Accessibility links

Breaking News

East/West: Analysis From Washington: Loans And The Limits Of Linkage

Washington, 20 December 1999 (RFE/RL) -- The West's decision a decade ago to use financial institutions rather than aid agencies to help Russia now severely limits the West's ability to use such assistance as a lever to affect Moscow's policies.

First of all, that decision, originally taken to reduce the domestic political exposure of Western governments, has also limited the amount of actual assistance these governments have given to Russia. And limited aid typically has meant limited influence.

Second, it has forced financial institutions, such as the International Monetary Fund and the World Bank, to play political roles far outside their competence and normal spheres of responsibility. That has made both the banks and others reluctant to be used for specific political ends.

And third, that decision has reduced the ability of Western governments to intervene on decisions by these agencies. Efforts to do so look like exceptionalism and special pleading, an appearance that Moscow often can play on as it seeks continuing assistance.

All three of these consequences are currently very much on public view as the U.S. Ex-Im Bank prepares to make a decision this week on loan guarantees to a Russian firm at a time of growing Western and American unhappiness about Moscow's behavior in Chechnya.

On Tuesday, the Ex-Im Bank is supposed to decide whether to grant a $500 million loan guarantee to Tyumen Oil to purchase oilfield and refining equipment from the American firms Halliburton and ABB.

Because the loan involved is to be repaid from revenues derived from the sale of oil, and because the purchases will provide both jobs and profits to Americans, the bankers at Ex-Im are naturally inclined to go ahead.

As one American commentator noted over the weekend, the job of these bankers is "to make loan guarantees, not foreign policy."

But because Tyumen Oil is owned by a Russian oligarch currently locked in a battle with another Western firm, and because the U.S. is increasingly unhappy with Russian Prime Minister Vladimir Putin's policies in Chechnya, the American government is now opposed to the deal.

If American assistance to Russia were being provided directly via the U.S. Agency for International Development or some other executive branch institution, Washington could make a political decision, scale aid up or down and thereby send a clear and very specific political signal.

But because Washington, like other Western capitals, has preferred to use financial institutions in its dealings with Russia, it does not have that option. Indeed, even if Washington wanted to send a political message, there are several reasons Moscow might not receive it.

Unless Washington is prepared to make an explicit national security argument, the U.S. will have to advance a variety of other objections that many in Moscow may decide are the real ones, reducing the chances that any political message will in fact be delivered and received.

In either case, the U.S. in this instance and Western countries more generally find themselves caught. Ever harsher criticism does not seem to work; indeed, in the Chechen case, Putin and others have used it to bolster their claims as Russians prepared to stand up to the West.

And the West in general - and the U.S. in particular - has been reluctant to move toward general sanctions and loan cutoffs, lest they push Russia even further away from cooperation with the West and movement toward democracy and free markets.

In short, by deciding to use financial institutions rather than appropriated aid, Western countries find themselves in a situation in which they must either act drastically or limit themselves to the kind of criticism which Moscow has shown itself willing to ignore.

That ensures that many in the West will continue to argue against drastic action, a position that works to Moscow's advantage without requiring it to change course.

But it also makes it likely that when the West finally does respond, it may be forced to do so in ways that produce the break many in the West say they most fear. And such concerns, more than specific facts, may drive the decision on the Tyumen loan at the Ex-Im Bank this week.