25416 EXTENSIONS OF REMARKS September 15, 1980 EXTENSIONS OF REMARKS MOSCOW, POLAND, AND FINANC­ These loans increase inflation in the West, Washington officially downplays the pros­ ING OF COMMUNIST COUN­ while gifting the Soviet bloc with priceless pect of a COMECON default, but anxious TRIES BY THE WEST-PART I technology and machinery in return for the whispering can be heard. "We should have unenforceable promise that someday they been a lot more cautious," says an informed will pay us back. State Department official." "They've got us HON. LARRY McDONALD There is growing concern within the inter­ where they want us now." One source inter­ OF GEORGIA national community that Soviet bloc coun­ viewed for this article referred to a conver­ IN THE HOUSE OF REPRESENTATIVES tries will never be capable of generating sation he had with National Security Advi­ enough hard currency to repay their debts­ sor Zbigniew Brzezinski, in which Brzezinski Monday, September 15, 1980 or, more chilling, have no intention of re­ admitted to worrying "quite a bit" about e Mr. McDONALD. Mr. Speaker, paying in the first place. the political leverage the Soviets gain recent events in Poland laid bare the The Soviets are almost certain, at some through their debt. "Indebtedness often in­ precarious state of the Polish econo­ point, to use the threat of default as a lever creases the leverage of the debtor and de­ my, supported on one hand by loans to gain political concessions from the West. creases the leverage of the creditor," Brze­ Should U.S.-U.S.S.R. relations ever decline zinski is quoted as saying. <He declined to be from the West and on the other hand into desperate straits, the Soviets could interviewed for this article.) Noting that the by loans from the Soviet Union. Many simply defy their benefactors and cancel the English, West Germans, and Italians have columns were devoted to the state of debt outright. loaned especially large sums to the Soviet the Polish economy, but most of them What's more, lending to the Soviet bloc bloc, Brzezinski is quoted as concluding, "If missed one salient point. Most of what continues at a furious pace, despite the a COMECON country defaulted, it could loans' questionable merit from either a po­ create considerable problems." the Polish economy builds and makes litical or financial point of view. Western goes to the Soviet Union, in return for bankers, caught in an "undertow syndrome" LEAVE ME A LOAN rubles and raw materials. Poland, for of sending good money after bad. seem de­ Government officials also worry that ex­ instance, pays dearly for Soviet oil to termined to make our position even weaker. posing such a predicament to abrasive fuel her economy. One of the major ON OUR ASSETS public response would play into Soviet reasons the Soviet Union was so in­ In 1977 the Senate Foreign Relations hands, by increasing the West's sense of tensely interested in a peaceful settle­ Committee concluded that the entire inter­ weakness and vulnerability. When pressed, ment of the strike was the fact that national financial system could crumble be­ officials at the departments of Commerce the striking shipyards are constantly neath the weight of one or two major de­ and State admit that the growing COME­ building new merchant ships for her faults, defaults that would send banks tum­ CON debt is ominous, but they invariably fleet, because her own shipyards are bling into each other like freeway traffic change the subject by pointing to the much hitting a patch of ice. larger-and equally uninsured-debt owed tied up in gigantic naval construction The committee had in mind defaults in­ by Third World nations. projects. Therefore, loans by Western volving far less money than is now loaned Credit outstanding to "less-developed banks and governments to Commu­ through COMECON to the Soviet bloc. CO­ countries" has risen from $137 billion in nist Poland are in effect loans to the MECON is a Common-Market-like agency 1974 to more than $300 billion today. The Soviet Union. that coordinates economic policy for the prospect of a Third World default, officials The time is long past due for the Soviet Union and its East European client contend, is a greater cause for alarm than free world to reexamine its suicidal states. <Though technically loans are made possible Soviet misbehavior. poiicy of financing the Communist to individual COMECON members like The Third World debt is, of course, trou­ world. Therefore, at this point I am in­ Hungary, Russian planners wield almost bling. But poor nations are not a rigid ideo­ total control over the organization and its logical bloc acting cohesively. Far more im­ serting part I of a.Q article that ap­ use of funds.> peared in the June 1980 Washington portant, they are not our avowed political The specter of colossal default was raised and economic competitors. They do not Monthly by James M. Whitmire for the last November when Iran announced that it have large, potent armies and have not pre­ edification of my colleagues on this would not repay the $10 billion it owes occupied themselves with devising new in­ subject: American banks. A World Bank officer told The Washington Post that this action, "the struments of pressure and coercion, as have FINANCING OF SOVIET BLOC BY WESTERN largest default in financial history," put the the Soviets. BANKS Is A MISTAKE banking system to "its most severe test in The West's tenuous grasp of the COME­ <By James M. Whitmire> recent times." Fortunately, the shock was CON debt problem is indicated by the fact In the wake of Afghanistan, the United absorbed with minimal funk, largely be­ that no one can agree on how much credit States and the Soviet Union are back to cause the Iranians were so careless as to actually has been extended. The most con­ strutting around each other like gun-fight­ have left $8 billion in assets in American servative estimate is that the debt has in­ ers at high noon, each ready to reach for banks. creased from less than $10 billion in the the trigger. The Pentagon talks of fearsome This episode had the salutary effect of early 1970's, to $18 billion in 1974, to $48 bil­ new weapons: MX missiles, neutron bombs, stimulating some thought on the conse­ lion in 1977-a pace many times greater particle beams. Everyone assumes the Sovi­ quences of large defaults. If Iran's net de­ than inflation. It hovers between $60 billion ets are plotting ghastly new weapons as fault of $2 billion put a severe strain on the and $80 billion today-an amount equal to well. The truth is, one is already in place. system, what might be the impact of a the total assets of Exxon and General But you won't find this new secret weapon Soviet-bloc default involving amounts 30 to Motors combined. in the Red Army's arsenal, because it's not a 40 times greater? <The Soviets are not so Back in 1976 Henry Kissinger described bomb or a chemical. It's worse. It could dev­ careless as to leave much money in our the debt as "sudden" and "striking." Yet it astate the West without a shot being fired. hands.> continued to climb, unopposed. Allen Lenz Incredibly, it is a weapon we are not only So far, the only public debate on East­ of Commerce's Bureau of East-West Trade constructing for the Russians-but paying West trade involves the politics of the ex­ <which supports the above low-end esti­ for as well. change. There is contention about whether mates> predicts that by 1985 Soviet-bloc bor­ The weapon? Debt. Quietly, assiduously, our bulging grain exports serve to shore up rowing could hit $108 billion. Miles Costick, Western banks since the mid-1970s have al­ the inefficient Soviet system and strengthen director of the conservative Institute on lowed the Soviet bloc to pile up $60 billion the Kremlin elite's grip on power. There is Strategic Trade, says Commerce deliberate­ to $80 billion in outstanding debt, according strategic argument about whether transfer­ ly deflates the debt figure because of its to the Washington Monthly's sources. The ring advanced technology contributes to our desire to "generate trade at any price." The magnitude of this debt is such that a Soviet adversary's military power. But there's current trends, Costick believes, point to a default might spark a financial panic capa­ never been debate over the simple fact that debt of at least $200 billion by 1990-$45 bil­ ble of collapsing the capitalist banking the Soviet bloc, in effect, does not pay for lion of which, he says, will be held by system. what it gets. The West sends machines and Russia itself. It seems that if only Lee Ia­ Most of the industrial goods "sold" to the grain, and receives nothing in return except cocca could move Chrysler headquarters to Soviet bloc in recent years have not been the illusion of prosperity for the farmers Kiev, his money problems would be solved; paid for in hard currency, but financed by and firms being paid in funny-money origi­ he could simply plug into COMECON's free­ loans from the U.S. government or banks. nating on the Federal Reserve's press. flowing line of Western credit. e This "bullet" symbol identifies statements or insertions which are not spoken by the Member on the floor. September 15, 1980 EXTENSIONS OF REMARKS 25417 AUTARKIC CHILD completion will enhance the debtor nation's formation-about, say, his brother's Libyan COMECON debt is a recent development ability to ·repay.