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Newsletter:  May 2003/ Issue 4
Debt for Nonproliferation:  Progress and Next Steps

The last issue of Global Security featured debt for nonproliferation and its merits as a tool in nonproliferation. Debt for nonproliferation is a term used to connote 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 reduction 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 to fund projects that will secure materials and weapons of mass destruction (WMD).

This article highlights several significant developments regarding debt for nonproliferation, debt exchange, since last fall. Most importantly, President Bush signed the Russian Federation Debt for Nonproliferation Act of 2001 on September 30, 2002. The legislation outlines a process for the United States to reduce the amount of debt owed by Russia in exchange for Russia applying that amount to specific, mutually agreed upon projects that meet the nonproliferation goals of both nations. Debt exchange is constructed as a multiyear effort. The legislation authorizes the President to reduce the amount of Soviet-era debt owed to the United States, sell outstanding Soviet-era debt in order to facilitate a debt exchange, and to sell debt back to Russia.

Debt exchange may also be used by G8 members to meet their financial obligations under the G8 Global Partnership Against the Spread of Weapons of Mass Destruction.

As part of the communiqué of the Kananaskis Summit, G-8 members agreed to commit $20 billion over 10 years to downsizing and nonproliferation efforts in Russia. The next meeting of the G8, in Evian, France in June 2003, will provide a coordinating venue for further discussion of commitments and project priorities amongst the representatives of the eight countries. There has been some initial discussion by some members regarding the use of the debt mechanism to meet their obligations, although it is not known who may use this option.

Debt exchange offers a credible option for sustaining a Russia nonproliferation sector in the future. Debt for nonproliferation provides a unique opportunity for the United States and G8 members to access additional funding for nonproliferation programs. Not only would debt exchange increase resources for priority nonproliferation programs, it would also provide a mechanism that ensures Russian budgetary participation in the programs. This approach would modify the current model of funding, whereby the US provides the majority of funding for nonproliferation programs. Continuity, sustainability, and Russian buy-in to nonproliferation programs are in the strategic interests of the US and the G8 Global Partnership, and debt exchange is designed to address those interests.

As debt exchange moves forward, both within the US government and within the G8 Global Partnership, one of the foremost considerations will be how partnership is defined. Debt exchange implies a blending of control over disposition of assets and management of programs that differs from other types of bilateral programs. A challenge will be how the G7 and Russia build a partnership around this blending of control that is equitable, sustainable, accountable and transparent.

BACKGROUND:

House International Relations Committee Hearing on the Debt Reduction for Nonproliferation Act of HR 3836,
July 25, 2002 (Hearing, opening statement by Chairman Henry J. Hyde and testimonies of Rep. Ellen B. Tauscher, Charles B. Curtis, Jim Fuller and Undersecretary Alan Larson)
http://commdocs.house.gov/committees/intlrel/hfa80966.000/hfa80966_0.HTM

Foreign Relations Authorization Act, Fiscal Year 2003

Debt for Nonproliferation: The Next Step in Threat Reduction, Jim Fuller
http://www.armscontrol.org/act/2002_01-02/fullerjanfeb02.asp

NTI Report:  Debt for Nonproliferation
A Concept Development Proposal for the Design and Operation of a Russia Nonproliferation Fund, January 2002
http://www.nti.org/e_research/NTI_CDP_Apps.pdf