Tag Archives: Mexico

Richardson’s Purge

(Washington, D.C.): Yesterday, the House Government Reform Committee held a critically
important hearing featuring testimony from Energy and Defense Department employees who
have been punished for warning about Clinton Administration policies that threaten U.S.
security.1 No sooner had Republican and Democratic
Representatives received this evidence of
efforts by Energy Secretary Bill Richardson and other senior Clinton Administration officials to
punish people for the incompetent or malfeasant behavior they opposed than rumors began
circulating in Washington about Mr. Richardson’s next victim: Vic Reis, the
Assistant Secretary
of Energy for Defense Programs.

Vic Reis — The Next Fall Guy?

In today’s Washington Post, Walter Pincus — the Administration’s preferred
outlet for its heavily
spun damage-control efforts on the China/nuclear scandal — reports that: “The top Energy
Department official in charge of the Nation’s nuclear weapons complex, Victor H. Reis, may quit
or be fired in a dispute with Energy Secretary Bill Richardson, sources said yesterday.”

One of Pincus’ unidentified sources at DoE is quoted as saying: “It is no secret that Secretary
Richardson has not been satisfied with the emphasis given counterintelligence and security at the
labs, and Vic Reis has been the person in charge for the last six years.” (Emphasis
added.) In
other words, as Wonderland‘s Duchess might have put it, “Off with his head.”

If this statement were not so pernicious, it would be hysterical. In fact, for at least
the past two
years, responsibility for “counterintelligence and security at the labs” — and elsewhere in
the nuclear weapons complex — has actually been vested in somebody else, Rose
Gottemoeller. Ms. Gottemoeller is a proponent of radical anti-nuclear proposals 2
who, thanks to Secretary Richardson’s machinations, was stealthily elevated earlier this year to
the status of Assistant Secretary of Energy for Nonproliferation and National Security.

It has been Ms. Gottemoeller, not Vic Reis, who has had responsibility for such
scandals as:

  • the declassification of Restricted Data and Formerly Restricted Data in violation of
    the
    Atomic Energy Act     and job action against a senior DoE bureaucrat who had the
    temerity to
    alert Congress to this breach of security and the law. 3
  • the demotion of Notra Trulock — the former Director of DoE’s
    Intelligence Office, who was
    a prime-mover behind the effort to uncover and comprehend the magnitude of Chinese
    penetration of U.S. nuclear weapons secrets.
  • the effective firing of Lieutenant Colonel Ed McCallum, one of those
    who testified
    yesterday before Rep. Dan Burton’s Government Reform Committee, in transparent
    retaliation for his years of warnings about DoE’s appalling security situation — warnings that
    had been ignored until very recently by Secretaries Richardson and Gottemoeller and
    their
    predecessors.

What Richardson is Wreaking

Evidently, in this case as in that of lower level officials, Secretary Richardson intends to try
to
make lemonade out of the bitter lemons arising out of his Department’s burgeoning scandal.
Instead of holding accountable those actually responsible for the various aspects of this
travesty, he appears determined to use the demands for “heads to roll” to purge those who
have opposed past and present Clinton political appointees’ efforts to destroy the nuclear
weapons program and complex.

One of those has been Vic Reis. The Center for Security Policy has had occasion in the past
to
disagree with Dr. Reis’ efforts to defend indefensible Clinton Administration positions —
notably, concerning the compatibility of a permanent ban on nuclear testing with the need to
maintain, for the foreseeable future, a credible, safe and reliable nuclear deterrent. 4 Still, there
is little doubt but that, had it not been for his efforts, the damage done to date by the
Clinton-O’Leary policy of “denuclearization” would have been even worse than has
actually transpired.

The Last Straw — Supporting the Kyl-Domenici-Murkowski
Amendment

If Walter Pincus’ leakers are to believed, the coup de grâce for Vic Reis
came over his refusal to
back Secretary Richardson’s opposition to Senate efforts to save the U.S. nuclear weapons
program by making it the responsibility exclusively of a semi-autonomous agency within the
Department of Energy. (If anything, this initiative, sponsored by Republican Senators
Jon Kyl
of Arizona, Pete Domenici of New Mexico and Frank
Murkowski of Alaska actually does not
go as far as it should. As the President’s Foreign Intelligence Advisory Board recently reported,
[DoE cannot reform itself]; consequently, the new [Agency for Nuclear Stewardship] should
actually be made completely autonomous along the lines of the Atomic Energy Commission.)

Apparently, Mr. Richardson is running into a similar problem elsewhere in his “fiefdom.”
Reports reaching the Center suggest that the nuclear lab directors and other senior
professionals in the weapons complex are also unwilling to tow the Administration’s line on
DoE reorganization. They understand full well that, at a minimum, the
sort of streamlining and
clarification of lines of authority and responsibility contemplated by the Kyl et.al. initiative is
sorely needed. Perhaps the Secretary will have to fire all of them as well in
order to find
toadies who will support his position, seemingly born of nothing more than personal
egotism
and the reflexive, if petty, turf-protectionism of any bureaucrat, i.e, that no further improvement
to the Department of Energy is necessary.

The Bottom Line

To this point, Bill Richardson has largely been given the benefit of the doubt by his former
colleagues on Capitol Hill (with whom, as he recently colorfully put it, he “plays basketball.”)
He has been excessively credited for having taken steps — under duress and very
belatedly — to
enhance security at DoE. He has been spared to a greater extent than he deserves the worst of the
criticism about the mess over which he has presided for nine months.

The Secretary should be on notice, however: Should he continue to pursue a
vindictive policy
of punishing those who have tried to protect national security against the effects of
misguided and/or subversive Clinton policies, while protecting those who promulgated
those policies, he may put his own tenure at the Department in jeopardy.

1The witnesses were Lt. Col. Edward McCallum, Director of the
Office of Safeguards and
Security, Department of Energy; Dr. Peter Leitner, Senior Strategic Trade Adviser, Defense
Threat Reduction Agency; Michael Maloof, Chief of Technology Security Operations, Defense
Threat Reduction Agency; Jonathan Fox, Esq., Arms Control Specialist, Defense Special
Weapons Agency; Robert Henson, Physicist, Los Alamos National Laboratory, Los Alamos,
New Mexico. For more on these individuals’ contribution to the national security in the face of
Administration recriminations and job actions, see the Center’s Decision
Briefs entitled Profile
In Courage: Peter Leitner Blows The Whistle On Clinton’s Dangerous Export Decontrol
Policies (No. 97-P 82, 19 June 1997),
Everybody Didn’t Do It: Clinton Administration is in a
Class by Itself on Damaging Security Practices (No.
99-D 68, 11 June 1999), and Saving
Lieutenant Colonel McCallum (No. 99-D 64, 1
June 1999).

2 Ms. Gottemoeller’s substantive views were considered sufficiently
extreme as to deny her an
expected appointment as Assistant Secretary of Defense for International Security Policy. See
Clinton’s Reckless Nuclear Agenda Revealed? Study Co-Authored By Candidate
For Top
Pentagon Job Is Alarming (No. 97-D 96, 12
July 1997).

3 See After Years of Wantonly Declassifying
Nuclear Secrets, D.O.E. Is Suddenly Seized with
the Need to Protect Them — from Us (No. 99-D 46,
20 April 1999).

4 See Warning to the Nuclear Labs: Don’t Count on
‘Stockpile Stewardship’ to Maintain
Either Overhead Or Confidence (No. 97-D
183, 1 December 1997).

Successful T.H.A.A.D. Test Underscores Feasibility, Need for Rapid Deployment of Missile Defenses

(Washington, D.C.): At 7:19 EDT this morning, a Theater High-Altitude Area Defense
(THAAD) interceptor rocket under development by Lockheed Martin Corporation hit and
destroyed a simulated ballistic missile in flight over the Pentagon’s White Sands missile test
range in New Mexico. Today’s test demonstrates anew that the much-touted technical
challenge of “hitting a bullet with a bullet” — the objective of an effective hit-to-kill missile
defense system — is eminently achievable.

This intercept comes on the heels of a recent, successful flight demonstration of the Patriot
Advanced Capability (PAC-3) system’s hit-to-kill missile defense technology. 1 It also rebuts
the myriad critics who argued that the much-maligned THAAD program ought to be
shut-down
following its previous test failures — failures that were apparently caused by quality control (QC)
problems, not immutable laws of physics. As the Center for Security Policy has long argued, the
correct response to these difficulties is to intensify the test program as part of a
retooling of the
THAAD team’s management and enhancement of its QC efforts. 2

The question now becomes: Can we now rapidly bring this technology to the point
where it
can be widely deployed — the need for such a capability having been painfully
established eight
years ago when Iraqi Scuds killed American and allied personnel? The answer
must be in the
affirmative, as must be the decision to proceed aggressively with the development,
testing and
deployment of complementary systems, notably, modifications of the Navy’s AEGIS fleet
defense system, so as to provide more comprehensive protection for U.S. troops and allies abroad
and for the American homeland.

Specifically, today’s successful intercept should clear the decks for:

  • The rapid production and fielding of a User Operational Evaluation System
    (UOES)     —
    an interim deployment capability involving forty missiles and associated launchers, radar and
    battle-management equipment. The UOES system would permit two THAAD batteries to be
    fitted out by the year 2000.
  • Congress to pay particular attention to synergies that exist between the THAAD program
    and
    the AEGIS Option (starting with the Navy Theater Wide missile defense system), including
    using the THAAD program’s formidable radar system and perhaps other components to
    optimize the missile defense capabilities of Navy platforms     deployed around the
    world. 3
  • Missile intercept tests as soon as possible against longer-range
    missiles.     Today’s test used
    a Hera test vehicle to imitate a Scud missile similar to those fired by Iraq during the 1991 Gulf
    War. The Congress should legislate requirements to test missile defenses against targets
    designed to simulate the flight of medium-range missiles such as North Korea’s Taepo Dong I
    or Iran’s Shahab-3.

The Bottom Line

The Nation owes a tremendous debt of gratitude to those responsible for permitting and
accomplishing the perfection of the THAAD missile defense system. With this success, there is
now every reason to believe that — if the THAAD program is provided with the resources, the
programmatic priority and policy latitude it needs in this critical phase of its development — it
will not only perform as advertised in the future, but provide invaluable assistance to other,
critically important hit-to-kill anti-missile efforts.

1 On 15 March, the PAC-3 intercepted and destroyed an incoming
tactical ballistic missile
target.

2 See the Center’s Decision Briefs entitled
Only the Clinton Team Could Respond to North
Korean, Other Emerging Missile Threats by Canceling Near-Term T.H.A.A.D.
(No. 98-D 159,
3 September 1998) and Hit or Miss Tomorrow, T.H.A.A.D. Must Go
Forward (No. 98-D 81, 11
May 1998).

3For more on the benefits of such program integration, see the
Heritage Foundation’s new study
entitled “Defending America: A Plan to Meet the Urgent Missile
Threat,” which can be
accessed via the World Wide Web at the following address: www.heritage.org.

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

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 —

Future of US naval supremacy

20 April 1998
ANA Hotel, Washington, D.C.

As Congress considered President Clinton’s Fiscal Year 1999 request for the Department of Defense, the Center for Security Policy convened a High-Level Roundtable Discussion on one of the most worrisome aspects of that request: Its potentially deleterious impact on “The Future of U.S. Naval Supremacy.”

Specifically, this Discussion — involving over 60 past and present senior military officers, industry leaders, members of the press and the Chairman of the U.S. Senate Seapower Subcommittee, Sen. John Warner (R-VA) — addressed the growing importance of power projection from the sea and the danger that adequate provision is not being made to assure that the Nation will have the means to project such power over the long-term. (See the attached List of Participants.)

The Roundtable featured important contributions by its lead discussants: Vice Admiral Al Burkhalter (USN, Ret.) who served in a number of senior positions in the U.S. intelligence community, including that of Director of the Intelligence Community Staff; Admiral Wesley L. McDonald (USN, Ret.), former Supreme Allied Commander Atlantic and Commander-in-Chief of the U.S. Atlantic Command; Frank J. Gaffney, Jr., Director of the Center for Security Policy who acted as an Assistant Secretary of Defense during the Reagan Administration; and Ronald O’Rourke, an internationally recognized authority on naval matters who is a Specialist in National Defense at the Congressional Research Service. The Roundtable was capped by a working luncheon featuring remarks by Keynote Speaker Senator John Warner (R-VA). Sen. Warner has had a life-long and intimate association with the naval services thanks to his previous roles as an officer in and Secretary of the Navy and his current responsibilities as Chairman of the Senate Armed Services Committee’s Seapower Subcommittee.

The following pages summarize many of the important insights arising from this Roundtable Discussion regarding: the continuing — indeed, growing — need for global naval power in the post-Cold War world; the current state of the U.S. Navy; new missions that the Navy should be taking on, notably world-wide ballistic missile defense; and the adequacy of present and projected defense budgets to permit the Navy to satisfy its present requirements, let alone those likely to arise in the future. 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 Roundtable.

While no effort was made to formalize a consensus, the clear sentiment of most — if not all — of those participating in this event was that, under present circumstances, the Nation is simply not investing what is required to maintain a fleet of sufficient size and capability to meet the United States’s long-term security requirements.

Post-Cold War Challenges to U.S. Security Interests

Vice Admiral Burkhalter opened the Roundtable with an informative look at the “big picture” — the strategic environment in the post-Cold War era and its implications for U.S. security interests. Highlights of this portion of the Roundtable included the following:


  • “[Among] the most telling things today that causes us to have challenges from so many parts of the world is a rapid increase in technologies that lead to weapons of mass destruction; the rapid increase in communications technologies that are easily available to almost any country in the world…; and the spread of these capabilities into so many third-world countries.”




  • “…Take the submarine threat that our Navy may be faced with in the future. Today, there are over 25 nations with submarines of varying capabilities, as many as up to 600 ships that our Navy could be faced with. And in a great majority of these countries, as their own capabilities and as their own resources increase, they are able to acquire these [advanced] technologies today. They are able to acquire submarines, as we have seen most recently in the case of Iran, India, other parts of the Middle East, and combining these threats with the weapons that are available from either a submarine-launched torpedo or from cruise missiles that can be launched from not only submarines, but relatively small platforms, it gives our Navy a challenge, in many cases larger than we have faced when we had a large Russian fleet deployed in many parts of the world.“




    “It is a visible challenge that is growing every day. When we remember that 85 percent of the population of the world is within 100 miles of the oceans of the world, it gives us even more pause to realize why we need a strong military, a strong maritime [capability] to be able to support our national interest and to be able to challenge these threats wherever they may occur.”



  • “The biggest part of the problem, at the moment, is the complacency that is induced in most of our countrymen, in no small measure by our leaders who are failing to take note of some of the trends, if not all of the trends.”




  • “One very profound concern…has been the approach that the Clinton Administration has taken towards the transfer of militarily relevant technology, even American militarily relevant technology, to some potential adversaries….“(1)




  • The role of some American businessmen in permitting such strategic technology transfers was also addressed by the Roundtable’s participants. In this connection, a recent essay by New York Times columnist Thomas Friedman received favorable mention. The Friedman article criticized in particular computer industry executives for their inattention to national security factors: “Silicon Valley’s tech-heads have become so obsessed with bandwidth, they have forgotten balance of power. They have forgotten that without America on duty, there will be no America online.”




    There appeared to be considerable support among those attending Roundtable participants for a forceful critique by Robert Kagan, which was favorably cited by Friedman: “The people in Silicon Valley think it’s a virtue not to think about history because everything for them is about the future, but their ignorance of history leads them to ignore that this explosion of commerce and trade rests on a secure international system which rests on those who have the power and the desire to see that system preserved.”(2)



  • “[The U.S.] is hardly the only source of such technology. Russia is, of course, a very important ‘arsenal for roguery.’ But, it is the case under our present approach that even our own Government is turning a blind eye to, if not actively supporting, the movement of technologies whether they are in the communications area, relevant to guidance, missiles and other weaponry, jet engines, aerospace-relevant machine tools, and the like that will come back to haunt us, not just on the world’s oceans, but particularly there.”




  • “It is also not only the transfer of technology from the Russians to many of the Middle Eastern countries, but the large amount of technology that they have transferred to the Chinese in the past few years, the agreements that they have made with the Chinese in the last 2 years, to continue that transfer of technology. It is being noted today in their submarine programs and their missile programs, and, further, the proliferation and transfer of missiles from the Chinese to other parts of the Middle East.”




  • “Our submarine building rate is the lowest it has been in decades …. If we don’t increase that force level, we’ll be to the point where the number of submarines we have that can face [the] challenge…will be dangerously low in the very near term.”




  • “[The] proliferation of these challenges worldwide puts…more stress on our limited naval forces today than any time…in the past 40 years.”




  • A recently released analysis of today’s Navy produced by Admiral Paul Reason, Commander of the U.S. Atlantic Fleet, and David G. Freymann, a retired naval officer, entitled “Sailing New Seas” was the subject for much discussion. According to this study, the U.S. Navy is “anchored in the strong holding ground of our successful past, yet already we feel and see the leading indicators of a storm that threatens to wreck us at our hard-won anchorage. We face not a small squall and some temporary discomfort, but a typhoon more ominous than any we have encountered since 1944. This time it is a typhoon of change.”




    The study notes that, “Those who have been at sea on the ships of other excellent navies know that in some regards the pre-eminence of the U.S. Navy is already being challenged in quality though not [yet] in quantity.”(3)

The Navy’s Role in Addressing Post-Cold War Security Challenges

The discussion of the contribution the U.S. Navy will be asked to make to protecting American interests and security in this challenging post-Cold War strategic environment was led by Admiral Wesley McDonald, a highly decorated and regarded naval aviator and combatant commander. Highlights of this portion of the Roundtable included the following:


  • “Unless we address carefully where we are going with our force structures — by all the services — driven by the budget and our present national security planning, [we] will fall into the high-risk area in the near time frame.”




  • “Shortly after the Berlin Wall started coming down, in fact just before then the Navy had grown to about 575 ships, plus or minus 5….the Navy, like the other services, responded [to the end of the Cold War] and in the early ’90s came down…to something under 500 ships, like 450. This was total ships. [There was] a very rapid transition of putting out of commission a lot of older ships that weren’t quite up to speed, as compared to some of the new technologies that were now hitting the fleet. Nothing wrong with that — as long as a threat never appeared or we could explain away threats for the future.”




    “The [size of the Navy] has continued to go down. So that, as of a couple of years ago, we were down to about 300 ships in the United States Navy for projection of power, for presence, and other requirements that the Navy uniquely can fulfill when called upon.”



    “If you look at the FY ’99 budget, you will find that there is funding for 116 combatant ships in the United States Navy …. [When] support ships are [factored in], there will probably be a total Navy of just over 200 in round figures.”



  • “The Navy is spread awfully thin, not even awfully thin, but unable to respond in more than about one area at the same time. It is really going to be very, very difficult to cover the Korean theater, Southwest Asia, and any other hot spot that might come up, Latin American or name any others that you can think of in today’s world. As the requirements continue to climb and the numbers come down, we are just going to be running out of people, running out of ships, and into a business of non-responsiveness.”




  • “The Navy Department has come recently with a review of what their cost to operate the Department will be. Their requirements to operate the Navy Department, which includes the Marine Corps, is $88 billion per year in the near-term …. The funding that is now planned is for $81 billion as a top-line budget funding. So there is a $7-billion delta sitting out there that has to be addressed or we are just not going to be able to carry out what is perceived to be a response to those requirements.”(4)




  • “The Navy has put a stake in the ground — the CNO and other Navy military leaders — that we absolutely have to have for national security 12 carrier battle groups.”




  • “Unless there is some shooting taking place, forward presence doesn’t mean very much. But forward presence does have an impact when you have a carrier battle group someplace in the area with its power projection — not only from its flight decks, but from the missiles that are on the supporting ships that are in that carrier battle group — as an almost immediate response to whatever the trouble may be.”




    “A visible presence of U.S. naval forces sends a signal to friends, allies, and potential aggressors alike that the United States has interests that we can and will protect. For example, U.S. presence in the Arabian Gulf helps guarantee the free-flow of oil upon which the dynamic economies of the world’s free markets rely.”



  • “It is about time that in the review of the national security strategy that the roles and missions of each service be looked at to the point of what is truly best for the Nation, what forces are best equipped to do what we see that the threat will be in the next 20 years. I would offer to you…that the Navy and the Air Force stand very powerfully in place to respond to what those threats can be in a broad, broad area.”




  • “What we are doing is talking about a redistribution of insufficiency here rather than making sure we have sufficiency.”




  • “An alternative approach would be] to expand the pie … There are still responsible people in the Congress who, if equipped with the facts, are prepared to do the right thing, and it is certainly the case, at least in my judgment, that the American people, if acquainted with the facts, will want their elected representatives to do the right thing.”




  • “It seems to me one of the things which we might debate a little later is instead of trying to do this on the idea of strictly what the budget might allow, just say a great Nation like ours needs a floor of 3 percent of its gross national product [for defense], which would seem to me, for the short run, to take care of a lot of our problems.”


An Emerging Mission: Missile Defense from the Sea

Mr. Gaffney led an interesting discussion of the role the Navy can play in mitigating the ever- increasing danger posed by ballistic missiles — not only to American troops and allies abroad but to the United States, itself. As a prelude to the discussion, the Roundtable viewed a 15-minute film produced by the Center for Security Policy, entitled “America the Vulnerable.” This video features some of the Nation’s foremost security policy practitioners — both past and present, including: House Speaker Newt Gingrich, Governor Pete Wilson, Sens. Jon Kyl and Thad Cochran, Rep. Bob Livingston, Amb. Jeane Kirkpatrick, Edwin Meese, Jim Woolsey, Richard Allen, Richard Perle and Dr. Henry Cooper.

The film and ensuing discussion called particular attention to the opportunity to take advantage of the roughly $50 billion investment already made in the Navy’s AEGIS fleet air defense system to begin providing near-term and affordable protection of the American people, as well to their forces and allies overseas, against short- and long-range missile attack. Highlights of the subsequent discussion follow:


  • “This is a problem, in part, of our own making. It is as a result of the policy of the United States Government to leave its people vulnerable to various forms of attack that we now find ourselves in a situation where I believe we are very gravely at risk.”




  • “In the final analysis, the problem is a policy problem, not a technical one …. One of the things that will absolutely, positively happen if someone decides to take advantage of the vulnerability that was just discussed by putting a ballistic missile with a chemical weapon or a biological weapon or a nuclear weapon on it into an American city is that we will build a Navy-based missile defense system very rapidly. Cost will be no object. Technology will be no limit. And, certainly, a treaty with a country that no longer exists will no longer be considered a constraint.”




    “It will be the utmost tragedy if we wait until that happens to take such a step, when by taking such a step now, we might prevent it from happening.”



  • “…Congress has asked for the facts — what can the Navy contribute to a defense of the American homeland against missile attack — and that is fundamentally a technical judgment and analysis, not a political statement.“




  • “The Grand Forks land-based system can’t handle…threats from [sea-launched] missiles from the Gulf of Mexico from the Southern Pacific. San Diego, Washington, Miami are all vulnerable. The sea-based defense is actually, probably the only one that can handle those [in the near-term], and that should be emphasized, as well as all the other advantages when we talk about a sea-based defense.”




    The Arms Control Dimension



  • “The President of the United States has repeatedly described the 1972 Anti-Ballistic Missile Treaty as the cornerstone of strategic stability, and the Office of the Secretary of Defense and other entities like the Arms Control and Disarmament Agency, that wants a decision-making role in what we develop and buy for our military, have this as an absolute theological commitment.”




    “The American people must remain vulnerable in perpetuity, no matter what. It is the doctrine of the United States Government under the Clinton Administration. It is incredible, and what I think is gratifying about the officials, former and present, that you saw in the film is that there are more and more people willing to say this is criminally irresponsible. Still, it remains the policy of the executive branch, and I am afraid for the time being — unless we see some changes –the Navy is going to continue to be under some very severe constraints.”



  • “The Navy can do [the missile defense mission] uniquely, effectively, inexpensively, if they increase the intercept rates, if they tie into other sensors. But those two things that I have just mentioned have been forbidden in the New York agreements of September 26th last year where our Government signed onto the Russian veto of our effective defenses. For example, we cannot go above [interceptor velocities of] 4.5 kilometers per second, according to those agreements. We cannot test against longer-range missiles. We are not allowed to do a number of things. We are not, of course, allowed to use space-based sensors or forward-based sensors.”




    “If the Senate does not reject those treaties — if, in fact, it doesn’t get a chance to vote on them and the policy that was set in September by these really preposterous arms control agreements is maintained, then the Navy’s emerging theater system cannot be all it can be, and we would not have any chance whatsoever to defend against longer-range threats — whether land-based or sea-based. So I think the situation is very critical, and we need to get [the Senate to address] these agreements…for the American people.”



    “They have not been sent forward. It’s been 6 months since they were signed. The discrepancy between what those agreements require and what, on the other hand, is required to make a robust defense possible, a sea-based defense, is enormous. It needs to be brought before the Senate and the House and others, and it also needs to be factored, I believe, by the Navy leadership at the four-star level into their current planning.”



  • “A very key point is that, in the absence of Senate advice and consent, these agreements are becoming constraints on the Navy’s programs, even the theater [missile defense] program, which is just adding insult to the injury I believe that is already being inflicted on a treaty that has long since outlived whatever usefulness it had.”


Will Present Trends Provide an Adequate Navy for the Future?

Perhaps the highlight of the day’s event was the singularly informative presentation given by Ronald O’Rourke on the impact of current budgetary trends on the Navy, today and tomorrow. Key points made in connection with the adequacy of projected resource levels included the following:


  • “The near-term requirement is one of preserving readiness, while maintaining a very high tempo of operations around the world. And the far-term element of this challenge is to develop and procure the new weapons and equipment at a rate that is sufficient to modernize and maintain the force at a given size over the long run. For some time now, there has been concern about the Navy’s ability to fully accomplish this…goal.”




  • “With regard to the near-term portion, which is the part about maintaining near-term readiness while you undertake all these high-tempo operations, the Administration’s budgeting strategy for all the services, not just for the Navy, has been to try to preserve funding for current readiness, even at the expense of funding for procurement of new weapons and equipment. But the Navy’s operational tempo for several years now has been very high. In fact, it’s been gliding upward at a slight rate for the past several years, and there is now anecdotal evidence of difficulty in maintaining readiness in the fleet.”




  • “The congressional defense oversight committees have been very concerned about this. They have had a general concern about readiness for several years now, but they have been particularly concerned about it in their questioning of DOD and Navy witnesses this year.”




    “When questioned this year, Navy officials have testified that while readiness of the deployed forces is okay, readiness of the non-deployed forces has been allowed to drop steeper or more deeply than has been in the case in the past and has made it more difficult for those forces to once again attain their high level of readiness when they are preparing to deploy.”



  • “In fact, an article in the Navy Times…that came out in the April 13th issue…talk[ed] about two different carriers going to sea with crews that were considerably short of what you might expect to be on board a deployed carrier. A deployed carrier might have somewhere between 5,500 and 6,000 people aboard. These two carriers went to sea with 4,600 people and 4,200 people. So the shortages were on the order of a thousand people or more.”




    “There have also been reports of ships that have had to return to port early for lack of fuel or which have not been deployed because of lack of availability of fuel or other sorts of repair problems among mine warfare ships and so on.”



    “So I think there is a fair amount of concern on the Hill and a lot of anecdotal evidence on the issue of the Navy’s ability to maintain readiness in the near term at the levels that it has been able to in more recent years.”

The Critical Problem with Shipbuilding

  • “For several years now, the Navy has, in fact, been procuring new weapons and equipment at fairly low rates, rates that are below those which would be required to replace the planned force on a steady-state basis, and this is particularly true in the key area of shipbuilding.”




  • “The Reagan Administration set a goal of 600 and got fairly close to that by the end of fiscal ’87. They were at about 570 ships. The Bush Administration in its earlier years seemed to plan without articulating it to explicitly on a Navy of maybe about 550 ships. In the second half of the Bush Administration, the base force review lowered that goal in the near term to about 450 ships, but the long-term planning was to glide down to about 416. The bottom-up review in 1993 set a goal of 346 ships, and over the next 3 years, the Navy supported between 330 and 346 as its planning goal. And now, following the Quadrennial Defense Review, which came out last May, the new goal is about 300 ships.”




    “If you take that number 300 and you divide it by a fleet-wide average service life of about 35 years for your ships, then you come up with a long-term required average procurement rate, a steady-state replacement rate of about 8.6 ships per year. We have been below that rate since fiscal ’94, and we are programmed to remain below that rate through the end of the FYDP, through ’03, and that’s a 10-year period during which we will be below this steady-state replacement rate of 8.6 ships per year.”



  • “So, by the end of the FYDP, we will be 29 ships short of the amount that would have been procured under a steady-state procurement policy …. Last year, the Administration released to industry a projection of what it thought its shipbuilding rate would be for the 12 years beyond the FYDP. That would be for the years ’04 through ’15, and it showed a projected rate of 6.3 to 7.7 ships per year, which is, again, below the stead-state replacement rate.”




    “[If this situation persists] you will be 22 years into a 35-year shipbuilding period, at the end of which you will be 40 to 56 ships short of what a steady-state replacement rate would get you to maintain a 300-ship Navy.”



  • “This shipbuilding effort — and the fact that it falls short of what a steady-state replacement rate would require — is currently being masked in force structure terms by the presence of a large number of ships that we have purchased during the 1980’s.”




    “Soon after 2015, when you get into the 2020’s, those ships are going to start leaving the service in large numbers. Your average age will drop rapidly, but then you are going to encounter the fact that the size of the Navy is going to be doing down significantly because those ships will disappear at a very high rate.“



    “The force size could, in fact, drop below 300, and if you are 40 to 56 ships short of where your steady-state replacement rate would have brought you, that suggests that the Navy might fall to a total of about 250 ships by the mid-2020’s.”



  • “Now, 2020 sounds like a long time from now, but in terms of naval procurement and naval force structure planning, it is really right around the corner because the timelines for these things are so long.“




    “Now, by the 2020’s, we might not need a Navy of more than about 250 ships. The world by then might be a fairly benign place, but we don’t know that. The world of the 2020’s could instead present us with significant security challenges from a variety of countries, including, for example, China was one of those that was mentioned earlier.”



    “The point is that the current planned shipbuilding rate will, if implemented, make it very difficult for us to head off this eventual drop in fleet size, and we will simply be confronted with that fact, whichever way the world develops, between now and then.”

Industrial Base Issues

  • “The industrial base that we have grown used to having to support shipbuilding…won’t be there.”




    “The industrial base that you remember from the Cold War days…doesn’t exist anymore. It’s gone. It’s been much more streamlined, much restructured from that time frame. But you’re still living off the luxury of that backlog and from the Cold War, and you need to really solidify what you want the industrial base to look like for the future.”



  • “We are down to just six shipyards that are very downsized companies, each and every one of them. If we are going to meet the requirements of the Navy to build 10 to 12 ships per year, we need the industrial base that we currently have. Yet, six ships will be inadequate to sustain the base.”




    “When you have a very reduced industrial base, it is important to sustain the industrial base that the Nation has left — and the critical skills and capabilities of the yards that are currently in place.”



  • “The submarine force is perhaps the component of the fleet that is going to feel this problem most acutely, and that is because the drop-off in the submarine construction rate started earlier, and it has been proportionately deeper than it has been for most other parts of the Navy.”




  • “One of the Navy’s great frustrations today is that…we do not have a real good way of looking at that industrial base in an integrated manner and trying to get to where we need to go. By not looking at this issue as an integrated whole, you are slowly deteriorating the capability of that base, just because of the nature of how you get smaller. You continue to shrink. It’s typically done by seniority. The work force is getting older and older, and so you really need to start to rejuvenate this work force for the future.”




  • “It can be done relatively simply once you decide what it is you want, what are the force structures that you’re driving towards, are you committed to maintaining those levels, and then the key becomes establishing a stable and predictable production program on which you can size facilities around.”




    “[You] need to commit to where you’re trying to go and then have the policy follow — you need the national security policy; how does that equate down to weapons platforms, weapons systems; and then you need to set in place long-term acquisition strategies towards getting there, so you get the best bang for the buck.”



    “The Navy is, in my view, struggling mightily, trying to come through those issues. They need help. They need congressional help. They need help from the people across the country that basically will get behind the national security strategies and saying good, let’s go do it, but right now sometimes, I’m sure, they feel like they’re pushing a rope on that issue.”



  • “…There is a growing consensus that [several] measures [the Navy is taking to reduce its costs(5)], though helpful, will not by themselves be sufficient to square this budget problem fully, and this seems to be particularly the case in light of evidence that the readiness portion of the Navy’s budget is also now coming under some pressure compared to the level of operations that it is being asked to sustain.”




    “You need to probably look at increasing the Navy top line if these other measures are not going to be sufficient, and you can do that either by increasing the DOD top line or by increasing the Navy’s share of the DOD top line.“

Apathy in the Congress and the General Public

Over an elegant luncheon in the ANA Hotel’s Colonnade, Senator Warner spoke candidly of his concerns about: the public’s inattention to the growing importance of U.S. maritime power; the absence of serious scrutiny being given to national security issues by many of his colleagues on both sides of Capitol Hill; and the serious shortfalls arising as a result of years of deferred investment, attrition of skilled personnel and excessive commitments of U.S. naval forces.

These trends are especially worrisome given the changing nature of the international system — notably, the fact that a number of countries (including many that have, heretofore, been steadfast American allies) are less and less willing or able to help the U.S. maintain stability. This puts a premium on naval forces which are uniquely capable of providing forward presence without relying upon host nation permission and/or support. Highlights of the Senator’s remarks included:


  • “The country is totally unconcerned because we are at a period of remarkable peace and tranquility in their minds, but you know in your [experience] and your studies that that is a false premise.”




  • “In the Senate today, less than 50 percent ever had an opportunity or a desire to wear the uniform of the United States, and in the House, it’s around 32 percent. Now, that makes it exceedingly difficult for those of us who are trying to get added funding for the armed services…[to develop support for] our case. We start from a base that is rapidly dwindling in terms of interest and in terms of background association with military and security affairs.”




    “What do we do about it? Well, I think we have got to do something in the very near future as it relates to seapower. As I look out at the world today and the growing number of threats to this country, they’re in remote areas. They are largely of nationalistic problems, ethic problems, religious problems, some political, and the only force really that’s in place and forward-deployed and has the mobility to respond quickly is the Navy-Marine Corps team.“



  • “[We need to place a] greater emphasis on the need for sea power because we cannot count on other nations to give us the beachheads, the ports, the terra firma on which to put ground forces in the case of an operation. We have to rely on the sovereign U.S. ship, wherever they are afloat in the world.”




    “…Within a year or two, the Secretary of Defense and the President — maybe not this one, maybe the next one — have got to come to grips with reality, with…what is present in the world to assist us and what the attitude is at home to sustain a military operation and reconfigure our forces to meet those two realities at home and abroad.”



    “I think that will require a changing of the roughly one-third/one-third/one-third allocation and a greater emphasis on the maritime forces of the United States and on certain elements of air to respond to these contingencies worldwide.”

Missile Defense and the ABM Treaty

  • “I think there are sufficient members of the Senate that we would conduct a filibuster before we’d accept those [Clinton-negotiated ABM Treaty-related] agreements, and we are going to press ahead with the national missile defense …. I doubt if those things will ever see the light of day in terms of ratification.”




    “This year, we are going to try and put greater emphasis on the Navy because the Navy, particularly with its Aegis system, has the capability of performing — as best we can with any element of U.S. defense today — a missile defense program.“

Conclusion

The Center for Security Policy’s High-Level Roundtable clearly underscored the need to make additional resources available to ensure the readiness of today’s Navy and the ability of tomorrow’s fleet to meet the myriad tasks the Nation will require of it. If present levels of investment are not adjusted to reflect this reality, history appears likely to look back on this period as the time when the United States took actions that significantly eroded its military power and that, in turn, resulted in the loss of its global pre-eminence, endangered its abilities to protect its vital interests and encouraged others to fill the vacuum of power at America’s expense.

— End of Summary —

1. This symposium took place before allegations concerning the Administration’s transfer of sensitive missile technology to China became known. Those allegations have now made it all the more important that there be a wholesale reconsideration of the Clinton policy with respect to export controls. See the Center’s Decision Briefs entitled Broadening the Lens: Peter Leitner’s Revelations on ’60 Minutes,’ Capitol Hill Indict Clinton Technology Insecurity (No. 98-D 101, 6 June 1998) and Clinton Legacy Watch # 21: Efforts to Help Chinese Missile Program Reek of Corruption, Betrayal of U.S. Interests (No. 98-D 61, 6 April 1998).

2. For more on the Friedman column, see Mirabile Dictu: Tom Friedman Is Right on American Industry’s Shortsightedness Concerning U.S. National Security (No. 98-C 66, 20 April 1998).

3. Adm. Reason’s study illustrates the significant contribution to the budget debate that can be made by those currently serving in the Navy, in particular, and the armed forces more generally. The unique perspective of the former on present trends is invaluable to ensuring an informed debate about the role of the Navy in the future and its ability to fulfill that role.

4. One participant noted that the problem may be substantially greater.


    “There is apparently a mismatch in the scoring that has been used by the Office of Management and Budget, on the one hand, and by the Congressional Budget Office, on the other, which I am told leaves us with the CBO projections $3.5 billion higher in outlays than the Administration claims they would be in this budget year. Of course, the outlays number is the tip of the iceberg. That translates, by some estimates, into many times that number in terms of total obligational authority (TOA) — I have heard as much as $25 billion …. Since Congress has to go with the CBO number, the effect would be to drive down or to have to find offsets for this excess amount. It is a huge problem.”


5. For example, the Navy is counting on reducing its inventory of bases and facilities, regionalizing and outsourcing maintenance activities, reducing manpower requirements with new ship designs and the like to lower its overhead and free up resources for shipbuilding and readiness purposes.

‘Russian Clean-Up’: Expectations of Western Bail-Out Artificially Buoy Markets, But Serve to Compound the Problem

(Washington, D.C.): In a rare Sunday public statement — calculated to be digested by
international financiers prior to market openings — President Clinton announced that the United
States was prepared to help ease Russia’s financial crisis. His statement was transparently
intended to buy time for the Kremlin by restoring private investor confidence through the prospect
of a multilateral rescue package. What this initiative is likely to produce, however, is a
cascading of Russian short-term debt obligations, fattening the wallets of Western investors
and bankers while staving off needed, systemic reform and off-loading new, multi-billion
dollar costs onto U.S. and allied taxpayers.

‘Dead Cat Bounce’

The next day’s verdict on the President’s effort by the market was a harsh one — another 10%
slide in the Russian stock market, down more than 40% in recent months. While some recovery
occurred over the next two days, there is reason to doubt that it amounts to evidence of new,
durable market stability. As yesterday’s London Financial Times put it:
“Traders…cautioned
that the rebound in Russia’s financial markets was on the back of low volumes and might
simply reflect a ‘dead cat bounce’ after weeks of heavy selling.”

This assessment seems to characterize accurately yesterday’s ruble-denominated Russian
treasury
bills (known as GKOs), as well. While $946 million was raised in a debt sale, it was all
in bonds
with short maturities, i.e., less than a year. Roughly $80 million of it was in
bonds with a
redemption date of just seven days! The rest was in maturities of 126 days
or 343 days, with
yields of between 50% to 60%, depending upon the repayment schedule.

In addition, the Russians also went to the international market via a $1.25
billion dollar-denominated Eurobond offering lead managed by Goldman Sachs. href=”#N_1_”>(1) And, according to Reuters,
Finance Minister Mikhail Zadornov announced today that “Russia will launch two
more dollar-denominated Eurobond offerings this year and will put the finishing touches on
a foreign
borrowing package in the next few days.”

Just How ‘Dead’ is the Cat?

What is going on here, anyway? In the words of today’s Washington Post:

    “Even the IMF’s boosters acknowledge the Russian crisis presents some unusually
    thorny dilemmas that highlight the pitfalls of international rescues. Prime among
    these is what economists call ‘moral hazard’ — the problem that bailouts may
    encourage imprudent behavior by governments and investors.

    “A lot of money has gone into the Russian market from people buying Russian
    treasury bills knowing that the economic fundamentals aren’t very strong,
    but taking comfort that when the chips are down, the IMF and the [Group
    of Seven industrial countries] aren’t going to let that country fail,”     said
    Desmond Lachman, the head of emerging-markets research at Salomon Smith
    Barney. (Emphasis added.)

To be sure, Russia’s forays into the market have been heralded as successes, indicating a
restoration of investor confidence. The reality is quite different:

  • First, the Ministry of Finance fell as much as $250 million short in its effort to cover Russia’s
    debt
    scheduled to come due this week    , thereby necessitating yet another raid on
    its already
    seriously depleted hard currency reserves.(2)
  • Second, the exceedingly short-term maturities the Kremlin was forced to
    accept are
    almost unheard of for sovereign borrowers.     This is all the more astounding given the
    high
    rates of interest demanded by the marketplace. These are obvious bellwethers of a lack of
    investor confidence.
  • Third, there is the matter of the overall size of the debt coming due, week-to-week.
    According
    to today’s New York Times, Russia is facing $900 million worth of GKOs
    coming due next
    week.     Another $1.3 billion in debt will mature the following week. According to a
    Bloomberg report of 3 June, “the [Russian] government still must make another $3.9 billion in
    debt payments this month, and a total of $33 billion this year.” Wednesday’s New York
    Times
    cites Erik Nielsen, an economist at Goldman Sachs in London, as saying that “Russia will need
    to finance the redemption of $50 billion in the next year” — an amount that translates into a
    staggering average of more than $1 billion per week     for the balance of this year. While
    there
    may be some overlap in these estimates, the point is clear: Russia’s high interest rates and debt
    structure have become what Desmond Lachman has called a “debt trap.”

  • Finally, the Washington Post telegraphed on 3 June that Russia was
    contemplating the financial
    equivalent of a “Hail Mary” pass: an unparalleled effort to reschedule some $70 billion
    in
    government ruble-denominated debt,     almost all of which is in the form of traditionally
    non-reschedulable bonds held by foreign and domestic investors.

From ‘Debt Trap’ to ‘Moral Hazard’

One need not be a banker to realize that something is very wrong with this picture.
No one with
a modicum of fiduciary responsibility would be lending unsecured to Russia now — unless
they expect to garner large profits from usurious interest rates, essentially risk-free thanks
to expected, large-scale infusions of Western taxpayer money.

Such a mindset was exhibited in remarks attributed to Denis Smyslov, investment director at
the
Moscow office of Global Fund Management, in yesterday’s Financial Times: “He said
the
markets were playing a ‘waiting game’ with the government until there was further evidence of
financial support from the International Monetary Fund or Russia’s Western partners.
‘At
current yields, I do not think there will be a big outflow of foreign money from the GKO
[treasury bill market],’ he said. ‘But everyone is waiting for a financial package
between
the Russian government and the IMF which will explain how to lower interest rates and
defend the rouble at the same time.'”

When In Doubt, Fear-Monger

As the William J. Casey Institute recently predicted,(3)
the Clinton Administration has begun to
utilize fear-mongering techniques to rationalize U.S. taxpayer underwriting of a continuing
flow of new money to Russia, despite its untenable short-term debt structure. The
Times
reported on 1 June 1998 that an unidentified State Department official declared that “The
Indonesians, the Koreans and the Thais weren’t sitting on tens of thousands of nuclear
weapons.
The disaster here would be an economic meltdown that aided Yeltsin’s enemies on the right.”
(Emphasis added.) Then, Deputy Secretary of Treasury Larry Summers — the Administration’s
point man on global bail-outs — chimed in with the warning of a “contagion effect,” stating that
“Russia’s problem has the potential to become Central Europe’s and the world’s.”

An important component of what is really at work here was laid bare by the
Wall Street Journal‘s
George Melloan in an editorial published on 2 June. He wrote:

    “So what does a ‘financial crisis’ mean in a country that doesn’t have a true banking
    system and doesn’t even make very wide use of its own currency? What it means is
    that the crisis is taking place in a rather narrow and rarefied sector, one chiefly
    inhabited by multi-millionaire Russian bankers who mostly ‘inherited’ their
    properties from the state and by Western lenders and investors — hedge funds,
    for example.”

The Bottom Line

If the Clinton Administration has its way, the U.S. taxpayer will be put in the position of
helping
Russia perform what is known in banking circles as a “Chinese clean-up,” the sort of financial
legerdemain familiar to consumers who use their Visa credit line to pay down their
MasterCard
overdrafts. What makes this “Russian clean-up” even more unsavory is the
fact that it
arises from the deliberate collaboration of the Russian government and primarily
Moscow-based tycoons with Western investment and commercial banks. The latter are
reaping near-term, windfall profits while seeking to protect themselves, week by week, against
Kremlin non-payment while awaiting a multilateral taxpayer bailout (read the International
Monetary Fund,
World Bank and others).

No one can say they have not been warned of this “moral hazard.” For example,
former Federal
Reserve Governor Lawrence Lindsey warned last December that: “One of the reasons
we have
the Asian crisis is that we bailed out Mexico. We signaled to creditors around the world that you
could feel free to lend in Asia and the U.S. Treasury and the IMF would bail you out if you got in
trouble.”(4) The same can be said of expectations
concerning Russia.

The West could experience strategic, as well as financial, repercussions if the
Clinton
Administration’s “Russian clean-up” is unaccompanied by wholesale, systemic reform in Russia.
Fortunately, a powerful 28 May letter to the President from House International Relations
Committee Chairman Ben Gilman (R-NY) — see the attached — signals that the Congress
will not permit such a travesty.

– 30 –

1. The New York Times reported on Wednesday that
Goldman Sachs economist Erik Nielsen said
that “Russia was now hoping to raise up to $6 billion this year on the European markets, up from
$3.5 billion under a previous plan.”

2. By some estimates, these are now as little as $10-12 billion, of
which as much as $4.5 billion
may be in less-liquid gold in a depressed precious metals markets. This amount is sharply reduced
from what was believed to be a $14 billion reserve level as recently as last Friday.

3. See the Casey Institute Perspective entitled
Jakarta With 10,000 Nuclear Warheads? Fear-Mongering Begins On Behalf of
IMF’s Next Bailout — Of Russia (No. 98-C 95, 29
May
1998).

4. See the Casey Institute Perspective entitled
The Dog that Didn’t Bark: Moody’s Et. Al. Fail
Investors in Asian Markets, Miss Warning Signs in China Russia ( href=”index.jsp?section=papers&code=97-C_200″>No. 97-C 200, 23 December
1997).

Senate Should Vote to Defend America
‘As Soon As Technologically Possible’

(Washington, D.C.): The U.S. Senate is expected shortly to vote on one of the most
important
national security issues of the day — ending America’s posture of “assured vulnerability” to
ballistic missile attack. This would be accomplished by implementation of the policy espoused by
“The American Missile Protection Act of 1998” (S. 1873). The bill would
establish for the
first time that it is the “policy of the United States to deploy as soon as technologically
possible an effective National Missile Defense (NMD) system capable of defending the
territory of the United States against limited ballistic missile attack (whether accidental,
unauthorized or deliberate).”

S. 1873 was introduced by the chairman of the Senate Governmental Affairs Committee’s
Subcommittee on International Security, Proliferation, and Federal Services, Sen. Thad
Cochran
(R-MS). It is the product of an extremely valuable series of hearings the Subcommittee has held
in recent months, whose findings were included in an official report entitled The
Proliferation
Primer(1) and are summarized in Sen. Cochran’s
legislation.

Importantly, S. 1873 enjoys bipartisan support — a first for a bill calling for
prompt deployment
of effective defense of the entire territory of the United States against ballistic missile attack. In
addition to Sen. Cochran’s fellow initial co-sponsor, Senator Daniel Inouye
(D-HI), Senators
Fritz Hollings (D-SC) and Daniel Akaka (D-HI) are also sponsors.
Such bipartisanship helped
secure the Cochran-Inouye bill’s approval by the Senate Armed Services Committee on 24 April
by a vote of 10-7.(2)

The Arguments for Perpetuating American Vulnerability

The seven Committee members voting in the negative — Democratic Sens. Carl
Levin of
Michigan, Edward Kennedy of Massachusetts, Jeff
Bingaman of New Mexico, John Glenn of
Ohio, Robert Byrd of West Virginia, Chuck Robb of
Virginia and Max Cleland of Georgia —
justified their votes for leaving the American people vulnerable against missile attack for at
least
the next six years on the following grounds:

    ‘There Is No Threat’

The Armed Services Committee minority relied heavily on the Clinton Administration’s
contention that there is no threat of missile attack on the United States that would warrant the
deployment as soon as possible of effective defensive systems. href=”#N_3_”>(3) This argument hinges upon a
number of assumptions that are difficult, if not impossible, to sustain on the basis of a realistic —
as opposed to ideological — view of the danger posed by proliferating ballistic
missiles.

First, there is the matter of Russia. In another context — namely, for the
purpose of urging the
unilateral “de-alerting” of America’s nuclear deterrent — friends of Messrs. Levin, Kennedy
et.al.(4) incessantly warn of the danger of an
accidental or unauthorized launch of the Kremlin’s
ballistic missile force. This danger, we are told, is increasing as a result of the unraveling of the
Russian military’s order and discipline, prompted by declining resources. The de-alerters warn
that Boris Yeltsin’s near-launch of his strategic forces a few years back (the result of
misperceptions of the firing of Norwegian scientific rocket) suggests that Moscow may actually
authorize a nuclear strike. The latter possibility in particular makes it imprudent to
rely, as the
Committee minority and the Clinton Administration do, on a reassuring assessment of Russian
nuclear command and control offered by the Commander-in-Chief of U.S. Strategic Command,
General Eugene Habiger, following on-site visits to several former Soviet facilities. href=”#N_5_”>(5)

Second, the Chinese missile threat cannot be ignored. For one thing, a
senior Chinese officer
intimated in December 1995 to a former top American official that China was willing to launch a
nuclear attack on Los Angeles. More recently, it has been confirmed that U.S. intelligence
believes Chinese missiles are targeted on at least 13 major American cities href=”#N_6_”>(6); this constitutes a real
and present danger to the United States. Worse yet, U.S. defense contractors have
been
providing technology and know-how to Beijing, enabling the PRC to improve the accuracy and
reliability of its long-range ballistic missile force.(7)

Then, there are all the other countries — including, Iran, Iraq, North
Korea, Syria, India and
Pakistan — who are acquiring the technology with which indigenously to develop or otherwise to
obtain ever-more capable ballistic missile delivery systems for weapons of mass destruction. The
proposition that none of these missiles will constitute a threat to the United States presumes
certitude about how fast such efforts will bear fruit. Experience suggests that such confidence
often proves unwarranted.(8) What is more, should rogue
states chose to deploy aboard a
freighter or some other surface ship one of the medium- or even short-range ballistic missiles now
in their hands, they could conduct an attack long before intercontinental-range systems would be
available to them.

Hard Realities: Importantly, the so-called 3-plus-3
program for National Missile Defense,(9)
which the Clinton Administration and its allies on Capitol Hill prefer over the Cochran-Inouye
approach, would probably be unable to address any of these threats. After
all, the
notional 3-plus-3 system is not designed to contend with a massive Soviet-style first-strike, should
one come from Russia.(10) Even a more modest 13-or-so
missile attack from China would
probably overwhelm it. And the 3-plus-3 system’s missile interceptors based in Grand Forks,
North Dakota would be unable to stop, say, an Iraqi or Libyan ballistic missile launched
from a
ship in the Gulf of Mexico or off the southern East or West Coasts of the United States.

Even if there were reason to believe that U.S. intelligence is incapable of being
surprised about the
speed with which present capabilities become threatening and future threats emerge, the reality —
as the Armed Services Committee majority noted in its report accompanying S. 1873 — is that
in
no other area of military activity does the United States take the view that it must wait to
decide on the exact design, let alone the deployment, of a weapon system until the nature of
the forces with which it must contend becomes evident:

    “It is an inefficient aberration of Defense Department policy and practice to manage a
    Major Defense Acquisition program so that it goes into a circling pattern at some point
    in its development while awaiting the Intelligence Community’s detailed
    characterization of some future threat. The United States is developing and deploying
    the F-22, for example, because a new air superiority fighter will be necessary in the
    middle of the next decade. Development of this aircraft is not being put on hold while
    the United States awaits information on the thrust-to-weight ratio or low-observability
    of a new enemy fighter that might appear at some time in the future.”

The Committee majority goes on to note that even the Clinton Administration’s current
Under Secretary of Defense for Acquisition and Technology, Dr. Jacques
Gansler, testified last
February that: “There will be a [National Missile Defense] system deployed. There is
absolutely no question the Nation will have to have missile defense in the future. The
question is when.” In light of this reality, the majority correctly declare: “Given the
inevitability
of the need for NMD, acknowledged by the Administration, the Committee believes the NMD
program must be put on a more rational acquisition path, which includes a commitment to deploy
as soon as the technology is ready.”

    ‘We Don’t Know If We Can Afford Missile Defenses’

As Dr. Gansler’s testimony makes clear, the United States is going to have to field
missile
defenses, no matter what the costs. The irony of the concern expressed by the Committee
minority about the affordability of an NMD system — and the fact that the Cochran-Inouye bill
does not address this point — is that the nearest-term approach to fielding effective
national
missile defenses for the territory of the United States is one that will cost but a
fraction of
the Administration’s 3-plus-3 option.

As a growing number of national figures have pointed out — including in recent weeks,
Governor
Pete Wilson of California, House Appropriations Committee Chairman Bob
Livingston (R-LA), Steve Forbes, href=”#N_11_”>(11) the Family Research Council’s Gary
Bauer(12) — the United States could
quickly and relatively inexpensively deploy a global anti-missile capability at sea.
According to a
blue-ribbon commission sponsored by the Heritage Foundation, href=”#N_13_”>(13) thanks to the roughly $50
billion investment already made in the Navy’s AEGIS fleet air defense system,
such a
capability could begin operating in as little as 3 years for an additional investment of just
$2-3 billion. The only impediment to doing so is the obsolete 1972 Anti-Ballistic
Missile Treaty.

    ‘What About Arms Control?’

The Armed Services Committee minority seconds a statement by
Chairman of the Joint
Chiefs of Staff General Henry Shelton that was conveyed to Chairman Strom
Thurmond (R-SC) in a letter of 21 April: “…The bill does not consider…the impact a
deployment would have
on arms control agreements and nuclear arms reductions.” They also cite approvingly a letter
written to the Committee nearly two years before by Gen. Shelton’s predecessor, General
John
Shalikashvili, which declared: “I am concerned that failure of either START [I or II]
will result
in Russian retention of hundreds or even thousands more nuclear weapons, thereby increasing
both the costs and risks we may face.”

There are several problems with these sorts of objections to S. 1873. First, a
National Missile
Defense of the territory of the United States — which even Under Secretary Gansler
declares the country will have to have — will be inconsistent with the terms of the ABM
Treaty. Assuming the Clinton Administration is serious about fielding such a system, it
will have
to contend with that reality. Doing so in the context of a determination to field missile defenses as
soon as possible is more likely to result in the realization of needed defensive capabilities than is
continuing the present practice — namely, of encouraging the perception that such deployments
are contingent upon their acceptance by the Russians.

Interestingly, such a proposition was advanced by none other than President
Clinton’s Director
of the Arms Control and Disarmament Agency, John Holum, in testimony last year
before
Sen. Cochran’s subcommittee. On 1 May 1997, Holum declared: “It seems to me that
the
determinant here of our National Missile Defense program, designed to deal with the rogue
states threats is going to be what the threat requires, not what the Russians think or what
the [ABM] Treaty says.”

Second, as noted above, there are increasing ballistic missile threats to the United
States
which do not emanate from Russia (except, in some cases, indirectly as a
result of the transfer of
Russian missile-relevant technology and know-how). Such threats are clearly unaffected by
bilateral arms control agreements — particularly an Anti-Ballistic Missile Treaty signed with a
country, the Soviet Union, that no longer exists.

Third, today, even more than in 1996, it seems unlikely that Russia will have the
resources to
maintain in a threatening, deployed status all of the thousands of warheads it is supposed
to dismantle under the START I and II agreements — to say nothing of building large
numbers of new delivery systems. Fiscal realities may prove a far more reliable constraint upon
the former Soviet Union’s offensive military power than arms control agreements have ever been,
or probably ever will be.

The Bottom Line

Dr. Gansler is right up to a point. Sooner or later, the United States will be
defended against
ballistic missile attack. The question is not only when, however — a matter of will it
be defended
before it needs to be, or after? Also yet to be resolved is the question of will the
territory of the
United States, in its entirety, enjoy such protection and will that protection be
effective against
plausible “limited” ballistic missile attacks?

The answer to both of these critical questions is more likely to be consistent with the national
interest in having effective defenses for all Americans in place before they are required if the
American Missile Protection Act of 1998 becomes law and is faithfully implemented.

– 30 –

1. See the Center’s Decision Brief entitled
A Policy Indictment: Sen. Cochran’s Subcommittee
Documents Clinton Incompetence/Malfeasance on Proliferation ( href=”index.jsp?section=papers&code=98-D_04″>No. 98-D 04, 12 January
1998). A copy of the Subcommittee’s report can be obtained on the Internet at
href=”http://www.senate.gov/~gov_affairs/ispfs.htm”>www.senate.gov/~gov_affairs/ispfs.htm.

2. Armed Services Committee member Senator Joseph
Lieberman (D-CT) did not cast a vote
on the American Missile Protection Act of 1998.

3. See It Walks Like A Duck: Questions Persist that
Clinton CIA’s Missile Threat Was
Politically Motivated (No. 96-D 122,
4 December 1996).

4. See the Center’s Decision Briefs entitled
Unilateral Disarmament By Any Other Name Is
Still Recklessly Irresponsible; Will Clinton Be Allowed to Do It? ( href=”index.jsp?section=papers&code=98-D_06″>No. 98-D 06, 13 January
1998) and Press Barrage Signals New Phase of Denuclearization
Campaign (No. 98-D 50, 18
March 1998).

5. With no disrespect to Gen. Habiger, it should be remembered that
Russia is the home of the
Potemkin visit.

6. Bill Gertz, “China targets nukes at U.S.,” Washington
Times, 1 May 1998.

7. See the Center’s Decision Brief entitled
Clinton Legacy Watch # 21: Efforts to Help
Chinese Missile Program Reek of Corruption, Betrayal of U.S. Interests ( href=”index.jsp?section=papers&code=98-D_61″>No. 98-D 61, 6 April
1998).

8. The Armed Services Committee’s report accompanying S. 1873
notes that: “A State
Department official testified in September 1997 that Iran could develop [a medium-range] missile
in ‘maybe one to one-and-a-half years, and it may be sooner than that,’ meaning as much as nine
years sooner than had been predicted only a year earlier by the Director of Central Intelligence.”

9. The 3-plus-3 claims to be an NMD Deployment Readiness
Program that would require three
years to develop a defensive system and then three further years to field, once a deployment
decision is taken.

10. The same could be said of the limited missile defense system
called for by S. 1873. The
presence of a robust U.S. global missile defense system, like that which could be evolved from the
Navy’s existing AEGIS capability, would almost certainly discourage a Russian targeteer from
contemplating the deliberate launch of a stylized nuclear first-strike due to uncertainty about what
American retaliatory forces would remain intact — an uncertainty unlikely to be created by the
easily overwhelmed 3-plus-3 system.

11. See the Casey Institute of the Center for Security Policy’s
Press Release entitled Casey
Institute Symposium Shows Need for Security-Minded Approach to Asian Financial Crisis
and Other Global Challenges (No. 98-R 77, 5 May
1998).

12. See the Center’s Decision Brief entitled
Onward Christian Soldiers — And All Other
Americans: Gary Bauer Joins the Fight to Defend America ( href=”index.jsp?section=papers&code=98-D_74″>No. 98-D 74, 29 April 1998).

13. The Heritage Foundation’s study can be accessed via the World
Wide Web at the following
address: www.heritage.org.

Excerpts of “American Leadership: Prosperity’s Prerequisite”

An Address by Steve Forbes before
the William J. Casey Institute of the Center for Security Policy

New York City
4 May 1998

The test of America’s mettle lies in its role as truly that shining city on the hill, as the exemplar
and indeed advocate of freedom….

While we seek to expand the number of democracies as our most reliable partners in the
world,
the United States must follow the formula Ronald Reagan taught us for dealing with
dictatorships. It can be summed up in twin “D’s” — deterrence and determination.

Inexplicably, however, the Clinton-Gore Administration is systematically dismantling
America’s
military capabilities. It is simultaneously discrediting U.S. determination in dealing with
dictatorships. This Administration has acted as a universal solvent corroding the pillars of
strength upon which economic stability rests.

A Dangerous Demobilization

The Clinton-Gore Administration is engaged in a dangerous demobilization of
American
defense capabilities. It is systematically stripping away America’s military might. It is
severely weakening our ability to defend ourselves, to project our power, or to protect our
allies and interests.

Today, the U.S. spends less on defense as a percentage of our economy than we did at any
time
since the Japanese attack on Pearl Harbor. We’re spending a wee bit more than 3% of GDP on
defense — the least we’ve spent since the neglectful 1930s.

If enacted, the President’s budget proposal for Fiscal Year 1999 will mark the
14th
consecutive year that defense has been cut in real, inflation-adjusted dollars. Three-quarters
of the reduction of the budget deficit since Bill Clinton took office has come at the
expense of defense capabilities.

The ‘Balanced Budget Agreement’ — the Holy Grail of the congressional Republicans — will
bring
American defense spending down to just 2.6% of GDP by 2002. Should the United
States be
spending as little a proportion of its economy’s size as Norway does at the beginning of the
new millennium?

Beyond the “macro” numbers are tangible examples of the impact of this stunning defense
draw-down. For instance, as a naval power historically and geographically, the United States has
relied
on the ability to project military force wherever it is necessary. But annual procurement
of
ships has dropped 80 percent since the 1980s. The result? The 600-ship navy
envisaged by
Ronald Reagan and his Navy Secretary John Lehman will soon slip toward the 250-ship level
because of lack of planning and procurement….

And it’s not just the Navy. The Army currently has 125 completely
unmanned infantry
squads — squads that exist on paper at the Pentagon, but are not really there….There’s
nobody
home.

As of January of this year, the Air Force reported that it is a full 1,000 pilots
short of its needs.
By fiscal year 2002, this shortage is expected to grow to 1,800 pilots.

***

Even President Clinton’s own former choice for Chairman of the Joint Chiefs of Staff, General
John Shalikashvili, testified to the Congress that the United States had better spend $60
billion
dollars more annually on procurement.

It is time to invest more to make up that modernization gap. The Congressional
leadership
has not yet exhibited the political ‘moxie’ to do so. But there is no more important
insurance policy for America and [the] world than defense. We can
afford the premiums on
that policy.

Declining spending and procurement are not the Clinton-Gore Administration’s only sin,
sapping
America’s power to deter aggression. The way the Administration has spent what
remains of
America’s military resources is also a source of trouble. The two quadrennial defense
planning reviews it has conducted have been based on preparation to fight two medium-sized
wars at the same time.

But the U.S. cannot now meet that requirement, not least because of some multilateral
deployments which tax America’s ‘lift’ capabilities for quick deployment and redeployment of
military assets. As bland an observer as the General Accounting Office — hardly the bastion of
Reaganite agitation — documented that fact.

America the Vulnerable

The coup de grace has been President Clinton’s refusal to defend
America against missile
attack. A power of far less military might than we could wreak havoc on us by lobbing
nuclear,
chemical, or biological weapons via ballistic missiles. And most Americans don’t even know that
the military they regard so highly lacks the capability to prevent devastation from missile attack.

Yet to dissuade an aggressor from sending missiles our way — to deter him — we must show
that
we can stop his missiles before they reach American homes and families. Potential aggressors
must see this is not an “Achilles heel” for America — otherwise our role as the “indispensable
nation,” as Madeleine Albright calls us, is untenable.

Indeed, rather than permitting a retreat into a ‘Fortress America,’ in building
advanced ballistic
missile defenses, we would lay the foundation for the next phase of American primacy — an
era devoted to extending the scope of global freedom.

But President Clinton refuses to even move ahead with the technology we have. For instance,
we
can go a long way toward constructing a viable missile defense system for ourselves and our
allies in Europe and Israel and Taiwan and South Korea, to name a few, by integrating
missile defense innovations with existing technologies on AEGIS cruisers today. But
President Clinton has refused to even submit a plan for deploying a national missile defense
system as required by law passed by Congress.

What’s more, President Clinton continues to tie the United States’ hands on missile defense
R&D.
He clings to the Anti-Ballistic Missile Treaty, which was already a bad idea during the Cold War
given its reliance on what Frank Gaffney calls “assured vulnerability.” Anyway, the
nation that
we signed the treaty with — the Soviet Union — no longer exists.

With the proliferation of weapons of mass destruction and missiles to carry them, the
ABM
Treaty is an even worse idea and missile defense is an even better idea than even when
Ronald Reagan delivered his heroic speech announcing a Strategic Defense Initiative
fifteen years ago.

President Clinton has worked to ‘multilateralize’ the ABM Treaty — to spread a bad idea to
other
nations. And he’s negotiated with Russian to limit how good and how fast our anti-missile
interceptors can be.

So by balancing the budget on the back of defense, by neglecting modernization, and
by
blocking missile defense, the Clinton-Gore Administration is undercutting global stability,
including economic stability. Mark my words, this will catch up to us. What goes around,
comes around. We ignore our national security at our peril.

Blunders in Dealing with Iraq

President Clinton’s policy toward short-term and long-term problems involving dictatorships
flouting the values and threatening the security of the Free World is all the more troubling. Take,
for instance, the Clinton Administration’s appalling policy toward Iraq, an immediate and critical
problem.

We have seen the world’s most dangerous man, a brutal, tin-pot dictator — who nevertheless
possesses weapons of unimaginable horror — to humiliate and outwit the world’s most powerful
nation.

When it comes to dealing with rogue nations, we are not seen as a reliable
friend. Even
friendly Arab nations who depend on us for their security were too afraid to let us launch air
attacks from their territory.

***

To paraphrase Clinton from his first campaign: “It’s Saddam, stupid.” Our policy
goal
should not be to contain Saddam; rather, it should be to remove him and his regime from
power. To accomplish this, we should assist the indigenous opposition to Saddam Hussein,
and help it by broadcasting the truth about Saddam’s blood-letting autocracy with a Radio
Free Iraq.

When dealing with such dictatorships who pose near-term problems, we need determination.
Yet
this President has shown little in the case of Iraq.

By allowing Saddam to go unpunished for his refusal to come clean on his weapons
programs, for
his attempted murder of former President Bush, and for his devastating attack on the
CIA-supported Iraqi opposition in the north in August of 1996, the president has dealt a severe
blow to
American leadership and credibility. The costs for dealing with Saddam will ultimately
be
higher in American treasure and lives than it would have been…if we had a president who
took his responsibilities for U.S. security seriously.

Blunders in Dealing with China

Reagan-style determination is even more important in dealing with great powers which pose
long-term problems. Take this Administration’s exemplary policy toward China, which is to say,
exemplary of what not to do. As in dealing with Iraq, until freedom at home renders
it a benign
power, deterrence and determination are essential for coping with the Chinese Communist
dictatorship.

As Sinologist Kenneth Lieberthal has observed, “China wants to be a rule setter, not just a
rule
acceptor.” Well, if China seeks to be respected as a great power in the world, it needs to be a rule
acceptor. We must get China to live by the rules in two vital areas: human rights and
arms
proliferation. In both areas, Clinton has used the old saw that [the] Chinese are sensitive to
losing
face as a pretext for reflexive accommodation of Beijing’s autocrats.

***

The Clinton Administration is not trying to get China to live by the norms of the
Free
World; it is letting China redefine those norms.

[This is true] in the case of weapons proliferation. China has a terrible record on arms
proliferation –from sending equipment used in refining weapons-grade material to Pakistan, to
giving cruise missiles to the state the Clinton Administration has called the world’s number one
sponsor of terrorism, Iran.

In recent weeks, the Administration has removed all pressure on China not to peddle
technology
related to weapons of mass destruction or missiles to carry them.

***

While commerce takes precedence over national security for this Administration
when it
comes to China, the money that really talks is that which buys policy decisions. We
should
stop acting like China holds all the cards in our relationship, as we have in the areas of human
rights and proliferation. Historian of China Arthur Waldon concludes, “China is more dependent
on the rest of the world than at any time since 1949.”

American credibility is at stake. If the Chinese are sensitive to losing face, then we should
take
advantage of that fact and let retribution about failure to live up to the civilized world’s standards
sting.

Asian Economic Crisis

In short, the slide in American preparedness and prestige seen in defense, Iraq, and China
policy
amount to a pattern of neglect and appeasement.

Then came the financial meltdown in Asia. Much has happened since last July … But one
thing is
now crystal clear: the pro-devaluation, pro-tax increase medicine the Clinton-Gore
Administration and the International Monetary Fund have prescribed to cure Asia’s
sinking economies and currencies has made things worse, not better.

***

[The Clinton-Gore Administration wants] U.S. taxpayers to subsidize this destructive advice
to
the tune of $18 billion in additional IMF funding.

Some of you may recall several years ago when this Administration pleaded for U.S.
taxpayers to
bailout Mexico. Treasury Secretary Robert Rubin said this was not going to set a
precedent. It wasn’t going to happen again, he said. Well, it’s happening again — and it is
wrong. Congress is right to say no — and it should not back down.

Why should hard-working Americans subsidize destructive institutions? Why should middle
class
taxpayers subsidize deadly prescriptions that are hurting others and will eventually hurt
themselves? When a doctor is guilty of malpractice — as is the IMF — you don’t renew
his
license and raise his pay.

The IMF has a long history of giving harmful economic advice to countries in trouble.
Of the 89
less-developed countries that the IMF has “helped” since 1965, most are poorer or no
better off.

Conclusion

The bottom line is that the opportunity for American leadership to truly shape the
future of
global security and prosperity has never been brighter. Yet, rarely have those in position
of leadership in this country — most notably the President himself — seemed so disinterested
and ill-equipped for the task.

***

We have been fortunate so far. But we will not always be so lucky. Remember the 1920s,
and
1930s, and the fearful price we paid for allied drift, dithering and indecision.

— End of Excerpts —

Clinton Legacy Watch # 19: Will Gore-Chernomyrdin At Last Put a Halt to Russia’s Dangerous Nuclear Sales to Cuba, Iran?

(Washington, D.C.): Next week, the United States will host the tenth in a series of secret
meetings in which high-level representatives of the U.S. and Russian governments strive to find
ways to advance the bilateral relationship. All too often, these meetings of what has
come to
be called the Gore-Chernomyrdin Commission (GCC) after its two principals, Vice
President
Al Gore and Russian Prime Minister Viktor Chernomyrdin, have proven to be forums for
the
United States to paper over real differences with and otherwise make concessions to
Moscow. The American delegation must use this session to break the mold — by
insisting that
the Kremlin halt activities that pose real threats to U.S. interests and/or
citizens: Russia’s
dangerous nuclear cooperation with Cuba and Iran.

The Russians Breathe New Life Into a Nuclear Nightmare in
Cuba

Such an agenda has become all the more essential within recent days. In the wake of bilateral
meetings last month between Cuban and Russian government and non-government officials, (the
appropriately titled) Russian Minister of Emergency Situation, Sergey Shoygu, announced:
“Russia has decided to extend the $350 million line of credit opened by Moscow in 1994
to
finance the supplies of Russian materials and equipment to Cuba for the construction
and
overhaul of 12 highly important installations.”(1)

Most notable among these installations is the partially completed nuclear power
complex at
Juragua, near Cienfuegos, Cuba — 180 miles upwind from the U.S. mainland. Moscow
and
Havana launched this ambitious two-reactor venture in 1982 using designs (the obsolescent
VVER-440), equipment and financing provided by the former Soviet Union and a predominantly
Cuban workforce to perform the construction.

In 1992, following the collapse of the USSR — and the attendant disruption in the Kremlin’s
ability to underwrite such dubious, colonial ventures — Castro announced that this project was
being suspended. As the Center for Security Policy predicted at the time, this was merely a stay
of execution for the millions of Americans downwind from the Juragua reactors href=”#N_2_”>(2): Fidel simply
had too much invested (nearly the equivalent of one year of Cuba’s total hard currency
income)
and too much riding (in terms of personal prestige and future economic
viability) on completion
of this high visibility program not to insist that one (or both) of these power plants be
brought on-line eventually, despite the inherent flaws that virtually assure they will suffer
catastrophic failures.

The magnitude of this danger has been confirmed by, among others: congressional
committees;
the General Accounting Office; defectors who previously were responsible for the so-called
“quality control” program and other aspects of the Juragua construction; and American nuclear
and national security experts.(3) They have identified the
following as among the most ominous of
these reactors’ irremediable flaws:

  • Sixty percent of the Soviet-supplied materials used in these reactors are
    defective.     Soviet
    advisors reportedly told Cuban officials they could not guarantee that valves installed in the
    reactor’s emergency cooling system would function under certain conditions.

  • Much of the reactor’s equipment — including the reactor vessel, six steam
    generators, five
    primary coolant pumps, twelve isolation valves and other sensitive gear — was left
    exposed to
    the elements and sea air after the project was discontinued     — a total of some five years
    at
    this writing.

  • In a number of cases, equipment designed for one specific function has been used
    for
    other purposes     when the appropriate components were unavailable. This sort of
    jury-rigging
    increases the chances of systemic failures.

  • Construction supporting primary reactor components contains numerous
    structural
    defects.

  • The first reactor’s dome would not be able to contain overpressures associated
    with
    meltdown conditions.     The upper portion of the containment dome has been designed to
    withstand pressures of seven pounds-per-square-inch — versus some 50 pounds-per-square-inch
    required of U.S. reactors.

  • As many as fifteen percent of the 5,000 welds in the reactor’s auxiliary plumbing
    system,
    containment dome and spent fuel-cooling system are known to be flawed.     According to
    Vladimir Cervera, the senior engineer responsible for overseeing quality control at the Juragua
    reactor, X-rays showed welded pipe joints weakened by air pockets, bad soldering and heat
    damage. Bear in mind that, if a single weld in a U.S. reactor were suspected
    of being
    defective, the Nuclear Regulatory Commission would suspend its operations.

  • Cuba’s human and technological infrastructure is inadequate to build and operate
    this
    nuclear facility.

  • Even if there were no construction problems, the Juragua reactors’ design would be a serious
    liability. According to an April 1992 report by the U.S. Council for Energy Awareness ,
    “The
    VVER design is very different [from Western counterparts] and does not meet Western
    safety standards.    ” In fact, the German government was so concerned about the four
    VVER-440 reactors it inherited from East Germany that it shut them down within days of
    reunification. None too soon, according to NBC News, as one of these same reactors was
    perilously close to a “meltdown.”(4)

Taken together, these defects make it impossible to create safe
nuclear power plants out
of the partially constructed Juragua facilities. No amount of sophisticated Western
instrumentation, know-how or training — let alone that available from Russia — will rectify
deficiencies that can, as a practical matter, only be corrected by razing the site and starting afresh.

A Mortal Threat to the U.S. Mainland

Should one or more of these defects cause a failure of the cooling system in a
Juragua
reactor, there would likely be a nuclear meltdown and release of substantial quantities of
radioactive pollution. Such fallout would not be confined to Cuba. Indeed, according
to a
National Oceanographic and Atmospheric Agency analysis href=”#N_5_”>(5):

    “Based on climatological data for the summer 1991 and winter ’91-’92 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. In winter, when
    trade-winds are weaker and less persistent, pollutants would encounter strong
    westerly winds that could move the pollutants toward the east, possibly as far
    north as Virginia and Washington, D.C., in about four days.    “

Damage to human life would be further exacerbated by the pollution of many thousands
of
square miles of rich ocean fishing grounds in the Caribbean and Gulf of Mexico.
Immediate
steps must be taken to assure that such a catastrophe never occurs.

Exit Mikhailov, Enter Adamov

A further impetus for Vice President Gore to use the upcoming GCC meeting to demand that
Russia stop helping Cuba pose this nuclear threat to the United States should be the announced
choice for a successor to Russian Minister of Atomic Energy Viktor Mikhailov — Yevgeny
Adamov. In his previous capacity as head of the Research & Design Institute of Power
Engineering, Adamov was best known for being the main designer of the RBMK power reactor
that failed catastrophically in Chernobyl in April 1986. He has spent much of the succeeding
years explaining away that human and environmental disaster and arguing against shutting down
sister reactors before the end of their design life.

As the trade publication Nucleonics Week reported in its 30 July 1992 edition:

    “‘Every eastern country [other than Russia] attending the meeting [in Brussels that
    month on the RBMKs] and the G-24′ favored their near-term decommissioning,
    [Germany’s top nuclear safety official, Klaus] Toepfer said…. Other German officials
    said some members of the Russian nuclear establishment are willing to shut the RBMKs
    ahead of schedule. ‘But Adamov is in there to defend the life work of the group that
    designed the RBMKs. The stronger Adamov’s position, the longer those reactors
    will stay on line and pose a safety threat    ,’ one official said.” (Emphasis added.)

Meanwhile, Back in Iran

If the Cuban nuclear time-bomb were not bad enough, the Russian government is pressing
forward with its assistance to Iran’s nuclear program. On 22 February, the Washington
Post
reported, “Russia has decided to expand its role in building a controversial nuclear power station
in Iran, despite objections from the United States and Israel that the technology could be
useful
in creating a nuclear weapons program.” (Emphasis added.)

The renewed effort is the continuation of a 1995, $780 million deal to finish a nuclear reactor
in
Bushehr, Iran which was started back in 1974 with German assistance. Recent press reports and
statements by high-level Russian MINATOM officials, including Mikhailov, indicate that the
project is running behind schedule and its completion was in jeopardy. This latest infusion of
capital and, more importantly, scientific expertise represents a concerted effort on the part of the
Russians to push ahead and finish the reactor. “Iran is not able to cope with its share of the
work,” Mikhailov told a news conference when announcing the expanded Russian role. “In order
to meet the deadline Russia should take charge of everything, and the Iranian side has agreed to
this.”

As the New York Times reported yesterday, there is reason to believe that
Adamov will happily
follow Mikhailov’s lead:

    “Mr. Adamov, 58, a nuclear engineer, went to Teheran last month with Viktor
    N.
    Mikhailov, the minister who was ousted Monday, to meet with Iranian officials.
    Mr. Adamov later assured American officials that he had no intention of helping Iran
    develop nuclear weapons. But the trip still touched off concerns in Washington, which
    has been trying to restrict Russian nuclear cooperation of any sort with Iran.”

    “His abrupt removal on Monday raised hopes that Russia’s aggressive nuclear
    marketing might end. But the selection of Mr. Adamov is widely seen as an
    indication that Mr. Mikhailov’s spirit will live on.    ” (Emphasis added.)

The Bottom Line

Vice President Gore is on the record as believing that the Bushehr reactor project to be a
vehicle
for Iran to acquire materiel and know-how needed to realize its ambitions to become a nuclear
weapons state. For example, on 23 September 1997, Mr. Gore declared, “…It is obvious
that
there is a vigorous effort by Iran to obtain the technologies that it needs to build a ballistic
missile and to build nuclear weapons.”

Nuclear weapons in the hands of a state-sponsor of terrorism, like the prospect of a
Chernobyl-in-
the-making upwind from millions of Americans, are questions of vital American
interests. If
Prime Minister Chernomyrdin is determined to press forward with these projects, Vice President
Gore must present him with a stark choice: Russia can do business with Iran and Cuba
or it
can do business with — and receive assistance from — the United States, but not
both.
Failure to do so now will make the Vice President complicit in the tragedies sure to ensue from
Russia’s reckless nuclear cooperation with America’s adversaries.

– 30 –

1. It is interesting that Russia is somehow able to extend
multi-hundred million-dollar lines of
credit to Cuba at the same time it is desperately seeking new cash infusions from the IMF and
other Western sources.

2. See the Center’s Decision Brief entitled
Castro’s Potemkin Nuclear Shutdown: Chernobyl
at Cienfuegos Still in Prospect (No. 92-D
108, 10 September 1992).

3. For example, see: Report to the Chairman, Concerns about
the Nuclear Power Reactors in
Cuba (GAO/RCED-92-262), September 1992, prepared for the Subcommittee on Nuclear
Regulation, Committee on Environment and Public Works, U.S. Senate; testimony before the
Subcommittee on the Western Hemisphere, Committee on International Relations, House of
Representatives, Concerns about the Nuclear Power Reactors in Cuba
(GAO/RCED-95-236, 1
August 1995); statement by Richard J. K. Stratford, Director of Nuclear Energy Affairs, U.S.
Department of State before the Subcommittee on the Western Hemisphere of the Committee on
International Relations, U.S. House of Representatives, 1 August 1995; and testimony by the
former Senior Director of International Economic Affairs at the National Security Council, Roger
W. Robinson, Jr., before the House Committee on International Relations, Subcommittee on the
Western Hemisphere, “Cuba and the Juragua Nuclear Power Plant,” 1 August 1995.

4. NBC Nightly News, 29 May 1991.

5. Transport and Dispersion for a Potential Accidental Release
of Radioactive Pollutants From
the Nuclear Reactor at Cienfuegos, Cuba, Jerome L. Heffter and Barbara J. B. Stunder,
NOAA,
Air Resources Laboratory (August 1992)

Sovereignty Surrender Watch # 2: Clinton Multilateralism Eroding American Interests, Rights on All Fronts

(Washington, D.C.): The disastrously ill-conceived deal brokered with Saddam
Hussein by UN
Secretary General Kofi Annan is bad enough. Worse yet is the fact that the Clinton
Administration actively aided and abetted this diplomatic non-solution — the latest proof of its
readiness to surrender U.S. sovereignty in pursuit of mindless multilateralism.

We now know that Secretary of State Madeleine Albright and her subordinates are fully
implicated in the orchestration and execution of this debacle that has bought Saddam Hussein time
and complicated further the one course of action that everyone from conservative Republican
Steve Forbes to liberal Democrat John Kerry understands has any chance of improving the
situation: the overthrow of Saddam’s regime. href=”#N_2_”>(2)

Unfortunately, the problem is much larger than one odious instance of, in Senate Majority
Leader
Trent Lott’s memorable turn of phrase, “contracting out U.S. foreign policy to the United
Nations.” The fact is that this Administration is subordinating American sovereignty in myriad
ways, to the detriment of our national interests and the rights inherent in our representative form
of government.

The UN ‘Debt’ Scam

For starters, consider the question of the “debt” the U.S. is said to owe the UN. The Clinton
team rarely misses an opportunity to join those who demean the United States for being “the
world’s biggest deadbeat” for failing to clean up some $1.3 billion in American arrears on
“assessments” by the international body. This assertion has recently been used to excuse the
UN’s diffidence to (or, more accurately, its contemptuous undermining of) Washington’s policies
towards Iraq.

The truth is that the U.S. does not owe the United Nations a dime. If anything, the
UN owes
us money, perhaps billions of dollars. According to a Congressional Research
Service study
undertaken at the request of Rep. Roscoe Bartlett, Republican of Maryland, the United States has
paid more than $11 billion for international peacekeeping operations for which it has received
little or no credit from the United Nations.(3)

Even now, for example, the United States is maintaining a substantial military presence in the
Persian Gulf for the purpose, the Clinton team incessantly declares, of ensuring Iraqi compliance
with various UN resolutions. Indeed, in the course of Secretary General Kofi Annan’s
self-congratulatory press conference following his mission to Baghdad, he called President Clinton
and
British Prime Minister “perfect peacekeepers” for the role their credible threat of force made to
his diplomatic “success.”

Although this operation is estimated to have cost the Pentagon as much as $750 million to
date,
such “perfect peacekeeping” is considered a voluntary service by the United States,
not an in-kind
contribution to the UN. Even the nearly $5 billion (by some estimates it is closer to $7 billion)
spent by the U.S. for peacekeeping in Bosnia — an operation specifically mandated by the UN
Security Council — is not credited to our account. Yet it is money that is unavailable to the
Defense Department for necessary readiness and modernization, compounding the deleterious
effect peacekeeping has on the fighting trim and morale of the U.S. military.

MAI Day

Scarcely less injurious to U.S. sovereignty and interests is the secretive effort the Clinton
Administration has been making for the past few years to negotiate a Multilateral Agreement on
Investment (MAI). This accord — which is said to be roughly 90% complete — would
ban any
restrictions on the movement of capital. It would require that all sectors of the U.S.
economy
(including the national security-sensitive broadcasting and natural resource industries) be opened
to foreign ownership. The MAI would require that foreign investors be made whole when their
assets have been expropriated, including as a result of “unreasonable” regulation.

The Multilateral Agreement on Investment would also compel the vitiation of U.S.
laws
that prohibit certain investments overseas, such as those aimed at curbing financial
assistance to the pariah Cuban and Iranian regimes. And the MAI would oblige this
country
to give “national treatment” to foreign investment offerings,
even if their purpose is inimical
to American interests (for example, to raise capital for the Chinese or Russian military-industrial
complexes).(4)

Last, but hardly least, dispute resolution under the MAI would be the responsibility of
international tribunals, rather than American courts. Subordination of U.S. sovereignty in this
manner is a particularly troublesome hallmark of the multilateralizers’ efforts. As the International
Court of Justice’s recent ruling in favor of Libya with regard to the Pan Am 103 bombing vividly
demonstrates, justice surrendered to foreign entities may be justice denied.

Enviro-Supranationalism

Then there is the matter of the Commission for Environmental
Cooperation, a tri-national
creation of the North American Free Trade Agreement (NAFTA). At the request of an American
environmental organization, this commission has decided that it has to investigate the water
management problems of the Arizona city of Sierra Vista and its surrounding area. That
area
happens to include Fort Huachuca, an Army intelligence base in the desert. href=”#N_5_”>(5)

The local community is understandably concerned that, on the pretext of assessing the impact
on
migratory birds overflying the region — a matter having nothing to do with trade between the
United States, Canada and Mexico — foreign nationals will be able to demand and obtain access
even to sensitive U.S. military facilities. Sound familiar? Under the Chemical Weapons
Convention it forced through the Senate last year, the Clinton Administration has given
international inspectors bent on espionage for commercial or strategic purposes the right to
conduct intrusive visits to any site in the country.(6) It now
proposes to compound the problem by
authorizing inspections in connection with the still-less-verifiable Biological Weapons
Convention.(7)

The Bottom Line

It is time for a moratorium on further Clinton-approved infringements on American
sovereignty.
Conceptualizing the need for such a step — let alone figuring out a way to accomplish it
legislatively — will only be possible, however, if Members of Congress are able to recognize that
these and other examples are just symptoms of the syndrome of mindless
multilateralism. As
troubling as such examples are, corrective actions to be effective must be aimed at the underlying
malady as well.

– 30 –

1. See the Center’s Decision Brief entitled
Will 1998 Be the ‘Year of Surrendered
Sovereignty’? (2. See the Center’s Decision Briefs entitled
This Is The Time To ‘Bash’ –Or At Least
Repudiate –The UN; Bipartisan, Bicameral Consensus Emerges That Saddam Must
Go (No.
98-D 36, 24 February 1998) and ‘Serious Consequences’: If Clinton Means It,
Here’s the
Alternative to His Failed Strategy of ‘Containing’ Saddam ( href=”index.jsp?section=papers&code=98-D_33″>No. 98-D 33, 24 February 1998).

3. See the Center’s Decision Brief entitled
Credit Where It Is Due: Rep. Bartlett Should Be
Commended, Supported For His Efforts to Show the UN Owes U.S. Money ( href=”index.jsp?section=papers&code=97-D_123″>No. 97-D 123,
1997).

4. See the Casey Institute’s Perspective entitled
Sen. D’Amato’s Committee Serves Notice On
Those Who Aid And Abet U.S. Adversaries: No Fund-Raising On American
Markets (No. 97-C 161, 30 October 1997).

5. This is hardly the only instance of a multilateral environmental
agreement impinging upon U.S.
national security. For a discussion of the impact of the Kyoto Treaty see the Center’s Casey
Institute Perspective entitled The Senate Must Insist on an
Early Vote on the Kyoto Treaty
(No. 97-C 193, 15 December 1997).

6. See the Center’s Decision Brief entitled
C.W.C. Watch # 2: After First Six Months, Fear
About Treaty’s Unverifiability, Unjustified Costs & Ineffectiveness Vindicated
(No. 97-D 163,
1 November 1997).

7. See the Center’s Decision Brief entitled
Clinton Legacy Watch # 18: Assured U.S.
Vulnerability in the Face of a Burgeoning Biological Warfare Threat ( href=”index.jsp?section=papers&code=98-D_30″>No. 98-D 30, 20
February 1998).

China: Will It Become the West’s Next Great Adversary?

(Washington, D.C.): Perhaps the single most strategically important repercussion of the
Asian
financial meltdown(1) will prove to be the additional time the
West may be given before the
People’s Republic of China emerges as a world-class adversary. All other things being
equal,
however, this economically driven respite will amount to a stay of execution, rather
than a
commutation of sentence. Therefore, it behooves the United States and its European
allies to
understand the nature of the problem which China will ultimately represent — and to take steps
now to address the attendant danger.

China’s ‘Vaulting Ambition’

It should come as no surprise that the Chinese government aspires to superpower status.
After
all, the “Middle Kingdom” has for several millennia regarded itself as the center of the universe.
The economic strength that has accrued to it over the past twenty years — and the prospects for
future growth — have emboldened China’s Communist leaders to believe that the last few
centuries, when China was humiliated and exploited by a succession of stronger nations, are an
anomaly that is now at an end.

Some China scholars downplay concerns that these ambitions will translate into an externally
aggressive PRC. They point to the absence of any tradition of imperialism beyond China’s
historic borders. Setting aside the question of whether Beijing’s policies with regard to Tibet and
Taiwan contradict this contention, a new reality suggests that historical experience may not apply
in the future: Were China to continue the staggering rate of economic growth exhibited in recent
years, it will be obliged to find foreign sources of energy.

Even if the Communists succeed in their ambitious program of building scores of nuclear
power
plants, tapping the hydroelectric potential of the Three Gorges Dam and consuming vast
quantities of domestically available, high-sulfur-content coal (without regard to the environmental
impact), most projections forecast that China will be obliged to import large quantities of oil in
the next century. While acquiring world-class military capabilities might otherwise be simply
desirable to a leadership like the PRC’s, its need to acquire and secure access to foreign
oil
supplies makes it imperative that China be able credibly to project power throughout its
region — and to prevent the United States from interfering as it does so.

The PRC’s Threatening Policies and Activities

Viewed against this backdrop from the Chinese perspective, the myriad activities being
pursued
by the Communist leadership make perfect sense. The West ignores or misconstrues at its peril
the strategic import of the following:

An Alarming Military Modernization Program: China is
engaged in a breathtaking military
build-up involving every aspect of its conventional and unconventional forces. It is attempting to
effect what might be called a “Great Leap Forward” in terms of the sophistication and lethality of
its land, air and sea elements, having learned the lesson of Operation Desert Storm: Traditional
Maoist strategies of “people’s war” and defense-in-depth would not assure victory over an
adversary like the United States, equipped with modern precision weapons and information-based
technologies.

Particularly noteworthy are the strides being made to enhance the power and reach of China’s
naval forces. Thanks to a “strategic partnership” forged in recent years with Russia, the Chinese
navy is acquiring, among other things, advanced Soviet-designed Kilo-class submarines and
supersonic cruise missiles optimized for attacking U.S. aircraft carriers and AEGIS fleet air
defense vessels. As Merrick Carey, president of Washington’s respected Alexis de Tocqueville
Institute recently wrote in the Washington Times: “The American withdrawal from
Subic Bay in
the Philippines has opened a power vacuum in the South China Sea that the Chinese navy has
begun to fill. As Naval War College war games indicate, U.S. surface forces might not survive a
21st Century clash off the Chinese coast.”

The Russians are also aiding in the modernization of China’s relatively rudimentary
nuclear forces. Cooperation reportedly includes assistance in the design of nuclear
weapons and
in the upgrading of the PRC’s land- and sea-based ballistic missile force through the transfer of
SS-18 ICBM technology, mobile launchers and other valuable hardware and expertise. Russian
personnel may be assisting in the ongoing Chinese biological and chemical weapons programs, as
well.

In addition, China is clearly interested in other, unconventional ways of responding
asymmetrically
to the West’s seeming overwhelming military superiority. Three members of the PLA’s Academy
of Electronic Technology recently wrote in China Computer World that China has
abandoned
“traditional concepts of war-making…which emphasized the destruction of hardware, attacking
cities, seizing territory and inflicting casualties. Now, the struggle to control information is the
focus of weapon systems and the countermeasures taken against these systems.” href=”#N_2_”>(2)

Western Technology in the Wrong Hands: Unfortunately, the
Russians are not the only ones
enabling the Chinese rapidly to transform their massive People’s Liberation Army (PLA) into a
First World military. China is also securing high technology from Western sources. In some
cases, this has been done legally; in others, China has mounted an unprecedentedly comprehensive
effort to acquire militarily relevant know-how and materiel through illegal means.

A prime example of the former is the purchase of some 47 supercomputers from the United
States. Thanks to the Clinton Administration’s reckless decontrol of much of this technology, a
significant number of these computers have found their way into the hands of the PLA — including
several now being used by China’s nuclear weapons design bureaus. A recent, excellent report
entitled The Proliferation Primer by the U.S. Senate Governmental Affairs
Subcommittee on
International Security, Proliferation and Federal Services, quotes former Under Secretary of State
William Schneider as saying that the Clinton Administration’s “liberaliz[ation of] export controls
on dual-use technology, equipment and services…has had the unintended consequence of
facilitating the process of proliferating Weapons of Mass Destruction and their means of delivery
as well as advanced conventional weapons.”(3) The same
could be said of many of the United
States’ European allies.

The PRC has complimented its legal technology acquisition efforts with various other means
of
securing state-of-the-art weapons technologies. Hundreds of PLA-owned or -affiliated companies
operate in the United States alone. Such organizations have proven in the past to be conduits for
smuggling goods manufactured with Chinese slave labor, drugs and even automatic weapons into
the U.S. They are also useful as vehicles for purchasing and exporting without permission
militarily valuable technology.(4)

In addition, U.S. intelligence believes that the PRC is running espionage operations in this
country
as large — if not larger — than the KGB’s at the height of the Cold War. The counter-intelligence
task is made infinitely more difficult, moreover, by virtue of the presence of tens of thousands of
Chinese students attending American universities, where they are studying hard sciences that
could prove valuable to Beijing’s military, as well as civilian, sectors. There is also the challenge
posed by American citizens of Chinese descent who may, by dint of personal loyalties or family
ties, be susceptible to recruitment by China’s intelligence services. One such individual, Peter
Lee, recently pleaded guilty to passing to the PRC national security secrets he had obtained while
working at the U.S. nuclear laboratory at Los Alamos, New Mexico and for an American defense
contractor.

A Proliferator of Weapons of Mass Destruction: The CIA has
identified China as “the principal
supplier of weapons of mass destruction and missile technology to the world.” Various official
reports have cited the PRC for making such technology — relevant to chemical, biological,
radiological and/or nuclear weapons and to the ballistic and cruise missile delivery systems for
such weapons — available to the likes of Iran, Pakistan, Iraq, Syria, Libya and North Korea.

This appalling practice appears to be motivated by more than a desire merely to secure hard
currency or energy resources from rogue/client states. It may also be seen as serving a larger
strategic purpose: To the extent that the United States and other Western nations are
preoccupied with dangers posed by Chinese-supplied conventional and unconventional weaponry
in the hands of those like Kim Jong Il and the mullahs of Iran, those nations will be distracted
from the threat China itself poses — or at least be less capable of dealing with it.

The Bottom Line

The impending meltdown of China’s banking industry and dramatic reductions in its exports
and
ability to attract foreign capital — developments that have been put in sharp relief and
compounded by East Asia’s financial crisis(5) — may offer the
West a window of opportunity. If it
adopts policies now aimed at changing, rather than propping up, the Chinese
government so as to
bring about democratic reforms and the end of what is, at best, crony/klepto-capitalism, it has a
chance to prevent a grave new peril from emerging in China. If, on the other hand, it fails to do
so, the present economic crisis will simply have postponed a terrible day of reckoning with a
dangerous Chinese superpower, one that promises to have profound repercussions far beyond
East Asia.

– 30 –

1. Former U.S. Nuclear Regulatory Commission member Victor
Galinsky and former Bush
Administration Pentagon non-proliferation official Henry Sokolski argued persuasively in the
Washington Post on 19 January 1998 that another “silver lining” of this crisis may be
the
opportunity it affords for a re-negotiation of the ill-advised nuclear cooperation agreement with
North Korea.

2. These quotes appeared in the Far Eastern Economic
Review and were cited by the very
valuable “China Reform Monitor”, a product of the American Foreign Policy Council
(www.afpc.org).

3. The Proliferation Primer is an invaluable source of up-to-date
information about the role China
and other nations are playing in the burgeoning problem posed by the spread of technology that
can be used in manufacturing and/or delivering weapons of mass destruction. It can be obtained
via the Subcommittee’s Web site (4. The William J. Casey Institute of the Center for Security Policy
has also warned about one
other worrisome facet of these American-based and other PLA-owned companies: By issuing
stocks and bonds on international markets, China’s military not only taps into new sources of
undisciplined, non-transparent resources. It also creates a vehicle for massively increasing the
“China lobby” by recruiting many thousands, if not millions, whose mutual funds, pension funds,
life insurance portfolios, etc. suddenly create a vested interest in maintaining cordial relations with
Beijing. (For more on this subject, see the Center’s World Wide Web site
(www.security-policy.org).

5. The South China Morning Post reported on 10
January 1998 that the “special economic
zones” of the Fujian and Guangdong provinces have been especially hard hit. Foreign investment
in the latter dropped 33 percent in 1996 and another 46 percent in 1997 largely before the
effects
of the regional currency devaluation were felt.