White House Blocks Aid Package to Russia

The Clinton administration blocked $498 million in loan guarantees to Russia on Tuesday, in a striking signal of displeasure with Russia’s economic corruption and an indirect protest of its brutal military campaign in Chechnya.

The action was announced late in the day by the State Department and the Export-Import Bank, an independent agency that had been intent on approving the aid for energy projects in Siberia and Moscow until White House officials expressed their concerns.

Citing a rarely used legal provision, Secretary of State Madeleine Albright declared that it was in America’s “national interest” to block the aid, which would have gone to a firm that is accused of corrupt tactics in taking over a coveted Siberian oil field.

“The reason for the delay is that there are a number of reports and allegations” about the business practices of the borrower, Tyumen Oil Co., explained Al Larson, undersecretary of state for economic, business and agricultural affairs. Larson added that the ban may be temporary.

The Export-Import Bank had planned to approve a $295-million loan guarantee Tuesday to help Tyumen modernize an oil field in western Siberia, and another loan guarantee of $203 million for the firm to upgrade its oil refinery near Moscow. The deal would have represented the largest infusion of U.S. aid to Russia since the ruble crash of 1998, and it threatened a storm of protest.

What ultimately sank the proposal were allegations that the Russian borrower had gained a coveted oil field in Siberia by illegally controlling a bankruptcy proceeding that enabled it to take over a firm with rights on that field.

In the process, BP Amoco and other Western investors in Sidanco, the firm that was taken over, have claimed unfair losses.

“Approval of the loan guarantees in light of corruption of Russia’s bankruptcy process would likely have serious, negative ramifications for U.S. investors, since American private investors have invested substantial millions of dollars” in the firm that Tyumen took over, wrote Rep. Carolyn B. Maloney (D-N.Y.) and 13 other members of Congress in a letter last month to James Harmon, chairman of the Export-Import Bank.

Administration officials were further concerned about which individuals stood to benefit if Tyumen received the credit. Since the collapse of the old Soviet system, criminals--including former officials who exploited their position as insiders--have gained vast influence over Russia’s economy and its wealth in natural resources. Tyumen is 49.8% owned by the Russian government and is undergoing a shift into private hands, U.S. officials said Tuesday.

“There are some questions that are quite relevant about who is the partner on the other side of this transaction in Russia,” a senior administration official observed.

Administration officials insisted Tuesday that the decision on the loan guarantees was not related to the war in Chechnya, although Russia’s military campaign has become tangled up in U.S. presidential politics and is being cited by critics, including Democratic presidential candidate Bill Bradley, as reason to withhold all foreign aid from Moscow.

Internally, the White House agonized over the loan decision, with some officials arguing that rejecting it could antagonize the Russian regime and impede acutely needed economic development.

Opponents argued that such assistance was inappropriate at a time of pervasive corruption in Russia, including the highly publicized Western investigations into overseas money laundering, and that the loans would inevitably be interpreted as a sign of U.S. apathy toward the war in Chechnya.

The Export-Import Bank had wanted to go forward with the projects anyway, but it had no choice but to stop after Albright invoked a legal provision, known as the Chafee Amendment, that allows the White House to block Export-Import Bank loans deemed to violate the national interest.

The 65-year-old Export-Import Bank has guaranteed financing to help the Russian oil and gas industry since 1993. U.S. Deputy Secretary of State Strobe Talbott, who is visiting Moscow, planned to discuss the issue with Russian officials, according to administration sources.

Separately, International Monetary Fund assistance to Russia remained in limbo Tuesday. A top Russian banking official, Mikhail Zadornov, said his country would probably not get the next $640-million installment of its $4.5-billion IMF loan before February, because the new parliament has yet to pass required reform legislation.