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Newsletter:  Dec 2001/ Issue 1
Debt for Nonproliferation:  A New Approach to Stabilizing Russia’s Nuclear Cities

The following excerpts are from a paper entitled “Debt for Ecology: A Concept to Help Stabilize Russian Nuclear Cities,” by James L. Fuller and Mark Leek of Pacific Northwest National Laboratory, PNNL-SA-34546.

During the fifty years of the cold war, the Soviet Union and the United States developed the largest nuclear weapons complexes in the world. One of the greatest post-cold war challenges for both countries has been the drawing down of their nuclear arsenals and production capabilities. This entails the irreversible dismantlement of thousands of nuclear warheads and cessation of the production of nuclear materials. It also requires remediation of extreme environmental problems and finding non-weapons related employment for Soviet weapons scientists and the very specialized weapons production workforce of the cold war era.

In the United States, the government has played a leading role in financing economic diversification and environmental cleanup around its own nuclear cities. Environmental restoration on the Hanford nuclear reservation has been the foundation of economic stabilization of Richland, Washington, a US nuclear city. The so-called “Richland Model” for nuclear city economic stabilization involves many factors, but primarily focuses on ecological remediation of cold war nuclear wastes and facilities. Environmental clean-up at the Hanford site has not only provided new jobs and skills for former nuclear weapons workers, it is also making the city and the region much more desirable for commercial development.

Given the magnitude of problems facing Russian nuclear cities, creativity involving both public and private sectors will be necessary to achieve substantive solutions. Debt conversion offers one avenue for obtaining both the public and private capital required to address some of Russia’s most pressing needs. Debt conversion, or “debt swapping,” is a financial transaction whereby debt is essentially sold back to a debtor nation at a discount, and in local currency. The proceeds go to a designated domestic fund. Debt swapping dates to the early 1980s when debt-for-nature exchanges were introduced as a means to fund environmental preservation programs while relieving developing nations of a portion of their foreign debt, thus creating a win-win situation for creditor and debtor nations alike. Creditor nations are able to obtain commitments of domestic expenditures for programs that can have local, regional, and international benefits. Debtor nations are able to reduce their financial burden while supporting programs with local currency, thereby preserving the debtor country’s national hard currency reserves.

The March 1991 Polish-Paris Club Agreement is often cited as an example of a successful debt swap arrangement involving official bilateral debt. In this arrangement, Paris Club members agreed to forgive 50 percent of Poland’s $35 billion bilateral debt. This amount was later increased by another 10 percent to be used for debt-for-nature swaps. A key to the success of the agreement was the 1992 establishment of the Polish EcoFund, a well-managed body responsible for overseeing the debt-swap proceeds and projects. Along with the Polish Government, representatives of governments that contribute to the fund participate directly, choosing projects and determining how they are administered. A 1998 report by the OECD describes the internationally acclaimed Polish EcoFund as a model for environmental financing institutions.

Debt conversion can, as a program, help to promote economic stabilization and diversification in Russia’s closed nuclear cities. It can focus on issues such as public health and environmental conditions that must be addressed to make closed cities attractive for commercial development. It can and should also be employed to deal with pressing proliferation problems. Russia’s nuclear cities possess an unusually high concentration of technical talent and scientific facilities that cannot easily be relocated or reproduced, but which have great potential for creating technical goods for which there are national and international demands. The aim is to creatively underwrite and manage activities in ways that substantially leverage and increase the funds available to help solve US and world security problems while at the same time improving economic, security, social, and health conditions.