Trying to put Moscow on the dole

BY: Frank Gaffney
The Washington Times, May 7, 1991

Today, the Senate will vote on an insidious resolution offered by the minority leader, Sen. Robert Dole of Kansas. What makes the Dole resolution so pernicious is not merely its recommendation that the president approve Moscow’s request for a further $1.5 billion in agricultural credits despite the fact that — like the $1.3 billion Washington lent to Moscow four months ago — these U.S. taxpayer funds are unlikely ever to be repaid.

Worse still is the fact Mr. Dole’s resolution has been drafted in such a way as to give political cover to those who wish to squander taxpayer resources in the Soviet Union without appearing to do so. Among these are elected representatives of farm states who, like Mr. Dole, are accustomed to putting subsidies to their constituents ahead of the national interest. Others, like the Bush administration, appear motivated by their determination to aid the Gorbachev regime no matter what the cost.

The only problem is that current law precludes the extension of Commodity Credit Corporation agricultural export credits unless there is a reasonable prospect of repayment. Mikhail Gorbachev’s refusal to effect fundamental political and economic reforms, of course, precludes such a prospect.

Consequently, Mr. Dole’s resolution asks the president to take certain steps that will make it look as though Washington is acting responsibly — both in the interests of its own taxpayers and with a view to aiding those in the Soviet Union seeking genuine structural reforms. It seeks assurances from Moscow that American agricultural export credits will be distributed in an "equitable and humanitarian" manner to "the peoples of the Soviet Republics." Mr. Dole apparently would have his colleagues believe that such promises will prevent the central authorities from using new aid as they have used the aid provided over the past few months — namely, to coerce independence-minded republics to adhere to the Kremlin’s line.

More cynical still, the Dole resolution appears to condition the distribution of further CCC credits to the Soviet Union. It does so by suggesting that the aid be extended in three slices or "tranches" with the first $500 million to go immediately, and the remaining two tranches ostensibly "contingent upon the acceptable distribution and/or repayment of previous credits." In practice, however, this means that at least a further half-billion in U.S. taxpayer funds would be squandered. Yet another billion could go down the same black hole if "acceptable distribution" — whatever that means — is accomplished.

If the Congress and the Bush administration genuinely wish to protect the taxpayer and encourage structural reform in the Soviet Union, real — not Potemkin — conditions should be attached to any extension of additional U.S. agricultural export credits. These should include the following:

• The Soviet Union should be obliged to put up collateral to secure U.S. credits, government guarantees and other loans. Such collateral should be in the form of gold bullion — not promises of future oil deliveries and the like, whose value is at best uncertain in view of the dilapidated condition of the Soviet energy and transportation sectors.
• Collateral should, in the first instance, be posted for the loans made to Moscow last December. This would, of course, be in addition to gold deposits required to secure future credit arrangements for Moscow center.
• The Federal Reserve or U.S. Treasury must take physical possession of such gold — not simply accept Soviet currency deposits in Western banks as collateral, given their ability to be "disappeared" via wire transfer on a moment’s notice.
• The amount of gold transferred in collateral should be sufficient to provide a "shrinkage margin" — that is, as with commercial banking transactions, not sized on a dollar-for-dollar basis but in excess of the amount of American commodities to be purchased. This arrangement would ensure that funds would be available to cover both principal and interest payments even though, over the three years CCC credits take to mature, there may be substantial erosion in the price of gold.
• There must be full data disclosure on Soviet hard currency reserves and deposits, including strategic gold reserves, to be independently verified. There also should be full scrutiny of Soviet hard currency cash-flow management — specifically, the "sources" and "uses" of such currency, both domestically and abroad (e.g., such anti-Western activities as technology theft, aid to client states, military modernization, espionage and disinformation). Clearly, the U.S. taxpayer is entitled to a full assessment of the creditworthiness and spending practices of so significant a would-be borrower.
• A precondition to new loans should be prompt payment required to "clean up" the estimated $400 million in arrearages owed by Moscow center to U.S. companies.
• Assurances about an equitable distribution of the American commodities purchased with such credits will not be sufficient. Physical delivery and distribution of the grain and other foodstuffs to republic capitals should be independently monitored and relevant money transfers made to republic banks to ensure that the center is not able once again to abscond with — or otherwise abuse for political purposes — the proceeds of American largesse.

Today’s action by the Senate and the Bush administration’s decision on the latest Soviet request for additional credit is a litmus test of the U.S. commitment to promoting in the Soviet Union a more economically viable and less strategically dangerous nation, a process that depends in part on the devolution of power away from the center and to the republics. Neither the long-term strategic interests of the United States nor the short-term interests of its taxpayers will be served if American resources continue to be squandered in ways that retard, rather than advance, this process.

Frank J. Gaffney Jr. is the director of the Center for Security Policy.