Excerpts From An Interview With Roger W. Robinson, Jr.

PORTIONS OF WHICH APPEARED IN

ASAHI SHIMBUN’S WEEKLY MAGAZINE, AERA

2 April 1991

[In the course of my conversations with senior officials of the Government of Japan in Tokyo at the end of February] I encouraged Japan to maintain its cautious and restrained policy toward large-scale financial and economic assistance to the central authorities in Moscow. Japan, more than perhaps any other member of the Group of Seven, or G-7 summit countries, has been properly circumspect regarding developments in Soviet society.

For example, in early 1990, Japan strongly opposed Soviet observer status in the International Monetary Fund, and opposed Soviet membership and borrowing privileges in the new European Bank for Reconstruction and Development. Japan also prudently resisted the push by Germany and other European nations at the Houston Economic Summit last July for immediate multi-billion dollar assistance to the Soviet Union "to help catalyze reform."

To Tokyo’s credit, [the Japanese government] understood that, absent major Soviet progress toward systemic economic reform, large-scale Western financial assistance to an unreformed, command economy would almost surely be squandered, and only postpone the hard choices by the Soviet leadership concerning military-versus-civilian resource allocation decisions. Accordingly, at the Houston summit, Japan joined with the U.S. and United Kingdom in a kind of G-3 to resist this desperate European bid, led by Germany, to give highest priority to an attempted Western bail out of Moscow’s economic difficulties — which had almost no prospect for success.

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The Japanese clearly took note of what might be termed the loss of nerve by the Bush Administration on 12 December when the United States broke with the Houston summit G-3 understanding and offered $1.3 billion in U.S. taxpayer-guaranteed credits to the Soviets. The Bush Administration took this action despite the fact it was agreed at Houston that no larger financial assistance would be offered to Moscow [pending] the completion of an International Monetary Fund-led study of the Soviet economy, commissioned by the summit seven partners.

This study was not available for review at the time of President Bush’s decisions, which was largely driven by an effort to maintain nominal Soviet cooperation during the Persian Gulf conflict. Japan was vindicated in its restraint some 30 days later when violent repression commenced in the Baltics, resulting in about 20 killed in Lithuania and Latvia.

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I suggested that [the Japanese government’s perception that Moscow would be reluctant at the summit to conclude an "islands-for-assistance" deal] may not be the case, as Gorbachev finds himself in the unique position of having very limited options in attracting sufficient volumes of Western capital to stave off growing chaos in the country. In my judgment, this is primarily due to five factors:

• First, the Soviets have virtually lost access to private Western credit markets due to the sharp decline of their economy and creditworthiness and due to an unacceptable level of political volatility.

 

• Second, the ability of Western governments to offer generous credit guarantees to the Soviets is shrinking, due in part to the outcry of legislative branches of G-7 nations which are appropriately demanding no "business-as-usual" while repression against the Baltics and other freedom bound republics persist.

 

• Third, Germany, which has traditionally been looked to by the Soviets as their primary source of capital and technology to fuel their economy and military establishment, has been overextended. Germany is faced with unexpectedly high costs associated with stabilizing the economy of the former German Democratic Republic — together with an unanticipated $11 billion contribution to the Persian Gulf conflict, and unsatisfied expectations on the part of the East European nations. This has made Germany’s ability to service the full scope of Soviet needs — probably in the range of $15 to $20 billion annually from Germany alone — very difficult politically.

 

• Fourth, the continued decline in Soviet oil production is undermining the centerpiece of the USSR’s annual hard currency earnings structure at a faster pace than the Soviets, themselves, anticipated.

 

• Fifth, at least the temporary Soviet loss of their indispensable arms-for-oil barter trade with their favorite client state, Iraq, resulting from the coalition embargo against Iraq last August. This is having a debilitating impact on the Soviets’ ability to fulfill oil delivery contracts with India, Bulgaria, and Romania, formerly supplied by Iraq on Moscow’s account in exchange for voluminous Soviet arms deliveries to Baghdad.

For these five principal reasons, I postulated the Soviets will likely be compelled to devise a giant real estate transaction involving the Northern Islands for presentation to Tokyo by Gorbachev in April. A possible down-payment demanded by Moscow might well be a Japanese commitment to $5-7 billion development of the joint Sakhalin oil and gas project.

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It is important to understand that Japan is almost the only "deep pocket" source of funds that the Soviets can now turn to, given Moscow’s unwillingness to pare back military spending and a global empire from Havana to Hanoi. The total amount that Gorbachev might request from Japan in exchange for the return of the Northern Islands could be in the range of $20 to $40 billion over, say, a five year period, in the form of industrial joint ventures, energy projects, "perestroika loans" and other items.

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I … offered an assessment to the Japanese Finance Ministry that the Soviets, which have about $17 billion in debt service obligations in 1991, will probably not be able to service this debt burden, and will be compelled to reschedule their foreign debt, either directly or indirectly. Accordingly, Japanese taxpayers would, in all likelihood, have to absorb serious losses down the road if the Japanese government signs on to a Northern Islands transaction with the Soviets. It may be more appropriate to term such [future] Japanese commercial assistance as "government grants," rather than loans. The term, "loans," or "credits" imply a … reasonable prospect for repayment, which, in my view, is simply not there.

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It seems to me the wiser course to concentrate on aligning the U.S. and Japanese interests with the true democratic forces and reformist republics in the Soviet Union, not the increasingly repressive central authorities. I cited the strong possibility that large-scale economic assistance to Moscow during a period of quasi-martial law and growing repression could be interpreted by a world audience as Japanese insensitivity to the desperate bid for freedom underway in the USSR — as well as a somewhat callous disregard for the fact that Soviet strategic military modernization is not only continuing apace, but, in come cases, accelerating.

I offered the view to the [Government of Japan] that we are at a crossroads in Western policy toward the Soviet Union, In the debate over "stability versus freedom," it is clearly the better policy – morally, politically, and economically — to side with the freedom-bound republics and true democratic elements in the Soviet Union, as they will ultimately prevail, albeit after a period of intense repression and serious reverses. In short, I suggested that they stay the course with their current policy approach.

* * *

It is interesting to speculate on the result of Japan waiting for one [or] two years on this issue. For example, the current upheaval [in the USSR] could make the Northern Islands available to the Japanese for a small fraction of the huge taxpayer cost involved in moving ahead now. It could even be the case that a future Russian republic-dominated Soviet Union would determine that the Soviets took the islands illegally in the first place, and return them to Japan, as a matter of principle, free of charge.

Roger W. Robinson, Jr. is the president of RWR, Inc., a Washington-based international consulting firm. He is a member of the Center for Security Policy’s Board of Advisors and a former Senior Director for International Economic Affairs at the National Security Council. His views on Japanese-Soviet relations and the current and projected situation in the USSR were also recently featured in other Japanese publications including Toyo Kezai (3/23); Nihon Keizai Shimbun (2/21 and 4/9), and The Mainichi Daily News (3/28). (All emphasis added.)