ADDRESS BY SECRETARY OF STATE MADELEINE K. ALBRIGHT TO THE US-RUSSIA BUSINESS COUNCIL, Chicago, Illinois, October 2, 1998.


United States Information Agency
TEXT: ALBRIGHT REMARKS TO US-RUSSIA BUSINESS COUNCIL, OCTOBER 2
(US is "retargeting" aid to Russia to support reform)

Chicago -- Secretary of State Albright says the United States is now "reexamining" all its aid programs for Russia, "retargeting money where it can be used effectively to support economic and democratic reform."

In a speech to the US-Russia Business Council in Chicago October 2, she said the Clinton administration "will increase our support for small business and the independent media, and try to bring a much larger number of Russian students, politicians, and professionals to live and learn in America."

Albright said these programs are needed now more than ever "precisely because these are troubled times in Russia."

The Secretary of State emphasized that "big bailouts (from the international financial institutions) are not by themselves going to restore investor confidence in Russia. Nor will they help the Russia economy unless the Russian government is committed to sound fiscal and monetary policies.

"Foreign funds," Albright said, "should continue to be used to help Russia pursue credible reforms, but not to help it delay them. They should be used to support a policy of tax reform, not to make up for tax revenues the government is unable or unwilling to collect. They should be used to support a program that strengthens banks lending money to entrepreneurs, not banks set up to bet on currency fluctuations. They should be used to support policies that help the neediest Russians, not that enrich off-shore bank accounts."

The Secretary urged patience with Russia, saying that "the drama of Russia's transformation from a dictatorship and an empire to a modern democratic state is far, far from over. We cannot say that Russia has lost its way when in fact it has just begun its journey."

Albright indicated she was concerned about suggestions that the new Russian government might resort to printing new money, indexing wages, imposing price and capital controls, and restoring state management of parts of the economy. "We can only wonder if some members of (Prime Minister Yevgeny) Primakov's team understand the basic arithmetic of the global economy," she said.

Following is the State Department text, as prepared for delivery:
(begin text)
U.S. DEPARTMENT OF STATE
Office of the Spokesman
Chicago, Illinois
Text as Prepared for Delivery

ADDRESS BY SECRETARY OF STATE MADELEINE K. ALBRIGHT TO THE US-RUSSIA BUSINESS COUNCIL, Fairmont Hotel, Chicago, Illinois, October 2, 1998

Thank you Ambassador Strauss for that introduction. As our nation's first Ambassador to a democratic Russia, the experience, perspective and authority you bring to the subject at hand are truly unmatched. I am glad to see Gene Lawson here -- he and I started our PhD's at Columbia on the same day.

And I'm very glad to see in the audience some of the old Russia hands who treated me to a stimulating dinner seminar two nights ago. Today they're going to hear me cribbing their ideas -- shamelessly.

Ambassador Vorontsov, distinguished guests: I am happy to be in Chicago and delighted to address a group that shares President Clinton's conviction that what happens in Russia matters profoundly to our security and prosperity. Let me now invite you all to sit back, digest your lunch, and formulate some polite, easy questions to ask me after my speech.

When I think about the situation in Russia today, I can't help thinking about a story I first heard on one of my early visits to that country.

A train is going through Siberia when it runs out of track. In Lenin's day, the leadership says: "Our workers are strong and brave; they will keep building." Stalin says: "No, they're lazy, threaten to shoot them and then they will build." Khrushchev says: "Russia is going forward, not backward, so we can use the rails we've passed over to finish the track, ahead." Brezhnev says: "It's too much work, let's close the blinds and pretend we're moving." Gorbachev says: "Open the windows and let's see what happens."

Then President Yeltsin and the Russian people get the train going again. Except it's moving fast and he keeps changing engineers. And now there are two tracks ahead. One looks tempting, for it goes downhill; but it leads to the abyss. Only the perilous track through the mountains will get Russia to its destination.

As you can guess, that's an old story, but I made up the ending. And the Russians keep writing new ones themselves.

These are, to use the Russian expression, smutnoye vremya, troubled times. The Russian economy is expected to shrink significantly in the coming year. A hard winter lies ahead.

To many Russians, it may seem as if the promise of a better future has been betrayed once again. To many Americans, it may seem that the greatest opportunity of the post-Cold War era, building a genuine partnership with a stable, democratic Russia is now a more distant possibility.

Of course, this is not the first crisis of post-Soviet Russia. Tomorrow will mark the fifth anniversary of the tragic showdown between President Yeltsin and the Supreme Soviet. And it was only two years ago that Russians were expected to reject Yeltsin in Russia's presidential election.

Each time, there were people eager to declare that Russia's transition was over for good. Each time, some people were ready to substitute soundbite for serious analysis, by asking rhetorically, Who lost Russia?

But that has always been the wrong question. The drama of Russia's transformation from a dictatorship and an empire to a modern democratic state is far, far from over. We cannot say that Russia has lost its way when in fact it has just begun its journey. Nor can we say that Russia is ours to lose. We can help Russia make tough choices; but in the end Russia must choose what kind of country it is going to be.

The real question today is what will the new government of Prime Minister Primakov choose? Will it take sensible steps to stabilize the economy without triggering hyperinflation, a currency meltdown, a collapse of the banking system, or shortages of basic goods? Will it reconcile the political and moral imperative of meeting human needs with the imperative of economic revival? Will it recognize that, in fact, it cannot fulfill either one of these imperatives without fulfilling the other?

On the day he was confirmed by the Duma, Prime Minister Primakov told me that the answer to these questions was "yes." He also asked us to watch his actions and to wait until his team assembled.

I cannot yet say we are reassured. We have heard a lot of talk in recent days about printing new money, indexing wages, imposing price and capital controls, and restoring state management: of parts of the economy. We can only wonder if some members of Primakov's team understand the basic arithmetic of the global economy.

So we cannot say with confidence that Russia will emerge from its difficulties any time soon. Nor should we assume the worst, for there are still plenty of people in Russia who will fight against turning back the clock.

A true and lasting transition to normalcy, democracy, and free markets in Russia is neither inevitable nor impossible. It is an open question, the subject of a continuing debate and struggle. That has been true ever since this great but wounded nation began to awake from its totalitarian nightmare and it will be true for years to come. That is why our policy must continue to be guided by patience, realism and perspective.

I want to talk today about the Administration's strategy for responding to both the challenge and the opportunity that Russia's transformation poses. I want to speak with you not only as Secretary of State, but as someone who has spent much of her life studying and teaching about the societies that once fell on the far side of the Iron Curtain.

Over the years, my bookshelves filled with the literature of the Cold War, with books about the Soviet Communist party, about US-Soviet relations, about nuclear strategy. Nothing gives me greater pleasure than the knowledge that so many of them are now obsolete.

The books that still speak to us are those about Russian history. They tell a story of countless efforts to transform Russia, each leaving its mark, and yet each left unfinished.

Four hundred years ago, Peter the Great sought to open Russia to the West. Yet not till today has Russia had a chance to complete the journey it began when St. Petersburg first rose on the Neva. More than eighty years ago, the Russian monarchy was replaced not by a communist revolution but by a constitutional democracy, which collapsed before
its hopes could be realized. A few years later, Stalin tried to move his country in a radically different direction. He failed, too; even his ruthless precision did not turn Russia into a permanent prison.

Today's democratic reformers cannot afford to leave their work half finished, because Russia cannot afford to be half free. But to beat the odds, they must still beat the legacy they inherited from the last failed effort to transform Russia. And to understand their task, we need to understand just how hard overcoming the legacy of communism has been and will be.

We need to remember that a short time ago, Russia was a country where enterprises completed to produce the biggest piles of junk; a country where the dollar was at once illegal and supreme; a country that did not care for its poor because it did not acknowledge their existence; a country where crime and graft were jealously guarded state monopolies; a country where school books derided the rule of law as "bourgeois legalism."

The task of rebuilding has been harder still because, unlike the Czechs and Poles and Balts, Russians have no living memory of political and economic freedom to guide them; they are creating something new, not regaining something they had before. What is more, precisely because the collapse of the Soviet system was remarkably peaceful, many responsible for the old order are now struggling over the shape of the new one.

Seen from this perspective, it is remarkable that Russia is as open to the world as it is today. It is remarkable that power is devolving from Moscow to the regions. It is remarkable that people who want to know what is going on inside Russia can call up today's online edition of the St. Petersburg Times, or the New Siberia weekly, or the Vladivostok News.

It is remarkable that the leaders of American business can gather here to discuss the stake in Russia's future that they share with millions of workers and investors in Russia.

And it is remarkable that Russia is becoming a functioning democracy,
that its new government came into being because the President and
Parliament played by the rules of its post-Soviet constitution. That
is not, to put it mildly, the way Russian politics worked in the past.
But it is the way most of the experts I've talked to expect it to be
played in the future.

I will not downplay Russia's present crisis, or suggest Russian
reformers have made all the right choices. It is a troubling fact that
many Russians have come to equate reform with theft. There is a danger
many will come to see political and economic freedom as just another
utopian promise that never comes true.

I am deeply concerned about what is happening in Russia. But I also
agree with a motto that hangs in the office of our Ambassador to
Russia, Jim Collins: "Concern is not a policy."

My job as Secretary of State is not to describe the worst possible
outcome in Russia or anywhere else. It is to devise policies that
protect American interests and encourage the best possible outcome.
That has been our objective ever since the Russian tricolor rose above
the Kremlin in 1991. And while none of our policies should be exempt
from scrutiny or criticism today, I believe it is a sound objective
still.

Our policies towards Russia will continue to be guided by several
fundamental principles.

The first principle is that our most important priority in dealing
with Russia is to protect the safety of the American people. That is
an interest we pursue no matter who is up or down in the Kremlin or
which direction Russia is heading.

Our efforts have paid enormous dividends.

Today, there are no nuclear weapons in Belarus, Kazakstan and Ukraine.
Presidents Clinton and Yeltsin have agreed on cuts to be made in a
START III treaty that would reduce our nuclear arsenals by 80 percent
from their Cold War peak. Russia has joined us in banning nuclear
testing and in ratifying the Chemical Weapons Convention. Our experts
have worked together to upgrade the security of nuclear weapons and
materials.

Today, 75 percent of our assistance dollars in Russia are devoted to
programs that diminish the threat of nuclear war and the danger that
weapons of mass destruction will fall into the wrong hands. Just last
week, our countries announced a program to help scientists and workers
in Russia's closed nuclear cities start commercial, non-military
ventures, so they are not tempted to sell their expertise to those who
wish us harm.

Today there are no Russian troops in the Baltic States. Instead,
Russian troops are serving with ours in Bosnia. Russian officers are
working with our allies at NATO headquarters. Our diplomats been
working together to bring peace to the Caucasus and to Kosovo.

Yevgeniy Primakov and I worked closely together when he was foreign
minister. We each came to see in the other a forceful,
straight-talking advocate of a major power's national interests. We
have been able to advance our cooperation where our interests converge
and to manage our differences honestly and constructively.

The question now is whether that cooperation can continue.

There are many voices in Russia who want to shift the emphasis in
Russia's interaction with America and our allies from one of
partnership, to one of assertiveness, opposition, and defiance for its
own sake.

If that happens, it would be a double disaster for Russia: First,
because our ability to help Russia help itself will go from being
merely very, very difficult to being absolutely impossible. Second,
because a shift of the kind some are advocating in Russian foreign
policy would be contrary to Russia's own interests.

After all, Russia needs an effective non-proliferation regime -- and
it does need to see that nations like Iran do not acquire nuclear
weapons or missiles that can hit its territory. Russia needs strategic
arms reduction and a treaty limiting conventional arms in Europe.
Russia needs peace in the Balkans and an end to conflict on its
borders. Russia needs good relations with NATO. Russia needs neighbors
in central Europe and the New Independent States that are secure,
thriving models of market reform -- for in a global economy success
and confidence are as contagious as failure and panic.

Above all, Russia needs to project a preference for cooperation to its
partners in trade and investment around the world. The confrontational
policies that did Russia no lasting good even in the nuclear age are
certainly not going to advance its interests in the information age.

Fortunately, in the last few weeks, we have welcomed signs that the
Russian leadership continues to see, as do we, that there is a basis
in mutual benefit for cooperative U.S.-Russian relations. Just last
week, for example, Russia joined us in the UN Security Council to
support a resolution under the peace enforcement provisions of the UN
Charter demanding an end to the Serbian offensive in Kosovo. We have a
lot of hard work to do in the coming days to see Milosevic gets that
message.

I spoke to Foreign Minister Ivanov this morning about the atrocities
of recent days, about the need to see that Milosevic understands our
determination. We're continuing to work with Russia throughout this
crisis, but let me be clear; if at the end of the day we disagree
about whether force has to be used, the United States and its allies
must be prepared to act.

Russian ratification of the START II treaty would further confirm this
positive trend. Prime Minister Primakov has said this will be a
priority. His government has, by recent Russian standards,
unprecedented support in the Duma and therefore an unprecedented
opportunity to get this done.

At the same time, we need to recognize that the cash-strapped Russian
government is already hard pressed to slice apart missiles, destroy
chemical weapons stocks, and meet the costs of other obligations. Over
the long haul, arms control saves Russia money; but in the short run,
it carries costs we and our partners must be ready to help Russia bear
-- not out of charity, but because our national interests demand it.
That's why it's so important that Congress voted to increase this
year's Nunn-Lugar funding to $440 million.

The second principle guiding our policy is that we also have an
interest in standing by those Russians who are struggling to build a
more open and prosperous society. As President Clinton made clear at
the Moscow summit, we will continue to do that in every way we can.

At the same time, we should acknowledge that helping Russia will
probably be harder for some time. And the best way to help Russia now
is not necessarily to send more money.

Much of the progress Russia has made in the last seven years has come
with the support of international institutions like the IMF and the
World Bank. These institutions helped Russia to conquer
hyperinflation, to liberalize prices, and to make the ruble
convertible. They pressed policies designed to encourage competition
and discourage corruption.

At the same time, more big bailouts are not by themselves going to
restore investor confidence in Russia. Nor will they help the Russian
economy unless the Russian government is committed to sound fiscal and
monetary policies.

Foreign funds should continue to be used to help Russia pursue
credible reforms, but not to help it delay them. They should be used
to support a policy of tax reform, not to make up for tax revenues the
government is unable or unwilling to collect. They should be used to
support a program that strengthens banks lending money to
entrepreneurs, not banks set up to bet on currency fluctuations. They
should be used to support policies that help the neediest Russians,
not that enrich off-shore bank accounts.

In the long run, the gap between Russia's needs and its resources must
be met not by foreign bailouts but by foreign investment. Furthermore,
what will truly help Russia now is not more people betting on its
T-Bills, but more people betting on its factories, oil fields, and
people.

We need to remember that Russia has tremendous inherent wealth. Yet it
has only attracted a trickle of outside investment where there should
have been a bonanza. Had the conditions been right, it is estimated
that investors could have pumped more than $50 billion into Russia's
oil and gas sector alone. As it was, in 1997 energy investment didn't
even reach $2 billion.

Just think how much could have been done if investment on this scale
had been coming in to Russia from the very beginning of the 90's.
Those who blocked it have a lot of explaining to do to their people.

One of the obstacles has been Russia's inability to approve adequate
legislation on production sharing agreements, and to create a stable,
predictable tax system, which would create an environment for
attracting investment.

A related obstacle has been the sense among many Russians that
accepting foreign investment means selling their country. President
Clinton and I have been making the case that this is a dangerously
short-sighted view. We have pointed out that foreign investment has
fueled growth in every thriving emerging economy from Latin America to
central Europe, that it helped build America in the 19th century and
that attracting foreign capital to America is one of our highest
priorities today.

By welcoming long-term, committed capital, Russia is not giving away
its national patrimony gaining, it is jobs, growth and tax revenues.
It is gaining advances in technology that will allow it to market its
resources at competitive prices. It is gaining a corporate culture
that will help it to replace robber barons with responsible stewards
of its national treasure. It is gaining investors who will not fly
home or move their money to Switzerland at the first sign of trouble.
I gather that some of those who are beginning to understand all this
include Russia's governors -- who see, like our own governors, how
much foreign investment can do for them.

Let me acknowledge the many members of the US business community who
have had the guts to hang in there despite all the difficulties you
have suffered and uncertainty you have faced. I thank you all for
that.

As long as the Russian government is willing to play by global rules,
foreign governments and institutions will help it to weather tough
times. And whatever the policies of the government, we will try to
support programs that help the Russian people and advance our shared
interest in democracy.

In response to the current crisis in Russia, we have been reexamining
all our assistance programs, retargeting money where it can be used
effectively to support economic and democratic reform. We will
increase our support for small business and the independent media, and
try to bring a much larger number of Russian students, politicians,
and professionals to live and learn in America.

And we intend to launch a lifeline to non-governmental organizations
whose hinds have been frozen in Russia's banking crisis.

Precisely because these are troubled times in Russia, these programs
are needed today more than ever. They are in our nation's interest and
they support the interests of the business community. We asked the
Congress to increase our funding for 1999, and we need your support
now, before this year's session ends, to make that happen. This is no
time to cut programs that have such an important pay off for us.

A third principle we need to keep in mind is that the solutions to
Russia's problems will not stick unless they have popular legitimacy
within Russia.

I do not want to suggest that there is any uniquely Russian way to
prosperity. If the Russian government prints too many rubles, there is
nothing inherent in Russian culture, nothing imprinted in the Russian
character that will prevent inflation from crushing its people's
dreams. The laws of economics may work in mysterious ways, but they do
not vary from culture to culture any more than the laws of physics.

But I do believe that even as we urge what is right, we must not treat
Russia as a ward of the international community. Russia is too big,
and too proud, for that. The policies we would like the Russian
government to pursue have to be worked out democratically, with the
support and understanding of the Russian people, or they are going to
fail.

This means we need to be patient with the workings of the democratic
process in Russia. Under the best circumstances, there will be
compromises between economic orthodoxy and political reality. After
all, democracy is not rule by economist-kings. It is a system that
allows pragmatic politicians to build a consensus for policies that
cause short-term pain.

It also means we should not start each day by taking a census of
reformers in the Kremlin or hold our breath every time there is a
leadership change. We should be interested in policies, not
personalities.

In this respect, it is a good thing that Russia now has a government
with a mandate from both the Parliament and the President. It is a
good thing that Communists and Agrarians in official positions have to
face voters with the results of what they do. They'll learn they have
to do more than just complain and denounce. It is a good thing that
Russia will hold parliamentary elections next year and presidential
elections in the year 2000. Far from fearing the outcome, we should
look forward to what should be the first peaceful, democratic transfer
of power in Russia's history.

The historian James Billington has written that many times in their
history, "Russians have sought to acquire the end products of other
civilizations without the intervening process of slow growth and inner
understanding." Today's reformers do not have much time to go through
that process. For in today's global marketplace, Russia's will be
vulnerable to external shocks as long as basic market reforms remain
incomplete.

Russia's transition to true freedom, stability and prosperity will
take time, indeed it must to be lasting and genuine. Meanwhile, we
need to defend our interests and speak clearly about the choices we
hope Russia will make. And we must be ready to stick with this effort
for the long haul.

>From the beginning of Russia's incredible journey toward freedom, I've
tried not to be too euphoric when things are going well, or too
discouraged when things are going badly. Everything I know about
transitions from communism to democracy teaches me to be a short-term
realist when it comes to Russia. But it also teaches me to be a
long-term optimist,

This period is different from all the other periods of change and
reform in Russia's history in one important way. Unlike in Peter the
Great's time, Russia is not seeking to enter a Europe of absolute
monarchies in perpetual conflict. Unlike in 1917, it does not need to
escape from a Europe engulfed in the senseless slaughter of a total
war.

Yesterday, Europe was organized around alliances of countries that
knew what they were against. Today, the rest of Europe and much of the
world is coming together around a consensus for open markets, for
cleaner government, for greater tolerance and peace. In the late 20th
century, the forces that pull Russia toward integration, and that
counteract the autarkic, self-isolating forces within Russia itself --
are more powerful than at any time in history.

It is our job -- because it is in our interest -- to manage the
aftermath of the Soviet Empire's disintegration, to help Russia
integrate into the community of which we are a part, and eventually to
help Russia thrive, not just muddle along. That means remaining steady
in defense of our principles, interests and objectives. And it means
standing with Russia as it moves forward -- as long as it is moving on
the right track.

I will continue to dedicate my best efforts to this hard-headed,
principled enterprise, and I solicit yours as well.

Thank you very much.


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