Chapter (11) And Verse: Center Warnings Confirmed as Soviet Deadbeats Endanger U.S. Firms

Over $100 million are owed to U.S. companies by the Soviet Union. This is the wholly unnecessary by-product of the Bush Administration’s overinvesting in Mikhail Gorbachev and its failure to insist on discipline in financial transactions with Moscow.

On 3 July and again on 30 July 1990, the Center for Security Policy warned of "sweetheart deals" between the Soviet Union and key Western governments that would breach cardinal rules of sound business and banking practices. (See ‘Read the President’s Lips’: No Aid for Gorbachev, No. 90-63 and ‘Trumping’ for Dollars: Moscow Plays Favorites in Payments to Western Creditors, No. 90-P71.)

The handwriting was on the wall by early 1990: In the spring of last year, the Soviet Union confessed to payments problems with Western suppliers totaling an estimated $1-2 billion. In fact, the Center assessed Moscow’s actual arrearages at that time to be at least $2-3 billion. The Soviets responded by sharply pressing Western governments effectively to cover these debts at Western taxpayers’ expense.

Several Western countries — notably Germany, France, Italy and Japan — subsequently transferred the repayment risk from corporate books to their taxpayers’ ledgers. On 26 July 1990, Leonid Abalkin, a leading Gorbachev economic advisor at that time, praised Germany’s DM 5 billion credit as a "good example" for other industrialized nations to follow. Clearly, it was understood by Western governments — in what Abalkin called a "far-sighted and politically sensible" approach — that the bulk of these credits would be earmarked to liquidate Soviet arrearages owed to their respective national suppliers.

Despite the obvious financial storm signals, the Bush Administration last summer declined to remonstrate with other Western governments over their decision to violate a cardinal rule of international finance — pari passu or equal treatment of creditors. To the contrary, both prior to and at the July NATO and Houston Economic Summits, President Bush gave the green light to the heads of the major Western industrialized countries to proceed with whatever financial rescue packages they might concoct with Gorbachev.

By so doing, the U.S. government effectively condemned some American companies to the end of the Soviet Union’s payment line. As a direct result, the New York Times reported today that at least 20 U.S. firms have been unable to collect payment for goods and services rendered to the Soviet Union. The payment arrearages in most cases are between 6 and 12 months overdue. For example, companies such as Zerand-Bemal Group of New Berlin, Wisconsin (due $32 million), Valtex International Corporation of Palo Alto ($1 million), Techcare Systems of Redwood City, California (nearly $1 million) and Planet Import-Export International of New York ($.5 million) are facing serious economic repercussions — if not bankruptcy — from Soviet non-payment of outstanding debts.

Worse yet — and despite promises made by the head of the State Bank of the Soviet Union, Victor Gerashchenko, that all payment delays would be repaid in the third quarter of 1990 — estimates now put Soviet arrearages at close to $6 billion and growing!

"Had the Bush Administration taken deliberate measures last year to prevent the discriminatory repayment treatment of Western suppliers, small and medium-sized U.S. companies might not be facing bankruptcy today at the hands of Soviet deadbeats," said Frank J. Gaffney, Jr., the Center’s director. "The question now is: Will the Administration and the Congress permit matters to get worse still for struggling American firms? Or will it use the abundant leverage we possess over the Soviet Union arising from the threat to withhold government-guaranteed credits until such time as this unacceptable situation is fully redressed?"

The Center for Security Policy believes that, once American suppliers have been paid, the practice of sweetheart government bail-outs — that, in effect, reward Moscow for stonewalling repayment obligations — must be terminated. At the very least, the following steps are in order:

• The Bush Administration should notify the allies at once that the subject of Soviet arrearages and a coordinated Western response to prevent discriminatory treatment will be a prominent agenda item at the upcoming London Economic Summit in July.

 

• The current waiver of the Jackson-Vanik amendment should be rescinded on this ground — among many others. Under no circumstances should Jackson-Vanik be waived or revoked until Soviet arrearages to American firms are erased.

 

• It should go without saying that the American taxpayer should not be asked — either directly or indirectly — to foot the bill for Soviet financial irresponsibility, as their German, Italian and French counterparts are being forced to do today.

 

• There should be little sympathy henceforth for U.S. firms that elect to put themselves in harm’s way by going down the same road at a time of abysmal Soviet creditworthiness.