As Expected, Russia Gets a Bail-Out — But It Won’t Get Moscow Through Next Year, or Protect U.S. Security Interests
(Washington, D.C.): As the Casey Institute predicted on 4 June 1998,
and Western taxpayers to help float Russia’s tragically mismanaged economy and financial
structure was moved to “sticker shock” proportions over the past weekend. The International
Monetary Fund — knowing that its institutional integrity was being scrutinized after multiple
debacles in Asia — initially tried to hang tough on Russia and demand genuine, systemic
reform
before disbursing the remaining tranches of Russia’s existing $9.2 billion IMF facility. This
new-found discipline, however, was shattered by President Yeltsin’s
politicization of the bail-out
package on Friday, 10 July when he personally telephoned President Clinton, French
President
Chirac, British Prime Minister Blair and, of course, German Chancellor Helmut Kohl
with
the stark message: “Show me the money!”
What followed were bankable commitments to Moscow to advance multi-billion dollar sums
of
IMF, World Bank, commercial banks, investor and Japanese funds — perhaps as much as $22.6
billion — in exchange for the same tired, and repeatedly broken, Russian promises on tax
collection, budget deficit reduction and breaking up huge monopolies (like the state-owned
energy company, Gazprom) emblematic of past failed IMF packages.
Moral Hazard Celebration
To be sure, Western investors and lenders which continued to contribute to the compounding
of
Russia’s financial morass in anticipation of just this kind of hastily configured taxpayer bailout
were ebullient this morning. For example, Geoffrey Dennis, a global market
equity strategist for
Deutsche Morgan Grenfell in London is quoted as stating, “This [bailout package] supports our
fundamental view that Russia will not be allowed to fail. All round, it’s very, very
good news but
Russia must keep its reforms going.” (Emphasis added.) Particularly pleased are Western holders
of so-called GKO ruble-denominated Russian bonds who were staring into the abyss of default
going into the weekend.
According to Russia’s chief negotiator, Anatoly Chubais, of the $22.6 billion in new financing
cobbled together for Moscow, some $14.8 billion will be disbursed in 1998 and the balance next
year. The IMF will shred much of its remaining credibility by disbursing as much as $6 billion
up
front within days and the World Bank will step up for some $6 billion before the end of
1999.
Japanese co-financing with the World Bank, and large commercial bank credits and sovereign
bond offerings will comprise the bulk of this year’s remaining amount.
What Is Wrong With This Picture?
As troubling as it is to see this predictable, politicized script on Moscow’s financial bailout
unfold
in the fog of a mid-summer weekend, even more appalling is the dearth of any security-related
conditionality or Russian concessions of the type which could contribute to the defense of the
United States. J. Michael Waller of the American Foreign Policy Council has consistently done
yeoman work in itemizing those elements of Russia’s strategic and conventional military
modernization program — not to mention global adventurism — which Western taxpayers
routinely help fund by way of successive bailout packages. (See, for example, Mr. Waller’s
if you “click” on this site, you will leave the Center for Security Policy’s site.)
It is no less troubling that — with a few notable exceptions like Rep. Benjamin
Gilman (R-NY),
Chairman of the House International Relations Committee — the Congress has failed to
insist
that it get hard information as to where U.S. taxpayer dollars (most disbursed to Russia
as
part of our 18% of all IMF outlays) are going and how precisely they are being
used. No
good can come from Moscow’s confidence that it will continue to enjoy the “best of both worlds”
in this latest massive bailout — namely, the ability to secure funds from the West with essentially
no-strings-attached even as it pursues costly military modernization and the “Primakov
Doctrine”(2) at the West’s expense.
The Bottom Line
The time has come for Congress to assert itself. It must insist that U.S. tax-dollars
not be made
available — either directly or indirectly through international lending organizations — to
Russia as long as such funds are likely to be diverted or otherwise make possible (e.g.,
through the fungibility of money) threatening strategic force modernization programs
and/or
Russia’s contribution to the proliferation of weapons of mass destruction and ballistic
missile delivery systems.
At the very least, Congress must insist as the price for further largesse that the
United States
is free to take steps to reduce the vulnerability of the American people to the effects of these
malevolent Russian activities. Specifically, the United States must declare that the
Anti-Ballistic Missile Treaty — which has, according to a legal memorandum prepared for the
Heritage
Foundation,(3) ceased to be binding on the United States as
a matter of law — will no longer be
permitted to prevent this country from deploying effective protection against ballistic missile
attack for the American people and their forces and allies overseas at the earliest possible
moment.(4)
– 30 –
1. See the Casey Institute’s Perspective entitled
‘Russian Clean-Up’: Expectations of Western
Bail-Out Artificially Buoy Markets, But Serve to Compound the Problem (
1998).
2. See the Center’s Decision Brief entitled
Primakov Watch: Destroying NATO From Within
(No. 98-D 14, 22 January 1998) and the Casey
Institute’s Perspective entitled ‘Jakarta with
10,000 Nuclear Warheads’? Fear-Mongering Begins on Behalf of I.M.F.’s Next Bailout — of
Russia ( No. 98-C 95, 29 May 1998).
3. This study can be accessed on the Heritage Internet site at:
if you “click” on this site, you will leave the Center for Security Policy’s site.)
4. The Center for Security Policy agrees with the Heritage
Foundation’s Missile Defense Study
Team (Team B) conclusion that the easiest, fastest and most cost-effective way to accomplish this
deployment is by modifying the Navy’s AEGIS fleet air defense system. This important study can be accessed on the Heritage Foundation’s
World Wide Web site www. heritage.org. (Please note that
if you “click” on this site, you will leave the Center for Security Policy’s site.)
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