The man best able to strike a decisive blow against world tyranny is in Washington today, but his name isn’t Bill Clinton. He’s the visiting Russian prime minister, Yevgeny Primakov.
Primakov hopes to loosen the strings on the IMF’s moneybags so that the arrested $22 billion bailout agreed to last summer before Russia’s August meltdown might proceed. Russia needs new IMF loans just to pay the $4.8 billion due the IMF this year on over $20 billion in previous IMF lending. Failure to pay risks exclusion from the world’s credit markets.
According to the conventions of international finance, a nation can stiff private investors, but never the IMF. Private banks and bondholders left in the lurch are paid off routinely through a shell game known as “round-tripping” in which taxpayers’ funds are channeled to the deadbeat nation through new public loans. The borrower’s loans are then re-scheduled courtesy of the IMF under the auspices of the Paris Club. Since the 1995 Mexican bailout, round-tripping has evolved into multibillion-dollar bailouts of entire countries and regions that now total $156 billion.
Though such practice cheats the rules of sound banking and of government accountability, the Clinton administration recently browbeat another $18 billion from the U.S. Congress for the fund’s capitalization. Since the IMF functions as the international arm of the U.S. Treasury and the Federal Reserve, it is a supreme instrument of U.S. foreign policy whose establishment is eager to hog-tie other nations with billion dollar loans.
The wind was at Clinton’s back in the global game from the get-go. The end of the Cold War and a restructured economy combined with American know-how bequeathed the new president the classic conditions of an economic upswing — new markets, new technologies, and political transformations. But then the 1994-midterm elections, which swept into office a host of small government Republicans, left the Clintonistas discombobulated. Shaken, the administration resolved to pump money, thereby creating a booming economy, whose favored players it assisted in exporting the wanton excess to emerging markets.
In Asia, commercial banks lent dollars in volume to hard-working populations, who promptly built themselves into over-capacity. In the former Soviet Union, the IMF lent taxpayers’ money in volume to dubious governments, most especially Boris Yeltsin’s.
In Russia, the Clinton administration allowed favored Harvard careerists to privatize USAID’s Russian assistance program under the rubric of “national security.” Harvard socialized taxpayers’ funds among their projects, which included a set of artificial institutions created to provide fiefdoms for a cabal of selected Russians they designated as “reformers.” Thus was Anatoly Chubais & Co. made significant by virtue of hundreds of millions in foreign funding; their only achievement — a bungled privatization that delivered 70 percent of the Russian economy into the hands of approximately seven bankers who asset-stripped their new holdings with impunity, squirreling billions in profits away in foreign bank accounts. Russia’s bond market rained money. With eye-popping yields as high as 290 percent on three-month paper, Wall Street raced to get in on what was in reality an exotic pass-through arrangement of U.S. public funds centered in Moscow.
Asia’s 1997 financial reversals and cascading currency devaluations drove down demand, and therefore prices, for industrial inputs and commodities. Russia’s dependence on foreign lending escalated, since world demand for her oil and other natural resources failed to bring in the income needed to service the exploding bond market. (Tax revenues were not, are not, and never shall be, of consequence in a country in which private property exists only where there is power.) Soon, the Russians had to pony up hundreds of millions from the billions in IMF loans to keep the bond game rolling, then many, many billions until finally the pyramid collapsed.
Today the Fed is exporting inflation via billion dollar bailouts to Asia, Brazil, and other lands, a jerry-rigged solution that is no solution. The rest of the world has no choice but to export in volume to a U.S. market driven by consumption alone (household savings turned negative last autumn). How else are they to earn the dollars to pay their loans? U.S. inflation is returning home in the form of cheap manufactured goods and commodities, with which U.S. producers can not compete on price.
The threat of trade wars over steel, bananas, and beef looms on the horizon. Short of a massive tax cut and a disciplined reduction of the gargantuan federal government which the Clintons will not countenance, there is no escape for the U.S. from the deflation oozing towards its shores.
But Russia’s debacle is now, not tomorrow. Still suffering the longest and deepest depression experienced by any nation in the twentieth century, Russia needs the ability to employ her own considerable resources to reverse a slew of criminal privatizations that have denied the state an income to cope with a degraded national estate. Saddling common citizens with more loans from which they will receive no benefit is not going to help.
The West should forgive Russia’s public debt along with that of the Soviet Union and of all the public lenders’ victims. Let it be America’s gift to the new millennium. The debts are never collected anyway, but are re-scheduled repeatedly and, after fading from public attention, finally forgiven. The Paris Club process only serves to keep incompetent international bureaucrats in business. The IMF should be dismantled, its assets returned to donor nations, and the World Bank privatized. But this will not happen; no anti-constitutional political elite will abandon willingly the tools that allow them to pursue taxpayer-subsidized globalism.
Between the world wars when new ideologies overturned governments and national borders shifted often, the issue of national debt was hotly debated. The consensus supported the view that the debts of one regime attach to any successor state. However, a competing view held that those debts incurred for the purpose of strengthening despotic regimes, or for purposes contrary to the interests of a nation, or by persons or groups associated with the government to serve interests manifestly personal, should be recognized as “odious debts” and properly the responsibility of a certain regime, but not of a nation.
Should Yevgeny Primakov rightly declare Russia’s IMF debts odious, the IMF could not survive. Were he to follow-up with an invitation for an orderly workout of Russia’s private debt in the international court system, he would strike a decisive blow against the monopolistic Russian bankers who cannibalized their own country while making a stand for financial prudence, justice, and the rule of law. In so doing, the Russians could lay claim to having slain not one, not two, but all three of the monsters this century has produced, which presume to exploit entire peoples while telling them how to live; Fascism, Communism, and the IMF. Mr. Prime Minister, cut the Gordian knot and free us all!
Anne Williamson has written for the Wall Street Journal, The New York Times, Spy magazine, Film Comment and Premiere. An expert on Soviet-Russian affairs, she is currently working on a book, “Contagion: How America Betrayed Russia.”