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Newsletter:  September 2002/ Issue 3
House International Relations Committee Hearing on the Debt Reduction for Nonproliferation Act of HR 3836
Excerpts from Testimony

Testimony by Dr. James Fuller/Battelle-PNNL-PNWCGS

Thank you for the opportunity to comment on the use of Russian debt to enhance security. The Debt Reduction for Nonproliferation Act contained in S 1803 is an innovative, new approach in the prevention of proliferation. It is a good tool for President Bush and future Presidents to use to elicit additional participation by other industrialized nations. It also could help to increase the investment in Russia proliferation prevention programs to a level more commensurate with those recommended by the bipartisan 2001 Energy Department Russia Task Force.

We started thinking about the possibility of Russian debt swaps for nonproliferation in mid-1999 after a seminar at the PNNL Pacific Northwest Center for Global Security by a distinguished economist, Dr. John Hardt, who came out to talk to us about Russia’s economic policy dilemma and US interests. The thought occurred to me that if the United States and other members of the Paris Club had been willing to forgive significant amounts of debt for emerging democracies such as Poland to help with environmental issues, surely it made sense to consider doing the same thing for the Russian Federation in relation to some of the under-funded cooperative efforts to limit the spread of chemical, biological and nuclear weapons.

The pros and cons of debt for nonproliferation can be broken down into two basic categories: financial and political. While the Russian liquidity crisis seems to have been resolved for the time being, federal budget solvency issues are still a major concern due to the significant portion of the annual budget that must be earmarked for external debt servicing. This burden reduces the funds available for more discretionary programs such as proliferation prevention.

The political dimensions of debt for nonproliferation are the utility of this proposal for advancing US nonproliferation programs in Russia, including its potential impact on the structure and effectiveness of those programs; the prospects and conditions for ensuring sufficient cooperation and participation by the Russian government; and operational considerations and options, including participation by nongovernmental organizations (NGOs).

From my own perspective debt reduction for nonproliferation would significantly advance US proliferation prevention efforts. What we are talking about is nothing short of a global proliferation prevention partnership addressing a problem that the US Congress has called “the most urgent unmet national security threat to the United States.” Debt Reduction for Nonproliferation is synergistic with President Bush’s proposal adopted by the G-8 for a Global Partnership Against the Spread of Weapons and Materials of Mass Destruction sometimes referred to as “10+10 over 10.”

The impact of a debt reduction for nonproliferation program on existing efforts is hard to gauge. My view is this: we should consider the $10 billion over 10 years commitment made by the United States at Kananaskis as a US funding floor since it is consistent with recent and near-term Administration budgets. We should continue to give priority within this proposed $10 billion expenditure to the critical, more immediate security concerns such as accounting and protection of fissile materials and radiological dispersal device materials, and the continued production of weapons plutonium. And, we should probably continue to work on such problems in the somewhat one-sided, contractually forceful service-for-fee “compliance” manner that we have been using with Russia for the last several years. We do not want to negatively impact progress by changing the construct.

A Russia Nonproliferation Fund has several concomitant advantages. It allows G-8 contributors to pool resources to accomplish more; provides a mechanism for contributions for other national, multilateral, and even private commercial entities; allows Russia a major governance role in partnership with contributors; permits Russia to reduce the debt service burden on its budget and improve its credit-worthiness without further tapping into its Central Bank hard currency reserves; could be used to provide loan guarantees or direct funding to help build a viable commercial security sector with Russia; and could include formal roles for international NGOs in supplementing resources and measuring and assuring project performance.

In my view, a Russian Nonproliferation Fund of the type I have described would be effective in accommodating a key objective of President Bush’s proposal and the G-8 Kananaskis agreement.

The prospects and conditions for ensuring sufficient cooperation and participation by the Russian government are also strongly dependent on the way in which debt reduction for nonproliferation is implemented if all the United States is offering is the choice between business as usual (one billion per year direct aid) and a smaller amount of direct aid with (Continued on page 7) the difference being made up by the swap, then a debt for initiative is dead on arrival, in my opinion. The best way is to: 1) earmark US debt for monies to be a significant addition to current and projected levels of US direct appropriation; 2) apply these monies in a manner that will help guarantee that the other G-8 countries meet their $10 billion/10 year commitment; and 3) give the Russians a partnership role in governance of the programs in a way that acknowledges their global stature, as well as their sovereignty over their national security and financial matters.

Battelle has done quite a lot of work on this subject for the Nuclear Threat Initiative. The four programs that received our most intense focus were USAID debt swap activities, the Polish EcoFund, the US-Russia International Nuclear Safety Program, and the US-Russia Cooperative Threat Reduction program.

Given the extent and complexity of the proliferation prevention issues in Russia, we recommend a modified two-tiered structure (similar to the Polish Ecofund model) consisting of an engaged stakeholder Board of Directors made up equally of creditor and Russian representatives, and an Implementation Team that could be heavily supported by NGOs. As I have stated, I believe that NGOs could play a significant role in the success of “10+10 over 10” that includes debt swap components.