U.S. Department of State
Stephen Sestanovich
Ambassador-at-Large and
Special Adviser for the New Independent States
before the House International Relations Committee
Washington, DC
July 16, 1998


U.S. Policy Toward Russia

1.  Introduction

Mr. Chairman, I appreciate the opportunity to discuss U.S.-Russian
relations with you today.  The timing of your hearing could hardly be
better.  As you know, President Clinton will travel to Moscow to meet
with Boris Yeltsin in six weeks.  His trip takes place at a moment of
increased uncertainty about where Russia is headed.  The financial
crisis has highlighted the structural weaknesses of Russia's economy and
led to concern about the country's political stability.

These developments raise understandable questions about American policy
toward Russia.  They oblige the Administration and members of Congress
to take a hard look at our policy and the assumptions that underlie it.
I hope that in our discussion today we can clarify what is at stake,
what we should be trying to achieve, what stands in our way, and what we
want to do to succeed.

Let me start with a question that will occur to anyone who has read of
this week's multi-billion dollar IMF loan package for Russia.  Why
should Americans care about this middle-sized, underachieving economy?
The answer is that history, geography, military technology, the
vulnerability of its smaller neighbors, and other factors give Russia a
central place in international issues of great consequence to the United
States.

There is nothing abstract about the ways in which Russia matters to us:

--Our success in putting a stop to transfers of sensitive missile
technology from Russia to Iran will affect the balance of power in the
Persian Gulf and the Middle East.

--Gaining Russian ratification of START II will allow us to improve our
security and resume momentum in reducing our stockpiles of nuclear
weapons.

--Russia's relations with its neighbors will decisively affect the kind
of Europe we end up with at the opening of the 2lst century.

Russia matters in a negative sense.  We wouldn't like it if things went
horribly wrong.  But, Russia matters to us in a positive sense, too.
Oilmen will tell you that Russia's resources will shape future world
energy supplies.  Telecommunications firms will tell you they can't
create the global satellite network they want without Russian launch
capabilities.  Software companies will tell you they are eager to work
with Russia's brainy computer wonks.

We have a policy that reflects the diversity and magnitude of these
interests.  In relations with Russia, this Administration aims to:

--first, reduce the threat to the United States and to international
peace posed by weapons of mass destruction;

--second, support Russia's transition to a market economy;

--third, work with Russia's new generation of democrats as they build a
society in which human rights, including religious freedom, are
protected; and

--fourth, ensure that Russia deals cooperatively with its neighbors and
is integrated into Euro-Atlantic and global institutions.

Mr. Chairman, we clearly won't attain any of these goals unless our
relations with Russia are a two-way street--unless these are Russia's
goals too.  Making sure this is so is a formidable challenge.  It's not
made easier by the fact that Russians are divided:

--There are those in Russia who understand that ratifying START II will
enhance national security and serve the urgent need of military reform.
Others prefer to block Russian-American agreements of any kind.

--There are those who see clearly that the flow of advanced missile
technology to Iran directly threatens Russia.  But others hope to profit
from it and will try to subvert any strengthening of export controls.

--There are many Russians committed to freedom of religion.  Others fear
religious diversity.

--There are Russians who know that economic revival and growth requires
transparency and foreign partnerships.  Others prefer an insider
economy, even if it is small and weak.  There are even Russians who want
the economy to fail so that they can reap political advantage from
chaos.

These differences are the stuff of pluralism.  They have a deep impact
on the way policy is carried out.  Add to this the fact that the Russian
system is still very much a work-in-progress, with the authority of many
of its institutions still being defined.  The result is a mechanism that
produces policy results--good, bad, or indifferent--only very slowly.

All this means that Russia is difficult. But it is hardly hopeless.
It's ironic, in fact, that the financial crunch and talk of overthrow
come so soon after the arrival of a new government in Moscow.  This
government is like none we have ever seen in Russia.  It is led by young
governors, former regional administrators, and business leaders who made
their mark in the country's most politically progressive provinces.
They bring no Soviet-era baggage with them to Moscow.  They have,
instead, first-hand knowledge of what's needed to improve the lives of
ordinary Russians, an awareness that ordinary Russians care more about
their own government's ability to collect taxes fairly and provide
services effectively than about NATO enlargement.  This government
understands that in a democracy voters reward bottom-line results, not
empty promises.

Mr. Chairman, despite the slow, often tortuous process of getting policy
results out of the Russian system, we continue to work as hard as we can
to get results that advance American interests.  The stakes are too high
for us to accept second-best, and our record shows that we don't.  Ours
is the same approach the Administration followed when it worked for the
withdrawal of Russian troops from the Baltic states, when it concluded a
trilateral U.S.-Russia-Ukraine agreement to remove nuclear weapons from
Ukraine, when it completed the NATO-Russia Founding Act, when it stood
firm for freedom of conscience in Russia, when it supported the Russian
reformers in their successful battle against raging inflation, or,
frankly, when it stood with them against a communist resurgence.

It was said of every single one of these efforts that it could not
succeed. They could not have succeeded without persistence, patience,
and a clear recognition of America's long-term interests.  We chose to
do what we did because the alternative was unacceptable.  A different
approach would only have lessened the chances of getting what we wanted.

Mr. Chairman, there is no doubt that the bipartisan consensus that
supported American policy toward Russia after 1991 is today under severe
stress.  Congressional votes on sanctions legislation and tough
questioning of IMF support for Moscow make that perfectly clear.  Some
in the Congress ask whether our goals are really attainable.  The
Administration's answer to that question is an emphatic yes, and I
believe nothing argues more strongly for our policy than the results we
are seeking this week in two crucial areas--the Russian financial crisis
and the flow of military technology to Iran.

2.  The Russian Financial Crisis

Three days ago, the IMF and Russia announced agreement on a wide-ranging
set of economic reforms.  The Russian Government will undertake the most
significant steps in years to put its finances in order and to open up
the economy.  The IMF-Russia agreement mandates rigorous conditions.
Russia's budget deficit should drop from 6% of GDP in 1998, to under 3%
in 1999.  Tax reform should be carried out.  Russia must redouble
efforts to build a welcoming investment climate with effective corporate
governance, a workable land code, and production-sharing agreements for
energy investors.

On the basis of Russia's commitments, the IMF is prepared to make
available to Russia this year         $12.5 billion in Fund resources as
part of a broader package for 1998-1999 worth $22.6 billion.

The United States played a leadership role in putting this financing
package together.  We did so because helping Russia to complete the
transition from a centrally planned to a market economy is essential to
its prosperity, democratic future, and long-term role as a constructive
player in world affairs.

The United States has offered strong support for this package, for the
resources made available, and for the terms attached to them.  Our view
is that the consequences of not acting would have been, and remain, very
grave.  A ruble devaluation would raise food prices for tens-of-millions
of Russians.  Inflation--the control of which has been the government's
main achievement--would again plague Russia.  Devaluation would engulf
the banking system, freeze economic reforms, and risk a spillover of
market instability to Ukraine, the Baltic states, and even East-Central
Europe.  There would be political consequences on the same scale.  And
all this would happen without resolving the structural problems of the
Russian economy.

What brought Russia to this crisis?  A combination of international and
homegrown factors.  Internationally, Russia has been greatly affected by
the "Asian flu" and falling oil prices, which have cut Russian export
earnings by 15% in the past year.  At home is Russia's failure to create
a viable fiscal system.  The government became increasingly dependent on
international capital to support itself at higher and higher--ultimately
unsustainable--interest rates.

The IMF package gives Russia a chance to climb out of this crisis, but
only if it takes the steps necessary to turn this short-term breather
into a long-term turnaround.  If we are to help, Russia must act.  As I
said earlier, our relations must be a two-way street.

Mr. Chairman, we strongly support the IMF package, but we aren't
surprised that it is being scrutinized so closely.  It should be.  Funds
on this scale must be used in a manner that advances clear and definite
interests.  We believe this package meets that test.

Next week, Vice President Gore will meet for the first time with Russian
Prime Minister Kiriyenko, the new Russian co-chair of the "U.S.-Russia
Binational Commission on Economic and Technological Cooperation."  The
Russian Government's actions to implement its commitments to the IMF and
establish the foundation for sustainable growth will be high on the Vice
President's agenda in Moscow.  This is something the President will take
up in several weeks as well.

3.  Security/Non-proliferation

Mr. Chairman, in the post-Cold War era we seek a relationship with
Russia in which we can enhance U.S. security by reducing our strategic
arsenals and lowering the threat of proliferation.  We have no higher
foreign policy priority.

During the past 18 months we have worked hard to stop the flow of
sensitive technology from Russia to Iran's missile program.  Our
objective has been to see Russian Government policies embodied in an
effective export control system that actually prevents the transfer of
illicit goods and technology into the wrong hands.  Since January, the
Russian Government has taken a number of steps to deal with this
problem.  With the publication of new export control regulations in May,
Russia had, in fact, created a system that--on paper, at least--is much
like our own and that of other Western countries.  The key, of course,
is making it work.

Yesterday the Russian Government announced that it has launched special
investigations of nine companies suspected of cooperating with foreign
programs to acquire weapons of mass destruction and missile delivery
systems.  The investigations involve potential administrative and
criminal actions against these entities.  For our part, we plan to
suspend any U.S. Government assistance programs to these Russian
companies, and we will use existing legal authority to restrict trade
between them and the United States.

The Administration's approach to this problem is working.  Our goal has
not been simply to make a statement or to express outrage, but to get
the job done.  This means finding ways of getting the Russian Government
to cooperate with us, to take the problem seriously and to act.

That's why the Administration has resisted the sanctions that Congress
has sought to impose.  The sanctions in the "Iran Missile Proliferation
Act of 1998" will not prevent Iran and others from seeking missile
technologies, nor will they remove the temptation for cash-starved
companies and individuals to do business with Iran.  This will put the
cooperation we need at risk.  Only an effective and fully implemented
Russian export control regime can solve this problem.  Yesterday's
announcement show that our efforts are beginning to pay off.

Russia still has a large and potent nuclear arsenal that our two
countries agreed in 1993 should, along with our own, be reduced.  We're
frankly disappointed that START II remains unratified and hope that the
Duma will take up the treaty early this fall.  Once START II is
ratified, we'll be ready to begin negotiations on START III so as to cut
both arsenals still further, with a ceiling on strategic nuclear
warheads of 2000-2500.  We will also seek to enhance security by
increasing transparency in nuclear warheads and fissile material.

Through the Cooperative Threat Reduction Program (CTR), the United
States has provided approximately $1.3 billion to help Russia and the
other NIS states meet their obligations under START I by helping to
destroy strategic missiles, bombers, silos and submarines, and to
provide secure storage for fissile material removed from dismantled
nuclear weapons.  Other programs are helping Russia improve the security
of fissile material and provide opportunities for productive, non-
weapons-related work for laboratories, scientists, and engineers.

Destroying the world's stockpiles of chemical weapons is another
challenge that we're tackling with Russia, which ratified the Chemical
Weapons Convention in November.  CTR will help Russia eliminate its
chemical weapons production capacity and will provide a facility which
will eventually destroy 14% of Russia's chemical weapon stockpile.  We
are also working with Russia and the international community to secure
greater international funding for, and involvement in, Russia's chemical
weapons destruction effort.

4.  Democracy and Human Rights

Successful development of a society and a government that respect human
rights is fundamental among our interests in Russia.  The collapse of
communism does not guarantee that democracy will prevail.  There will be
fits and starts in Russia's political transformation.  In recent months,
in fact, the voices of intolerance and hatred have been growing louder,
and President Yeltsin has warned that fascism is now raising its ugly
face in Russia.  We cannot alone assure the outcome of Russia's
democratic transformation.  But there is no better investment for our
long-term security than to promote, particularly among the younger
generation now assuming leadership positions, the knowledge and the
values needed for Russia's full integration into the Euro-Atlantic
community.

We have, since 1991, initiated programs in Russia to support free and
fair elections, the development of independent media, the promotion of
accountable and responsive municipal government institutions, and the
growth of a vibrant non-governmental sector.  Congress has been far-
sighted in providing the resources to sustain these programs, which have
affected the lives of tens-of-thousands of Russian people.  Under these
programs, we have hosted over 10,000 high school exchange students.
U.S.-sponsored programs have provided over 1,500 small grants that have
nurtured environmental watch-dog groups, women's organizations, public
policy institutions, and other non-governmental organizations.  We have
launched a new initiative, co-funded by the Russian Government, to
provide practical training and internships in U.S. businesses for
Russian managers.

The American people consistently favor and participate in these efforts
as an expression of our deep-rooted sense of responsibility to support
those who have survived tyranny and now want to build an open society.
I hope and urge that Congress continue to support these programs that
are so important for institutionalizing the freedoms that Russians now
enjoy and ensuring the development of a civil society.

In October 1997, Russia enacted a potentially discriminatory law on
religion.  This bad law, its restrictive application, and increasing
discrimination against minority religions and foreign missionaries would
represent major steps backward for Russia and for Russian-American
relations.  We have worked persistently and patiently with the Russian
Government--with the help of a number of members of Congress--to convey
the importance of this issue.  Our working with the Russian Government
on this produced results.  On this basis, the President determined in
May that Russia's performance was consistent with its international
obligation to protect religious freedom, as required by the FY-98
Foreign Operations Appropriations Act.  The State Department and our
embassy and consulates in Russia will continue to monitor this issue
closely.

5.  Russian Foreign Policy

Our goal since the end of the Cold War has been a democratic, undivided
Europe that includes Russia and all of the New Independent States.  Our
interests dictate that we work to draw Russia into more cooperative
relationships with its immediate neighbors and with the world as a
whole.  Inclusion is a sounder policy than isolation, but it does not
mean forgetting our interests or ignoring our differences.  During a
recent NATO-Russia meeting, Secretary Albright expressed this well when
she said, "We are not here to pretend or to paper over differences.  We
are here to work through them."

Let me start with Russia and its neighbors.  Some, perhaps most, of
Russia's neighbors believe that Moscow is out to dominate them.  (And
some Russians accuse us of trying to supplant them in the region.)  This
Administration categorically rejects the idea of a Russian sphere of
influence.  The reality is that the region needs a cooperative,
constructive Russia, whose dealings with its neighbors accord with
international norms for relations among sovereign states.

Nowhere is this clearer than in the Caucasus.  Our objective has been to
provide firm support for the independence and territorial integrity of
these and the other New Independent States.  Our cooperation with Russia
has made positive contributions to lowering tensions and building new,
appropriate relationships among the NIS, but the picture is not uniform.

In Georgia, for example, we have been concerned by the renewal of
fighting in Abkhazia that threatens the stability of the entire country.
Russian peacekeepers are present, but they did not prevent this
fighting.  Similarly, Russian diplomats have sought to negotiate an end
to this war, but they have made no real progress.  At the request of
President Shevardnadze, we have sought to strengthen a mediation process
overseen by a representative of the UN Secretary General.  We have also
offered assistance to the Georgian Government as it takes over control
of its borders from departing Russian border guard forces.

In the Caspian, Russia has raised delimitation, environmental and
economic issues that complicate our east-west pipeline strategy.  At the
end of the day, Russia has a clear role to play in Caspian development,
and the Caspian Pipeline Consortium is one encouraging sign that Russia
will play an important constructive role in this important effort.  On
Nagorno-Karabakh, we serve with Russia and France as co-chairs of the
OSCE Minsk Group.  There are clearly problems with these negotiations,
the three co-chairs have worked together closely and cooperatively.

Elsewhere, we have worked together on Iraq--not easily, I might add--to
secure access by international arms inspectors to all sites in Iraq.  In
the Balkans, the United States and Russia work together as members of
the Contact Group.  The fact that Russian troops serve under an American
command in SFOR in Bosnia demonstrates the fact that, by working
together on a large peacekeeping undertaking, we can achieve results.

6.  Conclusion

The common thread of our policy toward Russia is to address all four
parts of the agenda I described in a way that advances our interest in a
long-term stable relationship with a democratic Russia.  President
Clinton articulated our strategic objective in May:

"The secure, free and prosperous Atlantic community we envision must
include a democratic Russia.  For most of this century, fear, tyranny
and isolation kept Russia from the European mainstream.  Now Russians
are building a democratic future. We have an enormous stake in their
success....  We must support this Russian revolution."

Today I have discussed the challenges, difficulties, and opportunities
we encounter in dealing with a Russia that is still in the middle of an
historic transformation.  Despite frustrations, the Administration and
Congress have understood that our interests demand that we work to
influence these changes in ways that will enhance our security and
support the development of democratic, free-market institutions inside
of Russia.

We cannot know with utter certainty how Russia's great drama will turn
out.  But to pass up the chance to influence how it unfolds would be
worse than foolish.  It would be an abdication of responsibility.
Whether the issue is economic reform or non-proliferation, religious
liberty or building a peaceful Europe--our policy is producing results
that serve American national interest.

Mr. Chairman, we welcome debate and discussion of our approach to
dealing with Russia, for we believe it meets what is at the end of the
day the only serious test of policy.

[end of document]
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