LETTER TO WILLIAM H. WEBSTER FROM STEVE SYMMS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90G01353R001400130027-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 19
• Document Creation Date: December 27, 2016
• Document Release Date: December 2, 2013
• Sequence Number: 27
• Publication Date: October 17, 1988
• Content Type: LETTER

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ER 88-3963X
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his 13 October letter on similar issu
(See ER 3963X from ES dated 18 Oct.)
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United tates *nate
WASHINGTON, DC 20510
October 17, 1988
Hon. William H. Webster
Director, Central Intelligence Agency
Washington, DC 20505
Dear Mr. Director:
Attached is a copy of a letter I have sent to Treasury
Secretary Nicholas F. Brady today. I am forwarding a copy to you
because of the very serious national security implications of the
issues discussed in my letter to Treasury.
I would appreciate your comments on the issues raised in that
letter.
Sincerely,
Steve Symms
United States Senator
SS/jmc
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SAPA NUNN. GEORGIA. 'CHAIRMiTti
JOHN C. STENNIS, MISSISSIPPI
.1. JAMES EXQN. NEBRASKA
CARL LEVIN, MICHIGAN -
EDWARD M. KENNEDY. MASSACHUSETTS
JEFF BINGAMAN. NEW MEXICO
ALAN J. DIXON, ILUNOIS
JOHN GLENN. OHIO
ALBERT GORE. JR.. TENNESSEE
TIMOTHY E. WIRTH. COLORADO
RICHARD C. SHELBY, ALABAMA
ARNOLD L PUNARO, STAFF DIRECTOR
CARL M. SMITH. STAFF DIRECTOR FOR THE MINORITY
JOHN W. WARNER. VIRGINIA
STROM THURMOND, SOUTH CAROLINA
GORDON J. HUMPHREY, NEW HAMPSHIRE
WILLIAM S. COHEN, MAINE
DAN QUAYLE INDIANA
PETE WILSON. CALIFORNIA
PHIL GRAMM. TEXAS
STEVEN D. SYMMS, IDAHO
JOHN McCAIN. ARIZONA
United tates r$Enate
commirrEE ON ARMED SERVICES
WASHINGTON, DC 20510-6050
October 17, 1988
Hon. Nicholas F. Brady
Secretary of the Treasury
1550 Pennsylvania Avenue, N.W., 3419
Washington, DC 20220
Dear Mr. Secretary:
On October 13, I wrote you to inquire of your success in
Berlin raising the issues you promised Senator Wallop that you
would raise with the q77 finance ministers. Today' the Financial
Times of London carried two news stories about further efforts on
the part of the Soviet Union and its client states to secure hard
currency among the allies of this Nation. According to the World
Trade Editor of that newspaper, the Soviets are seeking $1.7
billion in London -- an amount roughly equal to the funds they
raised in West Germany last week. The reporter in Moscow
reported that the Italians have extended a $762 million line of
credit to the Soviets.
These developments are alarming -- particularly the rapid
pace of Soviet negotiations and the utter eagerness of the
Western governments and their capitalists to grant these lines of
credit.
It is absolutely essential that the United States establish
a clear and achievable timetable and agenda for results now
concerning an Alliance consensus on phasing out untied, general
purpose lending to Warsaw Pact countries and Soviet client states
and the redressing of other major financial security problems.
As anyone experienced in Alliance consultations and economic
summit preparations knows, a six month lead time is the minimum
necessary to gather data, analyze and negotiate an allied
consensus on a major new family of issues before it is adopted by
Ministers at the Ministerial of the Organization for Economic
Cooperation and Development (OECD) to be held in April 1989.
It is also well established that an issue has to be formally
discussed on the agenda of the OECD Ministerial meeting if it is
to be on the formal agenda of the upcoming Economic Summit in
Paris in May/June 1989. Although there are exceptions to this
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Hon. Nicholas Brady
October 17, 1988
page 2
rule, the allies would be tempted to use the argument of
"insufficient preparation time" to foreclose an OECD and Summit
discussion and agreement.
Concerning precedents, it took a full year to produce an
Alliance agreement on discouraging taxpayer subsidized interest
rates on government-backed credits to the USSR (July 1981-July
1982).
It took almost two years to achieve an Alliance agreement in
the International Energy Agency (under the auspices of the OECD)
to, in effect, limit Soviet natural gas deliveries to Western
Europe to 30 percent of total West European gas' supplies and to
accelerate successfully the development of the huge Norwegian gas
project (Troll) to substitute for Soviet supplies into the 1990s
and twenty-first century.
Finally, it took well over six months to reach an Alliance
agreement in the OECD on discouraging foreign assistance "tied
credits" or the excessive use of grant money in development
loans.
Congress and the Administration have been aware of the
untied loan issue and other financial security issues (e.g. the
entry of the Soviets into the international securities markets,
etc.) for over two years and, to date, no Alliance consultations
have taken place.
There have reportedly been only two mid-level interagency
meetings on this subject within the Administration (the last of
which took place in July 1988) and they have been faint-hearted
to say the least.
The issue has not been brought to the Cabinet's attention
since 1985 and then it was in the context of responding to
legislation (S. 812), not a multilateral, voluntary initiative
with our allies on more disciplined and transparent lending of
hard currency to adversaries.
On June 2, 1987, eighteen leading Congressmen and Senators,
on a bipartisan basis, wrote the President urging him to raise
the untied loan issue and impending Soviet entry into the Western
bond market prior to the Venice Economic Summit. There was no
result and the issue was not raised.
On September 24, 1987, twenty-four Congressmen and Senators,
on a bipartisan basis, wrote the President urging him to raise
the untied loan issue and impending Soviet entry into the Western
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Hon. Nicholas Brady
October 17, 1988
page 3
bond market prior to the Venice Economic Summit. There was no
result and the issue was not raised.
On September 24, 1987, twenty-four Congressmen and Senators,
again on a bipartisan basis, wrote the heads of the IMF and the
World Bank asking them, for solid commercial banking reasons, to
call for a phasing out of undisciplined cash lending to
sovereign borrowers in the East Bloc because this practice has
been proven to be one of the principal causes of the current
trillion-dollar international debt crisis.
The Administration was sent copies of that correspondence at
the Cabinet level. Again, this issue was ignored during the
IMF/World Bank sessions that immediately followed the letter.
On June 15, 1988, the Senate passed a unanimous resolution
(96-0), sponsored by Senators Bradley and Sasser, calling on the
President to raise the untied loan issue and related problems at
the Toronto Economic Summit. Simultaneous to this effort,
Congressmen Schumer and Roth sent a letter to the President with
over fifty signatures (evenly divided between Democrats and
Republicans) arguing strongly that this issue required urgent
Presidential attention in Toronto. Again, the issue was never
raised, even at lower levels.
In the earlier Defense Appropriations bill and in a letter
to Defense Secretary Carlucci, Senator Sasser requested a
comprehensive interagency study of all available data on credit
flows to the Soviet bloc and certain client states which Was to
be completed by September 30, 1988, and presented to the
Congress. No such study was produced and no self-generated
initiative within the Administration was undertaken.
During your confirmation hearings, Senator Wallop requested
that you raise the untied loan issue at the G-7 meetings in
Berlin last month. I am sorry to report to you that some of my
sources familiar with the G-7 sessions in Berlin are telling me
the issue was never seriously discussed. I am looking forward to
your response to my letter of October 13, in order to rebut and
put to rest these disturbing allegations.
I am certain you understand that the data collection from
our allies and thorough analyses prior to the OECD Ministerial
meeting requires this Alliance exercise to begin immediately.
The diversion of the proceeds of Western borrowings to
finance purposes inimical to vital U.S. and Western security
interests is almost certainly costing the American people
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Hon. Nicholas Brady
October 17, 1988
page 4
billions of dollars annually in additional defense and foreign
assistance spending to counter the consequences of thess unwise
banking practices. It is not just bad for our national security,
it is bad banking.
Why has there not been one high level alliance consultation
on this obviously strategic subject since World War II? Why has
there not been one National Security Coucil meeting devoted
exclusively to the subject of how the Soviet Union funds itself
and its global empire?
Why have Bonn and Tokyo totally ignored the strategic and
security implications of multibillion dollar credit flows
annually to Warsaw Pact nations from their countries?
Why has this subject eluded every major discussion of
defense burden-sharing with our allies?
Could it be that we are deliberately looking the other way
on untied loans and other public and private sector financial
transfers to adversary nations because it keeps the Soviets and
our allies in a better humor?
Could it be that we are more interested in avoiding a
potentially contentious discussion with our allies than advancing
the national security of the United States and the preservation
of freedom around the world?
Could it be that our free market principles are overriding
the need of this government and those of our allies to intervene
to correct these financial abuses, data gaps, and lending
practices that have such serious strategic implications for the
Free World?
To further illustrate why we must immediately commence
formal Alliance consultations at the Assistant Secretary or
higher level now, as opposed to further obfuscation and delay,
consider the amount of data that has either never been collected
at all or not pulled together in a systematic way for analysis.
Among the numbers urgently needed are the following:
(1) What have been total Western private and public sector
credit flows to Warsaw Pact countries and Nicaragua, Vietnam,
Libya and Cuba over the past ten years (1978-1988), breaking out
tied and untied loans, with projections five years forward?
These numbers should also be broken out both by lending
countries and borrowing countries as well as in aggregate form.
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Hon. Nicholas Brady page 5
October 17, 1988
(2) What have been all loan and deposit exposure to the
Comecon banks (the International Investment Bank and
International Bank for Economic Cooperation) over the past ten
years, with particular focus on credit flows from West Germany
over the past three years?
(3) What have been all "private placements" of debt between
Western and middle East banks and non-banks and Soviet Bloc-owned
banks? These private placements could either take the form of
bank-to-bank deals or so-called "club deals" involving 3 to 10
banks.
(4) What has been total credit exposure (Western banks and
non-banks) to Warsaw Pact Borrowers in the forfait market, broken
down by country lenders (e.g., the total amount of the banks of a
particular lending nation) and country borrowers?
(5) What is total Western non-bank credit exposure to
Soviet Bloc countries and the client states referenced?
(6) What would a break-out of total Middle East exposure to
Soviet Bloc borrowers and the client states referenced look like?
Both public and private sector flows should be cited and whether
the funds were tied or untied.
(7) We need an analysis of the volume and quality of the
Soviet hard currency loan portfolio (estimated by PlanEcon at
over $40 billion) to Third World countries. What is the true
market value of these loans -- 25-30 cents to the dollar?
(8) We need a listing of all public and private sector
contingent liabilities to Soviet bloc borrowers and the client
states referenced, including government guarantees, and lines of
credit that are committed and could be drawn down by the borrower
at any time.
(9) We need a listing of all Western bank, government, and
multilateral development bank loans and deposit exposure to
Nicaragua, Cuba, Vietnam, and Libya over the past ten years,
(broken down by lending and borrowing countries) as well as every
debt rescheduling to these countries, including the respective
terms and conditions.
(10) We need a summary of the Soviet position in or
overtures to all international economic and financial
organizations for observer status or membership, including the
Asian Development Bank.
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Hon. Nicholas Brady page 6
October 17, 1988
(11) We should have a break-out of all West German and
Japanese loan and deposit exposure to each Soviet bloc country
(including the USSR itself), Comecon banks, and the client states
referenced, for the past ten years (1978-1988).
(12) Finally, we should have a break-out of aggregate U.S.
bank deposit exposure to Soviet Bloc-owned banks located in the
West.
The above data requirements listed for proper evaluation of
the security implications of Western credit flows to Soviet Bloc
countries and client states is by no means complete. Other data
are also needed but time and space do not permEt a more
exhaustive list here.
If we are unnable to obtain from our allies all of the data
listed above and/or of additional data that will be required, the
Administration should clearly reference the data gaps that could
not be closed, so that the Congress can better evaluate the
commercial and security implications.
The explanations offered in the past by the Administration
to explain reluctance in pursuing an Alliance solution to this
problem have been weak, particularly given the unilateral
imposition of capital controls against Panama earlier this year.
Surely the threat to America from the Soviet Union is at least as
serious as the threat from a drug-pushing head of state in
Central America.
This exercise that I believe should begin immediately,
however, is not about controls, it is about data collection and
disclosure and a multilateral, voluntary initiative to implement
more discipline and transparency in lending to adversary nations
for solid national security, commercial, and human rights
reasons.
As the enumeration above of the data that needs to be
gathered indicates, it will take at least six months to prepare
for the OECD Ministerial meetings in April.
If we fail to act on this critical and urgent issue at this
time, I think it would be tantamount to a declaration by the
United States that we really do not care if our allies pour out
billions of dollars to make the Soviet Union stronger; If that
is the case, then I must simply ask, in all sincerity, why did
this Nation expend billions of dollars in the past eight years to
build up our own defenses? Why do we spend billions of dollars
each year for foreign aid and other international security
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Hon. Nicholas Brady page 7
October 17, 1988
initiatives, if we are willing -- in the last analysis -- to let
the enemies of the United States borrow all the capital they need
to match us dollar for dollar from our supposed friends?
I am very eagerly awaiting your reply to my letter of
October 13, 1988, and I would further appreciate your discussion
of the particular items of data enumerated above that I believe
should be gathered prior to the OECD Ministerial meetings in
April.
" Sincerely,
Steve S
United States Senator
SS/jmc
cc: Hon. George P. Shultz
Hon. Frank C. Carlucci
Hon. Colin L. Powell
Hon. William S. Sessions
Hon. William H. Webster
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mawr
Unita' t$tates e%enate
WASHINGTON. DC 20510
October 13, 1988
Hon. William H. Webster
Director, Central Intelligence Agency
Washington, DC 20505
Dear Mr. Director:
Attached is a copy of a letter I have sent to Treasury
Secretary Nicholas F. Brady today. I am forwarding a copy to you
because of the very serious national security implications of the
issues discussed in my letter to Treasury.
I would appreciate your comments on the issues raised in that
letter.
Sincerely,
Steve Symm
united States Senator
SS/jmc
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Joie C. mums. ussusisin
J. JAMES EXON. NEBRASKA
CMILMMARCHIGM
EDWARD M. KENNEDY. MASSACHUSETTS
JEFF SISGAMAN. NEW MEXICO
ALAN J. MON. IU.INOIS
JOHN GUNN. OHIO
ALIIIRT GORE JR.. TEMIESSEE
TIMOTHY E. WHIM COLORADO
MCHARD C. SHELBY. ALABAMA
ARNOLD L. MAAR?. STAR DIRECTOR
CARL M. SMITH. STAR DIRECTOR FOR THE MINORITY
JOHN W. WARNER VIRGINIA
STROM THURMOND SOUTH CAROUNA
GORDON J. HUMPHREY, NEW HAMPSHIRE
WILLIAM S. COHEN. MAINE
DAN OUAYLE. INDIANA
PETE WILSON. CALIFORNIA
PHIL GRAMM. TEXAS
STEVEN 0. SYMMS. IDAHO
JOHN McCAIN. ARIZONA
lanital itatts tnatt
COMMITTEE ON ARMED SERVICES
WASHINGTON. DC 20510-6050
October 13, 1988
Hon. Nicholas F. Brady
Secretary of the Treasury
1550 Pennsylvania Avenue, N.W., 3419
Washington, DC 20220
Dear Mr. Secretary:
As this session of Congress comes to a close, I wish to
reiterate to you my deep concern, and that of my Senate
colleagues, regarding continued multibillion dollar flows of
undisciplined bank credits annually to the Soviet Union, Eastern
Europe and Soviet client states. We read in The New York Times
yesterday that West Germany has now granted the largest-ever line
of credit of this type -- despite original assertions of it being
directly tied to German exports.
During your confirmation hearings, I had requested Finance
Committee members to ask you about this issue, and Senator Wallop
did so. Senator Wallop and I were pleased with your response to
his question about raising the issue with the G-7 in Berlin.
We believe there are serious national security implications of
these credit flows, particularly untied, general purpose loans to
Warsaw Pact countries. Our schedules are quite full in the next
month, but at the earliest possible opportunity, we would
appreciate a briefing on the specific nature of your demarche and
the reaction of each of our allies to help us evaluate the
prospects for Alliance consensus over the next few months.
Although 1987 showed a pause in the pattern of relatively
heavy borrowing by Soviet bloc countries in 1985 and 1986,
depressed hard currency earnings may be creating a new surge of
borrowing this year and in 1989. The Congress, on a bipartisan
basis, has repeatedly and strongly requested such Alliance
consultations for over two years without any apparent result.
Senator Wallop and I, as well as several other Senators who have
taken a public interest in this issue I trust, would like to be
kept informed of any such consultations that may have commenced,
and when they began.
The Soviet entry into the international securities markets
(e.g., the issuing of bonds) is a particularly troubling
development, allowing the Soviets to recruit, for the first time,
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Hon. Nicholas F. Brady page 2
October 13, 1988
Western securities firms, pension funds, insurance companies,
corporations, and even individuals as lenders of untied funds to
Moscow. Over time, hundreds and even thousands of non-banking
institutions and potentially millions of Western citizens could
be knowingly and unknowingly holding Soviet paper in their bond
portfolios and pension funds. These institutions would have a
financial vested interest in supporting continued Western
economic, financial, and even political concessions to the
U.S.S.R. In addition, credit exposure to the Soviet Union from
non-banks is not even recorded as part of the total indebtedness
of the U.S.S.R., compounding the already serious problems of
collecting and disclosing data on the volumes and uses of Western
credits.
Beyond the national security dangers, countries like Poland
and Hungary, with combined debt of roughly $57 billion, have
encountered serious difficulties in managing the repayment of
debt to the West. Undisciplined lending to sovereign borrowers
has proven itself to be a commercially unsound banking practice
with costly consequences for Western taxpayers as the trillion-
dollar international debt crisis has revealed. Why would this or
any Administration not sound the alarm when banks return to this
imprudent practice, particularly given the ease with which our
adversaries can divert the proceeds of untied credits for
purposes inimical to vital Western security interests?
This problem can no longer be ignored. The Senate
resolution of June 15 on this subject passed by a unanimous vote
of 96-0. Economic and financial security policies must become
the next major defense burden-sharing obligation of the Alliance.
It is almost surely costing the American people billions of
dollars annually in additional defense spending to counter the
consequences of undisciplined financial flows to the Soviet
empire primarily from West Germany and Japan. The Soviets can
use untied money more flexibly to finance their military
build-up, fund arms sales to countries engaged in regional
aggression, underwrite the failed economies of client states, and
for other harmful purposes.
Once an Alliance agreement is reached on more disciplined
and transparent Western lending to adversaries it must be
enforced energetically -- unlike the Administration's performance
concerning U.S. capital controls directed against Panama. The
latest scandal concerning the activities of the Bank of Credit
and Commerce International (BCCI) related to the laundering of
drug money and the diversion of funds to General Noreiga is part
of our broader concern over the damage that can be done to
important U.S. interests by financial abuses. Accordingly, this
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- Declassified and Approved For Release 2013/12/05: CIA-RDP90G01353R001400130027-8
Hon. Nicholas F. Brady page 3
October 13, 1988
family of financial security issues should be at the top of the
agenda of the April Ministerial of the Organization for Economic
Cooperation and Development. The Alliance agreement that is
forged between now and the OECD Ministerial should be
specifically endorsed at the next Economic Summit in Paris
scheduled for May/June 1989. Should this Administration, or the
one to follow, continue to resist the creation of an Alliance
consensus and formal agreement on phasing out untied lending and
redressing other financial security concerns, the Senate will be
compelled to examine legislation to make this Alliance
burden-sharing obligation a reality.
I am confident you share our concerns and Will work with
your counterparts in the G-7 and the OECD to avoid consideration
of legislation directed against offending Alliance banks
operating in the United States.
Sincerely
Steve Symms
United States Senator
SS/jmc
cc: Hon. George P. Shultz
Hon. Frank C. Carlucci
Hon. Colin L. Powell
Hon. William S. Sessions
?Hon. William H. Webster
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