REVOLVING DOORS: EXIMBANK OFFICIAL’S SCANDALOUS SELF-DEALING IS A BLOW TO U.S. TAXPAYERS, ‘REDCARPET’ FOR RETURNING RUSSIAN HARDLINERS — AND THEIR AMERICAN FRIENDS

(Washington, D.C.): The outgoing Bush
Administration is poised to extend some
$2 billion in U.S. Export-Import Bank
(Eximbank) loan guarantees to Russia.
These funds would be intended to
underwrite Russian purchases of U.S. oil
and gas equipment and other
energy-related projects.

This immense outlay should not be made
by a lame-duck administration insofar as
it would: (1) put U.S. taxpayers in
jeopardy of vast new financial losses in
the former Soviet Union; (2) provide
undisciplined assistance to the
strategically sensitive Russian energy
sector; (3) redound in an unseemly — if
not corrupt — manner to the personal
benefit of the outgoing head of the
Eximbank; and (4) signal unmistakably
U.S. support for Russia’s Prime Minister
Chernomyrdin and his hardline colleagues.

Where is Eximbank’s
Fiduciary Responsibility?

Under its charter, Eximbank’s Board of
Directors is required on behalf of its
“shareholders” (i.e., U.S.
taxpayers) to make a determination when
providing loans or guarantees that there
is a “reasonable assurance of
repayment.” Simply put, no
such assurance c-an be given at
this time for massive new
taxpayer-guaranteed infusions
to Moscow. This is an
inescapable fact of life since Russia is:
effectively in default to most, if
not all, of its major lenders; in
the midst of debt-rescheduling
negotiations with the Paris Club of
official creditors; and woefully in
arrears to another U.S. government
lending agency, the Commodity Credit
Corporation (CCC). The only basis
upon which billions more could be pumped
into the former Soviet Union
would be if the United States government
is indifferent to being repaid.

The judgment that Russia is clearly
non-creditworthy is further underlined by
reports that Eximbank officials intend in
the case of Russia to provide 100
percent loan guarantee coverage to
participating banks — rather than the 85
percent formula traditionally required.
Under such an arrangement, commercial
banks making the actual loans to Russia
bear virtually no risk. Instead, the
American taxpayer assumes
all responsibility for default or
rescheduling.

There can be little doubt that the
U.S. taxpayer is being set up for a fall
with respect to these loans. Russia is
already heavily over-extended and unable
to make timely payments on its current
$80 billion hard currency debt — a
substantial portion of which comes due in
1993. For example, Moscow has within the
last week rebuffed a generous offer from
the Paris Club to limit to just $2.75
billion Russia’s payments next year on
official debt obligations to Western
creditors. Russia claims it cannot pay
even this relatively paltry amount.

What is more, Russia is more than
90-days overdue on some $58 million in
payments on loans guaranteed by the CCC
— an amount likely to balloon within the
next 30 days. It now appears
inevitable that American taxpayers will
take serious losses next year on their
CCC exposure since
close to $2 billion in payments from
Russia are due within the next 12 months.

Playing fast and loose with American
taxpayer dollars in this manner is not
only irresponsible; it is deceitful. As a
practical matter, providing $2 billion in
“loans” to Russia under present
conditions amounts to extending $2
billion in de facto “grants.”
By purporting to expect repayment on
these outlays, however, the Bush
Administration hopes to avoid a critical
-and necessary — debate over the wisdom
of providing any additional taxpayer
largesse to the newly appointed Russian
government.

Is Aiding the Russian
Strategic Energy Sector A Good Idea?

In the hands of Communist Party alumni
like the newly-appointed Russian Prime
Minister, Viktor Chernomyrdin, $2 billion
in taxpayer loan guarantees will produce
a major new source of hard-currency
revenues. Hardliners in Moscow can use
these funds to consolidate further their
power and expand the former Soviet
Union’s future economic leverage against
countries heavily dependent on Russian
energy supplies, such as Ukraine and the
Baltics.

In fact, the increasing success of
these factions in blocking efforts to
decentralize and privatize key energy
production facilities has already
contributed to recent interruptions in
energy supplies to Ukraine and Eastern
Europe. Should the pressure for such
reforms now be relieved thanks to
American capital infusions, it is
predictable that the Russian energy
sector will simply serve once again as a
multibillion-dollar annual revenue stream
for the preservation of the
military-industrial complex.

Given the strategic importance of
energy and the large-scale hard currency
cash flow it could generate, the
importance of democratic and free market
reforms being irreversible in place
prior to such
assistance cannot be overstated.

The Revolving Door and the
Red Carpet

Insult is added to imminent injury by
the disclosure that a significant
beneficiary of the $2 billion in Eximbank
loan guarantees to Russia’s strategic oil
and gas sector is likely to be none other
than the current Acting Chairman of
Eximbank, Eugene Lawson. Lawson has
announced his intention to depart on 11
January to head up the U.S. -Russia
Business Council, the successor
organization to the now-defunct U.S.-USSR
Trade and Economic Council (USTEC).

In a manner that smacks of the most
rank exploitation of government office
for private gain — a practice popularly
reviled as “the revolving door”
and assiduously condemned by the incoming
Clinton Administration — Lawson intends
to push the deal through prior to his
departure. Were he to succeed in doing
so, many of the hundreds of corporate
members of the organization would stand
to benefit materially, as might Lawson
himself.

A willingness to subordinate U.S. national
interests to those of American
corporations and their
official/industrial counterparts in the
former Soviet Union is hardly unique to
this reconfigured trade-promotion
organization. Indeed, USTEC worked
closely with the Gorbachev regime (and
its predecessors) to promote conditions
which would enable its members to tap
into U.S. taxpayer guarantees and other
federal assistance, enriching
participating companies and providing
desperately needed life-support for the
communist system.

The good news is that USTEC’s odious
associations contributed to its ultimate
collapse last August as the
still-democratically oriented Russian
government failed to meet its membership
payments to the organization. The bad
news is that — with the ascendancy in
Moscow of Arkady Volsky, USTEC’s former
Soviet co-chairman and current leader of
the political arm of the USSR’s
military-industrial complex known as
“Civic Union” — the successor
group evidently intends to pick up where
USTEC left off. Many of the same
individuals and companies (e.g., Dwayne
Andreas of Archers Daniels Midland,
Donald Kendall of Pepsico and John Murphy
of Dresser Industries) who figured
prominently in the effort to prop up the
last communist regime appear anxious now
to help their ex-Soviet friends
consolidate power.

The Wrong Signal and the
Wrong Time

With the ouster of reformist Acting
Prime Minister Yegor Gaidar at the hands
of Volsky and other so-called
“centrists” in Parliament, the
financial and strategic arguments against
the proposed $2 billion Eximbank loan to
Russia’s energy sector are compounded.
Were the United States now to proceed
with the deal, it would be unmistakably
seen as a vote of confidence in -and
explicit support for — Chernomyrdin, a
long-time Soviet apparatchik and former
leader of the state-run gas industry.

At the very least, the
Eximbank loan guarantees would further
undermine the few remaining
reformists in the Yeltsin government and
confirm the already too widespread
impression that Washington is
prepared to reward the ossification of
Russia’s reform movement.
This conclusion would be
particularly unavoidable in light of a
report in the 19 December 1992 edition of
the New York Times in which
Acting Chairman Lawson went so far as to
indicate that he welcomed Gaidar’s forced
departure because of the latter’s
objections to some of the proposed
lending provisions.

The Bottom Line

The question clearly before the new
Clinton Administration is how the United
States can best support genuine economic
and political reform in Russia. At a news
conference on 17 December 1992 in Little
Rock, the President-elect stated that he
was giving “a lot of thought to what
we might do, over and above what we have
done, and within the limits of our own
financial constraints, to try to
stabilize the direction over there.
”

Clearly, the impending $2
billion Eximbank deal should be put on
hold until the Clinton Administration has
had an opportunity to determine whether
it is warranted on financial, strategic
and political grounds. The
Center for Security Policy believes that
the considerable down-side risks
associated with this transaction in all
three areas — if not the ethical
considerations concerning Acting Chairman
Lawson’s “revolving door”
embarrassment — argue strongly against
the Bush Administration closing this
sweetheart deal before it leaves office.

Indeed, the Center urges the new
Administration to initiate as one of its
first orders of business a careful
strategic review of developments within
the former Soviet Union. Such a study
should be aimed at assessing whether
structural reform along democratic and
free market lines is still being
meaningfully pursued — and, if not,
whether further unconditioned U.S.
assistance would simply wind up aiding
and abetting the enemies of such reform.

In addition to obtaining the judgments
of the intelligence community and the
relevant policy agencies, the Center
strongly recommends that President
Clinton seek a second-opinion.
Given the great uncertainty about
the true state of affairs in the former
USSR and the immense risks that might be
associated with misreading the situation
and adopting inappropriate policies, the
new Administration should commission a
new “Team B” — a group of
distinguished outside experts and former
policy-practitioners capable of rendering
a sound, informed and independent
analysis.

In 1975-76, such a “Team B”
effort proved invaluable in helping
recalibrate U.S. official assessments of
Soviet foreign and security policy. A
recalibration may be no less needed today
in order to ensure that new American
financial, technological, energy-related
and other assistance does not serve once
again to support potential
adversaries in the former USSR. An
important test of the caliber of
Mr. Clinton’s newly-announced
intelligence choices — CIA Director-designate
James Woolsey and the Chairman-designate
of the President’s Foreign Intelligence
Advisory Board, Adm. William Crowe —
will be whether they support such a
dual-track approach to evaluating
Russia’s present and future course.