999).

⁴ The latest example of the Clinton Administration’s politicization of the intelligence
community is the IC’s directed conclusion that, as the New York Times reported yesterday,
“Although [drug] traffickers in the Caribbean might have bought the complicity of low-level
Cuban officials, there was no evidence of high-level drug corruption.” (Emphasis added.)
This is preposterous on the face, given direct proof from defectors of the complicity of Castro
and his clique in drug-running operations mounted against the United States. See Life Support
for Castro: New Commission on Cuba, Paris Club ‘Rescheduling’ of Havana’s Defaulted
Debt (No. 98-C 187, 18 November 1998).

⁵ See The Case Against the Halperin Nomination: Selected Readings From Morton Halperin’s
Collected Works (2 August 1993).

⁶ Secretary of State Madeleine Albright showed her true ideological colors in appointing
Halperin to this sensitive post after concerns about his judgment prevented his Senate
confirmation as an Assistant Secretary of Defense. She has described that appointment as “the
most satisfying” of her career.

⁷ For more on this important piece of legislation, see The Price of Compromise on Helms-Burton must Be Nothing Less than an End to European Help For the Coming Cuban
‘Chernobyl’ (No. 96-C 69, 17 July 1996).

⁸A vote last week in Congress offers further evidence that the Burger-Halperin contention about
a changed correlation of political forces regarding relations with Havana is, at the very least,
premature. On 30 June, the Senate defeated an amendment offered by Sen. Chris Dodd (D-CT)
seeking to end prohibitions and restrictions on travel to Cuba by a vote of 55-43.

⁹See Secretary Cohen, Casey Institute Symposia Agree: Castro’s Cuba Remains an
Asymmetric Threat (No. 98-R 80, 7 May 1998).

Be wary of bailing out the IMF

July 27, 1998Center for Security Policy

By Steve Forbes
Washington Times, 27 July 1998

When a doctor is guilty of malpractice, you don’t let patients’ worsening conditions justify
renewing the doctor’s license and raising his pay. Yet that is exactly what the Clinton
administration wants Congress to do with the International Monetary Fund: shovel over more
money ($18 billion to be exact) to the agency that helped instigate and deepen the very crisis the
White House is using as the chief justification for our ponying up more money. Rarely in modern
times is an agency to be so richly rewarded for such lethal incompetence.

The Republican Congress should not let itself be stampeded. At the very least, if Congress
votes the money, it should attach substantive conditions. It has an obligation to ask basic
questions: What is this money being used for? Are American taxpayers being asked to bailout
sophisticated lenders? Are we subsidizing disastrous policies that are beginning to hurt even the
mighty U.S.?

The administration and the IMF urged Thailand last year to devalue the bhat. When the
Thais
took this poisonous prescription, the Asia contagion began. The IMF routinely advises nations to
devalue. Trouble is, when markets realize a country won’t defend its currency, everyone heads for
the exits. We should have learned from the experience of Weimar, Germany, in the early 1920’s,
what happens when a currency collapses. Internally you get a rip-roaring inflation, which is what
is unfolding in Indonesia, South Korea and elsewhere. With a sudden, major inflation, workers
wake up and find their wages effectively cut in half or more and their savings destroyed; otherwise
solvent businesses are bankrupted and unemployment rises; political and ethnic tensions rise; and
trade patterns are distorted. In Indonesia, the collapse led to murderous pogroms against the
Chinese minority. Incredibly, in several countries, the IMF also advocated doing away with fuel
and food subsidies, just at the time when millions of people could no longer afford the necessities
of life. The IMF also pushes for tax increases which is like telling a pneumonia patient to sit in
the snow without a coat.

The Asia debacle not surprisingly has led to speculative currency attacks against Latin
American countries such as Brazil. To prevent an Indonesian-like disaster, Brazil and others are
being forced to tighten monetary policy. No wonder Russia, already in deep trouble, finds itself
under new assault. These countries face a terrible choice: defending their currencies will lead to
recessions; not defending them will lead to depressions.

The IMF’s supreme arrogance and recklessness came when it kiboshed Indonesia’s attempt
to
establish a currency board several months ago. The currency board concept has worked
wonderfully in Hong Kong, enabling that city to preserve its currency during the crisis. But it has
also worked well with once-troubled nations such as Estonia, Argentina and Bulgaria. When
Indonesia announced that it was considering a currency board, overnight the rupiah jumped 30
percent in value.

Like the proverbial Bourbons who remembered everything and learned nothing, the IMF
remains haughtily unhumbled by these disasters. In Russia, it did urge the Kremlin to defend the
ruble but it is still beating President Yeltsin and company over the head to “improve” tax
collections. If Moscow actually did collect all the taxes owed under its utterly convoluted “code”,
the government would be owed more money than the entire national income! Despite recent
blustering that it is cracking down on tax evaders, the Kremlin pretty much leaves alone
Mafia-controlled businesses and instead harasses and crushes honest entrepreneurs.

Why can’t the U.S. and IMF suggest tax simplification a la Hong Kong which has a
variation
of the flat tax? Sadly we know the answer: They couldn’t do it for American domestic political
reasons. Most of that money for Russia will end up in overseas bank accounts of Russian Mafiosi
and their allies. Russia will continue to deteriorate. The Kremlin shows no sign of real reform.

The latest Russian bailout also underscores another deplorable IMF practice — propping up
favored political leaders and routinely undercutting others. Indonesia’s Suharto was considered by
U.S. Treasury Department and IMF pooh-bahs to be unacceptable. The screws were tightened
until he was ousted.

The question is what should Congress do? There are four basic principles of economic
progress: sound money, low taxes, the rule of law (especially for property rights and commercial
contracts) and non-bureaucratic interference in setting up and running businesses. Simple,
time-tested concepts. Yet the U.S. and IMF witch doctors routinely violate them and practice
economic medicine around the globe.

A panic stricken Congress should not sign a blank check. Instead it should escrow that $18
billion until those four principles are translated into actual prescriptions for stricken nations. Thus
instead of devaluations, the IMF would now recommend Hong Kong-style currency boards.

In addition our national legislators should demand true transparency for this agency. Who
in
our Treasury Department and in that agency did what and when before the Asian crisis exploded a
year ago this summer?

Given the IMF penchant for higher taxes, Congress should stipulate that from now on IMF
employees, particularly Americans, should not be reimbursed for all the taxes they are liable for on
their incomes. Incredibly, the IMF routinely pays those people any money its people owe in
income taxes on their salaries. Why should these witch doctors be, in effect, given tax-free
incomes?

Finally Congress should force the IMF to practice the principle of being responsible for
one’s
own behavior. In other words, IMF Managing Director Michel Camdessus and Executive
Director Stanley Fisher should be asked to pursue new career opportunities. Also, by the way,
should Deputy Treasury Secretary Larry Summers who has also been a prime orchestrator of this
bloody debacle.

While Congress is at it, it should pass a resolution urging troubled Japan to do what Ronald
Reagan did nearly 20 years ago when America was suffering from malaise: wide, deep and
permanent tax cuts; deregulation and a more stable monetary policy.

Here at home the Federal Reserve should be advised to recognize that the dollar is an
international currency and therefore our central bank should cease its increasingly deflationary
monetary policies. Real, short-term interest rates are at extra high levels. As usual, farmers first
feel the brunt of a monetary deflation because commodity prices plummet.

This is no time for Congress to abdicate its responsibilities.

Steve Forbes is editor-in-chief of Forbes magazine and honorary chairman of
Americans for
Hope, Growth and Opportunity.

Summary of the William J. Casey Institute of the Center for Security Policy on ‘The Asian Financial Crisis: The Exception or the Rule?’

July 27, 1998Center for Security Policy

4 May 1998
New York, NY

Over the past few weeks, growing concern has been expressed in capitals and markets around
the
world that Asia’s financial crisis is intensifying and spreading, with potentially global
repercussions. Such a prospect is prompting policy-makers and interest groups in the United
States (among other places) to urge Congress to approve major new infusions of taxpayer
resources for bail-outs run by the International Monetary Fund (IMF). Others are arguing that the
private sector is the only mechanism capable of effecting necessary structural changes. If
Washington and other industrialized nations are to avoid making what may prove to be
multi-billion dollar mistakes, the character and causes of this crisis must be properly understood.

Toward this end, the William J. Casey Institute of the Center for Security Policy convened on
4
May 1998 an impressive Symposium in New York City to consider the present and long-term
policy and economic implications of the Asian financial crisis. In attendance were nearly two
hundred past and present business leaders, senior government officials, diplomats and journalists.
(See the attached List of Participants.) The program began with
a reception and luncheon
featuring a forceful address on the issue of American global leadership by a former — and perhaps
future — presidential candidate Steve Forbes. (For an edited rendering of Mr.
Forbes’
extraordinary speech, see the Casey Institute’s Press Release entitled
Casey Symposium Shows
Need for Security-Minded Approach to Asian Financial Crisis and Other Global
Challenges
[No. 98-R 77, 5 May 1998].) The symposium on the crisis
confronting the emerging market
economies, particularly those in Asia, was held in the afternoon after Mr. Forbes spoke.

The following pages summarize many of the important insights gleaned from the discussions
regarding the causes of the present financial crisis; the IMF’s and other multilateral organization’s
ability to address those ills; and the impact of the crisis on the security landscape. With regard to
the latter, a particularly interesting discussion took place concerning the use increasingly being
made by potentially unfriendly national military establishments or other foreign government
entities of financial instruments issued in Western capital markets to underwrite their activities.

The points itemized below are direct, albeit unattributed, quotes from participants. No effort
was
made to formalize a consensus among the symposium participants, but certain views appeared to
be broadly shared.

Highlights of the Casey Symposium’s
Proceedings

The stage was set for the afternoon’s discussion by illuminating remarks by former
Deputy
Treasury Secretary R. T. “Tim” McNamar and former Associate Director of
the Office of
Management and Budget Lawrence Kudlow. Subsequent to their distinguished service
in
government, both men have gone on to become major players on Wall Street. At present,
Secretary McNamar is Vice Chairman of AmTec, Inc. and Mr. Kudlow is Chief Economist and
Director of Research at America Skandia Investment Services. They offered views that
contrasted sharply in several areas concerning the underlying causes of the Asian financial crisis
and, accordingly, the efficacy of various methods of addressing the problems.

The Casey Institute Symposium’s second panel focused on the policy aspects of the Asia
financial
crisis. This segment featured valuable contributions by lead discussants John
Fund, a member of
the Wall Street Journal’s Editorial Board, and Roger W. Robinson,
Jr., former Senior Director
of International Economic Affairs at the National Security Council. Mr. Robinson is
the
first occupant of the Institute’s William J. Casey Chair.

In order to capture most efficiently the main points of these highly complementary panels, this
summary of the highlights of the Symposium’s proceedings is divided into seven sections.

Trends in the International System

“The introduction of technology has resulted in a loss of sovereignty by
governments and
an empowerment of both individuals throughout the world and the private markets that
they
determine with the click of their computer mouse.

“I think this is as fundamental a paradigm shift as the introduction of steam power at
the beginning of the industrial revolution. The industrial revolution was mostly in
Western Europe and North America. Mostly white men benefitted. The technology
revolution is already throughout the world today, and all mankind will be the
beneficiary.”

“Almost all countries are attempting to privatize previously state-owned
enterprises, with
varying degrees of success. Even Brazil has made excellent headway. China is filled with
privatization schemes of various types, some of which will work. Most of the world’s
policy-makers have become monitors to varying degrees. Sterling examples of reform from
centrally
planned economies to capitalist economies are multiplying, Chile, Poland, Argentina,
Singapore, and, yes, the Netherlands.”

“There is a consensus that free domestic markets allocate goods and services better
than
government decisions. Free trade benefits many more people than it hurts, and it is to
be pursued. Minimum regulation of domestic capital allocation most efficiently serves a
growing private economy. Free flows of international capital will seek the highest return
consistent with portfolio risks sought by investors. Floating currency rates will, over time,
reflect the quality of the country’s economic management and economic policies.”

“Volatility in markets is to be expected, and it reflects market discipline.
Entrepreneurship is a positive goal, and small business can produce wealth and jobs as well as
larger companies.”

“There is lack of agreement on transparency of decision-making by governments
and
corporations. There is a lack of satisfactory financial disclosure and conformity of
auditing standards worldwide. Disclosure standards for banks, corporations, and
governments are not agreed upon.”

“Today, what do you do when Goldman Sachs does a $200-million underwriting for Korea
and
puts the bonds in 100 or 200 insurance companies, the pensions funds around the world?
Goldman Sachs doesn’t have any ongoing responsibility. They made their fees and went their
way. Those bonds, you may not be able to find. They are probably freely tradeable. They do
get mark-to-market. Some losses do occur, but something is wrong.

“We saw in the recent situations, for example,…the blatant conflict of interest when
Goldman Sachs was advising Korea on how to restructure and bidding for the
underwriting at the same time. That is simply morally wrong, and that should be
prohibited, in my view.”

Causes of the Asian Financial Crisis

“The Asian financial problems result from banking systems’ inability to cope with
adverse macro-economic conditions, coupled with an over-leveraged private sector and
corporate reliance on bank borrowing.

“How did this happen? Well, loans are directed by the government, not the
market. There was inexperience or unskilled domestic lending. There was
inadequate, inaccurate, or late financial reporting by the borrowers, and,
clearly,
there was the moral hazard of the likelihood of a government or international
bailout. Again, this applies to…bonds…as well as the bank loans.”

“You have concentrations of credit exposure, too much to one borrower.
You have
connected lending where you have any type of a group of companies in Korea or Japan or
elsewhere, where they are altogether.

“You have got to remember, 60 percent of the shares on the Tokyo Stock Exchange
are all cross-held, 60 percent. That is too high. Corporate governance in these
countries is virtually nonexistence. You lack an outside board of directors. You
certainly lack audit committees, independent auditors with international standards.

“Well, it raises a question. If a private sector corporation or bank in any
country is going to access international capital markets, why shouldn’t they
be forced to adhere to some minimal standards of corporate governance and
supervision? If you want to list on the New York Stock Exchange, you have to
meet certain standards.”

“…[The affected] countries have increasingly employed — they didn’t really start out that way
— but they have lapsed into this kind of state-directed crony capitalism command and
control. And world credit markets, which really run the show, not
the IMF, world free
credit markets basically just pulled the plug and forced them to rethink their
policies.“

“Capital goes where the rate of return is highest. It is real simple. And as soon as the
capital
returns from many of the Asian tigers began to deteriorate because of bad monetary and fiscal
decisions and insider lending and propping up failed banks and corporations, then the money
moved out and suddenly we had a crisis.

“The IMF contributed to it because it is a devaluationist agency, but, by and large, the
countries have to take most of the blame.”

“Central banks are, by definition, central planners, and if there is anything we have
learned from the demise of the evil empire, it is that central planning doesn’t work.“

“The Asian crisis is like the Berlin Wall coming down. I think a lot of good is going to come
out of this pain and suffering because they’re smart people and they’re going to figure it out.

“The ills of crony capitalism exposed by the Asian financial crisis, including inadequate
disclosure and politicized banking systems, are, in turn surfacing the whole moral
hazard question. The matter of foreign government-sponsored conglomerates and the
undue coziness between governments and private sectors in Asia need to be
fundamentally restructured. This is very cathartic from an economic and financial
perspective. The Asian financial crisis, likewise, slowed China down, allowing us to
take a hard look at where this huge train is going.”

“I think the largest factor about the Asian crisis was [that] it was a financial bubble. It was
built on low interest rates, and the currency relationships between all those Asian currencies
and the U.S. dollar were unrealistic.

“The bubble in Asia came from artificially low credit conditions in the U.S. transmitted
through currency links. So, when it blew up, you know, everything that was predicated
on artificially easy credit conditions and phoney currency links evaporated.”

The International Monetary Fund: Solution or Part of the
Problem?

‘The IMF as the Solution’

“So, in this Asian financial crisis, what is the role of the World Bank and the IMF? Should
they be abolished? No, I don’t think so. I think we have to reinvent them.

“Absent the IMF, nations with severe balance-of-payments problems, regardless of the
cost, have, I think, only two options. Either they default or continue devaluation. …If
those are the only two options that people have, is that going to promote security in the
world and economic growth that will raise the standard of living of the largest number
of people in those countries?”

“The role of the IMF should be to work with the World Bank to develop and
enforce
standards throughout the world. Joint structural adjustment loans to countries to
strengthen
their accounting, bank supervision, central bank and corporate governance policies, these
issues were on the agenda for the first time at the Interim Committee meeting in
Washington
last month, and that is a pretty appalling indictment that we have the international capital flows
that we have, and this is the first time they were on the agenda of the IMF, after the Asian
financial crisis.

“It is really the first time that the soundness of the domestic financial system and
operations of world capital markets were at the center of discussion. That was
driven by the recognition of the fact that the problems in Asia were caused principally
by financial fragility and lack of transparency.

“This caused the chairman of the Interim Committee to call for amending the
articles. This is not just a policy, but amend the articles that emerge. If you are
going to be in the IMF, you have to do this, to require member companies to
commit to strengthen their domestic financial system as a condition for
membership. In effect, the IMF would develop international standards of
soundness, and they would disclose how countries measure up to these
standards, a little bit similar to what Moody’s and Standard & Poor’s do.

“Presumably, market pricing would then reflect these differences in ratings. Well,
this is a pretty radical change. It is what Secretary Rubin calls the new
international architecture. I just call it a framework. It is really to prevent these
problems.”

“Now, the underlying hypothesis…is that the more interconnected the world’s financial
systems
are, the less independent are domestic financial systems. In effect, the price of admission
to
international private capital should be a domestic financial system that includes
minimum standards for prudential domestic banking, corporate governance, and
accounting transparency. In my view, this is what the IMF should be focusing its efforts
on,
to provide a framework for improved private capital decisions.”

“If difficult IMF reforms are not adopted, then the Asian financial crisis is likely to
repeat itself again and again, as Mexico did in the ’80s and ’90s. If the U.S. is diluted in
its quota share, that is, does not keep its voting percentage, it will not be able to provide
leadership or force these reforms. However, with American participation and leadership, the
IMF can be reformed so it is doing the right thing proactively to prevent recurrence of the
current situation in Asia.”

“The timing of today’s discussion is very appropriate. At a time when many people believe
that last Friday’s vote for NATO expansion adds to the world’s military security, abdicating a
United States-IMF leadership, and diminishing our international economic security, could
cause the Asian experience to become the rule and not the exception, as the title of today’s
seminar suggests.”

“I think there is going to be an IMF, [but] I think that it has lost its way. It does have a
mandate, and it can do constructive, legitimate things within established parameters.
Nevertheless, I think that the institution — and the system of which it is a part — needs
some urgent reform.”

“On the other hand, one of my greatest fears is that we [will] not exercise our quota share,
maintain our voting [and] decrease in voting power down to probably 12 or 10%. We lose
[the] effective veto [we enjoy]…at 20%. We are close enough to it, we can always get
somebody to go along. We simply become a marginal player, and the IMF and the rest of the
world does whatever the hell they want to without U.S. leadership. I regard that as the worst
possible outcome.”

‘The IMF as Part of the Problem’

“I have a somewhat different point of view. I don’t think we need the IMF at all.
And, in
fact, my basic take is you give a bunch of Ivy League economics professors a couple hundred
billion dollars to dispense around the world, you’ve got yourself a big global problem.”

“The IMF doesn’t do what it was supposed to do, and that was to stabilize currency and
monetary policies. The view coming out of Bretton Woods in 1945 was we need to avoid the
isolationism and protectionism and beggar-thy-neighborism that was such an important cause
of the global depression in the ’30s.

“So some smart people, including John Maynard Keynes, in probably his best moment,
set up…what became GATT and the IMF and also the World Bank and said in order to
have a free world trading system which is vital to wealth creation and peaceful harmony
among the nations, we need stable currencies. You can cause protectionism by
constant devaluations, just as much as you can by legislating tariffs, and that
system worked brilliantly in the post-World War II recovery period of the late ’40s, the
’50s, and the ’60s, and it didn’t break down until first Johnson and then most
particularly Richard Nixon broke the Bretton Woods system.”

“[The Wall Street Journal‘s] Claudia Rosette wrote an editorial recently in which
she pointed
out that IMF employees all around the world have housing allowances, school allowances for
private education of their children, transportation allowances. It is an incredibly
cosseted
welfare state. And in addition, it’s all tax-free. If you get a $125,000 annual salary
from
the IMF, which is the average of a country director, it is tax-free in addition to all of these
bonuses.

“We do not just have to critique the record of the IMF…but also the
culture of the
IMF. I mean, these people are so insulated from reality that they make…the European
Commission headquarters look positively connected with the grass roots. … These
people are not interested in the kind of practical down-to-earth performance-based
result economies and decisions that you all make in this room. They live in a separate
world.”

The IMF’s Record

“The IMF has undergone ‘mission creep,’ to use a phrase that Congressman Dick Armey has
successfully used, in slowing down the IMF money in Washington. The IMF has
become a
sort of self-appointed world lender of last resort, a sort of global welfarist financial safety
net agency.”

“This is an agency of academics. None of them ever made a loan in their lives. They have
never had to do real-world market analysis or credit risk analysis. They are simply not staffed
up for this kind of operation, and as I said, no one has really said this is what you should do.
So we need to stop the mission creep. That may or may not be doable.”

“The IMF has been sort of gradually growing into this world welfare lender, safety net
lender.
So, from the mid-’60s to the mid-’90s, basically as we counted them up…they have had
89 cases of IMF dole. Of that 89, 48 of those countries, roughly 54
percent, are no better
off economically today than they were before receiving the loans.

“Now, of the group that is no better off, 32 of them, or 67% are actually
poorer
today, and, finally, of those economies that have become poorer; 14 — or 44% —
have actually shrunk. Their GDPs are today lower than when they first went on
the
IMF dole.

“So this is an outfit that not only can’t shoot straight, but it is actually doing more
harm than good, which is not a good thing politically. Of course, they don’t have
any political roots. So that’s the problem. No one can vote on it.”

“Here is the brilliant job the IMF policy advice has done: So far, the latest data in Indonesia
show a 28-percent increase of inflation, wholesale prices. CPI is up 39 percent. Industrial
production in Indonesia is falling 25 percent. Well, that is pretty good. Inflationary
depression, I guess.

“In Thailand, the wholesale price index is up 26 percent. CPI is up 10 percent.
Industrial production is falling 15 percent, more inflationary recession. In South
Korea, wholesale prices are rising 18 percent, consumer prices 10 percent. Industrial
production is falling 11 percent, and in Malaysia, wholesale prices are up 16 percent,
and industrial production is falling at 5 percent.

“In other words, in those countries who are the beneficiaries of IMF money
and who are now signed up as part and parcel IMF policy conditionality
reform program, they are experiencing hyper-inflation and deep recession.
This is not what you call a policy success, and we have had nine months.”

“Nine months…after the crisis, the IMF still has not recommended either, a) a central bank-
independence plan or, b) a monetary restraint/currency stabilization plan. We are
throwing
money left and right with a lot of goofy ideas about deregulation and raising taxes and
things of that sort, which these countries shouldn’t and can’t possibly do right now,
creating more austerity, but we still haven’t fixed the monetary problem.“

“The IMF had nothing to do with Europe’s monetary recovery. The IMF had nothing to do
with Latin America’s monetary recovery, and the IMF is a force for evil with respect to East
Asia’s monetary recovery. They still haven’t figured it out. Money supply is soaring in East
Asia. This is money they print that no one — literally no one — wants to hold. The people on
the streets want dollars. A few of them want yen.”

The IMF and ‘Moral Hazard’

“The IMF loans $55 billion to Mexico. Do you think lenders in Asia started salivating in
1995
and say, ‘Hey, they did it there. They’ll do it for us. So let’s stretch the limits’? You know,
the big American banks, to a lesser extent the big German banks, certainly the big
Japanese banks. They stretched all manner of loan analysis and credit risk analysis
because they figured, you know, after Mexico, we’re going to get some. And guess
what? They are going to get some.

“Even Treasury Secretary Rubin has admitted — he says, ‘Unfortunately, part of this
package is some concessions to the banks.’ Well, I don’t think the banks who made
the bad loans should get any concessions. That’s the beauty of free-market
democratic capitalism. You have a God-given right to make a fortune, and you have
an equally God-given right to lose your shirt. … And the IMF and the World Bank
and the Asian Development Bank and the Latin development banks and all these
development banks simply get in the way of the marketplace’s pricing of risk,
and that, in effect, stomps out the disciplinary competitive free market forces,
and it is more than a moral hazard. It is actually an obstruction to reform. So I
think that has to be changed.”

What Should the United States’ Role Be?

Engage Via the IMF

“…Whether we talk about the Asian financial crisis, whether you bring in Russia, all these
needs, are very similar, and I am pleased to say I hear some good preliminary noises, but
without United States leadership, forceful leadership, this won’t happen.”

“I think that as long as the U.S. gets the story right in economic terms and as long as we are
non-isolationists, as long as we are still spreading our wings through the private sector around
the world, we are going to influence countries to follow appropriate pro-growth, pro-wealth,
creating pro-entrepreneurial policies.”

Engage Via the Markets

“I don’t want to make the case that it’s all good, but I think in the great historical continuum,
the United States is the greatest example of free market capitalism. Here at
home, 125
million Americans own stocks. That number has doubled, once in the ’80s and once in the
’90s. Everybody owns a piece of the rock.”

“Our growth, our low unemployment, our zero inflation, our strong currency, our
effective central bank system, these are examples for the rest of the world.

“My point is the U.S. Treasury must never be the cat’s paw of the IMF, which is where
it is now, but, in effect, we don’t even need the IMF to be the U.S. Treasury’s cat’s
paw. All we need to do is to peaceably go about our profit-making free market
business and financial practices, and the rest of the world will take notice and
they will change.

“That is what turned around Latin America. That is what is starting to turn
around Europe. That is what is turning around Russia and some of the East
European countries. That has turned around New Zealand, turning around
Australia, improving Canada, and so forth, and the Asians are real smart. They
work hard, and they are thrifty, and they are going to get it right, but we don’t
need the IMF and the World Bank and a whole bunch of multilateral
international organizations to tell them what to do. Just let the United
States roam the world peacefully and profitably, and this story is going to
have one great free, happy, wealth-creating, prosperous ending as we roll
into the next century.“

“You know, as far as Asia goes and really all the less-developed countries or whatever we
are
going to call them now, I think they should be on a currency board system, and I think the
currency board should be linked to a commodity standard.”

China’s Looming Banking Crisis

“Obviously, there is a major problem facing China today. I think we are all worried
about
what is going to happen in China down the road when the banking system there
collapses.

“The Chinese are doing an awful lot of things right. They, in fact, have asked [former
Resolution Trust Corporation and Federal Deposit Insurance Corporation Chairman]
Bill Seidman to come over, and he has been counseling them on how to set up an
RTC-type program for their banks. That can be done with IMF help. That would be a
very positive thing for them to do because their banks are saddled with these politically
motivated loans that were made previously under the Communists.”

“…All the deposits from the small little villages all the way across China, all those little
savings
and pension plans have been put into the banks in the form of a deposit, and the loans that have
been made…I doubt if there is an inch of value in any of those loans. Wouldn’t that
coming
Chinese banking collapse make the Japanese banking collapse look like amateur night,
and isn’t, therefore, our taking a stand on the IMF now in this $18-billion replenishment
probably going to have a blessing in disguise when you look at the bottomless pit that
we
have to be putting up down the road for China?”

“The Chinese have been trying to pursue a strategy of growing their way out of it,
and it
is simply not going to work. They have a growing recognition of that. I would submit
that
some type of an RTC-type approach in China, which they had been studying now for 18
months or so, using some credit enhancements that might come from either the World Bank or
IMF could produce some bonds that would have some value.

“The truth of the matter is, a lot of the underlying assets are quite mixed. There are
good, efficient plants in China, and there are old plants in China that are absolutely
worth nothing in terms of brick, mortar, and equipment, and the staff is redundant by a
factor of 10. Unfortunately, the latter would be the predominant view rather than the
former, but there are some good assets in there, and you would obviously package the
bad assets with the good. And I think the Chinese are going to pursue that very, very
aggressively.”

“I think the expansion and subsequent appropriation that will cover the growing
moral
hazard is a huge issue. … We started with $55 billion in Mexico. We’ve gone three times
as much in East Asia, and we’re not over yet. And if it spreads to China for the reasons
that [that have been] articulated, we are going to have a problem. The
same arguments
about world economic collapse and American economic collapse are going to be
used. We
are going to have a problem.”

Japan’s Present Crisis

“What else is next? Well, Japan is unlikely to do an IMF program through performance of
financial services sector, but, in fact, it needs one.”

“There is a vital political dimension to all these economic fixes, and that political dimension
is
the degree to which the major players in these countries will not let go of their commands and
their controls and their powers. This is really the invisible hand in Japan and Korea and, on a
smaller scale, Indonesia. [Indonesia] is the most rapacious and easy one to understand because
it is just Suharto and his family, but Korea and Japan are more diffuse. Japan, in particular, is
the one that interests me. They’ve [had] eight prime ministers since 1987. What does that tell
you? Eight — about to have the ninth.

“Look at the newspaper accounts of the last 10 years of Japanese political corruption.
Their political corruption campaign spending abuse makes us look like pikers —
pikers. Now, there is a reason for that. You know, follow the money to the big
corporations and the big banks. They are getting special privileges and
advantages and concessions for MITI, from the Ministry of Finance, and…the
general government. The Liberal Democratic Party is a corrupt political organ.”

“This is why…in many respects, I don’t want these countries aided and abetted and
assisted because I think they have got to hit bottom, until the people
become so enraged that
they will change the nature of the political system and move towards a true democracy with
the…private property restraints and regulations that democracies have. They are going to have
to evolve here. There is no magic quick fix.”

“So, if you take that corruption point and the blockages and then you take your
moral
hazard expenditure point, you know, you have got a potential for another big problem
out there, and that is why I don’t want to reform, I want to defund, the
IMF. I want to
take them down three notches. I want IMF deflation because I know that taxpayers in
this
country are going to be called upon to bail out again, and it’s not going to work until the
fundamental political democratic problems are worked out.”

The National Security Dimension

“You will find that there is a new form of national security emerging which will
gain
increasing prominence for the balance of this decade and the 21st century. It is in the
very portfolio that we are talking about today, which is the national security dimensions —
often overlooked — of the international economic and financial portfolio.”

“On the issue of the flow of militarily-relevant Western technology, in the past, there was
real
discipline. There was forced transparency and inspection regimes. Contrast that to the way it
is done today, where some of these same prospective adversaries are entering the U.S. bond
market. It is not just the ability to attract big money at cheap rates relative to the risk, but
almost no questions asked concerning where the money is going and how it is being used. This
is, for the most part, general purpose or so-called balance-of-payments money.”

China’s Campaign to Penetrate the U.S. Capital Markets/Political
System

“I do not believe that the Chinese threat is so much military as it is [potentially] subversive of
our political system. … Let me explain why: In addition to all of the Chinese fund-raising
scandals that you have heard about, in addition to the Chinese missile technology transfer
issue, which Steve Forbes mentioned, we now have clear evidence that the Chinese had a
long-run strategy for subverting our political system.“

“We often have no clue as to how the Chinese or the Russians are using investor funds —
especially when talking about sovereign bond offerings. … These (and other)
governments
are also mindful of the fact that they can create politically-powerful new constituencies
in this country and elsewhere in the West. That is to say, they are not just dealing with
banks
and governments as lenders anymore. For example, the only two institutions that the Soviet
Union ever borrowed from, for the most part, were Western governments and commercial
banks. Today, it is U.S. securities firms, pension funds, insurance companies, leasing firms,
corporations, and high-net-worth individuals.

“So, over time, you could well have millions of Americans, wittingly or
unwittingly, holding Chinese (or Russian) government paper in their investment
portfolios. You already have the Chinese in our bond market to the tune of over
$7
billion.

“These foreign governments are creating vested financial interests on the
part of politically powerful constituencies in this country, millions of our
citizens, to ensure that U.S. economic sanctions are not imposed on these
governments. In short, U.S. investors will probably not want China penalized
when it sells missile parts to Pakistan or Iran, or otherwise violate the missile
technology control regime. Even in the cases of nuclear materials for the
production of weapons, nuclear reactors to Iran or whatever it may be, U.S.
investors could be sufficiently exposed to say, ‘Look, if there are economic
sanctions and if you are going to impose financial penalties or restrict the access
of these foreign governments to our markets, what do we do when it comes time
to redeem our bonds and pension funds?'”

“…There is not a happy answer at this time because of the lack of vigilance on our part and
the
lack of understanding that the very financial vested interests [involved in the] construction of
powerful new constituencies in a sense in every cell of this country — not just banks
and
governments — is of a very profound national security consequence.”

“For example, take Great Wall Enterprises. They want to come to the
U.S. bond
market in the next 12 months — and they’ll probably get here, barring action on the part
of some folks around here. Who are they? Well, they’re the ones that cut the
[controversial] deals with Loral and Hughes. What is their business? They build
strategic intercontinental ballistic missiles targeted at the United States. That’s what.
So buy bonds, but think hard about who is in the cross-hairs of your capital flows.”

“[The good news is that] China is not looking so invincible anymore. How would we have
known that they had as much as $650-billion in non-performing loans in that country? How
would we have known that their reserves were, in part, encumbered in that banking crisis?
How would we have known that they were really nervous about their financial condition and
were having difficulty maintaining the Hong Kong dollar peg, property values, and other
things?

“Beijing may have learned that its dependency on U.S. stability and markets is greater
than anticipated. Maybe they [can be made to] understand the potential costs of
continued proliferation and mischief making in the Persian Gulf, Indian sub-continent,
and elsewhere of the nuclear variety. And maybe they will resist funding those kinds of
activities, not to mention the abuse of human rights.”

What Should Be Done?

“We need full disclosure and a screening mechanism for our markets because the
U.S.
now controls some 60 to 70 percent of global capital capacity. Think about it. You
want
to talk about a place where it is still Pax Americana? Try the capital markets. These
markets
are today what our oil and gas equipment and technology near-monopoly was in the early
’80s.

“There is a bill pending right now, sponsored in the Senate by Senator Lauch
Faircloth (R-NC) and Rep. Gerry Solomon (R-NY), chairman of the
House Rules
Committee, called The U.S. Markets Security Act of 1997 (S. 1315). The bill
is the
beginning of an effort of the type that I [believe is in order now]. That is to say, it
would create for the first time an Office of National Security at the Securities and
Exchange Commission.

“The legislation is not designed to create a gatekeeper role or to help decide
which foreign government-controlled entities can issue bonds or equities in our
markets, and which can’t. It is not supporting any form of capital controls.
Indeed, it eschews capital controls, because that’s the wrong
remedy,
particularly when you don’t yet know the scope and the nuances of what you’re
dealing with. There has to be an educational effort before further protective
measures are taken.

“It does provide a set of disclosure and reporting requirements on any foreign
government-controlled entities seeking entry into the U.S. debt and equity
markets. It merely requires that a list be provided every 90 days to Senate
Banking, Senate Intelligence, and Senate Foreign Relations [Committees] as to
the identity of these foreign entities.

“The sending of such a computerized list to Capitol Hill from the SEC every 90
days would give us a sense of who is coming to our markets, so that the relevant
members and committees could take a look and see if China Aerospace, China
International Trust and Investment Corporation (CITIC), Bank of China or other
questionable borrowers are expanding their presence in this country. In general,
we need to know who these borrowers are and what their agendas are, so that we
can begin the process of building a database. Ultimately, this would allow us to
preempt some of the nefarious and malevolent activities which U.S. investors
might otherwise unwittingly end up helping to fund.”

“I think that there can be a meeting of the minds that there has to be a new form of due
diligence in the capital markets for the 21st century. It is not just about the numbers and
normal financial criteria anymore. This is a different game now. Bad actors are now
funding
themselves in the U.S. capital markets and using the legitimate international trading and
financial systems for increasingly dangerous purposes.“

“We have to recognize that the issue here is not free trade. The issue is one of
greater
transparency, accountability, and if necessary, the use of intelligence sources and
methods to ensure that U.S. capital markets are not being abused.

“The policy implications of that come later. We need a responsible policy, which
means we don’t give away the store and we monitor our security and intelligence
concerns closely. Trade can still move ahead with China and Russia, but our eyes
would be open.”

Conclusion

The Asian financial crisis is a symptom of systemic problems within the
affected economies.
Importantly, other Pacific Rim countries — notably, China and Russia — are also rife with crony
capitalism, corruption, undue centralized planning and control and a lack of transparency and
accountability. The Casey Institute’s Symposium on this crisis makes clear that unless and until
structural reforms are made, it is unlikely that there will be an appreciable amelioration of
economic conditions in those nations already reeling from its effects. Without such reforms,
moreover, China and Russia are well on the road to meeting a similar fate.

It is against this backdrop that the wisdom of further international interventions conducted by
the
IMF or other multilateral financial institutions must be weighed. Will such interventions
facilitate reform or will they actually serve to relieve the pressure for the
needed structural
changes? Will they reward irresponsible investors and lenders and, thereby, encourage
them to
engage in such practices elsewhere — and create demands for further bailouts down the road?
And will further allocations of U.S. tax dollars to the IMF under present circumstances catalyze
needed changes in the operations and accountability of that institution, or stave them off?

While there were clearly divergent views on these questions expressed in the course of the
Symposium, it is noteworthy that none of the Seminar’s highly experienced and
knowledgeable
participants was prepared to argue that the IMF could be relied upon in its present form to
prevent the further financial crises now in prospect. Congress must, therefore, take no action that
will have the effect of perpetuating either the IMF’s present way of doing business or encourage
nations in financial difficulty to defer action on the structural political and economic sources of
their problems.

The Casey Institute Symposium indicates that Congress — and the Clinton Administration —
must
also come to grips with the potentially grave national security implications of the non-transparent
access of potentially hostile foreign governments and their entities to U.S. capital markets.
Participants appeared to agree that the public as well as their elected representatives need to
become more aware of the down-sides of such access and to adopt the means available for
promoting greater transparency and discipline with respect to the use of funds from the American
equity and bond markets.

— End of Summary —

Symposium and Luncheon Participants

July 27, 1998Center for Security Policy

The Casey Institute of the Center for Security
Policy
Symposium and Luncheon on
“The Asian Financial Crisis: The Exception or the Rule?”
4 May 1998, New York City

Mr. David Baron, Foundation for International Business & Economic
Resources, Inc.
Mr. F. Lasse Becker, Knowaste Europe, B.V.
Mr. Michael Belkin, Belkin Limited
Ms. Rinelda Bliss, Center for Security Policy
Mr. Thomas A. Bolan, National Review Institute
Ms. Valerie Brazill, Plaza Hotel
Ms. Mildred A. Bucknavage, Blau Himmel Cybernetics, Inc.
Mr. Clement Butt, Clement Company
Mr. Edward Cabot, Edward Cabot Design
Ms. Betty Carlson
Mr. Donald A. Carlson, Carlson Development Corp., Ltd.
Mrs. Ceila V. Casey
James J. Casey, Esq.
Mrs. Sophia Casey
Ms. Wai Wah Chin, Charterhouse Group International, Inc.
Mr. James Clabough
Mr. William Connery, World & I
Mr. Thomas Cox, U.S.-Cuba Business Council
Mrs. Devon Gaffney Cross, Gilder Foundation
Ms. Monica Crowley, Author
Ms. Judy D’Agostino, American Council on Science and Health
Mr. William A. Dal Col, Americans for Hope, Growth and Opportunity
Mr. Chris Daverse, Sematech
Jack David, Esq.
Mr. Gerald J. Davis, EQ Financial Consultants, Inc.
Mr. Marquette de Bary, Marquette de Bary Inc.
Hon. Thibaut de St. Phalle, St. Phalle International Group
Hon. Diana Denman, Denman & Associates
Mr. Joseph Desalvo, Bankers Trust Company
Mr. Patrick Dolan
Mr. Lawrence H. Douglas, Yankee Investor, Inc.
Mr. Henry W. Dwyer, Diocese of Rockville Centre
Mrs. Henry W. Dwyer
Mrs. Ann English, Catholic Coalition of Westchester County
Dr. Joseph T. English, Saint Vincents Hospital and Medical Center
Mr. Tryfan D.R. Evans, Center for Security Policy
Mr. Barry Farber, Language Club
Mr. Hani K. Findakly, PotomacCapital
Mr. William Fontana, National Foreign Trade Council
Mrs. Mary Lou Forbes, Washington Times
Mr. Steve Forbes, Forbes, Inc.
Ms. Judy Fried, Media Consultant
Mr. John Fund, Wall Street Journal
Ms. Karen Furey
Mr. Frank J. Gaffney, Jr., Center for Security Policy
Hon. Evan G. Galbraith, Moet Hennessy Louis Vuitton
Ms. Mary A. Galda, Dear Mary, Inc.
Dr. Barbara A. Gannon
Mr. Alfred F. Gerriets II, Questar Corporate Advisors Inc.
Dr. Robert A. Gilmour, American Institute for Economic Research
Mr. Bruce Gimelson
Mr. Julian H. Gingold, Morgan Stanley Dean-Witter
Mr. Thomas Glenn
Mr. David Gold, Great Central Mines Limited
Mr. Jason Grant, Journalist
Mrs. Dorothy (Deecy) Gray, D.C. Stephens, Ltd.
Ms. Nancy D. Greene, Independent Research & Information Systems,
Ltd.
Mr. Joel Griffing, Emmanuel Group
Mr. Charles A. Hamilton, Charles A. Hamilton Associates
Mr. Frank J. Hanus III, Insulfab Plastics, Inc.
Mr. Gregory R. Harden, Gamut Realty Group, Inc.
Ms. JayEtta Hecker, General Accounting Office
Mr. James E. Higgins
Mr. Peter E. Hoey, Financial Security Assurance Inc.
Mr. Harold R. Holmyard, Gabelli & Company, Inc.
Mrs. Ada Hoxie
Dr. R. Gordon Hoxie, Center for the Study of the Presidency
Mr. Reed Irvine, Accuracy in Media
Mr. Erich Isaac
Ms. Rael Isaac
Mr. Don Jackson
Hon. E. Pendleton James, Pendleton James Associates
Hon. Eric M. Javits, Esq., Javits, Robinson & Brog
Mr. Geoffrey Jones
Pete Jordan, Esq., Insurance and Annuity Association
Mr. Norbert W. Josten, Boeing Defense & Space Group
Rev. Matthew Kaderabek, Legionaires of Christ
Ms. Paula R. Kaufman, First Capital Advisers, LLC
Ms. Ruth S. King, Americans Concerned for a Safe Israel
Mr. Thomas Knapp, Fine Art Consultant
Mr. Jay P. Kosminsky, Pfizer, Inc.
Dr. Richard J. Kossman
Mr. Stanley Kreinik, Sockyard Company, Inc.
Mr. Lawrence Kudlow, Skandia Investment Services
Ms. Karen Kurrasch, Salomon Smith Barney
Mrs. Lillian Kurz
George Kushinka, Esq., Kushinka, Calhoun & Godwin
Grant M. Lally, Esq., Lally & Lally
Ms. Penelope Langan
Mr. Thomas Langan
Mr. David N. Laux, USA-ROC Economic Council
Mr. David K. Lifschultz, Lifschultz Industries, Inc.
Joel S. Lisker, Esq., MasterCard International
Mr. George P. Lucaci, Cambridge Holdings
Mr. David L. Luke III, Westvco Corporation
Mr. Tom Lynch
Stephen R. Macdonald, Esq., Dewey Ballantine LLP
Dr. Vincent G. Massaro, CW Post, Long Island University
Mrs. Virginia B. McCann
Mr. W. Nevins McCann
Mr. William E. McCann, Allied Junction Corp.
Mr. Walker McKinney, McKinney Corporation
Ms. Brigid McMenamin, Forbes Magazine
Mr. R.T. (Tim) McNamar, AmTec, Inc.
Ms. Laine McRaney, Burson-Marsteller
Hon. J. William Middendorf II, Middendorf & Company, Inc.
Ms. Dawn M. Miller, Genesis
Mr. Marc S. Miller, Julien J. Studley, Inc.
Mr. Frank Monti
Mr. Joseph F. Monti, Toms River High School East
Ms. Elizabeth A. Morley, Iridium
Mr. Geoffrey J. Morris, Reader’s Digest
Ms. Georgette Mosbacher, New York Republican State Committee
Mrs. Sheila S. Mosler, S.S. Mosler Inc.
Ms. Myra K. Moss, Unlimited Partnerships Video Inc.
Mr. Aran P. Murphy, Platinum Guild International (USA), Inc.
Ms. Victoria Murphy
Sir James Murray, KCMG
Mr. Robert J. Muth, Asavco, Inc.
Ms. Kathleen Mylott, American International Group
Raymond L. Mylott, Esq., American International Group
Mr. George Natalino, Systems Programming
Ms. Margaret S. Neilly, YWCA Retirement Fund
Mr. Harry Neustein, Blau Himmel Cybernetics, Inc.
Mrs. Diana Nicosia
Mr. Hans Nilsson, Foundation for International Business & Economic
Resources, Inc.
Ms. Mary A. O’Grady, Wall Street Journal
Mr. George O’Neill
Mr. Daniel Nicholas Odescalchi, Strategic Advantage International, Ltd.
Mr. Edmond P. Odescalchi, Global Technology, Inc.
Mr. Jonathan R. Parks, Foundation for the Advancement of Monetary
Education
Lawrence M. Parks, Ph.D., Foundation for the Advancement of Monetary
Education
Dr. Arthur Peterson, Center for the Study of the Presidency
Mrs. Carmen Petrowitz
Judge Hal Petrowitz
Mr. Jeffrey Pettit, Houliahan, Lokey, Howard & Zukin
Ms. Justine Pilkington, CBS News Radio
Mr. Richard J. Pollan, Pollan Trade, Inc.
Mr. Miguel Prado, Delfin Management
Dr. Susan Kaufman Purcell, America’s Society
Ms. Faith M. Robinson, Schneider Capital Management
Hon. Roger W. Robinson, Jr., RWR, Inc.
Mr. Michael J. Roche, HSBC Asset Management
Mr. David Rohrback
Mr. Michael Rohrback, General Accounting Office
Mrs. Iris G. Rossi
Mr. Tom K. Sayed, Camoflauge Inc.
Mr. Stephen F. Scherock, Morgan Stanley & Co.
Mr. Walter J. Schloss, Schloss Associates L.P.
Hon. William Schneider, Jr., International Planning Services, Inc.
Mr. Richard Seacrist, Blue Tee Corporation
Mr. Edward Sellazzo, Salomon Brothers Inc.
Mr. Jay L. Shaw
Orna L. Shulman, Esq., Intertech Corporation
Fr. William Slattery, L.C., Legionaires of Christ
Mrs. Eileen Slocum
Mr. Al Smith, Chase Manhattan Bank
Mrs. Bernadette Casey Smith
Prof. Owen T. Smith, Long Island University, CW Post Campus
Mrs. Astrid Spina
Ms. Karen Spina
Mr. W. Dennis Stephens, Preston Gates Ellis & Rouvelas Meeds
Mr. Jeff Stier, American Council on Science and Health
Mr. Robert H. Stovall, CFA, Stovall/Twenty-First Advisors, Inc.
Mr. Ronald J. Sylvestri, Fleet Investment Service
Mr. William H. Tehan, Mahler & Emerson
Ms. Sandra Thayer
Ms. Alicia D. Therrien, Center for Security Policy
Mr. Alexander Toschi, National Foreign Trade Council
Mrs. Candy Van Allen
Mr. John C. van Eck, Van Eck Global
Mr. F. Kelly Voight
Mr. Edward F. Wagner, Gabelli & Company, Inc.
Mr. Brandon D. Wales, Center for Security Policy
Dr. Elizabeth M. Whelan, American Council on Science and Health
James Q. Whitaker, M.D., Pathology Institute of Middle Georgia, P.C.
Hon. Faith Whittlesey, American-Swiss Foundation
Mr. Christopher Willcox, Reader’s Digest
Ms. Nancy Wolf
Ms. Orysia Woloshyn, State of New York
Mr. Walter A. Zaryckyj, New York University

— End of List of Participants —

Summary of The William J. Casey Institute of the Center for Security Policy’s Symposia on Vital U.S. Security Interests in Cuba

May 7, 1998Center for Security Policy

Coral Gables and West Palm Beach, Florida
12 and 13 March 1998

In the wake of Pope John Paul II’s historic visit to Communist Cuba, the Center for Security
Policy’s William J. Casey Institute held two informative and exceedingly timely Symposia in south
Florida. The purpose: to discuss vital U.S. security interests in Cuba and to explore policy
prescriptions for normalizing relations with the Castro regime that are now being advanced with
increasing insistence.

The Casey Institute Symposia held on 12 and 13 March 1998 in Coral Gables and West Palm
Beach, respectively, however, offered powerful reasons why such recommendations
should be
rejected, lest Castro’s regime secure a new lease on life in political, economic and
moral
terms — and the abiding threats to the U.S. posed by that regime be actualized.

Between the Coral Gables event, held at the historic Biltmore Hotel, and the Symposium in
West
Palm Beach’s Governors Club the following day, roughly 150 people participated including: a
leading Member of Congress, Representative Lincoln Diaz-Balart (R-FL);
several former
senior American policy-makers; defectors and other refugees from Castro’s Cuba; representatives
of the Coast Guard in Miami and U.S. Southern Command; and a number of leading national and
local journalists.⁽¹⁾ (See the attached Lists of Participants
from Coral Gables and West Palm
Beach.)

The following pages summarize many of the important insights regarding the threats that
continue
to be posed by Castro’s totalitarian regime — threats to his own people, to their neighbors in the
United States and to other vital American interests. Where possible, edited versions of direct,
albeit unattributed, quotes from participants are provided; the passages not in quotation marks
paraphrase key points made during the Symposia.

While no effort was made to formalize a consensus, the clear sentiment of most of those
participating in these events was that, under present circumstances, were the United States to
liberalize trade or otherwise begin to normalize bilateral relations, the effect would be to:
legitimate Castro’s historic enmity toward this country; provide economic life support to his
government; and abandon those seeking its removal from power in favor of a democratic and
peaceable government subject to the rule of law.

The Nuclear Reactor Complex Abuilding at Juragua, Cuba

One of the most serious, if for the moment latent, threats posed by Cuba today
arises from
recently resumed construction of two Soviet-era nuclear reactors at Juragua, near the city of
Cienfuegos, Cuba. A discussion of the near-certainty that these reactors will, if allowed to be
brought on-line, result in nuclear accidents was led in both of the Symposia by the holder of the
William J. Casey Chair, Roger W. Robinson, Jr. Mr. Robinson served as
Senior Director of
International Economic Affairs at the National Security Council under President Reagan, and is
one of the pre-eminent American critics of Castro’s nuclear program. Importantly, his warnings
about the dangers posed by a potential Chernobyl-style catastrophe 180 miles upwind from the
U.S. mainland were endorsed by Pelayo Calante, a Cuban engineer who
worked on quality
control and assurance aspects of the Juragua complex for seven years prior to his defection.
Among the highlights of this section of the Casey Symposia were the following:

The Juragua Complex’s Fatal Flaws

Some of the reasons why this reactor complex is a Chernobyl-like disaster off our shores,
ready to
happen if it is completed and fueled, include the following:

“It is estimated on the part of defectors from Cuba who were actively working on the plant
itself in their nuclear industry that 60 percent of the Soviet/Russian-supplied materials
used
thus far in construction are defective. Even more disturbing, the critical welds
in the
cooling systems and other vital systems, of which there are at least 5,000 in the auxiliary
pumping units alone, it is estimated that some 15 percent of those wells are also
defective, due to a host of reasons.”

“Those defects became evident on x-rays that the Cubans themselves conducted, but
according
to these defectors, Cuban intelligence destroyed those x-rays, erased all of the
serial
numbers where they were placed in order to insure that the International Atomic Energy
Agency and other regulators that would come into the picture on the safety side, would have
no clue as to where they are and where repairs are needed.”

one defective weld in the United States takes down a
nuclear reactor

“In addition, the reactor dome cannot withstand anywhere near the over-pressures
that
would be involved in a nuclear accident of the meltdown variety like Three Mile Island.
There are many technical considerations here, but just to give you orders of magnitude, we
require 50 pounds- per-square-inch safeguards against these over-pressures. Cuba has built in
seven percent. That is obviously flawed on the face of it.”

“The Soviet VVER 440 reactor design is the same nuclear reactor of which there were four
in
East Germany. All were closed within days of the reunification of Germany, because of their
inherent dangers and flaws. NBC News reported that one of those reactors was near
meltdown at the time it was closed. In Bulgaria and Slovakia, the same reactor design had to
be shut instantly because obviously, it cannot hope to meet standard operating procedures as
we know them in the West.”

“The status of the nuclear facilities in Cuba are very poor. Conservation of the
nuclear
reactor and the other facilities is very bad.“

“The other thing is, that the training for the nuclear reactor operation was very
poor.
Much of it was done in Russia in a facility that was not similar to the nuclear reactor in Cuba.”

“When the construction was stopped in 1992, the reactor base and the other equipment were
exposed to the sea air, and corrosion is continuing in these reactors. And in the case if we put
this reactor now together with the other facility, the probability that there will be an
accident is almost 100 percent.“

For these and other technical reasons, this reactor complex cannot be repaired.
It would
have to be razed to the ground and started over with a Western design and, of course,
world-class safety standards in place.

Why Is Fidel Proceeding With This Dangerous Scheme?

“[The bottom line is that] this complex is absolutely required if Cuba is going to
make up
some 15 to 20 percent electricity shortfall on the island — a shortfall that must be
overcome
if Castro is to realize his hopes for new, direct foreign investment from our Canadian and West
European friends, as well as certain countries in Latin America. Obviously, you cannot expand
a tourism industry or build a robust mining industry if experiencing brown-outs and black-outs
several hours a day, which is the case today.”

“New life-support has been offered the Juragua reactor complex [which] began construction
in
1982. For a time, it moved along at a very brisk pace, with Cuba and Russia investing
some
$1.2 billion in that complex. To give you a sense of the scale of this
investment, remember
that Cuba’s total hard currency income today totals $1.7 billion. You get a sense why
the
Castro regime, not to mention Moscow, would be loathe to walk away from that gigantic
project.”

The Russians are anxious to sell nuclear reactors to others around the world. It is not
conducive to such sales to show themselves unable to bring on-line two of their power
plants.

Russia is releasing to Cuba a $350 million line of credit

“There are other reasons why Castro would proceed with this project despite the dangers.
It
is…a very potent distraction for the United States, a Cuban missile crisis without the
missiles.”

“What does it say about a government that would willfully proceed with a program that
would
just be a catastrophe for its own people? I suggest to you that, that indifference to the
welfare of the Cuban people is one of the greatest indictments against the Castro regime
and one of the reasons why we feel very strongly that there can be no deals with Castro.
There can be no life support extended to Castro. There can be no perpetuation — at least, at
our hands — of this regime and the tyranny that it entails.”

What is at Stake?

“Consider the findings of the National Oceanic and Atmospheric
Administration, which
has done elaborate mapping in terms of what would happen if a radioactive plume emanated
from an accident in Cuba — an event that the General Accounting Office states
is a question
of when, not if:

the
summer east to west trade winds would carry radioactive pollutants over all
Florida and portions of Gulf States as far west as Texas in about four days.

could move the pollutants toward the east, possibly as
far north as Virginia and Washington, D.C. in about four days.

“In case of an accident, a nuclear accident and the people were irradiated, the Cuban
government will not make this public.”

What Can Be Done About the Cuban Nuclear Threat?

“Some urge us to negotiate with Castro to allow inspectors — U.S. inspectors and United
Nations inspectors and Organization of American States inspectors — to monitor whatever is
being done there until the facility is functioning. Will we accept that deal? My short
answer
is, “No deals.” This reactor complex cannot be made safe by any infusions of technical
support out of the United States or efforts in the safety categories from the United Nations.
That is a function of technical and construction-related reasons and reasons of design.”

We are not going
to be extorted by that kind of nuclear terror.

“In the next 90 days the Congress is going to be acting upon approximately $1
billion in
U.S. taxpayer aid flows to Russia. And I don’t think we had in mind that money being
sluiced to create a Chernobyl-like disaster 180 miles upwind from the American mainland.
We
need to make it clear to Moscow that, all 350 million of those dollars are coming off of
the $1 billion that they are seeking from U. S. taxpayers in the next 60 to 90 days on
Capitol Hill. One thing we can certainly do in this gathering is to come away with a new
conviction that that is simply not on. Moscow is not going to have it both ways.”

“I recommended that we impose or threaten import controls against any Western
supplier for the reactor scheme — France, Germany, Italy, Brazil and even the U.K. have
all
expressed interest in playing the role of suppliers. The bottom line is, that a choice has
to be
made. It’s going to be the Cuban market or the American market. But it can’t and
shouldn’t be both.”

“We have had naval blockades and the like before when our country was in clear
and
present danger of a nuclear threat from Cuba. I suggest to you, we are facing that clear
and present danger today.“

warn Moscow that they are not to fuel that
reactor

— prior
to that reactor being fueled and becoming a ‘dirty,’ as they say in the trade,
radioactive site — it’s F-117 time.

⁽²⁾

Status of Cuba’s Armed Forces

At both Symposia, Commander James McKenzie of the U.S. Coast Guard
led discussions of
the status and readiness of the Cuban military. In addition, several members of the U.S. Southern
Command participated in the 12 March session. While making clear the decline in the size and
readiness of Castro’s military, this discussion offered a more nuanced assessment of its residual
potential for trouble-making than some other recent estimates. href=”#N_3_”>⁽³⁾ Among its highlights were the
following:

Castro’s Unchanged Military Philosophy

“Looking at the philosophy of the Cuban armed forces over the past 38 years, one can see
that
Castro has repeatedly vowed that if the U.S. dares attack Cuba, that his military and supporters
would be ready to wage a scorched earth campaign. According to this strategy, the military [is
expected] to fight a highly mobile and sophisticated defensive war that takes advantage of the
island’s geography. Any type of invasion would be met with resistance from all of the people,
again, a war of all the people — which Castro has frequently referred to — with the
result being
a bitter, costly, timely and deadly engagement. This wartime consciousness that Castro has
built among the people forces them to always be ready to repulse any aggression or violation
of Cuban sovereignty.”

“Castro has been for a long time trying to convince the military that the end of the
regime is the end of the armed forces. The end of the regime means that, many of the
officers will go to prison or will be executed or that kind of thing.”

“The philosophy and the doctrine that Fidel Castro has established, has been
practiced
for over 38 years and he has not backed away from it in the least bit.“

The Cuban Military’s Reduced Condition

“Cuban armed forces currently numbers around 150,000. That includes 75,000 conscripts.
Another 35,000 reserves receive instruction and training. So, you have a total of about
285,000 active duty and reservists. The armed forces budget for the Cuban armed forces totals
somewhere between $325 and $600 million, depending on what source you look at.”

“What that translates into is, limited food supplies for soldiers and sailors — which we have
seen as the military now grows a large percentage, if not all, of their food supply. We see
extremely limited fuel and lubricants and spare parts for equipment. That places an even
greater pressure on the need for hard currency.”

training and actual operations are limited to an as-necessary
basis.

“Lack of maintenance of their railways, lack of maintenance for the major
highways, the
major seaports falling into disrepair result in widespread deterioration and reduced
readiness to support a major military campaign.“

The Future of the Cuban Military

“The threat that returns with any improvement in the economy is a return of
economic
resources to the military budget and with that, an increased threat to the U.S. and the
regional neighbors in the Caribbean.“

“I think it’s important for the United States and for others to try to get information into
Cuba,
because if one looks at the role of the military and other transitions to democracy, whether in
Chile or in Spain or in Central America or in Poland, the military play a very important role in
the transition. They open the door to the negotiated settlements with the Church and with
other elements in civil society to permit a transition that is not bloody and one in which most of
the military remain in place.”

The Threat Posed by Russian/Cuban Electronic Espionage Operations in
Cuba

The Symposia also examined the danger posed by the massive Russian and Cuban
signals-intelligence facilities in the vicinity of Lourdes, Cuba. This huge
electronic-eavesdropping
complex involves some 28 square miles of radio dishes used to intercept telecommunications
throughout the Eastern United States — including the fax, e-mail and telephone transmissions of
U.S. businesses and government agencies alike. The following were among the most important
points made about the offensive character of such activities:

“All of our private conversations can be swept up by these sophisticated computer systems
at
Lourdes …. In 1996, an $85 million upgrade of Lourdes took place because of the
post-Soviet
degradation of Moscow’s overhead intelligence collection systems — affecting both their
imaging and eavesdropping capabilities — that has made the Russians increasingly
dependent on the Lourdes facility.“

“Our most secret battle plans for the Gulf War — including the ‘Hail Mary pass’ that
ultimately outflanked Saddam Hussein’s forces — had all been picked up by the Lourdes
facility and communicated to Moscow. They could have been passed on to Saddam
Hussein
by the man who was then Russia’s foreign intelligence chief, and is now its foreign minister, a
notorious thug by the name of Yevgeny Primakov.”

“Today, we have our men and women on the ground in the Persian Gulf and on our carriers
poised for attack if necessary to address another Saddam-induced crisis and remember, their
lines of communication are being monitored by Lourdes. Incredibly, the Clinton
Administration actually calls the Russian operation there ‘helpful’ since it allegedly
advances the verification of arms control agreements.” href=”#N_4_”>⁽⁴⁾

Following the Casey Symposia, the Miami Herald reported that the most
senior defector
from Soviet/Russian military intelligence, Col. Stanislav Lunev confirmed the extent to which
Lourdes collection assets permitted the penetration of even secret U.S. military communications
during Operation Desert Storm. Additional concerns have also been raised recently about the
inherent capacity of these assets to engage in information warfare attacks against the United
States.⁽⁵⁾

Castro’s Continuing Contribution to International Instability

The Cuban regime no longer enjoys the multi-billion dollar annual subsidies from Moscow
that
once enabled it to serve as the USSR’s Foreign Legion in Africa and Latin America and as a
proxy for the Kremlin in the subversion of democratic and other, pro-Western governments
throughout the Western Hemisphere. Participants in the Casey Symposia, however, noted that
Castro has, to some degree, offset this diminished revenue stream by allowing Cuba to be used as
a staging area for narco-trafficking under the protection and with the assistance of the Cuban
military. Several made reference to evidence that Castro was still involved in this Hemisphere’s
leftist insurgencies, as well as its drug cartels.

In this connection, one of the most influential Members of Congress with respect to U.S.
policy
toward Cuba, Rep. Lincoln Diaz-Balart, supplied a copy of an 18 November 1996 letter he and
two other congressional leaders on U.S.-Cuban issues — Reps. Dan Burton
(R-IN) and Ileana
Ros-Lehtinen (R-FL) — sent to Gen. Barry McCaffrey, President
Clinton’s Director of the
Office of Drug Control Policy. It states, in part:

Overwhelming evidence [including a number of cases cited in the letter] points
to ongoing involvement of the Castro dictatorship in narco-trafficking.

Another participant said: “Smuggling, drug trade, money laundering,
including
laundering through non-traceable capital market transactions and shady deals through
third countries produced the bulk of Castro’s financial muscle to support his repressive
apparatus.“

Two other observations from the Symposia bear mentioning in this connection:

“[In early March,] Castro-inspired leftist guerrillas inflicted heavy casualties on the army of
Colombia in order to derail the elections in that country.”

“The cultural violence continues to flow from Castro’s terrorist niche into Latin America and
the United States.”

Castro’s Capacity for Biological Warfare

At the West Palm Beach Symposium, Rep. Diaz-Balart challenged the notion that a so-called
“small and insignificant” island like Cuba could — under a ruthless dictator like Fidel Castro —
pose a threat to the United States. He expressed particular concern about Cuba’s suspected
biological weapons (BW) program. Particularly noteworthy was the following intervention by
Rep. Diaz-Balart:

existence of a cover up on the
biological weapons reality.

there is not to be made public any possible concern that could
affect the national security of the American people from Castro’s Cuba.
That is a policy of the Clinton Administration.

Other participants noted that the Castro regime certainly has the potential to field
fearsome
biological weapons. The technology involved is very well understood worldwide. And people,
like the Cubans, with long-standing relations with the Kremlin — which has acknowledged
maintaining an illegal BW program during the Cold War (and is suspected of continuing to do so)
— certainly had access to both the necessary technology and know-how to produce and deploy
biological weapons.⁽⁶⁾

Castro’s Brutal Tyranny

Critical perspective on the persistent malevolence of the Castro regime was provided by a
number
of participants in the two Casey Symposia who had personal experience with Fidel’s totalitarian
rule. Among these was José Basulto, President of Brothers to the
Rescue, who led an
impassioned discussion in the course of the 12 May meeting. Some of the highlights of the
relevant portions of both days’ proceedings include:

The Character of the Castro Regime

“[Since he came to power,] Castro has ruled by the reason of force, in place of the
force of
reason.“

“Repression in Cuba is state terrorism. It is perhaps the worst violation
of human rights,
physical and mental torture institutionalized since the very inception of the tyranny, to attempt
to uproot Cubans from their culture and beliefs and convert them into robots. Its objective is
to control the minds and souls of citizens and condition their behavior to act within the
parameters of the official doctrine, continuously re-interpreted and even contradicted by the
state to serve its own purposes.”

The Character of ‘Support’ for Castro’s Regime

“The people of South America or Latin America in general support the aspirations
of the
Cuban people. They know what it was like to live under Pinochet or under the
Argentinian
generals. They understand that the Cubans, like the Haitians, would also like to have some
basic human rights.”

The Latin American governments use
Cuba
as a political ploy to show their independence of the United States.

It should be noted, in addition, that at least some governments in the region are prompted to
lend support to Castro by their perception that his regime remains capable of supporting
subversive elements within their countries — in other words, a sort of protection
racket is
operating in Cuba today.

“More people have voted for [Reps.] Ileana Ros-Lehtinen, for Lincoln Diaz-Balart and for
Bob Menendez (D-NJ) in the last 40 years than have had the opportunity to
vote in Cuba for
anybody, because in Cuba, there are no real elections. In Cuba, there are no
candidates.
In Cuba, there’s no media.“

“Lamentably the moral problem of Cuba can be traced down to one issue, and that is
the lack
of legitimacy of the Cuban regime. There is a crisis of legitimacy in Cuba. Leaders
must
have authority to govern; Castro has power but not authority or legitimacy.”

only one remaining source of legitimacy
and
that is the undeniable, unquestionable charismatic nature of Fidel Castro.

“The Cuban people feel abandoned and betrayed by the Free World,
which for the past
39 years has basically sided with the oppressor by overlooking the suffering and the abuses
committed against the entire nation. This has significantly contributed to enhance and
perpetuate the tyrant’s capacity for repression.”

“[In response to a question about why people who are facing the sort of repression meted
out
by Castro’s regime do not] take matters into their own hands — particularly when they have, in
theory, at least, some base of support within the military — is, of course, not an issue narrowly
confined to Cuba. We’re seeing very much the same question arise in connection, for example,
with Iraq.”

One simply cannot underestimate effectiveness of a totalitarian regime in
suppressing dissent

psychologically

physically

but very little opportunity in practice

The Effects and Future of the Embargo

One of the liveliest topics of discussion during the Symposia concerned the U.S. economic
sanctions on Fidel’s Cuba. With an unequaled pool of experience in attendance at each of the
Symposia — including: Roberto Weill, founder and President of La Universidad
Latinoamericana
de la Libertad Friedrich Hayek; Frank Calzon, Director of the Center for Free
Cuba;
Ambassador José Sorzano, former Special Assistant to the President
for National Security Affairs
and U.S. Representative to the United Nations — the conversation offered a wealth of insights
into the value of the embargo today and the implications for U.S. interests should it be weakened
or eliminated while Castro remains in power. Highlights included the following:

“The explanation of Cuba’s woes is idiotically simple. ‘It’s socialism,
stupid.’ The
socialists obviously blame the U.S. embargo. It is an infantile alibi, not consistent with
socialism’s record of systemic poverty generation.”

over $100 billion

The World Bank reported in 1996 that Cuba’s GDP per capita was
$61, the lowest in the world, compared to $400 in 1959.

down to the level of Haiti

Cuba in 1959, by Latin American standards, was a
prosperous society, with a GDP of $2.6 billion versus $880 million in 1998.

“After 1959, Castro stole 161 sugar mills. Of these, 35 were owned by American
companies.
In the late 1950s, they were producing between six and seven million tons of raw sugar
annually, a ton per Cuban inhabitant. Today, double the population, Cuba hardly produces
three to four million tons per year.”

“One of the arguments that have touched the hearts of many people is the idea that sanctions
are responsible for the lack of medicine of Cuban children. If that were the case, I would be
the first to be knocking on Senators doors to make a change in the law. That is simply not
true. It is the kind of disinformation that many of us are familiar with from the Soviet Union in
the 1950s and 1960s.”

Cuba has a sizeable industry, what they call health tourism.

lack of medicine is a result of Castro’s policies, not the result of
the American embargo.

“Often a question asked is whether the embargo should be lifted and they try to force the
Cuban-Americans or anybody else to say ‘Yes’ or ‘No.’ I think that the question should be,
under what conditions should the embargo be lifted, for what purpose, under what
kinds of plans.“

“Economic sanctions are, in fact, a weapon of mass destruction. We tend to adopt them
because we prefer to punish a great many people who are not responsible for the policies we
don’t like, rather than deal with the person or relatively small numbers of people who are.”

“If we could say that an American business could go to Cuba and function in Cuba as if you
were in Costa Rica or in Madrid, I would agree. That is not what Castro wants to do
and
that is not what he is suggesting.“

In the absence of Castro accepting something else, then all you are doing is
providing hard currency for a government that has demonstrated that,
whenever they have hard currency, they have used a big part of it to
promote anti-American interests around the world.

“The investment that we have been making, nominally in our interest, has not
transformed the
political systems in countries which whom we have been ‘engaging.’ You can argue about
how much it has changed the economic system in China, but it certainly has not created the
liberty, the freedoms to say nothing of democratic institutions that have often been promised as
the inexorable result of engagement — if only capitalism is allowed to work.”

even if some small subset of America were to benefit economically
from this sort of investment, I really believe that it will not translate into, on net,
a positive result for the country as a whole. It certainly is not going to help the
people of Cuba.

“[When] America’s friends…vote consistently against the United States, it seems to me, that
on
those issues, the White House has not placed an adequate priority. If Washington is dealing
with Country X and there are seven or eight issues involved, they might decide that, well, the
Cuba issue is not that important as long as the other government goes along on other matters.
It is not that the U.S. does not have any influence. It is that sometimes American
governments either don’t have the political will to exercise it or it is a question of
priorities.“

“Fidel Castro wants to lift the embargo because he wants to be able to re-energize his
legitimacy …. If the United States were to officially scrap its embargo, what arguments
would the U.S. representatives to the World Bank, to the IMF, and the Inter-American
Development Bank use in order to exclude Cuba from those multilateral lending and
granting institutions?“

The Need for Surrogate Broadcasting to Cuba

One of the most promising ways of counteracting Castro’s tyranny would be to redouble
efforts
to counter his determination to control popular access to news and information. This can best be
accomplished by enhancing surrogate broadcasting service to the people of Cuba. In recent years,
the value of such broadcasting to countering repressive regimes has earned increasing attention
and political support in Washington — both with respect to the contribution made by Radio Free
Europe and Radio Liberty to promoting freedom in their respective listening areas and the hope
that a similar contribution might now be made by Radio Free Asia, Radio Free Iran and a Radio
Free Iraq.

In this regard, the 12 May Symposium benefitted from remarks by Herminio San
Román,
Director of Radio/TV Marti. Mr. San Román discussed the systematic repression of
independent
sources of news and information by the Castro regime and the role being played by his surrogate
broadcasting units, both in countering the Cuban government’s propaganda and disinformation
and in creating an essential building block for the transition to functioning democracy. In the
latter regard, he noted that — even where Castro’s determination to deny his people access to
Radio/TV Marti’s broadcasts — these services are making a contribution by preparing an
experienced team of journalists and broadcasters for the day when their services will be needed by
a Free Cuba.

Conclusion

As the foregoing summary makes clear, the Casey Symposia established that the United States
does indeed have vital interests in Cuba. The conversation over the two days demonstrated that
the American government minimizes the abiding threat from Castro’s regime — to say nothing of
giving that regime a new lease on life through normalization of economic and/or diplomatic
relations — at its peril.

— End of Summary —

1. Portions of the Symposia were broadcast into Cuba by Radio/TV
Marti — the vital surrogate
broadcasting operation that is, as was made clear by its Director in the course of the first day’s
discussion, serving a unique purpose in providing the sort of news and other programming in
Spanish that is denied the Cuban people by their government.

2. The first step toward preparing such an option may have been
signaled in a letter dated 6 May
from Secretary of Defense William Cohen to Senator Strom Thurmond formally transmitting the
DIA estimate of the Cuban threat. It read, in part: “I remain concerned about…the
environmental health risks posed to the United States by potential accidents at the Juragua
nuclear power facility.“

3. For more on such low-ball estimates, see the critique of retired
Commander-in-Chief Atlantic
Command Gen. John Sheehan’s comments on the subject contained in the Casey Institute’s
Perspective entitled Castro’s Cuba: A Classic ‘Asymmetric’
Threat (No. 98-C 59, 3 April
1998).

4. To his credit, Secretary of Defense Cohen did, in his recent letter
to Sen. Thurmond
transmitting the DIA intelligence report on Cuba, write that: “I remain concerned about the use
of Cuba as a base for intelligence activities directed against the United States.”

5. See No Apologies To Castro: Politicized Pentagon
Study Misses Abiding Nature of Threat
From Cuba, Promotes Wrong Response (No. 98-C
54, 30 March 1998).

6. In his 6 May transmittal letter to the Congress, Secretary Cohen
wrote: “I remain concerned
about Cuba’s potential to develop and produce biological agents, given its biotechnology
infrastructure.”

Clinton Tries To Steal A March On Kyoto Treaty: Will The Senate Allow Implementation Without Ratification?

March 9, 1998Center for Security Policy

(Washington, D.C.): On 7 March 1998, the Washington Times reported: “The
Environmental
Protection Agency wants Congress to give it sweeping powers to start carrying out the
global-warming treaty even before the treaty has been ratified by the Senate.” While Senator
Jesse Helms, chairman of the Senate Foreign Relations Committee, has demanded that this
protocol signed at Kyoto, Japan late last year, be promptly submitted for the Senate’s advice and
consent,⁽¹⁾ the Clinton Administration clearly
intends to try to get away with
“implementation without ratification.” The mega-billion dollar question is: Will the
“World’s
greatest deliberative body” let Messrs. Clinton and Gore get away with this egregious end-run on
the Senate’s constitutional prerogatives?

The newspaper reports: “A draft EPA document obtained by The Washington
Times shows the
agency wants the authority to force power plants for the first time to cap their emissions of carbon
dioxide – the principal greenhouse gas covered by the treaty crafted in Kyoto, Japan, last
December. The powers would be added to an electricity-restructuring bill in
Congress.“
(Emphasis added.)

The Times also reported that, “One administration official called the
EPA’s move to couple
new powers to curb global warming with the restructuring bill ‘a crafty ploy,’ since the
legislation is popular among Republican deregulation advocates in Congress.”

What is at Stake

As the Casey Institute noted on 15 December 1997,⁽²⁾ there
are a number of compelling reasons why
Clinton-Gore must not be allowed to stonewall or otherwise circumvent the Senate.
These
include the following:

The Theory of Global Warming Must Not Be Legitimated: By
definition, Al Gore’s
treaty endorses the proposition that the planet is warming. And yet, there is no scientific
consensus for such a conclusion. If anything, the evidence from the most accurate
measuring
devices — earth-monitoring satellites and weather balloons — indicate that the earth has not
warmed appreciably over the past forty years, despite increases in greenhouse gas emissions.

The public is being fed a steady diet of assertions to the effect that the planet is
warming catastrophically and that the scientific community agrees nearly unanimously
that the cause is human consumption of fossil fuels. Even though these contentions are
unproven, they are endlessly repeated in the well-honed technique of the “Big Lie.”
Were the treaty to go unchallenged, there is little chance that an informed debate will
occur in the future about whether the hardship and dislocation this treaty will require of
the United States is justified.

The U.S. Must Not Abet the Spawning of a New Layer of International
Bureaucracies:
Everything else being equal, the Clinton Administration will be working over the next year with
the other signatories to put into place new international bureaucracies intended to implement
various controversial aspects of the Kyoto treaty. One of these will be responsible for
dictating, monitoring and presumably enforcing the new energy control regime
entailed in the
GCCT. Another will be needed to perform a global SEC-type function with respect to the
emissions trading scheme, which is expected to create out of whole cloth a multi-billion dollar
commodity market.

The treaty also apparently calls for a new multilateral agency that will be responsible
for defining and orchestrating investment strategies concerning new greenhouse gas-reducing
technologies. According to a Washington Times report, the Kyoto accord
would also afford “UN bureaucrats some control over U.S. agriculture and forestry
policies.”

Decisions about who will be entrusted with all these powers — authority that
could, in the wrong hands, prove highly injurious to national wealth and standards
of living — will be made in the months before the Brazil conference.

The U.S. Must Not Embrace a New ‘Industrial Policy’: The Clinton
Administration has
indicated its determination to apply classic big-government “industrial policy” techniques
domestically in the name of reducing greenhouse gas emissions through technological
advances. The billions of dollars earmarked for this purpose constitute a statist approach to
picking “winners and losers” — one that is rarely (if ever) as efficient or effective as market
forces.⁽³⁾ It also is rife with potential for abuse. Chances
are that there will be even more
politicization of the “science” of global warming as such funds wind up going primarily to
those who subscribe to the party-line that the planet is heating up to a dangerous degree and that
man is the cause.

While Congress will have some say over the expenditure of these funds, it will be far
easier to contest wasteful and politically motivated initiatives if the pretext for them,
namely the Global Warming treaty, has been rejected.

The U.S. Must Reject a Dangerous Precedent for U.S. Sovereignty and Security:
Last
but hardly least, the GCCT sets a totally unacceptable precedent that must be repudiated at
once. According to the Washington Times, in order to get agreement on Al Gore’s
treaty, the
U.S. delegation was obliged to abandon “its plan to exempt U.S. military training and overseas
operations from fuel cutbacks that would be needed for the United States to reach its target.”
The Times goes on to report that, “In the draft treaty, only overseas military actions
approved
by the United Nations would remain exempt as would training and combat in international
waters.”

The Bottom Line

The Environmental Protection Agency’s bid for new powers to cap power plant emissions is
but
one instance of the Clinton-Gore agenda to begin imposing implementation of a seriously
defective agreement in the absence of the Senate’s advice and consent to the Kyoto Protocol.
The Senate should promptly take preemptive action by adopting a resolution — and, if necessary,
binding legislation — indicating that there will be no implementation of this accord unless and
until it is formally ratified.

– 30 –

1. See the Center for Security Policy’s Press Release entitled
Chairman Helms Sets the Right
Priorities on Pending Treaties: ABM Amendments, Kyoto Accord to Precede the Test
Ban, (No.
98-P 13, 22 January 1998).

2. See the Casey Institute’s Perspective entitled The
Senate Must Insist on an Early Vote on the
Kyoto Treaty (No. 97-C 193, 15 December 1997).

3. The ongoing financial meltdowns of economies throughout Asia
that have pursued such
industrial policies are vivid reminders of the folly of this approach.

The Senate Must Insist On An Early Vote On The Kyoto Treaty

December 15, 1997Frank Gaffney, Jr.

(Washington, D.C.): These days, it is a commonplace that the Clinton-Gore Administration has
made an art form of the political practice of trying to have it both ways. Even so, the
Administration’s present, cynical contortions on the new Global Climate Change Treaty (GCCT)
are in a class all their own.

Flim-Flam

On the one hand, Messrs. Clinton and Gore would have us believe that the completion of the
Global Warming treaty was a signal accomplishment, a major step toward sparing the world
environmental catastrophe. In particular, Vice President Gore takes credit for having provided
the critical momentum during the negotiations’ endgame that produced this “historic” accord.⁽¹⁾

On the other hand, Messrs. Clinton and Gore tell the Senate that this treaty is not really a treaty
yet. They say that it will not be ready for that institution’s constitutionally- mandated advice and
consent for at least another year. In the meantime, Senators are being told to chill out.

The administration tries to square this circle by arguing that the GCCT is really good as far as it
goes. It just doesn’t go as far as the President and Vice President want — and as far as the Senate
demanded in a 95-0 vote last summer — in imposing economic and other hardships on developing
countries, as well as the developed ones. The party line is that all that will be sorted out at
another conference in Brazil next November (N.B. after the mid-term congressional elections),
trust us. In the meantime, there is no reason, the Clinton team contends, for action by the Senate;
the treaty will not bind the United States until the Senate acts and it is formally ratified.

The truth of the matter is that the administration has no choice but to try to postpone Senate
consideration of the Kyoto treaty: If Senators get their hands on this treaty in its present form, it
will be overwhelmingly rejected.

Why the Senate Must Act Promptly

There are, however, compelling reasons why that must occur — and why Clinton-Gore cannot be
allowed to stonewall the Senate so as to preclude early consideration of the GCCT. These
include the following:

The Theory of Global Warming Must Not Be Legitimated: By definition, Al Gore’s
treaty endorses the proposition that the planet is warming. And yet, there is no scientific
consensus for such a conclusion. If anything, the evidence from the most accurate measuring
devices — earth-monitoring satellites and weather balloons — indicate that the earth has not
warmed appreciably over the past forty years, despite increases in greenhouse gas emissions.

The U.S. Must Not Abet the Spawning of a New Layer of International Bureaucracies:
Everything else being equal, the Clinton administration will be working over the next year with
the other signatories to put into place new international bureaucracies intended to implement
various controversial aspects of the Kyoto treaty. One of these will be responsible for
dictating, monitoring and presumably enforcing the new energy control regime entailed in the
GCCT. Another will be needed to perform a global SEC-type function with respect to the
emissions trading scheme, which is expected to create out of whole cloth a multi-billion dollar
commodity market.

The treaty also apparently calls for a new multilateral agency that will be responsible
for defining and orchestrating investment strategies concerning new greenhouse gas-reducing technologies. According to a Washington Times report, the Kyoto accord
would also afford “UN bureaucrats some control over U.S. agriculture and forestry
policies.”

The U.S. Must Not Embrace a New ‘Industrial Policy’: The Clinton Administration has
indicated its determination to apply classic big-government “industrial policy” techniques
domestically in the name of reducing greenhouse gas emissions through technological
advances. The billions of dollars earmarked for this purpose constitute a statist approach to
picking “winners and losers” — one that is rarely (if ever) as efficient or effective as market
forces.⁽²⁾ It also is rife with potential for abuse. Chances are that there will be even more
politicization of the “science” of global warming as such funds wind up going primarily to
those who subscribe to the party-line that the planet is heating up to a dangerous degree and
man is the cause.

The U.S. Must Reject a Dangerous Precedent for U.S. Sovereignty and Security: Last
but hardly least, the GCCT sets a totally unacceptable precedent that must be repudiated at
once. According to the Washington Times, in order to get agreement on Al Gore’s treaty, the
U.S. delegation was obliged to abandon “its plan to exempt U.S. military training and overseas
operations from fuel cutbacks that would be needed for the United States to reach its target.”
The Times goes on to report that, “In the draft treaty, only overseas military actions approved
by the United Nations would remain exempt as would training and combat in international
waters.”

The Bottom Line

It is not enough that formal U.S. accession be deferred on a treaty that would so egregiously
subordinate America’s sovereignty and security. The Kyoto treaty must be categorically rejected
— on national security grounds alone, if not on the basis of all the foregoing considerations.

The Senate must do its job. And the Clinton-Gore administration must be compelled to let it do
so, should that prove necessary.

– 30 –

1. See the Casey Institute’s Perspective entitled Watch Your Wallet: Al Gore’s ‘Flexibility’
Bodes Ill For U.S. Interests At Kyoto — And Beyond (No. 97-C 189, 8 December 1997).

2. The ongoing financial meltdowns of economies throughout Asia that have pursued such
industrial policies are vivid reminders of the folly of this approach.

Al Gore’s Climate Treaty — Dead On Arrival

December 11, 1997Center for Security Policy

(Washington, D.C.): Yesterday’s finale of the Kyoto Conference on Global Climate Change was
proof positive of the adage “You want it bad, you’ll get it bad.” Vice President Al Gore wanted a
treaty so badly that he directed the U.S. delegation not to come home without one. The result
was not just bad, it was appalling — so much so that it appears the treaty will be “dead on
arrival” in the U.S. Senate.

Such an outcome was predictable, and predicted, given the Veep’s public sabotaging of the
American position from the podium at Kyoto and the marathon negotiating sessions that action
precipitated.⁽¹⁾ It is almost inconceivable that anything palatable — to say nothing of something
good for you — can come of a broth produced by so many cooks working virtually around the
clock for three days running.

Based on the information available at this writing, however, the Kyoto Global Climate Change
Treaty (GCCT) would be a disaster for the United States. The following are among the reasons
why.

The Treaty Will Harm National Security

According to the Washington Times, among the concessions the United States made to create Al
Gore’s treaty entailed abandoning “its plan to exempt U.S. military training and overseas
operations from fuel cutbacks that would be needed for the United States to reach its
target.” The Times goes on to report that, “In the draft treaty, only overseas military actions
approved by the United Nations would remain exempt as would training and combat in
international waters.”⁽²⁾ (Emphasis added.)

If this arrangement fits all-too-well with the Clinton Administration’s enthusiasm for one-world
government, it nonetheless amounts to a stupefying subordination of national security and
sovereignty to the dictates of the UN.

Should the United States find itself obliged to fight wars in the future that have not been approved
by the UN and that are inconveniently located in other than international waters, it would appear
that America will either have to violate the treaty or accept even more draconian reductions in its
domestic energy consumption — with even greater adverse effect on the national economy. It is
hard to believe that the United States Senate would be prepared to go along with the imposition
of such a Hobsian choice on the American people.

The Treaty Will Impinge Upon Americans’ Individual Rights, National Sovereignty

In addition to allowing the UN to dictate which wars the United States can fight and — how
prepared it will be to fight them, Al Gore’s treaty will sacrifice American sovereignty and possibly
even the rights of U.S. citizens through a number of other measures.

For example, pursuant to this treaty, the United States as a whole would be required to reduce
greenhouse gas emissions by 7% by 2012. Since the Federal Government is only responsible for a
tiny fraction of these emissions⁽³⁾, private citizens and enterprises will be obliged to make up the
overwhelming majority of the obligatory reductions.

It is unclear exactly how the Clinton Administration intends to compel such individuals and
companies to make their share of these reductions. If not by government edicts that deny them
the use, for instance, of minivans and sports utility vehicles or emissions-intensive manufacturing
techniques,⁽⁴⁾ then it will have to be accomplished through increased energy taxes. Whichever
approach is used, though, the question must be asked: How will penalties be apportioned if the
Nation as a whole fails to meet its mandatory reductions obligations? The answer, if also unclear,
surely translates into an infringement on Americans’ quality of life and economic freedoms — if
not their civil liberties, as well.

Al Gore’s treaty also imposes upon national decision-making the edicts of new international
bureaucracies being created to dictate, monitor and presumably enforce the new energy control
regime called for by the GCCT. The emissions trading scheme — which is expected to create
out of whole cloth a multi-billion dollar commodity market — will have to have some SEC-like
multilateral mechanism to regulate its operations. Who will be entrusted with such power —
power that could, in the wrong hands, prove highly injurious to national wealth and standards of
living?

The treaty also apparently calls for a new multilateral agency that will be responsible for defining
and orchestrating investment strategies concerning new greenhouse gas-reducing technologies.
According to the Washington Times report, it would also afford “UN bureaucrats some control
over U.S. agriculture and forestry policies. Is the United States Senate really ready to subject so
many national decisions to unaccountable international agencies?

The Treaty Will Involve Picking ‘Winners and Losers’

In addition to empowering an international organization with responsibility for directing
substantial American and other resources towards “green” technologies, the Clinton
Administration has indicated its determination to apply classic big-government “industrial
policy” techniques domestically in the name of reducing greenhouse gas emissions through
technological advances. The billions of dollars earmarked for this purpose constitute a statist
approach to picking “winners and losers” — one that is rarely (if ever) as efficient or effective as
market forces.

What is more, as the recent Symposium on Global Warming conducted in New York City by the
William J. Casey Institute of the Center for Security Policy established,⁽⁵⁾ it also is rife with
potential for abuse:

The Treaty Propounds a ‘Big Lie’

Perhaps as insidious as any of the individual liabilities of the Al Gore’s treaty is the fact that, by
definition, it legitimates the theory that the planet is warming. And yet, there is no scientific
consensus for such a conclusion.⁽⁶⁾ If anything, the evidence from the most accurate measuring
devices — earth-monitoring satellites and weather balloons — indicate that the earth has not
warmed appreciably over the past forty years, despite increases in greenhouse gas emissions.⁽⁷⁾

Yet, the public is being fed a steady diet of assertions to the effect that the planet is warming
catastrophically and that the scientific community agrees nearly unanimously that it is being
caused by human consumption of fossil fuels. Even though these contentions are unproven — and
their proponents demonstrate little willingness to debate the bases for them with knowledgeable
critics — they are endlessly repeated in the well-honed technique of the “Big Lie.“⁽⁸⁾

Just how much of a lie the Global Warming agenda entails was documented today by syndicated
columnist George Will. In a powerful essay entitled “More Government by Therapy” which
appeared in the Washington Post, Mr. Will cites a statement by made by some nine years ago by
Timothy Wirth, the Clinton Administration’s outgoing Under Secretary of State for Global Affairs
and a key architect of U.S. policy on the Kyoto treaty: “Even if the theory of global warming is
wrong, to have approached global warming as if it is real means energy conservation, so we
will be doing the right thing anyway in terms of economic policy and environmental
policy.” To which the columnist responds acerbically, “Which is why global warming and global
cooling hypotheses have been fungible as rationales for arguing that government must revise
American consumption and industrial practices.”

The Bottom Line

The costs associated with Al Gore’s treaty — in terms of national security, individual rights and
national sovereignty, and the health of the American economy — are wholly unjustified by the
scientific evidence available at present. In the absence of a compelling scientific case, it
would be recklessly irresponsible for the United States to be bound by such a treaty and it
seems exceedingly unlikely that the Senate will agree to its ratification.

Knowing that, the Clinton Administration has signaled that it does not intend to submit the GCCT
until after the November 1998 meeting in Brazil at which further discussions about restricting
greenhouse gas emissions in developing nations are supposed to occur. (Surely it is coincidental
that this timing also means that it would be deferred until after the 1998 mid-term U.S. elections
where it could prove a serious liability to Democratic candidates!)

Such a prospect gives fresh urgency to a danger highlighted in the course of the Casey Institute
Symposium:

the President might try to finesse
the Senate, denying it the role of check-and-balance on executive action
contemplated by the Framers

executive actions

It is, therefore, enormously important that Senator Larry Craig of Idaho — an influential
member of the Republican caucus and former chairman of its Steering Committee — declared
yesterday that: “We’re going to ask the President and the Vice President to…bring [the
Kyoto treaty] to the Senate very, very promptly….” The stakes are sufficiently great that if
the Administration does not voluntarily agree to this request, it must be compelled to do so.

– 30 –

1. See the Casey Institute’s Perspective entitled Watch Your Wallet: Al Gore’s ‘Flexibility’
Bodes Ill For U.S. Interests At Kyoto — And Beyond (No. 97-C 189, 8 December 1997)

2. The reported language also raises the question as to whether a country can emit as much
greenhouse gas it wishes in the course of “training and combat in international waters” (and,
presumably, international airspace)? Such a proposition seems unlikely to pass muster with the
environmental zealots whose antipathy toward the U.S. military rivals their hostility toward the
modern economies that produce greenhouse gases. It must be asked, moreover, what would the
implications of this treaty be for the readiness of those American armed forces whose missions
are, of necessity, ground-based or that involve ground-attack or air superiority over contested real
estate?

3. As noted in a Casey Institute Perspective entitled Effects of Clinton’s Global Warming
Treaty on U.S. Security Gives New Meaning to the Term ‘Environmental Impact’ (No. 97-C
149, 6 October 1997), a recent Defense Department analysis found that the Federal Government
consumes 1.4% of the Nation’s fossil fuels. 73% of that amount is consumed by the Pentagon,
with fully 58% of that total being utilized by the combat arms.

4. The deferral to at least November 1996 of any corresponding constraints upon developing
nations — one of the most wildly controversial concessions made by the U.S. delegation in order
to achieve the treaty demanded by Vice President Gore — ensures that at least some such
manufacturing concerns will relocate from the United States to countries unburdened by
greenhouse emissions constraints. Naturally, this will only compound the other, unwarranted
economic costs of the GCCT.

5. See Casey Institute Symposium on Global Warming Suggests Case For — And Costs Of —
Kyoto Treaty Are Unsustainable (No. 97-R 188, 5 December 1997).

6. A participant in the Casey Institute Symposium on Global Warming reported that:

7. As one participant in the Casey Institute Symposium observed: “The satellite data — which are
the only good global data we have — actually show a cooling of the climate in the last 20 years,
which completely contradicts the theory and computer models. So the basic question really is
‘Who should we believe? Should we believe in observations or should we believe in computer
models? That becomes a matter of personal choice and philosophy. I will tell you that I believe in
observations.”

8. Adolf Hitler coined this term when, on the eve of his staging a “Polish” attack on Germany that
would serve as the pretext for his invasion of Poland, he declared: “The great masses of the
people…will more easily fall victim to a big lie than a small one.”

Prepared Remarks by David L. Luke III before the Casey Institute of the Center for Security Policy’s Symposium

November 20, 1997Center for Security Policy

“The Implications of the Global Climate Change Treaty
for the U.S. Economy, Sovereignty and National Security”

November 19, 1997

My role today is to cover the probable impact on the United States economy of adopting what
appears will be the United States’ proposal at Kyoto. It is still not absolutely clear what will be
put on the table, but in my comments, I will assume that the United States as a developed country
will probably suggest controlling its emissions on a legally binding basis in or around the year
2010 at or below the level of its emissions of the year 1990.

I am also assuming that other developed countries will do about the same. However, a group of
about 130 developing countries, including China, India, Brazil, Chile, Mexico, South Korea,
Malaysia, and Indonesia, which have so far largely resisted any limits on emissions, will probably
have only rather vague and voluntary long-term emission targets.

To deal with my part of the agenda, I would like to discuss with you three subjects:

What may be the impact in the United States Economy?

The United States economy is now vigorous, competitive, and growing nicely because of
generally excellent technology, creativity and leadership in the private sector, together with the
fact that there has been enough self-discipline and wisdom in our electorate to avoid some of the
regulatory excesses and governmental interventions that so clearly have caused a degree of
economic stagnation in some other very prominent nations in the developed world.

The United States is also clearly one of the leaders in the world in the efficiency with which it
converts energy into units of GDP and very gradually we will probably continue to make a little
more progress in efficiency. But the key point is that we are now at the forefront in world energy
efficiencies. There is no efficiency deficit in our country, and there is no obviously available
opportunity which will let us magically and suddenly do drastically better.

Because our GDP is growing at about 2.3 percent per year,⁽¹⁾ in 2010 it would be about 46
percent on a noncompounded basis larger than in 1990. Our emissions are growing in parallel
with our GDP and it obviously would be a very major and challenging task to have to return our
emissions to the 1990 levels or below them.

To try to accomplish this, the administration has proposed a market trading system for emission
permits. This has not yet been spelled out in detail and so an easier and possibly more likely
mechanism for governments to consider is a potential tax on carbon emissions. Actually the two
are in many ways synonymous.

WEFA (formally known as Wharton Economic Forecasting Associates) has calculated that such a
tax would need to be $200 per ton of carbon emitted in order to return our emissions to the 1990
levels.⁽²⁾⁽³⁾ They estimate, however, that imposing such a tax would produce the following results
in our economy. In each case, the impact cited is the change from the base case assumed if the
plan were not instituted.

Gasoline prices would increase by 45 cents per gallon.⁽³⁾
Residual fuel oil prices for industrial facilities would increase by roughly 140 percent.⁽⁴⁾
Natural gas prices for industry would increase by 90 percent.⁽⁴⁾

USGDP would decline by about $228 billion per year (more than 2.5 percent) below the base
case.⁽²⁾
A million good, high-paying jobs would be lost.⁽³⁾
The U.S. trade deficit would jump sharply.⁽³⁾

The growth in personal net income for an extended period of time would fall by 15 percent
below the base case level.⁽³⁾

In addition to the WEFA study just summarized, DRI/McGraw-Hill has developed data
which supports many of the key conclusions of the WEFA analysis of the economic impact.⁽⁵⁾

There are several other projections of the potential impact from other sources, including one
issued by the U.S. Department of Commerce with the work done by the Argonne National
Laboratory in July 1997 and another by the Economics Strategy Institute in September 1997.

The first study deals with six major energy-intensive industries. The projected impacts of this
study are very disturbing and very serious. While some assumptions are different, the overall
impact on the economy is not dissimilar to the WEFA data.⁽⁶⁾

The ESI study deals with industries with varied characteristics and is interesting because one of
the industries it looks at is the semi-conductor industry. While we would not normally expect a
negative effect here because it is not thought of as an energy-intensive industry, there are special
circumstances here which would place a very heavy burden on semi-conductors. The United
States is currently a moderate net importer of semi-conductors.⁽⁷⁾ With alternate sources such as
Korea, Malaysia, Taiwan, and Singapore not expected to be covered by binding carbon emission
regulations, even more of our semi-conductors are projected to be imported and fewer of those
made in the United States would be exported.⁽⁷⁾ Jobs in this excellent and growing industry are
projected to be lost overseas.⁽⁷⁾

In short, several reputable and well-informed sources of opinion feel that under the Global
Climate Change protocol, United States economic growth would be reduced, excellent, well-paying jobs would be exported, our trade deficit would grow, and our much-envied standard of
living would be reduced.

Totally independently from the four studies I have mentioned, Senator Hagel has previously
reported that the AFL-CIO has estimated an overall loss of United States jobs totaling 1,250,000
to 1,500,000.⁽⁸⁾ In total, the appraisals from widely different sources describe some very serious
negative impacts for the United States economy. It is not a very pretty picture!

Beyond this there is one other important factor about the United States economy which should
also be considered.

The program will put a sharp focus on the comparison of various types of fuel. Before we look
too carefully at this, we should consider briefly the advantages that fuel-type diversity and
indigenous fuels provide in a less-than-totally-stable and predictable world. Not all foreign fuel
sources are located in politically stable parts of the world. Some of the largest present and
prospective sources of energy are in the areas where there is considerable tension clearly visible.

The United States is fortunate enough to have large coal, oil, and gas deposits. These are not
large enough to make us self-sufficient, but this diversity of indigenous fuel types and their
aggregate strength minimizes very substantially what would otherwise be a much greater
dependency on foreign sources.

Let me illustrate a potential impact of the Global Climate Change Program which might occur.
Currently, 23 percent of the United States energy supply is derived from coal.⁽⁹⁾ However, coal is
more carbon-intensive than other fuels. One unit of coal produces 20 percent more carbon
dioxide than petroleum and 80 percent more carbon dioxide than natural gas.⁽⁹⁾ The proposed
energy emission penalties on coal are expected to be proportionate to the relative emission of
each fuel. This will place a harsh economic penalty on coal because of its emission number. As a
nation, we could reduce our emissions by moving away from coal, but it would move us away
from a secure, indigenous source of energy into greater dependency on potentially much less
secure, nonindigenous sources of energy.

The United States coal industry is now quite efficient and modern, and if we give it up in a period
of easy energy availability, it can’t be instantaneously called back into service in a period of great
future need. I remember vividly that our coal supply was invaluable to the nation during the
energy crisis of the 1970s.

Without a really compelling reason to change, supply diversity and reasonably high self-sufficiency
are great national assets. Clearly, such a position should not be abandoned without the most
careful thought.

Now let’s turn to what will happen in the developing countries which are not expected to be held
to mandatory limits on emissions?

Simply put, the factors from the Global Climate Change Program that produce significant
economic disadvantage in many of the developed countries will automatically produce significant
relative economic advantages in the developing countries which compete with the developed
countries.

With the increasingly global nature of the world economy, jobs and capital will be inclined to flow
to areas of the greatest relative economic advantage. The absence of the new energy emission
penalty to be imposed in the developed countries and the economic advantage in the developing
countries resulting from this will move jobs and industrial plants to Brazil, Chile, Mexico, Korea,
China, India, and so forth. Many of the major multinational companies are already established in
the developing world and so the transition would not be hard to accomplish, but it would be very
hard on some of the developed countries.

One might theorize that a reasonable expectation would be that the emission regulation status of
the developing countries would transition to Developed Country status over time. However,
most would say that this is a very optimistic point of view. For illustration, look at the trade
discussions with the two countries with which the United States has its largest trade deficits. Our
markets are open to them, but even our status as the world’s only remaining superpower does not
lead either of them to want to ignore their own national economic self-interest enough to
voluntarily open their markets to us. As a result, our trade deficits with them simply keep on
growing.

The same analogy applies to those countries who are driven by economic self-interest to make
capital investments in the so-called rogue states. The same economic self-interest also applies to
those who transfer sensitive military technology to less-than-peace-loving recipients. The
economic self-interest of nations is a very compelling force in most areas of the world, and it is
very, very hard to voluntarily persuade many nations to give up their own self-interest.

Unless we bring all nations in on the same basis at the beginning, it will be virtually impossible to
do it later. Once most of the developing nations taste the rewards of the relative economic
advantage they will gain under the Global Climate Change Program, they simply won’t give it up!

My next topic deals with what might be expected to happen to the world’s total greenhouse
emissions under the scenario which many foresee if only the developed countries are regulated
and the developing countries are not.

The simple fact is that, in spite of the great sacrifices called for in the United States and in some
other countries in the developed world, and in spite of curtailment of emissions in those countries
at least to the 1990 levels, economic growth will continue and probably accelerate in the
developing world, stimulated in part by job transfers. Also, it is true that energy efficiency per
unit of GDP is significantly less in many of the developing countries, such as China. For example,
greenhouse gas emissions in China are on average as much as eight times greater per unit of GDP
than in the United States.⁽¹⁰⁾

Therefore, making a product in China which was previously made in the United States might
produce eight times the energy emissions for that same product.

A recent report from the Center for Study of American Business concludes that even without the
Global Climate Change Program the percentage share of total emissions by the developing nations
will rise from 36 percent in 1990 to 52 percent in 2015 and 66 percent in 2100.⁽¹¹⁾ With the
Global Climate Change Program implemented as proposed, the percentage relationship will be
exacerbated in favor of a still greater share produced by the developing nations.

Failure to control the developing nations will mean that almost no matter what is done in the
developed nations, total world emissions will continue to grow and any hope to stabilize
atmospheric concentrations will not be fulfilled.

I hope that my comments may have opened the opportunity for further discussion of these issues.
Their importance justifies much discussion.

— End of prepared remarks —

(1) The Global Climate Change Debate, Economic Strategy Institute, September 1997, Page 23

(2) The Road to Kyoto, The Heritage Foundation, October 6, 1997, Page 13

(3) The Global Climate Change Debate, Economic Strategy Institute, September 1997, Page 33

(4) The Road to Kyoto, Page 14

(5) The Road to Kyoto, Page 16

(6) Impact of High Energy Price Scenario on Energy Intensive Sectors, July 1997, Argonne National Laboratory, U.S.
Department of Commerce, Pages ES-3,4

(7) The Global Climate Change Debate, Pages 76 ,77

(8) Environment News, August 1997, Page 16

(9) The Global Climate Change Debate, Pages 9, 10

(10) Human Events, 10/24/97, Page 13

(11) The Road to Kyoto, Page 18

Clinton Legacy Watch # 10: Administration Ineptitude, Appeasement Put Saddam, Primakov Back in Driver’s Seat

November 20, 1997Center for Security Policy

(Washington, D.C.): While it may be some time before the full extent of the damage done by the
Clinton Administration’s mishandling of latest Iraqi crisis is clear, the early returns are in:
Saddam and his patrons in Moscow, Beijing and Paris have won this round decisively, at the
expense of the United States, its interests and allies in the Middle East.

Consider the following preliminary assessment broken down into two categories —
1) the results even if the U.S. does not go along with the deal brokered by Saddam Hussein’s
former KGB handler, Russian Foreign Minister Yevgeny Primakov, and 2) those that will arise if
it does so, however reluctantly.

The ‘Best Case’

Even if the Administration appreciates the unacceptability of the Primakov-Saddam “diplomatic
solution” and finds the courage to reject it, the United States has already suffered enormous harm
in the following areas:

Saddam has had twenty days to advance the “shell game” he has used to good effect for
the past six years to hide portions of his chemical, biological and nuclear weapons and ballistic
missile programs from UN Special Commission inspectors. Just yesterday, UNSCOM
chairman Amb. Richard Butler told the Security Council how effective such Iraqi interference
had been when the inspectors were able to perform more-or-less continuous and real-time
monitoring. In its absence, it is anyone’s guess just how impossible it will be to say truthfully
and with confidence that Saddam is actually out of the Weapons of Mass Destruction (WMD)
business.

The United States has once again expended enormous sums moving aircraft, ships and
personnel on a crash basis into the Persian Gulf, taking a considerable toll on the morale of
its military personnel and the physical condition of their assets. Such a price in terms of
reduced readiness, foregone modernization and exacerbated retention problems would
arguably be worth paying if the expenditure thus entailed were to translate into an end to the
threat posed by Saddam and his clique. As that is assuredly not the case, however, the
expenditure can only be described as an unjustifiable squandering of precious defense
resources.

Russia has once again been allowed to become a key player in the Middle East, a role that
it has never played constructively there and that it is obviously not playing constructively now.
The fact that the U.S. Secretary of State would cut short a long-scheduled visit to India in
order to accommodate a trip by Primakov to Brazil, obliging her to conduct important affairs
of state at 2:00 a.m., conveys a powerful — and ill-advised — signal to Moscow and the rest of
the world: The United States is prepared to act like a supplicant, not “the world’s only
superpower” it endlessly claims to be. This is an invitation to precisely the sort of high-handed
treatment Messrs. Primakov and Hussein have dished out.

This signal is compounded by the message that Saddam Hussein has once again stood up to
the United States — and survived. When the Iraqi despot demonstrates that he can get out
of his “box” as often as he wishes to, it powerfully reinforces the image of Americans as paper
tigers and unreliable allies. This pattern not only emboldens Saddam. It also encourages other
rogue actors and their would-be-prey to discount American power, a formula for increased
instability as the former become more aggressive and the latter more willing to appease them.

Of particular concern in this regard is the prospect that both parts of the Clinton
Administration’s “dual containment” policy will fail. Not only will Iraq be seen to be
“back in business”; American efforts to persuade Iran that it will be reintegrated into
the community of “civilized” nations only if Tehran comes to terms with the United
States will be further, if not fatally, undermined.

The Primakov Option

The precise terms of the Yevgeny Primakov’s “solution” have not been revealed at this writing. It
seems safe, however, to say that there is no chance it will involve the unconditional
reintroduction of American and other UNSCOM inspectors into Iraq. Some or all of the
following appear to be part of the deal the Russians are euchring the U.S. and the UN into
accepting lest the (much-overrated and increasingly expensive) “international consensus” be
shattered:

Assured Survival for Saddam: Thirty-five years ago, Nikita Khrushchev and Fidel Castro
made the proverbial lemonade out of the lemon of the Cuban missile crisis. In exchange for
withdrawing Soviet nuclear-armed ballistic missiles from the island, the Kennedy
Administration provided assurances that further efforts to topple Castro would be abandoned.
Now, Primakov is seeking similar assurances that the option of removing Saddam from power
will be permanently foreclosed. The Clinton Administration may be tempted to offer such
assurances, since its spokesmen (notably, National Security Advisor Samuel Berger and
Defense Secretary William Cohen) have stated repeatedly that they are interested in
“containing” Saddam, not removing him. Should they do so, however, Clinton & Company
will be precluding the only option that has any chance of actually rectifying the source of the
problem with Iraq — the monstrous rule of Saddam Hussein and his regime. (For a particularly
gripping insight into just how monstrous that rule is, see the attached column by syndicated
columnist Jim Hoagland which appears in today’s Washington Post.)

The End of UNSCOM: The Primakov “solution” would assure the politicization of the UN
Special Commission. The Kremlin has already begun moving on this goal by, among other
things: effectively calling Butler on the carpet via his Russian-sponsored inquisition yesterday
before the Security Council; convening the Commission’s multinational advisory panel for the
purpose of performing a critical review of UNSCOM’s work; seeking to change the
composition of the UNSCOM teams to ensure that nations friendly to Iraq are
disproportionately represented; and changing the Commission’s reporting arrangements so as
to create new opportunities for second-guessing and revising UNSCOM reports to the
Security Council. If adopted, such initiatives will not only serve further to handicap the
inspection regime but also guarantee that Iraq’s WMD programs will, in due course (and
possibly relatively quickly), be certified as non-existent — the precondition for lifting the
sanctions.

The End of the Sanctions Regime: Primakov has also made much of the necessity of
assuring Iraq that there is “light at the end of the tunnel” — a turn of phrase the old KGB man
knows is redolent of the American defeat in Vietnam, to which Moscow greatly contributed.
The Russians are anxious to start tapping Iraq’s petrodollar-rich market for advanced
conventional and unconventional weaponry and thus have a powerful self-interest in ending the
international sanctions regime. Although the Clinton Administration finds it hard to say so (at
least on consecutive days), as long as Saddam and his ilk remain in positions to take advantage
of the removal of sanctions, the result would be disastrous.

Abandoning the Iraqi People: Perhaps the most enduring damage that would accrue were
the United States to acquiesce to the Primakov gambit would be the proof thus provided that
America is indifferent — if not positively hostile — to the Iraqi people. Those in Iraq who have
been suffering for six terrible years under an international sanctions regime supported by the
U.S. in lieu of a strategy for dealing with Saddam already have much cause to blame this
country for their woes. The absence of access to authoritative information from media sources
outside Saddam’s control enormously compounds this problem.

Were the United States formally to join with the Russians and their friends in affirming
the inviolability of Saddam’s hold on power, however, the Clinton Administration
would deserve both the contempt and the hatred his regime has been fomenting among
his populace. Such a development will make the “strategic pivot” of Iraq an even
greater force for regional instability. It may also translate into an increased readiness
on the part of Iraqis to engage in acts of violence against the U.S. and its interests.

The Bottom Line

The Clinton Administration has gone to considerable lengths since Mrs. Albright’s all-nighter with
Primakov and Company to distance itself from the Russian’s “solution.” As of this writing,
though, neither the President nor his advisors have produced a gameplan for walking back
Primakov’s cat — to say nothing of articulating a strategy for addressing the real problem, i.e.,
Saddam’s removal from power.

As the Center observed earlier in this crisis⁽¹⁾:

“…There is no practical alternative to the use of force — unilaterally, if necessary;
together with like-minded states, if possible — to bring about conditions leading to the
early end of Saddam’s reign of terror. These conditions would involve the
disruption, if not the significant destruction, of the police state apparatus upon
which the Iraqi despot depends to remain in power. In its absence, the people of
Iraq would succeed where they failed in 1991 when then-President Bush urged them to
rise up, but declined to help by suppressing the praetorian Republican Guard.”

The Center urges President Clinton formally to reject the Primakov gambit, signal his
determination to effect the prompt end of the Iraqi regime and take the necessary military,
strategic, political and informational steps necessary to bring about this objective.⁽²⁾

– 30 –

1. See the Center’s Decision Brief entitled Take Out Saddam (No. 97-D 168, 10 November
1997).

2. Such steps are detailed in the above-referenced Center paper (No. 97-D 168).