Excerpts of Remarks by Roger W. Robinson, Jr. before the Committee for Monetary Research and Education

The Union Club, New York City

25 April 1996

Introduction

The traditional firewall between breaking geopolitical
developments and the markets will be breached with increasing
frequency and violence in the period ahead. Accordingly, normal
commercial and economic “due diligence” concerning
international projects, transactions and trading activities will,
in many cases, no longer be adequate to ensure the level of
investor and/or lender confidence and security deemed
necessary.

Recent reminders of this unhappy state of play can be found
in: the Mexican meltdown (ably delineated at the time by Walker
Todd); the yen-dollar roller-coaster associated with U.S.-Japan
trade tensions during this Administration; occasional market
jitters caused by the high drama on the Korean peninsula;
Deutschmark swings spurred by rumors of Yeltsin’s ill-health and
other matters Russian; and oil market movements based on
political calculations of when Iraq will slip the noose — at
least partially — on U.N. economic sanctions.

The Middle East

As early as the beginning of 1995, Yevgeny Primakov (then the
head of the Kremlin’s external KGB, now Russian Foreign Minister)
was reliably reported to have advised Syrian despot Hafez Assad
to take heart — and hold out — as the former Soviet
security apparatus was in clear political ascendancy and would
soon resurrect the full array of support to which Damascus had
grown accustomed.

This was particularly welcome news for Assad who has been in
poor health and troubled by the lack of a designated successor
(he has seen each of his four sons precluded from that status —
one by a premature death, one by drug addiction, another by
personal wish and the fourth by dint of his youth). Since Assad’s
Alawite faction comprises only 12% of the population compared to
the 80% Sunni majority, his ability to retain power — let alone
pass it on to an heir — could be greatly enhanced by a fresh
infusion of support from Moscow.

Assad has hedged his bets, however, by instigating fresh
attacks by Hezbollah terrorists against Israel. Through this
well-honed technique, the Syrian dictator has successfully
re-established his primacy in U.S. diplomatic circles. He can, as
a result, reasonably expect to escape responsibility for his
country’s drug-dealing, sponsorship of terrorism, U.S.
dollar-counterfeiting and weapon of mass destruction (WMD)
procurement efforts, to name a few.

The U.S. willingness to paper over such outrageous Syrian
behavior — increasingly conducted in league with Tehran and/or
Moscow — will inevitably lead to future regional crises which
could quite easily affect the oil markets, Saudi stability, the
spread of radical fundamentalism and other developments which
could hit Western economies and markets like a brick through a
plate glass window.

Iran and Iraq

Iran is likewise feeling emboldened as it makes major inroads
in the Sudan (a wholly-owned subsidiary), Algeria, Egypt, Saudi
Arabia and now Bosnia. Concerning the last of these, the
legitimization of the Iranian arms and personnel pipeline into
Bosnia by the Clinton Administration in early 1994 served to
strengthen Tehran’s strategic beachhead on the continent of
Europe.

Other symptoms of dangerous trends in the Persian Gulf
include: Moscow’s refusal to scrap its four nuclear reactor-deal
with Iran (to which President Clinton has evidently decided to
turn a blind eye); China’s delivery of cruise missiles (for which
there has been no cost exacted against Beijing); and the
continuation of a major Iranian covert procurement program to
accelerate development of weapons of mass destruction and
ballistic missiles (assisted by our German friends). These trends
cause some senior officials in the U.S. intelligence community to
believe that the U.S. will be in a shooting conflict with Tehran
before the end of the decade.

Turning to Iraq, Baghdad can look forward to the receipt of
major Russian industrial and military supplies — pre-positioned
in Jordan and elsewhere in the region — within days of the
lifting of U.N. sanctions, not to mention a $10 billion
commitment from Moscow to assist expanded oil production.

France, China and Russia have stepped up diplomatic pressure
to end Baghdad’s isolation despite the fact that Saddam Hussein
still possesses chemical and biological warheads and enhanced
Scud-B’s to deliver them. His nuclear weapons program is also
making slow but steady gains which could be expected to speed up
considerably over the next 12 months.

Russia and the “Primakov Doctrine”

The Russian elections are moving gradually into the
“stealing zone” for Boris Yeltsin (thought to be in the
area of a 10 – 15% gap with Zyuganov) — in no small part, thanks
to a $10.2 billion IMF electoral contribution and multibillion
dollar bilateral arrangements with the G-7, including the U.S.

The results of a renewed Yeltsin mandate are already on vivid
display in Chechnya and elsewhere in the Trans-Caucasus and
Central Asia. In short, Yeltsin’s support at home is now in
direct proportion to his willingness to confront American and
Western security interests — notwithstanding warm “Boris
and Bill” photo opportunities.

A short-hand way to describe the likely evolution of East-West
relations is embodied in what I call “The Primakov
Doctrine.” Its components include:

• Keeping the U.S. distracted in the Balkans while Moscow
  consolidates its control over former Soviet republics in
  the Caucasus and Central Asia — notably the oil-rich
  Caspian Sea region.
• Forging a rapprochement with both China and North Korea
  in Asia.
• Rebuilding traditional Soviet alliances such as those
  with Iran, Iraq, Syria, Libya and Cuba.
• Undermining the Conventional Forces in Europe Treaty and
  NATO’s eastward expansion.
• Reasserting control over the principal hard-currency
  earning sectors of the economy, especially the energy
  sector.
• Destabilizing Iran (while feigning a strategic
  partnership) in coordination with Iraq to pick up both
  Caspian Sea and a good slug of Gulf oil to rebuild and
  modernize as much of the former Soviet Union as
  practical.

As in the past, the G-7 is turning an ineffectual blind eye to
the bulk of these activities, particularly in a U.S. political
season that regards the perception of a cordial
Moscow-Washington entente as exhibiting exemplary statesmanship.

The Balkans

A quick list of the fundamental elements of the Dayton Accord
which are reeling out of control would include: the so-called
equip and train dimension (conducted by Iran, instead of by the
U.S., Turkey or Germany); the continued Iranian and radical
mujahadeen penetration of the Bosnian government; the inability
of most refugees to return to their homes; Western fecklessness
with regard to the arrest and prosecution of primarily Bosnian
Serb war criminals; and the breakdown of a multi-ethnic Bosnian
state (including police and military units), to name a few.

As the U.S. is actively (and appropriately) supporting Israeli
retaliation against Hezbollah and Hamas, our forces in Bosnia
draw closer to the cross-hairs of Iranian special forces and
terrorist units — an event that could vastly complicate
President Clinton’s political problems associated with the
current Iran-Bosnia scandal.

Croatia will emerge as having played a cynical game in helping
smuggle Iranian weapons and terrorists into Bosnia so that this
fragile state would be thoroughly radicalized. In the period
after the withdrawal of U.S. and IFOR, Zagreb hopes to receive
European backing when it implements its plan to take portions of
Western and Central Bosnia, leaving the Sarajevo area a kind of
Singapore city-state. Iran has emerged as Croatia’s largest
creditor, with all of the attendant political leverage.

Cuba

Closer to home we face a Chernobyl-like prospect with the
resumed construction of two irretrievably-flawed VVER-440 nuclear
reactors near Cienfuegos, Cuba, under the auspices of the
notorious Russian Ministry of Atomic Affairs (MINATOM). The first
reactor is some 80-85% complete and is due to come on stream in
about 1998.

The U.S. General Accounting Office and other U.S. agencies
have gone on the record stating that the design and shoddy
construction of these reactors makes the likelihood of a major
accident unacceptably high. The radioactive plume stemming from a
Cuban Chernobyl equivalent would effect some 50-80 million
Americans within the first four days of an accident.

Despite this clear and present danger to the American
mainland, the subject never even came up during the recent
nuclear safety summit in Moscow and Russia has refused U.S.
requests for data on their level of assistance to the project.

China

According to Martin Lee, the visionary and courageous head of
the Democratic Legislative Council (LegCo) in HK (with whom I met
last week in Washington), Beijing is going to exercise a heavy
hand during the June 1997 takeover — perhaps well beyond current
market expectations. Not only will the LegCo be gutted, but we
can expect Chinese military forces literally to march into Hong
Kong at dawn on 1 July 1997.

The Taiwan Straits may also heat up again depending on the
level of accommodationist rhetoric that is embodied in Taiwan
President Lee’s inaugural ceremonies and subsequent policy
statements. In short, the test of wills between Beijing and
Taipei is far from over.

At a strategic level, Beijing is in a robust offensive
military build-up, including ground and sea-based ICBM forces
already capable of hitting American West Coast cities. China has
emerged as a major conduit for the proliferation of components
for weapons of mass destruction and missiles to Iran, Pakistan,
Syria and other rogue states. It is my guess that a U.S. policy
of “comprehensive engagement” will be defacto
transformed into one of “strategic containment” before
the end of this decade. Japan and other regional partners will
ultimately be forced to revisit their defense budgets and even
the possibility of “going nuclear” if the U.S. is
viewed as an unreliable partner.

Korean Peninsula

A knowledgeable source on the Korean drama predicted just
yesterday that if China does not become more fully engaged in
staving off the economic and political implosion of North Korea,
there would be war on the peninsula. Bear in mind that North
Korea will have ballistic missiles (the No-Dong and Taepo Dong)
which can hit portions of the U.S., possibly as early as 1997.

This may sound unduly dramatic, but not when one considers the
fact that the West’s denuclearization policies will not bear
fruit for several years, whereas North Korea’s dire economic
straits may well lead to desperate actions within months or at
most a couple of years. Additional bad news is that the
U.S.-North Korea nuclear accord — which scandalously avoids
Western nuclear inspections for five years — is, in my view,
unsustainable.

Clearly the Nikkei, yen-dollar and other regional currencies
and exchanges will remain on tender hooks — courtesy of
Pyongyang — for years to come.

Closing Thoughts

I will merely mention a few global trends that will likely
contribute to market traumas from this point forward. They
include:

• The predations of increasingly sophisticated global
  organized crime;
• The advent of information warfare and terrorism by rogue
  states and their surrogates which will increasingly
  target the “soft underbelly” of U.S. and
  Western societies such as the Federal Reserve, the
  Clearinghouse Interbank Payments System, air traffic
  control systems, regional electric and communications
  grids, etc.;
• And finally, the CIA-announced estimate that some 20
  countries will be in possession of weapons of mass
  destruction and some form of delivery systems by the year
  2000, with the U.S. today unable to defend itself
  against even one ballistic missile.