CLINTON’S POLITICAL FUNDRAISING FOR YELTSIN WILL ENTAIL HIGH COSTS FOR U.S. TAXPAYERS — AND INTERESTS
(Washington, D.C.): In 1980, the devastating
eruption of Mount St. Helens coincided with the uphill
reelection bid of Washington State’s aging Appropriations
Committee chairman, Senator Warren Magnuson. With the
help of his influential colleague, Senator Henry M.
“Scoop” Jackson, Senator Magnuson rammed
through the Congress a $10 billion emergency relief bill.
With characteristically insightful sarcasm, as he
prepared to cast his vote on this legislation, Senator
Bob Dole quipped to his colleagues: “This is the
biggest political fund-raiser I have ever attended.”
Recent Clinton Administration decisions aimed at
propping up Boris Yeltsin (or a Yeltsin surrogate) on the
eve of presidential elections in Russia, however, make
Senator Magnuson’s politically self-serving assault on
the United States Treasury appear trivial by comparison.
The following are but a few of the initiatives now giving
rise to an American contribution to the Yeltsin campaign
that will conservatively cost U.S. taxpayers billions of
dollars:
Item: Further Political Corruption of
the IMF
President Clinton has personally pledged to
support a further $9 billion stand-by credit for Moscow
from the International Monetary Fund. As Mr. Clinton
put it on 31 January, 1996: “I believe the [IMF]
loan will go through, and I believe that it should.”
In light of Yeltsin’s deliberate dismantling of the
last vestiges of budgetary discipline, his election-eve
abandonment of restraints on government spending and his
dismissal of the few remaining free market-oriented
reformers in his Cabinet, such a step is clearly
unwarranted and ill-advised on the merits. For
example, according to a respected Moscow-based investment
firm, AIOC, Yeltsin’s spending pledges could be worth $250
per Russian voter (in a country where the average
monthly wage is only about $100). To make such outlays
would require a spending increase of some $16.5 billion
this year, likely doubling Russia’s projected
budget deficit for 1996.
What is more, that estimate does not include the
$2.2 billion deal to the striking coal miners. This
pay-off is likely to be only the first of many to
various, politically influential industrial
constituencies. Such budget-busting disbursements will
probably include further underwriting of the
state-controlled agri-business complexes; totally
unrealistic expectations for rebuilding Chechnya
(a $3.4 billion commitment); steps to bolster the
morale of the military- industrial complex (e.g.,
free funerals and pension increases); clearing up pay
arrearages to government workers; new student
stipends; a 20% increase in the minimum wage;
and Foreign Minster Yevgeny Primakov’s forgiveness of $4
billion in Libyan debt to Russia. In an op.ed. this week
in the Financial Times, the recently dismissed
head of Yeltsin’s privatization program Anatoli Chubais
wrote that such steps are likely to cause a reignition of
inflation that could “lead to a crisis on the
foreign exchange and bond markets and threaten a collapse
of the banking system.”
Meanwhile, Russian revenues were supposed to have
increased by at least a couple of GDP percentage points.
They have not done so, however, forcing cuts in real
expenditures, such as health care, payments to miners,
the armed forces and other government workers, etc.
Yeltsin has also issued a decree to reschedule some $6.7
billion in back-taxes owed by Russia’s ailing industries
— an indication that the government may fail to collect
any new ones from them, either. At the same time, in
addition to the improbable promises of aid for Chechnya,
Russian sources have claimed without any evident basis
for doing so that $1 billion would be forthcoming in
foreign reconstruction credits.
Matters are made substantially worse — both with
respect to the prospects for Russian fiscal restraint and
for the responsible use of U.S. taxpayer resources — by
the widespread practice of officials expropriating
government funds. According to Dr. Zbigniew Brzezinski
(1), the
European Bank for Reconstruction and Development (EBRD)
has established that some $45 billion in Western aid
flows to Russia has already been diverted from their
earmarked purposes and sluiced into secret Western bank
accounts held by corrupt Russian officials and their
mafia partners.
Interestingly, the IMF has yet to approve
disbursement of the final $1 billion tranche from last
year’s $6.8 billion loan to Russia. Only the sort of
intense political pressure that has increasingly
compromised the IMF’s traditional management of the
Russian aid program could induce its Managing Director,
Michel Camdessus, to extend a further line of credit to
Moscow under present circumstances.
Item: A New Binge at the U.S. Eximbank
Trough
The Clinton Administration has agreed to use U.S.
taxpayer loan-guarantees extended through the
Export-Import Bank to underwrite an extraordinarily
shortsighted venture. The deal involves the purchase
and use of Pratt & Whitney engines on 20 new Il-96
Russian airframes manufactured by Ilyushin. In addition,
electronic components made by Rockwell International
would come under this financing facility.
This transaction was strongly opposed by several
American aircraft manufacturers who view it as a means of
enhancing the competitiveness of the Russian aviation
industry, as Moscow looks to modernize its vast Aeroflot
fleet. According to the 31 January 1996 edition of the Washington
Post, Ron Brown’s Commerce Department was responsible
for brokering the decision to favor the sale of U.S. jet
engines for Russian-manufactured aircraft despite
strong objections from U.S. Trade Representative Micky
Kantor.
The high-level joint commission run by Vice President
Al Gore and Russian Prime Minister Victor Chernomyrdin
did throw one small sop to Boeing in the form of a
largely unenforceable Kremlin commitment to lower tariff
barriers for Western aircraft sales to Russia. It remains
to be seen, however, whether such a commitment actually
materializes — or more importantly — whether it will
begin to offset the injurious effects of giving the
Russian aircraft manufacturing sector a new lease on
life. (3)
Notably absent from the Pratt & Whitney deal
is a collateralized lending arrangement and/or solid
indications of a revenue base from which Eximbank is to
be repaid. In fact, the Russians stipulated that Western
lenders would only be allowed to file financial claims
against Russian Government ministries in the event of an
Aeroflot default “on future plane deals.”
Presumably, Eximbank expects to protect its
taxpayer-underwritten guarantees by tapping
passenger-generated revenues and repossessing the planes,
but these elements remain vague. What is more,
the availability of such forms of recourse may be
diminished by the sorry state of the Russian airline,
Aeroflot, which has in the last two months alone
demonstrated its reputation as the world’s most dangerous
airline by splashing jets in Zaire, Azerbaijan and the
Russian Far East with a loss of more than 350 people.
Item: Aiding the Russian Space Sector
Messrs. Gore and Chernomyrdin made no less
problematic decisions with respect to American assistance
to Moscow’s space sector at the expense of the United
States’ interests and Treasury. At its last meeting,
their joint commission decided to accord the Kremlin
greatly increased numbers of launches of U.S. payloads —
up to 20 launches per year versus the 8 it has
previously been allowed. This puts Russia on a par
with China and Ukraine, enabling still further inroads to
be made into the Western commercial space launch market
by the heavily subsidized (and, therefore, cut-rate)
services of what still amount in this sector to command
economies.
While American satellite manufacturers expect to
obtain a short-term benefit from such inexpensive launch
opportunities, the longer-term effect will be to erode
further the viability of the U.S. commercial launch
industry. Even more worrisome than the as-yet-undefined
hard currency windfall this deal represents for a Russian
industry thoroughly imbedded in the old Soviet
military-industrial complex is the fact that the Clinton
Administration is so blithely sacrificing capabilities
that may be essential to America’s strategically vital
access to space.
With respect to the international space station
“Alpha,” Russia is clearly in default
concerning its commitments to this important
multinational project. The Clinton team has
nonetheless offered — apparently without congressional
consultation, to say nothing of approval — to assume
responsibility for shuttle-launching at least three
payloads that Russia was supposed to put into orbit.
One such mission is slated to deliver a key Russian
component to the space station (i.e. to place into orbit
a Russian science module for Alpha); the other two would
ferry supplies to the existing Mir outpost. This plan to
add two flights to the shuttle-Mir docking program would
bring the total number of joint missions to nine through
1998.
In addition, the effect of NASA adding a U.S. shuttle
mission to fly the Russian Science Platform and four of
its eight solar power panels to Alpha in 1999 will be to
allow Moscow to scrub three rocket launchings it would
otherwise have had to undertake for the same purpose.
Russia will also save launching costs of probably two
rocket boosters when the shuttle travels to Mir in 1998
to transport extra cargo. Russia has also received a
green light for moving two of its scientific modules
already on Mir (Spektr and Priroda) to the Alpha space
station in place of two out of three science sections it
has pledged for the new station.
The exact cost to U.S. taxpayers of these various
concessions is not clear. They would appear nonetheless
likely to translate into hundreds of millions of dollars
worth of in-kind contributions to the Yeltsin campaign —
contributions that will not be readily apparent to either
Congress or the American voters. Clearly, congressional
hearings are required concerning the cost of these new
taxpayer obligations and the prospects for further,
future Russian defaults on its contributions to the space
station program. A GAO report on this subject could help
legislators and the public better understand the true
magnitude and implications of the Clinton team’s stealthy
“default avoidance” strategy.
Item: A Mug’s Game on Highly Enriched
Uranium
Yet another taxpayer-underwritten windfall for
Moscow arises from an increasingly problematic deal
involving the U.S. purchase of highly enriched uranium
(HEU) that has supposedly been salvaged from dismantled
Russian nuclear weapons. Initially conceived by the
Bush Administration as a non-proliferation initiative,
under the Clinton team it appears to have been
transformed into an absurd $12 billion slush-fund for the
Kremlin — one that it may actually be using to subsidize
continued Russian production of HEU.
In theory, the U.S. taxpayer is supposed to be made
whole after the Russian bomb-grade uranium is diluted so
as to be useful as reactor fuel, which will then be sold
to the electric utilities industry. In practice, however,
this agreement has been plagued with difficulties since
its inception and has almost collapsed on more than one
occasion.
The newest problem involves a shift to the Russian
side of responsibility for diluting the HEU into
commercially-usable fuel. This breathtaking and
ill-advised U.S. concession has made it impossible to
verify that the uranium being shipped to the U.S. is
actually taken from dismantled warheads, as opposed
to stockpiles of HEU or continuing production from other
sources. Although efforts to improve the verification and
compliance regime are underway, the Clinton
Administration has repeatedly demonstrated its
willingness to look the other way on issues that would
likely have been viewed as deal-breakers for any other
President.
A second major concern arises from concessions
reportedly made by the U.S. with regard to payment
terms for Russian deliveries of uranium. As the
Center for Security Policy understands it, under the
original terms of the agreement, Russia’s odious Ministry
of Atomic Energy (MinAtom) [4]
was only to be compensated at the point at which the U.S.
government sold the diluted reactor fuel to
representatives of the electric utilities industry. After
many months of strenuous Kremlin objections, however, the
Clinton Administration has reportedly agreed to pay
MinAtom upon delivery of the uranium to the
United States. In effect, this would amount to a
large and revolving bridge-financing facility for
Russia at U.S. taxpayer expense. After all, during
the period that the U.S. is converting the HEU to
civilian reactor fuel specifications, locating a
purchaser in the utilities industry, shipping the fuel to
that customer and receiving payment, the Russians would
already be in receipt of U.S. taxpayer funds. All of the
risk associated with successfully off-loading the fuel to
utility companies would now fall on American shoulders.
Congress and the American people are entitled to have
at least an estimated cost of this generous
bridge-financing scheme. Once full transparency is
demanded and secured, this hidden $12 billion subsidy —
a sweetheart deal justified increasingly on the grounds
that it will “help Boris” — will not be able
to withstand the light of day.
Watch this Space
As Yeltsin’s reelection prospects continue to
decline, it is predictable that the Russian government
will demand and the Clinton Administration will be
tempted to agree to make further strategically and
financially costly U.S. concessions to Moscow. These will
likely include — in addition to continuing and
perhaps expanding the largely hidden, multi-billion
dollar taxpayer subsidies described above — some or all
of the following:
- The U.S. will probably side with France (the host
of this year’s G-7 economic summit) and Germany
in either admitting Russia into the G-7
outright or providing public assurances of
near-term membership so long as “the
momentum toward reform” is perceived to be
continuing. Naturally, this perception will be
wired in advance among allied capitals and have
little or no relationship to the economic and
political facts-on-the-ground in Russia. - The U.S. will further soften its time-table on
the eastward expansion of NATO and suggest
that some NATO association for Russia be put back
on the front-burner for internal Alliance
decision-making. - Russia’s violations of the Conventional Forces
in Europe (CFE) Treaty — particularly those
in the Caucasus region — will likely continue to
be papered over. This may take the form of
waivers to Treaty provisions or the United States
otherwise agreeing to Moscow’s further assigning
of heavily-armed Russian military units to the
Interior Ministry and other entities not covered
by CFE arrangements. - Russian Foreign Minister Yevgeny Primakov and his
hard-line colleagues will probably be provided a
defacto carte-blanche in the so-called
“Near Abroad,” thereby permitting
the Kremlin to intensify its campaign to
intimidate or coerce Western-oriented former
Soviet republics like Azerbaijan and reestablish
exclusive control over the vast oil resources of
the Caspian Sea region. - The institutional integrity of the IMF and
other multilateral institutions will likely be
further compromised — possibly irreversibly —
by the political pressure being applied by G-7
capitals to disburse funds to Moscow when the
conditions for doing so are clearly not in
evidence. - The United States will be pressed sharply to
agree to Russian changes to the START II
Treaty. The Treaty’s ratification was recently
approved by the U.S. Senate but it faces much
opposition and game-playing in Moscow. As with
the Clinton Administration’s acquiescence to
Kremlin demands to change — among other major
arms control agreements — the START I Treaty
(which had the effect of allowing Russia to
export mobile ICBMs under the guise of
“space launch vehicles,” greatly
exacerbating the missile proliferation problem),
the effect of concessions on START II will be
further to reduce the already questionable value
of that accord for U.S. security interests. - The compromise of sensitive U.S. “sources
and methods” will continue as the
Clinton Administration shares intelligence with
Russia under such rubrics as joint efforts to
protect the environment. For example, Washington
recently gave the Kremlin detailed diagrams of
Russia’s Yeysk air base based on highly
classified intelligence data as part of a
collaborative effort to mitigate the
petrochemical contamination associated with that
base. - The United States will be obliged to continue to
turn a blind eye toward blatant Russian
political, military and logistic support for its
Serbian ally ostensibly pursuant to the
Dayton Accords — but actually at cross-purposes
with their objective of reducing Bosnian Serb
forces and their armaments. - Washington will likely do nothing more than
express rhetorical opposition to MinAtom’s
delivery of weapons-relevant nuclear reactors to
Iran and irretrievably-flawed VVER-440 reactors
to Cuba. - The United States will probably take an
indulgent view of Foreign Minister Primakov’s
ominous agenda (6)
of restoring Moscow’s ties to the world’s pariah
states. For example, it will probably accede
to an early, full-scale return of Iraq to
international oil markets. It will also look the
other way on continuing covert Russian shipments
to Iraq of components for weapons of mass
destruction and ballistic missile delivery
systems. - Washington will likely express no opposition to
large-scale deliveries of sophisticated offensive
Russian military hardware to Beijing
notwithstanding China’s increasing belligerence
and threats not only to Taiwan but to the
United States itself.
example, Russia confirmed today its sale of a
number of highly advanced Su-27 fighter aircraft
to China.
The Bottom Line
It is extremely dangerous to underestimate the
ability of a state whose national sport and consuming
popular passion is chess to parlay weakness into
strength. That danger is an American administration which
is dominated by individuals like Strobe Talbott and Al
Gore — who have consistently misunderstood malevolent
ambitions on the part of the Kremlin and advocated
policies that made their realization more likely — and
is especially ill-equipped to protect U.S. interests from
Moscow’s jujitsu.
By providing urgently needed oversight and by
opposing indiscriminate commitments of U.S. capital —
both literal and political — in the name of improving
Yeltsin’s reelection prospects, the United States can
avoid repeating tragic mistakes of the Bush-Gorbachev
era. (8) More
importantly, it may also minimize the danger that the
United States will suffer strategic, as well as economic,
losses whether Yeltsin actually prevails or not.
(1) See Dr. Brzezinski’s
Commentary from the 4 February 1996 Washington Times
entitled “Running out of illusions.”
(2) Vladimir Kadannikov, who
recently replaced Chubais as Yeltsin’s top economic
advisor, for some time used the excuse that he was busy
moving into his new offices to avoid meeting with Fund
officials.
(3) A further question that
remains to be answered is the effect the transfer of jet
engine technology involved in the Pratt & Whitney
transaction will assist the Russian aerospace industry in
the development of new, high performance engine hot boxes
and other equipment. For example, Ilyushin manufactures
bombers, military transports and early warning aircraft
for the Russian military — all of which could be greatly
enhanced by this U.S. concession. In this regard,
President Yeltsin’s recent complaints to his Cabinet
inadvertently captured by television news cameras that
not enough was being done to steal or exploit stolen
Western technology may be pertinent.
(4) See the Center’s Press
Release entitled Center’s Robinson Urges
Congress to Thwart the Coming Cuban Chernobyl Nuclear
Crisis (No. 95-P 51,
2 August 1995).
(5) See the Center’s Decision
Briefs in the Caspian Watch series entitled Russian
Power-Plays on ‘Early Oil’: Hallmark of Kremlin Expansion
Post — and Future? (
1995) and The Great Game Is On — Will Republicans
in Congress Play? (No.
95-D 87, 1 November 1995).
(6) See the Center’s Decision
Brief entitled Restoration Watch #7: Primakov’s
Promotion Marks Major Step on the Road ‘Back to the USSR’
(No. 96-D 02, 10 January 1996).
(7) For more on these threats, see
the Center for Security Policy’s recent Decision Brief
entitled China Threatens Taiwan — and the United
States: Will ‘A Missile A Day’ Keep the U.S. Away?
(No. 96-D 9, 26 January 1996).
(8) For more on that period, see
the Center’s Decision Briefs entitled Transformation
Watch #4: Bush’s Mixed Signals on Soviet Aid Put U.S.
Taxpayers in Harm’s Way (
September 1991), October’s ‘Hunt for Red
Money’: Center Joins Bonner in Denouncing New Aid to
Gorbachev and Moscow Center (
1991) and The President Needs Advice on Soviet Aid
— But From Other Than Like-Minded Congressmen (
1991).
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