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Newsletter:  September 2002/ Issue 3
Debt for Nonproliferation: Update and Status

In the last issue of Global Security, there was a feature on debt for nonproliferation and its merits as a tool in nuclear threat reduction. Since that issue, there has been a great deal of activity in support of the concept. Debt for nonproliferation has now been addressed by Congress, the Bush Administration, and, most recently, at the G-8 Kananaskis Summit. It has been the topic of House testimony. Debt for nonproliferation is increasingly seen as a useful mechanism for the US and its allies to secure weapons of mass destruction and assist Russia with its economic growth, thus providing a credible option for sustaining a Russia nonproliferation fund in the future.

Debt for nonproliferation is a term used to connote a debt restructuring and reduction, whereby the terms of a loan are changed or partially forgiven in return for which the debtor allocates an agreed upon amount of local currency to a nonproliferation project. Debt conversion and reduction is an approach that has been used to promote environmental objectives, such as conservation and biodiversity, since 1987, when the first debt for nature swap was executed. Debt reduction for nonproliferation employs the same concept, adapting it for the purpose of funding projects that will secure weapons of mass destruction (WMD) and their materials.

In July, G-8 members announced their Global Partnership Against the Spread of Weapons of Mass Destruction. This partnership, also referred to as “10 plus 10 over 10,” commits the organization to addressing issues of nuclear safety, nonproliferation, disarmament, and counterterrorism. Initially, the areas of focus will be “…destruction of chemical weapons, dismantlement of decommissioned nuclear submarines, the disposition of fissile materials and the employment of former weapons scientists.” The G-8 has committed $20 billion USD to this new partnership, with $10 billion committed by the US, and the remaining balance to be provided to Russia by other G-8 members.

The official G-8 Communiqué states that members can use bilateral debt to meet this financial obligation. The introduction of debt exchange with Russia as a financing mechanism has given debt reduction for nonproliferation a stronger financial base, as well as a broader audience. Most importantly, the Paris Club has agreed that G-8 members have the right to enter into bilateral debt negotiations without receiving Paris Club approval. This had been considered a potential stumbling block in the past, due to Germany’s reluctance to forgive additional Russian debt. However, the new G-8 Global Partnership opens up the opportunity for any country within the G-8 to negotiate a debt reduction deal directly with Russia, and encourages other countries that are “prepared to adopt its (G-8) common principles and guidelines to enter into discussions… on participating in and contributing to this initiative.”

The official communiqué released by the G-8 has six guiding principles that are to “prevent terrorists, or those that harbor them, from gaining access to weapons or materials of mass destruction.” The principles cover issues such as weapons and weapons materials accounting, export controls, fissile material disposition, elimination of biological and chemical weapons, and development of effective physical protection measures. In addition, there is an expansive list of guidelines for new or expanded cooperative projects. These guidelines, agreed to by all G-8 members, include monitoring, auditing and transparency measures for selected projects, as well as access to work sites for donor representatives.

The G-8 Summit was followed by another significant event, the July 25 House hearings on the use of debt reduction for nonproliferation. The hearing, entitled “Loose Nukes, Biological Terrorism, and Chemical Warfare: Using Russian Debt to Enhance Security,” focused on the advantages to the United States of using debt reduction with Russia in order to finance and promote the securing of weapons of mass destruction. The hearing featured testimony from Representative Ellen Tauscher, the original sponsor of the House bill; Undersecretary of State for Economics, Business and Agricultural Affairs, Alan Larson; President of the Nuclear Threat Initiative, Charles Curtis; and Director of the Pacific Northwest Center for Global Security, James Fuller. There was a positive endorsement of the debt for nonproliferation concept by almost all attending House Representatives, and an acknowledgment of the need for a significant increase in funding for Russia nonproliferation programs. It is anticipated that the House and Senate will hold conference on their respective debt for nonproliferation bills in September, and that the bills will be authorized in FY03.

Even though there has been growing consensus on the importance of debt for nonproliferation, there has been limited discussion of how it will work in practice. First, the G-8 Global Partnership has not defined precisely how the financial commitments will be met, nor how the $10 billion commitment (remaining after the $10 billion to which the US is committed) will be divided. Also, while G-8 members have committed to ensuring accountability and transparency of program funds, there has yet to be a discussion on how this will be achieved. Secondly, the United States has not yet determined what, if any, mechanism will be needed to monitor and administer funds. Although the Debt Reduction for Nonproliferation Act of 2001 (S 1803) does refer to the establishment of a Russian Nonproliferation Investment Facility, and a US-Russian Board of Directors, it does not clearly state that there is a need for the establishment of an independent host-country fund, with a mixed Board of Directors, and authority to monitor use of funds. The success of debt reduction for nonproliferation will ultimately depend on how the funds are administered, the projects are selected, and implemented, and how results are verified.