ROGER ROBINSON ASKED THAT I BRING THE ATTACHED ARTICLES TO YOUR ATTENTION UPON YOUR RETURN TRIP.

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R002004520092-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: February 24, 2011
• Sequence Number: 92
• Publication Date: March 10, 1986
• Content Type: MEMO

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MEMORANDUM FOR: Mr. Casey
Roger Robinson asked that I bring the
attached articles to your attention upon
your return from trip.
Debbie, 10 March
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Ti WALL $TR T JOURNAL MONDAY. liL ,;H 10, 1986
Financing the Soviet Union
By Rocca W. ROBINSON JR.
Hasn't it struck most Western policy
makers as odd that the Soviet Union, with
a total annual hard-currency income of
only about $32 billion from all sources (in-
cluding arms sales), can sustain a global
empire? More specifically, how does the
U.S.S.R. support such a vast array of
third-country commitments-many of
which must be financed by hard cur-
rency-with annual earnings equivalent to
about one-third of Exxon's annual revenue
for 1985? Untied and unobserved Western
financial flows to the Warsaw Pact coun-
tries are, in my view, a principal avenue
by which the West contributes to the Soviet
Union's ability to maintain and expand its
costly global commitments.
In his novel "The Honorable School-
boy," John LeCarre offered some sound
advice concerning financial flows to poten-
tial adversaries, which was embodied in
three words: "Follow the money." That is
exactly what I recommend we do.
In this connection, I've often been curi-
ous why I've never seen a security-ori-
ented cash-flow analysis of the U.S.S.R.-a
page divided down the middle with
"sources" of hard currency on the left side
(for example, oil and natural-gas exports
and the sales of arms, gold, diamonds,
etc.) and "uses" of hard currency on the
right side (such as imports from the West,
technology theft, the underwriting of cli-
ent states, KGB operations and other ex-
penditures). My own guess is that a de-
tailed security cash-flow analysis of this
kind would show a formidable annual hard-
currency shortfall that presumably has to
be financed through Western borrowings.
Rather Hidden Rnurre
Declining Soviet oil production and
plummeting prices for both oil and natural
gas-which constitute approximately two-
thirds of the U.S.S.R.'s total annual hard-
currency earnings structure-should result
in an even more active Soviet presence on
the world credit markets than the roughly
$4.5 billion in new credits observed in 1985.
The fact is that the level of Soviet indebt-
edness remained largely unchanged be-
tween 1979 and 1984 even though the
U.S.S.R.'s hard-currency needs apparently
grew significantly. I believe this discrep-
ancy can be, at least in part, explained
by substantial Soviet reliance on a rather
hidden borrowing source in Western finan-
cial markets.
This less visible borrowing activity
takes place in the vast and amorphous in-
terbank market where the Soviet Union
has been a major player for many years.
The interbank market. is global in scope
and has been formed by the established
practice among the world's banks of depos-
iting cash with we another to facilitate the
efficient flow of fund and to earn income
on excess cash. The London Interbank Of-
fered Rate (Libor) serves as a benchmark
rate at which these deposits are offered to
prime potential borrowers and usually
floats at roughly one percentage point be-
low the U.S. prime rate. Interbank trans-
actions can either be arranged by a money
broker or directly between banks. A typi-
cal transaction might have bid and offer
rates of 77/8% and 8%, respectively, with
the higher rate representing the price at
which a bank would offer or sell deposits to
another bank. Prior to concluding an inter-
bank transaction, the bank offering the
funds will check the credit limit for the
particular bank taking the funds, as well
as the "country exposure limit" for the
country in which the bank is based. It is
not in all cases standard practice to check
the "country exposure limit" for the coun-
try (such as the Soviet Union) that may
own the "taking" bank.
The six Soviet-owned banks located in
the West, along with their branches, have
been major beneficiaries of this global flow
of interbank funds. The largest Soviet-
owned banks in the West include Banque
Commerciale pour l'Europe du Nord, or
Eurobank, in Paris, Moscow Narodney
Bank, London (which often serves as the
coordinating point for other Soviet banking
institutions in the West), and Ost-West
Handelsbank in Frankfurt. Other 100% So-
viet-owned banking institutions are in Lux-
embourg, Zurich and Vienna. The Soviets
go to some lengths to obscure their com-
plete ownership of these institutions. For
example, these banks are incorporated un-
der the laws of the countries in which they
are based, have foreign nationals in man-
agement positions, have what appears to
be a diverse group of shareholders, and
even maintain offices in Moscow that are
similar to those of Western banks.
These Soviet banks engage in other
banking activities outside the interbank
market and even place some of their own
deposits with major Western banks. This
does not, however, offset the enormous ad-
vantage to the Soviets of having access to
this kind of oversized reserve checking ac-
count at an interest rate that is substan-
tially below the U.S. prime rate and that
can be used at their sole discretion. Sim-
ilar to a cash-reserve bank line to bridge
shortages of cash in a regular checking ac-
count, interbank deposits provide the So-
viets with needed liquidly on the margin
to meet their pressing cash requirements.
Access to these Western deposits also per-
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mits the Soviets to avoid more expensive
and visible forms of Western financing. Af-
ter all, why should the U.S.S.R. step up its
modest use of bankers' acceptances or go
more often to the syndicated loan market
when it can tap a largely invisible pool of
Western deposits at interest rates well be-
low U.S. prime? (Interest rates on most
loans to the U.S.S.R. are at some fraction
of one percentage point above the LIBOR
rate and are still below U.S. prime.)
It is very difficult to estimate the pre-
cise amount of such Western funds on de-
posit with the Soviet Bank for Foreign
Trade, the Comecon banks, the State Bank
of the U.S.S.R., and Soviet-owned banks in
the West. Nevertheless, as the Soviets
maintain correspondent banking relations
with virtually every sizable banking insti-
tution in the world, a ballpark estimate of
more often to the syndicated
ip a largely invisible pool of
ates well below U. S. prime?
Western deposits with Soviet-owned banks
in the West would be roughly $5 billion. I
would estimate that several billion dollars
more in Western deposits have been at-
tracted directly by the Soviet Bank for
Foreign Trade and the Comecon banks. In-
dividual East European banks also enjoy
the same favorable access to this untied,
low-cost financing source. Although these
deposits must eventually be repaid, similar
to loans, they still represent a major reser-
voir of cheap money.
Congress, in close coordination with the
Reagan administration, can play an impor-
tant role in examining the practice of un-
tied, or so-called balance-of-payments,
lending to potential adversaries and under-
standing the extent to which the Soviets
rely on interbank deposits. Certain princi-
ples or guidelines should also be consid-
ered for voluntary adoption by the Western
banking community if they have not al-
ready been instituted.
Specifically, each loan to a potential ad-
versary should have an identified and veri-
fiable purpose-be it an equipment pur-
chase, a specific project (with loan draw-
downs calibrated to project expenditures)
or a short-term commodity transaction
such as a grain purchase. Every loan
should have a maturity that is strictly
matched against the duration of the under-
lying transaction. For example, a grain
transaction should be financed with a max-
imum loan maturity of 180 days, rather
than the three years that would de facto
provide the Soviets with 2% years of cash
for their discretionary use. Finally, U.S.
banks should aggregate their interbank de-
posit exposure to all Soviet-owned entities
and periodically report these aggregate ex-
posures to U.S bank regulators, if they are
not already doing so. The same practices
should be applied regarding East Euro-
pean banks.
I am not arguing for the discontinuation
of interbank activity with the U.S.S.R.-
only that specific information be developed
on the amounts and the proper use and
maturity of such deposits. These proposed
principles to govern financial flows to po-
tential adversaries are prudent from a
commercial as well as security perspective
and, therefore, should not present major
problems for Western banks.
The administration should also urge our
allies, through the Organization for Eco.
nomic Cooperation and Development, to
monitor the implementation of similar
guidelines. In the event that the adminis-
tration is disappointed by the lack of allied
cooperation, more information should be
gathered to determine the respective levels
of allied involvement in untied, non-trans-
parent financial flows to potential adver-
saries and what, if anything, should be
done about them. Generally, U.S. banks
are more conservative and disciplined in
their lending policies than their European
and Japanese counterparts and maintain
lower credit exposures.
Cannot Avert Our Eyes
There don't have to be any "losers" in
the West as a result of these policy recom-
mendations. Legitimate, nonstrategic
trade can go forward and expand; the U.S.
can continue to streamline and expedite its
export-licensing procedures and trim the
list of controlled technologies (Cocom),
where indicated, to ensure enhanced U.S.
export competitiveness; Western loans can
continue to support specific trade transac-
tions and projects; and let's hope incen-
tives for greater Soviet geopolitical cooper-
ation can be created through expanded
East-West economic and commercial rela-
tions. We simply cannot avert our eyes
from those financial practices that are po-
tentially harmful to our long-term security
interests; nor can we sidestep the need to
develop a more comprehensive picture of
how the Soviet Union funds itself and its
global activities.
Finally, it is imperative that we suc-
cessfully come to terms with the enormous
contribution the West is making to the eco-
nomic and financial vitality of the Soviet
Union and its client states, especially at a
time of budget-related austerity at home.
Mr. Robinson is president of RWR Inc.,
a Washington-based consulting firm. From
1982 to 1985 he was senior director for in.
ternational economic affairs at the Na-
tional Security CoaresL This is adapted
from a talk giver early last month at the,
Heritage Fovxdatior.
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THE JOURNAL OF COMMERCE
Wednesday, 5 March 1986
Soviet: Bank
D"I'v"osits
Quest*
'U ioned
By RICHARD LAWRENCE Bested, may rise further, as its hard currency export
Jo"rnal of Co Staff earnings
WASHINGTON - Western banks may be unwit- start to -about two-thirds of them in oil and gas -
tingly helping finance subversive Soviet activities in start to dwindle.
the West, a former Reagan administration aide su Mr. Robinson urged the administration and western Con-
gested. $ gress to examine the whole range of "untied" western
Soviet banks, Roger Robinson, a recent National credits to the Soviets, including the Soviet Union's use
Security Council adviser, said, have access to rhos ? of inter?ba~1k deposits.
as much as $10 billion in Western bank funds through "We simply cannot avert our eyes from those
as much bank deposits. economic and finaninterests; nor can we sidestee
cial practices deleterious to our
inter- long-term He likened these deposits to a "kind of oversized need to develop ay more comprehensive picture of how
reserve checking account (for the Soviet Union) at an the Soviet Union funds itself and its global activities,"
interest rate below the U.S. prime rate." The Soviets, he said.
he said, can use the funds "at their sole discretion."
Inter-bank deposits, whereby banks lace Westerp banks, Mr. Robinson suggested, should
short-term deposits with one hereby, help plat e consider voluntary guidelines for lending to the Soviet faci the flow of funds and earn banks incomon excess Union. Loans, said, should be committed only an
cash. The deposits usually are made at the London -identifiable and verifiable able purpose* and maturities
Interbank Offering Rate, generally about 1% below the underlyin sansa matched against the duration of the
New York prime rate. underlying ttnsction."
Mr. Robinson, now president of RWR Inc. a U.S. banks, he said, also should aggregate their
Washington consulting firm, estimates that western report periodically to pfederal to
banks
regulators. Other west-
banks have about $5 billion on deposit with Soviet- ern countries should be persuaded to adopt similar
st
owned banks in the West, which include Moscow Na- practices, he said.
rodney Bank in London, Ott-West Handelsbank in ,
Frankfurt, and Banque Commerciale pour I'Europe du ing. Robinson s ry be ab came as on Senate
Nord, Paris. Banking Commitee may be about to vote on a bill to give the He further estimates that "several billion dollars cial t an arctil nsn withnthe Soviet riUnion.bThe Reagan
more in western deposits" are with the Soviet Bank for administration opposes the bill, but Banking Commit-
Foreign Trade and Soviet-dominated Comecon banks. tee Chairman Jake Garn, R-Utah, intends to press
The Soviet Union, Mr. Robinson said in a speech ahead with it.
at the Heritage Foundation, appears to be tapping Another bill, introduced this week in Congress,
these "rather hidden" funds to help underwrite Cuba would bar Soviet or other East Bloc citizens from
and other client states, KGB/GRU operations, technol- buying a U.S. bank. Moscow Narodny Bank in the
ogy theft and other international activities. mid-1970s tried covertly to acquire several California
Soviet reliance on inter-bank deposits, he sug- banks.
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Soviet Plan Falls Short of
By ALBERT AXEBANK
Journal of Commerce Speuel
MOSCOW - Prime Minister
Nikolai Ryzhkov admitted that
the five-year national economic
development plan that just ended
was a partial failure.
Mr. Ryzhkov, speaking at the
Party Congress here, put the
blame on miscalculations of min-
istries, shortsightedness of some
managers, and on other "unfavor-
able tendencies."
However, he said that a good
deal was accomplished in the
1981-1985 plan period, although
the assignments of the plan were
not fully attained."
Mr. Ryzhkov, a Politburo
member, also spoke at length
about the ambitious new 12th
five-year plan (1986-1990) includ-
ing the guidelines ending in the
year 2000. He cited the need for a
`profound restructuring of the So-
viet economy "
He said that in the coarse of
the next 15 years, it is planned to
double thcc national income and
the industrial output.
Mr. Ryzhkov mentioned the
breaking down of all the barriers
to swift economic and technologi-
cal progress.
Western analysts call the
guidelines for the new plan and
for the next 15 years perhaps
overly ambitious. Some of them
question how such grand targets
can be met when the country's
industry now has trouble turning
out a really good shovel, or a
first-rate socket wrench.
The prime minister said a
characteristic feature of the new
plan was the emphasis on retool-
ing and modernizing the existing
production facilities.
He said the economic guide-
lines envisage increasing the la-
bor productivity 20%-23% as
against 16.5%-18.5% in the past
five-year plan. More economical
use also would be made of fuel
and raw materials. He also said
capital investments would be sub-
stantially greater in the new plan,
some US$235 billion as compared
to US$175 billion for the previous
plan.
Mr. Ryzbkov said there would
Goals
be an 80% growth of investments
in the "engineering complex" un-
der the new plan. He did not fur-
ther elaborate.
Speaking about nuclear power
generation, he said that by the
end of the new plan nuclear pow-
er stations would nearly double
their share of power production
and account for more than 20% of
the total amount produced.
The prime minister said that
in the field of agriculture, it was
planned to bring the output of
grain up to as high as 255 million
metric tons annually.
Western sources note that this
clearly ambitious target would be
more than 50 million metric tons
above the present levels.
Mr. Ryzhkov said the party
was striving to eliminate the bar-
riers standing in the way of scien-
tific and technological progress.
"Although we possess noteworthy
R&D, we often lag behind in the
development of progressive tech-
nologies," he said. This situation
must be changed, he added.
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