Pulling Russia Back From the Abyss

by Patrick J. Buchanan – July 14, 1998

Before the markets opened Monday in Moscow, Boris Yeltsin’s government issued a statement saying a new International Monetary Fund bailout was on the way. Russia’s stock market shot up 7 percent in a single day.

And so the game goes on. In the run-up to this latest bailout, priced at $15 billion, Moscow’s stock market was in a sky dive, railway workers had blocked the Trans-Siberian line, defense workers were on strike, and there were reports of an impending coup d’etat. The sources of the coup reports were newspapers run by Russia’s vulture capitalists who want to bring Yeltsin down.

Yet, there is no doubt Boris Yeltsin was in a panic last week. He phoned Chancellor Kohl of Germany, President Chirac of France and Bill Clinton, after which the White House urged the IMF to wrap up the deal. The IMF hastily complied

The imminent danger was that Russia, facing $6 billion in debt payments in July, would default or devalue the ruble, collapsing Russia’s banks. No one knows what would then happen to Yeltsin or his government, but no one wanted to find out. So the IMF dutifully shoveled out the new money, and the can was kicked up the road.

Opposing a bailout was Clifford Gaddy of the Brookings Institution: “We should not give Russia a bailout not because we are in any way enemies of Russia but as a genuine concern about the future of the country. An extra $15 billion could give Russia an extra 10 to 12 months at most. This system is at a dead end which day by day is making Russia poorer, not richer.”

It is a time for truth. The Russian economy is a corpse. That $15 billion, which comes on top of the $9 billion the IMF has already committed and on top of the scores of billions from Europe and the United States, will never be seen again. Russia is bust. Indeed, taking out new loans to pay interest on old loans is a definition of bankruptcy.

If a private company were in Russia’s condition, it would seek protection from its creditors under the bankruptcy laws and be given relief by the court from debt payments, as it sold off assets, paid creditors what it could — and quietly went out of business. The unpaid loans would be written off. The banks would move on.

Why does the world not work this way? Answer — fear of the unknown. Western leaders are terrified of what would happen if the truth were faced — that the near $2 trillion in loans outstanding to Second and Third World regimes is money forever lost. And they are terrified of what could happen in Russia if Yeltsin were forced to admit his country is bust and had to either devalue or default.

As no one wants responsibility for what happens, it is easier to put Western taxpayers at risk for another $15 billion and let the ultimate default come on someone else’s watch, when Robert Rubin is back on “the Street” and Bill Clinton is out in the Hollywood Hills.

There is another reason few have objected to dumping another $15 billion down a Russian rat hole. As Jefferson said, when told of British backing of the Monroe Doctrine, “Great Britain is the nation which can do us the most harm of any one, or all on Earth; and with her on our side, we need not fear the whole world.”

Of all the nations on Earth, Russia remains the one that can do us the most harm. With thousands of nuclear warheads, hundreds of these atop ballistic missiles, Russia still presents a mortal threat to the United States. And we do have a vital interest in not having come to power in Moscow a regime steeped in resentment of its Cold War defeat and determined to resurrect the Russian Imperium.

But the day of reckoning cannot forever be postponed. One day, and soon perhaps, Yeltsin will no longer be there. One day, Moscow is going to throw up its hands — as Berlin did in the 1920s when faced with its impossible reparations payments — and devalue or default. One day, the truth is going to have to be faced that the IMF has dug us, and its client regimes, into a bottomless pit of debt from which escape is going to mean a trillion-dollar write-off.

Nobody today wants to face the truth. Japan does not want to face the fact that its banks may be under water. Clintonites do not want to face the fact that the IMF’s clients are never going to pay back the billions being pumped into them. Republicans do not want to face the consequences if Clinton does not get his $18 billion potful of IMF bailout money and the Asian dominoes begin to fall.

We are like an ex-athlete deep into middle age who does not want to go to a doctor to find out what those pains are he keeps getting in the chest. Better to jog a few more miles and run it off.