It was in 1982 that Poland first defaulted on bank loans which had been guaranteed by the U.S. government through the Commodity Credit Corporation. Under the terms of the guarantee, taxpayers would make payments on any bank loan that went into default. That was what the banks were counting on when they made those loans, but to classify them as 'in default' w o u l d require the banks to remove them from their books as assets. That was unacceptable, because it would make their balance sheets look as bad as they really were. So the Treasury agreed to bend the rules and make payments
That was eventually stopped by an irate Congress, but not until the Reagan Administration had stalled long enough to pay $400
million directly to the banks on behalf of Poland.
In November, 1988, the World Bank made its first loan to
Poland in the amount of $17.9 million. Three years later, in a dramatic demonstration of what the President had meant when he advocated 'debt forgiveness,' the Bush Administration canceled a BUILDING THE NEW WORLD ORDER 127
full 70% of the $3.8 billion owed to the United States. Taxpayers picked up the bill.
The same story has been unfolding in all the former Soviet-bloc countries. In 1980, for example, just before Hungary was brought into the IMF/World Bank, her annual per-capita GNP was $4,180.
This was a problem, because the policy of the World Bank was to make development loans only to countries that had per-capita GNPs of less than $2,650. Not to worry. In 1981, the Hungarian government simply revised its statistics downward from $4,180 to $2,100.1 That was a drop of 50% in one year, surely one of the sharpest depressions in world history. Everyone knew it was a lie, but no one raised an eyebrow. It was all part of the game. By 1989, the Bush Administration had granted 'most favored nation' trade status to the Hungarian government and established on its behalf a special $25 million development fund.
RUSSIA
American banks had always been willing to make loans to the Soviet Union, except for short periods of expediency during the Cuban Missile Crisis, the Vietnam War, the Soviet invasion of Afghanistan, and other minor business interruptions. In 1985, after the public had lost interest in Afghanistan, banks of the 'free world' reopened their loan windows to the Soviets. A $400 million package was put together by a consortium of First National of Chicago, Morgan Guaranty, Bankers Trust, and Irving Trust—plus a London subsidiary of the Royal Bank of Canada. The loan was offered at unusually low interest rates 'to buy American and Canadian grain.'
Public indignation is easily disarmed when the announced
purpose of a loan to a totalitarian government is to purchase commodities from the country where the loan originates—especially if the commodity is grain for the assumed purpose of making bread or feeding livestock. Who could possibly object to having the money come right back to our own farmers and merchants in the form of profits? And who could fault a project that provided food tor the hungry?
The deception is subtly appealing. It is true that the money will be used—in part at least—to buy grain or other locally produced Lst^n°rld B a n k C o u r t s E a s t e m Europe,' by Jerry Lewis,
THE CREATURE FROM JEKYLL ISLAND
commodities. But the borrowing nations are like a homeowner who increases the mortgage on his house 'to enlarge his living room.'
He probably will make the addition, but he borrows twice as much as he needs so he can also buy a new car. Since the government allows a tax deduction on mortgage interest, in effect he now gets a tax deduction for the interest paid on his car as well. Likewise, the borrowing nations usually borrow more than they need for the announced purchase, but they receive
Yet, this is not the most serious fault in the transaction. In the case of Russia, the grain was no small item on her list of needs.
After repeated failures of her socialist agriculture, she was not able to feed her population. Hungry people are dangerous to a government. Russia needed grain to head off internal revolt far more than the homeowner needed to increase the size of his living room. In other words, Russia
Without it, she would have had to curtail spending somewhere else to obtain the money, most likely in her military. By giving her the money 'to buy grain,' we actually allowed her to spend more money on armaments.
But even that is not the primary flaw in making loans to Russia.
The bottom line is that most of those loans
BUSINESS VENTURES IN RUSSIA INSURED BY U.S.
In 1990, the U.S. Export-Import Bank announced it would begin making direct loans to Russia. Meanwhile, the U.S. Overseas Private Investment Corporation was providing free 'insurance' to private companies that were willing to invest in the ex-Soviet state.
In other words, it was now doing for industrial corporations what it had been doing all along for banks: guaranteeing that, if their investments turned sour, the government—make that taxpayers-would compensate them for their losses. The limit on that insurance had been $100 million, a generous figure, indeed. But, to encourage an even greater flow of private capital into Russia, the BUILDING THE NEW WORLD ORDER
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Bush Administration authorized
If these truly were sound investments, they would not need foreign-aid subsidies or government guarantees. What is really happening in this play is a triple score:
1. International lending agencies p r o v i d e the Social Democrats with
