Good afternoon. I'd like to begin by thanking the Rand Corporation for giving
me the opportunity to be with such a distinguished group of Russian and American
business leaders.
You are meeting at a fascinating moment. In the second decade after the end
of the Cold War, economic and commercial issues have assumed a central place
in foreign policy, including in the relations between Russia and the United
States. Forces of economic integration are transforming the world economy. International
flows of goods and services, of capital and people, and of ideas and technology
are surging. Globalization is creating new possibilities for growth and development,
as well as new challenges that require national and international attention.
In today's information economy, economic freedom and political freedom reinforce
one another. As President Bush said in April to the Organization of American
States: "There's a vital link between freedom of people and freedom of commerce.
. . . Open trade fuels the engines of economic growth that create new jobs and
new income. It applies the power of markets to the needs of the poor. It spurs
the process of economic and legal reform. It helps dismantle protectionist bureaucracies
that stifle incentive and invite corruption. And open trade reinforces the habits
of liberty that sustain democracy over the long term."
It's worth reflecting on how these changes, in many ways stimulated and accelerated
by the end of the Cold War, will affect the relationship between the two countries
that fought the Cold War. The question is far from academic. In 2 weeks, President
Putin and President Bush will meet for the first time.
Let me start with two basic premises that will guide President Bush's approach.
The first premise is that a stable, strong Russia committed to building a pluralistic
democracy and free market institutions is in the interest of the United States.
The second premise is that the United States and Russia share the responsibility
for building a strong, stable, and mature relationship that advances our respective
interests and contributes to peace, security, and prosperity in the world at
large.
Russia's Economic and Political Transformation
To establish a mature relationship, we need to see each other with clear eyes.
In little more than a decade Russia has made real progress towards the establishment
of democratic institutions and a market economy. It is equally clear that there
is a long way to go before the rule of law and the institutions of democracy
and the market economy are firmly established.
After the financial crisis of 1998, some of Russia's friends feared a resort
to inflationary monetary policy or undisciplined government spending. In the
event, monetary policy helped contain inflation, and now we even observe Communist
Deputies acknowledging the dangers of inflation. Responding to a weaker ruble,
Russian firms displaced imports through increased industrial production. In
addition, high international oil prices have sharply boosted export revenues,
doubling foreign exchange reserves, and helping the government turn chronic
budget deficits into surpluses.
Tax reform has also moved forward, though it has not been finished. Reforms
enacted by the Duma last year reduced distortions and provided increased incentives
for individuals to pay taxes.
Russia has decided it does not presently need infusions of new financial assistance
from the International Monetary Fund. And President Putin's assurance earlier
this year that Russia will make all of its international debt payments is a
welcome development. It shows that Russia recognizes that the path to growth
and development lies in attracting capital to Russia, not in penalizing those
who provided capital to Russia in the past.
To be sure, Russia's remaining challenges are profound. The boost to export
revenues provided by devaluation and by high oil prices ultimately will wane.
The banking system is weak, agriculture backward and its commercial environment
unreliable. Too many Russians still operate in the shadow economy; social welfare,
as measured by life expectancy and per capita incomes, is so low as to be very
worrisome. Billions of dollars in investment will be needed to restore the country's
crumbling physical infrastructure. In short, this moment of improved economic
conditions is an opportunity for Russia to intensify the reform effort, especially
structural reform, not an occasion to relax.
Most Russians understand that fundamental reforms -- the kind that strengthen
the rule of law, transparency, predictability, and a functioning financial infrastructure
-- are needed. Whether Russia succeeds or fails in its reform program will depend
largely on the Russian Government and Russian people. Today Russia may be better
positioned to achieve these results than at any time in the past 10 years thanks
to a favorable economic environment, a dedicated reform team, a more cooperative
Duma, and an engaged President.
President Putin's moves to strengthen the central government have increased
political stability, another important ingredient in improving the investment
climate. But Russia's leaders need to avoid the temptation to create a "managed
democracy" that would undermine civil freedoms, and ultimately would undermine
confidence and economic growth as well.
An Evolving Relationship
Many of Russia's economic problems can only be addressed by creating an environment
that attracts the private growth. Our relationship increasingly should focus
on what must be done to foster such an environment.
A focus on trade and investment calls for strengthening business-to-business
relationships. And the Administration is exploring ways enhanced business ties
can improve the investment climate. More business deals will be concluded when
Russian and U.S. firms work together to help the governments find ways to resolve
problems that now prevent more trade and investment. Business can lead the way
in improving conditions for not only foreign firms, but also for Russian enterprises.
Increased investment flows, both domestic and foreign, will be the yardstick
of our progress.
Russia's accession to the WTO would mark a major milestone in the country's
integration into the world economy. The United States strongly supports Russia's
entry and stands ready to work with the Russian Government on the reforms and
policy changes necessary for accession.
We must recognize that it will not be an easy process. It will require a major
effort on the part of many Russians -- government and Duma officials, business
executives, and industry leaders -- to pass the necessary legislation and to
institute the needed policies. We are ready to work at the pace Russia chooses,
recognizing that we should avoid setting arbitrary deadlines.
Some Russians are questioning whether their economy is ready for further opening.
Some Russian industries fear the rigors of global competition. We must not forget,
however, the dangers of providing protection to domestic industries. Protection
traps scarce financial and human resources in inefficient uses, sapping economic
vitality and mortgaging our economic future. Though we all sometimes have difficulties
following this advice, we know it is best to let
competitive market forces determine industry winners and losers.
The accession process will bring clear benefits for Russia's reform program.
The commitments that Russia makes in its WTO negotiations will lock in reforms
and strengthen links to the global economy. All of the economy will benefit
from compliance with WTO standards of transparency and rule of law. The WTO
will have an impact beyond just trade flows.
Russia's Energy Sector
As a major producer of oil and gas, Russia is a key player in the international
energy system. And it could have an even greater role in that system in the
future. Russia's capacity to provide more oil and gas to international markets
could be an important factor in diversifying the world energy supply mix, and
in spurring the next phase of Russia's economic development.
It will take major work, however, for Russia to significantly increase oil and
gas production and realize its full market potential. Although Russian energy
companies could go it alone, the tasks will be accomplished much faster and
better with the technological and financial cooperation and -- yes -- the competition
that international oil and gas companies can bring. Full implementation of the
Production Sharing Agreement regime--which continues to make its way slowly
through the government and legislature -- would be an important step in facilitating
that cooperation with international oil firms.
Benefits from cooperation in the international energy arena are evident in the
Caspian Pipeline Consortium project that will have oil flowing later this year.
This is the largest single U.S. investment in Russia, a powerful example of
the win-win possibilities we can develop together. Cooperation in energy also
can enhance regional stability. Stable, independent and prosperous states on
Russia's borders would provide both markets and inputs for Russian goods, strengthening
Russia economically.
Russia is in the process of making far-reaching decisions about how to restructure
its fuels and energy industries. Whatever choices the Russian Government and
the companies make, it is important that the restructuring process be transparent
and respect the rights of minority shareholders. The appointment this week of
Alexei Miller as new Gazprom chief marks the beginning of a new chapter in Gazprom's
history, and we look forward to hearing his views on the company's future.
Cooperation in Fighting Crime and Corruption
Like a number of other countries around the world, Russia is plagued by organized
crime, corruption, and money laundering. Crime and corruption undermine Russia's
investment climate and weaken democratic and economic institutions. By reining
in corruption and promoting the rule of law, Russia could reap more investment
and stimulate faster economic growth.
Judicial and administrative reform can help address some of the root causes
of corruption. We applaud recent efforts to reduce the number of activities
that require licensing in Russia, thereby reducing the scope for bureaucratic
corruption and facilitating the establishment of small and medium-sized enterprises.
The United States stands ready to work on these issues with Russia, both bilaterally
and in multilateral fora.
In this regard, we urge Russia to enact and implement quickly the money-laundering
bill now under consideration. We are encouraged that the Duma recently approved
the first reading of this bill, but we will be concerned until we see enactment
of this long-delayed legislation.
Defense of private property, the strengthening of corporate governance and the
protection of shareholder rights work hand-in-hand with anti-corruption efforts.
Only with strong rule-of-law will Russian citizens feel safe in saving, investing,
and taking the risk of starting new firms.
Local and Regional Initiatives
In a country the size of Russia, what happens outside of Moscow, at the regional
and local level, has an important impact on the country's political and economic
course. To be thorough and irreversible, Russia's reform must proceed not just
top-down, but also bottom-up. Many serious problems that poison the investment
climate can best be addressed at the local and regional level.
The United States will support business and education exchanges to impart at
the grass-roots level the knowledge and skills needed in a market economy. We
also will work with receptive, reform-oriented local and regional governments
to strengthen institutions, improve the investment climate, and spur economic
growth. We will seek ways to reinforce bilateral and multilateral assistance
efforts in the regions, and we urge the business community of both countries
to encourage market-oriented reforms at the local and regional level.
As someone who comes from the rural heartland of my country, I think that
the structure of agriculture has an important impact on economic development.
We are closely watching progress on land reform and potential business ventures
that could help improve the productivity of Russia's farm sector. Passage of
a land code that allows for the sale and purchase of agricultural land would
undoubtedly unleash forces for rapid productivity growth in this sector.
Cooperation among Russia, the EU and the United States
The European Union and Russia are working toward creation of a "common economic
and social space" in Europe. The United States welcomes increased cooperation
between Russia and the EU. We will explore with EU and Russian counterparts
areas where we can cooperate in helping Russia achieve its reform goals. For
example, the EU, the U.S., and Russia can cooperate in the fight against organized
crime, and we can build on our strong, shared interest in fostering the market-oriented
development of Russia's energy sector.
Democratic Institutions and Civil Society
In today's Information Age, economies thrive best in an open society. Historically
a few countries have achieved economic growth for a time under less-than-democratic
regimes; nevertheless, in today's world, open and democratic societies have
much greater prospects for sustained economic success.
We would encourage Mr. Putin to consider carefully this link between economic
growth and democracy. Our reading of current history suggests that the strong
Russia that he envisions can best be built on the twin foundations of democracy
and the market. Strengthening democratic foundations is both a political and
an economic imperative. Information is the lifeblood of the market economy.
Free speech, free media, and expanded internet and telecommunications will enhance
the ability of markets to function effectively.
A strong civil society also will increase the prospects for a strong, stable
Russia. An active, politically-engaged populace helps to ensure that leaders
at all levels of government are serving the interests of the people. Likewise,
a strong independent media can serve society as a watchdog, promoting honesty
in government and good corporate governance. The media can be a force in the
fight against crime and corruption. Sunlight, as Justice Brandeis said, is the
best disinfectant and streetlights can be the most effective crimefighters.
At the beginning of the new Administration in the United States, some Russians
have asked where our relationship is headed. There will, of course, be some
changes in our relationship as the result of a new team in Washington, new realities
in Russia and important changes in the world economy. In my view these changes
are leading us to a new, more mature relationship. Russian leaders and the Russian
people can rest assured that the United States believes in and will work for
a future that includes a strong, democratic Russia. We will support Russia's
efforts to integrate into the world economy and to find its place in the international
community. We look to you in the business community to play a vital role in
this task.
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See http://www.state.gov for Senior State Department
Official's statements and testimonies
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