Clinton’s Parting Shot at International Religious Freedom

(Washington, D.C.): On 19 December, President Clinton fired off a letter to U.S. Commission on International Religious Freedom (USCIRF) Chairman Elliott Abrams (see the first attachment) — designed it would appear, at least in part, to give comfort to past and prospective Wall Street benefactors — denouncing the Commission’s efforts to explore the use of capital markets leverage to respond to China’s increasing religious persecution and repression.

The harsh presidential correspondence came in response to a letter Mr. Abrams sent the White House on 1 November 2000 (see the second attachment). In the latter, Chairman Abrams requested Mr. Clinton’s views on two specific issues:

“(1) whether you agree that IRFA [the International Religious Freedom Act of 1998] vests your office with the power to bar US financial institutions from purchasing China bonds and

“(2) if so, whether you plan to exercise that power so as to prevent China from offering bonds on the U.S. markets until it meets…two conditions[: namely,] 1) it makes substantial improvements in respect to religious freedom and 2) it provides sufficient assurances to guarantee that the proceeds are never used to support religious persecution.”

Clinton’s Deliberate Overreaction

Although the Commission made clear that it was merely seeking to have “the benefit of your thoughts before it makes a final decision,” the President (probably at the behest of Treasury Secretary Summers and Federal Reserve Chairman Alan Greenspan) responded with pronouncements largely unresponsive to the Commission’s queries. After observing that China “may have decided not to pursue the offering”¹ President Clinton asserted that efforts to bar China’s undisciplined sovereign bond offering “will not advance respect for religious freedom in China.”

In his letter, the President went on to make three assertions which were alarmist and/or inaccurate:

Item: Mr. Clinton repeatedly mischaracterized the Commission’s ongoing deliberations as a fait accompli aimed at “barring China’s access to US capital markets.”

Reality: In fact, the Commission explicitly said in its letter that it had not taken any decision on how to proceed vis a vis the Chinese sovereign bond offering. Rather, it was soliciting the President’s views on the items specified prior to making “a final decision.”

Equally erroneous is the President’s suggestion that the Commission is seeking to bar all Chinese entities from the U.S. capital markets. Actually, at that moment, it was exploring just the question of whether the President should bar only the Chinese government from the U.S. bond market; the equity market was not even mentioned.

Item: Mr. Clinton stated “It [the barring of Chinese access to the US capital markets] will have little impact on China’s access to capital in an age of global capital markets.”

Reality: The President’s statement is simply inaccurate. Were China barred from access to the U.S. capital markets, it would almost certainly result in the Chinese government and enterprises having to pay a premium for funds it attracted in other, thinner-volume capital markets elsewhere. Even if the PRC were able to secure some funding in overseas markets, the global dominance of the U.S. capital markets is such that, over time, China’s efforts to attract tens of billions of dollars annually would likely be stymied as alternative markets become “booked up” with Chinese risk exposure.

More importantly, any effort to bar Chinese sovereign access to the U.S. markets for political reasons would affect risk assessment of China by rating agencies such as Moody’s and Standard & Poor’s. The knock-on effect of these lower ratings in other markets — and on other Chinese entities — would likely be sufficiently great as to increase perceptibly the costs to the PRC associated with its religious persecution (as well as other conduct inimical to American interests and values).

Item: Worst of all, Mr. Clinton asserts that the Commission’s opposition to a PRC sovereign bond offering (originally reported to be coming to market last November) “could also have a negative impact on the American people, as our commitment to the free flow of capital would be undermined, with adverse consequences for our economy.”

Reality: It is preposterous on the face of it that blocking a Chinese sovereign bond offering — which would provide Beijing’s leadership with undisciplined cash from U.S. investors that could be used to fund religious persecution, national security abuses and other anti-Western activities — “would have a negative impact on the American people.” To the contrary, such a targeted approach to this kind of ill-advised lending directly to the Chinese government would be very much in the interest of the American people.

Similarly, such an approach need not undermine America’s commitment to the free flow of capital. This kind of scare-mongering is emblematic of the Clinton years; it only serves to discourage efforts to strengthen transparency, disclosure and discipline of the type sorely required by American investors so that they can avoid unwittingly helping to underwrite activities injurious to this nation’s security interests and fundamental values.

Bottom Line

Mr. Clinton added insult to injury by failing even to answer one of the two questions the U.S. Commission on International Religious Freedom put to him: Does the President have the authority under the International Religious Freedom Act “to bar U.S. financial institutions from purchasing Chinese bonds”? The Commission would be correct in judging the answer to be “Yes.”

Accordingly, the Commission and others who share its commitment to religious freedom and other fundamental human rights must make clear to Mr. Clinton’s successor what this President chose to ignore throughout his tenure in office: America will use, among other tools, prudent, non-disruptive new measures — like the selective leveraging of the capital markets — to demonstrate to “countries of concern” that a significant price will be paid for their odious repression.

¹In fact, the Casey Institute had learned prior to the President’s correspondence that the PRC sovereign bond had been withdrawn — due primarily to the opposition of the broad-based “PetroChina Coaltion” of non- governmental organizations and the USCIRF letter to the President.