AGSCAM REDUX: WILL CCC BE ALLOWED TO WASTE MORE TAXPAYER DOLLARS PROPPING UP TYRANNY?

(Washington, D.C.): With a June U.S.-Soviet summit looming, how to respond to Mikhail Gorbachev’s recent request that a further $1.5 billion in U.S. agricultural credit guarantees be extended to the Soviet Union is clearly giving the Bush Administration fits. Evidence of its dilemma can be found in initial White House reluctance even to acknowledge publicly the full magnitude of Moscow’s latest bid to tap U.S. taxpayer largesse via credits supported by the Department of Agriculture’s Commodity Credit Corporation (CCC).

On the one hand, the Administration’s reflexive reaction is to try to accommodate virtually any demand from the central authorities in Moscow. Its commitment to propping up the Gorbachev regime in particular and its preoccupation with promoting "stability" in international relations in general animate a desire to authorize some additional underwriting of Soviet commodity purchases.

On the other hand, the risks associated with such additional CCC exposure in the Soviet Union are obvious:

• This government agency is currently under investigation for breathtaking management failures in connection with some $900 million in loan guarantees to Iraq through the Atlanta branch of the Banca Nazionale del Lavoro. These loans are suspected of having helped subsidize Iraqi purchases of weapons — not wheat or other U.S. staples. Evidence that the CCC is now making equally ill-advised, if less illegitimate, deals with another dictator could prompt a public and congressional outcry that might endanger the agency’s ability to survive this scandal.

 

• It was only four months ago that the Bush Administration extended massive government credit guarantees to the USSR for the first time since 1974 — $1 billion of which was to be administered by the CCC with a further $300 million in longer-term U.S. Export-Import Bank loan guarantees. These transactions were made possible by President Bush’s 12 December 1990 decision to waive the Jackson-Vanik amendment which statutorily linked preferential trade status to respect for human rights. He took this step even though Moscow had not yet enacted legislation guaranteeing what Henry Jackson called the "touchstone" of all such rights: the right of free emigration.

 

• Today, with all but $30 million of these CCC credits exhausted (surprisingly, at an interest rate of just 4.5%, far below what Americans pay to their banks and credit card companies), it still is unclear whether the Soviet government will permit genuinely free emigration. Although an oft-postponed vote on such legislation is currently scheduled for 7 May, the central authorities of the Soviet Union continue to signal great reluctance to grant their citizens the opportunity to "vote with their feet" as their East German counterparts did in 1989 — with catastrophic results for the regime of Moscow’s puppet, Erich Honecker.

   

 

• Just last week, for example, the Supreme Soviet further delayed action on an emigration bill, this time citing concerns over a potential "brain-drain" and adverse budgetary implications arising from the 10-20 billion ruble cost to print new passports and customs forms which would be needed to implement the new law. It strains credulity that President Bush could look the other way yet again in the face of continued Soviet non-performance on this point and extend as much as $1.5 billion in additional U.S. taxpayer guarantees so long as Moscow’s behavior flouts at least the spirit of the Jackson-Vanik amendment.

   

• The idea that the Bush Administration would agree to extend additional credit to the Soviet Union is made still more preposterous by the USSR’s present economic circumstances. As a practical matter, given the transparent insolvency of the Soviet central government, such assistance would actually amount to providing Moscow not with American loans, but outright grants — irrecoverable gifts from the U.S. taxpayer.

"Offering further taxpayer-underwritten economic assistance to the Soviet central authorities at this juncture makes neither good economic nor strategic sense," said Frank J. Gaffney, Jr., director of the Center for Security Policy. "The USSR is in the equivalent of Chapter 11; as Sen. Bill Bradley once put it, we might as well ‘burn’ our money as give it to the Soviet government under present circumstances. We certainly should not expect ever to see it repaid."

Gaffney added, "From a strategic perspective, pouring more U.S. taxpayer money into the coffers of Gorbachev’s Communist Party-KGB-military dominated government is an equally serious mistake. It would amount to yet another, ill-advised Western effort to prop up a regime that continues to pursue policies that deny political freedom and economic opportunity at home and that continue to constitute a threat to Western interests overseas."

"This latest Gorbachev plea for substantial American taxpayer credit guarantees should be viewed by the world as a revealing and critical test of the Bush Administration’s policy toward the fragmenting Soviet Union at an historic crossroad," said Roger W. Robinson, Jr., Center Board member and former chief economist at the National Security Council. "To say ‘yes’ to Gorbachev and a repressive Moscow center now would be to say ‘no’ to Yeltsin and the genuine reform movement which will prevail later."

Two other Soviet gambits in Moscow’s desperate fund-raising campaign are noteworthy:

• In a similar effort to tap into Western taxpayer funds, Soviet Gosbank Chairman Viktor Gerashchenko strongly urged his fellow members of the Board of Governors of the European Bank for Reconstruction and Development (EBRD) earlier this week to reconsider the current $220 million ceiling on lending to the USSR. This was justified, he argued with a remarkably straight-face, in light of the Soviet Union’s "determination in implementing reforms." Predictably, the new bank’s facile and accommodating president, Jacques Attali — with the apparent concurrence of his mentor, French President Mitterand — is supportive of this Soviet proposal. If approved, it would eliminate one of the few constraints imposed last year (as a sop to American concerns) to prevent the USSR from perverting the institution from one intended to foster capitalist renewal in Central Europe to one that simply subsidizes an unreformed Soviet command economy.

 

• Gorbachev’s efforts to secure a multi-billion dollar islands-for-assistance deal with the Japanese government — specifically involving the return of the Northern Territories — were appropriately rebuffed last week, as the Center had urged. This outcome was due largely to the determination of the Japanese Foreign Ministry to preserve the integrity of Japan’s traditional policy of demanding the unconditional return of the territories and widespread skepticism in Japan over the portentous, recentralizing direction of the Soviet government under Gorbachev’s leadership.

 

• Japan now stands as virtually the only G-7 country disposed prudently to resist the fraudulent claims by Moscow center that large-scale Western financial assistance will somehow resurrect progress toward systemic economic reform and democratization — goals to which Gorbachev was never genuinely committed. By properly resisting misguided pressures from its Western allies, Tokyo has more than earned a leadership position on this key agenda item going into the July London Economic Summit.

   

The Center for Security Policy urges the relevant committees in the House and Senate to conduct immediate hearings on the likelihood of Soviet repayment of U.S. taxpayer CCC credit guarantees, given Moscow’s persistent payment arrearages to Western suppliers — now totalling over $6 billion (of which U.S. companies are now owed roughly $100 million). The Center has long argued that Moscow will likely be compelled to reschedule its hard currency indebtedness amounting to some $70 billion this year due to plummeting hard currency earnings, expanding civil strife, and "bunched" Soviet repayment obligations. The implications of such a development should be clearly understood before any further lending to the USSR is contemplated — let alone executed.

The Center believes that Congress should also demand that there be no extension of the Jackson-Vanik waiver beyond June and that CCC’s creditworthiness assessment of the Soviet Union be released publicly and subjected to congressional scrutiny. A prescient Wall Street Journal article by Robinson on "The Cost of Giving Up Jackson-Vanik" is attached.

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1. Other Center papers on this topic include, Chapter (11) and Verse: Center Warnings Confirmed as Soviet Deadbeats Endanger U.S. Firms, 12 March 1991, No. 91-P19; ‘Don’t Bother Us with the Facts’: Allies Preempt IMF-Led Study on Soviet Economy, 19 December 1990, No. 90-P121; Jackson-Vanik: Will Bush Reward Soviet Repression or Preserve Key Incentive for Reform? 5 December 1990, No. 90-116; Center Cheers AFL-CIO Opposition to Soviet Membership in the EBRD, 11 April 1990, No. 90-P34.