Bush’s View Of The Peace “Dividend”: Savaging The Defense Budget To Bail Out Moscow?

The Center for Security Policy today noted with alarm the latest evidence that the Bush Administration is prepared to embrace congressional demands for draconian reductions in the defense budget, even as plans are being drawn up for U.S. taxpayer participation in a multilateral, multibillion dollar financial bail-out plan for the Soviet Union.

"Yesterday’s announcement by Secretary of Defense Richard Cheney that the ‘notional plan’ for effecting a 25 percent cut in the American military’s force structure tracks with his Department’s internal plan for the next five years is an ominous development," said Frank J. Gaffney, Jr., director of the Center. "It suggests that Secretary Cheney has been obliged to abandon his position that such cuts were neither warranted nor responsible; President Bush’s silence on the matter can only be taken as consent to OMB Director Richard Darman’s proposals which would have the effect of dismembering key defense capabilities."

The deleterious effect of these cuts on the readiness, sustainability and deterrent value of the U.S. military and its supporting industrial and technology base is likely to be compounded by the emerging plan for a Western financial aid package for the Soviet Union. This package — estimated to amount to at least $20 billion over the next one to two years — was assembled by West German Chancellor Helmut Kohl and previewed yesterday in an interview with French President Francois Mitterand. The Moscow aid package is expected to be considered by the European Community at its meeting in Dublin next Monday and will be presented as a principal agenda item at the upcoming Houston Economic Summit scheduled for July 9-11. Press leaks from the Bush Administration signal that it will be willing to go along with, and perhaps participate in the bail-out, if certain conditions are met.

The Center believes that the sorts of defense cuts that Secretary Cheney has been dragooned into supplying the budget summiteers are entirely premature. The international environment — not the least the enormously volatile situation in the USSR — is simply too fluid and potentially too perilous to justify the sort of wholesale dismantling of the United States’ strategic and conventional forces, military production and research activities and operational flexibility and reach envisioned in the emerging defense plan.

This "notional plan" reportedly contemplates sharp cuts in strategic forces and modernization (including SDI), cuts in R&D including one third of all defense labs and one fifth of tactical R&D, and as much as a one third reduction in annual procurement of ships, missiles, tactical aircraft, tactical vehicles, and communications and electronic equipment.

Matters will be made worse still if the Bush Administration now agrees that the savings that such radical surgery would produce need not be fully applied to reducing the federal deficit, which is after all the ostensible purpose of the budget summit.(1) If instead at least some of these funds will be used to supply the bankrupt Soviet system with U.S. hard currency, it will actually add to deficit spending; worse yet, it will permit Gorbachev further to stave off fundamental economic reform, and continue funding militant Soviet client states at an estimated $15 billion annual rate.

"The Kohl government is most anxious to launch a large multilateral aid package to Moscow now to divert attention away from its own multibillion dollar annual payola scheme in return for Gorbachev’s acquiescence to German reunification," said Roger W. Robinson, Jr., former Senior Director for International Economic Affairs at the National Security Council and member of the Center’s Board of Advisors.

The envisioned infusion of capital and technology from the West called for by Kohl and Mitterand will simply enable the Soviet Union to continue to waste precious resources on the very sorts of military programs and imperialist activities still exempt from glasnost and perestroika and so inimical to our interests. Even if one had confidence the Bush Administration would succeed in its present efforts to attach several conditions to the Western bail-out program for the USSR — a confidence which, in light of repeated concessions by the Administration on the European Bank for Reconstruction and Development, Soviet observer status in the GATT, and the signing of a U.S.-Soviet Trade Agreement, does not seem warranted — these are quite unlikely to provide adequate safeguards against open-ended taxpayer liabilities and the likely diversion of funds by Moscow.

The Center calls on President Bush to disavow these double hits to U.S. interests by signalling that he will veto any defense bill that fails to provide the essential funds he requested for FY1991. Further, the President should use the Houston economic summit meetings to deny even U.S. consideration of participation in any Western financial assistance package to Moscow until we have at a minimum full Soviet data disclosure (e.g., gold reserves, debt arrearages, hard currency holdings, total military expenditures, hard currency outlays to support global commitments, etc.); and an agreed alliance-wide policy of how to channel any future Western assistance flows to those specific entities in the USSR seeking genuine, radical and immediate political and economic reform. These should not include the central authorities in Moscow; but rather, the reformers at the republic and local levels, independent labor unions, and groups like Democratic Platform that seek an abrupt end to the communist totalitarian political and command economic systems.

"For the United States and its allies to rush to Mr. Gorbachev’s rescue when the Kremlin is woefully in arrears in payments to Western suppliers, resisting required levels of economic and financial data disclosure, and failing to transform its moribund economy is throwing good money after bad," said Robinson. "It is the equivalent of leading Western taxpayers into direct or contingent liabilities of the kind that resulted in the savings and loan crisis. As a consequence, Congress and the American public should be scrutinizing these portentous developments."(2)

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1. The Center has recommended in its paper The Only Sensible Outcome for the Budget Summit: Slip the Gramm-Rudman Targets (14 May 1990, No. 90-46), that the Gramm-Rudman milestones be slipped rather than try to meet them by dismantling the Defense Department and/or crippling the economy through increased taxes.

2. For a more detailed discussion of the pitfalls of advancing Western aid to the Soviet Union, see the Center’s papers The Washington Summit: The Worst Strategic Miscalculation Since Yalta, 5 June 1990, No. 90-53, and Bridge Loans to Nowhere: A Central Bank Safety Net for Moscow?, 12 June 1990, No. 90-56.