EARLY RETURNS: WASTEFUL U.S., WESTERN AID HELPS ASSURE VICTORY OF ANTI-WESTERN FORCES IN FORMER SOVIET UNION

(Washington, D.C.): The American public is about to
get a rude awakening. In the wake of the expected victory
of Communists and other hard-line, anti-Western
revanchists in this weekend’s parliamentary elections in
Russia, reality should sink in: The bad-old-days of the
Cold War may not have been left behind permanently, after
all. As a harbinger of the likely results of the more
important presidential election currently scheduled for
June 1996, hard questions will surely be asked on Capitol
Hill and elsewhere about who lost Russia and why.

Candid answers to such questions will reveal an
unpalatable truth: The bulk of U.S. assistance flows
has not gone to support genuinely pro-democratic and free
market reformers. It has, instead, gone directly or
indirectly to the political infrastructure of the
Communists, their Agrarian Party allies, and the
so-called Party of War that orchestrated the year-old
genocidal campaign in Chechnya. This has been
particularly true of billions of American tax dollars
provided to Moscow through international institutions
like the International Monetary Fund (IMF). Rather than
supporting genuine structural change, the IMF seems bent
on undermining it.

With ‘Enemies’ Like Us…

This travesty has been chronicled by a respected
analyst in the field, J. Michael Waller of the
American Foreign Policy Council. His research reveals
that the IMF has transferred billions into the Russian
Central Bank, literally making it possible for the
Central Bank to provide cash subsidies to the completely
unreformed state agricultural sector, to sustain the
still-vast military-industrial complex, to underwrite the
war in Chechnya, etc. Despite repeated calls from the
Center for Security Policy and sensible legislators, IMF
funding, along with Western debt rescheduling
arrangements, have not been linked to anything other than
economic criteria.

As a result, the United States, as the largest IMF
donor, has participated in the funding of the following,
debilitating developments:

• Perpetuating a grossly inefficient
  Soviet-style agricultural system: A major
  employer and political support base for the
  Communists and their allied Agrarian Party,
  Russia’s sprawling state and collective
  agricultural system continues to receive huge
  subsidies from the Central Bank. The 1996 federal
  budget increases agricultural subsidies to the
  point that the proto-communist Agrarian Party
  actually says it no longer opposes IMF loans.
• Financing life support for Soviet-style
  industrial apparatuses: Huge industrial
  monopolies largely resembling their Soviet
  Communist predecessors are also benefitting from
  the IMF. A case in point is Gazprom, the natural
  gas giant formerly headed by Prime Minister
  Viktor Chernomyrdin — whose industry-based
  party, ironically, President Yeltsin tries to
  differentiate from “the forces of the
  past.”

Gazprom pays virtually no taxes, even though
Moscow’s agreement with the IMF states that the
energy sector must pay a given share. The Financial
Times reported on 18 September 1995 that the
IMF released its $500 million-a-month tranches to
Russia “despite the government’s inability
fully to deliver on its pledges to raise taxes
from the energy sector.” In this connection,
Gazprom was specifically cited. And yet, the gas
company is far from unable to pay its fair share.
As the Washington Post noted on 3
December, “If ranked by the amount of its
profits, Gazprom would be second on the Fortune
500 list, just behind the Royal Dutch/Shell
Group, which had profits of $6.2 billion.”

The Post added, however, that Gazprom’s hidden
profits may be even larger. In fact, if Gazprom
paid its taxes, economist Anders Aslund estimates
that it would produce up to $30 billion in
revenues to the Russian government. Instead,
Moscow relies on the IMF to help make up its
yawning deficits.

• Underwriting military modernization: The
  State Duma passed the 1996 federal budget on 6
  December, increasing military spending and
  intending to pay with an expected three-year IMF
  loan of as much as $10 billion. Russia’s military
  modernization continues apace: five new combat
  aircraft, including a new multi-role strategic
  bomber; upgraded Typhoon ballistic missile
  submarines and a new-generation follow-on SSBN
  whose keels have been laid; the new
  Severodvinsk-class attack submarine; the new
  generation submarine-launched ballistic missiles;
  and a new TOPOL-M mobile intercontinental
  ballistic missile. Meanwhile, Russia is
  elaborating a new military doctrine that stresses
  reliance on weapons of mass destruction.
  According to Defense News, this doctrine
  also envisions the United States and its allies
  to be “Russia’s key potential enemies.”
• Paymaster for Russia’s war criminals in
  Chechnya: The war in Chechnya broke Russia’s
  1995 federal budget. As a result, the IMF’s April
  decision to loan Moscow more than $6 billion
  arrived just in the nick of time. It went ahead
  despite pleas from pro-Western Russian political
  leaders and groups like Human Rights Watch and
  the International Commission of Jurists who urged
  that the United States condition the IMF loan on
  halting the Kremlin’s aggression in Chechnya.

The Clinton Administration refused to insist upon
such linkage. Indeed, last May, when Senator
Mitch McConnell asked Treasury Secretary Robert
Rubin if international loans should be
conditioned on Russia’s conduct, Rubin responded
that continued IMF aid would “minimize the
probabilities of future Chechnyas” and
should not be conditioned on an end to Russian
violence there.

• Enabling aggressive espionage operations:.
  Russia is even using IMF aid to pay for its
  covert operatives in the United States. A
  classified CIA report leaked recently to the Washington
  Times notes that the Russian External
  Intelligence Service (SVR) paid CIA turncoat
  Aldrich Ames $130,000 in cash in November 1992. His
  SVR case officer, Yuri Karetkin, confirmed to
  Ames that the new, sequentially-numbered $100
  bills had come from the IMF and other Western aid
  sources.
• The IMF has also effectively rewarded Moscow’s
  hard-line proxy regime in Belarus for its murder
  of two American citizens last September.
  Within days of shooting down Alan Fraenckel and
  John Stuart-Jervis — pilots of a sport balloon
  who had received permission to overfly Belarus in
  an international race — Minsk received IMF
  approval of $293 million in standby credits with
  Washington’s full approval. Belarus’s air
  defenses are completely integrated with those of
  Moscow, meaning that Russia cannot be exculpated
  for a crime that even the New York Times
  described as “an incident recalling the most
  violent excesses of the Cold War.”

The United States government also participated in and
supported a November rescheduling of Russia’s external
debt. Here again, the Russian military and other backers
of the former Soviet Union’s “red-brown”
political factions are the likely beneficiaries of the
West’s astounding decision to reschedule Moscow’s $130
billion debt and to give the Kremlin a grace period so
that it need not repay part of the principal until the
year 2002. It was no accident, for example, that the
day after this rescheduling was agreed upon, Prime
Minister Chernomyrdin announced that all overdue payments
to the armed forces (totaling more than half-a-billion
dollars) would be paid off shortly.

The Bottom Line

The results of this weekend’s elections in Russia
will come as no surprise to those who — like the Center
for Security Policy — have been closely monitoring these
and other troubling developments there. It is to be hoped
that those who are surprised will add impetus to ongoing
efforts in Congress aimed at ensuring that U.S. aid
policy to the former Soviet Union be founded on the solid
commercial and national security principles of
discipline, transparency, conditionality and collateral.

One such effort has been sponsored by Rep. Gerald
Solomon (R-NY) in the form of H.R. 519. This legislation
would “prohibit foreign assistance to Russia unless
certain requirements relating to Russian intelligence
activities, relations between Russia and certain
countries, Russian arms control policy, and the reform of
the Russian economy are met.”

If such principles had been put into place years ago,
the billions of U.S. taxpayer dollars that were
squandered through the Commodity Credit Corporation in
the name of propping up Mikhail Gorbachev’s Soviet regime
— to name but one example — might have been made
available for other, more worthy purposes. If they were
being observed today, billions more in American tax
dollars might stop being wasted, abused or fraudulently
misappropriated by Moscow through the IMF or through such
direct mechanisms as the so-called Cooperative Threat
Reduction (or Nunn-Lugar) program. But clearly, in the
dark future suggested by the impending Russian elections,
the United States has little choice but to adopt such
principles now — and to avoid, by adherence to
them, further unjustifiable and increasingly reckless
squandering of taxpayer resources.