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. Last Updated: 07/27/2016

Spare Ax To Russia Aid, Firms Tell U.S.

U.S. Secretary of State Warren Christopher asked Congress on Thursday to keep its budget ax from aid to Russia, even as U.S. businessmen in Moscow warned that the cuts, proposed by leading Republicans, would hurt American economic interests first of all.


"I know it's tempting to end or curtail these [aid] programs as a way of punishing Russia when it does something we oppose," Christopher told a Senate appropriations subcommittee, The Associated Press reported.


"I am all for maximizing our leverage. But I have reviewed our assistance programs and concluded that cutting them back now simply makes no sense," he said.


American trade and business leaders in Moscow and Washington agreed, saying the Congressional backlash against foreign aid could strike doubly hard in Russia.


The result, they said, could end up hurting the very exports Americans need to reduce their stifling trade deficit.


"If we cut these [aid] programs, it's just unilateral disarmament," said Peggy Houlihan, director of the Export Trade Association in Washington. "We're just walking away and allowing our competitors to take our sales." Republican fervor in Washington supports political visions of shedding unwanted budgetary pounds, redirecting funds to domestic needs and winning the hearts of voters.


But Russia's pending sale of nuclear reactors to Iran and the continuing war in Chechnya have heaped fuel on the fire, increasing Congressional rhetoric and calls to punish Moscow. "Russia is paying no price for moving forward on its nuclear sale to Iran," Mitch McConnel, chairman of the Senate subcommittee, said at Thursday's hearings.


Business officials note that insistence by Congress to cut foreign expenditures across the board threatens American business, especially such tools as political risk insurance from the Overseas Private Investment Corporation and loans from the Export-Import Bank.


Additionally, the symbolism of aid cuts could lead to further political rancor between the two countries.


"I think everything is essentially at risk right now," said Peter Charow, executive director of the American Chamber of Commerce in Moscow. "With all the political problems that are starting to sprout between America and Russia, we have to remember a truism: If countries have strong ties in economics and business, it's really possible to solve any problems," he said. "It's a shame, really."


Harbingers of future cuts abound in Washington, with Republican House and Senate members threatening such drastic measures as privatizing OPIC and killing Ex-Im Bank and the Trade and Development Agency. The agency provides U.S. firms with funding for consultancy and feasibility studies.


"All of the trade agencies are part of the budget cuts under discussion," said a spokesperson for Ex-Im Bank. "There are numbers that range anywhere from cutting the bank's budget by 10 percent to half. I think we're in the lower half of that, but it's just too early to know."


Although the bank financed only $300 million in non-oil and gas imports to Russia last year -- of an estimated $1.7 billion since 1992 -- it is charged with overseeing a $1.4 billion Oil and Gas Framework Agreement.


This agreement, as yet unmet pending resolution of key issues, would provide loans to Russians which in turn would be used to revitalize the oil industry using U.S. companies, equipment and technology.


Cuts to Ex-Im Bank would reduce its ability to meet demand throughout the world, including oil and gas agreements in Russia, the spokesperson said.


Likewise, OPIC has supported 40 projects in Russia and the newly independent states worth $2.2 billion. An estimated $1.4 billion of that went to insurance projects in Russia.


"The amounts of money aren't huge," said Charow. "But you're talking about a transitional period where a company might be willing to invest a hundred thousand dollars here if they can find political risk insurance."


Although many Americans view government support for lending institutions as corporate welfare, Houlihan noted that such attitudes are rarely found among competitors to the United States.


"We wouldn't be having this discussion if we were in Japan or one of the European countries," she said. "They understand how exports are the key to their survival."


However, one American businessman noted that no one would rationally set a business agenda in Russia based on U.S. government support.


"I can tell you that we don't factor what Congress is doing into our business plan," said the oil executive, who asked not to be named. "If the framework agreement goes away, it might eliminate the possibilities of business, but it's only possibilities ... it's not lost revenues."


Another trade official warned that, although current budget cuts may seem a bitter pill, it is the second round of decisions that could strike directly at Russia -- when appropriators decide where to nip and tuck fiscally. "That's where the Russia issue comes into play, because there are certainly all kinds of threats in the House and Senate" concerning the war in Chechnya and the reactor deal with Iran, said Kay Larcom, vice president of governmental affairs for the U.S./Russia Business Council.


Perhaps more importantly, the threat of retaliatory action by Russia could cause U.S. aid cuts to hit American businesses harder than the actual dollar value would appear, Larcom said.


Currently, the most heated debate in Washington has focused on the U.S. Agency for International Development, often criticized for its bureaucracy and accused of wasteful spending. Russia and Ukraine rank third and fourth respectively among USAID recipients after Israel and Egypt. Aid levels for Russia were $216.8 million in 1993, $1.3 billion in 1994, and $344.5 million for 1995.


U.S. President Bill Clinton has requested $260 million for Russia in 1996, but bills currently winding through Congress are expected to reduce not only the 1996 request, but also rob unspent funds from past years as well.


Most recently, the Senate Foreign Relations Committee approved a proposal Wednesday to reduce drastically USAID over two years and fold it -- along with the U.S. Information Agency and the Arms Control Disarmament Agency -- into the State Department.