Rep. Gonzalez Breaks The Code On ‘A Tale Of Two Cities’: Will Clinton Repeat Bush-Baker’s Financial Malfeasance?

(Washington, D.C.): In an historic address on the House floor on 4 March, Rep. Henry B. Gonzalez — chairman of the House Banking Committee and the largely un-sung hero of the Iraqgate scandal — set his sights on another still-unfolding episode of massive abuse of tax-dollars: the Bush Administration’s "back-door" sluicing of billions to a non-creditworthy former Soviet Union.

In so doing, Rep. Gonzalez has once again placed the cross-hairs on an agency that featured prominently in the BushBaker Administration’s misbegotten underwriting of Saddam Hussein’s regime — the Agriculture Department’s Commodity Credit Corporation (CCC) loan guarantee program. His speech details with great precision how the previous Administration systematically and arrogantly disregarded due interagency process, objective analysis and statutory requirements for taxpayer protection as part of its failed effort to prop up Mikhail Gorbachev in 1991. As the attached excerpts from the Gonzales speech make clear, there are unmistakable parallels between the latest abuse of CCC for the former Soviet Union and the previous episodes involving Iraq — which ultimately resulted in the loss of close to $2 billion in U.S. taxpayer funds.

Among the parallels identified by Congressman Gonzalez that have long been of concern to the Center are the following:

• The practice of extending U.S. taxpayer-underwritten credits to utterly non-creditworthy sovereign borrowers;

 

• Presidential overrides of dissenting executive branch agencies — and in some cases ignoring established interagency processes altogether;

 

• Utilizing a farm export credit agency as a back-door "slush fund" to promote dubious personal diplomacy initiatives, and

 

• Exposing U.S. taxpayers to multi-billion dollar losses in what were advertized as merely "contingent liabilities."

With Russia’s defaults on BushBaker-approved CCC credit guarantees now approaching $500 million, the true dimensions of this latest, burgeoning financial scandal are beginning to be felt. Ultimately these taxpayer losses in the former Soviet Union could total an estimated $4.5 billion — or more than double the U.S. losses incurred as a result of the corresponding abuse of CCC guarantees to woo Saddam Hussein.

Will the Clinton Administration Make the Same Mistake?

Chairman Gonzalez’s 4 March floor speech and his letter of the same date to Acting U.S. Export-Import Bank (Eximbank) Chairman Rita Rodriguez suggests that the Clinton Administration has begun to replicate the ill-advised and even cynical practices of its predecessor. (Excerpts of the Gonzales letter are also attached.) On 25 February — despite Russia’s simultaneous default on CCC credits — Eximbank approved its largest direct loan ever to Russia: $86.2 million to finance the sale of Caterpillar tractors to Russia’s state-owned natural gas company, Gazprom.

This totally unsecured Caterpillar loan strongly suggests that Eximbank’s institutional integrity has been compromised — perhaps irreparably. If so, it makes all the more serious concerns the Center for Security Policy has expressed in recent months about a new "framework agreement" currently in negotiation between Eximbank and the Kremlin aimed at providing some $2-5 billion in U.S. government guarantees for Russian oil and gas development.⁽²⁾

The Center believes that the following questions must urgently be put to the Clinton Administration:

• On what financial basis was the Eximbank direct loan in support of the Caterpillar transaction approved? How does Eximbank defend this lending decision in light of the statutory requirement for a "reasonable assurance of repayment"?

 

• Did the U.S. Export-Import Bank Chairman-designate, Kenneth Brody, review and approve — or otherwise have foreknowledge of — the Caterpillar loan?

 

• What was the specific vote among members of the Eximbank Board of Directors on this loan?

 

• How does Eximbank expect to persuade the Congress and the American people that it is sincere in its efforts to craft more secure, collateralized arrangements for its Russian oil and gas "framework agreement" in light of what appears to be little more than a "sweetheart deal" it has just cut for Caterpillar and its advocates on Capitol Hill?

 

• Is this the kind of "innovative" approach to aiding Russia that President Clinton has advertized he would bring to his upcoming 4 April summit meeting with Russian President Yeltsin and the "emergency" meeting of the G-7 he embraced in principle today?

– 30 –

1. See in this connection the Center’s Decision Brief ‘A Tale of Two Cities’ — Baghdad and Moscow: The Un-making of the President? (No. 92-D 55, 19 May 1992).

2. In three separate papers, the Center for Security Policy has recently raised serious concerns about the timing, structure, strategic and financial implications of this framework agreement. See "Revolving Doors: Eximbank Official’s Scandalous Self-Dealing is a Blow to U.S. Taxpayers, ‘Red Carpet’ for Returning Russian Hardliners — and Their American Friends," (No. 92-D 148, 22 December 1992); "How Not to Lend to a Bankrupt Russia: Eximbank Energy Deal Should be Iced, Reworked," (No. 93-D 03, 11 January 1993); and Red Ink Rising: Congress Needs to Take a Look Hard Look at New Loans to Defaulting Moscow, (No. 93-D 09, 19 January 1993).