RUSSIA'S ROAD TO CORRUPTION

How the Clinton Administration Exported 

Government Instead of Free Enterprise and Failed 

the Russian People

8-1 3-President at 

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Members of the Speaker's Advisory Group on Russia

United States House of Representatives 106th Congress

Hon. Christopher Cox, Chairman

Chairman, House Policy Committee

Hon. Ben Gilman

Chairman, Committee on International Relations

Hon. Porter Goss

Chairman, Permanent Select Committee on Intelligence

Hon. Jim Leach

Chairman, Committee on Banking and Financial Services
Hon. Floyd Spence

Chairman, Committee on Armed Services

Hon. C.W. Young

Chairman, Committee on Appropriations

Hon. Tillie Fowler

Vice Chair, House Republican Conference

Member, Committee on Armed Services

Hon. Jim Saxton

Vice Chairman, Joint Economic Committee

Hon. Spencer Bachus

Chairman, Banking Subcommittee on Domestic and International Monetary Policy

Hon. Sonny Callahan

Chairman, Appropriations Subcommittee on Foreign Operations
Hon. Curt Weldon

Chairman, Armed Services Subcommittee on Military Research and Development

Co-Chairman, Duma-Congress Study Group

Hon. Roger Wicker

Co-Chairman, House Russian Leadership Program

Member, Foreign Operations Appropriations Subcommittee

U.S. House of Representatives, Washington, D.C. 20515

Report Date: September 2000

Additional copies of this report may be obtained from the Internet at http://policy.house.gov/russia. This is a U.S. 

government document and its text may be reproduced without additional permission or payment of fees. Most 

photographs are available to Associated Press subscribers or from AP/Wide World Photos, 50 Rockefeller Plaza, 

New York, NY 10020, (212) 621-1930, and may not be reproduced without the permission of the Associated 

Press. All cover photographs by AP/Wide World Photos, except center photo by PhotoDisc, Inc. Printed in the 

United States of America

TABLE OF CONTENTS

Introduction

Executive Summary
CHAPTER 1 1991: The Fall of the Soviet Union and the Rise of Russia

CHAPTER 2 Conditions in Russia at the Outset of the Yeltsin and Clinton Administrations

CHAPTER 3 The Task Ahead: Creation of a Free-Enterprise System after a Century of State 

Control

CHAPTER 4 The Fundamental Flaws of the Clinton Administration's Russia Policy

CHAPTER 5 The Gore-Chernomyrdin Commission

CHAPTER 6 'Bull****': Gore and Other Administration Policy Makers Systematically Ignore 

Evidence of Corruption of Their 'Partners'

CHAPTER 7 The Rise of Organized Crime

CHAPTER 8 1998: Years of Bad Advice Culminate in Russia's Total Economic Collapse

CHAPTER 9 Weapons Proliferation Feeds a Corrupt and Cash-Starved System

CHAPTER 10 From Friendship to Cold Peace: The Decline of U.S.-Russia Relations During the 

1990s

CHAPTER 11 'The Enemy of My Enemy Is My Friend': Russia Emerges as a Strategic Partner of 

the People's Republic of China

CHAPTER 12 Despite Years of Policy Failure, A Bright Russian Future Is Still Possible

Recommendations

Index

INTRODUCTION
In March 2000, as Russia prepared for the presidential election that would formally establish the 

successor to the Yeltsin administration, the Speaker of the House tasked the leadership of six 

committees of the House of Representatives to assess the results of U.S. policy toward Russia during the 

Yeltsin years. This report is the result of that effort.

The Speaker's Advisory Group on Russia comprises the Chairmen of the Committees on Armed 

Services, Appropriations, Banking, Intelligence, and International Relations, as well as the House Vice 

Chairman of the Joint Economic Committee, and additional members of the House leadership and the 

committees of jurisdiction. The Advisory Group and its professional staff met several times each week 

over the past five months with key Clinton administration policy makers, leaders of Russia's executive 

and legislative branches, and leading academic and private sector experts on Russia and U.S.-Russian 

relations from both countries. The Advisory Group reviewed the voluminous committee work and 

official reports produced by each of the relevant committees of Congress, as well as a wide range of 

primary and secondary sources. In addition, the Chairman, and members of the Advisory Group, and its 

professional staff have traveled to Russia on several occasions since March 2000.

The persons with whom the Advisory Group and its staff met in the course of preparation of this report 

include Treasury Secretary Lawrence Summers; Ambassador Thomas Pickering, Under Secretary of 

State for Political Affairs; U.S. Ambassador to Russia James Collins; Ambassador Stephen R. 

Sestanovich, Special Advisor for the Newly Independent States; Thomas Dine, Director of Radio Free 

Europe/Radio Liberty; Prime Minister Mikhail Kasyanov; Foreign Minister Igor Ivanov; former 

Secretary of the Security Council Andrei Kokoshin; First Deputy Minister of Defense Nikolay 

Mikhailov; State Duma Member Igor A. Annensky, Deputy Chairman of the Banking Committee; State 

Duma Member Alexei Arbatov, Deputy Chairman of the Defense Committee; State Duma Member 

Boris Gryzlov, leader of the Unity party in the Duma; State Duma Member Konstantin Kosachev, 

Deputy Chairman of the International Affairs Committee; State Duma Member Viktor S. Pleskachevsky, 

Chairman of the Subcommittee on the Funds Market; State Duma Member Vladislav Reznik, Deputy 

Chairman of the Committee on Budget and Taxes; State Duma Member Dimitri O. Rogozin, Chairman 

of the International Affairs Committee; State Duma Member Vladimir Ryzhkov; State Duma Member 

Alexander Shabanov, Deputy Chairman of the International Affairs Committee; State Duma Member 

Alexander N. Shokhin, Chairman of the Credit Organizations and Financial Markets Committee; State 

Duma Member Grigory Yavlinsky, leader of the Yabloko party; Andrei Babitsky, journalist, Radio Free 

Europe/Radio Liberty; Scott Blacklin, President, American Chamber of Commerce, Moscow; Dr. James 

Billington, Librarian of Congress; Paula Dobriansky, Vice President, Council on Foreign Relations; 

Pavel Felgengauer, military analyst and author; former Russian Finance Minister Boris Fyodorov; Dr. 

Thomas Graham, Senior Associate, the Carnegie Endowment for International Peace; Sergei Karaganov, 

Chairman, Council on Foreign and Defense Policy; Igor Malashenko, Media MOST; Arkady Murashev, 

Chairman of the Center for Liberal-Conservative Policy and former Duma Member; Ruslan Pukhov, 

Director, Center for Analysis of Strategy and Technology; Peter W. Rodman, Director of National 

Security Programs at The Nixon Center; Ivan Safranchuk, Project Director, Center for Policy Studies in 

Russia; Dimitri Simes, President of The Nixon Center; and Dimitri Trenin, Deputy Director, Carnegie 

Endowment for International Peace (Moscow Center).
This report begins with a summary of the historic events that led to the collapse of the Soviet Union in 

December 1991 and a description of the conditions in Russia during the last year of the Bush 

administration and at the commencement of the Clinton administration. It assesses the task ahead for 

Russia in moving from a century of state control to a free enterprise democracy, and compares that 

agenda with the actual policies pursued by the Clinton administration from 1993 to the present. The 

manifold failures of both Russian and U.S. government policy are surveyed: the early corruption of the 

non-market "privatization" to insiders; the spread of organized crime; the eventual complete collapse of 

the Russian economy in 1998; the rise of weapons proliferation as a means of generating hard currency; 

and the increasing estrangement of Russia from the United States, essentially reversing the trends that 

existed in 1992.

Finally, the report addresses itself to the opportunities for U.S.-Russian relations that still remain, 

despite years of failure. Recommendations of the Advisory Group for future policy appear at the 

conclusion of the report.

September 2000

EXECUTIVE SUMMARY

The Fall of the Soviet Union and the Rise of Russia

The collapse of the Soviet Union brought to an end one of the cruelest, most violent, least humane, and 

most viciously ideological regimes in the history of the world. The Soviet Union--more aptly, the Soviet 

Empire--collapsed of its own weight, crushed by the material and spiritual burdens of its collectivist 
ideology.

In the final days of the Soviet Union, President Gorbachev desperately sought billions in foreign loans, 

and many in the West endorsed a policy of providing enormous amounts of aid in an attempt to save the 

collapsing Soviet economy. President Bush believed this would not work. "A shortage of foreign capital 

is not what plunged your economy into crisis, nor can your economic ills be cured by an infusion of 

cash," he told the Moscow State Institute for International Relations in a speech on July 31, 1991, five 

months before the Soviet Union ended.

When the Soviet Union's Vice President, Prime Minister, Defense Minister, KGB Chairman, and other 

hard-line Communists launched a coup against Gorbachev on August 19, 1991, the Russian President, 

Boris Yeltsin, denounced it as unconstitutional. The following day, on the only functioning phone line, 

Yeltsin spoke to President Bush, who firmly pledged that the United States would not recognize the 

coup government. Bush's action in support of Yeltsin and the Russian people proved decisive.

The rapid failure of the coup demonstrated the weakness of hard-line Soviet Communist Party elements. 

Within a month after the coup, 11 of the Soviet Union's 15 republics had declared their independence.

Following the coup, U.S. Secretary of State James A. Baker III and Gen. Vladimir Lobov, Chief of the 

Soviet General Staff, signed an agreement to dramatically reduce the number of short-range nuclear 

weapons in the U.S. and Soviet arsenals. By the end of the year, the United States had committed $400 

million to help dismantle Soviet nuclear weapons.

When Mikhail Gorbachev resigned as the last leader of the Soviet Union on December 25, 1991, 

America's relations with the largest of the captive nations newly freed from the Soviet Empire were 

auspicious.

Conditions in Russia at the Outset of the Yeltsin and Clinton Administrations

The West's victory in the Cold War presented America with its greatest foreign policy opportunity since 

the end of World War II. Just as America's defeated enemies, Nazi Germany and Imperial Japan, had 

become free enterprise democracies and close U.S. allies, so too might the new Russian Federation.

The U.S.-Russian relationship that President Clinton inherited could only have been dreamed of by his 

predecessors from Truman to Reagan. American values, including free enterprise and democracy, 

enjoyed an astonishing level of prestige and popularity among the Russian people. Building a 

relationship with the United States was the highest priority for the Russian government. Prior to 1993, 

Moscow worked harmoniously with Washington across virtually the entire spectrum of international 

issues--including Operation Desert Storm, waged against the Soviet Union's client state Iraq; arms 

control, culminating in a START II treaty that slashed U.S. and Russian nuclear arsenals by 66%; and 
ballistic missile defense, on which President Bush and President Yeltsin launched negotiations that were 

aimed at the changes in the ABM Treaty of 1972 necessary to take account of the spread of ballistic 

missiles and weapons of mass destruction.

The Task Ahead: Creation of a Free Enterprise System After a Century of 

State Control

The collapse of Communism in Russia ended not only the Soviet police state but the Soviet-era centrallyplanned economy. In January 1992, there was for the first time in the experience of most living Russians 

a genuine opportunity to build the foundation of a free enterprise system.

The necessary bricks for that foundation were clear enough. The question was not whether, but where--

and how--to begin. To move from the Soviet Union's state-controlled economy to a free enterprise 

system based on private property, markets, and individual choice called for change on a breathtakingly 

large scale.

* Soviet-era laws and regulations governing commerce would have to be repealed.

* New legal protections for private property and private contracts would have to be 

enacted, and the courts would have to build public confidence that private contracts would 

be enforceable.

* Private banks that paid for deposits at market rates, evaluated credit risks according to 

market criteria, and served as genuine intermediaries between sources of capital and startup private enterprises would have to be legalized.

* The Soviet-era network of 200,000 inefficient state-owned enterprises would have to be 

forced into competition.

* Over 1.5 trillion acres of arable land owned by the Soviet government would have to be 

transferred to private ownership to provide a source of wealth to the Russian people, 

collateral for commercial and agricultural lending, and the basis for home ownership and 

mortgage finance.

* The existing stock of Soviet-era state-owned housing would have to be converted to 

private ownership, and the private construction of more and better housing legalized.

* A workable bankruptcy procedure creating the "freedom to fail" would have to be 

established, in order to end wasteful subsidies and subject commercial enterprises to 
market discipline.

* A lower tax rate and simpler tax code would have to be enacted to demonstrate that the 

new Russian government was not bent on redistributing income but rather sought to 

promote a market economy.

* A commercial code--a basic set of rules that could be relied upon by any Russian citizen 

or foreigner who wished to buy or sell something--would have to be enacted.

* Soviet-era barriers to foreign investment in Russia would have to be eliminated.

The opportunities that awaited Russia in 1992 were exhilarating, but dismantling the Soviet system of 

government controls, and erecting in its place a free market economy based on private decision making 

and risk taking, was a task of monumental proportions. It required significant new legislation from 

Russia's parliament. Yet the ultimate objective was abundantly clear: the new Russian government's job 

was to get itself out of the economy and facilitate private actors through clear commercial rules for 

enforcement of private property rights and private contracts.

The Fundamental Flaws of the Clinton Administration's Russia Policy

During his 1992 campaign and the first several years of his administration, President Clinton made clear 

his unwillingness to involve himself in foreign policy generally, and the critical issue of U.S. policy 

toward Russia specifically. The virtual absence of any non-ceremonial presidential involvement in the 

greatest foreign policy opportunity for the United States since World War II was to prove crippling to 

the development and execution of United States policy toward Russia.

Lacking presidential attention, decision making on Russia policy eventually devolved to a troika of 

subordinate officials: Vice President Gore (assisted by his foreign policy mentor Leon Fuerth), Strobe 

Talbott at the State Department, and Lawrence Summers at the Treasury Department. Creation of the 

Gore-Talbott-Summers troika vested authority for the development and execution of Russia policy in an 

elite and uniquely insular policy-making group without accountability to the normal checks and balances 

within the executive branch.

The structure of the policy-making troika left the rest of the government either unwilling or unable to 

critically assess the direction of the Clinton administration policy. The policy decisions that emerged 

were marked with the personal biases and predispositions of these three individuals. Their small circle 

soon became an echo chamber, reinforcing their own views and excluding independent information, 

analyses, and recommendations from the national security, foreign policy, and intelligence professionals 

throughout the U.S. government.
The troika also excluded Congress from the development of the Clinton administration's Russia policy, 

thereby further isolating it from outside review, and failing to develop the broader institutional and 

popular support that it would need to succeed in America and abroad. As a result, the Clinton 

administration's policy has repeatedly been repudiated by bipartisan majorities in Congress.

The unorthodox "troika" institutional arrangement produced the following fundamental flaws in U.S. 

policy toward Russia from 1993 forward:

* A strong preference for strengthening Russia's central government, rather than 

deconstructing the Soviet state and building from scratch a system of free enterprise

* A close personal association with a few Russian officials, even after they became 

corrupt, instead of a consistent and principled approach to policy that transcended 

personalities

* A narrow focus on the Russian executive branch to the near exclusion of the Russian 

legislature, regional governments, and private organizations

* An arrogance toward Russia's nascent democratic constituencies that led to attempts at 

democratic ends through decidedly non-democratic means

* An unwillingness to let facts guide policy, or even to make mid-course corrections in 

light of increasing corruption and mounting evidence of the failure of their policies

By focusing on strengthening the finances of the Russian government and on transforming state-owned 

monopolies into private monopolies, instead of building the fundamentals of a free enterprise system, 

the Clinton administration ensured that billions in Western economic assistance to Russia would amount 

to mere temporizing. The Gore-Talbott-Summers focus--on macromanagement of the Russian economy 

instead of the legal fundamentals that would permit individuals to start businesses, grow a competitive 

market economy, and create a tax base--doomed their "privatization" efforts to failure.

Worse, by using massive lending and aid to plug the gap in the Russian central government's operating 

budget, the Clinton administration exposed these funds to theft and fraud.

For its part, the Russian government lacked the facility to turn these massive aid flows into real 

economic reform. Instead, the aid had the opposite effect: it made possible the subsidies to the Soviet 

enterprise network that allowed it to continue operating. Effectively unconditional large-scale 

international assistance simply contributed to Russia's problems by killing incentives to reform and 

propping up a government whose policies were bankrupting the Russian people.

The flood of loans also added to Russia's growing foreign debt, which continues to burden the central 

government's operating budget and weigh down the nation's economic prospects.
The Clinton administration was unwilling to recognize the costs to Russian democracy--and to Russian 

perceptions of America--of its unquestioning support for its Russian partners despite their corrupt 

conduct. The Clinton administration's enormous political stake in its Russian partners gave it an 

overwhelming incentive to ignore and suppress evidence of wrongdoing and failure by officials 

including Viktor Chernomyrdin and Anatoly Chubais, who had come to personify the administration's 

Russia policy. The Clinton administration's closeness to a few Russian individuals impaired its ability to 

confront genuine differences between U.S. and Russian interests--as, for example, in the case of 

Chechnya, where President Clinton compared Yeltsin to Abraham Lincoln.

The Clinton administration's exceptionally close personal relationship with its few official Russian 

partners was a sharp contrast with its merely pro forma engagement with Russia's legislature, its 

opposition parties, and its regional governments.

The Clinton administration encouraged disregard for the legislative branch by the Yeltsin administration, 

and thus played a part in undermining the growth of pluralistic, democratic government in Russia. This 

has aptly been called a "bolshevik" approach to accomplishing "reform"--authoritarian measures in both 

the political and economic spheres, typified by Yeltsin's propensity to rule by decree. It virtually 

guaranteed that the legal reforms needed to establish a genuine free enterprise system would not be 

enacted in the Duma or in the regional legislatures.

The Gore-Chernomyrdin Commission

In April 1993, during his first meeting with President Yeltsin, President Clinton effectively delegated the 

management of U.S.-Russian relations to Vice President Gore. The charter of the U.S.-Russia 

Commission on Economic and Technical Cooperation, co-chaired by Gore and Russian Prime Minister 

Viktor Chernomyrdin, was eventually expanded to include the full range of U.S.-Russia relations.

Clinton's abdication to Gore of authority over the most important foreign policy opportunity for America 

since World War II--the rebuilding of Russia after the collapse of the Soviet Union--had fateful 

consequences. By assigning this portfolio of overarching importance to his second-in-command--whose 

priorities were "reinventing government," environmental issues, and technology policy--Clinton 

guaranteed that Russia policy would receive only desultory attention.

The Gore-Chernomyrdin Commission's function and structure offered a perfect blueprint for the 

eventual failure of the entire Clinton administration policy toward Russia. By superseding normal policy 

making and well established intra- and inter-governmental channels of communication, the GoreChernomyrdin Commission would come to impede the information flow to decision makers in 

Washington. The Gore-Chernomyrdin Commission likewise distracted Russian government officials 

from what should have been their main focus: constructing the essential elements of a free enterprise 
economy.

The meager accomplishments of the Commission could hardly mask its fundamental failures. Russia 

even today lacks the most basic elements of a free market economy; the costs and delays from U.S.-

Russian space cooperation (the initial project of the Commission) continued to escalate; the 

"privatization" of Russia's energy sector (another Commission priority) was becoming criminally 

corrupt; and Russia was accelerating its proliferation of dangerous technology. The Commission worked 

to divert attention from this string of major policy failures, and issued frequent proclamations of minor 

successes.

The Gore-Chernomyrdin Commission contributed to a deliberately uninformed U.S. policy toward 

Russia. It refused to acknowledge failure, and, even worse, celebrated failure as if it were success. The 

Clinton administration's dependence on the Gore-Chernomyrdin Commission, coupled with the 

Commission's refusal to listen to independent information, meant that administration Russia policy was 

both procedurally and substantively unsound.

'Bull****': Gore and Other Administration Policy Makers Systematically 

Ignore Evidence of Corruption of Their 'Partners'

In 1995, CIA officials dispatched to the White House a secret report based upon the agency's large 

dossier documenting the corrupt practices of then-Russian Prime Minister Viktor Chernomyrdin. 

Chernomyrdin's private assets accumulated in his official position, according to Russian security 

sources, ran into the billions of dollars. When the secret report on Chernomyrdin reached Vice President 

Gore, he refused to accept it. Instead, according to several CIA sources, he sent it back to the agency 

with the word "BULL " scrawled across it.

It is difficult to imagine a more dangerously intemperate reaction to official corruption in Russia. Yet 

this was hardly an isolated incident. The administration had ignored repeated earlier warnings of 

corruption by Chernomyrdin and other senior Russian officials. Several Clinton administration senior 

officials have stated publicly that, by 1995, they had received a number of reports from the CIA alleging 

corruption by Chernomyrdin, and that the CIA had submitted many other reports alleging corruption 

among other senior Russian leaders, including Clinton administration favorite Anatoly Chubais.

Gore's close personal relationship to Viktor Chernomyrdin--and not any superior intelligence that he 

possessed as Vice President--was obviously decisive in his emotional dismissal of the CIA intelligence 

report of Chernomyrdin's corruption. (While Gore has publicly denied the "bull** **" incident, he has 

also re-stated his harsh criticism of CIA reporting on Chernomyrdin's corruption.) This reflexive 

dismissal of corruption allegations against Viktor Chernomyrdin was all the more remarkable given 

contemporaneous Russian and U.S. media reports about Chernomyrdin's alleged corruption and 

continuing links to the Russian gas conglomerate Gazprom after his entry into government.
At precisely the same time that Gore was receiving reports of Chernomyrdin's corruption, the vice 

president was effusive in his public comments about Chernomyrdin, stating in June 1995 in Moscow: 

"Friends have a right to be proud of friends."

In this way, the Clinton administration--and Gore personally--contributed not only to the spread of 

corruption, but to Russia's failure to overcome it. Since Chernomyrdin served as prime minister for five 

years, it is clear that this embrace of corruption fundamentally compromised Russia's efforts at economic 

reform.

Vice President Gore has hedged his denial of the "bull " incident, saying "I don't think" that I "ever 

wrote a message of that kind." Moreover, while denying writing the word "bull** **," Gore plainly 

referred to a specific CIA report, saying "whoever sent that over there [could not have] expected the 

White House to be impressed with it ... it was a very sloppy piece of work."

Other administration officials, defending Gore's position, dismissed the CIA reports of Chernomyrdin's 

corruption as lacking "conclusive proof." But agency reporting is necessarily based on intelligence 

sources, often covert. By conveniently demanding a "smoking gun" whenever they sought to suppress 

uncomfortable facts, Gore and other top Clinton administration officials established a rigged system that 

rejected "inconvenient" intelligence whenever it suited the preferences of the White House.

CIA officials have described the intelligence information concerning Chernomyrdin that was provided to 

Gore as "more detailed and conclusive than allegations of bribery and insider dealing that have been 

made in the Russian media and elsewhere." Yet when asked--as recently as July 2000--whether 

Chernomyrdin is corrupt, Gore replied: "I have no idea."

The Rise of Organized Crime

The Clinton administration's failed economic strategy for Russia and its tight embrace of corrupt 

officials including Viktor Chernomyrdin had serious negative consequences for Russia's battle against 

organized crime.

The Clinton administration's failure to focus its full attention on replacing Communism with the basic 

legal elements of the free enterprise system helped create the conditions in which organized crime has 

flourished. Without such essentials as legislated protections for private property, a modern commercial 

code, and honest, efficient, and speedy courts to enforce property rights, the "privatization" of 

government entities in Russia predictably resulted in chaos.

Organized crime came to be responsible not only for grisly mayhem and violence, but also for functions 

as diverse as enforcing contracts and court judgments, providing personal security, and even allocating 
scarce resources (through bribes to corrupt officials). The ability of some Russian organized crime 

groups to draw upon the specialized expertise and contacts of former Soviet security personnel further 

increased their ability to compete with such legitimate law enforcement as existed, both in technological 

sophistication (in areas such as cyber-crime) and geographic reach.

The oligarchic economy, created with the advice and assistance of the Clinton administration, also 

tightened the stranglehold of official corruption over the Russian government and the large sector of the 

ostensibly "privatized" economy that it influenced. This official corruption both obstructed law 

enforcement and created a symbiotic relationship between corrupt government officials and organized 

crime, assisting them in laundering money and in the commission of other crimes.

The Clinton administration's decision to base U.S.-Russian relations on Vice President Gore's 

relationship with Viktor Chernomyrdin and a handful of other high officials sent a strong public signal 

that the United States would not only tolerate but embrace figures clearly identified in the Russian media 

and public consciousness with corruption--further undercutting law enforcement, and demoralizing not 

only the out-manned and underpaid Russian foes of organized crime, but also the Russian people.

Russia's rampant capital flight, estimated at as much as $500 billion since Russian independence, is 

another serious consequence of corruption and organized crime. Even the most conservative estimates of 

capital flight demonstrate that the amount of money leaving Russia has far outstripped the money 

coming in from all sources--including foreign direct investment in Russia, Russia's soaring foreign debt, 

and direct Western aid to Russia.

The Clinton administration, prone to "spinning" bad news and ignoring its implications, has addressed 

both organized crime and capital flight superficially. The administration's efforts against organized 

crime have focused on modest technical assistance to Russian law enforcement and the creation of an 

FBI presence in Russia, in every case channeling that assistance through their Russian "partners" who 

were central to the corruption of the Russian government. By its own admission, the administration gave 

insufficient priority to Russian money laundering--as revealed by the Bank of New York scandal, 

involving the laundering of as much as $10 billion.

The Clinton troika inferred from these phenomena no lessons about the consequences of its failure to 

promote the basic elements of a free enterprise economy to replace Communism.

1998: Years of Bad Advice Culminate in Russia's Total Economic Collapse

The culmination of the Clinton administration's fatally-flawed macroeconomic policy for Russia 

occurred in August 1998, when Russia's default on its debts and devaluation of the ruble led to the 

nation's total economic collapse. By all measurements, the disaster was worse than America's Crash of 

1929.
The disaster that began on August 17, 1998, spread immediately throughout Russia. Millions of ordinary 

men and women who had deposited their money in Russian banks lost everything. ATM and debit cards 

ceased to work. Dozens of banks became insolvent and disappeared. Angry depositors besieged Russian 

banks, only to learn they had been wiped out.

Millions of senior citizens, whose meager pension income had been suspended for months, were cut off 

completely. When the dust finally settled in March 1999, the ruble--and with it, every Russian's life 

savings--had lost fully 75% of its value.

The devastation of Russia's economy was worse than what America experienced in the Great 

Depression. By 1932, the U.S. gross national product had been cut by almost one-third. But within just 

six months of the 1998 crash, Russia's economy, measured in dollars, had fallen by more than twothirds. From $422 billion in 1997, Russia's gross domestic product fell to only $132 billion by the end of 

1998.

At the end of 1929, following America's disastrous stock market crash, unemployment in the United 

States reached 1.5 million, representing 1.2% of the total population. The 1998 collapse of the Russian 

economy was far worse: 11.3 million Russians were jobless at the end of 1998--7.7% of the nation's 

total population.

In the Crash of 1929, stock prices fell 17% by year end--and 90% by the depth of the Great Depression 

four years later. By contrast, the Russian stock market lost 90% of its value in 1998 alone.

"Most fundamentally," said Sergei Markov, an analyst at the Institute of Political Studies, "it is a crisis 

of the real economy--Russia doesn't work."

Foreign investment in Russia plummeted from $4 billion in 1997 to $1.7 billion in 1998. The collapse of 

international trade not only curtailed the supply of foreign goods, but also created scarcities and high 

prices for Russian-made goods with foreign components. Drugs and medicines, always in short supply, 

became even more difficult to come by. Shortages of meat and cooking oil were so severe that 

humanitarian food aid from the West, which had not been necessary since the collapse of Communism, 

was resumed on emergency basis.

The lack of a reliable currency reduced much of Russia to a barter economy.

The 1998 economic collapse also accelerated Russia's deepening social pathologies. Russia's population, 

which has fallen every year since 1992, shrunk at an accelerated pace as deaths outnumbered births by 

784,000 in 1999, the year following the crash. The economic hardship of raising a child further inflated 

Russia's sky-high abortion rates: for every birth in Russia, there are now two abortions. Drug use and 

addiction in Russia have skyrocketed, fueled by the growth in organized crime and widespread 

economic depression.
Alcoholism, a chronic problem in Russia, has grown worse as economic conditions have worsened: 

according to a January 2000 report, the number of deaths resulting from alcohol poisoning is over 100 

times that in the United States.

The jump in drug use has also led to an increase in HIV infections. Drug addicts account for 90% of all 

HIV-infected people in Russia. The collapse of the Russian economy in 1998 coincided with a massive 

increase in the number of people living with HIV. Russia's HIV population literally doubled between 

1997 and 1999--the fastest growth rate in the world.

The road to this crisis had been littered with warning signs that the Clinton administration ignored for 

years. The U.S. encouragement of increasingly massive loans to the Russian central government from 

the IMF continued despite the lack of basic free market legislation in place to justify it. With no market 

in banking services, no reliable protection for private property rights, no mortgage lending, and no 

commercial dispute resolution, capital flight--fueled by IMF hard currency--approached 10% of Russia's 

gross domestic product.

Russia's heavy reliance on borrowing to finance its annual operations caused investors to demand 

exorbitant premiums to hold Russian debt. The government offered ever-higher interest rates--at times 

approaching 250%. The process was unsustainable. In a full-blown Ponzi scheme, new higher-interest 

Russian bonds were issued to pay interest on old bonds. By mid-1998 some 30% of Russia's budgetary 

outlays were devoted to debt service.

As they had for five years, the Clinton administration and its tight policy clique miscalculated the effects 

of their policies and closed their eyes to the consequences. On July 28, 1998, Treasury Secretary Robert 

Rubin wrote to then-House Speaker Newt Gingrich that the Russian government could now be expected 

to "finally take the myriad steps needed to put its finances on a sustainable path." The same day, Stanley 

Fischer, the IMF's Deputy Managing Director, insisted: "The pressure is off the ruble."

In early August 1998, President Clinton was concerned about his scheduled September 1998 summit 

with Yeltsin. The White House dispatched a Treasury Department official to Moscow "to ensure that the 

show stays on the road for the next three weeks at least."

On Monday, August 17, the Russian government formally declared its insolvency, and the horrific 

economic consequences rapidly followed. The Clinton troika strategy of massive lending to the central 

government as a substitute for the construction of a free enterprise system in Russia had proved an error 

of historic proportions.

The administration had, in effect, hijacked the IMF to implement its economic strategy, and the IMF 

debt, far from solving Russia's problems, had exacerbated its difficulties. But despite having engineered 

the entire series of loans that contributed to Russia's complete economic collapse, the Clinton 

administration immediately attempted to distance itself from the fiasco. "It was the Russians' choice," 

said one Clinton administration official.
Few in Russia accepted this version of events. Many Russians, not surprisingly, blamed the West, the 

IMF, and the United States for intentionally leading Russia down the path of ruin. The heavy-handed 

and wrong-headed involvement of Clinton administration officials in Russian government economic 

policy made America an easy scapegoat for disgruntled Russians. Since the beginning of the Clinton 

administration, U.S. officials had urged a steady diet of borrowing to mask the Russian economy's 

fundamental weaknesses--prolonging and deepening the eventual collapse.

Russia's economic collapse in August 1998, after six years of American advice and scores of billions in 

Western aid, shattered the last illusions in both Russia and the West that a free market and prosperity 

were making slow but steady progress in Russia. It marked the final bankruptcy of the Clinton 

administration's economic strategy of macroeconomic "stabilization" and massive aid inflows, and 

contributed to the discrediting of American advice and institutions within Russia.

The effects of the complete collapse of the Russian economy in August 1998 were profound. They are 

still being felt today.

Weapons Proliferation Feeds a Corrupt and Cash-Starved System

The failure of the Clinton administration's economic strategy for Russia has had profound implications 

for Russia's policy on proliferation of weapons and technology, and therefore for America's national 

security interests.

Between 1992 and 1999, the Russian economy contracted 25%. Currently, 13.3% of the labor force is 

officially unemployed, compared with only 4.8% in 1992. The complete collapse of Russia's economy in 

1998 saw industrial and agricultural output drop sharply. Investment in Russia suffered as capital flight 

crippled the private sector. These increasingly severe financial pressures, coupled with a paucity of 

alternate sources of much-needed hard currency, tempted the Russian government to both legal and 

illegal weapons sales as a way out.

Russia's failure to create a working free enterprise system likewise stalled conversion of the military 

sector of the economy. In Soviet days, the one industry in which Russia enjoyed a true comparative 

advantage in global markets was its military hardware, weaponry, and related technologies. When the 

Soviet Union collapsed in 1991, Russia inherited a massive infrastructure devoted to the development 

and production of weapons. Despite the 1992 beginnings of downsizing in the former Soviet militaryindustrial complex, much of that infrastructure remains in Russia.

The decline in Russian military spending and the general failure of Russia's economy during the ClintonYeltsin years meant that this immense military-industrial complex faced urgent incentives to sell as 

much as possible as quickly as possible, often irrespective of the long-term implications for Russia's 
own security.

At some former research facilities, fully half of the scientific personnel had been laid off by the fall of 

1995, but the Russian economy could not absorb them. As a result, individual officers, bureaucrats, and 

scientists, whole research facilities, design bureaus, ministries and even the central government had 

economic incentives to sell extraordinarily-sensitive weapons and technology to any nation or groups 

that would buy them.

To many in the Russian government, exporting such hugely valuable contraband seemed to solve several 

problems. It would generate hard currency; it would utilize existing Russian assets; and it would put 

possibly hundreds of thousands of unemployed Russians back to work. For the many Russians 

increasingly involved in organized crime, there was yet another benefit: the opportunity for significant 

personal wealth.

Official Russian policy was eventually brought into line with these expedients. Under the rubric of 

"strengthening multipolarity," the avowed purpose of the new Russian consensus on foreign policy and 

national security is to increase the strength of global forces arrayed against the United States. This 

consensus helps allay any concerns that Russian officials, scientists, and businessmen might have about 

transferring weapons or military technology to such countries as Iran, Iraq, North Korea, Libya, and the 

PRC.

President Putin recently amended Yeltsin's 1992 decree limiting Russian nuclear assistance to countries 

whose nuclear programs are not fully monitored by the International Atomic Energy Agency, including 

Iran and North Korea. When Russia's national interest is understood to be strengthened by weakening 

the United States, the Russian military-industrial complex can do well by doing good.

The Clinton administration's culpability for this proliferation extends considerably beyond helping to 

create the economic prerequisites for it. The administration has consistently de-emphasized proliferation 

in its discussions with Russia--ignoring credible American and Israeli evidence of proliferation, 

accepting Russian assurances that were patently not credible, and strongly opposing bipartisan 

Congressional efforts to take a stronger stand against proliferation.

This has been particularly true of Vice President Gore's stewardship of the issue of Russian proliferation 

to Iran. In fact, Congress' efforts to combat Russian proliferation to Iran have drawn far more vocal 

opposition from the administration than the dangerous spread of weapons that Congress seeks to 

address. The administration has been compromised from the outset by an unwillingness to admit that its 

anointed Russian "partners" might have been dishonest in their assurances, or unwilling to live up to 

their commitments, that weapons proliferation would stop.

From Friendship to Cold Peace: The Decline of U.S.-Russia Relations During 
the 1990s

Eight years ago, when President Clinton took office, the stated objective of the Russian government was 

a formal alliance with the United States. Russia pursued a strongly pro-American foreign policy, and the 

United States enjoyed unprecedented affection and admiration among ordinary Russians. Today, the 

United States' relationship with Russia has been shattered.

Where 70% of Russians held a favorable view of the United States when President Clinton took office, 

37% hold such views today. More than 80% of Russians polled by the U.S. government in February 

2000 thought that the United States was seeking to weaken Russia, while 85% believed that the United 

States sought world domination.

The quality of the economic advice that the Clinton administration has offered to Russia has been so 

bad, and its results so dismal, that 81% of Russians believe it was purposely designed to make Russia a 

second-rate power. President Clinton himself has become one of the most unpopular international 

figures in Russia, second only to Saddam Hussein in some polling.

These negative views of America have grown steadily worse throughout the course of the Clinton 

administration, and are shared by all levels of Russian society and by all age groups. As a result, 

ordinary Russians today are now working up hostility toward the United States, a phenomenon decades 

of Soviet propaganda had been unable to achieve during the Cold War.

The collapse of American prestige in Russia has been largely caused by the failure of what Russians 

perceive as the "American model" of economic and political reform--that is, the policy advice proffered 

by the Clinton administration. Russians find evidence of this failure all around them. Russia today is 

more corrupt, more lawless, less democratic, poorer, and more unstable than it was when President 

Clinton and Vice President Gore took office--a society some Russian and American observers chillingly 

describe as "Weimar Russia."

The political and policy vacuum created by this failure has empowered some of the most retrograde, antiAmerican elements of the Russian foreign policy and military establishments. Many of their views have 

lately entered the mainstream of official Russian thinking. As a result, the Russian government today 

works against American foreign and defense policy around the world, often at the expense of Russia's 

own long-term interests. In concert with a rogue's gallery of rivals and enemies of the United States, 

Russia is today maintaining its intelligence relationship with Castro and its listening post at Lourdes, 

Cuba; working with Beijing to renew both political and military ties with the pariah regimes in Iraq, 

North Korea, and Libya; and cultivating the Milosevic dictatorship in Belgrade.

Eight years after Russia announced its pursuit of a formal alliance with the United States, Russian 

foreign policy has retrogressed toward that of the pre-perestroika Cold War period. Whereas Presidents 

Yeltsin and Bush had agreed to pursue amending the ABM Treaty to take into account the proliferation 

of ballistic missiles, the Russian government has recently stated that U.S. failure to observe the treaty as 
the linchpin of our mutual security will cause Russia to renew the nuclear threat to Europe. Moscow has 

also threatened to deploy multiple warheads on its Topol intercontinental ballistic missiles (in violation 

of the Bush-Yeltsin START II agreement) as part of its "asymmetrical" response to the U.S. position that 

the ABM Treaty is outdated.

Russia is simultaneously continuing the very proliferant activities that have made a U.S. missile defense 

essential. As recently as June 2000, just weeks before President Putin's visit to North Korea, missile 

component companies in Russia and Uzbekistan were reportedly collaborating to sell North Korea a 

special aluminum alloy for missile manufacture, laser gyroscopes used in missile guidance, and 

connectors and relays used in missile electronics.

The Russian government has intensified its opposition to NATO enlargement, and zealously seeks to 

weaken ties between the United States and NATO Europe. Recent Russian policy has revived Soviet-era 

proposals to substitute a pan-European collective security structure for the current alliance-based 

security system.

A more troubling contrast to the atmosphere of the early 1990s could hardly be imagined. Yet, 

confronted with the consequences of its policies, the Clinton administration has applauded itself for 

having avoided an even worse scenario such as a Soviet Communist restoration, a military dictatorship, 

or nuclear war. That is a remarkably inadequate vision of what could have been made of the most 

significant opportunity in this century for Russia, and the greatest foreign policy opportunity for the 

United States since World War II.

'The Enemy of My Enemy Is My Friend': Russia Emerges as a Strategic 

Partner of the People's Republic of China

Although the Clinton administration has long boasted of its "strategic partnership" with Russia, the 

Russian government unmistakably disavowed any such relationship in its authoritative Foreign Policy 

Concept, approved by President Putin in June 2000. The Foreign Policy Concept flatly states that 

"certain plans relating to establishing new, equitable, and mutually advantageous partnership relations of 

Russia with the rest of the world"--plans embodied in the 1993 version of the Concept approved as 

President Clinton was taking office--"have not been justified."

Instead, the June 2000 Concept lists first among the threats to Russia "a growing trend towards the 

establishment of a unipolar structure of the world with the economic and power domination of the 

United States." To challenge America's dominance, Russia today cultivates its strategic partnership with 

the People's Republic of China--a partnership explicitly targeting American policies and interests around 

the globe, and founded on increasing both the PRC's and Russia's military capabilities against the United 

States. This is in stark contrast to Russia's explicitly seeking an alliance and missile defense cooperation 

with Washington in 1992.
Russia and the PRC have rapidly increased the level of their cooperation in opposing American plans for 

national and theater missile defense, NATO enlargement, U.S. security cooperation with Taiwan, and U.

S. opposition to the North Korean missile program.

Even more troubling is the dramatically increasing scale and sophistication of Russian arms and 

technology transfers to the PRC: Sovremenny-class destroyers equipped with Moskit surface-to-surface 

missiles, state-of-the-art weapons systems specifically designed to destroy U.S. aircraft carriers; ultraquiet Kilo-class diesel submarines; Su-30 long-range attack aircraft and MiG-31 long-range fighterinterceptors; AWACS radar systems; T-80U tanks; state-of-the-art Russian surface-to-air missiles; and 

rocket engines, as well as many other weapons systems and technologies. Negotiations are reportedly 

underway for still more sophisticated weapons systems and technology. There are also reports of farreaching Russian military commitments to the PRC in the event of hostilities over Taiwan.

After tens of billions of dollars in Western assistance and eight years of mismanagement by the Clinton 

administration, the U.S.-Russian relationship is in tatters, characterized by deep and growing hostility 

and divergent perceptions of international realities and intentions. The Sino-Russian relationship, by 

contrast, has grown steadily stronger, and has steadily assumed a more overtly anti-American aspect.

Because of Russia's current and future importance, the consequences of this failure are difficult to 

overstate, and almost certainly exceed the consequences of the American defeat in Vietnam and the fall 

of the pro-American government in Iran. To find a foreign policy failure of comparable scope and 

significance, it would be necessary to imagine that after eight years of American effort and billions of 

dollars of Marshall Plan aid, public opinion in Western Europe had become solidly anti-American, and 

Western European governments were vigorously collaborating in a "strategic partnership" directed 

against the United States.

Despite Years of Policy Failure, a Bright Russian Future Is Still Possible

The task ahead for Russia in 2000 is essentially the same as it was in 1992. Since so little progress has 

been made toward putting in place the building blocks of a free enterprise economy, that work must now 

begin in earnest. But whereas conditions in Russia in 1992 were eminently hospitable to such an 

undertaking, the ensuing years of policy failure have squandered that advantage. Now, with so many 

Russians having soured on "reform," the necessary work will be much more difficult.

Despite the dimensions of the task ahead, the outlook for Russia is not entirely bleak. The economic 

collapse of 1998, while devastating, has given way to a determined effort to dig out from beneath the 

rubble and start afresh. The hostility engendered by the statist, incoherent, and clumsily-administered 

Clinton administration foreign policy need not create an enduring cold peace.
The slow economic progress that began in 1999 has gained some momentum in 2000. The Russian 

government reported in July 2000 that the economy was growing at an annual rate of 7.3% during the 

first six months, while output from January to June rose 8.6%. Fueled by strong energy exports, Russia's 

trade surplus reached $27 billion for the first five months of this year.

Importantly, the Russian government is using the breathing room created by high oil prices to implement 

much-needed tax simplification and government spending reductions. After President Boris Yeltsin's 

December 1999 resignation, Russia's Center for Strategic Research was tasked with drafting an 

economic reform program for the incoming Putin government. The Center released its report in June 

2000, which emphasized:

* Reducing government spending

* Balancing the central government's budget

* Eliminating many state subsidies

* Implementing a 13% flat income tax

President Putin signed the flat tax into law on August 7, 2000, calling it "the most important event in the 

country's life."

Amidst these signs of slow economic recovery, foreign investment is tentatively trending toward preAugust 1998 levels. More than $10 billion in foreign capital has entered Russia during the first five 

months of 2000--twice as much as during all of 1999.

Russia has other inherent assets that were not wiped out by the economic collapse of 1998, nor erased by 

decades of Soviet Communism. For example, a silver lining to the Soviet state's lack of academic 

freedom was its focus on training scientists and specialists. The high level of education and skills in 

these areas among much of the Russian workforce is an asset that Russia still possesses intact.

Perhaps most important for Russia's future is that young Russians are significantly more supportive of 

democracy and free enterprise than their older countrymen. The younger generation in Russia--less 

influenced by the legacy of Soviet Communism than its parents--displays an entrepreneurial spirit 

unknown in Soviet days. Remarkably, three-quarters of 18-29 year olds believe that it is important "to 

achieve success with a business of their own." This energy and vigor can transform Russian society and 

Russia's economic future, if it is not indefinitely stifled by current government impediments to the 

market.

Religious faith has sharply increased since the collapse of the Soviet Union. As one sociologist noted, 

"in a remarkably brief period of time, Russia has become one of the most God-believing countries in 

Europe." Interestingly, the revival of faith in Russia is concentrated among the young and the educated.
Despite the Soviet legacy of outlawing private civic organizations, a number of civic groups have been 

founded in recent years. The number of human rights organizations has grown from 50 in 1996 to over 

1,200 in 1999. According to the U.S. Agency for International Development, there are now 

approximately 65,000 active civic and social groups of all kinds in Russia.

Russia's rich culture, which ties its people together and is universally admired, also provides a base upon 

which the nation is building anew today.

The successful elevation of Vladimir Putin to the Russian presidency is widely attributed to the public 

longing for order after a decade of chaos. But despite the unmistakable public clamor for a crackdown 

on crime and corruption, public opinion surveys show that a majority of Russians are not prepared to 

give up their most cherished and hard-won liberties. An August 1999 U.S. Information Agency survey 

found that 73% of respondents opposed loosening restrictions on police and security forces, 66% 

opposed banning meetings and demonstrations, 62% opposed canceling elections, and 53% opposed 

media censorship.

Russia is a great nation, and must eventually determine its own course. If it is to successfully make the 

transition from nearly a century of Communism to a free enterprise democracy built upon individual 

decision making and individual rights, it will be because of the determination of Russia's people to do 

so. As the world's leading free enterprise democracy, the United States offers the quintessential model 

for Russia's future, if Russia chooses freedom. It was in 1992, and is now, America's opportunity--if not 

our duty--to respond.

America and Russia have lost a decade. The growing estrangement of Russia from the United States, the 

hostility to American interests reflected in Russia's foreign policy, and the telltale signs of 

authoritarianism in the post-Yeltsin era provide ample evidence that Russia faces a more formidable task 

because U.S. foreign policy was weak, and did not lead. But it is not too late for the United States to stop 

impeding and start assisting the transition from Communism to free markets, from authoritarianism to 

democracy, and from disorder to order. It simply requires that we begin anew--but this time, with a clear 

purpose.
CHAPTER 1

1991: THE FALL OF THE 

SOVIET UNION AND THE 

RISE OF RUSSIA

STANDING UP FOR FREEDOM: Russian Federation President 

Boris Yeltsin stood atop an armored personnel carrier in Moscow 

Aug. 19, 1991, to urge Russians to resist a central government 

takeover by Soviet hardliners. Russians proved their courage and 

their love for freedom in 1991, ending Soviet domination in Eurasia 

with a peaceful determination that stood in stark contrast to the terror 

imposed on them for seven decades. AP Photo
I've met with business people and leaders of the republics and 

reformers at all levels, and in spite of the vast array of challenges 

before you, a deep undercurrent of enduring optimism runs here. 

The forces of reform, the drive toward democratization, political 

pluralism, market economies--all offer real hope for lasting 

stability and prosperity.

We seek to unleash the energy and ambition of the individual in 

the service of a greater good. We believe that while men and 

women may for a time be intimidated by force, mankind finds 

inspiration in freedom. So if, as Chekhov once wrote, man is what 

he believes, let us believe in freedom.

President George Bush, in Moscow, August 1, 1991

On Christmas Day, 1991, the Soviet Union ended. The people of Russia had made it clear they were 

prepared to build the truly free society that Gorbachev could not achieve. The Soviet Union lost the Cold 

War, but Russia had won it.

The collapse of the Soviet Union brought to an end, with surprisingly few casualties, one of the cruelest, 

most violent, least humane, and most viciously ideological régimes in the history of the world. The 

Soviet Union-more aptly, the Soviet Empire-collapsed of its own weight, crushed by the material and 

spiritual burdens of its collectivist ideology. 

A Titanic Clash Over the Budget

On January 3, 1991, Mikhail Gorbachev, President of the Union of Soviet Socialist Republics and 

General Secretary of the Communist Party Central Committee, announced on state-controlled Soviet 

television that the empire's ritual budget deliberations were completed. "Solutions were worked out that 

made it possible to hold a session of the Federation Council today and to coordinate the basic provisions 

of an economic agreement," Gorbachev said.1
But this time, the General Secretary's decree was not routinely accepted. In what the state-controlled 

news agency TASS called the "mutiny" of Russia, the largest of the Soviet Union's 15 republics refused 

to contribute its "required sum" to its putative Soviet masters.2 The President of the Russian Republic, 

Boris N. Yeltsin, was defiant. 

And so, the opening scene in the world-shaking drama of 1991, the final year of the Soviet empire, 

began with a fight over money.

The dispute between Yeltsin and Gorbachev was not new, and it was personal as well as ideological. On 

July 12, 1990, Yeltsin had resigned from the Communist Party "because processes in the party are too 

slow, because the party is still lagging behind, because the process of democratization in the party does 

not develop, [and] because the style and method of work are behind those processes of perestroika."3 

Yeltsin, moreover, had openly defied the U.S.S.R.'s claim of sovereignty over the Baltic states of 

Lithuania, Latvia, and Estonia. And he had mounted a withering attack on Gorbachev's perestroika

reform effort as insufficient.

But beyond these policy differences, Yeltsin resented his constant humiliation by Gorbachev, beginning 

at the Communist Party's October 1987 Plenum, when Yeltsin was expelled from the Politburo. In his 

memoirs, Yeltsin wrote that "the motivations for many of my actions were embedded in our conflict."4 

Tanks to Vilnius

Riots and uprisings in Azerbaijan5 and Georgia,6 the war between Armenia and Azerbaijan over the 

Nagorno-Karabakh enclave, and moves to restore the independence of the Baltic nations threatened to 

tear the U.S.S.R. apart. Over the course of 1990, nationalist sentiments in the republics matured from 

disparate popular movements to a central fact of political power. Leaders of popular groups took control 

of legislatures from the Baltics in the north to the Transcaucasus in the south.

In an eight-month period during 1990, legislatures in every republic, beginning with Lithuania and 

ending with Kirghizia (now the Kyrgyz Republic), declared their sovereignty or outright independence. 

The cries "To a free Estonia!" and "To a free Latvia!" by Lithuanian crowds rejoicing at their 

legislature's vote for independence from Moscow testified to the snowballing effect of the independence 

movements.

Although Gorbachev assured the Federation Council that he would not use force to rein in the 

independence movement, within hours of his statement Soviet special police forces opened fire on proindependence Lithuanian demonstrators in Vilnius, killing 15 and wounding hundreds more. A week 

later, Soviet forces killed four civilian protesters in Latvia.

Yeltsin, meanwhile, was taking up the cause of Baltic freedom. He signed a mutual security agreement 

with representatives of the three Baltic States in which the parties pledged to respect one another's 
sovereignty, and-importantly-to provide assistance in the event the Soviet central government resorted to 

force.

The Soviet crackdown in Vilnius, known as "Bloody Sunday," proved a turning point.7 In the past, 

Soviet state control of the media could suppress the facts sufficiently to maintain order. But the January 

13 bloodbath in Vilnius led to protests by 100,000 citizens in the streets of Moscow and sent 

Gorbachev's approval rating from 29% to less than 10%-dangerous even for a Soviet ruler, and 

especially so when a powerful rival in the form of the Russian president presented himself as an 

alternative.8

BRINGING DOWN THE KGB: Russians celebrate their newfound freedoms by toppling 

the statue of KGB founder Felix Edmundovich Dzerzhinsky, early Friday, Aug. 23, 1991, 

in front of the KGB headquarters in Moscow. AP Photo/Alexander Zemlianichenko

The KGB and 'Economic Sabotage'

Gorbachev reacted by tightening the reins. A month before the violence in the Baltics, Foreign Minister 

Eduard Shevardnadze resigned, warning of a coming dictatorship. On January 26, 1991, Gorbachev 

issued a decree giving the KGB and the MVD (the Soviet Interior Ministry) wide-ranging powers to 

investigate "economic sabotage"-an ideological crackdown on unauthorized economic reforms and 

privatization then underway.
The move was intended to shore up support among Communist critics of perestroika-Gorbachev's 

ambitious plan to restructure the Soviet economy and modernize Communism-but it had the opposite 

effect. The already demoralized security forces saw their role being trivialized. Instead of protecting the 

nation, they were being asked to monitor white-collar crime and rifle through desk drawers.

The decree's retreat to criticism of "selfish interests" seems in retrospect to have been a dying gasp of 

Marxist economics. Certainly, the January 1991 edict to the KGB and MVD exemplified the inherent 

weakness of Gorbachev's perestroika, which was doomed to failure because it intended not to supplant 

Communist economic doctrine, but to make it work, somehow. Thus, despite the genuineness of the 

policy of glasnost, or openness-which, at least relative to previous Soviet regimes, allowed some modest 

new freedom of speech and thought-perestroika amounted to little more than fiddling while Rome 

burned.

Two years before the collapse of the Soviet Empire, in 1989, American economist Judy Shelton had 

confidently predicted the collapse of the Soviet Union.9 By 1991, it was even clearer that the Soviet 

Union did not have sufficient domestic resources to deal with its aging factories, increasing shortages, 

and impending famine.10

Although the official Soviet Bank for Foreign Economic Affairs had met all its immediate obligations, 

the Soviet Union had built up substantial arrears to Western suppliers through its foreign trade 

organizations, ministries, and state-controlled enterprises. Contemporaneous Western estimates put the 

default in the range of billions of dollars. To disguise this economic disarray, the Soviet government 

kept two sets of books: public books to deceive outside lenders, and private books that alerted 

Gorbachev to serious cash shortages.

Thus, the collapse of the Soviet economy was not the result of "economic sabotage," but of the inherent 

weaknesses of the Communist system itself. In unintended acknowledgement of this fact, Gorbachev in 

the final days of the Soviet Union turned to capitalist-supported international lending programs for 

assistance.

German banks-with a 90% guarantee by the German government-financed a loan to repay arrears to 

German companies. In another turn toward capitalism for help, De Beers Consolidated Mines provided a 

$1 billion loan using Soviet diamonds for collateral.

In the end, however, international lending did no more than unnaturally extend the life of the terminally 

sick Soviet system. It did no more to address the fundamental problems of the state-controlled 

Communist economy than did the decree broadening powers for the KGB and the MVD.
STORAGE: The statue of the KGB founder 

stands in a museum storage yard in downtown 

Moscow, April 16, 2000. The President Hotel 

is in the background. SAGR Photo

Lithuania Votes for Freedom

On Thursday, February 7, 1991, three days before Lithuanians went to the polls to cast their ballots on 

the issue of independence, Soviet military officials announced ten days of maneuvers in Lithuania, 

Latvia, and Estonia.11 Despite the military presence, the yellow, green and red Lithuanian flag was 

defiantly flown, and posters bearing gruesome pictures of the Bloody Sunday attack appeared 

everywhere. On election day, Sajudis, the anti-Soviet independence and human rights movement, won 

overwhelmingly.12 One month later, Vytautus Landsbergis, a mild-mannered university music professor 

who had spent years in Soviet prisons, became President. It was "a victory against lies, against attempts 

to scare us, against fear," President Landsbergis said in a televised message.13 

Taxes, Strikes, and Sovereignty

March 1991 brought strikes-not only for wages, but openly and defiantly for Gorbachev's resignation. 
Coal miners and demonstrators in Moscow, Leningrad, and across Russia demonstrated in support of 

Yeltsin.

In the midst of this strife, a referendum, organized by Gorbachev and opposed by Yeltsin, showed that 

75% of the people, including 71% of Russians, favored the continued existence of a union of republics. 

But because the referendum framed its object as a federation of sovereign states intended to protect "the 

rights and freedoms of all nationalities," it attracted the votes of many whose sympathies were with 

Yeltsin-and ultimately settled nothing.14

Gorbachev sought to remedy the central government's financial collapse, including its inability to meet 

external debt obligations, by levying new taxes.15 What came to be known as the "presidential tax," an 

additional 5% sales tax on goods, infuriated Russian consumers, already outraged by shortages of most 

necessities. "'Did you read this list?'" the New York Times quoted a burly Muscovite as saying about the 

schedule of commodities to which the new tax would apply. "'It looks like someone went into a store 

and made an inventory of all the things he couldn't find.'"16

Yeltsin pounced on the sales tax issue, urging repeal and agreeing to support Gorbachev's "Anti-Crisis" 

economic plan only in exchange for elimination of the tax.17

Soviet taxes, Soviet labor controls, and Soviet central control over the people and affairs of every one of 

the Republics were completing the century-long destruction of the Russian economy. Neither glasnost

nor perestroika had even really addressed them. 

Secession Momentum

On April 9, the Soviet republic of Georgia formally declared its independence from the Kremlin.18 The 

Georgian people completed this act in defiance of their Communist rulers by dancing in the streets.19 A 

rally originally scheduled to mourn the deaths of 20 civilians killed by Soviet troops in the 1989 Tbilisi 

Massacre20 (a tragedy contemporaneous with the Chinese Communist Party's Tiananmen Massacre) 

spontaneously became an independence celebration. The demonstration came 10 days after balloting in 

which nearly 99% of Georgians had voted for secession from the Soviet Union.21

The appetite of the peoples of the various Republics, including the Russians, to manage their own affairs 

was far ahead of Gorbachev's extremely limited promises.22 Momentum for secession thus grew in 

Russia as elsewhere in the Soviet Union.

By the end of April, Gorbachev agreed to meet with Russian President Yeltsin and the leaders of nine 

Slavic and Muslim republics in a village outside Moscow. According to contemporaneous accounts, a 

visibly changed Gorbachev for the first time showed a willingness to listen to grievances. 23 And, 

sensing his weakening grasp on power, Gorbachev responded to critics at a plenary meeting of the 
Communist Party Central Committee two days later by offering to resign. The offer was rejected. 

Yeltsin and Coal

Gorbachev's motivation for ceding ground to his political antagonists was primarily economic. 

Communist central economic planning had left the Soviet Union starved for cash.

Oil, which accounted for 60% of export revenues, was becoming costlier to produce as Soviet engineers, 

operating on short-term Communist Party commands to increase immediate production, turned to 

recovery techniques that wasted oil and damaged pipelines.24 Disorder and mismanagement in the oil 

industry, as a result of Gorbachev's failed economic reforms, compounded the problem. Strikes and 

martial law in Azerbaijan, the main supplier of oil-producing equipment, left the Siberian oil fields short 

of spare parts.25

Falling oil production not only hurt Soviet exports, but also created enormous pressure to increase coal 

production. But the coal industry, too, was plagued with strikes. Over the course of 1990, the Soviet 

system was starved of coal by major mine strikes that escalated into rampant unrest in the Donetsk and 

Western Siberian coal fields.

Still other problems conspired to make matters worse. The notoriously inadequate Soviet computers 

failed to keep track of rolling stock and warehouse inventories, with the result that thousands of freight 

cars filled with coal, fuel, food, and other commodities were stolen or more often lost and left to rot.

The resulting energy shortages provoked further unrest among both the miners and the general 

population. Yeltsin, who had supported the miners against the dictatorial control of the Soviet "center" 

in Moscow, seized on these events to obtain concessions from Gorbachev. In return for a transfer of the 

mines to Russian control, he would end the strike by decree.

Gorbachev was forced to concede. On May 1, Yeltsin asserted his authority over Russian coal mines, 

and a month later the strikes were over.26

This significant addition to the sovereignty of Russia at the expense of the Soviet Union signaled 

another major crack in the foundations of the Empire. As one writer noted at the time:

Yeltsin's handling of the miners' strike is further evidence that he will use 

his truce with Gorbachev to advantage.

Some liberals worried that their boss might have been maneuvered into 

opposing the strikers by the crafty Gorbachev. (The myth of this man's 

political genius dies hard!) Instead, Yeltsin made his support for the strikers 
a bargaining chip to force Gorbachev to cede control of the mines to the 

Russian republic.

The coal pits are not exactly the jewel in the crown of Soviet mineral 

wealth, but their transfer to local ownership will begin the breakup of the 

central government's monopoly control of exportable natural resources.

Coal today; oil tomorrow. At some point people will have to stop saying 

that 'opposition' forces are too weak to run the country; they will be running 

it.27 

The Vote for Russian Sovereignty

On June 13, 1990, a year before the people of Russia elected him to the newly created office of 

president, Boris Yeltsin had told the parliament of the Russian Federation, "Russia cannot survive 

without the country [i.e., the Soviet Union] and the country also cannot survive without Russia."28

The emphasis was on the indispensability of Russia, for in that same week in June 1990, at Yeltsin's 

urging, the Russian parliament adopted a formal declaration of the sovereignty of the Russian republic, 

which asserted that Russian law would now take precedence over Soviet law, by a vote of 907-13.29

Throughout the Russian Republic, Yeltsin actively courted regional leaders, at one point telling them to 

"take as much sovereignty as you can stomach."30 He encouraged leaders in the U.S.S.R.'s other 

republics to seek autonomy from the "center." His aim was to outflank and undermine the central 

government and to increase his appeal to local officials.

The Russian sovereignty declaration was a watershed. "Of course," one prescient U.S. newspaper 

observed, "Gorbachev's Soviet Union still controls the organs of terror, the Red Army and the KGB. But 

he may realize he cannot prevent the breakup of the Soviet 'Union' and that his 'federation' idea, perhaps 

resembling the European Economic Community/NATO or the British Commonwealth, is his only hope 

for maintaining any position at all."31

The Russian parliament's near-unanimous vote for sovereignty and Yeltsin's campaigning had 

emboldened leaders in other republics, particularly the Baltic states. Similar sovereignty measures had 

followed in other republics within months.

Now, a year later in 1991, support for Yeltsin-and opposition to Communism-was overwhelming. 

Yeltsin was swept to a decisive victory as the first popularly elected president in Russia's history in June 

1991, as Leningrad voted to restore the city's historical name of St. Petersburg in a stinging repudiation 

of Vladimir Lenin, the ultimate icon of Soviet Communism.32 The new mayor of this city of five 
million, Anatoly Sobchak, won his post in the same election, and would soon become one of the leading 

Russian reformers.33 Sobchak appointed as one of his deputies a young, unknown former KGB agent 

named Vladimir Putin. 

Supreme Soviet 'Privatization'

Meanwhile Gorbachev and the old guard were struggling to keep up with events. On July 1, 1991, the 

Supreme Soviet approved, for the first time, a law authorizing the sale of state assets.34 This step, 

though unprecedented, represented less free-market reform than a desperate attempt to generate cash for 

the crumbling Soviet system. Not only was it unsuccessful in raising money for the state, but it was soon 

taken hostage by the Communist nomenklatura, the privileged ruling elite. The state assets they sought 

to auction-to themselves-were dachas or private resorts.

"In one of the juiciest scandals to touch President Mikhail S. Gorbachev's administration," the Los 

Angeles Times reported, "the Soviet press and a legislative watchdog commission are accusing top 

officials of using their pull to buy government-owned dachas and their lavish furnishings at bargainbasement prices."35 This Communist insider dealing was a harbinger of things to come. The dacha 

scandal, the Times reported, encouraged suspicions "that when the time comes to sell state property to 

private buyers, only the well-connected will really have the chance to buy."36

Neither scandal nor shame would quell the Soviet appetite for cash-Gorbachev sought $20 billion from 

the Japanese alone; he asked for $100 billion in Western aid. Harvard economist Jeffrey Sachs suggested 

$150 billion for a five-year plan.37

President Bush knew that such schemes would not work. "A shortage of foreign capital is not what 

plunged your economy into crisis, nor can your economic ills be cured by an infusion of cash," he told 

the Moscow State Institute for International Relations in a speech July 31.38 Instead of government-togovernment aid, President Bush said, the Soviet Union and the United States should facilitate businessto-business dealings between private individuals and firms.39

It soon became clear, however, that real reform of the Soviet economy was impossible as long as the 

Soviet structure survived. On July 11, Izvestiya published the text of the latest Soviet "reform" plan. The 

program correctly cataloged the economy's ills:

The socio-economic situation in the country has become extremely acute. 

The fall in production has affected virtually all sectors of the national 

economy. The finance and credit system is in a state of crisis.

Exports and foreign currency earnings are falling. The consumer market is 

disorganized, the food shortage is being felt everywhere and the 
population's living conditions have deteriorated considerably.40

But Gorbachev's proposed remedies called for more of the same: government action to restore 

production volume, "targeted measures" to "normalize" the supply of consumer items, and "a UnionRepublic program of support for entrepreneurial activity"-a concept as oxymoronic as a U.S.S.R. 

federation of "sovereign states."41 While the program reflected an attempt to move away from statist 

economics, it fell far short of meeting the prerequisites for beginning the necessary transformation to a 

market economy.42 

The Coup Attempt

Increasingly concerned by Gorbachev's inability to deal effectively with what they correctly saw as a 

fundamental threat to the survival of the Soviet Union-and believing that Gorbachev planned to dismiss 

some or all of them imminently-eight senior Soviet officials, including Vice President Gennady 

Yanayev, Defense Minister Dimitri Yazov, and KGB Chairman Vladimir Kryuchkov, launched a coup 

in the early morning hours of Monday, August 19, 1991.

The coup attempt began while Gorbachev was away at his official summer residence in the Crimea. 

Muscovites and others throughout the Soviet Union awoke to the news from the state-controlled media 

that "due to the condition of his health" Gorbachev had been relieved of his duties. A State Committee 

on the State of Emergency, TASS reported, had been established to run the country.

The State Committee was made up of most of the highest-ranking orthodox Communists in the Soviet 

government, and all had worked closely with Gorbachev. In addition to Defense Minister Yazov and 

KGB Chairman Kryuchkov, it included Interior Minister Boris Pugo, Soviet parliament Speaker Anatoly 

Lukyanov, the Chief of Apparatus for the Communist Party Oleg Shenin, and Prime Minister Valentin 

Pavlov. Each saw the Union Treaty which Gorbachev was about to sign as the last straw. In their view it 

would end the primacy of the various institutions that they controlled.

Russian President Yeltsin, at his dacha in Arkhangelskoye, was busy working the phones. He issued a 

statement denouncing the coup as unconstitutional, which was broadcast by Russia's first independent 

radio station, Echo Moskvy. Ninety minutes after the coup was announced on radio Yeltsin left for the 

Russian White House, the seat of the Russian government. Along the way, he encountered tanks and 

armored personnel carriers brought in to intimidate the public. Long tank columns were positioned along 

streets leading to the center of the city, and tanks were stationed on both sides of every bridge across the 

Moscow River. In Lithuania and Latvia, Soviet troops seized the television and radio centers.

Yeltsin was determined to put his authority to the test. At 1 p.m., he climbed onto Tank No. 110 of the 

Taman Division, which was positioned outside the Russian White House, and read a defiant statement 

calling the coup unconstitutional and demanding Gorbachev's release from house arrest at his dacha in 
the Crimea.

Muscovites moved to protect the White House by blocking approaches to it with buses and trolleys. By 

Monday evening, people had erected barricades and formed a human chain around the building. 

A Firm U.S. Response

On Tuesday, August 20, on the only functioning phone line remaining available to him, Yeltsin spoke 

with George Bush. The American President stated firmly that the United States would not recognize the 

Yanayev government. President Bush also reported that he had already spoken with the other G7 leaders 

and believed they would follow America's lead.

The coup plotters apparently calculated that the United States would not take sides in a Soviet 

Communist power struggle. But Bush's action in support of Yeltsin and the Russian people took "the 

United States into largely uncharted territory by trying to influence Soviet politics more directly than 

anytime in more than 70 years."43

Shortly after midnight on Wednesday morning, 30 tanks and 40 armored personnel carriers, along with 

1,000 troops, approached the barricades surrounding the White House under orders to storm it. In the 

skirmishes that ensued the troops set several vehicles ablaze, and in the brief fighting three civilians 

died. But in the end most soldiers proved unwilling to fire on the crowds.

Later that afternoon, Yazov and the other coup leaders arrived to see Gorbachev, who had been trapped 

in his dacha and cut off from the outside world since the coup began. Gorbachev refused to meet them, 

and ordered their arrest. Instead, he received a delegation of Russian government representatives-a 

deeply symbolic gesture suggesting that Gorbachev finally had taken sides with Russia. The coup was 

unraveling.

The next day, Gorbachev arrived in Moscow. What he found on his return from his brief detention in the 

Crimea was a fundamentally changed political landscape.

The coup's rapid failure conclusively demonstrated the weakness of hard-line Soviet Communist Party 

elements and the irrelevance of the Party to developments in the U.S.S.R. It further accelerated the 

movement of public opinion in Russia and the other republics-particularly the Baltic States, Ukraine, 

and Georgia-toward support for independence. In the month after the coup, eleven of the Union's fifteen 

Republics declared their independence. 
Yeltsin Takes Command

Boris Yeltsin's defiance of the coup-captured forever in the minds of Russians by the image of him 

standing atop the tank in front of the Russian White House-solidified his status as Russia's pre-eminent 

political leader and inspired millions more people outside Russia. The strength of the newly-elected 

Russian president contrasted sharply with Gorbachev's impotence.

Yet Yeltsin, as would be seen so clearly in the last years of his presidency, was more a populist than a 

democrat. While serving as Moscow's Communist Party Secretary, Yeltsin often rode the city's subway 

system and mingled with city residents. Many Russian democrats, led at the time largely by intellectuals 

and former dissidents like Andrei Sakharov, viewed Yeltsin with great skepticism. Sakharov was 

reportedly unwilling to vote for Yeltsin in Russia's 1989 parliamentary balloting because of concerns 

about his demagogic tendencies.

Many committed democrats were loath to follow a former Communist Party Politburo member. Many 

intellectuals, moreover, were uncomfortable with what they perceived as Yeltsin's lack of political 

sophistication. Even his popular appeal was troubling to some who felt that Yeltsin had hijacked for his 

own personal ends a movement they had suffered greatly to develop. That leaders of the democracy 

movement of the time expressed concern at the authoritarian tendencies already evident in his leadership 

should have been a warning to U.S. policy makers that they should support democracy and free 

enterprise, not just Yeltsin.

But Yeltsin, the first elected president of Russia, was an irreplaceable transitional leader at a time when 

Russia needed not just ideas with which to oppose Communism, but action-notwithstanding his failure 

in later years to live up to the expectations of either Russians or the West. 

From Union to Independence

Despite the failed coup, or perhaps encouraged by it, work continued on a new Union Treaty that would 

allow each member state to define its own terms of participation. On October 18, 1991, Gorbachev and 

the leaders of eight republics (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikstan, 

Turkmenistan, and Uzbekistan) signed an agreement on an economic community. A month later, the U.S.

S.R. State Council agreed on a framework for a confederation of sovereign states with a limited central 

authority.

Though Yeltsin had expressed support for a union as late as mid-November,44 he had simultaneously 

been pursuing a separate track intended to eliminate centralized authority over the remaining states 

interested in some form of union.45 The October and November agreements ceded much authority, but 

they were not enough for President Yeltsin.
Yeltsin's insistence on delaying the signing of Gorbachev's State Council agreement until after Ukraine's 

December 1 independence referendum (in which, as Yeltsin must have anticipated, 90% of the voters 

supported independence) bought him time to gain support for his strategy. A few days after the 

Ukrainian independence referendum, Yeltsin proposed a "Commonwealth of Independent States" 

without a central government. As the press observed at the time, Yeltsin's plan "killed off Mikhail 

Gorbachev's foundering plan to preserve the Soviet Union."46

By December 8, Yeltsin was able to go outside the Gorbachev-led process and sign an agreement with 

the leaders of Ukraine and Belarus declaring the end of the U.S.S.R. and the creation of the new 

Commonwealth of Independent States (CIS). At the time, these three republics accounted for 70% of the 

population and 80% of the industrial output of the U.S.S.R. A joint communiqué stated: "As founding 

states of the U.S.S.R....we declare that the U.S.S.R. is ceasing its existence as a subject of international 

law and a geopolitical reality." 47

Mikhail Gorbachev resigned as the last Soviet president on December 25, 1991.

1-4

LENINISM'S DEFEAT: Children play on the 

fallen statue of Vladimir Lenin in Vilnius, 

Lithuania, Aug. 30, 1991. The statue of the 

Soviet dictator, who had called for the defeat 
of Russia in World War I before launching the 

bloody Russian civil war, was toppled after the 

failed 1991 Kremlin coup. AP Photo/

Mindaugas Kulbis 

The End of the Soviet Empire

Yeltsin had won the economic battle with the unwitting help of Gorbachev-whose openings to the West, 

as tentative as they were, exposed Russians to the possibilities of wealth generated by real market 

economies. Gorbachev and other senior leaders had recognized that the existing Soviet Communist 

system was economically bankrupt and unsustainable. This extraordinarily unfavorable economic 

situation was part of the Soviet Union's legacy to the newly independent Russia.

The collapse of the U.S.S.R. laid bare the catastrophic material impoverishment and decay that had been 

wrought by Communism over seven decades. Although missed by many observers,48 the unsustainable 

economic, environmental, moral, and social ravages of Soviet Communism were obvious not only to a 

few far-seeing individuals such as Ronald Reagan49 and Judy Shelton, but also to the leaders of the 

Soviet Union itself.

Ironically, it was the liberal intellectual elite in the West that not only failed to see the collapse coming, 

but argued against the very U.S. and European policies that helped accelerate it. One supposed Soviet 

expert, Time magazine's Strobe Talbott, repeatedly chastised President Reagan for pursuing his 

ultimately successful policy of peace through strength.50 Talbott would later be appointed by President 

Clinton to coordinate his Russia policy. The fact that Americans who were wrong about the defeat of the 

Soviet Empire ended up running U.S. relations with its former subjects is an irony of history.

The disintegration of the Soviet Union is often viewed as the culmination of the collapse of Communism 

in Central and Eastern Europe. But, while the death of the U.S.S.R. brought closure to the revolutions of 

1989 and the Communist era in Europe, the events of 1991 in Russia were fundamentally different from 

what took place elsewhere in the former Soviet bloc.

The historical experience of Russia and most of the other Republics of the Soviet Union differed widely 

from those of the U.S.S.R.'s former satellites in Central Europe. Although the Russian Empire had 

undergone exceptionally rapid economic development in the last decades before 1917, by the late 20th 

century it lagged significantly behind most of Central Europe politically, socially, and economically. 

The Bolshevik revolution and the succeeding decades of Leninism and Stalinism, as well as the 

pervasive corruption of the Brezhnev era, devastated both economic life and civil society throughout 

Russia and the other nations of the U.S.S.R. The Soviet occupation of Central Europe since World War 

II was significantly briefer and wrought comparatively less damage to those societies, which to varying 

degrees had previously possessed capitalist economies, democratic institutions, or, at a minimum, more 
highly developed civil societies.

Subsequent underdevelopment even compared to former Warsaw Pact countries would significantly 

complicate attempts at economic and political reform. 

The Legacy of 1991

The events of 1991 were part of a much larger process, with deeper roots. "[T]he Soviet Union is not 

immune from the reality of what is going on in the world," President Reagan had explained in 1982. "It 

has happened in the past: a small ruling elite either mistakenly attempts to ease domestic unrest through 

greater repression and foreign adventure, or it chooses a wiser course-it begins to allow its people a 

voice in their own destiny."

Once the people of the many captive nations of the Soviet Empire began to find that voice, their 

liberation became increasingly more likely. Indeed, the Russian people were instrumental in that result, 

and stood to reap the greatest gain. The Russian nation, led by a freely elected president, had liberated 

itself from the staggering economic, political, social, environmental, and moral burden that the Soviet 

empire had imposed on the Russian people.

With more than half the population of the Soviet Union and three-fourths of its land mass, Russia's 

victory over the Empire left it well-stocked in both human and material resources, if not in market 

mechanisms. A newly free Russia was finally prepared to emerge as a world economic power in its own 

right.

CHAPTER 2

CONDITIONS IN RUSSIA AT 
THE OUTSET OF THE 

YELTSIN AND CLINTON 

ADMINISTRATIONS

CONGRESS CELEBRATES FREEDOM FOR RUSSIA: In an 

historic Joint Session of Congress, June 17, 1992, Russian 

President Boris Yeltsin was interrupted by nine standing ovations as 

he described a country "devastated" by seven decades of 

Communist rule. "We have no right to fail in this most difficult 

endeavor, for there will be no second try, as in sports. Our 

predecessors have used them all up. The reforms must succeed." 

The Russian people, however, are more resilient than Yeltsin 

predicted, having survived the failure of "reform" and the nation's 

complete economic collapse in 1998. Today they are hoping for a 

second chance.

Office of Photography/U.S. House of Representatives
I see Russia and the United States-which was the modern 

world's first democracy-developing a very special relationship, 

and I hope I can play a role for my country in Washington like 

that Franklin played for his in Paris. For Russian 

democracy to succeed, we need help.

I love the United States.

Russian Ambassador Vladimir P. Lukin, as quoted in the Los Angeles Times, 

April 9, 1992

The newly independent Russian Federation seemed to many to be poised for rapid integration into the 

Western community of nations and, after a period of adjustment, economic and political rebirth.

Externally, Moscow enjoyed a favorable environment in which its former rivals, including the United 

States, were eager to assist morally, materially and technically in its renewal. Moreover, just as the 

collapse of the Soviet Empire redefined America's international security environment, Russian 

conditions were likewise favorably transformed. Taking into account the vast share of the Soviet 

economy directed to the military, Russia's potential "peace dividend" stood to be quite large.

At the same time, Russia possessed a large, well educated, and highly skilled workforce. Though the 

closed Soviet economy had been insulated from international products and competition, causing Russia 

to lag behind the West in many areas of technology, the country's overall technological level was high in 

the global context.

The nation's 6.5 million square miles of land offered a vast storehouse of potential wealth, if it could be 

placed in private ownership and used as the basis for commercial lending.

Finally, Russia possessed tremendous natural wealth, ranging from oil and gas to aluminum and 

diamonds. Russia's combination of natural and human resources seemed destined to return its people to 

greatness.
2-2

CLINTON SPEAKS TO THE RUSSIAN DUMA: In an embarrassing contrast to the reception Boris 

Yeltsin earned in the United States, President Clinton delivered an uninspiring speech to a half-empty 

Duma during a visit to Moscow, June 5, 2000. AP Photo/ Misha Japaridze

Russia also faced enormous challenges. Never in human history had so many people for so long been 

denied all economic and personal freedoms. The legacy of Soviet Communism was economic and 

political chaos. Russia inherited an economy thoroughly mis-developed and in steep decline. The 

massive resources devoted to military production meant that consumer goods were shoddy and scarce. 

The central planners' obsession with enormous industrial plants concentrated workers in far-flung onecompany towns that could not be expected to survive serious restructuring from market discipline, yet 

the displaced workers had nowhere else to go because of a crippling housing shortage throughout the 

country.

The Soviet Union's state-controlled economy also left Russia without the basic legal and institutional 

components of a market economy. The illegality of private property in the Soviet system ensured that 

such functions as land title registries, real estate brokerage, securities exchanges, or even classified 

advertising did not exist. Similarly, there were no effective laws to enforce private contracts, protect 

intellectual property, or resolve commercial disputes between private individuals.

2-3

ACCORD: Presidents Ronald Reagan and George Bush enjoyed productive relationships with their 

Soviet and Russian counterparts and high popularity among the Russian people. U.S. President 
Ronald Reagan, right, and Soviet General Secretary Mikhail Gorbachev are shown at the negotiating 

table in Moscow, June 1, 1988, the fourth day of a summit. While relations with the Soviet Union and 

Russia were at high-water marks at the end of the Reagan and Bush terms, respectively, Russia 

appeared more interested in European, Chinese, and even North Korean relations than in improved 

ties with the United States at the end of the Clinton administration. AP Photo/Doug Mills

In the absence of such basic elements of a market economy, and without the elementary laws to support 

rights in private property, few Russians, let alone foreigners, would be willing or able to make a go of it 

in the chaotic Russian economy.

Russia's long Communist nightmare also had heavy political consequences. First and foremost, Russia 

lacked experience with democratic consensus-building; government officials knew how to command, 

but not how to lead.

Nor did Russia's new politicians have any experience in reading and responding to public opinion. As a 

result, Russia's political system soon became fragmented, as popular figures established movements or 

parties based on their own idiosyncratic views. Russia's reform-oriented parties were largely in disarray. 

Only the Communist Party of the Russian Federation, having inherited a structure and membership, 

began the new era with any organizational discipline.

In spite of all of this, the people of Russia were in high spirits. After 75 years of Communist privation 

and fear, they were ready for a fresh start.

The Soviet System

The prospects facing Russia's 146 million people following the fall of the Soviet system were 

exhilarating but daunting--because what had just ended was one of the most dysfunctional political 

economies in history.

Under the Soviet system, Gosplan, the Soviet economic planning agency, decided what and how much 

to produce throughout the Soviet Union, and its decisions were promulgated in rigid "five-year plans." 

Gosplan paid little heed to consumers' preferences; it relied on production quotas, rather than 

profitability, to measure success. Inferior quality and chronic shortages were the hallmarks of the 

Communist economy.

The grossly inefficient Soviet economic system met the needs of neither the Russian people nor those 

who lived in the Soviet Empire's captive nations. A black market in Western products, which expanded 

quickly in the final years of the Soviet Union, helped reveal the defective nature of the Communist 
economic system.1

Because the Soviet economy produced so little that the rest of the world wanted to buy, its currency, the 

ruble, was worthless outside the Soviet Union. A lively black market in Western currencies flourished at 

all levels of Soviet society despite its illegality.2

Military needs also weighed heavily on the Soviet economy. It has been aptly stated that while the 

United States had a military-industrial complex, the U.S.S.R. was a military-industrial complex: 

throughout the Cold War, the Soviet military annually consumed between 40% and 50% of the Soviet 

Union's output, leaving few resources to meet consumers' needs.3

The Russian Economy at the Collapse of the Soviet Empire

At the outset of 1992, Russia's leaders confronted the social, economic, and political disarray they had 

inherited from Soviet Communism. The new Yeltsin government, in the throes of a chaotic transition, 

faced tasks that included the consolidation of political power in the wake of the August 1991 coup 

attempt; Russia's establishment as a separate nation in the international arena; laying the political 

groundwork for a democratic, civil society; and constructing a free enterprise economy from the ground 

up.

Yeltsin's chief economic adviser and First Deputy Prime Minister, Yegor Gaidar, took responsibility for 

the economic turnaround. He became acting Prime Minister in June 1992.

The economic conditions that Gaidar had inherited from the Soviet Union were grim: inflation for 1992 

was 2,500%, while the shrinking economy posted a "negative growth" of -14.5%.4

These horrific conditions had been long in the making. The Soviet war in Afghanistan, the additional 

military spending the Soviet Union had undertaken to compete with the Reagan policy of peace through 

strength, and the complete failure of the civilian economy to produce meaningful tax revenues and 

foreign exchange had all contributed to increasing deficit spending by the Soviet Union throughout the 

1980s. As early as 1986, the government of the U.S.S.R. had come to rely heavily on international loans 

to finance its yearly operations.

But foreign borrowing to finance the government's annual deficits had also created new burdens on the 

economy, as budget expenditures rose for debt service. By 1991, the last year of the Soviet Union, the 

central government's budget deficit had risen to 20% of the entire nation's economy. As the situation 

worsened, the U.S.S.R. began to default on its foreign loan payments.

The end of the Soviet Union also meant the end of the Cold War. The good news for Russia was that it 

no longer had to compete with the United States in the arms race. But the military sector of the economy 
was one of few in which former Soviet enterprises enjoyed a comparative advantage--and for which 

there were willing foreign buyers. Somehow, Russia needed to convert its military production to 

technologies and products demanded by a consumer economy.

The majority of Russians vaguely recognized that building a market economy was the essential first 

step. They seemed prepared for at least some period of transition before conditions would eventually 

improve.As Gaidar and his colleagues began their work, they could not have asked for a bigger 

challenge or, in the circumstances, a more supportive climate of public opinion.

1992 and the Beginnings of Economic Reform

On January 2, 1992, on the advice of Gaidar's team, the government lifted price controls on many items. 

The expected result--a widespread increase in what had been artificially depressed prices--in fact 

occurred. But the brisk winds of market pricing were soon augmented by strong gusts of 

counterproductive monetary policy, which sabotaged Gaidar's anti-inflation strategies.

Rationalizing its inflationary monetary policies on the ground that it was difficult to collect taxes, the 

Russian Central Bank began to print money. At the same time, the neighboring newly independent states 

likewise printed rubles without concern for the consequences. The result was hyperinflation.5 The 250% 

inflation rate for January 1992 wiped out the value of people's savings accounts, created a fear of 

hunger, and undermined confidence in market reforms.

Gaidar and his team of economists, believing that they would not last much longer than a year in office,6 

decided to move rapidly to promote their economic agenda. The believed that they needed to put stateowned companies into private hands as quickly as possible to disperse economic power and thus ensure 

against a possible return of Communist rule. As a result, they resorted to decrees to promulgate laws 

without legislative backing, stiffening the Soviet-era legislature's resistance to legislative 

implementation of their policies.

So began a tactic that would be used by the Communists in the legislature for years thereafter: 

portraying the executive branch of the new government as solely responsible for soaring prices and 

economic disarray, while refusing to participate in policy making through responsible legislation. In this 

way, legislators could assume the role of vigilant protectors of the common Russian interests, without 

bearing any of the political risk or responsibility for the enormous changes needed.

An average increase in wages of 50% in January only fractionally offset the month's 250% inflation. The 

standard of living fell, and poverty rose. Supply shortages were aggravated by the economy's saturation 

with rubles. By removing price controls, the Gaidar team had intended to let price rationing regulate 

demand while providing incentives for increased production. But the chaotic monetary policy of Russia's 

Central Bank frustrated these objectives.
Industry, which was accustomed to direction as to what and how much to produce, seemed incapable of 

heeding consumer demands. The Russian government, fearing food and other shortages, continued to 

issue production orders just as in Soviet days. Moreover, the government did not free all prices, out of 

concerns that certain staples would become too expensive--and that industries like energy, 

transportation, and communications could not sustain market pricing.7

The transition from a planned economy to a market economy was thus off to a bumpy start.

1-5
RELIGIOUS FREEDOM: The 1991 holiday season brought evidence that freedom was taking root and 

optimism about religious freedom, even before Gorbachev resigned as the last Soviet president on 

Christmas Day. Here, workers in Moscow erect a Menorah for Hanukkah. The Ukraine Hotel is in the 

background. On Sunday evening, Dec. 1, ABC's Forrest Sawyer reported "another first today for 

religious freedom in the Soviet Union. Not only were Jews allowed to openly celebrate Hanukkah, 

Soviet television even covered the lighting of the Menorah at the first ever Hanukkah ceremony at the 

Russian Parliament." Warm American-Russian relations were marked by the presence of American 

Jews in Moscow for the ceremony. The Associated Press reported that Russia's "19-year-old Lena 

Rosenblat watched intently to learn about her own religion. 'Unfortunately, we don't know much about 

our own traditions,' said the business student, standing with her 10-year-old sister Zhenya. 'I think 

we're the first generation in our family not to know about this.'" Lena and her family "huddled in the cold 

wind on the Parliament steps where barricades stood during the August coup. The coup's collapse, 

and the ensuing spirit of liberation, hastened changes that led to Sunday's celebration in the Soviet 

capital. 'Our lights are a guarantee against darkness,' said Rabbi Yitzhak Kogen, a member of the New 

York-based Lubavitch movement, which organized the ceremony. 'Everyone can use this light of 

Hanukkah.' He spoke to 200 people on the parliament steps watching the lighting of the 20-foot iron 

menorah, erected by the Lubavitch movement with permission from Boris Yeltsin's government. After 

several speeches, the rabbis were hoisted aloft by a crane and, while reciting a prayer, lit two kerosene 

lamps atop the center and far left branches of the eight-armed candelabrum. A vibrant 'Amen' rang out 

below and the sound of the Jewish songs reverberated off the white marble walls of the building. ... 

Communist rulers for decades suppressed Judaism and other religions in the name of official atheism. 

Though underground services and schools persisted, most Jews learned little or nothing about their 

own religion....' For Rosenblat, the Hanukkah celebration may have sparked optimism. 'Maybe we'll go 

to America or Israel. Or maybe,' she said, flashing a cheerful smile, 'we'll stay here.'" AP Photo/Alexander 

Zemlianichenko

The Political Landscape

After the January shock, inflation slowed to 10% by August 1992. But throughout the year, the Russian 

government and the Central Bank continued to extend credits to inefficient, corrupt enterprises in a 

misguided effort to boost production.

The results were predictable: more inflation. Inflation rose to 25% by October, and remained at that 

level for the balance of the year. Production continued to lag, as anti-competitive subsidies for moneylosing industries continued. The ever-weakening ruble, combined with growing uncertainty about the 

future of their economy, led Russians to trust dollars over rubles.

During the year of economic tumult following Yeltsin's January 1992 decision to move toward market 

pricing without creating a free market in production, he lost support in the Russian parliament.
The Sixth Congress of the Russian People's Deputies, elected in March 1990, had convened in April 

1992 amid protests over government economic policies. Yeltsin sacrificed his chief adviser, Gennady 

Burbulis, to quiet the outcry, but the respite was short-lived. Opposition came to a head in December 

1992, when the Congress of People's Deputies rejected Yeltsin's nomination of Yegor Gaidar, who had 

been serving as the acting prime minister since June.

For the first two years of Yeltsin's administration, Russia continued to function under the Soviet-era 

constitution. (Not until December 1993 would Russia finally adopt its first constitution since 

independence.) Under the Soviet-era constitution of the Russian Federation, real legislative power 

existed only in theory.

The Russian legislature under the Soviet-era constitution was the Congress of People's Deputies and its 

smaller, full-time component, the Russian Supreme Soviet. In Soviet times, this body, like its 

counterparts in the other Union Republics, was a docile rubber stamp for measures already decided by 

the Communist Party Central Committee.

But without a ruling Communist Party from which to take orders, the Russian legislature's nominal 

powers took on new significance. Thus, when Russians created the presidency in 1991 8 its powers in 

comparison with those of the legislative branch were modest. While the president was the "highest 

official of the Russian Federation and the head of executive power," Yeltsin had to work through a 

Supreme Soviet elected in March 1990. The Supreme Soviet could override a presidential veto with a 

simple majority in both houses and could impeach the president if it found that he violated his oath of 

office.

In the early days of Russia's rebirth, however, Boris Yeltsin enjoyed high popularity--and therefore 

authority in fact, if not authority in law. On November 1, 1991, the Russian Congress of People's 

Deputies acknowledged this fact and voted to grant Yeltsin the power to rule the economy by decree 

until December 1992.9

On November 6, 1991, the Russian president moved to enhance his power, announcing that he would 

serve as his own prime minister and assume personal control of Russia's transition. The parliament's 

decision to give Yeltsin the power to make economic policy by decree was a significant precedent, 

because in so doing they failed to establish a democratic process to make policy.

Yeltsin's broad powers were based on his personal popularity rather than law, and therefore proved 

vulnerable to changing public opinion. In the early period of his presidency, he enjoyed considerable 

power, and was able to effect controversial measures, including those that all agreed would bring shortrun economic hardship. But his failure to forge a political base of support for such measures or to secure 

their enactment by the legislature left him as the inevitable target of criticism from other popularly 

elected leaders.

In December 1992 Yeltsin retained sufficient authority, however, to reach an accord with the legislature.
A Setback to Market Reforms: Chernomyrdin Replaces Gaidar

In a compromise organized by the centrist Civic Union, Gaidar was replaced by Viktor Stepanovich 

Chernomyrdin, who before becoming deputy prime minister in Gaidar's government had been the head 

of the Soviet Union's largest monopoly, Gazprom--the state-run natural gas giant.10

Chernomyrdin's appointment was a devastating step backward. But Yeltsin's decision was a pragmatic 

one: Gaidar and his reforms had become associated with the disruption in people's lives, and the Russian 

parliament had grown increasingly hostile toward Yeltsin.11

Chernomyrdin, whom U.S. Vice President Al Gore would soon make the focus of U.S.-Russia policy,12 

was neither a democrat nor a believer in free markets. The international press described him as a 

"Communist-trained technocrat ... [who] comes to the job with a background in Soviet industrial 

management and political back-scratching."13

Chernomyrdin was born in Orenburg in 1938, graduated from the Polytechnical Institute at Kyubyshev, 

and received a degree in engineering economics by correspondence from Moscow's All-Union 

Polytechnical Institute. He worked as a machinist at the Orsk Oil Processing Plant starting in 1960, 

joined the Communist Party's local branch the next year, and rose to prominence through party ranks.

In 1978, he became an industrial adviser to the Communist Party Central Committee. In 1982, he was 

appointed deputy minister of the Soviet Ministry of Gas Industry, and, in 1985, he became minister 

under Gorbachev. In August 1989, when the Ministry became Gazprom, Chernomyrdin became 

chairman and CEO. He remained there until August 1992, when Russian President Boris Yeltsin made 

him deputy prime minister for the fuel and gas industry. During his career, Chernomyrdin was awarded 

several Communist Party honors, including the Order of the October Revolution, the Order of the Red 

Banner of Labor, and the Order of the Badge of Honor.14

Chernomyrdin's statist economic background was a fair predictor of his forthcoming performance as 

prime minister. On December 31, 1992, shortly after taking office, Chernomyrdin signed a resolution reimposing price controls on a wide range of goods. The new prime minister also proposed increasing 

subsidies to protect insolvent state enterprises.15

Yeltsin's agreement to appoint Chernomyrdin was purchased with a commitment from hard-liners to 

hold an April 1993 referendum to approve a new constitution, as well as to test public support for 

continued moves away from Communism.

Yeltsin's maneuvering to obtain a vote on whether to continue market reforms was shrewd. The results 

of the referendum--15 months into Yeltsin's tenure--showed that 53% of voters approved of his 
economic course, notwithstanding the extreme hardship it imposed. Moreover, 67% supported early 

legislative elections to replace the Communist hardliners in the legislature--a powerful public 

endorsement of Yeltsin and his policy.

None of this deterred centrists and hardliners in the parliament from attempting to put the brakes on 

economic reform to give greater attention to "social needs."16

New Liberties and the Rule of Law

The U.S. Department of State reported that in its first year of independence Russia had "made 

substantial progress toward democratic change, the reform of its political and economic systems, and the 

dismantling of the remnants of the former Soviet state."17

As democratization advanced, the number and activity of political, civic, and other groups exploded. In 

its annual survey, Freedom in the World, Freedom House called attention to "a multitude of parties, as 

well as non-political civic, cultural, social, business, youth, and other organizations" in Russia in 

1992.18 The State Department estimated that some 300 strictly political organizations operated 

"unhindered" in the country, adding that public demonstrations were commonplace throughout the year 

and took place "routinely" without government interference.19

Similarly, the State Department reported that freedom of speech and the press at this time were "widely 

respected," and that most periodicals were now free of government control.20 A new law prohibiting 

censorship and the creation of media monopolies guaranteed the freedom of Russia's print media.21

The new Russia took other important steps in 1992 to undo the Soviet legacy. The parliament passed 

legislation dismantling the Soviet Union's KGB into several agencies. The new outfits were ordered to 

respect human and civil rights, and submit to legislative oversight.22

Russia's citizens generally enjoyed freedom of religion and growing freedom of movement in 1992. By 

the end of 1992, all adult citizens were granted the right to travel abroad.23

The 1992 creation of Russia's Constitutional Court was likewise an important step for the protection and 

expansion of Russians' new freedoms, and the establishment of the rule of law. Two major Court 

decisions in 1992--a January ruling overturning a Yeltsin decree merging the KGB and the Interior 

Ministry, and a November decision that Yeltsin's ban on the Communist Party after the August 1991 

coup attempt was unconstitutional--implemented the important principle of judicial review of the 

legitimacy of executive acts, and marked important progress toward the establishment an independent 

judiciary.24

Just as importantly, President Yeltsin's acceptance of the verdicts was a hopeful sign for development of 
the rule of law in Russia. For a Soviet court to have ruled against a measure promulgated by the 

Communist Party leadership, or for Party leaders to have obeyed such a decision, would have been 

unthinkable.

Despite these encouraging signs, much work remained then, and remains now, to establish the rule of 

law. Unlike the American Revolution of 1776, the French Revolution of 1789, or even the Bolshevik 

Revolution of 1917, the Russian Revolution of 1991 did not overturn existing laws or destroy the 

governing institutions. Not only did the Soviet constitution remain in force for two years, until 

December 1993, but even today many Soviet-era laws continue to be enforced.25

Popular Views of Democracy, Reform, and the United States

According to Librarian of Congress James Billington, a renowned Russia scholar,26 Russia has many 

times in its past turned to its principal adversary for new thinking and institutions. As Russia rebuilt its 

society after the Cold War, it looked to America for guidance,27 offering an historic opportunity for 

both countries.

Never was this fascination with the United States, its people, its values, and its structures more apparent 

than in the first years of Russian independence. As 1992 opened, Russian enthusiasm for democracy and 

a market-based economy was manifest. After 75 years of Communism, Russians yearned to become 

what they called a "normal" country.

Pro-democracy groups sprang up and independent political groups proliferated as Russians tested their 

new political rights and showed their excitement about democracy. Public opinion polls showed 

remarkably resilient support for Yeltsin's economic reform program, including privatization and other 

measures,28 even after the economic hardships of price liberalization. Conversely, the Russian 

parliament lost support as the public began to perceive it as a hindrance to reform.

In addition to displaying enthusiasm for the American model of democracy and free markets, Russians 

wanted broad and close ties to the United States. This was apparent not only in opinion polls, where 

strong relations with America registered as a top priority,29 but also in a general fascination with 

American popular culture.

American clothing, films, and music surged in popularity, particularly in Moscow and St. Petersburg. In 

early 1992, over 70% of Russians surveyed were viewers of the soap opera "Santa Barbara." Russia's 

RTR television network estimated the audience for the program to be 80 million.30

Nor was Russian popular fascination with America and Western culture limited to television 

programming. According to the Russian Press Ministry, the best-selling book in Russia in 1992 was 

Margaret Mitchell's Gone With the Wind, followed by Edgar Rice Burroughs' Tarzan of the Apes.
Western artists dominated pop music charts. The Beatles accounted for two of the top three selling 

albums of the year, as the White Album and Abbey Road ranked first and third, respectively. In Moscow 

movie theatres, Gone With the Wind had the largest ticket sales of any foreign movie.31

Russians were obviously enamored of things American--both material goods, such as McDonald's 

hamburgers and Levi's jeans, and Western governmental and economic institutions.32

Such interest gave the United States an unprecedented opportunity to assist the Russian people in their 

transition from Communism to free enterprise and democracy.

Russian Foreign and Defense Policy

Russia's foreign policy reflected the overwhelming goodwill of Russia's citizens toward the United 

States in 1992. The rhetoric of Russian government leaders was positive. President Yeltsin's speech on 

January 31, 1992, at the United Nations in New York--which had so often been the site for showdowns 

between the United States and the Soviet Union--was remarkable:

Russia considers the United States and the West not as mere partners but rather as allies. It 

is a basic prerequisite for, I would say, a revolution in peaceful cooperation among 

civilized nations.

We reject any subordination of foreign policy to pure ideology or ideological doctrines. 

Our principles are clear and simple: supremacy of democracy, human rights and freedoms, 

legal and moral standards.33

Later in the year, Russia supported U.S. efforts in the U.N. Security Council for sanctions against Libya 

for its terrorist activities, as well as condemnation of the government of Yugoslavia for its interference 

in the civil war in Bosnia-Herzegovina. This support was essential to American attempts to isolate both 

Tripoli and Belgrade.

Russia's rejection of its former Communist ideology in foreign policy, and its emphasis on the universal 

values of democracy, human rights, individual freedom, and pubic morality, went well beyond 

Gorbachev's comparatively timid "new thinking" in Soviet foreign policy. It was not too much to hope 

that the spirit of brotherhood between the U.S. and Russia forged in the battle against fascism during 

World War II would supplant decades of Cold War antagonism.

The Bush-Yeltsin Watershed
During Yeltsin's June 1992 visit to Washington he and President Bush signed agreements that 

engendered great hopes for enduring cooperation between Washington and Moscow. Most significant 

was a joint understanding that was to serve as the framework for the START II Treaty that Presidents 

Yeltsin and Bush signed on January 3, 1993.34 START II was an agreement to reduce both countries' 

nuclear warheads by almost 75%, eliminating highly destabilizing multiple-warhead land-based 

missiles.35

There were dozens of other agreements, including a Charter for American-Russian Partnership and 

Friendship that laid out an ambitious plan for cooperation in preventing and limiting international 

conflicts, a statement on joint work to develop a missile warning system, and agreements on nonproliferation, space, and investment.36

The spirit of the times was captured by the extraordinary reception President Yeltsin received when he 

called for closer U.S.-Russian cooperation in the address he gave during a June 1992 visit to a Joint 

Session of Congress. Saying Russia was "extending its hand of friendship to the people of America," he 

invited America "to join [Russia] in partnership in the quest for freedom and justice in the 21st 

century."37

During his address to Congress, Yeltsin renounced the most confrontational aspects of Soviet foreign 

policy, including U.S.S.R intervention in Afghanistan and support for Cuba's Communist regime. He 

also announced that he had ordered Russia's Defense Ministry to begin to remove the country's most 

dangerous missiles, its land-based multiple warhead SS-18s, from alert status.

Russian overtures to America at this time also included cooperation on non-proliferation, reductions in 

conventional weapons, and--of special note--discussions of a cooperative global anti-ballistic missile 

(ABM) system.38 Russia played a key role in facilitating the Lisbon Protocols to START I, which 

guaranteed that Belarus, Kazakhstan, and Ukraine would transfer Soviet nuclear weapons to Russia for 

destruction and assume non-nuclear status. The subsequent unhappy evolution of Belarus under 

President Alexander Lukashenka is a reminder of the importance of this agreement to contemporary 

international security.

Early Military Conversion Efforts

Perhaps the most significant development in the early days of the new Russia was the initiative for a 

massive de-militarization of the Russian economy.

Russia's 1992 military budget called for expenditures to be one-half the previous year's, with a 

substantial majority of the funds to be spent on personnel and operations and maintenance.39 Military 

procurement was sharply reduced. While the U.S.S.R. had bought 3,000 tanks in 1991, Russia was 
slated to purchase only 30 in 1992.40 Altogether, spending on military hardware was cut by 80%.41

At the same time, the law "On Defense" adopted by parliament in June 1992 limited the size of Russia's 

peacetime military to 1% of the country's population, or about 1.5 million soldiers.42 The Russian 

military planned to reduce its forces by some 700,000 men during the period 1992-94.43

Russia's demobilization in 1992 was fraught with political peril. Cuts in procurement placed thousands 

of jobs in Russia's oversized military-industrial complex in jeopardy, at the very time that the rest of the 

economy was also under heavy pressure. Russia had ambitious plans for the conversion of military 

plants to civilian production. Conversion, however, required even more spending than continued military 

production.

According to Mikhail Bazhanov, the head of the State Conversion Committee, Russia would need to 

invest 1.2 million rubles in converting to civilian production for every one million rubles it received 

from state orders for military production.44

Bazhanov worried that Russia could be forced to turn to arms sales to finance its military conversion 

effort. President Yeltsin concurred, but vowed that Russia would not sell weapons to countries under U.

N. sanctions.45 Yeltsin also decreed that the Defense Ministry should be permitted to sell all excess 

property other than weapons and ammunition in order to raise funds.46

2-X Bush-Yeltsin
INVESTMENT, NOT AID: President Bush and President Boris Yeltsin leave the stage after meeting 

with business executives in Washington when Yeltsin was in the United States for a summit. "In effect," 

New York Times foreign affairs columnist Thomas L. Friedman wrote at the close of the June 16-17 

summit, "these two days marked the moment when the currency of American-Russian relations shifted 

from warheads to dollars. ... The importance of the economic agreements signed today, offering mostfavored-nation trade benefits to Russian exporters, export credits, a taxation treaty, insurance to 

American companies want-ing to invest in Russia and a treaty to govern mutual investment, is that 

they promote what will really transform the Russian economy: not foreign aid, but private investment. 

One thing American officials have learned from the experience of Poland is that while Western aid is 

necessary for transformation to a free market," Friedman continued, more is necessary. "There is no 

capitalism without capitalists, and unless Russia is opened up to investment, unless state-owned 

industries are privatized quickly, unless the ruble is made convertible and unless there is a modicum of 

internal stability to attract foreign businesses, no external aid package will be big enough." Clinton 

administration officials, however, attempted to rely on aid, neglecting the prerequisite for its 

effectiveness, the creation of a market economy. AP Photo/Dennis Cook

2-6 Yeltsin, Quayle, Foley

BIPARTISAN POLICY: Russian President Boris Yeltsin received a warm bipartisan welcome in 

Congress in 1992. Despite the fact that 1992 was an election year, Republicans and Democrats 

worked together to pass the FREEDOM Support Act. Had this legislation been properly implemented 

during President Clinton's two terms, it would have provided for much better conditions in Russia and 

for a more positive U.S.-Russia relationship. Office of Photography/U.S. House of Representatives
Bringing Troops Home

The withdrawal of Russian military forces from abroad and the partial dissolution of unnecessary 

military units created similar economic challenges. In August 1992, some 104,000 military personnel 

were without housing; the number was expected to increase substantially as additional troops were 

pulled from foreign bases.47 Large numbers of potentially disaffected current and former military 

personnel were a major political concern of the Yeltsin government.

Nevertheless, Russia began the withdrawal of substantial military forces stationed in Central and Eastern 

Europe and the Newly Independent States of the former Soviet Union during 1992. For example, some 

15,000 soldiers and officers had withdrawn from Lithuania by fall.48

Despite these very practical problems, the trends were unmistakable: whereas the Soviet Union had 

devoted itself chiefly to the maintenance and expansion of its military and empire, the new Russia--at 

least in its early days--was committed to channeling its enormous potential into the construction of a free 

enterprise civilian economy.

The collapse of the Soviet Union and the newly pro-western orientation of Russia's foreign and military 

policies also had consequences for the mission of the Russian military, as political leaders reevaluated 

its fundamental purposes. At the end of 1992, Boris Yeltsin identified the top priorities of the Russian 

army as preventing war, conducting demilitarization, converting military enterprises to civilian 

purposes, and reducing troop strength.49 The Russian military was to be oriented primarily toward its 

own internal restructuring and downsizing.

As President Clinton took the oath of office on January 20, 1993, the Russian government was 

completing the Foreign Policy Concept of the Russian Federation, an authoritative statement of its 

goals, which--as issued in final form five days later--announced that the conclusion of a RussianAmerican alliance was the formal objective of Russian foreign policy. There was no hint of the dramatic 

deterioration in the U.S.-Russian relationship and the anti-American Russian military and foreign policy 

that were to come.50

U.S. Russia Policy at the Outset of the Clinton Administration

At the outset of the Clinton administration, the Bush administration and Congress had put in place the 

necessary tools for the United States to assist the Russian people in their historic transition from 

Communism to free enterprise. In the same way that America's former enemies, Germany and Japan, 

had become friends, allies, and significant U.S. trading partners, it appeared that so too might Russia and 

the new nations of the former Soviet Empire.
The Bush administration's Russia policy during the closing days of Gorbachev's government had been 

one of cautious engagement--supporting freedom, but avoiding potentially counterproductive steps such 

as the large-scale infusion of cash into a system in transition.51

As early as 1990, the United States had begun to provide limited assistance to the Soviet Union to show 

support for reform. Before the final collapse of the Soviet Union in December 1991, the Bush 

administration took several steps to prevent adverse social consequences from the thus-far peaceful 

revolution, including signing an agreement to extend normal trade relations to all of the republics of the 

Soviet Union, providing nearly $1.2 billion in food aid and agricultural credits, and extending medical 

assistance.

The caution and reserve of the Bush administration, which was apparent to Russian observers at the 

time,52 compared favorably to the approach of its successors--particularly in terms of the positive 

results it produced.

On the strategic front, President Bush in 1991 announced several significant initiatives, including the 

elimination of U.S. short-range nuclear weapons, the stand-down of strategic bombers and ICBMs slated 

for destruction under the START agreement, and a proposal to eliminate ICBMs with multiple warheads 

(eventually a key part of START II).53 The administration continued this approach in 1992, taking 

important steps to reduce tensions while protecting America's strategic interests.

Support for Freedom

The most important Bush administration initiative of 1992 was the Freedom for Russia and Emerging 

Eurasian Democracies and Open Markets (FREEDOM) Support Act.54 During a difficult U.S. election 

season, the Bush administration successfully pushed this path-breaking legislation through a Congress 

controlled by the opposing party, despite unusually strained relations between Congress and the 

executive branch.

"During my tenure," said Richard Armitage, former Coordinator for U.S. Humanitarian and Technical 

Assistance, "I communicated directly, often, and in great detail, with the appropriate Committees of 

Congress. I wanted very much to have the advice of key Members and staff and share with the Congress 

my sense of just how daunting the task of undoing the effects of 70 years of Communism would be. We 

reached, I think, a bipartisan consensus."55

The Bush administration's willingness to expend significant political capital and engage the Democratic 

Congress to achieve the historic bipartisan Freedom Support Act insured that, had the administration not 

changed, both branches would have subsequently followed through on its implementation.56

The Freedom Support Act provided the executive branch with "broad authority for the conduct of a wide 
range of humanitarian and technical assistance programs."57 The premise of the legislation, as stated in 

the Act itself, was that developments in Russia and the other independent nations of the former Soviet 

Union presented "an historic opportunity for a transition to a peaceful and stable international order and 

the integration of the independent states of the former Soviet Union into the community of democratic 

nations." The legislation specifically authorized technical cooperation, medical aid, food assistance, 

assistance for the development of democratic institutions, and encouragement of trade and investment. It 

cited as objectives the establishment of the rule of law, the adoption of commercial codes, and replacing 

the Soviet regulatory system with transparent regulations hospitable to domestic and foreign investment. 

The Act also created the Office of Coordinator of U.S. Assistance to the New Independent States.58

A Newly Free People

The rapid transformation of Russia from a closed, militarized, state-run society to a pro-Western, 

democratic, free-thinking nation presented the United States with the most significant foreign policy 

opportunity since World War II. But Russia's new freedoms were neither complete nor secure. At the 

end of 1992, as Russians stood on the ashes of the Soviet system, they looked hopefully toward America 

and the world--not for charity, but for inspiration.

How President Clinton, the new leader of the free world, would address this opportunity, and whether 

Russia's new leaders would stay the course of dismantling the Soviet Communist state, hung in the 

balance.

CHAPTER 3

THE TASK AHEAD: 

CREATION OF A FREE 
ENTERPRISE SYSTEM AFTER 

A CENTURY OF STATE 

CONTROL

3-President at podium small

FROM THE BERLIN WALL TO THE INVISIBLE WALL: "General 

Secretary Gorbachev," President Reagan asked at the Berlin Wall, 

June 12, 1987, "if you seek peace, if you seek prosperity for the 

Soviet Union and Eastern Europe, if you seek liberalization: Come 

here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, 

tear down this wall!" The Berlin Wall fell, but at the outset of the 

Clinton and Yeltsin administrations, an invisible wall of high tax rates, 

limited market competition, weak contract and property rights, and no 

real banking system confined Russians. Clinton policy reinforced this 

invisible wall with bad economic advice that contributed to Russia's 

economic collapse in 1998. Trade with the Communist-controlled 

People's Republic of China was a higher priority than trade with 

Russia. Tax collections were emphasized over rate cuts. 
Government-to-government loans substituted for growth policy. 

Capital flight undermined investment in Russia. Predictably, Russia's 

economic output plunged 40%. Clinton policy contradicted advice 

from President Reagan in his Berlin Wall speech: "In West Germany 

and here in Berlin," the President said, "there took place an 

economic miracle, the Wirtschaftswunder. Adenauer, Erhard, Reuter, 

and other leaders understood the practical importance of liberty-that 

just as truth can flourish only when the journalist is given freedom of 

speech, so prosperity can come about only when the farmer and 

businessman enjoy economic freedom. The German leaders 

reduced tariffs, expanded free trade, lowered taxes. From 1950 to 

1960 alone, the standard of living in West Germany and Berlin 

doubled." AP Photo/J. Scott Applewhite

For 72 years, Communism in Russia waged a silent war against 

the human soul. Sometimes screams were heard from torture 

chambers deep in prisons and in detention centers, but mostly the 

war was fought with ideas and incessant public propaganda ... 

Communism ... wounded the habits of honesty and trust, selfreliance and fidelity to one's word ... The transition from 

Communism to a free society is consequently a severely 

demanding moral task ... How that transition goes is perhaps the 

greatest issue of our time.

Michael Novak, writing in Commentary, June/July 2000

Economic science adds that the more successfully private 

business is run in society and the more (so to speak) whole coats 

there are, the firmer are its foundations and the more the 

commonweal flourishes. Thus, while busy acquiring only and 

exclusively for myself, I actually, at the same time as it were, 

acquire for all and help bring about a 

condition in which my neighbor receives something more than a 

torn coat. And he receives it not from the private charity of a few 
but as a result of overall improvement. The idea is a simple one. 

Unfortunately, it has been too long in reaching us.

Fyodor Dostoyevsky, Crime and Punishment, 1866

Without justice, what is the state but a band of thieves?

St. Augustine, The City of God

The English philosopher John Locke argued that the essential function of government is to protect life, 

liberty, and property. The Soviet Communist system--which killed at least 20 million Russians, denied 

freedom of thought and expression, and confiscated property--turned Locke's prescription upside down.1

The task facing the Russian people in January 1992 was to replace Communism with a free enterprise 

system and a democratic government that would protect life, liberty, and property.

The collapse of Communism in Russia ended not only the Soviet police state, the gulag, the one-party 

dictatorship, and the monopoly of state-controlled media but also the Soviet centrally-planned economy. 

The perestroika of the last Communist Party General Secretary, Mikhail Gorbachev, had been an effort 

to refine, not to replace, the command system of the Soviet Union. But now, in January 1992, there was 

for the first time in the experience of most living Russians a genuine opportunity to build the 

foundations of a free enterprise system.

The necessary bricks for that foundation were clear enough:

* Market-determined prices and production

* Binding, enforceable private contracts

* Individual ownership rights in land

* Private mortgage lending

* Commercial banking
* Uninhibited individual investment in for-profit enterprises

* Taxes light enough to minimize tax penalties on work, savings, investment, and risktaking

The question was not whether, but where--and how--to begin.

A Dysfunctional System

The economic system in Russia at the dissolution of the Soviet Union was fundamentally dysfunctional 

because the state attempted to control far too many aspects of life. Whereas in Eastern Europe for some 

45 years Communism had been superimposed on largely market economies, in Russia Communism had 

been in place for the better part of a century, and had been imposed on a society with comparatively 

little experience of free markets.

Any small private farms that had existed before Communism in Russia were brutally collectivized. In 

Stalin's phrase, the people who owned the farms were "liquidated as a class"--and often as individuals. 

In Poland, by contrast, small, privately-owned farms survived the post-World War II imposition of 

Communism: by some estimates, 30% of the Polish economy was privately controlled even during 

Communist rule.2 The seeds of free enterprise in Russia would be planted on less fertile soil.

3-2

SMITH BURIES MARX: Nina Khrushcheva, the 32-year-old granddaughter of the late Soviet Premier 

and Cold War leader Nikita Khrushchev, signs autographs with President Nixon's grandson, 

Christopher Cox, for visitors July 28, 1996 at the Richard Nixon Library and Birthplace in Yorba Linda, 

Calif. In the background is a photograph of Khrushchev with Nixon. While her grandfather told Nixon 
"we will bury you," Nina Khrushcheva noted that the challenge facing Russia at the outset of the 

Clinton administration was that "there could not have been a culture more out of touch with Adam 

Smith." AP Photo/Damian Dovarganes

According to Nina Khrushcheva, granddaughter of Soviet dictator Nikita Khrushchev: "There could not 

have been a culture more out of touch with Adam Smith."3 Acting prime minister Yegor Gaidar put it 

this way: "[A]fter seven decades of a regime for which private enterprise was not merely a dirty word 

but a criminal act...[t]he hostility toward private property permeated all of Soviet legislation and law 

enforcement."4

The Soviet economic bureaucracy in Moscow made decisions for 270 million people inhabiting eleven 

time zones. Soviet planners constructed an economy devoid of individual initiative and dominated by 

military spending. Individuals in the Soviet Union who sought to earn a profit were subject to 

imprisonment for the crime of "speculation." Central planning affected all aspects of the individual's life.

To move from this vast state-controlled economy to a free enterprise system based on private property, 

markets, and individual choice called for change on a breathtakingly large scale.

For the government, there were three main tasks:

* Soviet-era laws and regulations governing commerce would have to be repealed--not 

just in Moscow, but in each regional legislature.

* New legal protections for private property and private contracts would have to be 

enacted.

* The courts would have to build public confidence that privately-made contracts would 

be binding and enforceable.

Critiques of the reform process in Russia have often centered on a handful of generalities. Analysts of all 

ideologies decry the lack of "transparency" in Russian regulation, the need for the government to 

establish the "rule of law," and the need for the government to build efficient "institutions." In testimony 

before the House International Relations Committee in September 1998, then-Deputy Treasury 

Secretary Lawrence Summers repeated these formulations. However, the economic challenge that faced 

Russia in 1992, and continues today, is not simply to establish a better-working government. It is to 

fundamentally shift the responsibility for economic activity away from the government, and to 

individuals.

Transparency, the rule of law, and efficient institutions indeed are all vital elements of a well 

functioning free enterprise system. But they can also be consistent with statist economic systems, from 

Communism to Fascism to Socialism. What distinguished the Russian predicament in 1992, and 

required remedial action above all else, was that private economic behavior and private property had for 
so long been illegal.

Russia's task would be to focus all its energies on building the foundation for private initiative in place 

of government involvement in the economy. These historic circumstances demanded that the central 

government be cut down to size, and private enterprise legalized and encouraged.

From Gosplan to Supply and Demand

Gosplan FLAT

Before Russia could prosper, the complex Soviet system, a portion of which is reflected in the chart 

above, had to be replaced with the elegantly simple market system of supply and demand, depicted 

below in a graph familiar to all students of introductory economics. Russians eliminated the Soviet 

planning bureaucracy, which included 50,000 territorial administrative units, but other prerequisites to 

prosperity, including competition, enforceable contract and property rights, and efficient debt and 

equity markets, were delayed. "Privatizing" Russian assets before the creation of a market economy, 

rather than after, left individuals and firms unable to transmit accurate supply and demand messages 

to each other, which in turn caused economic contraction instead of growth. Soviet planning chart 

courtesy of Congressional Research Service
Tearing Down the Soviet Network

The Russian economy was divided into about 200,000 state-owned enterprises. Of these organizations, 

about 600 gigantic industries were responsible for 47% of the Soviet Union's non-military industrial 

production.5

For most of these industries, competition was non-existent: they enjoyed a state-enforced monopoly in 

particular markets. The management of these firms was uninvolved in the strategic decisions normally 

made by a company's executives. Instead, central planners in Moscow determined quantity and quality, 

chose suppliers and distributors, and decided what markets were open to industry. This reduced 

management to little more than production foremen.

During the final months of the Soviet Union, control over enterprises had in some cases been partially 

devolved to governments in the republics, complicating the prospects for privatization by giving 

multiple and competing levels of government claims on controlling the privatization of particular 

industries. In many cases, the resulting limbo left local plant managers and workers in control of 

factories regardless of the nominal ownership.

The inertia of 70 years of central planning kept producer-supplier relationships in place, despite the 

collapse of government-organized payment arrangements.

The "privatizations" of the 1990s would later fail to disintegrate the network of inefficient supplier 
relationships established under the Soviet command economy. This was true in part because the 

management remained the same, but just as importantly, because the incentives to change were missing.

Thus, the Soviet enterprise network continued to operate in essentially the same manner even after the 

fall of the Soviet Union. Products were still produced in qualities and quantities unrelated to market 

realities. And while a market economy would have quickly bankrupted inefficient companies that 

consistently lost money, in Russia these companies continued to limp along, often through continued 

state subsidies.

The European Bank for Reconstruction and Development later reassessed the first years of economic 

reform in Russia and Eastern Europe, concluding: "The consequences of the privatization strategy 

adopted in Russia have been highly adverse for the governance of enterprises and the allocation of 

resources, not least because of the clear failure to break the political constraints on restructuring and 

company closures."6

"Privatization" is impossible without a functioning market economy into which formerly state-owned 

assets can be sold. Nonetheless, throughout the 1990s both Russian policy makers and their American 

advisors (who should have known better) rarely concerned themselves with doing the government's part 

to establish a market economy. In a free enterprise system, government referees the game, but it is not a 

player. In the Russian "privatization" scheme, the government relinquished only some of its rights to 

play the game, and it continued to call too many--and sometimes all--of the plays. As a result, the 

"privatized" Russian enterprises lacked the normal incentives that cause the efficient allocation of 

resources in free markets.

Without enforceable property rights, the proprietors of "privatized" firms lacked the incentive to run 

companies efficiently and in accord with economic reality. Instead, producing profits for the firm's 

owners often required flatly illegal conduct. The government's continued subsidies for industry only 

encouraged such conduct, by providing opportunities for owners to strip away assets for their own 

personal profit, without market discipline.

The task in 1992 was to tear down the Soviet enterprise networks and provide neutral, pro-competitive 

rules to permit individuals to build new firms in an expanding market. "Privatization" without genuine 

private property and authentic markets could not accomplish this task.

Establishing Private Property Rights in Land

In 1991, the Russian language did not even have a word or term that captured the essence of private 

property in land, underscoring how alien this notion was to the Soviet system. Property belonged to 

everyone, and therefore to no one. As a result, incentives to maintain and enhance the value of real 

property were absent in Soviet-era society.
The lack of any legal, cultural, or customary basis for private property in land in the Soviet system 

stifled initiative, suppressed entrepreneurship, wasted valuable human and physical capital, and 

contributed significantly to the ultimate collapse of the Soviet Communist regime.

In 1991, the Soviet state owned an estimated 1.5 trillion acres of arable land. Breaking the state 

monopoly over real property was an important first step to allow Russians to use it to generate real 

wealth. Beyond de-collectivization of the massive state farms and the "privatization" of state-owned 

industry and housing, a means was required to distribute land to Russian citizens who for decades had 

been deprived of the opportunity to own it.

The enormous task of moving vast acreages of Russian land from state control to private ownership was 

not unprecedented. The United States faced a similar challenge in the 19th century. By the 1850s, 

America's huge land acquisitions had left the government in control of over half of the continental 

United States. Transferring government-owned land west of the Mississippi River to private ownership 

became an enormous--and urgent--project.

In 1862, President Abraham Lincoln signed the Homestead Act, one of history's most notable examples 

of establishing private ownership from scratch. The Homestead Act allowed each citizen to claim onequarter square mile of surveyed government land for his home, as long as he improved it with a dwelling 

and grew crops. If the owner maintained the property for five years, permanently clear title was issued.

The Homestead Act and subsequent laws succeeded in transferring vast portions of the United States 

from government control to private individuals in less than 20 years. Settlers first built homes of sod, 

which were soon replaced by frame and brick houses. The private property owners invested in trees to 

shield their dwellings, windmills to pump water from underground, and a host of technologies that made 

farming profitable. This remarkable transformation of prairie to developed real property was only 

possible through the establishment of a key element of the free enterprise system: individual ownership 

of land.

With such vast portions of the Russian Federation under state control, Russia required legislation that 

would do for it what the Homestead Act did for America almost 150 years ago--not only for residential 

and agricultural land, but for real property that might be put to any use.

Even more basic prerequisites for establishing private property rights in land were accurate surveying as 

the basis for certainty of title and public registration of ownership, so that others know who owns what. 

For property ownership to be useful to individual Russians, titles would have to be open to public 

inspection and well settled, with no "hidden" state or private claims or rights against the property.

A registry of deeds traditionally serves this function, although in today's global economy it is easy to 

imagine that a private registry on the Internet or some other form of up-to-date database could just as 

reliably catalogue real property ownership. The only essential is that title be unshakable, readily 
transferable, and useful as collateral for loans. Any number of public or private solutions would suffice, 

so long as the process was precisely accurate and trustworthy.

The owner of land must be able to sell his property on his own, without seeking anyone else's 

permission--including that of the government. The owner of real property must also be able to use it as 

security or collateral to borrow money. That, in turn, requires that the lender have a speedy, legally 

reliable, and inexpensive way to acquire ownership of the property if the borrower defaults. To this end, 

Russia's regional governments would need to enact laws clearly defining every one of these aspects of 

ownership.

Finally, because "rights" in land are useful only if they are enforceable, Russia would need to establish a 

court system that could be trusted to enforce protections for private property owners simply and cheaply.

Establishing private property rights in land was one of the most important elements of building a free 

enterprise economy in place of Communism that Russia needed to undertake in 1992. By doing this, the 

destructive linkages to the remnants of the Soviet system could be cleared away, and the vast potential 

wealth in Russian land could be opened up as a source of start-up capital for individual enterprise.

Establishing Private Property Rights in Housing

Converting the existing stock of Soviet-era state-owned housing to private ownership, and legalizing the 

construction of more and better housing, was likewise an essential first step to build a successful free 

enterprise economy. The housing shortage in Russia in 1992 was symptomatic of the inherent problems 

of the Soviet system, including restrictions on business and individual ownership of residential real 

property.

The pseudo-privatization of Russian apartments illustrates the difficulty that both the Soviet and Russian 

political systems had in recognizing basic ownership rights. Just before the end of the Soviet Union in 

1991, Russia had allowed some of its citizens to "own" their apartments at little to no cost. (By the end 

of 1993, 90% of Moscow residential property was theoretically "privatized" in this way.) But such 

"private ownership" was illusory.

Buying and selling apartment units was legally and economically difficult or impossible. Sovietcontrolled rents--frozen since 1928--covered less than 5% of the operation costs. It was therefore 

impossible for "owners" to pay for property improvements.

The problem was exacerbated when the government, which remained the landlord for "privatized" 

housing, stopped paying for maintenance for newly-privatized apartments. Because their occupants did 

not truly "own" them (in the sense that an investment in improvements could translate to an increase in 

the owner's wealth), the apartments quickly fell into disrepair.7
Nor had the government nominally gotten out of the ownership picture; in fact, it had devolved the 

housing assets and responsibilities to municipalities as a way of relieving itself of the burdens of 

managing the apartments.8

The underdeveloped legal system that existed in 1992, with multiple overlapping jurisdictions and poor 

enforcement, was yet another contributor to the lack of a housing market in Russia.

Not only were the Russian Federation's property laws--the legacy of Soviet Communist ideology--

hopelessly restrictive and confusing, but also the courts were unwilling or unable to resolve the 

conflicting mandates from federal, regional, and local authorities. A "war of laws" began as various 

levels of government passed conflicting mandates.

Nor was there any mechanism for resolving such conflicts.9 Statutory contradictions were left for 

individuals to resolve, with no recourse to any impartial interpretation of a person's rights or 

responsibilities under the law. Thus, the profitable use of residential real property was subject to 

arbitrary restriction, with little or no protection from the government.

In addition to the need for genuine privatization of housing, Russia needed private banks that would 

create a market in mortgages. In order for ordinary Russians to afford to buy an asset as expensive as a 

home, a convenient payment system over many years would be needed. The requirement was for a 

marketable mortgage with a term of 20 to 30 years at a reasonable interest rate.

In 1992, Russia had none of these things, and thus enjoyed none of the benefits of a free market. Little 

new housing was being created nor old housing sold. No new wealth was created in real estate. The 

absence of unassailable land titles, the absence of mortgage finance, the lack of unfettered rights to set 

prices for rents and for property itself--coupled with continued restrictions on the right to alienate real 

property--amounted to no free market at all.

The lack of a viable mortgage lending system had consequences well beyond a lack of adequate 

housing: it deprived Russians of their most likely means of generating start-up capital for new 

enterprises. The only significant tangible asset potentially available to the average Russian was the home 

he or she occupied (and perhaps nominally owned). Mortgage finance could turn that home from merely 

a maintenance cost into an asset useful for generating wealth--an asset that has been the stepping-stone 

to the American Dream for generations of Americans working their way into the middle class.

If a competitive home mortgage industry were at work in Russia, first thousands, and eventually 

millions, of Russians could use their homes as collateral for small-business loans, creating the 

entrepreneurial competition needed to break up the Soviet enterprise network. Lacking this normal 

vehicle for supporting the nascent entrepreneurial class, however, the most entrepreneurial Russians 

were increasingly being forced to turn to illicit means to fund new businesses. The rest just didn't start 

businesses at all.
As much as any other factor, the inability of ordinary Russians to use their homes as a means to build 

businesses has slowed the creation of a broad middle class in Russia, and the realization of the economic 

and political benefits that it would bring.

The British magazine The Economist summed up the challenge for the development of competitive 

markets in Russian housing and mortgage finance:

Badly constructed houses, feckless owners, buyers with impenetrable personal finances, 

an untested legal environment, crooked and incompetent banks, and almost universal 

political interference in the economy. The reasons behind Russia's lack of mortgage 

lending are hardly mysterious.10

This well described the situation in 1992. Sadly, however, The Economist diagnosis was 

made eight years later in 2000. Nothing had changed.

Making Contracts Enforceable

Yet another basic building block of a free enterprise economy is the freedom to make private contracts, 

coupled with an effective mechanism for their enforcement. In 1992, Russians had neither.

Because Soviet enterprises were fully government-owned, the need for a fast, efficient, inexpensive, and 

fair system of resolving commercial disputes between private individuals and firms had never been 

recognized in the Soviet Union. Contracts between state-owned enterprises were relatively easily 

enforced: once a dispute was resolved by the appropriate government entity, the loser had little choice 

but to accept the judgment and act accordingly.

In most cases, moreover, the contracts themselves were dictated from higher levels--so neither party was 

in a position to question them.11

In 1992, recognizing that a sturdy and reliable system of dispute resolution would be required to handle 

commercial disagreements between private parties, Russia enacted an arbitration code and established 

local arbitration tribunals throughout the country.12 But this was not nearly enough: most Russian courts 

had no experience with arbitration awards, and they were often uncertain of the procedures required.

As a result, while the new law endeavored to legitimize private contracts, it failed in practice to 

guarantee truly useful contract rights.

Even when a court or arbitration panel could be made to stand behind a contract, the court's judgment 

was usually very difficult to collect. According to American analysts writing at the time, "the process of 
identifying, seizing, and converting the assets of the Russian party [against whom a contract judgment 

was rendered] to cash ... [was] likely to be tedious, time-consuming, and expensive."13

Moreover, without clear-cut property rights in land, buildings, and housing, few Russians owned any 

marketable assets that could provide the basis for enforcing a judgment in a private dispute.14

Russian firms attempting to operate in this environment in 1992 coped with the challenges through a 

variety of means, including "blacklists" of unreliable suppliers,15 penalties imposed by Russian 

membership organizations,16 and the use of organized crime groups as bill collectors and contract 

enforcers.17 These options were not readily available to foreign firms, however, with the result that the 

lack of enforceable contract rights served as a significant impediment to foreign investment in the 

Russian economy.18

Private Commercial Banking

Just as clearly defined property rights are essential to creating assets of real value, establishment of a 

private, competitive, legitimate, accessible, and reasonably-priced retail commercial banking system is 

vital to creating entrepreneurial opportunities.

Without private commercial lending, neither startups nor expansions of businesses could occur. And 

without the competition of new businesses, the Russian economy would forever remain captive to the 

network of formerly state-owned enterprises.

The banking system that Russia inherited from the Soviet Union performed none of the normal functions 

assigned to banks in the West. Instead of accepting deposits and using those deposits to make loans, 

Soviet banks acted as the financial arm of the government and of Gosbank, the Soviet Central Bank.19

Rather than make loans based on objective analysis of creditworthiness, Gosbank distributed and 

reallocated resources to favored individuals, companies, groups, and industries at the direction of the 

state.20 The Soviet government also used Gosbank as a means to enforce quotas and production 

requirements, and its bank balances were a prime means for Moscow's economic planners to determine 

if their targets had been met.

Ending this role for the central government and enacting sturdy, understandable, and pro-competitive 

banking rules was thus of utmost importance in 1992.

Foremost in establishing a pro-competitive banking system is that banks must be able to maintain an 

arms-length relationship with industry. This is necessary to allow individual banks the ability to 

concentrate on the normal banking business of risk analysis, rather than on the implementation of 

government-dictated economic policies, the subsidization of favored individuals or organizations, or the 
management of industrial conglomerates. It is also important to avoid the perception of insider dealings 

between the banks and the companies.

In the Russia of 1992, there was ample evidence that no such arms-length relationship existed, and that 

neither the banks nor the government could be counted upon to obey or neutrally enforce transparent 

rules. In 1991, the Russian Supreme Soviet had passed a law mandating that savings accounts be 

indexed for inflation if prices were liberalized. However, when prices were decontrolled in January 

1992, the law was ignored with impunity by the state-owned banks then operating in Russia. Over the 

next several months, 99% of the savings of the Russian population were lost.

Yet another challenge for Russia was to establish transparent accounting standards as a means of 

building public confidence in the banking sector.

For private commercial banks to begin the normal business of banking--that is, accepting deposits and 

making loans--the bankers themselves would have to be assured that they could make loans with the 

assumption of only a reasonable risk. For this reason, too, Russia needed to establish real property rights 

in law, honest and efficient courts, and legally useful means to enforce court judgments, so that bankers 

could use land and buildings as valuable collateral.

Finally, Russia would need to convert its Central Bank into an independent entity charged with setting 

monetary policy independent of political needs. This would establish confidence among the Russian 

public and foreign investors that they would be protected against capricious changes in the value of their 

currency, and from official corruption, thus encouraging deposits in the banking system and 

discouraging capital flight from Russia.

Repeal of Soviet-Era Regulations

The regulatory structure in the Soviet Union was omnipresent, allowing little deviation from statedetermined norms. In 1992 the new Russian government inherited this panoply of regulations, and one 

of its first challenges was to repeal them. So long as Soviet-era regulations remained in place, there 

could be no free enterprise in Russia.

The regulatory regime that Russia inherited from the Soviet Union was nowhere more pronounced than 

in the control of prices--the primary mechanism by which Soviet planners had attempted to control all 

other aspects of production.

Government-administered pricing hurt both the quality and quantity of products. Prices were often so 

artificially low that firms faced a choice between producing inferior goods, to keep costs in line with the 

low prices, or producing goods of passable quality in quantities insufficient to meet public demand. In 

other cases, by arbitrarily setting prices too high for consumers, the government intentionally (or 
sometimes accidentally) decreased consumption.

Decontrolling prices was necessary to permit the economy to produce the high-quality goods and 

services the Russian people needed. Just as important, price liberalization would have to be across-theboard to avoid further disrupting the market.

As if to illustrate the latter point, partial price liberalization was undertaken in 1992. It injured and 

confused the public, for example, by creating anomalies where the prices of some goods that had not 

been decontrolled rose in spite of government restrictions. Meanwhile, prices for some other goods that 

had been decontrolled remained stable, due to pricing by the market, while other decontrolled items 

soared in price.21

A series of export restrictions that limited firms' access to international markets further undercut the 

potential competitiveness of Russian firms. These regulatory impediments to reaching overseas 

customer markets made stripping a firm's assets more profitable than using them productively.

Regulations also forced the repatriation of export earnings, discouraging companies with export 

potential from fully reporting their earnings.

The regulatory regime that Russia had inherited from the Soviet Union was keeping the economy 

stagnant, and reinforced the predominance of the existing Soviet-era industrial and agricultural 

enterprises.22 Dismantling this supporting structure of regulations, which inhibited existing companies 

and limited the entry of new firms in established markets, was an important first step in dismantling the 

Soviet enterprise network.

Freedom to Fail

Implicit in a functioning market economy is the ever-present possibility of failure: the obverse of reward 

is risk. In the Soviet system, however, failure was impossible because state-owned companies were not 

allowed to go bankrupt. A never-ending stream of subsidies ensured that no matter how poorly a 

company performed, or how useless were its manufactures or services, operations would continue.

As newly-privatized firms were exposed for the first time to the semblance of market conditions that 

was emerging in Russia in 1992, many began to realize that their business models, their method of 

operations, or their products or services were wholly unsuited to the needs of their customers. In a 

market economy, unsatisfied customers mean insufficient revenues--and firms that do not adjust to meet 

customer demands quickly become unable to pay their suppliers and workers. As a result, they go 

bankrupt.

Bankruptcy in this sense does not mean that the firms, their assets, their employees, or their products 
would disappear. Instead, new management would be installed and the firm's operations could continue, 

or the company's assets would be sold and deployed for more productive purposes.23

In 1992, Russia was plagued with hundreds of companies designed to function in a Soviet planned 

economy, and poorly equipped to compete in a free enterprise system. Even when reincarnated as newlyprivatized companies, many continued to receive government subsidies to keep their money-losing 

operations afloat.

So long as it failed to give such firms the "freedom to fail," the Russian government would hurt the 

economy, and itself. The economy was hurt because resources were consumed inefficiently, taxes were 

kept high in order to pay the subsidies, and competition was stifled. The government was hurt because 

low sales and no profit left little to tax.

For all of these reasons, Yeltsin signed a decree on bankruptcy on June 14, 1992. But the declaration had 

little impact. First, it applied only to state-owned enterprises; bankruptcy of private and newly-privatized 

enterprises was not addressed.24 Second, it prevented enterprises from being shut down, and prevented 

large numbers of workers from being dismissed.25 Indeed, when the decree was superceded by 

bankruptcy legislation in November 1992, it had not yet been used to shut down a single firm.26

Nor did the 1992 bankruptcy law have more than limited impact. Though the law established conditions 

for both voluntary and mandatory bankruptcy proceedings, and directed the Russian government to 

establish procedures to liquidate bankrupt enterprises, it was largely aimed at preserving insolvent 

enterprises rather than eliminating them. Thus, one government official argued that "the first task" of the 

new bankruptcy law "is to help an enterprise survive."27

As of 1992, the lack of a workable bankruptcy procedure denied Russians the freedom to fail, assuring 

that a large share of Russia's productive potential would not be realized, and therefore also denying 

Russians the freedom to succeed.

Reducing the Tax Burden

Russia inherited Soviet tax laws that imposed a crushing burden on individuals and firms trying to 

generate wealth. So-called "windfall profit" taxes on enterprises reached as high as 90%, almost entirely 

negating the incentives to build profit-making businesses.

For individuals, Soviet personal income taxes were set at 13%, although the hard-pressed citizenry 

routinely ignored the requirement with no consequences. In 1990, in an effort to raise revenue, the 

Soviet Union raised the top income tax rate from 13% to 60% and imposed a new 5% sales surtax.

On top of these taxes, the Soviet Union imposed an additional tax on wages intended to dissuade 
employers from raising workers' pay. The Communist central government feared that higher wages 

would fuel inflation, because there were so few consumer goods available.

This high tax-rate regime left the system of government finance Russia would inherit from the Soviet 

Union in shambles. Tax evasion was rampant. International lenders--seeing no end in sight to the 

country's economic woes--were reluctant to make new loans.

Even more destructively, as Russia took more authority from the Soviet government in December 1991, 

the Russian Supreme Soviet imposed a 28% value added tax on top of the taxes already in place--which 

not surprisingly failed to increase government revenue.

Likewise, the Soviet bureaucracy of overlapping and multiple tax authorities, which provoked 

widespread tax evasion, continued in independent Russia.

Both the Soviet and Russian attempts to raise tax revenue by squeezing the turnip did not and would not 

work. To the contrary, lower tax rates were necessary to improve business conditions, reduce barriers to 

entry for entrepreneurs, increase competition, and generate more business earnings that could be subject 

to tax. Likewise, tax simplification was necessary to discourage tax evasion.

Lowering the tax rate and simplifying the tax code would demonstrate that the new Russian government 

was not bent on redistributing income, as was the Soviet Union, but rather was serious about discarding 

the Soviet system in favor of a market economy.

Prescribing the Rules of the Road

Because private economic activity had been illegal in the Soviet Union, there were few norms to guide 

private commercial transactions. Therefore, the challenge faced by Russia's central and regional 

governments was to promulgate a basic set of rules that could be relied upon by any Russian citizen (or 

foreigner, for that matter) who wished to buy or sell something.

While a system of clear, straightforward rules for the conduct of private business was unknown in the 

post-Communist Russia of 1992, the free world had long since produced such rules.

The operation of commercial codes in the United States is nearly invisible, but they are an essential part 

of a market economy. Clear, understandable, and well-settled rules for such everyday events as sales and 

leases of private property, business credit, bulk transfers, warehouse receipts, bills of lading, and 

investment securities are the infrastructure of the free enterprise system.

Today, neither Congress nor the legislature of any state is much concerned with the pressing issues of 
19th century commercial law that gave rise to these codes. But that is not because these issues have been 

overtaken by modern events; to the contrary, the old rules remain on the books, in largely the same 

forms in which they first passed into the legal mainstream. They work so well that we have mostly 

forgotten them. They are now so well-established that a man or woman of commerce need give no more 

thought to such a question as "at what point during shipment does title pass?" than to breathing or 

walking.

The history of the United States' adoption of its various state commercial codes also holds lessons for 

Russia. The United States' experience was strongly influenced by our federal system, where both the 

federal government and the individual states have the power to pass laws (and where commercial 

arrangements are largely governed by state law).

In the 19th century, as the demands of interstate business and individual movement throughout the 

country accelerated, a unique solution to the problem of developing a nationwide commercial legal 

infrastructure was achieved outside of government.

Neither the legislature of any state, nor the Congress, but rather private individuals comprised a nongovernment body known as the National Conference of Commissioners on Uniform State Laws. Formed 

in 1892 for promoting "uniformity in state laws on all subjects where uniformity is deemed desirable and 

practicable," the Conference has since proposed more than 100 laws that have been adopted by at least 

one state.

The greatest success of the "uniform law" approach in the United States has been in the field of 

commercial and business law. The Commission's first product, the Uniform Negotiable Instruments 

Law, was at one time in effect in all the states. Using this and the Uniform Sales Act (also widely 

adopted) as a basis, the Conference (working together with another private body, the American Law 

Institute) eventually produced the Uniform Commercial Code. The Uniform Commercial Code is now in 

effect in some version in nearly all U.S. jurisdictions.

The fundamental principle of the Uniform Commercial Code is the empowerment of individuals to reach 

agreements among themselves, without need of outside agencies of the state. Yet its greatest importance 

lies in the specification of what terms apply if the parties to a transaction don't mention something.

In the Russia of 1992, the lack of such clear rules meant that a butcher in Moscow could not make a 

contract with a supplier in Sergeiv Posad, an entrepreneur in Smolensk could not import fabric from 

overseas, and a builder in Chelyabinsk could not obtain lumber from a mill in Novosibirsk without 

incurring needless financial risk.

The overriding need for such rules in the Russia of 1992 was to provide certainty and predictability to 

economic transactions--a sharp contrast to the arbitrary dictates that had characterized the Soviet 

command economy. Particularly because of its lack of a tradition of private commercial activity, the 

enactment of a commercial code was a vital precondition for Russia's transition to a functioning market.
Welcoming Foreign Investment

Eliminating Soviet-era barriers to foreign investment in Russia was yet another basic step needed to 

construct a free enterprise system.

The climate for foreign investment that Russia inherited from the Soviet Union was a fundamentally 

inhospitable one. Not only were foreign investors deterred by the lack of market economy essentials--

enforceable private contracts, private property rights, an established commercial code, competitive 

private banking, and a benign tax and regulatory climate--but also foreign investors faced unique 

obstacles that rendered any significant commitment to the Russian economy unthinkable.

The laws limiting expatriation of earnings were a unique burden on foreign firms seeking to invest in 

Russia. Capital controls limited a foreign firm's ability to return earnings from Russia to their 

stockholders. Further, government regulations discriminated against what activities foreign firms could 

engage in, creating uneven competition between foreign and domestic participants in the Russian market.

The Russian tax structure of 1992 likewise discriminated against foreign investment and trade. Even 

today, the average import tariff stands at 13%, the value-added tax on most imports is 20%, and the 

excise tax on most imported luxury goods ranges from 20% to as high as 570%. On top of that, Russia

compounds various taxes when it assesses import levies. Combined with non-tariff barriers such as 

import licensing and customs processing fees, these taxes make the Russian market especially 

unattractive to foreign investors.28 By keeping international trade out of Russia, these Soviet-era 

regulations reinforced the economic arrangements existing at the collapse of the Soviet Union. Instead of 

promoting competition that could serve as a model and a spur to Russian entrepreneurs, Russian law 

served to insulate the economy from these regenerating forces.

Tearing down these barriers to foreign investment was thus another key task facing the new Russia of 

1992.

Creating a Market

The opportunities that awaited Russia in 1992 were exhilarating, but dismantling the Soviet system of 

government controls and erecting in its place a free market economy based on private decision making 

and risk-taking was a task of monumental proportions.

Yet the means to achieve the creation of a free market economy were abundantly clear: the government's 

job was to get out of the way of the economy, and facilitate private actors through the establishment of 
enforceable private contract rights, private property rights, laws permitting private commercial banking, 

commercial bankruptcy laws, a commercial code, a much-moderated tax burden, and the repeal of 

Soviet-era regulations that inhibited both domestic and foreign investment and trade.

These fundamentals of a free enterprise system needed to be implemented quickly, or else 

"privatization" would be a sham: "privatizing" assets into a non-market economy would represent 

merely the continuation of the Soviet system, with the difference that the financial benefits would now 

accrue to a few private individuals. It would lead to the development of a kleptocracy masquerading as a 

free market economy.

What was needed was legality--the certainty that private property rights will be protected--and the 

effective competition that this would inevitably produce.

CHAPTER 4

THE FUNDAMENTAL FLAWS 

OF THE CLINTON 

ADMINISTRATION'S RUSSIA 

POLICY
4-1-1

4-1-2 4-1-3

THE TROIKA: Since 1993, U.S.-Russia policy has been 

administered by Vice President Al Gore (speaking on the telephone 

with Russian President Boris Yeltsin, July 24, 1998 from Moscow), 

Treasury Secretary Lawrence Summers (lower left), and Deputy 

Secretary of State Strobe Talbott (lower right). President Clinton 

placed Gore in charge of U.S.-Russia policy in early 1993. Summers, 

who carried the Russian aid portfolio in the Treasury Department 

from the beginning of the administration, is a long-time proponent of 

government-to-government lending programs. Talbott was 

Ambassador-at-Large and Special Adviser to the Secretary of State 

for the New Independent States before President Clinton nominated 

him to become Deputy Secretary of State in December 1993. In his 

previous career as a journalist, Talbott had been a persistent critic of 

the Reagan-Bush policies of peace through strength that precipitated 

the collapse of the Soviet Union. Troika policy operated outside of 

normal channels, suffered from a lack of presidential involvement, 

and focused on the personal relationships of presidential 

subordinates. Photos from top: AP Photo/Ivan Sekretarev, AP Photo/Ivan Sekretarev, 

AP Photo/Misha Japaridze
The [IMF] money is all spent. It went to foreigners and Russian 

speculators [who] took the money out of the country. To me, the 

huge surprise is not the appearance of such a scam in the 

country. But I cannot explain why the western financial 

institutions and the governments 

didn't pay serious attention to the presence of such things.

Dimitri Vasiliev, former Chairman of the Russian Federal Securities 

Commission, 

as quoted in the Los Angeles Times, September 24, 1998

We conned them out of $20 billion.

Anatoly Chubais (Viktor Chernomyrdin's top deputy), as quoted in the Los 

Angeles Times, September 9, 1998

The truth about the IMF is that it has consistently pursued a 

prudent, responsible, and forward-thinking lending program for 

Russia.

Leon Fuerth (Al Gore's National Security Adviser), July 25, 2000

A President Without a Plan

In 1992, Arkansas Gov. Bill Clinton and Tennessee Sen. Al Gore campaigned on the slogan, "it's the 

economy, stupid."

The Clinton-Gore decision to avoid all discussion of foreign policy was partly for tactical reasons: their 

political opponent, President George Bush, had just won a complete military victory in the Gulf War, 
and had presided as the leader of the free world at the conclusion of America's victory over Soviet 

Communism in the Cold War.

It was also a reflection of the genuine bias toward domestic affairs shared by both Clinton and Gore, 

whose primary focus had long been such issues as the environment and technology.

For both of these reasons, the Democratic candidates for president and vice president in 1992 neglected 

foreign policy more than any candidates in any national election since World War II. Despite the 

collapse of Communism in Eastern Europe, the dissolution of the Soviet Union, and the advance of a 

newly-free Russia--all of which presented America with its greatest foreign policy opportunity in the 

post-World War II era--neither Clinton nor Gore devoted noticeable energy to these historic challenges 

for America during the campaign year.

This gaping lacuna in the Clinton-Gore policy agenda was obvious in Clinton's 1992 acceptance speech 

at the Democratic National Convention. While the collapse of the Soviet Union merited the briefest 

mention, Clinton was absolutely silent on relations with the newly independent nation of Russia.1 Gore's 

speech was even more inexplicable. He devoted relatively more time to foreign policy in his address, 

and yet gave neither the Soviet Union nor Russia specific attention.2

The primary focus of Clinton's three major foreign policy addresses during the 1992 campaign was 

actually the domestic economy. In each of these "foreign policy" speeches, the subject of Russia served 

as little more than a segue into calls for cuts in defense spending.

In December 1991, at Georgetown University, Clinton said: "We need to remember the central lesson of 

the collapse of the Soviet Union and of Communism itself. ... [T]he Soviet Union collapsed from the 

inside out, from economic and political and ultimately from spiritual failure. ... [F]oreign and domestic 

policy are inseparable in today's world."3 This determination to treat foreign policy as merely an 

auxiliary to domestic policy was maintained throughout the campaign.

The inattention to foreign policy during the Clinton-Gore campaign carried over into the new 

administration. A year into the Clinton administration, Secretary of State Warren Christopher was heard 

to worry that Clinton did not spend enough time on foreign issues "because the lesson of the campaign--

that it's the economy--was over learned."4 One indication of Clinton's lack of interest in foreign policy 

was the fact that for the first two years of his administration, James Woolsey, the Director of Central 

Intelligence, had only two private meetings with him.

Clinton's occasional interventions in either the formulation or description of U.S. policy have frequently 

been counterproductive--as demonstrated by his comparison of the savage attempt to suppress Chechnya 

in 1994-96 to the American Civil War, and his reference four years later, during the even more brutal 

second Chechen war, to the Russian "liberation" of the devastated Chechen capital.5

No formal National Security Council meeting on Russia was held until February 1996, more than three 
years into Clinton's first term. This was two full months after a major Communist victory in the Duma, 

the Russian parliament.6 As late as 1996, the former candidate with no policy toward Russia had not yet 

personally focused on one as president.

Given his predilection to focus "like a laser beam on the economy," President Clinton delegated away 

virtually all of his authority over foreign and defense policy to subordinates. During the first Clinton 

term, U.S. foreign policy was, for the first time since President Woodrow Wilson's prolonged illness 

from stroke, conducted with minimal direct presidential involvement.

In a 1993 New York Times article entitled "Clinton and Foreign Issues: Spasms of Attention," Clinton 

aides described the president's first-term foreign affairs management style "as one setting broad 

guidelines, and paying spasmodic attention to different issues."7 Because the administration had no 

developed strategy for foreign affairs, the urgent quickly overtook the important. Relatively minor but 

exigent foreign policy crises in Haiti, Somalia, and Bosnia distracted Clinton from issues of more 

fundamental importance to the United States.

Without sufficient guidance from the top, Clinton subordinates bounced from topic to topic. The 

Washington Post reported, "the Clinton White House at times resembles a series of in-house graduate 

seminars."8 The disorganization was worsened by the free-form nature of policy making in the Clinton 

administration, where personal connections to the president trumped titles and formal processes.

The virtual absence of any non-ceremonial 9 presidential involvement in foreign policy was to prove 

crippling to the development and execution of United States policy toward Russia. Only the president 

can effectively direct the resources of disparate federal bureaucracies and enforce consistent policy 

among competing agencies, policy makers, and priorities. Only the president can focus the attention of 

the American public and generate the necessary popular support for critical foreign policy initiatives.

The challenge of helping to build a free enterprise economy in place of Communism in Russia was as 

significant and complex as any that had faced the United States in its history. The failure of Russia, 

America, and the world to meet that challenge during the 1990s is very much a reflection of the lack of 

U.S. presidential leadership.

A Troika Wrangles Over Russia Policy

The president's inattention to foreign policy in his first term created an environment in which nominally 

sub-cabinet level officials could assume control over even such a major foreign policy issue as Russia. 

The lack of an articulated presidential strategy for dealing with Russia, moreover, meant that such 

subordinate officials felt at liberty to fabricate their own plans. Particularly in Washington, where power 

abhors a vacuum, the attraction of ambitious underlings to this policy void was strong.
There were, of course, serious problems in this arrangement. Without adequate presidential involvement, 

there was no limit to the number of contenders for policy-making power. Moreover, there was no 

obvious mechanism for resolving policy disputes. The eventual devolution of Russia policy making into 

the hands of not one but three Clinton aides--a policy "troika"--was a direct result of these problems.

The troika who eventually took charge comprised Strobe Talbott, a journalist for Time magazine; 

Lawrence Summers, a 39-year old Harvard economist who had performed a two-year stint at the World 

Bank; and Vice President Gore, whose preparation for directing Russia policy was never previously 

noted.

Vice President Gore's role in Russia policy, like Talbott's, was the result of Clinton's explicit delegation. 

At the Vancouver Summit in April 1993, Presidents Clinton and Yeltsin agreed to the creation of a U.S.-

Russia Commission on Economic and Technological Cooperation, to be chaired by Gore and Russia's 

Prime Minister, Viktor Chernomyrdin. Although this assemblage, which quickly became known as the 

Gore-Chernomyrdin Commission, was initially intended to focus mainly on cooperation in space and on 

energy issues, it grew to become the main vehicle for high-level U.S.-Russian interaction.10

Gore's lack of Russia experience was immediately evident. (Nor would the ensuing seven-year 

apprenticeship on the Commission remedy his deficiency in Russian history: on July 3, 2000, Gore 

referred, in prepared remarks, to "the Potemkin village in World War II where the façade of the village 

was presented to make it appear that it was a real town in order to fool the people."11 The "Potemkin 

village," a universally known image from Russian history,12 in fact refers not to World War II but rather 

to a story from the 18th century reign of Czarina Catherine the Great.)13 He did, however, have one 

connection to the Soviet Union. The recently-deceased Armand Hammer, who as CEO of Occidental 

Petroleum courted Soviet leaders from Lenin to Gorbachev, also courted Gore and his father and was a 

major Gore benefactor, contributing some $500,000 of Occidental stock that is now in the Gore family 

trust. Hammer is reported to have introduced the younger Gore around during a trip to the Soviet 

Union.14

Gore arrived on his first trip to Russia as vice president in December 1993, the day after Russia's first 

post-Communist parliamentary elections--a major setback for the Clinton administration's Russian allies. 

The unfavorable election results caught the administration off guard: Gore and the administration's other 

Russia policy makers expected his visit to be a celebration of a reformist victory. Upon his arrival in 

Moscow, Gore denounced the results of the voting.

Gore also displayed an immediate penchant for large-scale International Monetary Fund lending to 

Russia, which would soon become the foundation of the Clinton administration policy. Dismayed that 

not enough IMF debt was being obtained by the Russian central government, he launched a public attack 

on the IMF for attaching "unreasonable" conditions to its Russia loans.

Before Gore had returned to the United States, then-Treasury Secretary Lloyd Bentsen publicly tried to 

reaffirm pre-existing administration policy in support of conditionality for IMF loans. However, in a 
display of the Clinton cabinet's lack of involvement with Russia policy, the administration changed its 

position to match Gore's within two months.15

Strobe Talbott was named "coordinator" for U.S. policy toward the nations of the former Soviet Union 

in the second month of the Clinton administration.16 The new president's deliberately anti-hierarchical 

style led him to appoint such "coordinators" in order to give an individual crosscutting authority over all 

aspects of a policy question. According to one senior Clinton administration official, this expedient was 

adopted whenever "it looks like a presidential policy is going to require day-to-day management."17

A journalist whose only previous management background was running Time magazine's Washington 

bureau for five years, Talbott had no government, military, or political experience.18 He had first met 

President Clinton when they were both students at Oxford University. Subsequently, Talbott had been a 

prominent and controversial participant in the arms control debate in Washington during the 1970s and 

1980s, arguing against the Reagan policies that eventually forced the collapse of the Soviet Union.

Talbott, even more than Gore, sought to become the full-time manager of U.S.-Russia relations and soon 

built his own policy making apparatus. He chaired the Former Soviet Union Policy Steering Group, 

which he said carried "a presidential mandate to coordinate all elements of administration policy toward 

the former Soviet Union."19 The group was composed of under secretaries from various government 

departments. These included the Departments of State, Treasury, Defense, Commerce, and Agriculture, 

as well as a representative from the Vice President's office--usually the foreign policy advisor, Leon 

Fuerth. Officials of other agencies also participated as required.

Lawrence Summers, then a subordinate Treasury official who had given a speech on U.S. policy toward 

Russia at the president-elect's Economic Conference in Little Rock, Arkansas in December 1992, 

acquired his Russia portfolio as a regular participant in Talbott's Working Group. From his new post as 

Under Secretary of the Treasury for International Affairs, Summers, too, was a strong supporter of IMF 

loans and economic assistance for Russia. His brief tenure as the World Bank's chief economist had left 

him with a belief in the efficacy of international financial institutions such as the World Bank and the 

International Monetary Fund.

This troika of subordinates, led by Vice President Gore, would soon come to dominate the Clinton 

administration's Russia policy, as it still does today.

In this way authority for the development and execution of Russia policy devolved to an elite and 

uniquely insular policy-making group without accountability to the normal checks and balances within 

the executive branch. The policy decisions that emerged were marked by the personal biases and 

predispositions of these three individuals, to the exclusion of competing analyses and recommendations 

from the national security, foreign policy, and intelligence professionals throughout the U.S. 

government. Their small circle soon became an echo chamber, reinforcing their own views and 

excluding independent information.
The structure of the policy-making troika left the rest of the government either unwilling or unable to 

critically assess the direction of the Clinton administration's policy. Since none of the three key 

policymakers was experienced in or skilled at administration, each relied on further delegation to 

attempt to direct the large number of U.S. government agencies that are charged with diverse 

responsibilities for various aspects of Russia policy. This created another layer of bureaucracy that 

further insulated Gore, Talbott, and Summers from the traditional policy-making structures of the 

executive branch.

Ironically, the 1992 Freedom for Russia and Emerging Eurasian Democracies and Open Markets 

(FREEDOM) Support Act had explicitly recognized the critical necessity of coordinating both policy 

development and implementation in light of the numerous U.S. bureaucracies involved in Russia policy. 

To that end, the Act created the senior-level statutory position of Coordinator of U.S. Assistance to the 

New Independent States. But this was a different "coordinator" than the position to which Talbott was 

appointed; the legally-mandated position was never used effectively by the Clinton administration to 

coordinate Russia policy or activities.

The Talbott "coordinator" role failed to clarify Russia policy making, and doubtless rendered it less 

transparent. In some respects, Talbott's role was superfluous, or an interference, or both. Multilateral aid, 

for example, required coordination with international financial institutions as well as the allied nations, 

and could only be accomplished through established channels at the Departments of State and Treasury. 

Gore's U.S.-Russia Bilateral Commission further confused policy coordination by adopting its own 

competing policies.20

An even more serious shortcoming of the troika policy-making structure was the didactic approach that 

Gore, Talbott, and Summers brought to their task. The supreme self-confidence that typified the first 

several years of the Clinton troika's policy making seems strangely anachronistic today, as the Clinton 

administration has taken to defensively emphasizing the complexity and unprecedented nature of the 

problems it confronted in Russia. The point, however self-serving, is accurate. If it had been appreciated 

in 1993, when the Clinton administration Russia policy structure was adopted, then the key decision 

makers could have approached their challenges with caution and humility, soliciting a full range of 

policy and factual views--and showing a willingness to revise or abandon opinions and initiatives as they 

were invalidated by events.

But neither Gore, nor Talbott, nor Summers approached their task in this spirit.21 To the contrary, the 

Gore-Chernomyrdin Commission, Talbott's Policy Steering Group, and Summers' IMF and World Bank 

portfolio were administered free from the constraints that routinely applied to others in the executive 

branch. Over time, as their reputations and political interests became ever more deeply invested in 

defending the path upon which they had embarked, they worked to avoid inconsistent information, and 

relied increasingly upon a handful of Russian interlocutors for both data and validation of the 

correctness of their approach.

Thus it was that a candidate with no foreign policy experience and no enunciated strategy for tackling 
the historic task of facilitating Russia's transition from Communism to free enterprise relinquished his 

responsibility for that task to a troika of strong-willed subordinates. Free from outside scrutiny, these 

individuals crafted a policy that soon resulted in damage both to U.S.-Russian relations and to the 

prospects for a democratic, free enterprise-oriented Russia.

There were several fundamental flaws in the Clinton administration's Russia policy that this unorthodox 

arrangement produced. These flaws included:

* Support for and dependence on a few individual Russian officials instead of a consistent 

and principled approach to policy that transcended personalities

* A focus on the Russian executive branch to the exclusion of the legislature and regional 

governments

* An impatience with Russia's nascent democratic constituencies that led to attempts at 

democratic ends through decidedly non-democratic means

* An unwillingness to let facts guide policy

* A preference for strengthening Russia's central government rather than building a 

system of free enterprise

Personalities Over Principles

President Clinton encapsulated the first fundamental error of his Russia policy in his first major address 

on that subject. His proposed "strategic alliance with Russian reform" was clearly different than an 

alliance with all of Russia. It necessitated that the intimate group of Russian supporters of Clinton 

administration policy be deemed "reformers"--while opponents of that policy, in both Russia's legislative 

and its executive branches, were called "reactionaries" or "opponents of reform." The success of the 

Clinton administration's policy thus became inextricably tied to the political success of their chosen 

reformers, and to the political failure of other factions in Russia's struggling democracy.

The "reformers" identified by the Gore-Talbott-Summers troika were clustered around acting Prime 

Minister Yegor Gaidar, and later his replacement Viktor Chernomyrdin. Talbott and Summers, in 

particular, quickly developed extraordinarily close personal ties with one of these people, Deputy Prime 

Minister Anatoly Chubais. Summers "always" met with Chubais when traveling to Russia.22 According 

to Thomas Graham, a former senior political officer at the American embassy in Moscow, these personal 

ties soon evolved into a partnership between small circles of senior officials in the United States and 

Russia.23
The administration's definition of reform in Russia was based on the "Washington consensus," an 

economic model that emphasized macroeconomics over establishing the fundamental preconditions for a 

free enterprise economy. The Clinton administration, moreover, believed that its macroeconomic 

policies could not be implemented if it lost influence in the Russian government. The administration was 

thus rapidly drawn into Russian domestic politics as an active participant, bent on insuring that its 

handful of allies continued in power. To this end, billions of dollars in loans and aid would eventually be 

devoted to the political support of the Clinton administration's Russian partners.

Chubais became such a favorite of the Clinton troika that his presence or absence in the Russian 

government seems to have been a major factor in American policy. Thus, for example, U.S. officials 

expressed tepid support for additional IMF lending to Russia after Chubais was dismissed from the 

Russian government in late January 1996--but when it became clear that Chubais had taken over the 

Yeltsin presidential campaign, skepticism turned to enthusiasm. The IMF announced a $10.2 billion loan 

less than one month later.

The Clinton administration unabashedly avowed its support for Chubais when discussing bilateral 

assistance programs as well. In February 1997, Richard Morningstar, the State Department's coordinator 

for assistance to the former Soviet Union, said:

When you're talking about a few hundred million dollars, you're not going to change the country, but 

you can provide targeted assistance to help Chubais.24

In fact, the U.S. government gave substantial cash assistance directly to Chubais and his allies. A large 

portion of the $285 million in U.S. government grants that were supervised by Harvard University's 

Institute for International Development25 went to individuals and groups affiliated with Chubais. The 

incestuous arrangement was exacerbated by the fact that Summers' former colleagues at Harvard 

received the U.S. government contracts without any competitive bidding, and-according to the U.S. 

General Accounting Office-never provided an accurate accounting for the money. Indeed, two 

Americans involved with the Harvard-Chubais project reportedly remain under investigation by the 

Justice Department for abusing their access to inside information about Russia's economic plans for 

personal gain.26

4-7

BAD DREAM TEAM: President Boris Yeltsin, Prime Minister Viktor Chernomyrdin, second left, and his 
two first deputies Anatoly Chubais, left, and Boris Nemtsov, right, meet in the Kremlin, March 26, 1997. 

Chubais ran Yeltsin's 1996 campaign and was his chief of staff before becoming first deputy prime 

minister. Then-Deputy U.S. Treasury Secretary Lawrence Summers, in an example of GoreChernomyrdin Commission spin, called Chubais and Nemtsov an "economic dream team" for Russia. 

The dream soon became a nightmare, as corruption and unsound policy led inexorably to Russia's 

economic collapse in 1998. For Chubais, however, there was a "dream" ending: after years of 

negotiating international loans for Russia, he became the head of Russia's electricity monopoly and 

one of Russia's most powerful "oligarchs"-and admitted "we conned them." AP Photo/ITAR-TASS

Summers' personal support for and closeness to Chubais was never more flagrantly on display than in 

the spring of 1997, when Chubais moved into a key post in the Russian government. In a description that 

subsequently became notorious, Summers announced that "an economic dream team" was now in place 

in Moscow.27

Later, despite the fact that he was no longer a member of the Russian cabinet, and notwithstanding his 

prior supervision of the fraud-ridden "privatization" process, Chubais continued to receive exceptional 

access in Washington. During a May 1998 visit, he was received by Summers and Talbott in their 

homes, where they jointly worked out details of the July 1998 IMF loan that would burden the Russian 

government with further billions in debt on the eve of Russia's total economic collapse later that 

summer.28

Rather than seeking out key Russian political figures beyond the increasingly corrupt Yeltsin inner 

circle, senior Clinton administration officials generally had substantive meetings only with their official 

counterparts, confining themselves to pro-forma discussions with leaders outside the government. While 

a broader guest list was included at large receptions and other events at the U.S. Embassy in Moscow, 

the format of these events brought too many people together for too little time for substantive dialogue 

to take place. (For obvious reasons, few Russian political leaders critical of the Kremlin insiders were 

willing to engage in frank discussions in such public settings, with their political opponents present.) 

However, such embassy gatherings permitted the administration to claim it had consulted with Russian 

opposition politicians, without having to devote the time or effort to substantive, systematic discussions 

with the full range of the Russian political spectrum that was required in light of the historic challenge of 

supplanting Communism.

The administration displayed a similar indifference to the governors and legislatures in the 89 regions of 

the Russian Federation. Despite frequent lip service to outreach to Russia's regions, Clinton and his 

troika rarely devoted sustained attention to developments there-and almost never traveled outside 

Russia's capital.29

The Clinton administration's exceptionally close personal relationship with its few official Russian 

interlocutors-a sharp contrast with its merely pro forma engagement with Russia's legislature, its 

opposition parties, and its regional governments-formed the narrow basis upon which was built the 
entire U.S.-Russian relationship. Contrary to the administration's claim, the alternative to this approach 

was not disengagement from Russia; rather, it was and is a broad and genuine engagement that reaches 

out to all Russians.

Chechnya: Personalities Trump Policies, Again

The conduct of the first and second wars in Chechnya, and the U.S. administration's long 

quiescence concerning it, reveal the tragic cost of the over-personalized Clinton Russia policy. 

Rather than acting forcefully to advance U.S. values and interests, the Clinton administration 

tacitly accepted Russia's agenda in Chechnya.

Because they believed Russian acceptance of their "reforms" was personal to Yeltsin, 

Chernomyrdin, and Chernomyrdin's successors, Clinton and Gore were long unwilling to 

criticize their "partners" for their actions in Chechnya. Despite calling the promotion of 

democracy and human rights in Russia a key administration goal, the Clinton administration 

said little and did less to justify that claim.

Russian troops committed widespread atrocities in both the first (1994-96) and second (1999-

present) Chechen conflicts. Amnesty International has reported on "filtration camps" where 

"men, women, and children-are routinely and systematically tortured: they are raped, beaten 

with hammers and clubs, tortured with electric shocks and tear gas."1 Indiscriminate air, 

rocket, and artillery attacks on civilian targets killed tens of thousands of civilians over the 

course of the two wars, in which much of the Chechen capital of Grozny was razed and 

hundreds of thousands of Chechens, ethnic Russians, and other nationalities living in 

Chechnya were driven from their homes. The 1994-96 operation resulted in up to 80,000 

casualties alone.2

Despite worldwide condemnation of Moscow's first brutal campaign, the administration was 

largely silent. When Secretary of State Warren Christopher met with Yeltsin in March 1996, he 

failed even to raise Chechnya as an issue. His staff explained it as an oversight.3

The low point, however, came a month later, when Clinton at his April 1996 summit meeting 

with Yeltsin was asked "whether the United States should have been more critical of Russia's 

use of force, which has claimed more than 30,000 lives." Clinton responded, "I would remind 

you that we once had a civil war in our country in which we lost, on a per capita basis, far more 

people than we lost in any of the wars of the 20th century, over the proposition that Abraham 

Lincoln gave his life for, that no state has a right to withdrawal from our union."4
As the New York Times reported, "[e]ven Mr. Clinton's aides were appalled by [his] off-the-cuff 

remark"5-as well they might be. Clinton's comments ignored the difference between the union 

of American states, which shared a common language and culture since their beginnings and 

voluntarily formed a union less than a century before the Civil War, and the Chechen culture, 

which had developed separately from Russia's for centuries prior to its annexation in the 

nineteenth century.

4-X lincoln

ABRAHAM LINCOLN: President Clinton, responding to a question in Moscow, April 21, 1996, about 

Russia's war against Chechnya, compared it to the U.S. Civil War and "the proposition that Abraham 

Lincoln gave his life for, that no state has a right to withdraw from our union." A few days later, the 

widow of Chechen president Dzokhar Dudayev told CBS News that Clinton's support for Russia's war in 

Chechnya had, "in effect, signed her husband's death warrant." A few hours after Clinton had compared 

Yeltsin to Lincoln, a Russian warplane rocketed Dudayev's car.

Chechens speak a non-Slavic language, are predominantly Muslim, and have a distinct 

national culture. Chechnya did not freely join Russia; it was forcibly annexed by the czars after 

the Napoleonic Wars-an annexation the Chechens resisted ferociously for decades during a 

savage Russian campaign that took thousands of lives. The stubbornness of the Chechen 

resistance has been proverbial in Russia ever since.

More recently, after a brief period of independence following World War I, Chechnya was 

occupied again by the Bolsheviks. After its liberation from the Nazis in the Second World War, 

it was subjected to one of the most notorious of Stalin's many atrocities during 1943-44, when 

whole nationalities from the North Caucusus--including not only Chechens but Balkars, Ingush, 

and Karachai--were deported for alleged "collaboration" with the Nazis from their homelands to 
Central Asia under conditions that led to the deaths of as many as a third of the almost 

620,000 deportees. The survivors remained in exile until the late 1950s, more than a decade 

after their ordeal began-further fanning their disaffection.6 A less persuasive parallel to the 

history of the United States would be difficult to frame.

In addition to its inaccuracy, such a statement coming from the President of the United States 

undercut those in Russia protesting the purpose of the war, the high civilian casualties, and the 

human rights abuses taking place. Yegor Gaidar, Yeltsin's former acting Prime Minister, took 

his Russia's Democratic Choice Party into opposition against the Yeltsin government because 

of the war in Chechnya. But the party and the anti-war cause found no succor from the Clinton 

administration.

The Clinton administration's failure to ensure that there were any significant consequences for 

Russia for its conduct of the Chechen war for five full years-explicable only by its blind 

devotion to Russia's government elite and President Yeltsin personally--effectively put it on the 

side of Russia's military, and against ordinary Russians. Public opinion in Russia toward the 

first Chechen war (1994-96) was decidedly negative. Russians were opposed to a war they 

saw resulting in high Russian casualties caused by military ineptitude in the pursuit of 

Moscow's desire to exert its will over the people of Chechnya.

Worse, by pressuring the IMF to grant $10.2 billion in credits to Russia in February 1996, the 

administration effectively used the Fund to subsidize not only Boris Yeltsin's reelection 

campaign, but also the Kremlin's war effort in Chechnya, thus squandering an important 

opportunity for American leadership, and giving Moscow every reason to expect similar 

indulgence if Russia again tried to crush Chechnya.

Following hundreds of deaths in September 1999 bombings in Moscow, Volgodonsk, and 

Buinaksk, which Russian officials said were the work of Chechen terrorists,7 the government 

had no difficulty marshalling support for its war aims. Anger over the bombings, the relatively 

low number of Russian military casualties in the early stages of the second war, and the 

decisive leadership Putin displayed after a lack a vigor in the Kremlin for so long made the 

second war popular with all segments of the Russian population. Virtually all the political 

parties participating in the December 1999 Duma election supported the war, and it was a 

significant reason for Putin's popularity.8

The failure of the Clinton administration to apply pressure and diplomacy to encourage a 

political solution in Chechnya may have actually encouraged Russia to broaden its war 

objectives in 1999. Originally, the military objective was to create a "cordon sanitere" around 

Chechnya. Then the objective became to establish a security zone inside the Chechen 

Republic. With the popularity of the war at home and no penalty to pay abroad, the goal 

became the division of Chechnya along the Terek River. Finally, far from seeking a political 

settlement, the objective became the "complete extermination of the rebels and seizure of the 
entire territory of Chechnya."9

As former National Security Adviser Zbigniew Brzezinski testified recently:

[I]t is tragically the case that the administration's indifference to what has been 

happening in Chechnya has probably contributed to the scale of the genocide 

inflicted on Chechens. The Kremlin paused several times in the course of its 

military campaign in order to gauge the reactions of the West, yet all they heard 

from the president were the words'I have no sympathy for the Chechen rebels.'10

Moscow's ultimate goal of reoccupying all of Chechnya necessitated the siege and capture of 

the Chechen capital of Grozny, which Russian troops had occupied and lost in the first 

Chechen conflict. During the last months of 1999, Grozny was subjected to a savage rocket 

and artillery bombardment that caused massive collateral damage and heavy civilian 

casualties, triggering the flight of over 220,000 refugees. The devastated Chechen capital was 

then subjected to attack from five directions, beginning on Christmas Day 1999. It was largely 

in ruins by the time it was occupied in February 2000.

As the Russian attacks on Grozny were gathering momentum, President Clinton referred in a 

Time magazine article on New Year's Day to the impending Russian "liberation" of the 

Chechen capital of Grozny, already wrecked by the unrelenting Russian bombardment11--a 

phrase, as Dr. Brzezinski testified, that "is going to haunt the president and embarrass the 

United States for a long time to come."12

Recently, the Clinton administration-at long last willing to acknowledge the horrors of the war in 

Chechnya-has nonetheless sought to absolve itself of responsibility by complaining that it has 

little leverage on Russia: as Secretary Albright stated after the G-8 summit, "I think, frankly, we 

have had a marginal effect" on the conflict. After dispensing over $20 billion in U.S. aid to 

Russia during the course of eight years, using American leverage to force further tens of 

billions from the IMF and the World Bank, and having never conditioned any of it on a political 

settlement in Chechnya, that is a remarkable statement indeed.

The damage to Russia, Chechnya, and the region is broad. Former Premier Yegor Gaidar 

estimated in January 2000 that the war was costing Russia $148 million a month.13 With 

Russia's limited resources, these funds could have made a sizable contribution to its economic 

recovery and debt service.

The Clinton administration's failure to respond meaningfully to Russia's treatment of Chechnya 

may also have encouraged Russia's efforts to intimidate its neighbors, and discouraged those 

nations from resisting such intimidation. As Dr. Brzezinski further told the Senate Foreign 

Relations Committee,
[S]ome of Russia's immediate and most affected neighbors, such as the 

presidents of Ukraine, Georgia, Azerbaijan, and Estonia, have been perplexed by 

the U.S. disregard of the longer-term effects on Russian foreign policy of 

Moscow's reliance on indiscriminate force in coping with Chechnya. Georgiais 

extremely vulnerable. We see some evidence of rising Russian pressure in 

Estonia and Latvia already. The Central Asian republics are beginningto make 

some degree of their own accommodation with Moscow, largely because of the 

way they interpret our passivity on Chechnya.14

These actions are fraught with risks for the stability and security of these nations and for U.S. 

interests in the region. Yet they too have drawn little effective response from the Clinton 

administration.15

4-4

CHECHEN WAR HUNGER: The czars forcibly occupied Chechnya, and after a brief period of 

independence following World War I the Bolsheviks did the same. Solzhenitsyn described Chechnya as 

the "one nation that would not give in." The Chechen people continue to be the victims of fighting in the 

region. Azya Mirzoyeva, who lives in the train carriages of camp "Severny" in Ingushetia, gets one loaf 

of bread once or twice a week to share among seven people-and four bottles of sunflower oil, about as 

regularly, to share among 60. Amnesty International

4-5

CHECHEN WAR REFUGEES: Petimat Tursultanova witnessed the attack on the village of ZakhanYurt on November 6, 1999, in which a number of civilians were killed. She and her family wait overnight 

at the central railway station in Nazran to be assigned seats on a train out of Ingushetia. Amnesty 
International

Clinton Administration Support for Rule by Decree Abets Destruction of the Russian 

Parliament

Not only was the group of Russian officials on which the Clinton troika focused too small and too 

insular, but it was limited exclusively to officials in Russia's executive branch. This was a tragic blunder, 

given that the essential task ahead in 1992 was enactment of the legal framework necessary for private 

property and free enterprise to function. The enactment of such laws would be impossible without the 

participation of Russia's legislative branch.

The Clinton administration not only failed to engage the Russian Supreme Soviet and the Duma, but, far 

worse, it publicly dismissed the parliament out of hand as a "Communist-dominated" impediment to 

reform. Because the Clinton troika's policy relied on the political ascendancy of a handful of ministers, 

opposition groups in the Russian Duma were seen as enemies of U.S. policy.

The Clinton administration very publicly sided with the Yeltsin regime against Russia's opposition 

parties, and more broadly, with the executive branch against the Russian legislature.

The Clinton troika's personal support for its allies in the executive branch reached an extreme in October 

1993.

As tension between Yeltsin and the Russian legislature had grown since 1992, the Clinton administration 

had encouraged Yeltsin to take a confrontational approach to the Russian legislature even as it limited its 

own contacts with legislators. In fact, when former president Richard Nixon advised Yeltsin in March 

1993 to seek accommodation with the parliament, Yeltsin told Nixon that the Clinton administration had 

given him the opposite guidance.30

When the Russian president took this confrontational advice, the Clinton administration's complicity in 

Yeltsin's subsequent rule by decree was complete. But it did not end there. The extent to which the 

Clinton troika undertook a personal crusade to denigrate Russia's elected legislature was illustrated by 

Strobe Talbott's public praise for Yeltsin's "[throwing] down the gauntlet in Moscow before a parliament 

that is dominated by reactionaries."31

Responding to growing and increasingly aggressive defiance from the leaders of the Supreme Soviet, 
Yeltsin, on September 21, 1993-in plain violation of the Russian Constitution-ordered the dissolution of 

the parliament and new elections. Parliament refused to obey Yeltsin's orders, and the standoff escalated 

into increasingly violent demonstrations in Moscow's city streets. Supporters of the legislature built 

barricades around the Russian White House, where the parliament had met in emergency session to 

replace Yeltsin with his former ally, Vice President Aleksandr Rutskoi, and where it was now 

entrenched.

The increasingly dangerous standoff culminated in an even more extraordinary violation of democratic 

norms, as opposition supporters stormed the mayor's office and sought to seize the Ostankino television 

station and Russian troops mounted an armored assault on the parliament members in the White House. 

The fighting killed 144 and injured over 400 Russians.

Shockingly, even after the bloody dissolution of the Russian parliament, Talbott continued to defend the 

Russian executive's anti-democratic conduct. Testifying before the House Foreign Affairs Committee 

just days after the attack on the parliament, Talbott said that the answer to the question of "whether 

President Yeltsin was resorting to democratic means in his effort to resolve the crisis was yes."32 

Yeltsin himself was not so bold-he admitted in his memoirs that he had acted outside the Russian 

Constitution during the crisis.33

A week later, Talbott was even more brazen in claiming that U.S. support for the violation of Russia's 

fundamental law could somehow be squared with support for democracy and the rule of law. In an 

October 13, 1993 briefing in the Capitol, he claimed that "our administration has staunchly and 

consistently supported President Yeltsin and the reformist government of Russia when President Yeltsin 

suspended the parliament and the Constitution"34 --thus standing the meaning of the term "reform" on 

its head.

The administration's encouragement and subsequent endorsement of President Yeltsin's dissolution of 

the Supreme Soviet in violation of Russia's then-controlling Constitution served to facilitate further 

authoritarian conduct by the Russian president. In profound ways, it worked also to deeply undermine 

respect for the rule of law among both participants in Russian politics and the public. The YeltsinClinton administration policy was clearly based on force-and just as damaging, it was also deeply 

disdainful of the necessary role of Russia's elected legislature in enacting reform legislation.

Henceforth, Yeltsin would prefer to rule by decree, and the Clinton troika would encourage it. But the 

lack of respect for Russia's legislature from the U.S. gov ernment would increasingly be reciprocated, 

and the lessons of October 1993 long remembered.

Russia's new constitution, written by Yeltsin's team, was narrowly approved in December 1993. Yet 

even after Russians elected the 1993 and 1995 State Dumas under the Constitution written by Yeltsin, 

the Clinton administration continued to ignore the newly elected members of the Russian legislature. 

The consistent excuse they provided for this was that the 1993 and 1995 Dumas, too, were "Communistdominated." In fact, the most consistent opposition to the Yeltsin regime came not from the Communist 
Party of the Russian Federation, or even from Vladimir Zhirinovsky's ultra-nationalist Liberal 

Democratic Party of Russia, but from the pro-democracy, pro-reform Yabloko party.35

4-10

NARROW FOCUS: Grigory Yavlinsky, right, the leader of the pro-reform Yabloko party, speaks with 

Deputies Igrunov and Sheinis in the State Duma, the Russian parliament's lower house, March 15, 

1996. The Clinton administration strongly favored Yeltsin against Yavlinsky and all other contenders in 

the 1996 Russian elections, despite polls in Russia showing many voters were unhappy with both 

incumbent President Yeltsin and his Communist opponent, Gennady Zyuganov. In December 1999, 

merely suggesting Chechnya peace negotiations earned Yavlinsky a "traitor" epithet from Clinton 

troika-favorite Anatoly Chubais, who had by then become the head of Russia's electricity monopoly. 

Chubais was Yeltsin's 1996 campaign manager. AP Photo/Alexander Zemlianichenko

The Clinton troika studiously ignored Yabloko and its leader, Grigory Yavlinsky, because recognizing 

that a democratic party could oppose policies of the Yeltsin government would have called into question 

the administration's embrace of both Yeltsin and Chernomyrdin as the personifications of Russian 

democracy. Yabloko's existence contradicted the administration's repeated assertions that it had no 

choice in its Russia policy except to depend exclusively on Yeltsin.36

At the same time, Yeltsin found rule by decree an increasingly attractive expedient to avoid the hard 

work of compromise with the parliament, further undermining the fragile democratic structures 

emerging in post-Soviet Russia. As always, he acted with the unflagging support of the Clinton 

administration.

Such unquestioning support for the Russian executive stifled the healthy debate necessary in a 

democracy, and taught Yeltsin exactly the wrong lessons about the importance of representative 

government in a constitutional system. Worse, the Clinton administration virtually guaranteed that the 

legal reforms needed to establish a genuine free enterprise system would not be enacted in the Duma, 

and it utterly destroyed America's credibility in dealing with Russia's legislative branch. Worst of all, 

however, was the role that the Clinton administration played in undermining the growth of pluralistic, 

democratic government in Russia-and the impetus it provided for the abuses of executive power by the 

Yeltsin administration that would shortly ensue.
Destructive Means to Unintended Ends

The third fundamental flaw of Clinton administration policy was its unwillingness to recognize the costs 

to Russian democracy-and to Russian perceptions of America-of its unquestioning support for its 

Russian "friends" despite their often corrupt conduct. The tolerance of decidedly illegal conduct, 

allegedly in pursuit of the rule of law, had profound and destructive consequences for Russia's struggle 

to establish the rule of law.

No single policy of the Russian government did as much to discredit the notion of reform as the corrupt 

"loans-for-shares" scheme. Devised by Soviet trade official-turned-banker Vladimir Potanin, and further 

developed by a consortium of Russian banks, "loans-for-shares" was implemented by Anatoly Chubais, 

the Clinton troika's key ally. In failing to oppose "loans-for-shares"-and continuing to endorse Chubais 

strongly after its scandal-ridden failure-the Clinton administration tacitly endorsed means that 

fundamentally undermined America's stated objectives in Russia.

4-8

OLIGARCH ETHICS: Oligarch Vladimir Potanin, left, speaks to Boris Nemtsov, right, of the Union of 

Right Forces, with the head of the Uralmash-Izhora industrial group Kakha Bendukidze, at a July 28, 

2000 news conference in Moscow. Potanin designed the corrupt "loans-for-shares" "privatization" 

scheme that allowed the oligarchs to buy Russia's most profitable companies for a fraction of their 

value. He acquired one of the more valuable Russian companies, Norilsk Nickel. One week earlier, 

Potanin told the Financial Times that "Many oligarchs fly to the south of France in their private jets and 

rent yachts, they spend $2 million-$3 million a year, but then they put these costs down as business 

expenses. This is unethical." Also in July, the Russian government asked Potanin to reimburse the 

state $140 million in connection with the privatization of Norilsk Nickel. AP Photo/Alexander 
Zemlianichenko

In 1995, Russia was under considerable pressure from the IMF and the Clinton administration to 

implement the IMF-Clinton troika program of increasing tax revenues to meet arbitrary budget deficit 

targets. The failure to enact legislation necessary for free enterprise, coupled with the rise of organized 

crime and the war raging in Chechnya since December 1994, was undermining the Russian 

government's ability to meet the aggressive tax collection goals. Russians' real income had dropped to 

the lowest levels since Soviet days. The Russian government desperately needed cash, but a new IMF 

loan at the moment seemed impossible since Russian government borrowing in 1995 had already soared 

to over 350% of the prior year's.

To meet the IMF and Clinton administration demands for more government revenues, Potanin, Chubais, 

and their colleagues devised a secretive plan in the spring and summer of 1995 for the Russian 

government to borrow money from Russian banks. As collateral, the government would offer stock in 

premier state-owned industries.

The key feature of the "loans-for-shares" scheme was the proviso that if the government were unable to 

repay the loans, the banks would have the right to auction the shares-primarily in the energy, natural 

resources, metals, and manufacturing industries. Given the banks' ability to rig such auctions, and the 

fact that the loans were heavily over-collateralized, default by the Russian government would yield a 

bonanza for the banks' owners.

A number of observers believe the "loans-for-shares" scheme was actually designed with the intention of 

turning over these enterprises to the select insider group who were allowed to participate, and that from 

the inception the government neither intended nor was able to repay the loans.37 The government 

needed money, and this was a way of getting at least a small amount of it while simultaneously 

accomplishing two other objectives: "privatizing" industries without Duma approval, and providing 

political friends with enormous new wealth through a non-competitive process. Some Russian officials 

apparently believed that the beneficiaries of "loans-for-shares" could then be counted upon as a powerful 

political constituency in favor of market reforms.

In its execution, the "loans-for-shares" scheme failed to produce a constituency for reform-the bankers' 

real interest was in increasingly lucrative sweetheart deals-but did succeed in winning the support of a 

powerful group of businessmen for the Yeltsin government in the upcoming elections. It is not difficult 

to see why: exceptionally valuable government assets were virtually given away at a fraction of their 

true worth. As one of the oligarchs commented with significant understatement, "each ruble invested in 

one's own politician yields a 100% profit."38

When the shares pledged as collateral were eventually sold after the government failed to repay the 

loans they secured, the winning bid was almost invariably submitted by an affiliate of the bank 
managing the auction-and typically exceeded the minimum bid by only a nominal amount. Thus the 

"loans-for-shares" program essentially offered a select group of Russian bankers an opportunity to 

acquire cut-rate shares in prized state enterprises.

For example, despite Norilsk Nickel's $1.2 billion in profits in 1995, Oneksimbank-controlled by the 

designer of the "loans-for-shares" scheme, Vladimir Potanin-bought 38% of the firm, which produced 

one-fifth of the world's nickel and two-fifths of its platinum, for $170.1 million in a "loans-for-shares" 

auction. Oneksimbank's offer was only $100,000 above the minimum bid-and a competing bank bid 

nearly twice as much. The fact that Oneksimbank organized the auction was clearly decisive.39

In the end, shares in twelve companies described as "the crown jewels of Soviet industry" were sold 

off.40 The firms included not only Norilsk Nickel, but also the massive oil companies Sibneft, Yukos, 

and Sidanko and other key enterprises. Controlling stakes in Sibneft and Sidanko, each of which 

produced oil worth $3 billion per year, were acquired for $100.3 million and $130 million, respectively. 

Ten percent of Sidanko was later sold to British Petroleum for $571 million.4 Yukos, one of the largest 

oil companies in the world, produced more oil than Sibneft and Sidanko combined, yet control of the 

firm cost a Russian bank only $159 million.42

4-9

NORILSK NICKEL: Norilsk is the world's largest city north of the Arctic Circle, and Norilsk Nickel, a 

sprawling collection of profitable nickel, platinum, and palladium mines and hulking smelters, is the 

sole reason 230,000 Russians live in such a harsh place, where they work in mines and smelter shops 

such as this one, the Norilsk subsidiary, Nadezhdinsky Metallurgical Works. Despite Norilsk Nickel's 

$1.2 billion in profits in 1995, the well-connected Oneksimbank was able to buy 38% of the firm-the 

world's leading platinum producer-for a mere $170 million. Oneksimbank made its killing by exploiting 

the notoriously corrupt "loans-for-shares" program designed by Vladimir Potanin and pushed through 

by Anatoly Chubais. AP Photo/Alexander Zemlianichenko

But while the corrupt "loans-for-shares" program passed valuable state assets into the hands of a small 

circle of well-connected bankers, it provided far too little money to solve the government's cash crisis. 

Ultimately, the total revenue obtained through "loans-for-shares" was only about $1 billion-about half 

the privatization revenue sought by the Russian government in 1995.43 Boris Fyodorov, Russia's former 
Finance Minister, publicly described the "loans-for-shares" transactions this way:

It's very clear to me that once you start giving the crown jewels to cronies, it never helps, 

first, the image of the country. Second, it doesn't help the budget, because not enough 

money comes into it.

[The "loans-for-shares" program] was a disgusting exercise of crony capitalism, where 

normal investors were not invited, where even among Russian so-called investors, only 

those who were friends of certain people in the government were invited.

And since everybody knew that these loans will never be returned, clearly it was a kind of 

a gimmick how to circumvent parliament in this case, and how to circumvent normal ideas 

of privatization.

There is absolutely nothing which will preclude me [from] saying that it was basically 

stealing. [T]his is a major, major black spot on the reputation of Russian reforms 

forever.44

Furthermore, said Fyodorov, "There's a big suspicion that no real cash came to the government."45

Ironically, the funds used to purchase shares in the auctions probably included a great deal of the 

Russian government's own money.46 Many of the top Russian banks whose owners benefited 

handsomely from "loans-for-shares" were successful not as a result of genuine banking activity in the 

private sector but through their roles as so-called "authorized banks" that handled government funds. 

Authorized banks were supposed to receive funds from the Ministry of Finance or other government 

organizations and transfer the money to its intended recipients. However, with the influx of so much 

hard currency from the IMF and other Western sources, many of the bankers soon discovered that 

delaying those payments allowed them to use government funds to speculate on currency markets or 

make other short-term investments, and to keep the profits for themselves.47 Only in this fashion could 

the banks amass sufficient capital to participate in the "loans-for-shares" auctions.

What did the Clinton troika and the IMF know about "loans-for-shares"? According to Fyodorov, the 

West knew everything. "These loans-for-shares unleashed a wave of corruption like never before," 

Fyodorov said, "and the West, especially the IMF, kept quiet."48 Although Secretary Summers testified 

before the Advisory Group that he had advised the Russian government against the loans-for-shares 

scheme,49 the administration's failure to object publicly or use its vaunted personal relationships with 

the Russian leadership to modify a catastrophic approach is a policy failure of the first magnitude.

Far from consolidating a new capitalist order in Russia, "loans-for-shares" consolidated the power of the 

"semibankirshchina"--the oligarchic "Rule of the Seven Bankers" who as a result of the loans-for-shares 

scheme claimed to dominate 50% of the Russian economy. This oligarchy has proven to be a crippling 

impediment to the development of a true free enterprise system in Russia, as well as exercising a 
profoundly corrupting influence over Russia's nascent democracy.50

The Clinton troika's willingness to avert their eyes from the corrupt acts of their personal contacts in the 

Russian government contributed to the widespread electoral irregularities of the 1996 presidential 

election in Russia-many of which were direct outgrowths of the "loans-for-shares" process.

In February 1996, Anatoly Chubais-just fired by Yeltsin in part as a result of public outcry over "loansfor-shares" and mounting popular anger over Russia's vast wage and pension arrears-held a decisive 

meeting with several of the key beneficiaries of "loans-for-shares" on the sidelines of a session of the 

World Economic Forum in Davos, Switzerland. Chubais reportedly convinced the new "oligarchs" that 

their support for Boris Yeltsin's 1996 reelection campaign (which Chubais would soon take over) was 

essential to prevent the victory of Communist leader Gennady Zyuganov--and the prompt renationalization of their ill-gotten gains.51 During the campaign, the oligarchs illegally channeled vast 

amounts of money into the Yeltsin campaign and promoted Yeltsin heavily in media outlets under their 

control, including two major national television networks and a number of prominent newspapers.

The Clinton administration justified promoting Yeltsin's candidacy even in a multi-candidate field by 

claiming that it was in the U.S. interest to defeat Communist leader Gennady Zyuganov. But opinion 

polls show that both General Alexander Lebed and Yabloko's Grigory Yavlinsky were also credible 

candidates at the time-Zyuganov was hardly the exclusive alternative to Yeltsin, who had single-digit 

approval ratings at the beginning of the year.

Donald Jensen, Second Secretary of the U.S. Embassy in Moscow from 1993-1995, criticized the 

administration's simplistic approach to Russian politics:

The choice was always black or white. The choice was always reform or going back to the 

Soviet past. And that, I think, was oversimplified, did not reflect what was going on in 

Russia. And it was something that we began to write about increasingly and, of course, 

little attention was paid to it.52

It is probable that Yeltsin, with all of the legitimate advantages of incumbency, would have won the 

election honestly; but the Clinton administration chose not to test that proposition. Working with Yeltsin 

campaign manager and troika favorite Anatoly Chubais, the Clinton administration pushed through a 

new $10.2 billion International Monetary Fund loan in March 1996 that provided liquidity not only for 

the Russian central government but for the Yeltsin campaign.

There were many allegations of campaign finance irregularities tied to abuse of these IMF funds and 

misappropriations from the Russian treasury.52 At one point between the two rounds of the election, two 

Yeltsin campaign staff members were detained leaving the Russian White House with $500,000 in a 

Xerox box.54 Expenditures on Yeltsin's reelection effort exceeded Russia's legal campaign spending 

limits by orders of magnitude.55
The Clinton administration's complicity in the anti-democratic maneuvering56 was, ironically, 

undertaken for the stated purpose of institutionalizing democracy in Russia. But by pursuing a policy of 

"reform" that required the political victory of their reformers by whatever means necessary, the 

administration undermined the democratic process itself.

Ignoring and Spinning 'Inconvenient' Facts

Perhaps the gravest consequence of the Clinton administration's de facto troika arrangement was that it 

insulated policy making from the substantial volume of data and analysis generated within the normally 

functioning channels of the U.S. government, permitting a handful of officials to press full speed ahead 

in a manner that shut out facts and proved incapable of either mid-course corrections or admission of 

failure.57 Operating at the very top of the bureaucratic pyramid and accountable to no one, these few 

could effectively reinforce one another's rationalizations for viewing failure as success, and market this 

view as fact to the American public and the world.

The corruption of the Russian "privatization" program even before the loans-for-shares scheme is an 

important example of the Clinton administration's unwillingness to adjust policy to facts, or ever to 

acknowledge failure. The administration's support for the program persisted even as it was hijacked by 

former Communist insiders who possessed Russia's only real assets.

Beginning in October 1992, the so-called "voucher privatization" program provided for each Russian 

citizen to be issued a voucher with a face value of 10,000 rubles, redeemable for state property (at thenprevailing exchange rates the equivalent of about $32, or six times the average weekly wage in Russia). 

The scheme was devised by troika partner Anatoly Chubais's U.S.-funded Russian Privatization Center, 

with the assistance of the U.S.-funded Harvard Institute for International Development and the U.S. 

Agency for International Development (AID). Thomas Dine, then AID Assistant Administrator for 

Europe and the New Independent States, testified before the Senate Foreign Relations Committee in 

October 1994 that "USAID expert advisers helped Russian counterparts in designing and implementing 

the voucher system."

According to Dine's testimony, the "structured reform process" of establishing the basis for a 

competitive, free enterprise economy was not a prerequisite for putting state monopolies into private 

hands. Rather, only after completion of the voucher privatization program would the Clinton 

administration plan "advance to the next logical steps in the structural reform process." In other words, 

creation of an authentic free market environment was to follow conversion of control over Russia's 

industrial assets into privately-owned assets of Russia's new oligarchs.

This decision would have disastrous consequences for Russia and her people. A small group of insiders 

acquired the preponderance of the vouchers for themselves, leaving ordinary Russians as powerless as 

before. The valuation of the industrial assets exchanged for the vouchers was manipulated for the benefit 
of these same insiders. And once in control, they were able to strip the assets for piecemeal sale, leaving 

Russia without even the productive capacity that these former state-owned monopolies had provided, 

and with no market-based competitors to fill the void. Essentially, enterprises were turned over to Sovietera managers and others intent on stealing their assets. Modernizing and adapting to market conditions 

was not on the minds of Russia's "new managers." There were neither incentives nor resources for 

investment, without which enterprises were doomed to fail.

Moreover, millions of U.S. taxpayer dollars provided directly to the Harvard Institute, and indirectly to 

Chubais and the Russian Privatization Center, would be unaccounted for.

Yet both during and after the implementation of the voucher privatization program, the Clinton 

administration hyped it as a policy triumph, with no regard for the realities of the situation. The vouchers 

were intended to be used for the purchase of shares in any of the more than 5,000 companies slated to be 

privatized before 1994. But the hyperinflation of 1992 increased the need of average Russians for cash, 

so instead of investing for the long term by using the vouchers to purchase state-owned property, many 

Russians sold their vouchers to well-financed former Communist speculators for the best price available.

The U.S. planners, under Chubais' direction, made no adjustment for this. As a result, those who had 

financially profited during the Soviet regime, or who had connections to the Chubais clan, accumulated 

enough vouchers to purchase control of many state enterprises during this period. Indeed, the millions of 

dollars in U.S. aid funneled through the Harvard Institute and the Russian Privatization Center-which the 

Russian equivalent of the U.S. General Accounting Office described as "over funded and largely an 

instrument in search of a mission"-may have funded the speculators.58

Moreover, the appraisals by which each industry was valued (to determine the quantity of vouchers 

necessary to acquire it) were not routinely conducted at arm's length. Those with connections to the 

government were able to manipulate the valuation to their advantage. In this way, assets of significant 

value were acquired at cut-rate prices.

In the end, most Russians-as they saw the wealth that had been channeled from the state to the new 

oligarchs-felt they had been wrongly deprived of their piece of privatization. The experience gave many 

Russians a sour taste of what they believed was capitalism. The immediate result was that millions of 

Russians who had previously been enthusiastic about "reform"-and who were prepared to wait and 

endure while the infrastructure of free enterprise was built-now wanted none of it. A common pun in 

Russia during this period substituted "prikhvatizatsiya"-"grab-it-ization"-for "privatizatsiya," the Russian 

word for privatization.

Notwithstanding the perverse results of Russia's non-market "privatization," the Clinton administration 

was eager to peddle a success story. No superlative was spared. "The privatization program carried out 

by Deputy Prime Minister Anatoly Chubais has been nothing short of remarkable," Summers testified in 

February 1994.
Summers drew attention to figures showing 70% of all small-scale shops and 7,000 large firms had been 

"privatized." Like the Soviet system that was being privatized, Summers focused on quantity rather than 

quality59 without remarking upon the fact that no new competitors had been created. Removing assets 

from state control was deemed "privatizing" even though the management of many of the privatized 

firms continued unchanged, and even though they remained monopolies operating in a non-competitive, 

non-market economy.

"The difficult decisions of how to modernize Russia's companies rest in private hands,"60 Summers 

stated categorically, despite the fact that two-thirds of Russia's industrial labor force remained under 

state ownership and control.

Others in the Clinton administration followed suit. In AID's 1995 annual report of its Russia work, it 

described Russia's progress in "privatizing its economy" as "remarkable." Three sentences later, 

however, the report acknowledged the major reasons the process wasn't working: "Development of the 

legal, regulatory, and institutional infrastructures necessary to permit the newly-privatized companies to 

attract investment and to restructure and reorient their operations to compete in the global marketplace is 

still in the early stages."61

Notwithstanding "spin," the latter assessment still remains true today.

Subsidizing Government Instead of Building a Free Enterprise Economy

Relentless "spin" in the face of the facts was not limited to the results of "privatization." The Clinton 

troika claimed wondrous results for their financing of the Russian central government with International 

Monetary Fund debt, as well.

When Deputy Secretary of State Strobe Talbott testified before Congress in March 1994, he presented a 

picture of Clinton administration economic assistance producing improved standards of living for 

ordinary Russians. "Our assistance to promote economic reform targets projects that lead to tangible 

improvements in the lives of ordinary people," he said. 62 But Talbott's claim flew in the face of 

virtually all indices pointing to a significant deterioration in the standard of living for the vast majority 

of Russians.

The focus of the Yeltsin "reformers" on strengthening the finances of the Russian government and on 

transforming state-owned monopolies into private monopolies-instead of building the fundamentals of a 

free-enterprise system-reflected the priorities of their Clinton administration and IMF advisers.

The Clinton troika placed the highest priority on macroeconomic planning worked out between the 

Russian central government and the IMF, rather than on the free enterprise fundamentals necessary to 

ensure the successful transition from Communism to a free market. Because the administration chose to 
focus primarily on the financial predicament of the Russian central government instead of putting in 

place the legal fundamentals that would permit individuals to start businesses, grow the economy in that 

way, and create a tax base for the government, U.S. and IMF economic assistance to Russia amounted to 

mere temporizing.

Worse, the Clinton administration virtually guaranteed that the billions of dollars in lending and aid that 

it was providing would be wasted by allowing its use to plug the gap in the Russian central government's 

operating budget, and by exposing these funds to theft and fraud.

Former Russian Finance Minister Boris Fyodorov, who met with the Speaker's Advisory Group on 

Russia on July 12, 2000, has derided the Clinton troika's reliance on IMF loans as a means of supporting 

Russia. "The roughly $20 billion pumped into the Russian budget over the last decade have, in fact, had 

no positive effect whatsoever," he wrote in the Wall Street Journal. He continued:

This is not surprising, given the black-hole nature of the Russian budget. Money, being 

fungible, was misspent and ended up in the hands of a few well-connected people and in 

Western banks. Russian citizens definitely did not benefit from this 'assistance,' judging 

by the pitiful state of healthcare, education, public security, roads, and nearly every other 

public sector.

Why reform anything in Russia if another IMF loan shipment is on its way and past 

scandals can be swept under the carpet?63

Nevertheless, the centerpiece of the Clinton administration's Russia policy was the provision of massive 

amounts of aid to the Russian central government through the IMF and directly from the U.S. Treasury. 

At President Clinton's first meeting with the new Russian president, he promised $1.6 billion in aid. At 

Clinton and Yeltsin's next meeting-during the Tokyo Economic Summit, in July 1993-Clinton offered 

$2.5 billion more in direct, unconditional aid.

The 1993 Tokyo promise was not only functionally unconditional, but seemed to serve as a reward for 

Russian inaction on legislation to protect private property rights-coming as it did just as Russian reform 

was reaching a virtual standstill. The timing of the new aid was rendered even more inappropriate by the 

fact that the Clinton troika were then facing bureaucratic and logistical obstacles to delivering alreadypromised U.S. aid to the Russian government.

Meanwhile, in addition to this direct U.S. foreign aid, the administration was also pushing for billions 

more in IMF loans to the Russian central government. This aid continued despite the repeated violation 

of the unenforceable macroeconomic conditions attached to the loans, and despite the worsening 

Russian economic performance that had gone hand-in-hand with previous IMF lending.

All told, since 1992 the United States alone has paid more than $20 billion into the Russian central 

government, both directly and through multilateral institutions.
Absent a functioning free market economy, Russia lacked the ability to assimilate such enormous sums 

without their being absorbed by the state. No private institutions were equipped to handle or 

intermediate such amounts.

For its part, the Russian government lacked the facility to turn these massive aid flows into competitive 

economic activity. Instead, the aid had the opposite effect: it made possible the subsidies to the Soviet 

enterprise network that allowed it to continue in operation. Large-scale international assistance thus 

contributed to Russia's problems by killing incentives for legislative reform, and propping up a 

government whose policies were bankrupting the Russian people.

There were long term adverse consequences as well. The flood of loans added to Russia's growing 

foreign debt, which continues to burden the central government's operating budget and weigh down the 

nation's economic prospects.

To a certainty, some of the funds financed the oligarchs in Russia whose agenda was to obtain and 

preserve their favored position in the economy. These oligarchs, in turn, became a powerful constituency 

for the corrupt status quo. In this way, too, U.S. policies have actually made reform more difficult.
The highly visible infusion of so much money into the Russian government with no resulting market 

competition fueled public skepticism, making real economic reform less popular and therefore less 

likely. Would-be Russian entrepreneurs were discouraged by the apparent aid to oligarchs. From the 

beginning, the prospect of massive hard-currency transfusions into Russia had created false 

expectations, and when they were not met the result was ill-will toward the West. "[W]hen the vast 

expectations borne of such massive financial support collided with Russia's grim realities, serious 

political difficulties were in store," Gaidar has summarized.64

Russian officials and the Clinton administration failed to recognize that without a market economy to 

support market reforms, government efforts-both the United States' and Russia's- were doomed to 

failure. The "privatization" of state companies was carried out in a vacuum, absent basic elements of a 

free enterprise system including unquestioned property rights, a modern commercial code, the right to 

make and legally enforce private contracts, readily accessible mortgage lending, and a comprehensible 

regulatory and tax system. The logical result of such non-market "privatization" of state monopolies was 

chaos.65

Joseph Stiglitz, former Chief Economist and Vice President of the World Bank, succinctly described this 

fundamental flaw in the Clinton troika approach. Those advising the Russian government, Stiglitz 

argued, "consisted largely of macroeconomists, whose faith in the market was unmatched by an 

appreciation of the subtleties of its underpinnings-that is, of the conditions required for it to work 

effectively."66

But at the time, both the World Bank and the IMF seemed not to appreciate the importance of 

establishing the conditions required for a free enterprise economy to work, either. In a December 1993 

memorandum entitled "Economic Reform in Russia: Lessons from Experience," prepared by staff of the 

two organizations, the "accomplishments" in the first two years made no mention of the establishment of 

market prerequisites. The memorandum's list of tasks that remained to be done similarly excluded 

virtually every one of the fundamental building blocks of a free enterprise economy that Russia since 

1992 has urgently needed to enact.

The ultimate problem with the Clinton administration's economic policy was that the vast amounts of 

money that were poured into Russia's central government-in the form of both bilateral and multilateral 

lending and direct aid-became a substitute for and an impediment to the changes that were necessary to 

move Russia from Communism to free enterprise.

Conclusion

The Clinton administration's policy toward Russia was undermined by the president's declination to 

make it a presidential-level priority for the United States. The de facto delegation of his responsibility to 

a policy-making troika of Vice President Gore, Strobe Talbott, and Lawrence Summers led to 
bureaucratic disarray within the administration caused by the troika's assertion of top-level authority 

over programs relating to Russia more properly administered under the direction of cabinet secretaries 

and agency heads, subject to the normal executive branch checks and balances. The Vice President's use 

of the Gore-Chernomyrdin Commission to dispense benefits to Russia outside normal channels was a 

particular cause of poor coordination and duplicated efforts.

This structural failure exacerbated several deep flaws in the administration's approach to the greatest 

foreign policy opportunity for the United States since World War II.

The Clinton administration has often sought to defend its catastrophic policies in Russia by arguing that 

it had "no alternative." But there were alternatives to administration policy at every step. United States 

policy could have engaged broadly with Russia at any time in the past eight years. It could have 

emphasized the development of the necessary building blocks of free enterprise instead of massive, 

effectively unconditional IMF lending to Russia's central government. And it could have stopped 

enabling Russian corruption.

It is quite correct that Russia is responsible for its own decisions and was never America's to lose-or for 

that matter to win. But it is even more certainly the case that Russia in 1992 stood ready to become a 

free enterprise democracy and a close friend of the United States, and was prepared to accept American 

advice on how to achieve that result. To the extent that U.S. policy made a difference in Russia, it made 

conditions worse, not better. President Clinton, Vice President Gore, Strobe Talbott, and Larry Summers 

did not "lose Russia." But the policies they pursued did hurt Russia--badly.

CHAPTER 5

THE GORE-CHERNOMYRDIN 

COMMISSION
5-1

GORE-CHERNOMYRDIN: Vice President Al Gore and Prime 

Minister Viktor Chernomyrdin embrace Sept. 24, 1997. The GoreChernomyrdin Commission failed to serve its stated function of 

ensuring implementation of decisions made at the presidential level. 

Instead the Commission became the primary forum and vehicle for U.

S. policy toward Russia. Yet the Commission was deeply flawed by 

its own structural defects-the need for a facade of success 

regardless of the reality; an excessive dependence on personal 

relationships that left the United States ill-prepared when Russia 

changed players; and a willful blindness to conflicting information 

about Russian affairs from sources outside the Commission's staff 

bureaucracy. As the Commission came to dominate U.S.-Russia 

policy, these flaws infected the entire bilateral relationship. AP Photo/

Pool
The Gore-Chernomyrdin Commission is the instrument through 

which the good intentions and principles articulated first by me 

and then by Boris Yeltsin have made the United States-Russia 

partnership the success it is.

Bill Clinton, November 1, 1997

The life of the nations is not contained in the lives of a few men, 

for the connection between those men and the nations has not 

been found. The theory that this connection is based on the 

transference of the collective will of a people to certain historical 

personages is an hypothesis unconfirmed by the experience of 

history.

Leo Tolstoy, War and Peace, 1869

Delegating Duties

In April 1993, during his first meeting with President Yeltsin, President Clinton effectively delegated the 

management of U.S.-Russian relations to Vice President Al Gore. The "U.S.-Russia Commission on 

Economic and Technical Cooperation" was to be co-chaired by Gore and Russian Prime Minister Viktor 

Chernomyrdin. The first task of the Gore-Chernomyrdin Commission--as the Commission was soon 

popularly known--was to promote cooperation between the United States and Russia on space and 

energy issues.1

At the April 1993 Vancouver summit, a joint Yeltsin-Clinton statement explained that the GoreChernomyrdin Commission would assume even broader powers: "In particular, working groups will be 

set up involving high-level officials of both governments with broad authority in the areas of economic 

and scientific and technological cooperation."2

By the end of 1993, the Commission's role had been expanded to include the full range of U.S.-Russia 

relations. According to the vice president's chief foreign policy adviser, Leon Fuerth, in remarks at the 

Foreign Press Center on December 22, 1993: "In the aftermath of the first meeting here in Washington 

between Prime Minister Chernomyrdin and the vice president, [the Commission] expanded. ... This is a 
very large enterprise involving a broad sweep of cabinet or ministerial level players on both sides."3 

Henceforth, the biannual meetings of the American and Russian presidents became little more than highvisibility adjuncts to the Commission's own biannual meetings, and could not substitute for Clinton's 

disengagement from his administration's policy.

Clinton's abdication to Gore of authority over the most important foreign policy opportunity for America 

since World War II--the rebuilding of Russia after the collapse of the Soviet Union--is striking. No other 

foreign policy development in the second half of the 20th century held as much in the balance as the 

potential Russian transition from Communism to free enterprise and democracy. By assigning this 

portfolio of overarching importance to his second-in-command--whose priorities were (and remain) 

"Reinventing Government," environmental issues, and technology policy--Clinton guaranteed that 

Russia policy would receive only desultory attention. By removing the Russia portfolio another layer 

from the President, the administration also sent a signal that Russia was of secondary importance to the 

United States.

5-2

RUSSIA IN THE BALANCE: Former Communist industrial manager Viktor Chernomyrdin (left) and 

Vice President Al Gore preside over an elaborate meeting of the Gore-Chernomyrdin Commission Feb. 

6, 1997, at the U.S. State Department. President Clinton delegated responsibilty for U.S. Russia policy 

to Gore, who measured the bureaucratic Commission's success by the amount of paper it 

produced--"more than 200 intergovernmental and interagency documents." AP Photo/Mark Wilson
A Bureaucracy Is Born

The Gore-Chernomyrdin Commission's function and structure proved an accurate blueprint for the even

tual failure of the entire Clinton administration policy toward Russia. In a self-congratulatory "fact 

sheet" released in July 1999, the administration touted the Commission by asserting that "a dialogue 

wouldn't take place without [the Commission]."4 In fact, by superseding normal policy making and well 

established channels of communication within the U.S. government and between it and the Russian 

government, the Gore-Chernomyrdin Commission would come to impede the information flow to 

decision makers in Washington.

More basically, by ostentatiously placing great emphasis on the importance of the two central 

governments, rather than on reducing the role of Russia's central government and devolving power to 

private decision making, the Gore-Chernomyrdin Commission distracted Russia from what should have 

been its main focus: constructing the essential elements of a free enterprise economy.

Finally, the Commission powerfully reinforced the overall tendency of the Clinton administration to 

base U.S. Russia policy on personal relationships with a handful of Russian officials. Such 

personalization of the bilateral relationship created a symbiotic political relationship between the two 

sets of officials, making American policy dependent on the political fortunes of individual Russian 

politicians. It thus created strong incentives to ignore their failings and believe their representations. A 

former State Department official has testified that " ... senior administration officials were tempted to 

turn to their Russian partners [rather] than to the intelligence community and the Foreign Service for 

insight as to what was happening in Russia and how to proceed."5

A Pattern of Busywork and Neglect

The first meeting of the Gore-Chernomyrdin Commission, which consisted mainly of discussions 

between Gore and Chernomyrdin, established what soon became its format: discussions between 

representatives of two bureaucracies. It also developed its own elaborate bureaucratic structure. Over 

time, its main activity became government contacts at the staff level.

As the years went by, the Gore-Chernomyrdin Commission developed a Secretariat--whose very name 

conjured up memories of the Soviet bureaucracy. Numerous committees, each co-chaired by a U.S. 

cabinet secretary and his or her Russian counterpart, were established for the purpose of exchanging 

papers, distributing memoranda, and planning for additional meetings. Each committee, in turn, had its 

own working groups and subgroups as well, all with their own assigned staffs.

The Gore-Chernomyrdin Commission Secretariat was divided into a Russian and an American 
component. The American staff was headed by Gore's national security advisor, Leon Fuerth, who 

became--in the words of the Washington Post--"the virtual day-to-day manager of U.S. relations with 

Russia."6 By substituting a bureaucrat whom the Post called an "obscure force in national security"7 in 

place of the vice president--who himself was already a stand-in for President Clinton--the importance of 

U.S. policy making for Russia was further diminished.

Despite the Commission's elaborate structure and the hundreds of people involved, it had no full-time 

professional staff. Instead, it relied on the various principals to detail their own staffs to the Commission 

as needed. As a result, the preeminent forum for U.S.-Russia relations not only was twice-removed from 

the President but also lacked a staff able to give it full-time attention.

The requirement that the staff assigned to the Gore-Chernomyrdin Commission discharge their other 

duties and responsibilities, which were often unrelated to the Commission's objectives, ensured that the 

individuals involved had inadequate time to carry out either of their jobs fully.

But what the Gore-Chernomyrdin Commission lacked in organizational focus and dedicated staff, it 

made up for in numbers. By 1999, the U.S. delegation to a Commission meeting would consist of over 

700 officials.8

The sheer size of the U.S. delegations to Commission meetings would require the U.S. Embassy in 

Moscow to suspend normal activity for weeks in advance of a Commission meeting, just to handle the 

logistics.9

The multitudes of part-time U.S. government bureaucrats associated with the Gore-Chernomyrdin 

Commission were even harder for the Russians to handle. The Commission's constant demands for the 

time and attention of Russia's already hard-pressed and mismanaged ministries kept them from focusing 

on more vital and difficult tasks--such as dismantling the Soviet-era bureaucracy.

The distraction from real work caused by the Gore-Chernomyrdin Commission was especially severe 

given the frequent turnover in the Russian government's senior personnel. Often, a new Russian minister 

would have just assumed his duties before being called to devote time and resources to preparing for the 

next semi-annual meeting of the Gore-Chernomyrdin Commission (or, in its subsequent incarnations, 

the Gore-Kirienko, Gore-Primakov, and Gore-Stepashin Commissions).10 Gore's convening of the 

Commission in July 1999, when Russia's Prime Minister Sergei Stepashin had been in office for less 

than three months, is a recent example.

Mostly, the Gore-Chernomyrdin Commission's bureaucracy produced paper--a great deal of it. A report 

issued on the occasion of the tenth meeting of the Commission, issued just months before the August 

1998 economic debacle, boasted that it had issued "more than 200 intergovernmental and interagency 

documents in every area and avenue of U.S.-Russian cooperation."11 Not since the days of the Soviet 

Union had the unrelenting issuance of so much government paperwork been viewed as a prime measure 

of achievement.
From 1993 until 1998 (with the exception of 1995, when the Commission met only once), the GoreChernomyrdin Commission and its immediate successor, the Gore-Kirienko Commission, met in plenary 

session twice every year. In 1998, then-Russian Prime Minister Sergei Kirienko proposed holding only 

one plenary session each year, thus cutting down on the excessive number of government staff 

conclaves. The other meeting each year would be limited to the vice president and the prime minister. 

(The two most recent meetings of the Commission, in July of 1998 and 1999, have been held on this less 

formal basis.)

The Russian media applauded the less frequent meetings, saying "it was high time" to replace 

"ostentatious gestures" with "effective actions."12

According to E. Wayne Merry, formerly the head of the political section of the U.S. Embassy in 

Moscow, the Gore-Chernomyrdin Commission was worse than mere ostentation; it very much got in the 

way. Beyond the make-work from so many meetings and memos, the increasing public-relations 

demand to hype the Commission's supposed "achievements" became a principal chore in its own right. 

Over time, he reports, the need to pad the accomplishments of the Commission distracted both sides 

from accomplishing substantive work:

Sadly, with time the Commission has taken on a bureaucratic life of its own and now 

impedes rather than encourages innovation.

U.S. agencies cannot conduct normal cooperation with Russian counterparts, because the 

Commission needs fodder for its summits: "new" programs to unveil, documents to sign, 

photo ops for the principals. ...

Worse, U.S. staffs are under constant pressure to increase the list of summit 

"deliverables": taxpayer-supplied evidence of American goodwill regardless of Russian 

performance, honesty or even desires.13

By proclaiming dozens of trivial successes, the administration hoped to divert attention from a string of 

larger policy failures, including the fundamental failure of the Commission to perform its core functions: 

Russia still lacked even the most basic elements of a free market economy; the costs and delays from U.

S.-Russian space cooperation continued to escalate; the privatization of Russia's energy sector was 

becoming criminally corrupt; and the Russian military was accelerating its proliferation of dangerous 

weapons and technology.

Indeed, despite the Clinton administration's perceived need to fill the Gore-Chernomyrdin summits with 

apparent activity, major issues in U.S.-Russia relations often were not addressed. For example, the 

Commission did not even establish a working group to focus on corruption, money laundering, and 

organized crime until 1999--long after the problem of Russia's crime and corruption scandals had gained 

worldwide media attention.
This dynamic--hyping good news and ignoring problems--was increasingly apparent to lower-ranking U.

S. officials. A former State Department official acknowledged that over time "there was an unmistakable 

shift in the administration's priorities, from 'tell us what is happening' to 'tell us that our policy is a 

success.'"14 Another former administration official described the "chilling" effect this attitude had on 

reporting from the State Department and the intelligence community.15

6-4

OUT OF THE LOOP: The logo of the "Binational Commissions" project as it appears on the State 

Department web site. Government-to-government relations under the U.S.-Russia Commission, 

outside of normal diplomatic channels and based on personalities rather than policy, compromised the 

ability of the United States to respond to intelligence information, especially information about the head 

of the Russian Commission, Viktor Chernomyrdin.

The Gore-Chernomyrdin Space Station Debacle

From the outset in 1993, Russian-American space cooperation was a key item on the GoreChernomyrdin Commission's agenda. Starting with the 1993 Vancouver Summit, the Clinton 

administration--under the direction of the Gore delegation to the Commission--undertook an ill-fated 

effort to integrate Russia fully into the International Space Station.

In 1993, Russia was economically and politically ill prepared to devote the necessary resources to 

completing the space station on the ambitious schedule then contemplated. Nevertheless, the U.S. staff 

of the Gore-Chernomyrdin Commission and others in the Clinton administration repeatedly asserted in 

1993 that Russian involvement in the space station would actually accelerate its deployment. Even more 

improbably, they claimed it would save money for United States taxpayers.

The vice president estimated that Russian participation in the space station program would save U.S. 

taxpayers $4 billion and reduce the time needed to deploy the space station by two years.16 But the error 

in that optimistic estimate became apparent almost immediately. By April 1994, the savings promised by 

the Clinton administration had been reduced to $1.5 billion, and the estimated time savings had been cut 

to just over one year.17 By the end of 1994, the promised savings had vanished entirely.

The actual result of the Gore-Chernomyrdin space station initiative has been not savings but added costs, 

and not early deployment but seemingly endless delay.
The space station was originally scheduled to begin operation in 2002. The most recent revised schedule 

calls for beginning full operations no sooner than 2006. Similarly, the original estimate of $4 billion in 

savings has been changed to added costs: whereas the 1993 price tag for the space station was $17.4 

billion, it has since ballooned to at least $24.1 billion.18 In 1998 testimony before the House Science 

Committee, Joe Rothenberg, NASA's Associate Administrator for Human Spaceflight, conceded that 

Russian participation in the program is responsible for $1 billion of these added costs.19 The Johnson 

Space Center has estimated that Russian participation in the space station has added $5 billion in costs.20

Under the original Gore-Chernomyrdin proposal, the United States was to have paid Russia $400 million 

for its role in the space station project. This money would take the form of direct payments from NASA 

to its Russian counterpart, Rosaviakosmos. But the United States has already paid nearly twice this 

amount to the Russian government, and further additional funds have been requested.21

In the final analysis, these cost overruns and delays are neither unprecedented nor wholly unexpected. 

What is troubling about the Gore-Chernomyrdin Commission's role, however, is that it served chiefly to 

deny and cover up the delays and cost overruns when they occurred. Three years into the Russian 

participation in the space station program--and long after the rising costs and attendant delays had 

become self-evident--Vice President Gore announced "an ambitious future schedule of cooperation in 

space," as if the earlier schedule had never existed.22 Disregarding both the escalating costs for the 

United States and the Russian government's failure to meet its commitments, the Commission has 

produced similarly glowing statements about the health and vitality of U.S.-Russian space cooperation 

throughout each of the past seven years.

When confronted with information that Russian participation in the space station was detrimental to the 

station's success, the Clinton administration argued that the costs and delays in the space station program 

might be justified as an effort to prevent a "brain drain" of Russian scientists to other countries seeking 

their expertise in rocketry and missile development.23 But in fact the Russian government had proved 

willing to provide these other countries with its scientists' missile and rocket expertise without the 

scientists ever having to leave their Russian research institutes. U.S. assistance on the space station, it 

was learned, actually subsidized the "brain drain" by supporting companies in the Russian militaryindustrial complex that were simultaneously engaged in both the space station program with the United 

States and missile proliferation to Iran.24

The Commission's failure in this, its first assignment--and, in particular, its demonstration of a willful 

blindness to uncomfortable facts--would become symptomatic of its approach to the broad range of 

issues in U.S.-Russia policy, and a microcosm of the Clinton administration's approach to unpleasant 

realities in Russia.
5-4

CONFLICT OF INTEREST: Viktor Chernomyrdin attends a board meeting of the Gazprom natural gas 

monopoly in Moscow, June 30, 2000. He had announced the previous day that he would resign as 

chairman of the board of Gazprom. Chernomyrdin reportedly obtained significant ownership of 

Gazprom during the firm's privatization--which Russia's Deputy Prime Minister for Finance called "the 

biggest robbery of the century, perhaps of human history." Chernomydin maintained ties to Gazprom 

as Prime Minister, simultaneously influencing both Gazprom's affairs and Russia's energy, tax, and 

regulatory policies that directly affected the company. AP Photo/Mikhail Metzel

Papering Over Missile Proliferation to Iran

The links between space technology and proliferation facilitated the Commission's assumption of yet 

another area of responsibility: resolving differences between the United States and Russia on weapons 

proliferation, especially proliferation to Iran.25

In 1995, the Gore-Chernomyrdin Commission claimed success in stemming Russian weapons 

proliferation when Russia announced it would become a party to the Missile Technology Control 

Regime. Unfortunately, this "success" was only the first in a string of meaningless Russian 

pronouncements about arms proliferation. When the first public reports of Russian assistance to the 

Iranian missile program subsequently surfaced in January 1997, the Clinton administration's weak 

response was to begin a long and ultimately inconsequential dialogue through the Gore-Chernomyrdin 
Commission. Such temporizing has failed to this day to stem Russian assistance to the weapons 

programs of Iran and other rogue nations.

Despite urgent requests from the Israeli government, Vice President Gore failed to make the Iran 

weapons proliferation issue a focus of the Gore-Chernomyrdin Commission plenary meeting in February 

1997. Instead, the Commission focused on such weighty matters as commending itself for having 

produced 160 documents during the four years since its creation.26 Not until the next Commission 

plenary session, in September 1997, did Gore even raise arms proliferation in the Commission's public 

discussions.

Gore's reticence about directly confronting the Russian government on difficult bilateral issues surfaced 

again when the Clinton administration refused to work with the U.S. Congress as it considered 

legislation to provide for sanctions, not against Russia, but rather against Russian companies guilty of 

selling missile technology to Iran. The Clinton administration's unwillingness to tackle the issue drew 

the attention even of its Democratic allies in Congress. In the Additional Views filed by the minority in 

connection with the Iran Missile Proliferation Sanctions Act of 1997, eight senior Democrats wrote:

Missile technology transfers to Iran have become a contentious issue between the 

Committee [on International Relations] and the Executive branch, in part because the 

consultation process has been weak. The Committee has had difficulty in getting detailed, 

timely information from the Executive branch on this issue.27

Throughout 1997 and into the summer of 1998, following the advice of the Gore-Chernomyrdin 

Commission and Vice President Gore himself, the Clinton administration refused to impose sanctions 

against the Russian firms involved in proliferation to Iran. Instead of accepting the reports of the U.S. 

intelligence community, Gore chose to trust Chernomyrdin's reassuring pronouncements that 

proliferation to Iran was against Russian policy.28

The failure to listen to information beyond the elite coterie involved in the Gore-Chernomyrdin 

Commission, which allowed Gore to credit Chernomyrdin's policy pronouncements above the economic 

imperatives that are even now helping drive Russian proliferation to Iran, reflected a characteristic 

weakness of the Commission's very structure, and of the Clinton administration's Russia policy as a 

whole.

This weakness was again revealed in January 1998, when the Clinton administration chose to accept at 

face value the Russian government's assurances that its export controls would soon be tightened. The 

Clinton administration's refusal to accept the widespread reports of Russian violations of its nonproliferation commitments came to a head in June 1998. An overwhelming, bipartisan, and veto-proof 

supermajority of both houses of Congress passed the Iran Missile Proliferation Sanctions Act of 1998.

The Act provided for targeted sanctions against those Russian firms that were engaged in furthering the 

Iranian missile program.29 Despite the precision of the legislation, President Clinton--explicitly citing 
the assurances the Gore-Chernomyrdin Commission and administration officials had received from highlevel Russian officials--vetoed the bill.30

Less than one month later, on July 22, 1998, Iran tested the Shahab-3, a missile developed largely with 

Russian assistance.31 The public embarrassment of having vetoed legislation designed to prevent the 

development of this new weapons system forced the administration finally to sanction ten Russian firms 

instrumental in the Iranian missile program. Critics of this approach claimed that, of the ten entities 

singled out for sanctions, only two or three would be affected by the sanctions, and the others that 

should have had sanctions imposed on them were left off the list.

The Clinton administration's unwillingness to deal firmly with Russian proliferation to Iran--a policy 

failure centered in the structural weaknesses of the Gore-Chernomyrdin Commission--continues to this 

day. At the July 1999 meeting of what was then the Gore-Stepashin Commission, Gore rewarded Russia 

for cooperation on proliferation with an increase in its U.S. satellite launch quota.32 Yet just one month 

earlier, the U.S. intelligence community had reported that Russian assistance to Iran's nuclear program 

continues.33 Although the unclassified version of the report was not released to Congress until February 

2000, the Clinton administration had access to this information before the July 1999 Commission 

meeting.

Conclusion

Ultimately, Vice President Gore's U.S.-Russia Commission failed to serve its stated function of ensuring 

implementation of decisions made at the presidential level. Instead the Commission became the primary 

forum and vehicle for U.S. policy toward Russia. Yet the Commission was deeply flawed by its own 

structural defects--the need for a facade of success regardless of the reality; an excessive dependence on 

personal relationships that left the United States ill-prepared when Russia changed players; and a willful 

blindness to conflicting information about Russian affairs from sources outside the Commission's staff 

bureaucracy. As the Commission came to dominate U.S.-Russia policy, these flaws infected the entire 

bilateral relationship.

Because the Commission was dominated on the American side by the same group of senior officials for 

eight years, it became increasingly insular and resistant to oversight.

The Commission became far too reliant on its small circle of Russian interlocutors for its information 

about conditions in Russia. This excessive dependence on Russian officials--including a series of 

Russian prime ministers necessarily focused on their own political survival--led both Gore and the U.S. 

delegation to the Commission to insulate themselves from discordant information that might cast doubt 

on the success of the Commission or the Clinton administration's policy. Rather than making policy 

based upon the best information available from all sources, the Gore delegation chose to depend on a 

single source with clear motivations to distort.
Such information as the vice president and his staff did choose to receive through normal State 

Department and intelligence community channels was eventually distorted by the same penchant for 

exclusively good news, turning the Gore-Chernomyrdin Commission into a Potemkin village version of 

the administration's Russia policy.

The Gore-Chernomyrdin Commission thus contributed to a deliberately uninformed U.S. policy toward 

Russia. It refused to acknowledge failure, and even worse, celebrated failure as if it were success. The 

Clinton administration's dependence on the Gore-Chernomyrdin Commission, coupled with the 

Commission's refusal to listen to independent information, meant that administration Russia policy was 

both procedurally and substantively unsound.

Beyond failing to properly assess Russia's problems or to offer sound advice to address them, the 

Clinton administration's use of the Gore-Chernomyrdin Commission in place of established U.S. policy 

making mechanisms resulted in its repeatedly being caught off guard by Russian developments--from 

Russia's complete financial collapse in 1998, to the continued proliferation of missile and nuclear 

technology to Iran, to Yeltsin's appointment of Vladimir Putin as Prime Minister. The dangerous 

substitution of the vice president's bureaucracy for America's institutional eyes and ears in Russia left 

the Clinton administration woefully unprepared to deal with what should have been America's most 

important foreign policy priority since World War II.

CHAPTER 6

'BULL****': GORE AND 

OTHER ADMINISTRATION 

POLICY MAKERS 
SYSTEMATICALLY IGNORE 

EVIDENCE OF CORRUPTION 

OF THEIR 'PARTNERS'

6-1 chernostalingore

THE OLD GUARD: Left to right, former Russian Prime Minister 

Viktor Chernomyrdin, a Communist-trained technocrat and Soviet 

industrial manager; a portrait of Soviet dictator Josef Stalin; and Vice 

President Al Gore, who supported Chernomyrdin's requests for 

subsidies to the Russian central government. Gore ignored evidence 

of Chernomyrdin's corruption. He and Chernomyrdin met in Stalin's 

country house in a Moscow forest on July 14, 1996. AP Photo/Pool

The truth about corruption is difficult to hear and difficult to 
speak. But once the truth is spoken and heard and known, the 

truth itself acquires a power that can transform nations and our 

world.

Vice President Al Gore, February 26, 1999

There have been a lot of charges and innuendo [about Viktor 

Chernomyrdin] but there has been no proof, no smoking gun, and 

certainly no indictment in a Russian court.

Leon Fuerth (Al Gore's National Security Adviser), as quoted in the Washington 

Post, July 27, 2000

Facts are stubborn things.

President Ronald Reagan, August 15, 1988

6-3.tif (no 

caption)

The 1995 CIA Report

In 1995, CIA officials dispatched to the White House a secret report based upon the agency's large 

dossier documenting the corrupt practices of then-Russian Prime Minister Viktor Stepanovich 

Chernomyrdin, who with Vice President Gore co-chaired the Gore-Chernomyrdin Commission. The 

private assets that Chernomyrdin had accumulated in his official position, according to Russian security 

sources, ran into the billions of dollars.1 When the confidential classified report on Chernomyrdin 
reached Vice President Gore, however, he refused to accept it. Instead, he sent it back to the CIA with 

the word "BULL " scrawled across it.2

When the New York Times first reported these grotesque facts, White House and CIA officials denied 

that the report existed. The National Journal, however, reported approximately six months later that it 

had independently confirmed the Times account.3 A few months later still, the Washington Post wrote 

that CIA sources, "had it that the report came back with 'bull----!' scrawled in the vice president's 

handwriting."4

It is difficult to imagine a more dangerously intemperate reaction by the vice president to official 

corruption in Russia. Yet this was hardly an isolated incident. The administration had ignored repeated 

earlier warnings of corruption by Chernomyrdin and other senior Russian officials. Several senior 

Clinton administration officials have confirmed that they had received a number of reports from the CIA 

alleging corruption by Chernomyrdin, and that the CIA had submitted many other reports alleging 

corruption among other senior Russian leaders, including Anatoly B. Chubais.5 "My review of CIA's 

published material persuades me that it has reported to its readership persuasively and in depth that 

crime and corruption are pervasive problems in Russia," said a CIA ombudsman tasked with 

investigating the CIA's work after the first New York Times article about the vice president's "barnyard 

epithet" appeared.6

It is therefore clear that the vice president rejected not an initial report unsupported by other evidence, 

but rather a detailed report built on extensive earlier work by the CIA of which Gore must have been 

aware. Moreover, the allegations against Chernomyrdin were made in the context of numerous charges 

against other senior Russian leaders--suggesting widespread corruption at the top levels of the Russian 

government.

Gore's close personal relationship to Viktor Chernomyrdin--and not any superior intelligence that he 

possessed as Vice President--was therefore obviously decisive in his emotional dismissal of the CIA 

intelligence report of Chernomyrdin's corruption. At the same time that he was receiving reports of 

Chernomyrdin's corruption and the growing anger of the Russian people over the power of the oligarchs, 

the vice president was effusive in his public comments about Chernomyrdin. In June 1995, as they stood 

together in Moscow, he displayed his lack of objectivity. "Friends have a right to be proud of friends," 

Gore proclaimed. He added: "The longer one works with [Chernomyrdin], the deeper one's respect 

grows for his ability to get things done."7

Chernomyrdin Allegations--No Secret

The Clinton-Gore administration's knee-jerk dismissal of top-secret corruption allegations against Viktor 

Chernomyrdin was all the more remarkable taking into account the extensive information available in 

open sources, including the Russian and U.S. media.
For example, in the summer of 1995 a respected U.S. analyst of Russian affairs wrote a comprehensive 

article in the Washington Post detailing wide-ranging charges against the Russian prime minister.8 Peter 

Reddaway, a political science professor at George Washington University and former director of the 

Kennan Institute for Advanced Russian Studies, cited accusations by Boris Fyodorov, who had served as 

Russia's Deputy Prime Minister for Finance, that Chernomyrdin illicitly obtained significant holdings of 

stock in Gazprom, Russia's gas monopoly, during the firm's privatization--a privatization that Fyodorov 

characterized as "the biggest robbery of the century, perhaps of human history."9 Chernomyrdin was 

thus made one of the ten richest men in Russia (Gazprom was worth up to $700 billion). Reddaway also 

noted similar charges by Vladimir Polevanov, also a former Deputy Prime Minister, in a nationally 

televised interview in Russia. The New York Times reported in July 1995 that Chernomyrdin's son was 

building "an enormous country home" in a Gazprom compound, and that he was also thought to be "one 

of the company's largest shareholders."10

Chernomyrdin's continuing links to Gazprom after his entry into government were also widely reported. 

In fact, a March 1995, cable from the U.S. Embassy in Moscow signed by then-Ambassador Thomas 

Pickering directly alluded to Chernomyrdin's continuing involvement with Gazprom after he entered 

government, and with Gazprom's extraordinary influence over the government:

A former 'Gazprom' director--Viktor Chernomyrdin, who Embassy sources report spends 

a significant amount of his time on 'Gazprom' business--is prime minister. An aide to 

current 'Gazprom' director Rem Vyakhirev said recently that, when there are problems in 

his sector, 'they (the federal government) do not tell us what to do, we tell them what 

needs to be done.'11

Numerous public sources noted Chernomyrdin's specific role in ensuring that the gas monopoly paid 

minimal taxes. One expert estimated that Gazprom's tax breaks cost the Russian budget up to $30 

billion12--an immense sum relative to total Russian revenues and expenditures (for example, Russia 

received less than $15 billion from international financial institutions in the four-year period from 1992 

to 1995). This lost revenue had a grave effect on the government's ability to cope with the struggling 

Russian economy. In this sense, the Clinton administration's uncritical support for Chernomyrdin 

directly undermined the U.S. policy of encouraging Russia to increase tax collections.

Gazprom in return had provided funds for Chernomyrdin's parliamentary campaign in December 1995.13

In 1998, a book by Russian security officer Valery Streletsky added further public evidence that 

Chernomyrdin tolerated massive corruption within his government. The author, who headed a unit 

tasked with investigating government corruption, states that Chernomyrdin's long-time chief of staff, 

Gennady Petelin, amassed tens of millions of dollars in foreign bank accounts.14 The author further 

reported that Chernomyrdin's own chief of security personally told him:

Viktor Stepanovich [Chernomyrdin] relates seriously to cadres. This practice has been 
worked out over years. He thinks: let a good person steal 10% but do what is necessary 

with the other 90%.15

6-2a

MORE "BULL** **"?: Vice President Al Gore on Meet the Press, July 16, 2000, where he denied 

scrawling "Bull " across a CIA report of Chernomyrdin's corruption in 1995, but inadvertently 

acknowledged both the existence of the specific report and his categorical dismissal of it. Newsmakers/

Mark Wilson

Chernomyrdin was recently brought into court to testify about his role in the illegal export of $180 

million worth of diamonds and gold during his administration.16 As this report was being prepared, 

Russian press accounts quoted Swiss police sources as stating that tens of millions of dollars had been 

transferred into Swiss bank accounts controlled by Chernomyrdin during his tenure as prime minister.17

The transfers were made by Mercata Trading, a firm linked to Mabetex, which is at the center of a major 

kickback scandal involving $300 million in Russian government contracts, including the scandal-ridden 

renovation of the Kremlin itself.

Given that Chernomyrdin served as prime minister for five and a half years, his embrace of corruption 
fundamentally compromised Russia's efforts at economic reform. In this way, the Clinton 

administration--and Gore personally--contributed not only to Russia's failure to overcome corruption, 

but to the spread of corruption throughout the Russian political system.

Gore's failure to heed U.S. intelligence by showing discretion about Chernomyrdin and other corrupt 

officials in his public diplomacy--his willful blindness, and that of other senior administration officials 

to the overwhelming public and classified evidence of official Russian corruption--sent precisely the 

wrong signal to U.S. intelligence analysts, who had proven their regional expertise by accurately 

predicting the collapse of the Soviet Empire.18

The New York Times reported the effect of the vice president's disdain for politically inconvenient 

intelligence:

The incident has fostered a perception in the agency's ranks that the Administration is 

dismissive of 'inconvenient' intelligence about corruption among the Russian leaders with 

whom White House and State Department officials have developed close personal 

relationships.19

One intelligence official has stated publicly: "They never want to hear this stuff." Another commented: 

"They don't ignore it. But they don't want to have to act on it." Current and former U.S. intelligence 

officials expressed similar views:

"'It [Chernomyrdin's corruption] was all laid out for Gore [in 1995] ... and he didn't want 

to hear it. Our government knew damn well what was happening.'"20

Senior administration officials including Gore "definitely didn't want to know about 

corruption around Yeltsin. That was politically uncomfortable."21

The former Chairman of the National Intelligence Council, Fritz Ermarth, who retired from the CIA in 

1998, wrote of senior Clinton administration officials that they had a "disdain for analysis about 

corruption of Russian politics and their Russian partners ... "22 Ermarth notes that this disdain was 

particularly strong during the critical 1993-96 period.

They Know That We Know

Russian assessments of what the U.S. knew about Russian corruption also undermine the Clinton 

administration's claims of ignorance. For example, a report by a think tank associated with the Russian 

military, the Russian Institute of Defense Studies, states specifically:
Special services of Western countries have full access today to all documentation of joint 

ventures and other partners of Russian exporters, they have the originals of financial 

documents, they are knowledgeable regarding the movement of commodity resources and 

financial flows, they have information on bank account numbers of the 'new Russians,' 

and they know about their real estate and securities transactions abroad.

The report, issued contemporaneously with the Gore "bull** **" incident, further stated:

And it should be understood that ... the outflow of resources and capital from Russia 

abroad in the form in which it is being accomplished today is criminalized to the highest 

degree and represents not only a violation of domestic laws but also the grossest violation 

of laws of the western countries themselves.23

Yet even as publicly available Russian sources concluded that information about the full extent of 

Russian official corruption was known to Western intelligence services, the top Clinton administration 

policy makers chose to ignore it.

A System for Rejecting All 'Inconvenient' Intelligence

Vice President Gore has hedged his denial of the "bull " incident, saying, "I don't think" that "[I] 

ever wrote a message of that kind." At the same time, however, he and other senior Clinton-Gore 

officials have publicly dismissed the CIA reports. Indeed, when asked whether "bull** **" had ever been 

scrawled across a CIA report, Gore plainly referred to a specific CIA report, saying , "whoever sent that

over there [could not have] expected the White House to be impressed with it ... it was a very sloppy 

piece of work."24 Other administration officials dismissed the CIA reports as "rumor," and denied that 

the CIA had provided "conclusive proof."25

But agency reporting is necessarily based on intelligence sources, often covert. By conveniently 

demanding a "smoking gun" whenever they sought to suppress uncomfortable facts, Gore and other top 

Clinton administration officials established standards of proof that were impossible to meet. The result 

was a rigged system for rejecting all "inconvenient" intelligence whenever it suited the preferences of 

the White House.

Such misuse of intelligence data deepened the mistrust between the White House and the Intelligence 

Community. CIA officials have described the resultant "frequent tensions between the agency and policy 

makers over reporting."26 According to one CIA official:

These people [the Clinton-Gore administration] have expected something no one in the 

intelligence community could provide--judicial burden of proof. ... Did we have an 

authenticated videotape of the person actually receiving a bribe? No. But reporting from 
established, reliable sources was written off as 'vague and unsubstantiated.'27

CIA officials have described the intelligence information concerning Chernomyrdin that was provided to 

Gore as "more detailed and conclusive than allegations of bribery and insider dealing that have been 

made in the Russian media and elsewhere."28 Yet when asked--as recently as July 2000--whether 

Chernomyrdin is corrupt, Gore replied: "I have no idea."29

False Choices

Recently, Leon Fuerth, the vice president's national security adviser, has tried to play down the 

widespread intelligence community condemnation of Gore's disdain for official reporting by arguing that 

the problem of corruption "was on the [Gore-Chernomyrdin] Commission agenda."30 But it is difficult 

to see how a Gore-Chernomyrdin Commission could meaningfully attack the problem of 

Chernomyrdin's own corruption, or that of his associates. Indeed, addressing corruption in partnership 

with Chernomyrdin, whom another former Russian official called "the chief mafioso of the country,"31

was tantamount to endorsing Russia's corrupt status quo.

Gore's lavish praise for Chernomyrdin, and his intentional personalization of their relationship make it 

equally impossible to accept Fuerth's claim that Gore had no alternative but to deal with the prime 

minister. (The Clinton administration, Fuerth stated, had either to "boycott the government of Russia" or 

"deal with [Chernomyrdin]"32--an obviously false choice.) Gore's embrace of Chernomyrdin and the 

ever-larger role assigned to the Gore-Chernomyrdin Commission went far beyond what was justified by 

what the U.S. government knew of him, and by the Commission's meager results.33

The pro-forma inclusion of official corruption "on the agenda" of the Gore-Chernomyrdin Commission, 

along with scores of other topics large and small, is quite different from making its eradication a priority. 

The content of the Clinton administration's policy on Russian corruption has amounted to general 

disinterest. It has offered lip service34 while failing to act on specific problems such as moneylaundering until forced by events.

The very serious allegations made against the Russian Prime Minister and Vice President Gore's partner 

in the Gore-Chernomyrdin Commission, amply set forth in official U.S. intelligence reports, were 

simply rejected by the Clinton administration as the scope of the issues assigned to the GoreChernomyrdin Commission was steadily increased. Indeed, to the extent that President Clinton seemed 

willing to give an ever-increasing role in the U.S.-Russian relationship to the Gore-Chernomyrdin 

Commission, Gore stood to benefit from maintaining his continued close personal relationship with 

Chernomyrdin.

In light of Chernomyrdin's notorious corruption, the expansion of the Gore-Chernomyrdin Commission's 

role and the decision to make it the fulcrum of U.S. policy were a serious error that abetted the growth of 
official corruption and crime in Russia, to the detriment of the Russian people and the longer-term U.S.-

Russian relationship.35 Broader, less centralized cooperation with the Russian government and a less 

fulsome embrace of Chernomyrdin could have averted these problems, and kept the United States on the 

side of reform.

The Larger Pattern

Vice President Gore's approach to evidence of Chernomyrdin's corruption is a microcosm of the 

approach he and the Clinton administration took towards the problem of corruption, which extended far 

beyond Viktor Chernomyrdin.

As Wayne Merry, a senior official at the Moscow Embassy during the first part of the Clinton 

administration, testified in September 1999:

It is now asked, "What did our policy makers know about corruption in Russia and when 

did they know it?" I can only say that anyone involved with Russia--in government or on 

the street--knew about it all along. There was no secret. Even if the Embassy and the CIA 

had not written a word, the Western press covered the story fairly well, while the Russian 

media reported on corruption constantly ... . Anyone who wanted to know, knew. The real 

questions are, "Did our policy makers care, and what did they do about it?"36

The answer to these questions is clear, not only in the case of Chernomyrdin but in many other cases as 

well. The Clinton administration repeatedly ignored evidence and sought to politicize the analytical 

process, routinely dismissing or stifling reporting that did not support their policies or fit their political 

requirements.

Donald Jensen served as a second secretary in the U.S. embassy in Moscow from 1993-1995 and 

returned to Moscow in 1996. During his 1996 work at the embassy, Jensen wrote a 10-page cable 

identifying Russian oligarchs who were using their government connections to win control of prized 

enterprises. According to Jensen, his cable was killed by a Clinton administration Treasury official who 

worked in the Moscow embassy.

The administration official, Jensen stated, justified suppressing factual reporting about Russian official 

corruption by arguing that "if the memo were sent to Washington, it could be leaked to the press, and 

that would undermine U.S. policy."37

Jensen told "Frontline" that the cable was never sent because "it was bad news, and we [the Clinton 

administration] were intent on making our policies work."38 Moreover, he added:

if corruption was shown to exist in any significant degree ... that was criticism of the 
[Clinton] policy because we had argued for a number of years that these things--these 

policies--were for the good of Russia, and that if you now say that the government's 

completely corrupt, that it's linked directly or indirectly with organized crime, you're 

essentially saying the policy the U.S. government has followed over the past few years 

was wrong.39

Thomas Graham, the head of the U.S. Embassy's political section in Moscow from 1994-1997, 

confirmed Jensen's account in an interview in the Washington Post.40

In the same article, Graham's predecessor in Moscow, Wayne Merry, said the embassy, "was under 

constant pressure to find evidence that American policy was producing tangible successes, especially 

after the creation of the 'Gore-Chernomyrdin' working group." Merry also said that the Clinton 

administration's desire to make the Gore-Chernomyrdin commission a success prevented reporting 

"about the realities of crime and corruption ... failures in the privatization and general bad news."

Graham argues compellingly that the dismissal of such reporting by senior Clinton administration 

officials was a direct consequence of their personal relationships with a handful of Russian officials.41

Because senior Clinton administration officials became so close with their counterparts in the Russian 

government, he suggests, over time they came to trust their Russian interlocutors more than reports from 

within their own government. Thus, senior Clinton administration officials came to rely upon their 

Russian partners not only for information, but for analysis and policy recommendations as well; as a 

result, the CIA, the embassy staff, and other independent sources of information were marginalized.

At times the Clinton administration has positively hindered the uncovering of official corruption: the 

Swiss government has recently complained of U.S. refusal to cooperate with its criminal investigations 

into official Russian corruption. Laurent Kasper-Ansermet, a Swiss investigative magistrate, formally 

requested assistance from the U.S. government in his investigation into the Bank of New York case in 

September 1999 and began a series of detailed requests for information and assistance in January 2000, 

but to date has received little cooperation.42

Groupthink

An article in the National Journal suggests that the Clinton administration's policy toward Russia may 

be a classic case of "groupthink," a psychological process in which "wishful thinking, shaky premises, 

and a tendency to deny facts at odds with the cognitive underpinnings of a course of action to which a 

group is committed" can lead to flawed decision-making and policy failures.43 Moreover, because the 

decision-makers involved in "groupthink" are unable to admit their own errors, they become trapped in a 

"tangled muddle of self-justification, denial, and distortion." The National Journal analysis attributes 

much of the problem in Russia policy to Deputy Secretary of State Strobe Talbott and Treasury 

Secretary Lawrence Summers. They, like Vice President Gore, were unwilling, and eventually unable, to 
distinguish the imagined world of their own policies from the real world of an increasingly desperate 

Russia. As a result, the Clinton administration continued, and even intensified, activities that were 

plainly destructive.

CHAPTER 7

THE RISE OF ORGANIZED 

CRIME
7-1

THE NEW RUSSIANS: Russians pay their respects to a fallen gang 

member. Mikhail Kuchin, portrayed on his tombstone, is holding keys 

to his Mercedes Benz, a symbol of new Russian power. In the 

absence of market reforms in Russia, organized crime replaced the 

state as property distributor and dispute arbiter, while it stifled 

legitimate entrepreneurs. Yevgeny Kondakov

As the Soviet Union was reinvented as Russia [t]he Russian 

problem was redefined from being one of organized power into 

one of organized crime.
James Kurth, The National Interest, Summer 2000

Paying the Price for Failure to Develop a Market Economy

The Clinton administration's failure to place primary emphasis on replacing Communism with the basic 

elements of the free enterprise system helped create the conditions in which organized crime has 

flourished. Without such essentials as effective legislated protections for private property, modern 

commercial codes, and honest, efficient, and speedy courts to enforce property rights, the "privatization" 

of government entities in Russia predictably resulted in chaos.1

The Russian economy did not work. People who needed to make ends meet, to save or invest money, or 

to get something else done looked for alternatives. For those suffering miserable poverty, theft became 

an option. Counterfeiting found favor among some who went months without wages. The prevalence of 

a barter economy gave rise to opportunities for tax evasion, extortion, and "protection" from regulatory 

authorities. Lagging enforcement of intellectual property rights encouraged black-market entrepreneurs. 

A supply of private "enforcers" arose to meet the demand for a system of dispute resolution.

Thus, organized crime came to be responsible not only for grisly mayhem and violence, but also for 

functions as diverse as enforcing contracts and court judgments, providing personal security, and even 

allocating scarce resources (through bribes to corrupt officials). The ability of some Russian organized 

crime groups to draw upon the specialized expertise and contacts of former Soviet personnel further 

increased their ability to compete with the Russian government both in technological sophistication (in 

areas such as cyber-crime) and geographic reach.

Moreover, the continuing and pervasive role of government in the economy has provided an enormous 

impetus for organized crime:

[O]ne frustrated former Moscow prosecutor has summarized Russia's current organized 

crime problem: "The main way the mafia penetrates into the economy is via the 

bureaucrats. They are our main enemy. The mafiosi are only the second enemy."

Russia's reluctance to loosen remaining state economic controls ... is the biggest catalyst 

for crime. Businesses seek to evade what are perceived as unacceptably high taxes or 

overly restrictive regulations; mafia groups thrive by providing a means for them to do 

so ... . Both at the federal and local level, government levies a daunting array of 
transaction costs on normal business activities. Rather than pay fees for countless 

licensing and permit requirements, firms choose to avoid official red tape by paying less 

costly bribes ... . The mafia often plays the role of middleman in these situations, 

facilitating transactions between businessmen and corrupt government officials.2

Ironically, the successive privatization schemes promoted by the Clinton administration, far from 

remedying this problem, exacerbated it, creating an oligarchic economy that put many powerful 

individuals visibly above the law, demoralizing ordinary Russians, and setting a tone of pervasive 

lawlessness at the apex of the Russian economy. As the Center for Strategic and International Studies 

reported in its study of Russian organized crime,

The principal beneficiaries of privatization--conducted at "auctions" rigged in favor of preselected individuals or banks--have been the [organized crime] syndicates. According to 

the Analytic Center of the Russian Academy of Sciences, "55 percent of the capital and 80 

percent of the voting shares were transferred, during privatization, into the hands of 

domestic and foreign criminal capital."3

The oligarchic economy also tightened the stranglehold of official corruption over the Russian 

government and the large sector of the ostensibly "privatized" economy that it influenced. This official 

corruption both obstructed law enforcement and created a symbiotic relationship between corrupt 

government officials and organized crime, which assisted them in such tasks as laundering money.

The Clinton administration's decision to base U.S.-Russian relations on Vice President Gore's 

relationship with Viktor Chernomyrdin and a handful of other high officials also sent a strong public 

signal that the United States would not only tolerate but embrace figures clearly identified in the Russian 

media and public consciousness with corruption--further undercutting law enforcement, and 

demoralizing not only the out-manned and underpaid Russian foes of organized crime but also the 

Russian people.

The fact that Vice President Gore and other top-level Clinton administration officials were willing to be 

so closely linked to Chernomyrdin and others clearly known by the U.S. intelligence community to be 

involved with organized crime could not help but influence public attitudes toward criminal behavior. 

Low-level bureaucrats taking bribes for permits, soldiers selling weapons to criminal groups, and border 

guards willing to let anything through for a price4 all lived by this logic: after all, why should criminals 

and corrupt government officials be the only ones to benefit from Russia's chaos?

The result was a vicious cycle of increasing crime and disorder, and a growing disillusionment with 

democracy and free markets:

[T]he privations of ordinary citizens stand in contrast to the opulent lifestyles of gangsters, 

corrupt politicians, and entrepreneurs of questionable integrity. This deviation has 

promoted the impression of a state hopelessly corrupt, out of control, and run by criminals 
who continue to use illicit means to hold onto the privileges of the elite formerly reserved 

for officials of the Communist Party.5

All of these pathologies were predictable responses to the lack of a genuine market economy and the 

rule of law. The criminal world's mailed fist increasingly substituted for the invisible hand of the free 

market. Organized crime became "the dark side of private ordering--an entrepreneurial response to 

inefficiencies in the property rights and enforcement framework supplied by the state."6

It was the devil's due for Russia's failure to develop a market economy in place of Communism--a 

failure abetted by the Clinton administration's economic strategy for Russia and its embrace of corrupt 

Russian officials.

7-4

A BETTER IDEA: Former World Bank Senior Vice President and Chief Economist Joseph E. Stiglitz, 

who took a more thoughtful approach to the establishment of a market economy in Russia, explained 

that there was an alternative to the Gore-Summers-Talbott "privatization" plan. He suggests that a 

bottom-up approach to privatization--selling off smaller enterprises first--could have avoided much of 

the looting of Russian enterprises. This approach, Stiglitz suggests, would have allowed for the 

establishment of a free-enterprise economy into which the large enterprises could then be privatized. 

Such a policy would have avoided the creation of the oligarch class, and limited the ability of the 

owners of newly- privatized businesses to obstruct the growth of competitors that worked against their 

venal interests. He analyzed the issue in the Keynote Address to the World Bank Annual Bank 

Conference on Development Economics, which he entitled "Whither Reform? Ten Years of the 

Transition." He appears above at a news conference Apr. 26, 1999, at the start of the bank 

conference. AP Photo/Dennis Cook
Half the Economy

The impact of organized crime in Russia is staggering. Russian officials estimate that up to 50% of the 

nation's economy is in some way connected to organized crime.7 According to Russia's Ministry of 

Internal Affairs, by 1997 organized criminals owned or controlled about 40% of Russia's private 

businesses, 60% of state enterprises, and 50% to 85% of banks.8 Illegal drug traffic, the most recent 

manifestation of Russia's organized crime pandemic, is currently valued at between $4 billion and $7 

billion per year.9 Russian firms must often pay 10% or more of their revenues in protection money to 

criminal organizations and bribes to corrupt officials.10

In February 2000, the Main Administration on Combating Economic Crimes disclosed that Russian law 

enforcement agencies had exposed 300,000 economic crimes in 199911 --an average of one crime for 

each of the 300,000 legal entities registered in Russia to engage in foreign trade.12 About 125,000 of 

those crimes were felonies.13 The Interior Ministry considered 90% of the economic crimes involving 

organized criminal groups "serious" or "very serious."

Efforts by organized crime groups to launder illicit proceeds into the legitimate economy have resulted 

in the creation of large, sophisticated criminal networks in and out of Russia. The Interior Ministry 

reports that eleven large organized criminal groups, 95 "criminal communities," and 1,000 "organized 

criminal groups" operate in Russia.14 These groups include 50,000 people organized into nearly 250 

gangs controlling 5,000 companies, many with international reach.15 Russian organized crime groups 

operate in some 60 to 65 nations.16 Raymond Kerr, the head of an FBI-New York City police task force 

on Eastern European organized crime, described them as "spreading like an e-mail virus."17

From Stalinist Purges to Organized Crime Hits

"Organized crime" is the ongoing and systematic commission of public offenses. In Russia, no other 

term could be used to describe the contagion of money laundering, tax evasion, bribery, embezzlement, 

drug dealing, extortion, and contract murder that has taken such a deadly toll on the population since 

1992.

The legacy of the Communist system that dominated Russia for over 70 years was human suffering, 

death, fear, and economic chaos. The culture of crime that has now infiltrated large parts of the Russian 

economy seems, for those Russians upon whom it has preyed, to be very much the same.

"Crime used to be a monopoly of the State under the old system," Russia scholar Richard Pipes testified 

to the House Armed Services Committee. "It is now privatized."18

"[T]he Communist Party of the old Soviet Union ... bore all the characteristics ... of a Mafia," testified 
Brookings Institution Scholar Clifford Gaddy. "[B]ut it was an extremely well-organized Mafia. What 

we are seeing today is highly disorganized crime, and that is precisely why I think we are seeing so 

many of the characteristics that we associate with it, the brutality, the murders."19

Nothing more vividly illustrates the horrible human toll than the growing epidemic of contract 

killings.20 In St. Petersburg--the "crime capital of Russia," where organized crime controls even the 

cemeteries--200 deaths have been labeled contract killings since 1997.21

The following is a sample of the hundreds of contract killings that have occurred just this year:

* January 10, 2000: Ilya Vaysman, 36, director of the St. Petersburg Baltika brewing 

company, was shot in the head and heart from a fifth-floor ledge a few feet from the 

kitchen window of his apartment. Suspected motive: a dispute over the disposition of 

expected investments. (Baltika's general director of marketing, Aslanbek Chochiyev, was 

shot to death as he was getting out of his Mercedes on July 1, 1999.)

* February 2, 2000: Valeriy Potapov, 36, the general director of the Baltisykaya Zarya 

timber company, was shot twice in the back of the neck near his house. Suspected motive: 

Property dispute.

* March 11, 2000: Dimitri Varvarin, 40, general director of the Russian-American Orimi 

company, was shot in the back of the neck at point-blank range as he left his car. Orimi 

was created in 1990 with the American firms NSTE and International Forest Technology, 

and controls recently "privatized" businesses in timber, furniture, and fuels, and is one of 

the biggest sellers of tea in Russia, Kazakhstan, and Ukraine. Varvarin personally owned a 

large block of shares in shipbuilding and timber businesses in Russia, and had taken part 

in the "privatization" of dozens of enterprises in St. Petersburg, Leningrad Oblast, 

Ukraine, Kazakhstan, and Belarus. Suspected motive: a real estate battle.

* March 22, 2000: Sergei Krizhan, 44, general director of the Russian Construction and 

Trading Group joint-stock company, was shot to death while driving in his Jeep, along 

with his son, 20, an economics and finance student at St. Petersburg University. Krizhan 

owned and founded about 10 St. Petersburg firms specializing in export and import 

activity, consumer goods trade and production, repair and construction work, and realty 

operations. Three of the firms were directly related to Orimi.

* April 4, 2000: Gennady Ivanov, 45, director of the Kvarton firm, was killed on his way 

to work by a round of automatic weapon fire aimed at his Volvo. Eyewitnesses saw the 

killer slip into the archway of an apartment block where a car was waiting for him. 

Kvarton, with 4,000 employees, was created in St. Petersburg in 1994 and sells sewing 

threads, furniture fabric, and hosiery. It holds large blocks of shares in textile enterprises 

in St. Petersburg, Moscow, and Pskov.
* April 10, 2000: Igor Bamburin, 47, head of Shatl and founder and cofounder of several 

equipment and automobile firms, was shot in the head four times as he arrived at the home 

of his daughter, a Technical University student. Despite reports that five or six people 

witnessed the shooting, no arrest was made. Bamburin was previously an officer of the 

Regional Administration for Combating Organized Crime.

* April 26, 2000: Georgy Pozdnyakov, 44, co-owner of the "Hollywood Nights" 

nightclub, was shot three times in the head and chest at the St. Petersburg Railways 

University sports complex. Suspected motive: criminal conflict connected with the 

repartition of property. (Pozdnyakov belonged to the entourage of St. Petersburg oil 

magnate Pavel Kapysh, killed July 26, 1998 on Vasilyevskiy Island.)

* May 22, 2000: Dimitri Ogorodnikov, 36, chief of the Samara Internal Affairs 

Administration Department for Combating Organized Crime, was shot in the head five 

times in his automobile in the center of the city of Tolyatti. He was a 10-year veteran of 

the Special Rapid Reaction Detachment of the Regional Administration for Combating 

Organized Crime.

* June 14, 2000: Alexander Sinayev, 47, the owner of the Leneksbank commercial bank, 

was found shot twice in an Audi in Krasnodar in what the Territory's Public Prosecutor's 

Office called a contract killing. "Leneksbank was one of the first bankrupts in the Kuban," 

TASS reported, "but Sinayev was able to pay back the deposits of over 15,000 depositors. 

He promised to settle up with all deceived depositors."

* June 16, 2000: Alexei Kachkov, 40, who owned several flower shops on Leninskiy 

Prospect in Moscow, was shot six times at point-blank range in northeastern Moscow.

* July 10, 2000: Oleg Belonenko, 51, managing director of the huge Uralmash machine 

tool company, was shot twice in the head, days before he was to meet with President 

Putin, an example of how contract killings have reached high up into the business world. 

Belonenko's driver was also killed.

* July 26, 2000: Sergei Novikov, 37, head of the only independent radio station in the 

Smolensk region, was shot dead outside his apartment block, 300 miles outside of 

Moscow, reportedly the 120th journalist killed in Russia since December 1991.

* July 31, 2000: Sergei Isayev, 49, the rector of the Russian Academy of Theatrical Art, 

was murdered in a contract killing in the settlement of Valentinovka, near the town of 

Korolev. "Never before in Russia have contract killings of leaders of cultural 

establishments and higher educational establishments taken place," said Russian Culture 

Minister Mikhail Shvydkoy in an Itar-TASS interview following the murder.22
As is the case with virtually all of Russia's contract killings, none of these has been solved.

Corrupt 'Privatization' of Russian Monopolies Breeds Money Laundering and Organized 

Crime

Organized crime was both a cause and an effect of Russia's corrupt "privatization" process. 

Disappearance of government revenues due to corruption and organized crime encouraged the 

government to pursue its notorious "loans-for-shares" insider privatization auctions in 1995.23 In turn, 

these auctions were themselves subject to manipulation by organized crime.

The unrealized potential gains for the Russian government from its corrupt conduct of the privatization 

process were substantial. Media reports of the prices paid by insider Russian firms at the auctions--and 

the subsequent, much higher, prices those firms charged to Western investors seeking shares--suggest 

that significant revenue was lost to criminal behavior. Further evidence of the cost of "privatization" is 

offered by comparison to the results of the privatization of considerably fewer and smaller enterprises in 

Central European countries, which proved vastly superior to Russia's poor results.

The "privatization" process was carried out with direct assistance and guidance from the U.S. 

government. Janine Wedel, a noted scholar on Russian corruption, described the privatization process as 

inherently corrupt:

The ... flagship organization was the Russian Privatization Center, which had close ties to 

Harvard University. Its founding documents state that Harvard University is both a 

"founder" and "Full Member of the [Russian Privatization] Center." The center received 

funds from all major and some minor Western donors and lenders: the United States, the 

IMF, the World Bank, the European Bank for Reconstruction and Development, the 

European Union, Germany, and Japan.

The center's chief executive officer, a Russian from the Chubais Clan, has written that 

while head of the center he managed some $4 billion in Western funds. The Chamber of 

Accounts, Russia's rough equivalent of the U.S. General Accounting Office ... concluded 

that the "money was not spent as designated. Donors paid ... for something you can't 

determine."

When I interviewed AID-paid consultants working at the center, I was told that the funds 

were routinely used for political purposes.24

The corrupt "privatization" of state enterprises has also reinforced organized crime by affording it 

unprecedented access to the resources of the Russian state. Money, technology, equipment, trained 
personnel from the military and security services, and vast state assets have been made available to 

organized crime groups via the long-established connections between the "privatized" firms, their 

management, and their customer-supplier networks.25

The authoritative CSIS report "Russian Organized Crime" stated categorically that "[t]he principal 

beneficiaries of privatization ... have been the [organized crime] syndicates," citing a Russian study that 

found that 55 percent of the capital and 80 percent of the voting shares transferred during privatization 

went into the hands of "domestic and foreign criminal capital."26

Stifling Competition in Chernomyrdin's Energy Industry

A fundamental flaw in Russia's "privatization" of huge state companies is that it created no new 

competitors. Instead, it produced "oligarchs [who] dominate Russian public life through massive fraud 

and misappropriation, particularly in the oil sector."27

Indeed, the energy sector--in which Viktor Chernomyrdin allegedly netted billions of dollars as a result 

of his participation in the "privatization" process--is a useful case study.28 Nothing in the GoreSummers-Talbott "privatization" strategy was designed to force the existing Russian energy industry to 

compete with new firms on price, or on innovations in production and delivery. As a result, Russian oil 

and gas companies failed to achieve any new efficiencies from competition. Had they done so, Russia 

might have been able to produce oil and gas in sufficient quantities to compete even if world prices 

remained low.

Instead, lacking the ability to produce profitably for world markets, the new owners of Russia's 

production companies resorted to such artifices as selling oil below cost to holding companies they 

controlled, which would then resell the oil at the market price. The results were highly profitable to the 

oligarchs, but not to the shareholders in the production company--often including the state.29

Other oil and gas industry tactics have included stock scams, transfers of shares through offshore entities 

for the benefit of managers at the expense of other shareholders, and other schemes that amounted to 

theft of corporate property.30

The unanticipated and unintended consequence of this non-market "privatization" for U.S. policy was 

that, as first charged by former Democratic Senator Bill Bradley, the Clinton administration found itself 

promoting higher oil and gas prices in an attempt to help Russia--but to the obvious detriment of 

consumers in the United States.31 As the Washington Post reported on April 30, 2000, the Clinton 

administration worked to encourage "the OPEC cartel to reduce production, and thus raise prices, last 

year."32

By joining OPEC's price-fixing efforts, the Clinton administration aligned itself with the interests of the 
oligarchs once more. Even when the world prices of oil and gas increased (with Energy Secretary 

Richardson, in his words, "caught napping" while oil prices rose),33 Russia's oligarchs were enriched, 

while the shareholders they had cheated saw few of the benefits of higher prices. And while higher oil 

prices have generally helped Russia mitigate the effects of the August 1998 economic collapse, this has 

come at the direct expense of higher U.S. gasoline and home heating oil prices.

Legacy of Russia's Organized Crime in the 1990s

Organized crime undermines the Russian economy in a variety of ways, directly and indirectly. Beyond 

the horrible human toll in lives and property, the costs of organized crime include money spent on 

"protection" and bribes, and the significant burdens this places on small business; the lost tax, customs, 

privatization, and other revenue to the state; the loss of domestic and foreign investment, which is the 

consequence of crime's undermining confidence in the Russian economy; and the loss of individual 

Russians' life savings, the result of the corruption of Russian banks. Political corruption, too, is both a 

significant cause and effect of organized crime activity.

Through its traditional methods of discouraging competition with illegal tactics, ranging from threats to 

murder, organized crime has increased the risks for small and medium businesses operating in Russia. 

The increased costs of organized crime have made the already labyrinthine process of starting and 

opening a business in Russia even more difficult, scaring off would-be entrepreneurs and inhibiting the 

development of both a market economy and a Russian middle class.

An American Victim of Russian Organized Crime
7-2

 

7-3

PAUL TATUM: Left, in a 1994 photo. Right, mourners reach to touch his coffin during a funeral 

service in Moscow, Nov. 14, 1996. He was eulogized as a stubborn dreamer who died standing up to 

danger. Contract killings have become common in Russia as means of settling business disputes. The 

hotel that was the subject of the business dispute involving Tatum was a favorite of Clinton 

administration visitors to Moscow. Photos: AP Photo/Sergei Karpukhin, AP Photo/Sergei Karpukhin/fls

One particularly gruesome case of organized crime involves Paul Tatum, who on November 3, 

1996, at age 41, was shot in the back 11 times with an AK-47. He died at the bottom of the 

stairs to the Moscow subway, just yards from the Radisson-Slavjanskaya hotel, of which he 

was a joint owner.

The slaying was immediately identified as an organized crime hit.

Tatum was the first U.S. businessman murdered in Moscow. Then-Russian Interior Minister 

Anatoly Kulikov said one lead the Russian government was following connected Tatum's 

murder to a long dispute over the ownership and management of the hotel with his partner, the 

Moscow city government. Tatum's Americom Business Centers held a 40% share in the hotel.

Officially, however, the Russian government turned up no suspects--even though USA Today
was able to interview 150 people in eight countries in connection with the case, and found 

many who knew that Paul Tatum was a marked man.

Neither the Clinton administration nor the Russian authorities seriously pursued any culprit in 

connection with this contract slaying. As has proven the case with nearly all of Russia's 

organized crime hits, the murder went unsolved and unpunished.

"Moscow observers state that more business deals have been cut in the lobby bar of the 

Radisson hotel than anywhere else in Russia," the hotel bragged in a 1993 news release. 

However, USA Today reported that the Radisson-Slavjanskaya quickly became "a place where 

competing factions of bodyguards at times engaged in open warfare in the hallways." 

Respectable Russians refused to meet visiting U.S. business and government leaders in the 

hotel because of its reputation as a haven for gangsters. Nonetheless, the hotel was a favorite 

of both President Clinton and Vice President Gore.

Despite the fact that the first contract killing of a U.S. businessman in Russia was so publicly 

connected to a dispute over Tatum's claim that he had been cheated out of ownership of the 

Radisson-Slavjanskaya by the Moscow city government, and despite Congressional urging to 

President Clinton that he stay elsewhere in Moscow because of the hotel's connections to 

organized crime, the president stayed at the hotel on his next visit to Moscow.

SOURCES: Nick Allen, "Radisson Claims Business as Usual," Moscow Times, Dec. 5, 1996; Vanor 

Bennett, "Slaying Victim's Russian Partner Loses U.S. Visa," L.A. Times, Dec. 1, 1995; M.J. 

Zuckerman, Kevin Johnson, and James Kim, "Murder and intrigue: A dream dies hard in Moscow," 

USA Today, June 9, 1997.

Lost Tax Revenue

The economic consequences of tax revenue lost from organized crime are devastating. In August 1998, 

the State Tax Service estimated that 60% of cash turnover in the economy takes place in transactions 

hidden from the government in order to evade taxes.34 Other Russian estimates suggest that the volume 

of unreported economic activity may be up to one-half the size of Russia's official economy.

Tremendous budgetary pressures on the Russian government have influenced some of Moscow's most 

damaging policy decisions--including both the "loans-for-shares" privatization fiasco and the Russian 

government's willingness to take on tens of billions of dollars in IMF and other debt. Higher tax 
collections would have made such policies less desirable to the Russian government.

The Russian government has also lost significant revenue from customs payments as a result of 

smuggling, and the grant of customs exemptions to organized crime groups and corrupt businesses. An 

example of the latter is the import-fee exemption granted to the National Sports Fund--a supposed nonprofit organization established in 1993 by Boris Yeltsin's former tennis coach--which permitted it to 

import not only sporting goods but also alcohol and tobacco tax- free, at a cost to the Russian 

government of several billion dollars. The total cost to the Russian government of such illicit 

exemptions is undoubtedly in the tens of billions of dollars annually.35

The failure to collect taxes on criminal transactions has also exacerbated the Russian government's 

unfunded wage36 and pension debts37 to state sector employees38 and retirees.

Lost Confidence

The most significant cost of Russian organized crime has been its contribution to the widespread loss of 

confidence in the nation's economy. Not only have foreign investors been scared away, but potential 

Russian investors have mounted a sustained capital flight that has depressed investment and domestic 

savings, stifled job creation, and robbed the government of opportunities for revenue growth.

Most estimates of capital flight from Russia since its independence exceed $200 billion; some are as 

high as $500 billion. Irina Khakamada, a reformist parliamentarian who chairs Russia's National AntiCorruption Committee, estimated the cost to Russia of capital flight at a stunning $20 billion per 

month.39 Treasury Secretary Summers, in recent House testimony, provided a low estimate of $15 

billion per year.

Even the most conservative estimates of Russian capital flight dwarf actual foreign investment in Russia, 

as well as IMF lending and international financial aid flows into Russia.40

History's Biggest Money Laundering Scandal

In the summer of 1999, the Clinton administration's Russia policy--already under fire in the 

wake of the 1998 collapse of Russia's economy, which many Russians blamed on bad 
American advice--suffered another setback.

On August 19, 1999, the New York Times reported that billions of dollars were thought to have 

been laundered from Russia through the Bank of New York. Initial reports in the Times and 

elsewhere suggested that as much as $10 billion may have passed through Bank of New York 

accounts, with the knowledge and approval of several bank employees. More than two-thirds 

of the money came from the tiny Pacific island-nation of Nauru, not previously known as a 

financial center. And many of the transfers originated at a Moscow bank chaired by a financial 

advisor to the Yeltsin family known as the "ghost of the Kremlin" for his secretive ways.

Subsequently, three bank employees--Lucy Edwards, former vice president of the Bank, Peter 

Berlin, her husband, and Svetlana Kudryavtsev, who worked for Edwards--entered guilty pleas 

in connection with the case. Another vice president was fired for allegedly failing to report 

supplemental income from Russian clients and yet another employee resigned because of the 

scandal.

A year later, in August 2000, a Swiss judge investigating the possible use of banks there to 

launder a 1998 IMF loan to Russia carried out two raids in Switzerland. In August 2000 the 

judge traveled to the United States to determine why investigators here had largely ignored 

requests for information about possible links to the Bank of New York case since January, in 

what is now acknowledged to be history's largest money laundering scandal.

The Money Trail

Russia's lack of hard currency, and the contemporaneous flows of billions in hard currency 

from the IMF to Moscow, made it appear that the United States and other Western countries 

had provided the necessary liquidity for money laundering to occur.

In September 1998, British authorities alerted the FBI to an extraordinary volume of money 

being transferred in a significant number of transactions.

Two years later, the Clinton administration has yet to recognize that its policy of pouring large 

amounts of dollars into the Russian central government was financing not a transition to free 

enterprise but rather capital flight on a massive scale.

The Spin: More Willful Blindness

Then-Deputy Treasury Secretary Lawrence Summers, at a House Banking Committee hearing 
in September 1999, denied any connection between IMF money and Bank of New York 

laundering: "With respect to the Bank of New York, there's no evidence that...there were any 

IMF funds diverted in that context."

Summers acknowledged, however, that capital flight "drains perhaps $15 billion a year from 

the Russian economy." Whether IMF funds were directly laundered through the Bank of New 

York, or instead fueled capital flight by providing the means for Russian oligarchs to convert 

rubles to dollars, it was clear that IMF funds were financing capital flight from Russia.

Deny and downplay was the strategy for Deputy Secretary of State Strobe Talbott, as well. In a 

Newsweek interview, Talbott minimized the multi-billion dollar scandal with a dismissive plea to 

"calm down, world." Then, resorting to a standard spin technique--treating breaking news as if 

it were unimportant because it is really "old news"--he added: "We have been aware from the 

beginning that crime and corruption are a huge problem in Russia and a huge obstacle to 

Russian reform."

The IMF's Köhler, in office just three months, had a less defensive explanation at the National 

Press Club in August 2000: "Part of the mistakes we made was mostly because we had been 

too euphoric, relying on rhetoric about reform programs. We need to see more implementation 

of the good ideas."

But the bad ideas had already done their harm.

In addition to raising awareness about the extent of Russian money laundering and capital 

flight, the Bank of New York scandal triggered concern that Russian criminal groups and 

individuals had infiltrated Western financial institutions. As the Economist reported, the moneylaundering scandal "confirms that the evil of organized crime is woven into Russian life--and 

that it is starting to infect the rest of the world."

What Did They Know and When Did They Know It?

House Banking Committee Chairman James Leach noted that while the British authorities 

notified the FBI about the Bank of New York irregularities in September 1998, the Treasury 

Department claimed not to have learned of the investigation until April 1999.

In any event, the administration continued to support IMF lending for Russia even in the face of 

hard evidence of massive looting. "The Congress," Chairman Leach noted when Summers 

testified, expects "substantially greater coordination within the Executive branch."

Washington Post columnist David Ignatius was not so statesmanlike in asking bluntly: "Did Al 
Gore know about the massive lootings?"

SOURCES: Raymond Bonner and Timothy L. O'Brien, "Activity at Bank Raises Suspicions of Russia 

Mob Tie," N.Y. Times, Aug. 19, 1999, p. 1; Wall St. J., Mar. 29, 2000, p. B5; Ann Davis and Paul 

Beckett, "Bank of New York Executive is Fired for Not Reporting Pay Linked to Benex," Wall St. J., 

Mar. 13, 2000, p. A15; John Thornhill and Thomas Catan, "NY bank in money laundering probe," Fin. 

Times, Aug. 20, 1999, p. 2; Paul Beckett, Michael Allen, "Bank of New York Probed on IMF Aid," Wall 

St. J., Aug. 23, 1999, p. A3; Deputy Treasury Secretary Lawrence Summers, testimony before the 

House Banking Committee, Sept. 21, 1999; John Tagliabue, "Swiss Take New Look at Transfers of I.M.

F. Aid for Russia," N.Y. Times, July 26, 2000, p. C3; Charles Clover, "Swiss Confirm IMF/Russia Credit 

Inquiry," Fin. Times, July 25, 2000; "Russian Organized Crime: Crime Without Punishment," The 

Economist, Aug. 28, 1999, p. 17; Michael Hirsh, Owen Matthews, "The Gangster State," Newsweek, 

Sept. 6, 1999, p. 35; Richard W. Stevenson, "U.S. Officials Acknowledge Early Notice of Bank Case," 

N.Y. Times, Sept. 8, 1999; Chairman James A. Leach, House Banking Committee hearing, Sept. 21, 

1999; David Ignatius, "Who Robbed Russia?" Wash. Post, Aug. 25, 1999. Russia reduced its IMF debt 

from $16.3 billion to $12.7 billion from July 31, 1999 to July 31, 2000, according to IMF figures.

A Drag on Banking

Organized crime in Russia exerts significant direct control over the nation's banking system. As the 

CSIS study concludes, "[Organized crime] shaped the post-Communist banking industry and now 

manages or influences it. And bank regulators complain they are powerless to sanction or close banks in 

which evidence of criminal wrongdoing has been established beyond the shadow of a legal doubt."41

The study further noted: "Banks are central components of [organized crime] activity [in Russia] both as 

a primary target of extortion and as the main vehicle for extensive money laundering."42

Organized crime imposes indirect costs on Russia's banking system, as well. Russians are fearful of 

keeping their rubles in banks because they believe corrupt bank employees are likely to inform 

organized crime groups of the accounts in exchange for a cut of money to be extorted from the account 

holder. Partly as a result of these fears, ordinary Russians held an estimated $80 billion outside the 

banking system as of 1998.43

Organized crime thereby robs the economy of the opportunity to efficiently pool savings to invest in 

mid- to large-scale productive enterprise. The reluctance by Russian consumers to trust the banking 

system because of the influence of organized crime also worsened cash shortages at the nation's banks 

during Russia's economic collapse in 1998.
Guilt by Association

By eroding public confidence in the private economy--and by stunting the establishment and growth of 

legitimate business--organized crime has limited the emergence of a pro-free enterprise reform 

constituency, making it more difficult to achieve the public consensus necessary to enact legislation to 

legalize free enterprise.

The fact that so many wealthy Russians criminally obtained a large proportion of the wealth that now 

exists in Russia has significantly discredited legitimate commercial activity. This problem is particularly 

acute in Russia because of its limited experience with a market economy.

Beyond undermining support for a truly competitive market economy, the rise of organized crime has 

meant aggressive support in the Russian political system for the opposite of reform. In what has been 

derisively termed "reinventing government," crime bosses and leaders of illicit businesses thwarted 

police investigations and placed themselves and their allies in high office--including seeking seats in 

Russia's State Duma--not only to legislate to their advantage, but also, on a more practical level, to win 

immunity from investigation and prosecution.44 Staff positions in the Duma have been notoriously 

made available for sale.45

Duma committee chairmen have been accused of holding committee meetings or hearings on an issue of 

importance to an individual or enterprise in return for cash payments. Members of Vladimir 

Zhirinovsky's Liberal Democratic Party of Russia, a notoriously mercenary extremist party, are widely 

suspected of selling their votes on particular legislation to the highest bidder.

At the regional and local level, organized crime groups have intervened directly in the election process, 

financing candidates, buying votes, and intimidating opponents. This highly visible corruption of 

Russia's political system has only further weakened public support for continued democratization.

Organized crime also affects overseas businesses, including U.S. firms seeking to do business in Russia. 

Some companies are merely approached to pay protection money or bribes; others suffer more seriously 

when their investments in joint ventures are looted by Russian partners. The resultant lawlessness 

threatens to infect governments and economies around the world with the consequences of money 

laundering, bribery, extortion, and their attendant social pathologies.

Arms Sales to Colombia's Narco-Insurgency

Organized crime in Russia is also contributing to global instability. The arming of Colombia's Marxist 
rebel groups with smuggled weapons made in Russia has profound foreign policy consequences. The 

Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN), violent 

Marxist groups seeking to overthrow the government, now control about half of Colombia, directly 

threatening the continued existence of civil government there.46 These groups are also heavily involved 

in narcotics trafficking: out of the $4 billion annual Colombian drug trade, FARC and the ELN are now 

presumed to net an estimated $600 to $900 million each year.

Four-fifths of the cocaine and more than 60% of the heroin entering the U.S. now comes from 

Colombia.47 Behind this growth in cocaine exports is a growing relationship between Russia's 

organized crime and Colombia's drug lords.48

Colombian intelligence officials suspect that Russian criminal syndicates are exchanging sophisticated 

Russian weapons for Colombian drugs.49 This has enhanced the military power of Colombia's Marxist 

rebels and international drug cartels, further destabilized the government of Colombia, and facilitated the 

entry of additional narcotics into the United States.50

In the last three and a half years, Colombian police have seized over 700 new Russian-made AK-47 

assault rifles that were destined for FARC and ELN. Colombian police confirm that these weapons are 

unlike the Soviet weapons used in earlier Central American wars, and of much more recent vintage.51

A system has developed by which FARC and ELN guerrillas exchange illegal narcotics for sophisticated 

Russian weaponry. In this way, the latest Kalashnikov assault rifles and Dragunov sniper rifles have 

been shipped to Colombia in the same transport containers originally used to transport the drugs.

This burgeoning weapons trade with Colombia's Marxist insurgents thus threatens not only U.S. antiproliferation objectives, but also U.S. regional security interests in Central America and the domestic 

struggle against illegal narcotics in the United States. The U.S. counternarcotics effort is now pitted 

directly against smuggled Russian arms. American taxpayers, and American interests, now face the 

effects of organized crime in Russia in this hemisphere.

Nor are Russian drug and weapons smuggling limited to Colombia or the Western hemisphere. 

According to Barry McCaffrey, Director of the President's Office of National Drug Control Policy, 

Europe now consumes between 80 and 130 tons of cocaine a year, and at least 10 tons of this cocaine is 

shipped through Russia, with Russian criminal groups controlling the routes.52 As the 1997 CSIS study 

found, "[organized crime] groups also are facilitating narcotics trafficking along new transit routes from 

major heroin-producing areas in Asia (the Golden Triangle and Golden Crescent) that cross the former 

Soviet Union, thus avoiding searches by West European law enforcement agencies along the more 

traditional routes."53 Similarly:

[Organized crime groups] are trafficking increasingly in weapons by exploiting 

corruption, subhuman living conditions, and chronically late wages in the Russian 

military. This leverage gives them access to arms stockpiles. Theft and illegal sale of 
weapons, hardware, and narcotics are moved by military transport vehicles that cannot be 

searched by law enforcement officials. Western intelligence agencies believe that shortand medium-range missiles have been smuggled to customers in the Middle East in this 

manner.54

The Gulf Between Clinton's--and Yeltsin's--Words and Deeds

Organized crime's political influence has also had a more subtle effect: neutering the government's 

willingness to confront and punish violations of law. The result has been a significant gulf between both 

the United States and Russian governments' stated policies with respect to organized crime, on the one 

hand, and their actual behavior, on the other.

For example, Boris Yeltsin launched seven campaigns in eight years as president to combat organized 

crime. Yet organized crime groups expanded because punishment was generally limited to low-level 

officials and those out of favor with the Kremlin. The growth of organized crime in the face of 

ineffective government campaigns against it has contributed to public cynicism.

Similarly, official statements of concern about money laundering were unmatched by action. The 

Russian government, in fact, served as an enabler of money laundering. On June 23, 2000, the G-7's 

Financial Action Task Force identified Russia as one of 15 nations that was "uncooperative" with 

international efforts to combat money laundering.

The Russian government's ostentatious introduction of new measures to fight corruption has routinely 

been followed by extensive public discussion of which individuals and political opponents are the "real" 

objectives and targets. The influence of Russia's so-called oligarchs over Russia's mass media has 

heightened this cynicism, as press outlets are viewed as the mouthpieces of particular economic and 

political groups, rather than defenders of the public interest. Under such circumstances, each new effort 

at reform has been met with increasing skepticism.

The Clinton administration, mirroring the policies of its Russian partners, has similarly failed to mount 

an aggressive challenge to organized crime in Russia. The administration has attempted to address 

organized crime merely as a technical law enforcement problem with programmatic assistance to 

Russian authorities. The administration has concentrated on programs such as law enforcement training 

and developing an FBI presence in Moscow.

Clinton administration law enforcement officials claim these efforts to combat Russian organized crime 

are succeeding, crediting FBI Director Louis Freeh with establishing an aggressive Eastern European 

organized crime policy when he took office in 1993.55 But in fact the administration's technical 

orientation to Russian organized crime cannot substitute for its failure to address the underlying 

economic and legal causes of organized crime.
A serious U.S. policy to help combat organized crime in Russia would also have required a significantly 

more candid assessment of the various Russian political players with whom Vice President Gore and 

other top administration officials were dealing, and a far greater willingness to distance themselves from 

corruption. As the democratic politician Grigory Yavlinsky has noted, "political will rather than the 

Criminal Code is needed."56 The administration's close association with officials suspected of 

corruption did little to encourage that political will in Russia.

Likewise, the Clinton administration failed to make the issue of organized crime a significant priority in 

its official discussions with Moscow. Yevgeny Yasin, a reform-oriented former senior official in Russia 

with key economic responsibilities during much of the Yeltsin era, recently criticized the Clinton 

administration for failing to cooperate in addressing corruption and capital flight. Yasin complained that 

Russian attempts to raise these issues and seek U.S. assistance as early as the 1995 Halifax Summit were 

dismissed.57

Deputy Secretary of State Strobe Talbott has also admitted that the Clinton administration did not give 

sufficient priority to the problem of Russian money laundering.58

Statements of concern by the Secretary of State, and pro-forma discussions of organized crime as one 

among a long list of agenda items at the semi-annual meetings of the Gore-Chernomyrdin Commission, 

were a poor substitute for genuine moves to show the Kremlin the seriousness of American resolve to 

fight organized crime, and to make explicit the threat that it poses to United States and Russian national 

interests. The Clinton administration never made explicit any consequences for Russia's failure to 

address organized crime, either in the form of loan conditions or the withdrawal of U.S. cooperation on 

other fronts. Indeed, when combined with the administration's unwillingness to confront the evidence of 

corruption by its principal interlocutors in Russia, the Clinton administration's tepid approach to Russian 

organized crime amounted to tacit acceptance.

Three years ago, CSIS's task force report on Russian organized crime included among its 

recommendations:

Stringent requirements to ensure transparency in Russia's use of foreign aid, as well as 

multilateral loans and export financing, should be implemented and enforced to insulate 

the funds from [organized crime] and to ensure that the funds reach their intended 

destination.

Close U.S. government identification with corrupt elements of Russia's political 

establishment risks serious popular backlash inside Russia. The United States must avoid 

the appearance of unqualified support for what is routinely seen as a kleptocratic 

establishment. Such linkage reinforces a growing popular perception that democratic 

political and market economic systems are merely code words for rapacious criminality. 

The United States should address this perception by increasing its public diplomacy 
discussion of the causes of and cures for [organized crime in Russia].59

Such recommendations were ignored by the Clinton administration. For example, when Deputy 

Secretary of State Strobe Talbott and then-Deputy Treasury Secretary Lawrence Summers met with 

Anatoly Chubais at Talbott's home in May 1998 (where Chubais sought a new IMF bailout to stave off 

the disaster that occurred three months later),60 why would corrupt Russian officials believe that 

American protests over corruption were more than public relations? By that time, Chubais had become 

wealthy by participating in the privatization process he was charged with supervising. He had also 

simultaneously been responsible for the management of the Russian Privatization Center, which has 

never produced an accounting for its use of $116 million in U.S. direct aid.61

In the Summer 2000 issue of the National Interest, E. Wayne Merry, a former diplomat at the Moscow 

Embassy, summarized the problems with the Clinton administration's approach:

Washington officials claimed to be 'shocked, shocked' when the government-sanctioned 

corruption and theft of public property in Russia could no longer be hidden. They then 

piously demanded that Russian governance be all the things the Treasury and IMF had 

insured it would not be: honest, accountable, transparent, law-based, public-spirited. ... 

[W]hat remains "classified" is much worse.

The Rise of Putin: The Russian Public Reacts to Organized Crime

The impact of organized crime on Russian democracy has proven grave. It has generated a deep sense of 

personal insecurity among Russians and widespread perceptions of declining public morality. Public 

opinion polls, which understandably rank crime among Russians' greatest concerns, also show the extent 

to which organized crime has undermined the Russian public's support for freedom and democracy.

Because the rapid growth in organized crime and Russia's efforts at political and economic reform 

occurred simultaneously, the public mind closely linked the two. As a result, the ideas of democracy and 

market-oriented economic reform have also been widely discredited in Russia, and are widely assumed 

to be inconsistent with greater order:

Widespread violence and crime in Russia are even beginning to generate nostalgia for 

authoritarian rule. Flagrant lawlessness has resulted in a resurgence of politicians who 

promise to re-establish order and fairness using brute force. Increased criminal activities 

fueled the backlash that contributed to ultranationalist Vladimir Zhirinovsky's electoral 

success in 1993. Zhirinovsky's platform included on-the-spot executions of criminal gang 

leaders by firing squads and the wholesale seizure of assets thought to be criminal.63

Yet it is ironic that the primary reason organized crime has grown into such a significant parasite on the 
Russian economy was the top-down "privatization" of state-owned monopolies, instead of the bottom-up 

legalization of entrepreneurial activity that was (and still is) necessary to enable start-up enterprises 

without criminal roots to compete in a genuine market. It was the lack of a genuinely competitive market 

economy that created the conditions for organized crime to flourish. Rather than unleashing the 

disciplinary power of competitive markets, the Gore-Summers-Talbott policy of massively underwriting 

the Russian central government had the effect of indirectly funding organized crime through IMF and 

World Bank loans.64

President Vladimir Putin's success in capitalizing on the public's longing for greater order can only be 

understood in this context. Taking into account the fact that some 62% of Russians are not confident in 

the ability of the country's police forces to protect them,65 it should not be surprising that Putin's 

background as a KGB Lieutenant Colonel and head of the Federal Security Service (FSB), the KGB's 

principal successor agency, enhanced rather than impaired his popular appeal. His KGB past has 

contributed significantly to a public perception that he will "get tough" on organized crime. His election 

was a gamble for Russians, nonetheless: they have only hope, and no guarantee, that he will not 

similarly crack down on civil liberties, freedom of speech, and democracy.

Which way Putin and Russia will go is yet unclear. But this much is certain: the rebirth of 

authoritarianism because of a popular backlash against organized crime in the wake of both Russia's and 

America's failure to promote genuine free enterprise there is now a genuine possibility in Russia. Its 

return would be a tragic beginning indeed for the 21st century.

CHAPTER 8

1998: YEARS OF BAD ADVICE 

CULMINATE IN RUSSIA'S 

TOTAL ECONOMIC 
COLLAPSE

8-1

SEARCHING FOR FOOD: Following the complete collapse of the 

Russian economy in 1998, the number of people living below the 

official poverty line--in Russia, a measure of truly desperate 

conditions--rose to nearly 40%. Seniors in urban areas--with no 

access to jobs or land--were the hardest hit. Unlike those in rural 

areas, who could subsist on homegrown food, they had nowhere to 

turn. As in Soviet times, Russians were waiting in lines, hunting for 

scarce goods, and hoarding what they could find. The devastation of 

Russian life was by all measurements worse than America's Crash 

of 1929. U.S. unemployment at the end of 1929 reached 1.5 million, 

representing 1.2% of the total population, but more than 11.3 million 

Russians were jobless at the end of 1998--7.7% of the nation's total 

population. In the 1929 crash, stock prices fell 17% by year-end--and 

90% by the depth of the Great Depression, four years later. By 

contrast, the Russian stock market lost 90% of its value in 1998 

alone. Millions of ordinary men and women who had deposited their 

money in Russian banks lost everything. Here, an elderly Russian 

woman takes fruit from a trash bin in Moscow, August 28, 1998. AP 
Photo/Misha Japaridze

I try, but they are hungry all the time. 

Potatoes, potatoes, most of all they eat potatoes. It is potatoes all 

the time. I am just trying to feed them.

Tatyana Shurmanova, a mother of six children in Kungur, Russia, as quoted in 

Newsday, April 4, 1999

On March 23, 1998, five months before the Russian government's default on its international and 

domestic debts led to the nation's complete economic collapse, Viktor Chernomyrdin was fired as Prime 

Minister. The allegations of corruption against him had only reinforced the public impression that the 

policy of a handful of powerful Russian officials was not the construction of a free enterprise system, 

but rather the subversion of the public good through crony capitalism.

The unexpected firing of Chernomyrdin, Vice President Gore's partner in the highly visible GoreChernomyrdin Commission, unnerved Clinton administration officials. They were just as unprepared for 

the appointment of the little-known Sergei Kirienko to replace Chernomyrdin. Lawrence Summers, then 

Deputy Secretary of the Treasury, had inauspiciously dubbed the outgoing Prime Minister's deputies, 

Boris Nemtsov and Anatoly Chubais, "the Dream Team."1 Summers' characterization epitomized the 

wishful thinking of the administration, and its willful blindness to the worsening reality in Russia.

As late as the summer of 1998, the Clinton administration still failed to grasp the fundamental error of 

its policy of funneling enormous amounts of money into a corrupt central government. Despite 

widespread rumors that Kirienko, too, would soon be fired, the administration proposed nothing more 

than pouring still more loans from the International Monetary Fund (IMF) into Russia's central 

government. Vice President Gore, Treasury Secretary Robert Rubin, and Summers set to work on an 

additional $18 billion U.S. commitment to the IMF chiefly intended to support new lending to Russia.

"We have a significant opportunity to use the leverage of IMF financing to help the Russian 

government," Rubin wrote to then-House Speaker Newt Gingrich on July 28, 1998. "The basics are all 

in the right direction," Stanley Fischer, the IMF's Deputy Managing Director, said the same day.2 The 

administration successfully forced the $18 billion through Congress.
The reality of the situation, however, was that the Russian economy had already begun to collapse. The 

stock market was plunging. The day before Rubin's letter to the Speaker of the House and the IMF's 

blindly upbeat assessment, the market had suffered a 9% drop. "It's looking ugly," said one Western 

economist on July 27. Said another Western investment strategist: "We're sitting and watching this in 

shock and horror."3

Over the next two weeks, the deterioration continued. Finally, on August 17--one month after the latest 

bailout--the roof caved in.

The Russian government announced that it would no longer be able to pay its official debts. The ruble 

was devalued at the same time. The default, coupled with the devaluation of the ruble after years of 

promises that this would not occur, led to Russia's total economic collapse--a cataclysm by all 

measurements worse than America's Crash of 1929.

The end of Soviet Communism had afforded the United States its greatest foreign policy opportunity 

since the Allied victory in World War II. Barely six years later Russia's economy lay in ruins--an 

opportunity lost.

The Crash of 1998

The disaster that began on August 17, 1998, spread immediately throughout Russia. In just 24 hours, 

some retailers raised prices by more than 30%.4 The free-falling ruble forced shopkeepers to raise prices 

daily, even hourly. "People are in a state of shock," one Russian woman told the New York Times.5

Prices in the first week of September alone rose by 36%.6

8-3

RUN ON CASH: A security officer tries to prevent a photographer from taking pictures as a man 

withdraws cash from an automatic teller machine in Moscow on Friday, Aug. 14, 1998. Customers said 

the bank only allowed them to withdraw money in rubles, even from accounts established in U.S. 

dollars. Individual deposits in Russia--which before August 17 had totaled some $27 billion--fell in 
value to less than $12 billion. Shortly afterward, virtually all ATMs in Russia ceased to function. AP 

Photo/Maxim Marmur

Millions of ordinary men and women who had deposited their money in Russian banks lost everything. 

Savings accounts throughout the country were frozen.7 ATM and debit cards ceased to work.8 Dozens 

of banks became insolvent and disappeared. Angry depositors besieged Russian banks, only to learn 

they had been wiped out. Within days, individual deposits in Russia--which before August 17 had 

totaled some $27 billion--fell in value to less than $12 billion.9

Still more millions of senior citizens, whose meager pension income had been delayed for months, were 

cut off completely. Pensioners who kept some money at home rather than in banks found their 

purchasing power greatly diminished as the value of the ruble plummeted.

At the end of 1929, following America's disastrous stock market crash, unemployment in the United 

States reached 1.5 million, representing 1.2% of the total population.10 But the 1998 collapse of the 

Russian economy was far worse. Over 11.3 million Russians were jobless at the end of 1998--7.7% of 

the nation's total population.11

Those who kept their jobs frequently found their wages suspended.12 When wage payments were finally 

made, the average Russian saw his or her wages drop by two-thirds, from $160 to $55 per month.13 The 

number of people living below the official poverty line--in Russia, a measure of truly desperate 

conditions--rose to nearly 40%.14 The standard of living for the average Russian, already low by 

international measures, plummeted by 30%.15

In urban areas, Russian families with children and seniors--with no access to jobs or land--were the 

hardest hit. Unlike those in rural areas, who could subsist on homegrown food, they had nowhere to turn. 

As in Soviet times, Russians were waiting in lines, hunting for scarce goods, and hoarding what they 

could find. Such staples as flour, butter, rice and sugar were purchased as soon as they appeared on 

shelves. Retailers found it difficult to restock inventories.16

The devastation of Russia's economy wreaked the kind of human misery that America experienced in the 

Great Depression. By 1932, the U.S. gross national product had been cut by almost one-third. But within 

just six months of the 1998 crash, Russia's economy, measured in dollars, had fallen by more than twothirds. From $422 billion in 1997, Russia's gross domestic product fell to only $132 billion by the end of 

1998.17

In the crash of 1929, stock prices fell 17% by year-end--and 90% by the depth of the Great Depression, 

four years later. By contrast, the Russian stock market lost 90% of its value in 1998 alone.18

Foreign investment in Russia plummeted by 60%. Amid a wave of panic among investors, foreign direct 
investment fell from $4 billion in 1997 to $1.7 billion in 1998.19 "The financial markets are dead," said 

Sergei Markov, an analyst at the Institute of Political Studies. "And, most fundamentally, it is a crisis of 

the real economy--Russia doesn't work."20

By the first week of September, the ruble had lost 60% of its value.21 When the dust finally settled in 

March 1999, the ruble--and with it, every Russian's life savings--had lost fully 75% of its value.

The most immediate and dramatic result of the Crash of 1998 was the virtual collapse of Russian 

banking. The government imposed a two-month freeze on withdrawals from the country's six largest 

private banks. With the ruble dropping precipitously in value every day, ordinary Russians were forced 

to watch in horror as the money in their bank accounts lost its value. The experience of 66-year-old 

Yevgeny Ushakov, who had spread his life savings of $4,000 among three different banks to diversify 

his risk, was illustrative. "I didn't think all three would fail," he said.22

With prices rising uncontrollably, retail stores were forced to close repeatedly throughout the day, just to 

figure out how much to charge.23 Even those Russians who had become accustomed to the occasional 

Western product were forced to do without, as the price of imports soared beyond their reach.

The collapse of international trade not only curtailed the supply of foreign goods, but also created 

scarcities and high prices for Russian-made goods with foreign components. Foreign providers refused 

to let Russian firms buy on credit, because of fear of non-payment. Wary of the declining ruble, foreign 

suppliers also demanded payment in hard currency, which most importers did not have. Such indignities 

added to the growing anti-Western sentiment.

The lack of a reliable currency reduced much of Russia to a barter economy. Many citizens were paid 

with whatever goods were currently available, regardless of the goods' practical value. Teachers in 

Voronezh, for example, received cemetery headstones in lieu of cash payments.24 A textile machinery 

plant in Kostroma tendered 6,000 pairs of socks to the local police in payment of its tax bill.25

Farmers were devastated by the 1998 economic collapse. Grain harvests fell 30% below 1997 levels. 

The sudden impact of the ruble devaluation was especially harmful because existing levels of farm 

production were already depressed, having fallen for years. In Kaluga, for example, local production had 

fallen by 22% in the four years prior to the crash.26 Shortages of meat and cooking oil were so severe 

that humanitarian food aid from the West, which had not been necessary since the collapse of 

Communism, was resumed on an emergency basis.27
8-6

DEJÁ VU: Irate and bewildered customers at the closed doors of the Bank of United States, in New 

York City, Dec. 11, 1930. After the collapse in Russia, banks hired guards who let customers in one at 

a time to determine the fate of their savings, much of which was wiped out in the August 1998 

collapse. AP Photo

The fallout from the economic collapse greatly exacerbated many of the problems that plagued Russia. 

In addition to the unemployment, lost wages and pensions, and financial hardship, there has been an 

attendant social crisis.

Those who were sick or under a doctor's care were badly hurt by the crash. Russia's health care system, 

in poor shape even before August 1998, suffered a run on medicine that quickly reduced supplies in 

hospitals and pharmacies to Soviet-era levels. The collapse of the ruble's value, the widespread 

unemployment, and the freeze on savings, wages, and pensions left millions of patients unable to pay for 

medical services.28

Hospitals suffered from shortages like every other Russian business. Drugs, always in short supply, 

became even more difficult to come by--particularly those that had to be imported. Nurses and doctors 

were forced to ration drugs to patients. In Novosibirsk the main hospital was reduced to a five-day 

supply of food. The central hospital serving a community of 1.4 million citizens had no milk for 

patients, and drugs sufficient to handle only 20 cases of severe injury.29

The 1998 economic crisis also helped worsen Russia's demographic crisis. According to the Russian 

Statistics Agency, Russia's population has fallen every year since 1992.30 Deaths outnumbered births by 

784,000 in 1999, the year following the crash.31 Russia's birth rate of 1.3 children per woman falls well 

below the 2.1 needed to maintain the current population. Over the next 16 years, if current trends 

continue, the Russian population will drop to between 130 and 138 million, compared to 146 million 

today. Murray Feshbach, the leading Western expert on Russian demographics, projects a population of 

just 80 million by 2050 if Russia does not arrest its social problems.32 The population decline is 

expected to continue because of lower standards of living and mounting divorce, which in turn 
contribute to Russia's depressed birthrate.

The economic hardship of raising a child is a significant factor in Russia's sky-high abortion rates: for 

every birth in Russia, there are now two abortions.33 As women in poor health give birth to less healthy 

children, the rate of infant mortality, too, is expected to grow. The CIA estimates Russia's infant 

mortality rate at 23 deaths per 1,000 live births.34

Drug use and addiction in Russia have skyrocketed, fueled by growth in organized crime and 

widespread economic depression. More than 3 million Russians are habitual drug users, according to the 

Ministry of Interior.35

Alcoholism, a chronic problem in Russia, has grown worse as economic conditions have deteriorated: 

according to a January 2000 report, the number of deaths resulting from alcohol poisoning is 35,000 per 

year, compared to 300 a year in the United States.36

Russia's widespread joblessness, poverty, and drug use have led to an increase in crime, homelessness, 

unemployment, and school dropout rates.

The jump in drug use has also led to an increase in HIV infections. According to Russian and World 

Health Organization officials, drug addicts account for 90% of all HIV-infected people in Russia. The 

collapse of the Russian economy in 1998 coincided with a doubling of the number of people living with 

HIV: Russia's HIV population literally doubled between 1997 and 1999--the fastest growth rate in the 

world.37 According to Russia's leading epidemiologist, Dr. Vadim Pokrovsky, 10% of Russia's 

population will have the HIV virus by 2005.38 Tuberculosis, which has increased by 57% from 1994 to 

1998, has reached near epidemic proportions in parts of the country.39

Causes of Russia's Economic Collapse

Russia received its first loan from the IMF in April 1992, for $1 billion. In 1993, the Russian 

government took out another loan, this time for $1.5 billion. A year later the IMF provided still another 

$1.5 billion. By December 31, 1995, the Russian central government had borrowed over $10 billion 

through the IMF. When on March 26, 1996, the IMF and Russian central government reached final 

agreement on a new loan of $10.2 billion--the second-largest loan ever made to any borrower by the 

IMF--many outside observers were dumbfounded.

In a single commitment, the IMF was preparing to flood the Kremlin with more money than it had 

disbursed in the more than four years since the end of the Soviet Union. The extension of such 

significant new credit was surprising because there was little in the way of basic free market reform 

legislation in place to justify it. There was still no market in banking services, no reliable protection for 

private property rights, no mortgage lending, and no honest system of commercial dispute resolution.
IMF Managing Director Michel Camdessus asserted that the enormous new lending was in furtherance 

of a program of "free market reforms," but in fact the commitment had a political aura. At a time when 

the Russian government was spending exorbitant amounts on the 14-month-old war in Chechnya and on 

extravagant election campaign promises, there were virtually no strings attached, no effective legal 

commitments as to how the proceeds should be spent, and no effective monitoring and accounting 

controls to track where the billions of dollars were going. Camdessus described it as a gesture of support 

for Russia: "We have a program, we have a country which needs support. It is our duty and moral 

obligation to support this country."40

Yeltsin was more forthright about the political nature of the IMF commitment. "We had to involve 

Clinton, Chirac, Kohl, and Major," he said.41 In fact, Clinton had endorsed the loan a month before the 

details of the commitment were even agreed upon. Because of the heavy U.S. influence on the IMF, his 

endorsement left little doubt that the loans would be made. The United States is the only country in the 

world with veto power over IMF actions. Using this influence, the Clinton administration turned the 

IMF into an agent of U.S. policy in Russia.

From the administration's standpoint, the disbursal of the IMF moneys would help pave the way for 

Clinton's planned visit to Moscow in April of that year and shore up the team chosen by the 

administration to carry out Western aid policy.

On the merits, there was little economic justification for extending the IMF package in March 1996. The 

loans-for-shares ersatz "privatization" of major Russian industries into the hands of a few insiders was 

already notorious. The poor state of Russia's official budget and finances made it implausible to assume 

that the government would ever repay the latest IMF loan. Worst of all, the loan did not effectively 

stipulate economic conditionality: in the first year alone, the IMF granted three waivers for 

"nonobservance of performance criteria."42 The Clinton administration's decision to extend yet another 

IMF loan was purely political.

Many in the West and in Russia argued against burdening Russia with more IMF debt. Boris Fyodorov, 

a former Russian Finance Minister, immediately criticized the decision. "This money corrupts the 

system," he said the day the deal was announced. "The moment you get a billion dollars, you delay the 

necessary reforms."43

The sheer size of the loan caused concern among many other observers.44 Prior to March 1996, the 

largest amount of money given to Russia from the IMF was $6.8 billion in April 1995. The 1995 loan 

had been more than a six-fold increase from the first loan to Russia in 1992. With this 1996 loan, the 

Russian central government had borrowed close to $15 billion from the IMF alone. Moreover, the IMF's 

sister institution, the World Bank, had provided billions more in loans to the central government since 

1992. A further $30 billion in direct bilateral assistance had been given to the Russian central 

government by Germany, the United States, and other countries.
Moreover, to the extent that the Clinton administration did hector for "reform," it repeatedly prescribed 

bad medicine.

During America's Great Depression, the infamous Smoot-Hawley tariff and President Hoover's 1932 

income tax increases were widely credited with shrinking the U.S. economy in an attempt to increase tax 

revenues. Likewise, the Clinton administration saw the root of Russia's problems as the decline in 

government revenues--as if Russia's mistake had been failing to impose sufficient government levies on 

the struggling Russian economy.45

8-4

DESPERATE FOR MEDICINE: A pharmacy clerk looks for insulin on a shelf, while a Russian woman 

waits in Moscow, Dec. 11, 1998. Russia's 2.2 million diabetics rely on imported insulin, but imports 

dried up when the government devalued the ruble. AP Photo/Oleg Nikishin

While Russia's revenue stream was indeed declining, it was declining due to the contraction of the 

economy itself. The Clinton administration's insistence on raising taxes was in part responsible for the 

worsening crisis, as Russia sought to squeeze more taxes from the economy.

In place of concrete steps to establish the building blocks of a free enterprise economy, the Clinton 

administration used the loans to attempt to induce Russia to reduce its budget deficit to stipulated 

targets: 4% of GDP in 1996, 3% in 1997, and 2% in 1998. These goals were never reached.46 To the 

contrary, as the Russian government continued to borrow, the rising costs of debt service added to the 

strain on the budget.

In March 1997, when Nizhny Novgorod Governor Boris Nemtsov was appointed Deputy Prime 

Minister, then-Deputy Treasury Secretary Lawrence Summers dubbed the new Russian economic team 

of Nemtsov and Chubais the "Dream Team"--a typical example of the administration's tendency to 

support individuals rather than actual policies. The "dream," however, soon turned into a nightmare for 

146 million Russians.
The Stock Market Bubble Bursts

Vice President Gore, Treasury Secretary Rubin, and Deputy Treasury Secretary Summers were not the 

only people taken in by the Chubais "Dream Team." In mid-1997, the Russian stock market--hyped up 

on billions from IMF, World Bank, and bilateral aid that initially permitted the Russian Central Bank to 

accumulate reserves at a pace of $1.5 billion a month--became the world's leading developing country 

stock market, as speculators chased stratospheric investment returns.47

The economic momentum, however, was exceptionally short-lived; it would not even last the year. By 

the fall of 1997, the trends were again all negative.

The onset of the economic crisis in Asia had reminded investors in emerging markets to pay attention to 

fundamentals, which for the Russian economy were not encouraging. Continued low gas and oil prices 

worldwide reduced the value of Russia's energy exports, and the lack of productivity improvement in the 

private sector was quickly erasing the justification for high stock prices.

After the brief euphoria, investment continued to decline in 1997; capital investment amounted to less 

than 24% of the Soviet-era level of 1990.48 Capital flight at a rate of $2 billion to $3 billion per month 

(equivalent to between 4% and 10% of Russia's entire GDP)49 was becoming a major drain on the 

Central Bank's foreign currency reserves.

For many Russian businesses, debts and liabilities significantly outweighed assets. Back wages rose to 

more than $4.4 billion by the end of 1997, and reached as high as $5.6 billion by July 1998.50 At the 

start of 1998 business-to-business debt amounted to roughly $40 billion, while businesses' unpaid debt 

to the government totaled more than $35 billion.51

Russian firms, still suffering under the weight of Soviet-era laws and regulations, were unable to earn 

enough to pay taxes. The government's revenues were falling--at times as much as 50% below budgeted 

tax receipts. The decline in tax collections was exacerbated by the notoriously inefficient Russian tax 

system, as well as by corruption among tax authorities and sweetheart deals that granted tax leniency to 

select enterprises, such as the gas monopoly Gazprom.

The Clinton-Yeltsin and Gore-Chernomyrdin response to reduced tax collections--a symptom of the 

government's failure to building anything like a workable free enterprise system--was more government 

borrowing. IMF and World Bank debt would be used as a means of balancing the Russian central 

government's annual budgets, plugging the gap between the government's growing expenses and its 

rapidly declining revenues.

The heavy reliance on borrowing to finance budget shortfalls caused investors to demand an 

increasingly large premium to hold Russian debt. To attract investors, the government offered everhigher interest rates--at times approaching 250%. The process was unsustainable.52
GKOs and the Russian Debt Pyramid

Russia's rapidly inflating short-term debt was an important factor in the August 1998 collapse. Facing 

budgetary pressures caused in part by already high debt service payments and expensive reelection 

campaign promises, the Russian government turned to short-term borrowing through ruble-denominated 

government bonds, known by their Russian acronym GKOs (Gosudarstvennykh Kratkosrochnykh 

Obligatsii, "State Short-Term Obligations"). Rather than solving Russia's debt problem, GKOs only 

delayed and intensified the final reckoning.

Russia's failure to develop a market economy and the concomitant poor investment climate meant the 

government had to pay investors a steep premium to sell them the GKO risk. Interest rates, which had 

averaged 26% in 1997, reached triple digits in July.53 This ensured that the government could not meet 

its obligations when GKOs came due without issuing more GKOs: "The GKO pyramid was by then a 

full-blown Ponzi scheme, with new bonds being issued to pay the interest on old bonds."54 GKO debt 

exploded during the spring and summer of 1998, and by then some 30% of Russian budgetary outlays 

was devoted to debt service.55

Russian and foreign investors earned enormous returns in the so-called "GKO casino." But investors 

were eager to convert their ruble profits into dollars and other stable currencies. Such conversions 

exerted more downward pressure on the already battered ruble, and raised the cost to the Russian Central 

Bank, which was trying to prop it up.

A considerable portion of the International Monetary Fund's $4.8 billion July 1998 rescue package was 

spent to prop up the ruble in the days before the collapse. Predictably, toward the end, only wellconnected Russian and foreign investors were able to convert their rubles, a fact acknowledged by 

Treasury Secretary Rubin.56

The Clinton administration made consistent efforts to downplay the magnitude of Russia's economic 

crisis before the collapse. In late May 1998, for example, on the very day Russia's Central Bank tripled 

key refinancing rates to 150%, State Department spokesman James Rubin went out of his way to call the 

Russian government's economic team "fully capable," while then-Treasury Secretary Rubin blandly 

stated that "the Russian government is taking steps to deal with the situation."57

When asked what the administration knew about GKOs in the summer of 1998, Lawrence Summers, 

now Treasury Secretary, told the Speaker's Advisory Group on Russia that the administration was aware 

of the GKO market, knew the interest rates, and regarded them as symptomatic of an untenable fiscal 

situation.58 Nonetheless, the Clinton administration viewed maintenance of the GKO Ponzi scheme as 

insufficient cause to turn off the cash spigot.

In light of the administration's previous enthusiasm for IMF lending to Russia, many investors may have 
believed that the Gore-Talbott-Summers troika would squeeze new loans out of the IMF to insure that 

Russia's economy did not fail and that their investments were protected. Ultimately, this perspective 

proved only partially correct: the IMF was persuaded to issue new credits, but the Russian economy 

would collapse nonetheless.

The Clinton Troika Pushes to Double IMF Lending to Russia

In mid-1998, just two months before Russia's economic collapse, IMF Managing Director Michel 

Camdessus insisted that investors should not worry about Russia: "Contrary to what markets and 

commentators are imagining, this is not a crisis," he said. John Odling-Smee, head of the IMF's Russia 

department, predicted that "large-scale additional financial resources ... will fundamentally improve the 

financial situation of the Russian government."59

Similarly, the Clinton troika held the view that more IMF lending could fix whatever ailed Russia. 

White House spokesman Mike McCurry bravely spun in July 1998 that the "program of Russian policy 

commitments and international financial support can provide a sound basis for increased stability and 

confidence."60 According to the New York Times, Summers and Under Secretary of the Treasury for 

International Affairs David Lipton pressed the IMF to "double the amount of money it was willing to 

lend to Russia,"61 even though this would dangerously deplete the IMF's resources.62

8-2

NOT A PRAYER: President Boris Yeltsin looks for help from above during a meeting with regional 

leaders on the 1998 financial crisis in the Kremlin in Moscow, June 5, 1998--just months before 

Russia's economic collapse. The Yeltsin-Clinton prescription for the crisis was for Russians to pay 

more taxes, ignoring the fundamental cause of Russia's increasingly poor fiscal condition: its failure to 

establish the basic elements of a free enterprise economy. AP Photo/Pool

The Times reported that the Summers-Lipton diagnosis was that still more lending was required because 
Russia might "catch the Asian flu."63 Such emphasis on external factors revealed the Clinton 

administration's inattention to the inherent problems in Russia's economy. By turning a blind eye to 

Russia's failure to put in place the building blocks of a free enterprise economy, and instead pressuring 

the IMF to put the Russian government still deeper into debt, the troika's policies exacerbated the depth 

of the coming crisis.

In Washington, over Memorial Day weekend, Summers, Lipton, and Talbott met with Chubais, who had 

been appointed as Special Emissary to the West after his dismissal from the Russian government. At 

backyard barbecues, they discussed terms and conditions. Afterward, they started pushing publicly for 

an agreement between the IMF and Moscow. A few days later, Clinton voiced support for the scheme 

and began lobbying Congress for an additional $18 billion U.S. contribution to the IMF so that the Fund 

would have enough money to cover the sizable new lending they had in mind.64

In fact, the economic situation in Russia was rapidly deteriorating. It was becoming clear that even a 

large-scale international financial package could not stave off the Russian free-fall. Angry miners began 

demonstrating in Moscow to protest wage arrears. The sale of the state-owned oil company Rosneft, 

projected to net the government $1.6 billion, was cancelled for the second time because of the 

probability of fire-sale bidding.65 Interest rates on Russian debt were soaring. The Russian treasury 

market was showing signs of collapse: a Russian treasury bill auction failed to attract enough interested 

investors, despite sky-high interest rates. By July 1998, Russia's foreign currency reserves had fallen to 

$12 billion, down more than $3 billion from the month before. Though the handwriting was on the wall, 

the Clinton administration and the IMF chose to proceed with the loan.

The IMF Bails Out 'Insiders' Before the Ship Sinks

On July 16, 1998, the Russian government and the International Monetary Fund, joined by the World 

Bank and Japan, agreed on terms for the largest-ever infusion of cash into the central government of 

Russia: $17.1 billion. On top of this borrowing, Russia anticipated another $5.5 billion in international 

lending from prior agreements, for a grand total of $22.6 billion.

The 1998 IMF debt agreement was premised on commitments from the Russian government to 

implement a "comprehensive reform program," including a dramatic reduction of the budget deficit--this 

time to 2.8% of GDP from its then current 5.8%.66 But the IMF funds were not conditioned on any legal 

commitment to the IMF, or even actual Russian performance.67

The IMF board approved the deal on July 20, 1998, even though the Duma balked at some of the reform 

measures that Chubais had promised. Disbursements began that day with a first installment of $4.8 

billion--$800 million less than had been envisaged earlier, reflecting concern over the Duma's vote. 68

The initial reaction to the IMF loan agreement was euphoric. The Russian stock market, after months of 
free fall, recorded a 17% rise.69 This boost was short-lived, however. By the end of July, despite the 

infusion of billions of dollars in IMF funds, the market resumed its plunge.

On July 27, the market dropped 9% in one day.70 Yields on the Russian government's short-term debt 

hovered around 60%.71 In a desperate attempt to raise revenue, the Russian government prepared to sell 

a 5% interest in Gazprom, despite the unfavorable market conditions.72

This was precisely the reverse of what the Clinton administration and the IMF had hoped for. Instead of 

rewarding the Russian government for its temporarily cash-rich position, the market hammered it 

because it was now deeply mired in debt, with no discernable means of repayment.

The huge July 1998 IMF loan agreement did, however, succeed in one important respect. Because it was 

temporarily flush in IMF money, the Russian central bank was able to accommodate well-connected 

investors, foreign and domestic, who had discerned the handwriting on the wall and decided to convert 

their ruble holdings into hard currency. Thus, the IMF encouraged and paid for the capital flight that 

marked the final days before the August collapse.

Throughout the brief period between the 1998 IMF loan and Russia's final economic collapse, the 

Russian government bravely insisted that the Ponzi scheme of financing its budget with ever higheryielding notes would continue forever. On July 27, Nemtsov declared, "Devaluation will happen with 

other governments, not ours."73 The Clinton administration was equally willing to mislead the investing 

public. On July 28, Treasury Secretary Rubin wrote to then-House Speaker Newt Gingrich that the 

Russian government could now be expected to "finally take the myriad steps needed to put its finances 

on a sustainable path."74 That same day, Stanley Fischer, the IMF's Deputy Managing Director, sounded 

an equally optimistic note: "Don't underestimate what's happened," he said of the IMF action. "Interest 

rates are down ... . The pressure is off the ruble."75

As they had for nearly five years, the small clique of Clinton administration officials had miscalculated 

the effects of their policies and closed their eyes to the consequences. Their tight circle excluded 

opposing points of view and became a self-reinforcing mechanism for pursuing failed strategies. Gore 

was too willing to believe Chernomyrdin and Kirienko; Rubin, Summers, and Talbott were too willing 

to believe Chubais. Convinced that the worst was over and a turnaround was in sight, despite mounting 

evidence to the contrary, the Clinton troika was among the last to realize that it would all come to a 

bitter end on August 17.

The Final Days

The Russian stock market continued its plunge in August 1998: on August 19 alone, trading was 

suspended twice because of drops of more than 10%.76
Demand for Russia's debt declined dramatically, even as yields soared above 200%.77 Russian banks 

began calling on each other for loans--reflecting, in the words of Sergei Aleksashenko, First Deputy 

Chief of the Russian Central Bank, "the crisis of liquidity."78 Some banks stopped allowing panicked 

Russians and foreigners to buy dollars with rubles.

In Washington, President Clinton was huddling with his advisers over what to do about his summit with 

Yeltsin, scheduled for September. On the one hand, the economic clouds were ominous; on the other 

hand, Yeltsin had reassured Clinton on August 14 that there would be no devaluation.79

Scrambling to avoid a meeting in the midst of a financial crisis, the White House dispatched Treasury's 

Lipton to Moscow "to ensure that the show stays on the road for the next three weeks at least," according 

to an administration source quoted in the Economist.80 That would be just long enough to get through 

Clinton's visit and avoid embarrassment. Sidestepping Russia's underlying problems, it would seem, was 

the hallmark of administration policy in the final days before Russia's economic collapse.

8-5

CHILDREN OF RUSSIA: Two children receive free soup from the Salvation Army at a Moscow railway 

terminal in 1998. AP Photo/Mikhail Metzel

Over the weekend of August 15-16, a small group of Russian government officials and their advisers 

met to consider the situation and their options. Another bailout from the IMF or the United States was 
deemed unlikely to win approval in Congress and, in any event, would arrive too late. Their options 

came down to seeking a rescheduling of the payment of billions in foreign government and private debts 

or a devaluation of the ruble. Either one would be tantamount to default, a declaration of Russian 

bankruptcy.

The following Monday, August 17, the Russian government announced a devaluation of the ruble and a 

90-day moratorium on repayment of $40 billion in corporate and bank debt to foreign creditors--coupled 

with unilateral "restructuring" of domestic debt scheduled to mature in 1999.81 The Wall Street Journal

reported the next day, "Facing a choice between two economic evils to fight its financial woes, Russia 

chose both."82

The Clinton strategy of massive lending to the central government as a substitute for the construction of 

a free enterprise system in Russia had proved an error of historic proportions, and the administration 

immediately attempted to build a wall between their policy and its consequences. "It was the Russians' 

choice," said one administration official.83

Few in Russia accepted this version of events. Many Russians, not surprisingly, blamed the West, the 

IMF, and the United States for intentionally leading Russia down the path of ruin.84 The heavy-handed 

involvement of Clinton administration officials in Russian economic policy had made America an easy 

scapegoat for millions of disgruntled Russians.

What made devaluation and default an especially bitter pill for the Russian people was the knowledge 

that many well-connected insiders had escaped its consequences by converting their rubles into hard 

currency and thereby avoided the consequences of devaluation. A number of the oligarchs, Duma 

deputies, and other officials had anticipated the devaluation or been tipped off to it and converted their 

ruble holdings into dollars before the foreign currency window was slammed shut, and then sent their 

money overseas before the August 17 devaluation. Given the scarcity of hard currency in Russia at the 

time, there is no question that the IMF loan proceeds were used to convert rubles to dollars, 

Deutschemarks, and pounds sterling in this way. Treasury Secretary Rubin, testifying before a House 

Appropriations Committee subcommittee in March 1999, acknowledged that much of the final $4.8 

billion IMF loan distributed to Russia in the summer of 1998 "may have been siphoned off 

improperly."85

Following the devaluation, widespread speculation in Russia that IMF lending was being used to bail out 

insiders was fueled by the Russian Central Bank's decision to single out a dozen favored banks for 

government credits to reestablish their liquidity. The banks included those held by several powerful 

oligarchs. To all appearances, while the average Russian was left to fend for himself, the well-connected 

oligarch was being rescued by the Central Bank, by the IMF, and ultimately, by U.S. taxpayers.

Dmitri Vasiliev, former chairman of Russia's Federal Security Commission, confirmed that IMF loans 

were used to bail out insiders: "The [IMF] money is all spent," he told the Los Angeles Times a month 

after the devaluation. "It went to foreigners and Russian speculators, including the Central Bank. They 
got payments for their GKOs, converted the rubles into cheap dollars, and took the money out of the 

country."86

As Clinton was preparing for his September 1998 trip to Moscow, Prime Minister Kirienko and his team 

were fired. Not much earlier, one senior Clinton administration official had called the Kirienko 

government "the most cohesive and most united in its commitment to reform ... Russia has had in the 

last five years."87 Kirienko's team lasted barely five months, and the Clinton administration was again 

without a policy and an interlocutor in Moscow.

For a brief moment, Gore was heartened that his former partner, Viktor Chernomyrdin, might be making 

his way back. However, Chernomyrdin's comeback was to be short-lived: the Duma refused to confirm 

him. By the fall of 1998, the Clinton administration had no "strategic partners" in the Russian 

government, and its policy toward Russia had fallen into disarray.

8-7

THE CLINTON GENERATION: A Muscovite begs with his dogs next to a Pepsi advertisement, 

featuring Soviet leader Nikita Kruschev and President Nixon in 1959, in downtown Moscow, June 3, 

2000, just before Clinton arrived in Moscow for a summit with President Putin. Clinton's reception, not 

surprisingly after the collapse of Russia's economy, was icy cold. AP Photo/Mikhail Metzel
The Continuing Fallout

The effects of the complete collapse of the Russian economy in August 1998 were profound. They are 

still being felt today.

Wage and pension arrears have declined significantly, but workers' real income is still only 77% of what 

it was before August 1998. The nominal increase in ruble-denominated wages has not kept pace with the 

increase in prices. Personal consumption, as a result, dropped 5% in 1999, while retail sales were down 

8%. Those Russians living below the official poverty level still total more than 35% of the population. 

The official unemployment rate remains above 11%.88

Servicing Russia's foreign debt, now up to $150 billion, is draining resources from the economy.89

Russia's modest economic "turnaround," such as it is, is almost wholly a windfall result of higher world 

oil prices, and Russia remains unprepared to capitalize on this opportunity. Gazprom, the giant gas 

monopoly, reported in May 2000 that its output would be down this year because of a shortage of funds 

to invest in new fields.90 More generally, the continued dependence of Russia's economy on basic 

Soviet-era industries such as the export of arms and natural resources--and one major export in 

particular, oil--underscores the failure to construct the basics of a free enterprise economy.

Nearly a decade after the end of Communism, the essential task still remains to be undertaken: building 

a free enterprise economy on the ashes of a centralized state-run system. But whereas in 1992 there was 

public support to see the job through, years of failed economic policy masquerading as "reform," a 

crushing burden of debt, and the discrediting of the United States in the eyes of the Russian people have 

made that task far more difficult than anyone could then have imagined.

CHAPTER 9

WEAPONS PROLIFERATION 
FEEDS A CORRUPT AND 

CASH-STARVED SYSTEM

Russian Arms Ad

ARMS FOR SALE: One of the few success stories of the Soviet 

Union was its development of a powerful military-industrial complex, 

which survived the collapse because of its ability to continue to sell 

weapons and because its Russian workers were among the most 

highly-trained in the nation. In the absence of market development, 

Russia has depended on international arms sales to raise muchneeded cash. Moscow has shown a willingness to sell some of its 

most advanced weapon systems currently in mass production. A 

number of these weapons are specifically designed to destroy U.S. 

systems. Russia's customers include many nations that threaten U.

S. interests. Russia's urgent need for hard currency has resulted in 
weapons proliferation that may even run counter to Russia's longterm strategic interests.

[O]n proliferation, the picture that I drew last year has become 

even more stark and worrisome. The missile threat to the United 

States from states other than Russia or China is steadily 

emerging. The threat to U.S. interests and forces overseas is here 

and now.

George Tenet, Director of Central Intelligence, February 2, 2000

The failure of the Clinton administration's economic strategy for Russia has had profound implications 

for Russian proliferation of weapons and technology, and therefore for America's supreme national 

interests.

Between 1992 and 1999, the Russian economy contracted 25%. Currently, 11.5% of the 73.6 million 

working-age citizens are officially unemployed, compared with only 4.8% in 1992. Rampant corruption 

has slashed government revenues and diverted government expenditures. The complete collapse of 

Russia's economy in 1998 saw industrial and agricultural output drop sharply. Investment in Russia 

continues to suffer as capital flight cripples the private sector.

Russia's failure to create a working free enterprise system has stalled conversion of the hypertrophic 

military sector of the economy.1 It has also ensured that, just as in Soviet days, virtually the only 

industry in which Russia enjoys a true comparative advantage in global markets is military hardware, 

weaponry, and related technologies.

Russia's economic failure has created urgent economic incentives for its military-industrial complex, 

individual military units, research facilities, and design bureaus, as well as for the individual officers, 

soldiers, bureaucrats, and scientists who comprise these institutions, to sell even extraordinarily sensitive 

weapons and technology.

Over time, official Russian policy has conformed to these exigencies. Aided by the collapse of American 

popularity in Russia and the discrediting of pro-American politicians as the Clinton administration 
economic program failed, militantly anti-American elements in the Russian foreign and security-policy 

elites have succeeded in dramatically recasting mainstream Russian views of foreign policy over the last 

eight years. 2 Under the rubric of "strengthening multipolarity," the avowed purpose of the new Russian 

consensus on foreign policy and national security is to increase the strength of global forces arrayed 

against the United States.

This consensus helps allay any concerns that Russian officials, scientists, and businessmen might have 

about transferring weapons or military technology to countries such as Iran, Iraq, North Korea, Libya, 

and the People's Republic of China. When Russia's national interest is understood to be strengthened by 

weakening the United States, the Russian military-industrial complex can do well by doing good.

'Islands of Excellence': The Paradox of Russia's Military

The August 2000 sinking of the Kursk, Russia's most modern submarine, during the Russian Northern 

Fleet's largest exercises in a decade has highlighted the paradoxical nature of the Russian military. It is 

at once sophisticated and in disrepair. The overall poor conditions in the Russian military--symptoms of 

the cash-starved Russian economy--are conducive to both licit and illicit weapons proliferation for hard 

currency. At the same time, the maintenance of technological "islands of excellence" in the midst of 

generally non-competitive force structures insures that Russia has ample weapons systems and 

technology to share with willing arms buyers.

These basic conditions for weapons proliferation are further exacerbated by the "systemic corruption and 

criminality that is especially evident at the higher levels of the military and civilian leadership in 

Russia." More than 100 generals and admirals, a deputy minister of defense, and two other top officials 

of the Ministry of Defense were under investigation for corruption and embezzlement as of 1997.3 

During the brutal war in Chechnya both officers and enlisted men have sold weapons and material to the 

Chechens fighting against them; the civilian leadership of the military establishment, including thenFirst Deputy Prime Minister Oleg Soskovets, have also been accused of profiting from the conflict.4

Without question, Russia's military "islands of excellence" exist in troubled waters. Russia has 

dramatically reduced its military spending from Soviet levels, starting with the 80% cut in procurement 

ordered by Yegor Gaidar in 1992. A recent illustration of the military's cash shortage is the June 2000 

report that the local electric company threatened to cut off power to a strategic missile base in southern 

Siberia because of $180,000 in unpaid bills.5 The cutoff was avoided when the base's elite commandos, 

whose regular mission is to protect the giant SS-18 intercontinental ballistic missiles there, seized four 

of the electric company's substations.

Russia's soldiers, whose lifestyle has always been spartan, now suffer from an unprecedented 

combination of low pay, poor training, and terrible living conditions:
[T]he Russian military has faced problems feeding its own troops. Sailors have starved to 

death, forces stationed in the far north have been gradually withdrawn, and those stationed 

in Russia proper have often been told to pick mushrooms or berries to supplement their 

diets. ... The problem was brought home even more clearly in March 1999 when a young 

soldier armed with an automatic weapon broke into a food store. When he was captured, 

the soldier confessed that he "was really hungry."6

It is currently estimated that as many as 1,000 Russian conscripts a year commit suicide.7

These poor conditions, in time, have bred further problems. The State Department reported in 1998 that 

the decline in the military's living standards "continues to contribute to the increase in crime 

(particularly theft) and corruption in the armed forces."8

Since 1996, communications with operational nuclear weapons units have often been disrupted because 

thieves steal the copper and other metals from wires that linked these units to their command centers and 

sell them for scrap. And as the Kursk incident has shown, corruption, mismanagement, and the problems 

in morale, training, and recruitment that they engender can compromise the effectiveness of even the 

most modern systems.

On February 25, 1997, shortly before his dismissal, then-Defense Minister Igor Rodionov stated, "What 

kind of Defense Minister am I? I am the Minister of Defense of a disintegrating army and a dying fleet."9

General-purpose forces have been largely neglected. Russia's armed forces procured exactly two combat 

aircraft in 1995, versus 581 in 1991.10 Tank procurement has gone from several thousand to several 

dozen per year.11 According to Russia's Defense Minister Marshal Igor Sergeyev, 54% of Russia's 

aircraft and 40% of its anti-aircraft systems, helicopters, armored equipment, and artillery need repairs. 

Seventy percent of the navy's ships need major repairs.12

Yet such statistics belie the more complete picture. Irrespective of its official budget, Russia continues to 

devote significant resources to its military establishment, as demonstrated by its sheer size and 

infrastructure, as well as expenditures on the war in Chechnya and "peacekeeping" in Moldova, 

Tajikistan, and Georgia. And while it is a mere shadow of the Soviet military, even the diminished 

Russian military of today is formidable compared to the weak forces of the nations on Russia's periphery 

and of the new NATO states Poland, Hungary, and the Czech Republic. Were Russia to choose to do so, 

it is capable of threatening the Partnership for Peace countries of the Baltics, Ukraine, and Southeastern 

Europe, the Caucasus, and Central Asia. And while Russia might not be able to win a conventional war 

with NATO, it still has the military capability to inflict massive damage on U.S. allies in Europe.

The anomalous Russian pattern is that while the bulk of its military assets are depreciating, it is still 

successfully targeting certain areas for investment in 21st century weapons technologies. Thus, 

following the May ratification of the START II Treaty by the Russian Duma, President Putin announced 

that the treaty's ratification would allow Russia "to channel funds to [the] creation of new 
armaments ... ."13 These newest armaments will also pose proliferation risks.

The most significant exception to Russia's generally deteriorating military is it nuclear force. Russia's 

clear pattern to date has been to focus its limited research and procurement funds on nuclear weapons--

and, disturbingly, on maintaining nuclear war-fighting capabilities.14

The noted defense analyst Pavel Felgengauer recently wrote that "[f]or the past couple of years ... Russia 

was building more ICBMs [intercontinental ballistic missiles] than all other world nuclear powers put 

together, but not buying any new conventional arms."15 As Lt. Gen. Patrick Hughes, Director of the 

Defense Intelligence Agency, testified in February 1999: "Despite years of economic crisis and decline, 

and extreme reductions in the Russian defense budget, Moscow has mustered the political will and 

resources to field and maintain its strategic force. Indicative of this determination, Russia continues to 

prioritize strategic force elements--in terms of manpower, training, and other resources--and to invest in 

the future by funding at least one new strategic missile, and numerous strategic command, control, and 

communications facilities and capabilities."16

Twenty to thirty of the relatively new and capable SS-25 Topol ICBMs and the SS-27 Topol-M ICBMs, 

currently the most technologically-advanced intercontinental ballistic missile deployed in the world, are 

being produced each year. Russia is simultaneously retiring larger numbers of older systems, resulting in 

a smaller but more modern force.17

In 1998 the Yeltsin government ordered the development of Russia's next-generation submarinelaunched ballistic missile (SLBM), the Bulava ("Mace"). The Bulava is currently in development and is 

believed to be based on the SS-27, signifying a Russian attempt to maximize missile production by 

utilizing the economies of scale from deploying substantially similar missiles on land and at sea. 

Because the Bulava will not become operational for nearly a decade, Russia has also resumed 

production of the SLBM currently in service to keep the current ballistic missile submarine fleet fully 

armed. Russia is also designing a new nuclear-capable theater missile.18

The ratification of START II, which emancipated Russia from the expense of maintaining much of its 

older forces, also signaled the start of its renovation of the strategic bomber fleet. In addition to 

developing new long-range bombers, the Russian military is also designing precision munitions to 

increase their efficacy.19 The new X-101 long-range air-launched cruise missile may be part of what 

military analyst Felgengauer described as a plan "to make a local nuclear war possible in principle, to 

enable Russia to deliver 'non-strategic' low-power nuclear strikes to any point in the world, similar to 

American cruise missiles and 'smart bombs.'"20

Russia's strategic forces are also maintaining a higher level of readiness than the general military:

* In April 2000, the strategic bomber force conducted large-scale military exercises over 

the Black and Caspian Seas,21 the second major exercise in as many years.
* In June 1999, Russia conducted its largest military exercise since the collapse of the 

Soviet Union, involving some 50,000 troops from five military districts, five naval fleets, 

and 23 combined task forces.22

The 1999 exercises, dubbed Zapad 99, marked the first time that American fighters were forced to 

intercept Russian bombers, two of which had approached within 60 miles of NATO-ally Iceland--well 

within striking distance of the United States.23

Russia is also launching new satellites to counter an erosion in its intelligence capabilities that has left it 

strategically "blind" for some three hours of every day.24

Tactical aviation, and electronic and information warfare, have also continued to receive priority in 

funding. So has biological weapons research.25 And Russia is expending immense resources on building 

mammoth underground facilities apparently intended to function as command-and-control headquarters 

for waging nuclear war at locations including Kosvinski and Yamantau Mountain in the Urals.26

Russia has continued producing nuclear-powered submarines (of which the Kursk is an example) as well 

as diesel submarines for its own armed forces as well as for export. As Rear Admiral Lowell E. Jacoby, 

the Director of Naval Intelligence, advised Congress in April 1999, "Russia continues to produce a wide 

range of leading edge undersea warfare technologies for their own use and for export."27

Under construction or development are the Severodvinsk, Russia's first true multi-purpose nuclear 

submarine, and the Dolgorukiy nuclear-powered submarine, which in the future will be the mainstay of 

Russia's sea-based nuclear weaponry.28 Whereas most U.S. defense planning no longer focuses 

primarily on Russian developments, U.S. submarine acquisition and anti-submarine warfare programs 

are still driven by Russian activities.29

The long-depressed economic conditions in Russia, miserable pay and living conditions of Russian 

troops, pervasive corruption in the Russian military and civilian leadership, a desire to fund Russia's stillambitious and expensive conventional and strategic forces, the marketability of much of Russia's newest 

military hardware and technology, and a growing hostility to the United States in official Russian 

foreign and military policy have all combined to provide strong economic incentives for proliferation of 

weaponry and weapons technology by people and institutions ranging from individual soldiers to the 

Russian state.

Doomsday Programs: Russia's Weapons of Mass Destruction

When the Soviet Union collapsed in 1991, Russia inherited an immense military-industrial complex, as 

well as a huge arsenal and military. Much of this complex was devoted to the development of weapons 

of mass destruction.
The new Russian Federation possessed nearly 1,200 metric tons of enriched uranium and 200 tons of 

plutonium.30 Although much of this material was kept in the hermetic "nuclear cities" in which Soviet 

nuclear experts were confined, a significant amount was available outside these isolated outposts. An 

estimated 2,500 Russian nuclear scientists with direct knowledge of building nuclear weapons were 

under-employed or unemployed. Furthermore, these scientists were supported by tens of thousands of 

specialists who worked outside the nuclear cities but had extensive involvement with the Soviet nuclear 

industry.31

Russia likewise inherited the Soviet chemical weapons program, which encompassed hundreds of 

facilities employing tens of thousands of scientists and technicians--the largest and most advanced 

chemical weapons production program in the world. In 1993, Russia declared that it possessed 40,000 

metric tons of chemical weapons agents stored at seven depots, and declared that it owned 24 former 

chemical weapons production facilities.32

The Soviet biological weapons program that Russia inherited was even larger, employing over 65,000 

people. The Soviet Ministry of Defense ran four military microbiological facilities. In addition, research 

was carried out through a complex of 50 pharmaceutical facilities known as Biopreparat that engaged in 

the secret development of biological agents.

The decline in Russian military spending and the general failure of Russia's economy under the Clinton 

administration's tutelage gave this immense military-industrial complex the urgent incentive to sell as 

much as possible as quickly as possible--often irrespective of the long-term implications for Russia's 

own security.

At some former research facilities, such as the State Institute of Organic Chemistry and Technology in 

Moscow, fully half of the scientific personnel had been laid off by the fall of 1995, following President 

Yeltsin's official termination of the biological weapons program in 1992. Following Yeltsin's action, the 

Biopreparat complex experienced funding cuts of 30% and personnel cuts of 50%. According to one 

recent report, many Biopreparat institutes cannot even afford to pay the remaining scientists on staff the 

meager $100 a month average salary.33 Moreover, security controls on Russia's weapons of mass 

destruction program were deteriorating.

To many in the Russian government who sought ways to overcome the desperate financial challenges 

facing Russia's government and its population, exporting such hugely valuable contraband seemed to 

solve several economic problems. It would generate hard currency; it would utilize existing Russian 

assets; and it would put possibly hundreds of thousands of unemployed Russians back to work. For the 

many Russian officials increasingly involved in corruption and organized crime, there was yet another 

benefit: the opportunity for significant personal wealth.

Such sales also had a programmatic and policy dimension, since the funds they generated could help 

support further weapons development. Such critical elements of the military-industrial complex as 
aircraft and surface-combatant manufacturing have been left to survive largely by exports. While 

Russian arms exports have reached as much as $4.8 billion annually, Russia's armed forces have been 

authoritatively informed that they will not receive new weapons until 2005, and must manage with 

existing weapons in the interim.34

Such exports could also serve such foreign policy goals as "building multipolarity" at the expense of the 

United States, or seeking to build better relations with nations that might otherwise pose problems for 

Russia, such as Iran. Some Russian commentators even articulated a policy of Russian arms sales to antiAmerican forces as a means both of providing Russia with hard currency and of assuring that U.S. 

resources will be consumed in countering the weapons Russia has sold abroad.35

Many Russian weapons-complex employees were vulnerable to the lure of selling expertise and 

equipment for hard currency, irrespective of official Russian policy, as Iran and other rogue nations 

seeking to build WMD programs have seen in Russia's economic misery an opportunity to purchase the 

highest-quality expertise cheaply.

For all of these reasons, both official and unofficial Russian weapons proliferation has accelerated 

dramatically since the first years of the Yeltsin and Clinton administrations. In addition to the weapons 

and technology transfers to the People's Republic of China described in Chapter 11, the most 

destabilizing manifestations of Russian arms proliferation have been the sale to Iran of technology for 

ballistic missiles, nuclear weapons, chemical weapons, and biological weapons; assistance to Iraq's 

ballistic missile program, its chemical weapons program, and its oil smuggling operations; and the sale 

of conventional arms to Iran, Iraq, Libya, North Korea, and Syria.

Russian Assistance to Iran's Ballistic Missile Program

Following the Iran-Iraq war, Iran sought to improve its missile technology by purchasing No Dong 

missiles from North Korea, and reportedly provided assistance to North Korea's missile development 

program in return. After difficulties in acquiring No Dong missiles, however, Iran turned to other 

countries--including Russia--for assistance in its missile development.36 Iran sought Russian help with 

guidance systems, engines, advanced materials, electronics, testing equipment, and other systems it 

could not develop on its own.37

Throughout the 1990s, despite repeated pledges by the Yeltsin government given during summits, GoreChernomyrdin Commission meetings, and ministerial-level meetings, Russian private and government 

entities continued to provide critical technological assistance to Iran's ballistic missile programs.
9-9

AIDING IRAN'S MISSILE DEVELOPMENT: An Iranian Shahab-3 missile takes part in a parade in 

Tehran Sept. 25, 1998, to mark the 18th anniversary of the outbreak of the war with Iraq. The missile, 

with an 800-mile range, is capable of reaching Israel. President Mohammad Khatami addressed 

crowds at the parade and said Iran was ready to use force if diplomacy failed to ease the tension with 

neighboring Afghanistan. Intelligence reports noted that Iran worked with the Russian Space Agency, 

the Bauman Institute, Rosvooruzhenie, and other Russian firms in developing the missile. AP Photo/

Mohammad Sayyad

In 1997, evidence surfaced that three Russian entities, including Rosvoorouzhenie (Russia's State 

Corporation for Export and Import of Armament and Military Equipment), had signed contracts with 

Iran's Shahid Hemmat Industrial Group (SHIG), a government agency within Iran's Defense Industries 

Organization in charge of developing Iran's ballistic missile program, to assist the Iranian missile 

program by producing, model missiles, software, and a wind tunnel for missile design.

The Russian scientific and production center Inor also collaborated with Iran's SHIG on several 

contracts for the transfer of Russian raw materials for use in producing missiles. In addition, Inor 

negotiated to sell Iran high-technology laser equipment, special mirrors, a metal called maraging steel, 

and tungsten-coated graphite material--all important components in building missiles.38

U.S. intelligence findings were confirmed when on January 29, 1997, the State Department sent a secret 

cable to the U.S. Embassy in Moscow describing evidence provided by a delegation of Israeli military 

intelligence officials that Russian agencies were assisting Iran in building its Shahab-3 and Shahab-4 

missiles.39 The cable reportedly read as follows:

This is shaping up as a serious problem. While we have not seen or analyzed their raw 

data, the Israelis seem to have established that:

The Iranians are working on two No Dong derivatives, Shahab-3 (with a 1,250 mm tube, 

1,300 to 1,500 kilometer range, and 750 kilogram [re-entry vehicle] RV; and Shahab-4 

(larger, more advanced guidance systems, 2,000 kilometer-range and 1,000 kilogram RV).
The Iranians are seeking domestic production.

Iranian defense industry entities have worked with the Bauman Institute in St. Petersburg, 

with Rosvooruzhenie, the Russian Space Agency, NPO Trud, Polyus, and other Russian 

firms in: Conducting wind tunnel testing of the nose cone, designing the guidance and 

propulsion systems and working on a solid-fuel project.

The Israelis have identified [Russian Space Agency Director Yuri] Koptev and 

Rosvooruzhenie's aerospace director in connection with the project; they have a copy of 

the $7 million contract with NPO Trud (which built the Russian lunar space vehicle).

Great Wall Industries (China) is working on telemetry infrastructure; little information.

A prototype may be ready in two to three years.

The Israelis believe the Russians may try to justify the missiles as research devices. They 

have not identified a Russian-Iranian coordinating channel for missile development, nor 

implicated any senior figure besides Koptev, possibly suggesting a pattern of freelancing. 

The Israelis suspect, but have not established, that the total of relevant contracts in Russia 

may not exceed $20 million.40

In testimony before the House International Relations Committee in October 1999, proliferation expert 

Kenneth Timmerman testified that top Clinton administration officials were aware of Russian aid to 

Iran's missile programs but did little to counter it:

[Deputy Secretary of State Strobe] Talbott's consistent refusal to confront the Russians 

over their missile technology transfers to Iran illustrates once again a series of 

opportunities we missed to prevent post-Cold War Russia from going down the dark paths 

where we encounter her today.

The warnings were visible early on, and they were ignored. Initial information on Russian 

assistance to the Shahab missile programs in Iran came from Israeli agents in Russia in 

1995 and 1996.

The Israelis felt confident enough of their information to present a detailed briefing to Mr. 

Talbott in Washington in September or October of 1996. According to one of the Israelis 

who took part in the briefing, whom I interviewed in Tel Aviv the following year, Mr. 

Talbott told them not to worry: he had the situation with Russia "under control."41
9-4 (mig-29)

UNFRIENDLY SKIES: In the fall of 1998, Russian arms export agency Rosvooruzhenie and Iraq 

completed a deal worth $160 million in military hardware including upgrades of this MiG-29 fighter. 

These fighters have engaged NATO pilots over Kosovo and Iraq.

In March 1997, a CIA intelligence report labeled "Secret Specat" reportedly disclosed that then-Iranian 

President Ali Akbar Hashemi Rafsanjani was pleased with the growing ties between Iran and Russia, 

and that he expected Iran to benefit from Russia's highly-developed missile program. Iran's president 

stated that he "consider[ed] obtaining Russian military technology one of Iran's primary foreign policy 

goals." Rafsanjani added, "Iran had a budgetary reserve of $10 billion, much of which it is willing to 

dedicate towards military purchases from Russia," and he directed Iran's embassy in Moscow "to devote 

resources to fulfilling Iranian weapons requirements through purchases from Russia."42

According to a 1997 report on proliferation, Director of Central Intelligence George Tenet stated:

[In 1997] Russian firms supplied a variety of ballistic missile-related goods and technical 

know-how to foreign countries during the reporting period. For example, Iran's success in 

gaining technology and materials from Russian companies, combined with recent 

indigenous advances, means that Iran could have a medium-range ballistic missile much 

sooner than otherwise expected.

During 1997, Russia was an important source of dual-use technology for civilian nuclear 

programs in Iran and India. By its very nature, this technology may be of use in the 

nuclear weapons programs of these countries.43

Yet the Clinton administration, anxious to present a positive image of Russian-American relations, 

continued to accept the commitments from Yeltsin and Chernomyrdin during this period--at the ClintonYeltsin summit in Helsinki in March 1997, at the June 1997 Clinton-Yeltsin summit in Denver, and at a 

Gore-Chernomyrdin meeting in 1997--that Russia would halt its missile technology assistance to Iran.44

In November 1998, the Russian Duma passed a resolution calling for increased military cooperation 
with Iran. According to press reports based on conversations with intelligence officials, in late January 

1998 the Russian SVR Foreign Intelligence Service and Iran's Ministry of Intelligence and Security 

coordinated a visit to Moscow by a group of Iranian missile experts. Vyachaslev Trubnikov, the Russian 

foreign spy chief, informed the Iranians that his agency would continue to work with the Iranians if 

illegal practices by Iran were stopped. Other reports linked the Russian FSB--the Federal Security 

Service, successor to the KGB--to covert Iranian intelligence activities in the missile technology area.45

Nevertheless, the Clinton administration still refused to adjust U.S. policy to the torrent of information 

from the U.S. intelligence community and the corroborating evidence from U.S. allies. American policy 

was based on the assurances from the administration's small circle of official Russian counterparts. 

Objective intelligence reporting was discounted, while information from Russian sources who clearly 

stood to be injured by the imposition of sanctions was accepted.

The Clinton administration consistently avoided imposing meaningful sanctions on the export of missile 

technology to Iran, despite the authority to do so that it possessed under the Arms Export Control Act, 

the Export Administration Act, the Iran-Iraq Arms Nonproliferation Act of 1992, and the Foreign 

Assistance Act.

The bipartisan Iran Missile Proliferation Sanctions Act of 1997, which passed the House and Senate 

with veto-proof majorities, closed many of the loopholes invoked by the Clinton administration to justify 

its refusal to use sanctions. The Act required suspension of U.S. government assistance to foreign 

entities (including governmental entities operating as businesses) that assist Iran's ballistic missile 

program.

President Clinton vetoed the bill on June 23, 1998. One month later Iran tested its Shahab-3 missile--ten 

years ahead of the U.S. government original Initial Operational Capability (IOC) estimate of one year 

earlier, and 18 months ahead of the then-recently revised IOC. By mid-1998, the Iranian ballistic missile 

program was one of the most advanced in the world, due to Russian assistance.

The Commission to Assess the Ballistic Missile Threat to the United States (popularly known as the 

Rumsfeld Commission) reported to Congress and the president in July 1998 that "[t]he ballistic missile 

infrastructure in Iran is now more sophisticated than that of North Korea and has benefited from broad 

essential assistance from Russia."46 Many experts believe that the role Russia played in Iran's 

development has been "crucial"--and that without Russian assistance, it would have taken many more 

years of research and testing for Iran to test and deploy these missiles.47

Under threat of a congressional override of the veto of the Iran Missile Proliferation Act, Clinton issued 

an executive order on July 28, 1998, utilizing existing law to ban trade, aid, and procurement from 

foreign entities assisting programs for the production of weapons of mass destruction in Iran or 

elsewhere. Pursuant to the executive order, the Clinton administration sanctioned seven Russian entities 

believed to be assisting Iran's Shahab program.48
At the time, observers questioned why other entities that had engaged in similar activity were not 

sanctioned, as well as disputing the efficacy of the "tailored" sanctions that the administration claimed to 

be imposing. The executive order allowed the President to reduce or end aid to research and 

manufacturing enterprises, but most of the sanctioned firms did not receive any such U.S. aid, or were 

associated with the Russian government. And although the executive order also barred these entities 

from exporting goods to the United States, this sanction was largely meaningless since there was no U.S. 

market for their products and the trade in question was in information and technology rather than 

equipment. Moreover, the executive order did nothing to address Russia's export-control system, which 

even National Security Advisor Sandy Berger said was necessary when he announced the sanctions.

As a result, the executive order and attendant sanctions failed to deter Russian proliferation. An 

unclassified CIA report issued on February 2, 2000, stated that as late as June 1999 Russian entities 

"continued to supply a variety of ballistic missile-related goods and technical know-how to Iran." 

Moreover, Iran could already deploy a "limited number of the Shahab-3 prototype missiles in an 

operational mode during a perceived crisis situation."49

In testimony before the Senate Intelligence Committee in February 2000, Director of Central 

Intelligence George Tenet testified that Iran would "probably" soon possess a ballistic missile capable of 

reaching the United States. The impact of Russian assistance was clear: only a year earlier, Tenet had 

testified that it would take "many years" for Iran to develop a missile capable of reaching the United 

States.

On March 1, 2000, Congress passed the Iran Missile Nonproliferation Act of 2000, which authorizes 

restrictions on U.S. aid to and trade with foreign entities that assist Iran's programs for the production of 

weapons of mass destruction. This Act includes a provision conditioning U.S. "extraordinary payments" 

to the Russian Space Agency for participation in the International Space Station on the President's 

certification that the Russian Space Agency has ended assistance to Iran's missile development programs.

The Act thus puts teeth into the administration's professed linkage of space and nonproliferation policy, 

which at the time of enactment had yet to materialize in fact. If enforced by the Clinton administration, 

the provision will lead in the near term to the withholding of $20-25 million in extraordinary payments 

to Russia, an amount that could rise to as much as several hundred million dollars more in future years.50

The Clinton administration's willful blindness to Russian missile proliferation to Iran has already done 

immense damage, however. The extensive Russian assistance has allowed Iran to improve significantly 

its ballistic missile capability. Iran's Shahab missile series is modeled on the Russian SS-4. The Shahab3 ("Meteor") medium-range ballistic missile, which is based on North Korea's No Dong missile, was 

reportedly redesigned and improved by Russian experts. Its 800 to 900-mile range and 1,650-lb. payload 

give Iran the ability to threaten areas beyond the Middle East. Iran is close to perfecting the Shahab-4 

missile, with a 1,200-mile range and a 2,200-lb. payload.51 And with Russian assistance Iran is now 

building a 2,600-mile range "Kosar" missile, based on a Soviet-era SS-5 missile engine;52 this missile 

could ultimately form the basis for an Iranian intercontinental ballistic missile.53
Each of these missiles far exceeds the 180-mile range and 1,100-lb. payload limits imposed by the 

Missile Technology Control Regime, of which Russia is a member.54

Russian Assistance to Iran's Nuclear Program

Russia also has ignored the Clinton administration's ineffectual objections to its plans to build nuclear 

reactors in Iran. Both the Clinton administration and outside experts fear that Iran will use the civilian 

reactor program as a cover for a secret nuclear weapons program.

In January 1995, Russia announced an $800 million contract with Iran to complete a nuclear power 

facility at Bushehr. The nuclear plant was begun by Siemens during the 1970s, but abandoned after 

Iran's 1979 revolution. This 1,000 megawatt light-water reactor, which is now very nearly complete, is 

capable of producing material for nuclear weapons.55 The Bushehr contract also calls for Russia to 

deliver nuclear fuel for Bushehr's reactors. 56 Approximately 1,000 Russian specialists are currently 

working at Bushehr.

DANGER IN SMALL PACKAGES: Defense Secretary William Cohen explains to the nation the 

destructive power of even small quantities of biological weapons, Nov. 16, 1997. An amount of anthrax 

equal to this bag of sugar would kill half of the city of Washington. Russia's expertise in biological 

weapons is a lure for rogue regimes including Saddam Hussein's Iraq. AP Photo/This Week, Terry 

Ashe

Russian Atomic Energy Minister Yevgeny Adamov announced in April 2000 that Russia had agreed to 

build up to three additional 1,000 megawatt nuclear reactors in Iran.

In addition to constructing reactors and delivering nuclear fuel, Russia is providing Iranian personnel 
with technical know-how. Beginning in early September 1999, more than 300 Iranian specialists 

commenced training at Russia's Balakovo nuclear power station.

Moreover, although Russia argues that the Bushehr nuclear facility in Iran will be subject to oversight by 

the International Atomic Energy Agency (IAEA), the Bushehr project will immerse Iranian personnel in 

nuclear technology, and provide extensive training and technological support from Russian nuclear 

experts--providing both massive transfers of information and technology and indispensable cover for 

pursuing nuclear weapons activities. Neither concern is addressed by IAEA oversight.

U.S. officials believe Iran is attempting to acquire a nuclear weapons capability by purchasing nuclear 

weapons-related material and using nuclear assistance from Russia and others to expand its expertise. 

The New York Times reported on January 17, 2000, that the Central Intelligence Agency had reason to 

believe Iran had purchased critical technology advancing Iran's nuclear program further than previously 

thought.57 In August 2000, the CIA confirmed this assessment in an unclassified report to Congress, 

stating:

The Russian government's commitment, willingness, and ability to curb proliferationrelated transfers remain uncertain. ... Russian businesses continue to be major suppliers of 

WMD [weapons of mass destruction] equipment, materials, and technology to Iran. 

Specifically, Russia continues to provide Iran with nuclear technology that could be 

applied to Iran's weapons program.58

But the Clinton administration has failed to move effectively to end this Russian assistance. Moreover, 

congressional attempts to influence Russian behavior by reducing U.S. bilateral aid to the Russian 

central government (while maintaining aid in support of grass-roots reform in Russia) have been 

undercut by continued unconditional administration support for aid to Russia through the International 

Monetary Fund, the World Bank, and other multilateral institutions.

Iran is seeking to acquire Russian assistance in building other weapons of mass destruction as well. In 

December 1998, the New York Times reported that high-ranking Iranian officials were aggressively 

pursuing biological and chemical expertise in Russia. In interviews conducted with numerous former 

biological weapons experts in Russia and Kazakhstan, more than a dozen stated that they had been 

approached by Iranian nationals and offered as much as $5,000 a month (many times more than many 

Russian scientists make in a year) for information relating to biological weapons. Two weapons experts 

claimed they had been asked specifically to assist Iran in building biological weapons.59

The Russian scientists who had been approached noted that the Iranians showed particular interest in 

learning about or acquiring microbes that can be used militarily to destroy or protect crops and genetic 

engineering techniques to create highly-resistant germs.
Russian Assistance to Iraq

According to public reports in 1999, Russia has sold valuable missile technology to Iraq in violation of 

the United Nations embargo. With the end of the Gulf War, the U.N. Security Council voted to disarm 

Iraq of most of its ballistic missile capability. U.N. Security Council Resolution 687 ordered the 

destruction of all Iraqi ballistic missiles with a range greater than 150 kilometers. Furthermore, an 

embargo was placed on all sales of ballistic missile technology to Iraq by U.N. member states.

The 1999 reports specifically identified three Russian former state-owned Soviet trading companies--

Techmashimport, Vneshtekhnika and Mashinoimportinvest--as having sold Iraq components for the 

manufacture of surface-to-surface missiles; navigation equipment for fighters; and anti-aircraft missiles, 

among other items.60 In addition, Russia was reported to have sold Iraq $160 million worth of military 

hardware, including upgrades of MiG-29 fighters and air defense systems, in the fall of 1998.61

Three years earlier, in December 1995, Jordan reported seizing 115 Russian-made missile guidance 

components allegedly bound for Iraq. The United Nations Special Commission on Iraq (UNSCOM) later 

reported that Iraq had in fact procured missile components since 1991, in violation of sanctions, and that 

it had covertly developed and tested prohibited missiles. That same month, UNSCOM retrieved from 

Iraq's Tigris River prohibited missile guidance systems (accelerometers and gyroscopes) taken from 

modern Russian SS-N-18 submarine-launched ballistic missiles with intercontinental range. 62 The 

degree to which these transfers were state-sanctioned or were attributable to Russian organized crime or 

corruption is unclear, since the Clinton administration never adequately pressed the Russian government 

for an explanation or adequately investigated the case.

In 1995, UNSCOM inspectors also uncovered evidence that Russia had agreed to sell Iraq biological 

weapons fermentation equipment. Experts believe the equipment, including a 5,000 liter vessel, was 

destined for Iraq's Al Hakim facility, the main biological warfare facility of Iraq, which was 

subsequently destroyed by U.N. investigators in June 1996.63

The uncertainty of Russian intentions and the inadequacy of its controls over proliferation is illustrated 

by the case of General Anatoly Kuntsevich, who after leading the program to circumvent Soviet 

commitments under the Chemical Weapons Convention was appointed by Yeltsin to head the Russian 

committee charged with dismantling the Soviet biological and chemical weapons complex.64 On April 

7, 1994, Yeltsin fired General Kuntsevich after it was disclosed that he had been caught attempting to 

sell five tons of VX nerve gas components to Syrian agents presumably acting on behalf of Iraq. All of 

the chemical VX precursors to be sold in the transaction were stolen from Russian military facilities. 

Furthermore, Kuntsevich allegedly sold another 1,760 pounds of chemicals to unnamed buyers from the 

Middle East.65

Similarly, on February 2, 2000, U.S. patrol ships leading the Multinational Interdiction Force that 

enforces the United Nations' embargo against Iraq boarded and diverted a Russian oil tanker in the 

Persian Gulf. It was found to be smuggling Iraqi oil. The Clinton administration, once again anxious to 
avoid confronting Russia, neither sanctioned Russia nor even threatened diminution of U.S. financial 

support. Instead, the Iraqi naval official on board the tanker was freed; the oil was diverted to Oman and 

auctioned off; and the tanker was returned to Russia.

Two months later, in early April 2000, another Russian tanker was found to be carrying Iraqi oil mixed 

with Iranian oil. The Clinton administration merely issued a "warning" that future such incidents would 

result in the seizure of the cargo. Royal Dutch/Shell, which chartered the tanker, agreed to pay the U.N. 

$2 million as a fine, but was allowed to retain the cargo. No sanctions against Russia were even hinted at.

Russian Exports of Conventional Arms

The continuing failure of the Russian economy has created a nearly irresistible attraction to the hard 

capital generated by the export of advanced conventional weapons systems. Since the collapse of 

Russia's economy in 1998, Russian earnings based upon the foreign sales of arms have increased by 

58.3%, from $2.8 billion to $4.8 billion.66 And Russia is seeking to expand its shipments to new 

customers in markets such as Southeast Asia and Latin America. 67

Since the fall of the Soviet Union, the international sale of Russian arms has been conducted through 

three state-run organizations that are authorized to export Russian weapon systems abroad: 

Rosvooruzhenie, which sells new weapons; Promexport, which sells previously used weapons; and 

Rossiiskiye Teknologii, which deals with exporting technical know-how.68 Of the three arms-exporting 

organizations, Rosvooruzhenie is the dominant member of the troika.69 In 1999, Rosvooruzhenie was 

responsible for 80% of Russian arms sales.70

Through the development of such new markets for its weaponry and the continued maintenance of its 

older markets, Russian officials predict annual arms sales of over $5 billion in the near future--a more 

than 25% increase from the fiscal 2000 projection, and a more than 75% increase from fiscal 1998.71

Russia, like the United States, France, and other countries, should be expected to compete vigorously in 

the international arms market. Russia's sales cause concern, however, because of the sophistication of 

the weaponry involved and the nature of many of the customers. Moscow has shown a willingness to 

sell some of its most advanced weapon systems currently in mass production. Rosvooruzhenie has sold--

or is in the process of negotiating contracts for the sale of--such weapons systems as:

* Su-27 air-superiority fighters

* Su-30 multi-purpose fighters

* MiG-29SMT fighter-bombers
* MiG-31 interceptors

* Mi-17/171 transport helicopters

* Vympel R-77/RVV-AE medium range air-to-air missiles

* Igla-1 man-portable surface-to-air missile launchers

* 3M82 Moskit surface-to-surface anti-ship missiles (designed solely to counter the U.S. 

Navy's AEGIS system)

* Kh-35 Uran surface-to-surface anti-ship missiles

* T-90 main-battle tanks

In addition, Russia is exporting a multitude of other weapon systems, ranging from diesel attack 

submarines to infantry-borne assault weapons. A number of these weapons are specifically designed to 

destroy U.S. systems. In other instances--such as sales to both North and South Korea, and to both India 

and the People's Republic of China--Russian exports effectively escalate ongoing arms races and are 

destabilizing. Sales to Latin America (including sales of advanced aircraft to rival governments with 

disputed borders) have similar effects.

9-6

9-7

AIR EXPORTS: Russia sold 50 Su-27 air-superiority fighter jets (left), 60 more advanced Su-30 MKK 

jets (right), and the technology to produce unlimited quantities of both, to the People's Republic of 

China.
But it is the willingness of Russian officials to export advanced weapons to such "countries of concern" 

as Iran, Iraq, Libya, North Korea, and Syria that is most troubling.72 (The Clinton administration's

recent decision to substitute the euphemism "countries of concern" for the accepted term "rogue states" 

is itself a telling example of a penchant for elevating rhetoric over substance.) During the Cold War, 

these nations were aligned with the Soviet Union, and large parts of their military arsenals are of Soviet 

origin. The 1992 decision by the Yeltsin administration to pursue a relationship with the United States 

signaled a re-orientation of Russia away from such rogue states. Within the last three years, however, 

these nations have all made significant purchases from Rosvooruzhenie.

Libya and Rosvooruzhenie are currently in negotiations to upgrade, modernize, and maintain the Soviet 

technology that comprises the backbone of Libya's armed forces.73 Interfax reports that Russia is also 

planning to sell several MiG-31s to Libya.74

Syria recently received a delivery of Su-27 fighters and T-90 main battle tanks, and is being re-armed 

with Kornet-E and Metis-M man-portable, anti-tank missile systems. Syria is also negotiating the 

purchase of the S-300 anti-aircraft missile system.75

Iran recently took delivery of an order of Russian Mi-171 naval transport helicopters.76 Russia also 

recently granted Iran a license to mass-produce the 9M113 Konkurs anti-tank missile.77 In 1997 Russia 

shipped its third Kilo-class diesel attack submarine to Iran, completing the contract for the sale of such 

submarines that had been negotiated in the early 1990s.78

According to press reports earlier this year, Russia violated the U.N. arms embargo by arranging a $90 

million contract between Belarus and Iraq. Under the agreement, Belarus will upgrade Iraqi SA-3 

surface-to-air missiles, enhancing their range from 18 to 25 kilometers--thus enabling Iraq to target 

American and British aircraft enforcing the no-fly zone. In addition, Belarus will overhaul Iraqi antiaircraft guns, train Iraqi air-defense crews, and perform heavy maintenance on Iraqi military aircraft. 

The Russian government reportedly decided to arrange future arms deals with Iraq through such 

intermediaries after international criticism of a secret $150 million contract which became public.79

9-5

KILO-CLASS: Russia has sold Kilo-class attack submarines (above) to India, Iran, and the People's 

Republic of China.
The Failure of the Clinton-Gore Proliferation Policy

With Yeltsin's departure, Russia's official position on proliferation has taken a turn for the worse. The 

Russian media reported on May 11, 2000, that Vladimir Putin had amended Yeltsin's 1992 presidential 

decree limiting Russia's nuclear assistance to other countries. Putin's amendments allow sales of nuclear 

technologies and materials to countries whose nuclear programs are not fully monitored by the 

International Atomic Energy Agency, including Iran and North Korea.80 While the new policy is 

nominally limited to "exceptional cases," one Russian Atomic Energy Ministry spokesman noted that it 

will "considerably expand" the scope of Russian export of nuclear technologies and materials.81

Concurrently, Rosvooruzhenie announced in June 2000 its intention to boost arms exports to between 

$10 billion and $12 billion over the next several years. In conjunction with that announcement, the 

Russian government declared that Russia would become the second largest exporter of munitions in the 

world.82

The growing Russian proliferation of advanced weaponry and technology, especially weapons of mass 

destruction, has created significant new risks for U.S. national security.

In spite of evidence that both Russian government agencies and private entities were directly involved in 

proliferation to such states as Iran and Iraq, the Clinton administration continued to rely on personal 

assurances from its small cadre of contacts in the Russian government that it was not "official Russian 

policy" to do so.83 Administration officials--including Vice President Gore and Deputy Secretary of 

State Talbott--accepted these assurances despite clear evidence of continued proliferation, rather than 

believe, or admit, that proliferation could continue despite the stated opposition of their "partners."

More basically, the failure of the Clinton administration's economic strategy for Russia undermined its 

muted efforts to stem proliferation, both by preventing the redeployment of the military-industrial 

complex's assets to other uses and by creating strong incentives for those with access to such assets--

ranging from individual soldiers and scientists to ministries and the central government itself--to sell 

them. Russian economic distress provided every incentive for scientists used to a privileged existence in 

Soviet times to auction their expertise; for organized crime to cash in on Russia's most valuable illicit 

export opportunities; and for Russian officials to sell almost anything they could, either for their own 

personal gain or to assist the entities they managed.84

Finally, the increasingly anti-American perspective adopted by the Russian government over the course 

of the Clinton administration has promoted a wide range of proliferation activities.

Many of the most dramatic and important cases of proliferation, such as the provision of nuclear and 

missile technology to Iran, are the result of all three of these factors--economics, policy, and the absence 
of effective countervailing pressure from the Clinton administration.

Narrowly targeted Clinton administration anti-proliferation initiatives have been mere candles in the 

winds of Russia's economic storm. The Clinton policy has been utterly ineffective in overcoming the 

powerful incentives for Russian proliferation that were created by Russia's economic collapse and by the 

Russian government's increasingly hostile outlook toward America. The free ride offered by the Clinton 

administration--an arrangement in which aid was guaranteed, intelligence was ignored, and sanctions 

were an idle threat--has led to a manifest failure to stem the rising tide of Russian proliferation.

CHAPTER 10

FROM FRIENDSHIP TO COLD 

PEACE: THE DECLINE OF U.

S.-RUSSIA RELATIONS 

DURING THE 1990s
10-1

PUTIN IN THE STALINIST CAPITAL: President Putin greets North 

Korea's dictator Kim Jong-Il at their July 20, 2000, summit in 

Pyongyang. This was the first time any Russian or Soviet leader 

travelled to the Stalinist state-not even Brezhnev went to North 

Korea. North Korea has recently threatened to "plunge the damned 

U.S. territory into a sea of flame," a threat more likely to materialize 

with outside support. In February 2000, Putin and Kim Jong-Il 

concluded a Russia-North Korea Treaty of Friendship, reviving ties 

scrapped by Yeltsin. Itar-TASS photo/Sergei Velichkin, Vladimir Rodionov

Russia will strive toward the stable development of relations 

with the United States, with a view toward 

strategic partnership and, in the future, toward alliance.

Foreign Policy Concept of the Russian Federation, January 25, 1993
Certain plans relating to establishing new, equitable and 

mutually 

advantageous partnership relations of Russia with the rest of the 

world, 

as was assumed in the [1993 Foreign Policy Concept] and in 

other 

documents, have not been justified.

Foreign Policy Concept of the Russian Federation, June 28, 2000

Russia's Enduring Significance

Although Russia is not a superpower with military and political ambitions on every continent as the 

Soviet Union was, U.S. relations with Russia remain of supreme national importance. Russia possesses 

by far the largest nuclear arsenal in the world,1 and a military-technological base second only to that of 

the United States. Russia possesses vast economic potential, with a large and well-educated population 

and a staggering array of natural resources, including more than a third of the world's natural gas 

reserves.2

As a permanent member of the U.N. Security Council, Russia retains a veto over the actions of an 

organization to which the Clinton administration's multilateralism has often assigned a pivotal role in 

international affairs. And Russia profoundly influences vast areas of Europe, the Middle East, and the 

Far East--all regions of vital interest to the United States.

Russia matters immensely to American interests on virtually every continent, and especially across the 

critical Eurasian landmass that has been the scene of both world wars. As the noted Russia scholar 

James Billington, the Librarian of Congress, has written, "[b]oth the greatest opportunity and the 

greatest danger for the United States internationally may well still lie in Russia."3 The success of U.S. 

policy toward Russia is accordingly of supreme importance to the American people and the world.4

A 'Lost' Russia?

Ever since the Clinton troika's Russia policy began to fail visibly in the mid-1990s, the administration 

has responded by emphasizing both the limitations of U.S. influence in Russia and the still uncertain 
outcome of Russia's transformation. Secretary of State Albright has made the administration's case 

succinctly: "The suggestion made by some that Russia is ours to lose is arrogant; the suggestion that 

Russia is lost is simply wrong."5

If Russia is not yet "lost," it is indisputably more unstable, more corrupt, more lawless, and vastly more 

hostile to the United States than it was when President Clinton and Vice President Gore took office. And 

though Russia is certainly not "ours to lose," the United States--particularly at the outset of this 

administration--possessed immense influence over a wide range of decisions and events there. President 

Clinton inherited an immense reservoir of goodwill and prestige in Russia, making America's 

imprimatur quite valuable for Russian politicians and policy makers. In addition, the Clinton 

administration possessed--and has not hesitated to use--immense financial leverage over the Russian 

government by virtue of the more than $20 billion in U.S. assistance it has provided, and the many 

billions of dollars more in international aid it has orchestrated.6

The aspects of Russia most subject to American influence, and for which the Clinton administration 

should therefore be held most strictly accountable, are the prestige within Russia of American values, 

and the state of the U.S.-Russian relationship.

2-4

DEFENSE COOPERATION: At their June 1992 summit, Presidents Bush and Yeltsin followed up on 

Yeltsin's January 1992 suggestion and agreed to work on a global missile defense system. In July 

1992, Itar-TASS published a joint U.S.-Russian statement, which called for "the working out of a legal 

basis for cooperation, including new treaties and agreements and possible changes in the existing 

agreements required for the implementation of the global antiballistic missile system." The talks went 

well, and weeks after Clinton's election, on Nov. 30, 1992, Itar-TASS reported that Russia was 

considering "the necessary changes in the ABM Treaty of 1972 to take account of the spread of 

ballistic missiles and weapons of mass destruction." Instead of following up on the proposal, the 

Clinton administration precipitously broke off the negotiations. It followed up with a February 1993 

budget that cut the Bush proposal for missile defense by 40%. AP Photo/Dennis Cook

Russian Perceptions of America Today
The current unfavorable state of U.S.-Russian relations accurately reflects the sea change in Russian 

perceptions of the United States that has occurred under the Clinton administration. This change in 

Russian perceptions of the United States--more than any particular development in the Russian 

government--is the most damaging legacy of the Clinton-Gore Russia policy.

Polling conducted by the State Department's Office of Research has charted a steep, steady decline in 

favorable opinion of the United States--from over 70% in 1993 to 65% in 1995 to 54% in 19997 to 37% 

in February 2000.8 During this period President Clinton himself has become second in unpopularity 

among Russians only to Saddam Hussein.9

James Billington, the Librarian of Congress, testified before the Advisory Group that for the first time, 

even ordinary Russians are now working up hostility toward the United States--a phenomenon decades 

of Soviet propaganda had been unable to achieve during the Cold War.10

These trends are longstanding, and are steadily worsening. Whereas in April 1995, some 61% of 

Russians believed that the United States sought world domination (versus 24% who disagreed), by 

February 2000 a staggering 85% believed it (compared to just 6% who did not).11 The number of 

Russians who agreed that the U.S. was using Russia's current weakness to reduce it to a second-rate 

power and producer of raw materials climbed from 59% in August 1995 to 71% in April 1997 to 81% in 

February 2000.12

When the State Department polled the 75% of Russians who say they follow international affairs to 

some degree, more than twice as many expressed an unfavorable view of U.S. foreign policy as 

expressed a favorable view (46% vs. 19%).13

In Russian eyes, America's relations with Russia have also declined relative to many other countries. 

When Russians who follow international affairs were asked to evaluate Russia's relations with other 

countries as "friendly" or "difficult," 9% judged relations with the People's Republic of China difficult, 

and 52% judged them friendly. Some 16% judged relations with Germany difficult, versus 41% friendly; 

18% judged relations with Japan difficult, versus 39% friendly. But Russians judged relations with the 

United States to be difficult, rather than friendly, by more than two-to-one. Of the nations surveyed, only 

Estonia fared worse than the United States, and Estonia's relations with Russia are currently in a wellpublicized crisis.14

Perhaps most troubling, young people--the 18-35 generation least touched by Soviet-era thinking and the 

most open to westernization--now largely share the average Russian's unfavorable perception of 

America: in an April 1999 poll, 67% of this age cohort had a negative view of the United States, versus 

18% who had a positive view.15

The extraordinarily favorable view of the United States that most Russians held in 1993 has given way 

to a pervasive, largely spontaneous hostility and suspicion.16 That this should occur during a period of 

profound peace between the two countries was, at the outset of the Clinton and Yeltsin administrations, 
neither inevitable nor even imaginable.

The sources of this collapse in American prestige have been much debated. Some have attributed it to 

NATO enlargement and American efforts to build ballistic missile defense, despite consistent polling 

evidence that these issues are largely irrelevant to the vast majority of Russians. Others have attributed it 

to the NATO intervention in Kosovo, an event with much greater resonance for ordinary Russians; but 

in fact the polling data show that much of the collapse in support for America occurred before Kosovo.

The explanation most strongly supported by polling data and other evidence is that Russian public 

opinion was and is overwhelmingly focused on the social and economic situation in Russia, and that the 

Clinton administration's embrace of unsuccessful domestic "reforms" and "reformers" disastrously 

tarnished the image of the United States. As Paula Dobriansky of the Council on Foreign Relations 

recently wrote:

A careful examination of the evolution of U.S.-Russian relations demonstrates that a longterm negative trend has been underway for years and that the Kosovo conflict, far from 

being its sole or even major cause, has merely helped to highlight much more 

fundamental, long-term problems. ... [M]ore than any other traditional internationalrelated factor, it is the dismal failure of Russia's economic and political reforms, as 

perceived by the Russian people, that has been responsible for the palpable worsening of 

U.S.-Russian relations.17

The collapse in American prestige among virtually every segment of Russian society is striking evidence 

of the bankruptcy of the Clinton administration's Russia policy. It represents a disaster of immeasurable 

significance for American foreign policy and for the future of America itself. It will render far more 

difficult every aspect of U.S. policy toward Russia, including the creation of a more broadly-based 

relationship extending beyond the narrow set of official interlocutors favored by the Clinton 

administration.

When the United States again seeks to engage a broader cross-section of Russian government and 

society--an enterprise endorsed by the vast majority of observers--the diffusion of suspicion and dislike 

for America that the Clinton policies over the past eight years have engendered will vastly complicate 

those efforts.

The 'Moscow Consensus'

The highly negative perceptions of the United States among ordinary Russians are consistent with the 

climate of elite opinion in Russia. Just as the Clinton administration's economic thinking about Russia 

coalesced early on into the so-called "Washington Consensus," so too Russian strategic and foreign 

policy thinking about the United States has coalesced into a "Moscow Consensus"--a point of view that 
largely unites not only Russia's foreign policy and defense establishments, but also Russia's entire 

political elite. It is a set of perceptions that commands solid assent from nearly every sector and level of 

Russian society.

This "Moscow Consensus" was visible in the Advisory Group's meetings with Russian executive branch 

officials and Duma Deputies in Washington and Moscow, in polling of the Russian elite, in general 

public opinion polling, and in Russian official and scholarly commentary on international affairs and the 

West.18 As Peter Rodman testified on July 16, 1998, (before the further downturn in U.S.-Russian 

relations occasioned by U.S. bombing against Iraq and Serbia, and renewed fighting in Chechnya):

It is not just a question of personalities. It is hard to detect significant differences of 

perception between [then-Foreign Minister Yevgeny] Primakov and President Boris 

Yeltsin--or, indeed, among members of the Russian foreign policy elite. ... The guiding 

principle of Russian foreign policy today is to preserve Russia's independence and 

freedom of action--meaning, in practice, its independence from us. In a "unipolar" world 

celebrated by some Americans, Russia sees its prime goal as restoring some 

"multipolarity" to the international system--that is, to build counterweights against 

American dominance.19

The Moscow Consensus represents the mainstream acceptance of the policy views of Russia's military, 

security, and foreign policy establishments, whose highest reaches possess a largely unreconstructed 

Soviet-era view of the United States.20 To give only a few examples illustrating this Russian thinking:

* On October 1, 1999, the respected, centrist military analyst Lev Volkov gave the 

following analysis of American intentions:

[J]ust slightly more than one-tenth of the developed countries use almost 

80% of the world's resources. ... Consequently, in the 21st Century, the 

fiercest of battles will take place for the possession of the resources the 

developed countries so desperately need. Besides this, up to 30% of the 

world's natural resources are concentrated in our country. Therefore, the U.

S. and the West need a weak, fragmented Russia as a source of inexpensive 

raw materials. In this way, we have something to defend and it is clear from 

whom.21

* Alexei Arbatov, Deputy Chairman of the Duma's Defense Committee and a respected, 

well-informed liberal, described the START II debate on May 9, 2000:

START II was ratified in Russia by the Russian Parliament not because 

Russians think that the threat is lower, not because Russians think that 

nuclear weapons are less relevant, nor because the Russian Parliament and 

public think that the United States will be a partner for cooperation and 
security. START II was primarily ratified because the Russian public and 

political elite think that the nuclear threat is great, that the United States is 

keen on achieving superiority, and that nuclear weapons are still as relevant 

as ever for Russian security and U.S.-Russian relations. ... The fear of 

American nuclear superiority and the fear of the United States [were] the 

principal motive for many Members of Parliament to vote for START II.22

* A further window into Russian perceptions of American policy is offered by the 

extraordinary episode of January 25, 1995. At a time of significantly lower tensions in U.

S.-Russian relations, the Russian government nonetheless suspected that a scientific 

satellite launch in Norway could be a missile carrying an electromagnetic pulse warhead--

a weapon designed to disable a nation's military command and control, rendering the 

country susceptible to a follow-on nuclear first strike.

As a result, the government in Moscow "for the first time in Russian history triggered a 

strategic alert of their LOW forces, an emergency nuclear decision conference involving 

[President Yeltsin] and other national command authorities, and the activation of their 

famous nuclear suitcases."23 The entire incident was a misreading of the Clinton 

administration's intentions so staggering as to suggest the need for a basic reassessment of 

the Russian official view of the United States.24

Despite extraordinary budget constraints and economic hardship, the Russian government 

has devoted immense resources to the construction of massive underground headquarters 

facilities designed to wage and survive nuclear war at such sites as Yamantau and 

Kozvinsky Mountains in the Urals. Construction of the Yamantau Mountain facility, 

initiated by the Soviet Union during the depths of the Cold War, was accelerated by the 

Russian Federation during the 1990s so that, by 1998, it reportedly involved some 20,000 

workers. The underground facilities under construction cover a territory as large as the 

entire Washington, D.C. area inside the Beltway.

In April 1997 it was publicly reported that the CIA attributed the decision to build and 

restore these sites, and four others in the Moscow area, to Prime Minister Viktor 

Chernomyrdin. One of the Moscow projects reportedly involved a subway line to 

President Yeltsin's dacha 13 miles outside the city25--suggesting that the projects enjoyed 

the support not just of the defense establishment but of the civilian leadership as well. The 

fact that the Russian civilian and military leadership feels that these facilities are a 

worthwhile use of scarce resources shows a concern over the possibility of war with 

America that is extraordinarily troubling.26

* During the crisis in U.S.-Iraqi relations in 1998, on the same day that President Yeltsin 

warned that U.S. missile strikes on Iraq could cause a third world war, the Russian 

Embassy demarched the U.S. government to demand a guarantee that the United States 
would not use nuclear weapons against Iraq. As Chairman Curt Weldon has written, "the 

Russian assumption that the United States was prepared to act so precipitously with 

nuclear weapons betrays a paranoia or ignorance of the character of the United States that 

is alarming in the Russian nuclear superpower that is supposed to be our strategic 

partner."27

* In October 1995 the Russian semi-official Institute of Defense Studies (INOBIS) 

provided the following assessment of U.S. policy:

On the whole, it appears the principal mission of U.S. and Western policy 

with respect to Russia is to keep it from turning into an economically, 

politically, and militarily influential force and to transform post-Soviet 

space into an economic and political appendage and raw materials colony of 

the West. Because of this, it is the United States and its allies that are the 

sources of main external threats to Russia's national security, and they 

should be considered the principal potential enemies of the Russian 

Federation. ... The line of the United States and its allies toward intervening 

in Russia's internal affairs to impose on it paths of development in a 

direction favorable to the West represents the greatest danger.28

The evolution of Russia's official views of the United States is traceable in the successive iterations of 

the state papers defining Russia's foreign policy and defense doctrines. The decline in U.S.-Russian 

relations is clearly visible when the 1993 and 2000 versions of the Foreign Policy Concept of the 

Russian Federation are compared. In the January 25, 1993, version of the Concept, the relationship 

between Russia and the United States is discussed at length. Although qualified by expressions of 

concern over various aspects of U.S. policy,29 the 1993 Foreign Policy Concept states unequivocally 

that:

[R]elying on the existing agreements in the military-political and financial-economic 

spheres, Russia will strive toward the stable development of relations with the United 

States, with a view toward strategic partnership and, in the future, toward alliance. ... In 

the sphere of security, the main trait of the new partnership is the transition to cooperation 

at the level of military planning and military construction.30

Concerning U.S.-Russia relations, the 1993 Foreign Policy Concept of the Russian Federation stated 

that:

For the foreseeable future, relations with the United States will retain a prominent place 

on the scale of Russia's foreign policy priorities, corresponding to the position and weight 

of the United States in world affairs. The development of full-fledged relations with the 

United States is capable of facilitating the creation of a favorable foreign environment for 

the implementation of domestic economic reforms in Russia.31
Eight years later, not a trace of this tone or policy remains. The revised Foreign Policy Concept of the 

Russian Federation, approved by President Vladimir Putin on June 28, 2000, unmistakably repudiates 

the very idea of "partnership" implicit in the 1993 version--and the rhetoric of the Clinton administration.

Along with certain strengthening of the international positions of the Russian Federation, 

negative tendencies are in evidence as well. Certain plans relating to establishing new, 

equitable and mutually advantageous partnership relations of Russia with the rest of the 

world, as was assumed in the [1993 Foreign Policy Concept] and in other documents, 

have not been justified.32

The new Foreign Policy Concept of the Russian Federation reflects a completely different view of 

American power, listing first among "new challenges and threats to the national interests of Russia":

... a growing trend towards the establishment of a unipolar structure of the world with the 

economic and power domination of the United States. ... The strategy of unilateral actions 

can destabilize the international situation, provoke tensions and the arms race, [and] 

aggravate international contradictions, national and religious strife. ... Russia shall seek to 

achieve a multi-polar system of international relations. ...33

Interspersed between lengthy and comparatively favorable assessments of European34 and Asian35

relations are two cold paragraphs on a Russian-American "strategic partnership" that has been reduced to 

mere "necessary interaction":

The Russian Federation is prepared to overcome considerable latter-day difficulties in 

relations with the U.S., and to preserve the infrastructure of Russian-American 

cooperation, which has been created over almost 10 years. Despite the presence of serious, 

and in a number of cases fundamental, differences, Russian-American interaction is the 

necessary condition for the amelioration of the international situation and achievement of 

global strategic stability.

Above all, this concerns problems of disarmament, arms control, and non-proliferation of 

weapons of mass destruction, as well as prevention and settlement of the more dangerous 

regional conflicts. It is only through an active dialogue with the U.S. that the issues of 

limitation and reduction of strategic nuclear weapons may be resolved. It is in our mutual 

interest to maintain regular bilateral contacts at all levels, not allowing pauses in relations 

and setback in the negotiating processes on the main political, military, and economic 

matters.36

In the revised version, relations with the United States are reduced to the Cold War agenda of security 

issues and negotiations--an agenda on which other portions of the document lay out positions largely at 

odds with the United States, apparently presaging a reprise of Cold War deadlocks. Likewise 

disconcerting is the fact that this passage appears to be aimed at least equally at persuading a dubious 
domestic audience of the need for "regular bilateral contact at all levels"--a staggering state of affairs for 

a relationship that the Clinton administration built entirely around the personal contacts between Vice 

President Gore, Strobe Talbott, Lawrence Summers, and their handful of Russian counterparts.

A similar decline is apparent in comparing Russia's December 1997 Russian Federation National 

Security Blueprint with its recently revised version.37 The 1997 document, although approved by 

Yeltsin after years of development over a period of sharply increased tension with the United States, 

included relatively little that is specific to the United States. Its survey of "Threats to the National 

Security of the Russian Federation" was dominated by internal factors, and the discussion of NATO 

enlargement (described as creating "the threat of a split in the continent that would be extremely 

dangerous") was relatively restrained. It concluded that:

the main [threats] right now and in the foreseeable future do not have a military 

orientation and are of a predominantly internal nature. ... The development of qualitatively 

new relations with the world's leading states and the virtual absence of the threat of largescale aggression against Russia while its nuclear deterrent potential is preserved make it 

possible to redistribute the resources of the state and society to resolve acute domestic 

problems on a priority basis.38

In foreign policy, it promoted "constructive partnership with the United States, the EU, China, Japan, 

India, and other states."39

The revised Russian Federation National Security Concept approved by the Russian National Security 

Council on October 5, 1999, by contrast, opens with a stark dichotomy between "mutually exclusive 

tendencies toward forming a multipolar world and toward establishing the domination of one country or 

group of countries in world affairs"--specifically "the domination of developed Western countries in the 

international community (with U.S. leadership) calculated for unilateral (including military-force) 

solutions to key problems of world politics in circumvention of fundamental rules of international law."
10-3

STATESMAN-LIKE ADVICE: Former Secretary of State Henry Kissinger testifies in support of NATO 

enlargement before the Senate Foreign Relations Committee Oct. 30, 1997. Secretary Kissinger 

strongly opposed both the Clinton administration's "Founding Act" and its "Partnership for Peace" 

program as undermining the Atlantic Alliance, and testified that the Clinton administration "has 

embraced the proposition rejected by all its predecessors over the last 40 years--that NATO is a 

potential threat to Russia." He dismissed the argument that the Founding Act was non-binding as one 

that "may carry weight in law schools [but is] irrelevant to the diplomacy that will result from an 

instrument signed by 17 heads of state and ratified by the Russian Duma." AP Photo/W. Douglas 

Graham/Congressional Quarterly

The 1999 National Security Concept rejected the earlier view that Russia faced no external military 

threat, instead stating that the totality of external threats "can present a threat to Russia's sovereignty and 

territorial integrity, including the possibility of direct military aggression against Russia." Of the eight 

external threats enumerated, three are clearly related to U.S. policy and another two may refer to it 

indirectly.40 Senior Russian officers also made it unambiguous that the source of the "external threat" 

was the United States and NATO.41

The decline in U.S.-Russia relations that these doctrines memorialize did not occur overnight, and no 

single factor or event transformed Russia's relationship with the United States. Rather, a whole series of 

policy mistakes, often but not exclusively made in Washington, produced the current crisis in U.S. 

relations with Russia.
Mishandling NATO Enlargement

Some observers attribute part of the decline in U.S.-Russian relations and the concurrent Sino-Russian 

rapprochement to the enlargement of NATO, and from this premise draw the conclusion that NATO 

enlargement was a mistake. Little evidence supports either the premise or the conclusion. NATO 

enlargement is not a highly salient issue for the Russian general public.42 Russian elite and official 

opinion, though hostile to NATO enlargement, has consistently attached greater importance to other 

foreign policy issues and, most particularly, to domestic economic and social issues. The flaw in the 

Clinton administration's NATO policy, and the principal source of damage to U.S.-Russian relations 

attributable to NATO enlargement, was the administration's protracted obstruction of NATO 

enlargement.

Initial Clinton administration opposition to NATO enlargement was followed by a belated embrace of a 

phased enlargement, to be drawn out over more than a decade. This approach completely missed the 

early window of opportunity to comprehensively enlarge NATO without serious or lasting damage to U.

S.-Russian relations. As late as the August 25, 1993, summit between President Yeltsin and Polish 

President Lech Walesa in Warsaw, the joint statement issued by the leaders expressed Russia's 

"understanding" of Poland's desire to accede to NATO. Indeed, Yeltsin subsequently was publicly and 

privately criticized for this in Russia, and as a result later suggested joint NATO-Russian security 

guarantees for the Central European states.43

The solution to the political problem caused within Russia by NATO enlargement was to localize it in 

time, rather than protracting Russia's discomfiture over more than a decade or buying off Russia with 

implicit promises of power-sharing that NATO ultimately had no intention of honoring. But key figures 

in the Clinton administration were ambivalent towards NATO itself, much less NATO enlargement.

This was especially true of one of the Clinton troika, Strobe Talbott. Even before the end of the Soviet 

Union, in 1990, Talbott wrote that "[i]t ... is time to think seriously about eventually retiring the North 

Atlantic Treaty Organization, with honor, to be sure, but without too much nostalgia. ... NATO is at best 

a stopgap until something more up-to-date and effective can be devised to take its place."44

Not surprisingly, given such deep-seeded doubts, the Clinton administration moved with excruciating 

slowness--only proposing the generic concept of NATO enlargement after Clinton had been in office for 

a full year. At the January 1994 NATO summit, the Clinton administration proposed the NATO halfwayhouse Partnership for Peace program (largely to paper over a lack of consensus on the pace and scope of 

NATO enlargement itself).45 After a further 12-month delay, at a December 1994 ministerial meeting, 

they proposed criteria for NATO admission (but not actual candidates).

Criteria for admission were not formalized until September 20, 1995. The proposed admission of new 

members by 1999 did not occur until October 22, 1996; naming the Czech Republic, Hungary, and 

Poland as the American candidates for admission took until June 12, 1997 (the nominations were ratified 

at NATO's Madrid summit on July 8, 1997). The formal admission of the three states to NATO did not 
take place until March 12, 1999--nearly a decade after the fall of the Berlin Wall.

The grandiose NATO 50th anniversary summit in Washington on April 23-25, 1999, brought no 

substantive progress towards further enlarging the alliance, or even better articulating the process and 

criteria for membership. On June 30, 1999, Defense Secretary William Cohen stated that while NATO's 

"door is open," it was "at the top of a steep stairwell."46 The Clinton administration's mantra for NATO 

enlargement--that it would be "gradual, deliberate, and transparent"--has translated into a process that 

promises to extend well into the 21st century.

Throughout the process, the Clinton administration also repeatedly diluted the effectiveness of NATO's 

security guarantee to new member-states and distorted the fundamental structure of the alliance itself in 

an attempt to appease the Russian opposition exacerbated by its own delays. Despite lip service to the 

proposition that "[a]ll members, regardless of size, strength or location, should be full members of the 

Alliance, with equal rights and obligations,"47 on December 10, 1996, NATO formally announced that 

it had "no intention, no plan, and no reason to deploy nuclear weapons on the territory of new 

members. ..."

On September 6, 1996, Secretary of State Warren Christopher endorsed a French proposal to create a 

joint NATO-Russian "charter." On May 27, 1997, Russia and NATO, with the Clinton administration's 

strong encouragement, agreed to the "Founding Act"--a much different document creating a NATORussia Permanent Joint Council, and codifying the December 1996 nuclear non-deployment pledge. The 

Founding Act also added a further pledge that "in the current and foreseeable security environment," 

NATO would not station "substantial combat forces" on the territory of new member-states.48

The Founding Act is a particularly egregious example of the disingenuousness of the Clinton 

administration's approach to foreign policy in general, and Russia policy in particular. After having 

heightened the difficulty of NATO enlargement by protracting the process through the entirety of 

Clinton's and Yeltsin's first terms, and with no end to the process in sight, the administration was bent on 

solving the problems its delays had created by securing Russian assent to the first round of NATO 

enlargement. Its method of squaring this circle was the Founding Act, a nebulous document designed to 

mean different things to Russian, Central European, and NATO audiences.

The Founding Act was signed in May 1997 by seventeen heads of state in a blaze of trademark Clinton 

showmanship in the Salle des Fêtes of the Elyseé Palace. At root, the Founding Act was an attempt to 

paper over profound substantive differences, including over such issues as Bosnia and the expanding 

crisis in the Balkans. Instead of hammering out substantive agreements, the Clinton administration 

created an open-ended negotiating process.

The ambiguity of the Act led President Yeltsin to claim plausibly that it gave Russia a virtual veto over 

NATO operations, saying that "[s]hould Russia be against any decision, the decision will not pass."49

Administration spokesmen from the president down claimed that it gave Russia "a voice, not a veto" in 

NATO decision-making and a veto only over joint NATO-Russian actions.50 As Dimitri Simes has 
argued:

[I]nterpretations of the agreement in Washington and Moscow were clearly vastly 

different--and each interpretation was bound to cause serious problems. If the Russian 

interpretation had been followed, Moscow would have gained a de facto veto over NATO 

actions. Conversely, if the Clinton administration's interpretation was followed--as 

happened--it was almost inevitable that Russia would feel misled by false promises of a 

genuine role in NATO deliberations.51

The Clinton administration continued its delaying tactics at the 1998 Madrid summit. It vetoed a French 

proposal to admit Romania, and an Italian proposal to admit Slovenia, despite the support of most 

NATO allies for a broader enlargement. The administration's unwillingness to go forward was 

apparently motivated at least in part by fear that admitting Romania and Slovenia in the first round 

would increase pressure for admission of the Baltic states in the second round.

Predictably, neither the delaying tactics of the Clinton administration nor the Founding Act appeased 

Russia. By late 1996, a resolution opposing NATO enlargement had already passed the Duma by a vote 

of 307-0. The subsequent studied ambiguity of the Founding Act led to a fundamental breach between 

NATO and Russia within less than two years, as NATO decided to intervene in Kosovo. Russian 

expectations of decisional partnership (which the Clinton administration had dishonestly encouraged in 

order to finesse its way through the 1997 enlargement round) were abruptly dashed in the 1999 dispute 

over Kosovo. Russian disillusionment with the United States was far deeper than if no such ambiguous 

promises had ever been tendered in the first place.

It is unclear what strategy the Clinton administration may now develop to reconcile Russia to subsequent 

rounds of enlargement, which administration spokesmen describe as "inevitable."

Amputation One Inch at a Time

Protracting NATO enlargement over the course of more than a decade in a perversely counterproductive 

effort to assuage Russian official opinion has been justly compared to amputating a limb one inch at a 

time, with the goal of diminishing the patient's suffering. As a result of this temporizing, NATO 

enlargement became an issue in the 1996 Russian presidential race, and will be a continuing irritant in U.

S.-Russian relations as each cycle of enlargement occurs.

The fundamental flaw in the Clinton administration's approach was the assumption that the issue was 

critical to U.S.-Russian relations and, still more, to the fate of Russia's internal reforms. As former 

Under Secretary of State Robert Zoellick testified in April 1995:

I am skeptical that the fate of Russia's reform depends on whether NATO expands. ... In 
addition, given the great uncertainties about Russia's political future, it would be a mistake 

to try to fine tune our policies to suit the twists and turns of Russia's internal debates. It 

certainly should not be surprising that Yeltsin, Kozyrev and others have toughened their 

rhetoric about NATO expansion as the U.S. and others have signaled their uncertainty. ... 

[I]f we back down, the next time the hard-liners have a contest with moderate Russians, 

the hard-liners will be able to argue that sternness with the West pays off.52

NATO Enlargement Without Threatening Russia: What Could Have Been

From the earliest days after the end of the Soviet Union, Republican leaders in both houses of Congress 

made NATO enlargement a central foreign policy initiative. Over Clinton administration opposition and 

delays, legislation to promote NATO expansion was repeatedly advanced in Congress.53

These bills in their totality represent a sharp rebuke of the Clinton administration policy of lengthilyphased enlargement, unequal security treatment for new members, and inclusion of the Joint Council in 

alliance decision making. The Clinton administration vigorously opposed most of these legislative 

initiatives, although it was unable to prevent a number of them from becoming law.

Congress' approach, unlike the Clinton administration's, has been rooted in the understanding that 

NATO enlargement, like the creation of NATO in 1949, is fundamentally defensive in nature. It is a 

reaction to the fundamental imbalance of power between Russia and its neighbors, either individually or 

in combination--an age-old reality reflected in Romanov dominion over Poland, the Baltic nations, 

Finland, Belarus, and Ukraine in the 18th and 19th centuries, and Moscow's sway over the still vaster 

imperium of the Soviet Union and Warsaw Pact in the 20th century. This tragic history entitles these 

peoples to insurance against the possibility of renewed Russian domination.54

In addition, just as NATO proved essential to fostering democracy and the rule of law in Germany, Italy, 

Portugal, Spain, Greece, and Turkey, so too NATO membership will promote those values and the 

stability that flows from them in Central European countries struggling to revive or create free markets 

and democracy after decades of Communist autocracy.

And just as NATO membership helped abate the rivalry between France and Germany and contain 

disputes between Greece and Turkey, so too NATO membership will help diminish long-standing 

animosities between the nations of Central Europe. The mere prospect of NATO membership helped 

promote settlement of issues predating World War II between Germany and the Czech Republic, and led 

Hungary and Romania to resolve centuries-old territorial disputes. These goals--of independence, 

democracy, stability, and reconciliation in Central Europe--are as much in Russia's interest as they are in 

America's.

Moreover, the achievement of these goals through NATO enlargement involves no objective threat to 
Russia itself55--particularly in light of the Clinton administration's avowal that it has no intention of prepositioning nuclear weapons, NATO forces, or military infrastructure in the new members. The 

indigenous military capabilities of the Central European new and candidate members, either singly or in 

combination, present no objective threat to Russia.56

The Failure of Economic 'Reform' and the Decline of U.S.-Russian Relations

The fundamental cause of worsening U.S.-Russian relations in the early years of the Clinton 

administration was the tectonic shift in Russian domestic politics in this period, and the close association 

of the United States with individuals and policies that were discredited by it.

Russian faith in democracy, free enterprise, and "reform" suffered hammer blows in the years from 1993 

to 1996. This period withstood the shattering confrontation between Yeltsin and the legislature in 

October 1993; the electoral success of nationalist extremists like Zhirinovsky in the December 1993 

elections to the Duma; the bloody and disastrous first Chechen war beginning in December 1994; the 

"loans-for-shares" privatization fiasco in 1995-96, which ordinary Russians perceived as a witches' 

sabbath of corruption and theft orchestrated by Washington; the 1995 Duma elections, which returned an 

entrenched Communist-led bloc bent on thwarting reform; and the 1996 flood of IMF money into the 

hands of Russia's unpopular semibankirshchina--the so-called "Rule of the Seven Bankers" whom 

oligarch Boris Berezovsky had said owned half of Russia.57

Because the United States was inextricably associated with both the "reformers" and their "reforms," 

these events cumulatively had a disastrous effect on the public and elite perception of the United States. 

The result was a climate of opinion in which both Communists and "reformers" profited from attacking 

the United States, from making common cause with the Communist government of the People's 

Republic of China, and from embracing American opponents such as Iran and Iraq. For many Russian 

ideologues, these attacks were a matter of conviction; for many embattled "reformers" from Yeltsin on 

down, they became a comparatively inexpensive expedient to appease critical public opinion without 

tampering with more important domestic priorities--such as the "loans-for-shares" insider privatization 

program.58

At critical junctures such as the October 1993 confrontation with parliament, and the run-up to the 1996 

presidential election (when Yeltsin reportedly contemplated canceling balloting to prevent his potential 

defeat) Yeltsin became far more dependent on the military and security services. He was consequently 

far more susceptible to their policy agenda of opposition to the United States--particularly since he was 

unable to satisfy their highest priority, increased funding. Just as he did in his relations with the Duma, 

Yeltsin was able to use anti-American foreign policy stances as a relatively inexpensive sop to the 

"power ministries"--defense, interior, the security services, and atomic energy.

As internal Russian economic, political, and social developments accelerated Moscow's turn away from 
Washington and toward U.S. rivals, the Clinton administration clung even more desperately to its habit 

of dealing exclusively with the handful of Russian executive branch officials, such as Yeltsin, 

Chernomyrdin, and Deputy Prime Minister Anatoly Chubais, who would assure them personally that 

everything was going smoothly. This had the effect of inextricably associating the United States and 

American values with politicians who were rapidly becoming among the most unpopular figures in 

Russia--further worsening America's precipitous fall from favor among both Russian elites and the 

Russian public.

Similarly, the Clinton administration continued to link itself with successive flawed reform plans that it 

produced in collaboration with its circle of Russian partners. When both the "reformers" and their 

"reforms" became discredited and unpopular, it was predictable that their foreign patron, the United 

States, would become discredited and unpopular as well.

Kosovo

Operation Allied Force, the 1999 air campaign triggered by the Milosevic government's repugnant 

campaign of ethnic cleansing in Kosovo, powerfully reinforced the negative view of the United States 

held by Russian public opinion at every level.59 The initially one-sided press coverage of the 89-day 

NATO air campaign against Serbia quickly deepened animus towards the West.60 A poll released April 

1, 1999, reflected 92% Russian public disapproval of the NATO airstrikes;61 in another poll, 65% 

believed that NATO was the aggressor.62 Indeed, President Yeltsin's own strident reactions may have 

been colored in part by the need to court inflamed public opinion: the main proponents of the thenpending impeachment proceedings against him in the Duma were nationalists vehemently opposed to 

NATO's actions.63

The Russian government was infuriated by the betrayal of its reading of the NATO-Russian Founding 

Act. The Clinton administration's willingness to conclude this fundamentally ambiguous agreement in 

1997 was thus proved early on to have been a costly error. Moscow was not only upset by the process of 

taking NATO action without Russia's consent. The Russian government also feared that the policy of 

NATO military action for reasons other than responding to an attack on NATO, and without U.N. 

sponsorship, might be a precedent for future NATO action in Chechnya.

This, too, was an example of the high cost of the Clinton administration's disingenuous statements. 

Russia took the Clinton administration's sweeping human rights rhetoric more seriously than did the 

administration itself, which had largely ignored Russian atrocities in Chechnya in 1994-96, and would 

make no effectual protests later in 1999, when Russian troops began their brutal second assault.

Moscow took drastic steps to underline its displeasure. In March 1999, because of impending NATO 

airstrikes in Yugoslavia, then-Prime Minister Primakov abruptly canceled his visit to the United States, 

literally turning his airplane around in mid-air en route to a scheduled meeting of the Gore-Primakov 
Commission. President Yeltsin subsequently suspended Russian participation in a broad range of 

cooperative efforts underway with NATO and NATO member countries, citing "deep outrage" about 

NATO's bombing campaign.64 Russia also withdrew control from NATO over its Bosnia peacekeepers, 

and placed them under the command of the Russian General Staff.

In April 1999, Duma Speaker Gennady Seleznyov told the press that President Yeltsin had ordered 

Russian missiles re-targeted on NATO Europe, rescinding the de-targeting pledge he had made with 

great fanfare at the 1997 Paris summit at which the Founding Act was signed. Although Moscow 

subsequently denied the reports, Yeltsin himself warned that Russia could not allow NATO ground 

forces to invade Serbia, and said that "I told NATO and the Americans and Germans: do not push us into 

military action, or there will definitely be a European and possibly a world war."65

When at the height of the crisis Yeltsin named Viktor Chernomyrdin to help mediate the U.S.-Russia 

dispute, Vice President Gore's close personal relationship with his favorite interlocutor proved less than 

helpful. Chernomyrdin wrote in the Washington Post that the NATO operations in Kosovo had "set back 

[U.S.-Russia relations] by several decades," and compared the air campaign against Milosevic to the 

Soviet Union's crushing of the Prague Spring. He concluded by stating that "[t]he world has never in this 

decade been so close as now to the brink of nuclear war."66

Nor were these verbal broadsides a smokescreen to allow Chernomyrdin to adopt a more cooperative 

policy than Primakov's, as Clinton and Gore had initially hoped. Gore's friend Chernomyrdin was an 

obstructive ally of Milosevic until the final stage of the negotiations, actively colluding with Belgrade to 

such a degree that it became necessary to add an additional intermediary, Finnish President Maarti 

Ahtisaari, to the negotiations.67

The fundamental differences between the United States and Russia not only over the manner in which 

the Kosovo operation was handled, but over whether NATO should have intervened in Kosovo at all, 

made a significant cost to the U.S.-Russian relationship unavoidable. But the major factors that inflamed 

the situation were entirely avoidable. All that had preceded the Kosovo campaign guaranteed that the 

United States had no reservoir of goodwill among the Russian people.

As a result, the Russian public was willing to believe the worst about NATO and the American 

government. The spectacular failure of the Clinton troika policies made it politically advantageous for a 

wide range of Russian political figures--from Yeltsin to Lebed to Zyuganov--to attack NATO and the 

United States, and made it exceptionally risky for any Russian to defend them.

The result of eight years of the Clinton administration's "strategic partnership" with Russia, tens of 

billions of dollars in aid, and high-pressure courtship and flattery by senior U.S. officials from President 

Clinton and Vice President Gore on down, is that the United States is losing popularity contests with 

Slobodan Milosevic in Russia even today.
The Destabilizing Effects of the Clinton Troika Policy on Russia's Neighbors

Increasingly, throughout the tenure of the Clinton administration, Russia has worked to assert influence 

over a number of the former Soviet "Union Republics" in what Russia calls the "near abroad." These 

efforts have steadily intensified, and appear to have received a fresh impetus under the new Russian 

administration.

Although Russia's legitimate economic and security interests are implicated in its relations with its 

neighbors, Russian policies towards them have often suggested that Moscow is not looking for a 

relationship of sovereign equality, but is instead seeking to again exert its will over its weaker neighbors.

Russia's new Foreign Policy Concept states that relations with the former republics "should be 

structured ... to take into account in a due manner the interests of the Russian Federation, including in 

terms of guarantees of rights of Russian compatriots," tens of millions of whom live in the "near 

abroad." Russia's Union with Belarus is cited as the model for such relations: "a priority task is to 

strengthen the Union of Belarus and Russia as the highest, at this stage, form of integration of two 

sovereign states."68

While Russia's Union with Belarus is consensual,69 at least as far as Belarus' autocratic President 

Lukashenka is concerned, renewed Russian activity in other countries has not been as welcome. 

Ukraine, for example, finds itself facing renewed economic pressure due to its dependence on Russian 

gas.70 Despite Ukraine's great strategic importance to the United States the "pronounced 

russocentrism"71 of the Clinton team has led to "ignorance of and, worse, indifference toward the other 

successor states, notably Ukraine."72

Kazakhstan has also come under increasing economic and political pressure.73 Pavel Borodin--the State 

Secretary of the Belarus-Russian Union, a close associate of President Putin, and a central figure in 

Swiss criminal investigations of Kremlin financial dealings and money-laundering--predicted during 

Putin's April 2000 visit to Minsk that both Ukraine and Kazakhstan, as well as possibly other former 

Union Republics, would join the Russia-Belarus Union in the next three to four years.74

In addition, Russia has actively intervened in the internal affairs of Georgia, helping to foment 

secessionist violence in Abkhazia and Southern Ossetia, and maintaining Russian "peacekeepers" who 

themselves have required OSCE monitors. Moscow has also repeatedly threatened the Baltic states. And 

despite recent visits by members of the Clinton administration,75 many of the Central Asian republics 

have increasingly turned to Moscow for assistance in dealing with the threat of terrorism and radical 

Islamic separatism.76

Rather than tempering Russia's ambitions, the Clinton administration's weak policy has emboldened 

Moscow, undercutting the ability of the new independent states to maintain unfettered sovereignty. 

Former U.S. Ambassador to Belarus David H. Swartz attested to "Talbott's policy of looking at regional 
matters though Russia's prism, as though the [Soviet] Union still existed; of ignoring the other new 

states; of conveying unmistakable signals to Moscow that the United States recognized its hegemonic 

'rights' in what Moscow calls its 'near abroad."77

10-5

NEW USE FOR OLD ICBMs: Russia's new nuclear doctrine involves heavier reliance on nuclear 

weapons--and their first-use--than did the doctrine of the U.S.S.R. Russia is retiring its older ICBMs 

and, unlike the United States, developing and building new models to maintain a smaller and more 

modern force. A Russian army SS-25 "Topol" (Poplar) ICBM is taken into position during military 

training near Irkutsk, Siberia, Russia, Apr. 12, 1995. AP Photo

Russia's New Nuclear Doctrine

Russia's current nuclear doctrine78 carries enormous risks for both the United States and Russia. 

Successive Russian defense doctrines have dramatically lowered the threshold for the use of nuclear 

forces.

For example, as early as October 1994, Lt. Gen. G.D. Ivanov, Assistant Defense Minister for Policy, 

gave a presentation on Russian nuclear doctrine to an American delegation headed by Assistant 

Secretary of Defense Ashton Carter. He outlined a "model of military deterrence" involving four 

scenarios, three of which involved potential use of nuclear weapons. Only the first, deterrence of a 

potential non-nuclear aggressor, was to be accomplished by conventional deterrence. Nuclear deterrence 

was to be employed against not only a potential nuclear aggressor, but also against a non-nuclear 

aggressor allied with a nuclear state. Nuclear weapons could also be used against a non-nuclear 

aggressor if it was acting together with, or being supported by, a nuclear state.

Indeed, as one observer noted, there is "a tendency today to consider solving the problem of Russia's 

immense weakness in conventional arms by introducing low-yield, tactical nuclear weapons in order to 

strengthen conventional deterrence."79
Russia's new nuclear doctrine thus involves heavier reliance on nuclear weapons--and their first use--

than did the doctrine of the U.S.S.R. As General Ivanov has noted:

As you can see, Russia's new military doctrine includes a harsher, stricter component in its 

nuclear policy with respect to surrounding countries. ... [W]e want every state, including 

non-nuclear ones, to consider the possible consequences of initiating aggression against 

Russia. ...80

This change of doctrine is especially troubling because Russia's capacity to accurately assess whether it 

is being attacked, and to control its strategic forces, is decaying.81 Compounding this problem is the fact 

that Russia has adopted a hair-trigger "launch on warning" posture that compresses nuclear decision 

making to a few minutes. As Bruce Blair of the Brookings Institution has testified:

Russia's heavy reliance on this option means that its early warning and nuclear release 

procedures require a response time of 15 minutes in total; they allow only three or four 

minutes for detecting an attack, and another three or four minutes for top-level decision 

making. ... It is obvious this is not a safe operational practice ... and its [danger] is 

compounded by the deterioration of Russia's command-control system and missile attack 

early warning network. ...82

Russia's nuclear posture reflects much more than the decay of its technical capabilities, however. Much 

of Russia's senior-level officer corps appears to regard the United States with such intense suspicion as 

to make an American first-strike seem plausible to them.83 This attitude forms a striking contrast with 

the Clinton administration's rosy vision of its relationship with Moscow--particularly given the 

increasing influence of the Russian foreign-policy and military establishment's views on mainstream 

Russian thinking.

The combination of these factors has created an extraordinarily unstable and dangerous security 

environment for the United States and Russia a decade after the end of the Cold War.

Recently, there have been extensive though inconclusive press reports that the Russian government is 

reconsidering its military funding priorities.84 There has been a longstanding, multidimensional rivalry 

between the conventional forces, championed by the general staff, and the Strategic Rocket Forces 

(RVSN), strongly supported by the current Defense Minister, a former commander of the RVSN. It 

involves, among other issues, resource allocation issues. The outlines of any final decision remain 

unclear.

What is clear, however, is that no reallocation of resources will address the subjective mistrust of 

American intentions that produced the 1995 war scare, and led the Russian government to spend 

immense resources on the deep-underground facilities at Yamantau Mountain.
The Outmoded ABM Treaty: A Case Study in Policy Failure

The mounting tension over U.S. plans to deploy national and theater missile defenses offers a sobering 

case study of the disintegration of U.S.-Russian relations under the Clinton administration, the parallel 

movement toward a proto-alliance between Russia and the People's Republic of China, and the 

extraordinarily-serious implications of these developments for the supreme national interests of the 

United States.

After eight years in office, the Clinton administration made headlines with its abortive quest for a "grand 

bargain" with Russia over national missile defense at the Moscow summit in June 2000. The limited 

aims of the summit , which nevertheless were not achieved, stand in marked contrast to the far more 

desirable "grand bargain" that was within sight when President Clinton took office in January 1993.

In his State of the Union address on January 29, 1991, President Bush dramatically recast the Strategic 

Defense Initiative away from a large-scale effort to preserve U.S. nuclear retaliatory capabilities against 

a Soviet first strike. His proposed GPALS (Global Protection Against Limited Strikes) system reoriented 

America's proposed missile defenses toward the far more limited threats of accidental or unauthorized 

launch, or emerging threats from third countries. It therefore dramatically reduced the scope of the 

program.

President Bush's proposal responded to and fostered the ongoing sea change in U.S.-Soviet and U.S.-

Russian relations. It also reflected the growing risk of attack by third countries--a risk that had been 

dramatized just days before, when Saddam Hussein used Scud ballistic missiles against civilian targets 

in Israel and against U.S. forces in Saudi Arabia during Operation Desert Storm.

While President Bush downscaled the scope of the threat against which GPALS would defend, he also 

extended the protection intended by the system from U.S. nuclear forces to the whole American 

homeland--and also to "our forces overseas and ... our friends and allies."85

President Bush worked closely with Senator Sam Nunn and the Democratic Congress to build consensus 

for his new approach--a lesson unheeded by the Clinton administration, which has repeatedly sought to 

evade or preclude Congressional review of its initiatives. The Bush administration secured Democratic 

support for the enactment of the Missile Defense Act of 1991, which made it our national goal to 

"deploy an anti-ballistic missile system, including one or an adequate additional number of anti-ballistic 

missile sites and space-based sensors, that is capable of providing a highly effective defense of the 

United States against limited attacks of ballistic missiles."86 The Act authorized negotiations to 

facilitate deployment, and authorized a limited initial deployment of ground-based interceptors 

supported by ground- and space-based elements. Though far from ideal, the Missile Defense Act 

represented a constructive compromise that transcended prior Democratic opposition to the concept of 

ballistic missile defense.
The Russian response was exceptionally promising. President Gorbachev wrote to the G-7 summit 

participants in July 1991 to indicate his interest in pursuing some form of missile defense cooperation, a 

position surprisingly echoed by the Chief of the Soviet General Staff.87 The accession of Boris Yeltsin 

to power led to an even more significant turn of events: Yeltsin's January 1992 U.N. speech urging that 

"the time has come to consider creating a global defense system for the world community. It could be 

based on a reorientation of the United States Strategic Defense Initiative, to make use of high 

technologies developed in Russia's defense complex."88

Yeltsin's Global Protection System (GPS) proposal was discussed at the June 1992 Camp David summit 

of the two Presidents. That summit gave rise to the so-called Ross-Mamedov negotiations seeking 

cooperation on early warning, defense technology, non-proliferation, and the legal regime necessary to 

under-gird the GPS--including important amendments to the 1972 Anti-Ballistic Missile Treaty.

The Ross-Mamedov group held two highly promising negotiating sessions before being abruptly and 

unilaterally suspended by the incoming Clinton administration, which subsequently ordered the U.S. 

delegation to the Standing Consultative Committee to withdraw the ABM Treaty amendments that had 

been proposed by President Bush.

As President Clinton's former CIA Director James Woolsey wrote recently:

In early 1993, the administration could have chosen to continue some promising 

negotiations--the Ross-Mamedov talks--which were, at that point, only one year old. ... 

Negotiators were beginning to discuss an approach that would leave research and 

development unconstrained, deploy over 1,000 interceptors at multiple sites, and place a 

time limit on the duration of the ABM Treaty, to allow future deployment of space-based 

interceptors. But the new Clinton administration canceled the talks and took the position 

that the ABM Treaty was the "cornerstone of strategic stability" between the U.S. and 

Russia.89

The abrupt Clinton action shocked the Russian government, and gave rise to lasting, deep-seeded 

suspicions of U.S. strategic intention and good faith.90

Although the Clinton administration's actions offended Moscow, they were actually aimed at a different 

enemy: the signature Reagan-Bush emphasis on strategic defense. The new administration was 

determined to bury the late-20th century version of the Reagan Strategic Defense Initiative they had for 

so long derided as "Star Wars."

On May 13, 1993, Defense Secretary Les Aspin, in announcing a sweeping downgrading of the entire 

strategic defense program within the Defense Department, proclaimed "the end of the Star Wars era."91

The new Clinton Defense Department had by then already announced that it was making national 

missile defense a lower priority than theater missile defense, transforming the former from an 

acquisition program to a "technology readiness program"--its status until the final months of the first 
Clinton term.92

Notwithstanding President Yeltsin's personal involvement in the missile defense proposal, the Clinton 

administration stridently asserted that missile defense would do long-term damage to U.S.-Russian 

relations. Over time, Russian officials obligingly took to substantiating that claim, and Russian 

objections have themselves grown steadily more strident.93

But as with NATO enlargement, there is little evidence to suggest that the Russian public is concerned 

about the issue. The State Department's own Office of Research reported on the basis of opinion 

sampling as recently as February 2000, after years of heated official controversy: "An overwhelming 

majority of Russians have heard or read little (31%) or nothing (55%) about American proposals to 

modify the ABM Treaty to permit the U.S. to install a limited missile defense. Only 5 percent have 

heard or read at least a fair amount about it."94

On the defensive after Republicans swept the 1994 legislative elections on a platform endorsing 

vigorous pursuit of a national missile defense, the Clinton administration vetoed the Missile Defense Act 

of 1995--part of the Contract With America--and sought to make its case for delay. To this end, the 

administration produced the now-notorious National Intelligence Estimate, "Emerging Missile Threats 

to North America During the Next 15 Years." The report predicted that "no country, other than the major 

declared nuclear powers, will develop or otherwise acquire a ballistic missile in the next fifteen years 

that could threaten the contiguous 48 states and Canada." The report particularly deprecated the 

possibility of North Korea developing a "longer range operational ICBM."95

The National Intelligence Estimate was immediately subjected to a firestorm of criticism for 

downplaying the potential impact of outside assistance--including direct sales of missiles--to regimes 

developing ballistic missiles. It was similarly criticized for minimizing the impact of space launch 

vehicle development on missile proliferation, and for excluding missile threats to Alaska and Hawaii 

from the category of threats to the United States. Not only was the report promptly controverted by the 

General Accounting Office,96 it was authoritatively debunked in the July 15, 1998, report of the 

bipartisan Rumsfeld Commission.

The Rumsfeld Commission had been chartered by Congress to consider the same issues covered in the 

National Intelligence Estimate. It concluded that the United States "might have little or no warning 

before operational deployment" of a ballistic missile by a hostile Third World country.97 On August 31, 

1998, just a month and a half after the Rumsfeld Commission's report, North Korea fired a three-stage 

rocket over Japan, ending as conclusively as possible this phase of the debate.

The Clinton administration had, however, managed to buy three years' delay in the debate over 

deployment of a national missile defense. In the interval, President Clinton secured the 1997 RussianAmerican protocols to the ABM Treaty, which were intended to render the creation of a robust theater 

missile defense or national missile defense both practically and legally impossible. First, the Clinton 

administration significantly broadened the coverage of the ABM Treaty by "insist[ing]," as former 
Clinton CIA Director Woolsey put it, that "Russia, Ukraine, Belarus, and Kazakhstan [were] the four 

ABM Treaty successors to the USSR."

[T]he administration and the Russians have joined forces against the U.S. Senate. ... Since 

the execrable [Lukashenka] regime in Belarus is the corrupt partner of the most 

unreconstructed parts of the old Soviet military-industrial complex, it (and they) would 

have a veto over any ABM Treaty amendments.98

In early 1996, shortly after the issuance of its National Intelligence Estimate, the Defense Department 

announced that it would not be able to meet the operational dates mandated by Congress for two 

promising theater missile defense systems, Navy Upper Tier and theater high-altitude area defense. And 

in 1997, a further protocol on "demarcation" to limit the effectiveness of any theater missile defense 

system was signed by Russia at the Clinton administration's urgent insistence. It lobotomized some of 

the most promising theater missile defense technologies to ensure that they could not assist in a national 

missile defense.

The protocols set the now-familiar pattern of Clinton administration policy: attempting to curry favor 

with Russia by delaying deployment of American missile defenses and eviscerating their effectiveness. 

As the next step in this process, the Clinton administration let it be known that at the June 2000 Moscow 

summit with Putin the president would seek a "grand bargain": a START III agreement drastically 

cutting U.S. and Russian warheads, and a U.S.-Russian agreement to amend the ABM Treaty to permit 

only a very limited U.S. national missile defense while continuing to bar more promising forms of 

missile defenses.

The President and Vice President Gore thereby sought to achieve both their policy goals and their 

political goals. From a policy standpoint they would perpetuate the obsolete ABM Treaty, seek security 

through new arms control agreements, and outlaw precisely the types of missile defenses that Congress 

has pursued since 1994. From a political standpoint, they could expect a spectacular signing ceremony in 

Moscow, and a subsequent patriotic Rose Garden ceremony announcing that a single-site national 

missile defense system would be built by a date certain on American soil. Both of these ceremonies 

would come in time for the November 2000 election. As the Washington Post reported on March 30, 

2000:

Sen. Joseph Biden, ranking Democrat on the Foreign Relations Committee, said yesterday 

that President Clinton "is absolutely going full-bore" to reach an agreement with Russia 

on modifying the ABM Treaty so the United States can go ahead with a limited missile 

defense system. Clinton's plan, Biden told reporters, "is to get the limited system locked 

down in a deal with Putin" in order to block Republicans from pushing forward with a 

broader, full-scale, national ABM system.99

Though it may have been brilliantly manipulative in the realm of domestic politics, the administration 

proposal was hopelessly flawed from the perspective of national security. Former Clinton CIA Director 
James Woolsey recently called it:

a school-uniform program for national defense: it does almost nothing to deal with the 

basic problem, but it may at least get the president some credit for trying. But unlike 

school uniforms, which at least don't undercut the cause of education, this approach to 

missile defense does undercut its ostensible goal by impeding our efforts to deal with our 

growing vulnerability to rogue-state missiles. ... [T]he administration has purposely 

designed vulnerabilities into its own system in order to assure the Russians that they can 

penetrate it with ease.100

But the rot in U.S. relations with Russia was by then considerably too far along for Moscow to accept 

the Clinton proposal, however bad a bargain it was for the United States. At the end of eight years of a 

Clinton policy explicitly designed to cater to Russian official and popular opinion, the administration 

had the support of neither. Tellingly, the PRC and Russia had already cooperated in sponsoring an 

overwhelmingly successful U.N. General Assembly Resolution calling for preservation of the ABM 

Treaty, and implicitly criticizing U.S. efforts to amend it.101

The striking suspicion of American motives held by officials at the highest levels of the Russian 

government was graphically displayed in a June 23, 2000, interview given by Russian Defense Minister 

Marshal Igor Sergeyev. Sergeyev asserted that:

[T]he true reasons for deploying the U.S. National Missile Defense do not lie in imaginary 

threats from certain pariah countries. Apparently, some people in the United States are in 

the grip of the temptation to acquire strategic dominance by means of increasing the 

technological gulf between them and the rest of the world and creating exceptional 

conditions of invulnerability, that is, implementing the forgotten doctrine of Fortress 

America.

At the same time the possibility is not ruled out that some people want to drag our country 

into a new arms race so as to retard Russia's economic development.

Furthermore, in my opinion some people in the United States are under the illusion that by 

deploying an NMD system capable of intercepting a few hundred strategic missile 

warheads and reducing the number of warheads and delivery vehicles as a result of the 

accords under START III and subsequent treaties, it is possible to acquire the potential to 

destroy Russia's strategic nuclear potential as a result of a pre-emptive strike and the 

interception of those Russian missiles and warheads that would remain for a retaliatory 

strike. ...

[W]e regard the deployment of NMD as only the first step toward the future emergence of 

a multifunctional global system for combating all types of ... targets. This comprehensive 

defense system will be directed first and foremost against the deterrent potential of the 
Russian Federation and the People's Republic of China. Russian Defense Ministry experts 

are in no doubt about this.102

At the June 2000 Moscow Summit, President Putin signed a Joint Statement of Principles with President 

Clinton which acknowledged that the international community faces "a dangerous and growing threat of 

proliferation of weapons of mass destruction and their means of delivery, including missiles and missile 

technologies."103 But as with other ambiguous Clinton administration statements, Russia inferred a 

vastly different meaning from these words. Just one week after the Joint Statement of Principles was 

issued, President Putin told the German newspaper Welt am Sonntag that "we are now convinced that 

the missile threat from so-called 'problem countries' in the Middle East or in the Asian region, to which 

the United States refers, does fundamentally not exist, neither today nor in the foreseeable future."104

Throughout his subsequent European trip, Putin attempted to use national missile defense and the ABM 

Treaty debate to drive wedges between the U.S. and NATO Europe, reviving Soviet-era diplomatic 

tactics little seen since the Cold War.

Colonel-General Valery Manilov, the Russian Deputy Chief of Staff, likewise flatly asserted on June 23, 

2000, that "in the foreseeable future, 10 or 15 years, there is no threat to the United States from North 

Korea, or from Iran or Iraq."105 On June 30, 2000, Maj. Gen. Ivashov, head of the Ministry of Defense's 

Department of International Cooperation, wrote in the official armed forces journal Krasnaya Zvezda 

[Red Star] that American concerns about rogue states' missile capabilities were "fairy tales," based on an 

analysis of their technological capabilities that ignored their likely motivations.106 And Foreign 

Minister Ivanov wrote in Foreign Affairs that "none of the 'problem states,' as they are now referred to in 

the West, are likely to acquire missiles capable of reaching the United States in the foreseeable 

future."107

Russia's revised Foreign Policy Concept, approved by President Putin on June 28, 2000, states flatly that:

Russia shall seek preservation and observance of the 1972 Treaty on the Limitation of 

Anti-Ballistic Missile Systems--the cornerstone of strategic stability. The implementation 

of the plans of the United States to create a national missile defense system will inevitably 

compel the Russian Federation to adopt adequate measures for maintaining its national 

security at a proper level.108

Most strikingly, the Joint Statements issued by President Jiang Zemin of the People's Republic of China 

and President Putin during the July 17-19, 2000, summit in Beijing categorically repudiate the idea that 

America is facing a ballistic missile threat. The statements bluntly threaten a return to a Cold War if the 

United States deploys a national missile defense. The security documents issued at this summit are the 

most explicitly anti-American to date, and represent an across-the-board repudiation of American 

positions:

The 1972 ABM Treaty remains the cornerstone of global strategic stability and 
international security. ... It is of vital importance to maintain and strictly observe ABM. ... 

China and Russia believe that the nature of NMD [national missile defense] is to seek 

unilateral military and security advantages, which will pose the most grave adverse 

consequences not only to the national security of Russia, China, and other countries, but 

also to the security of the United States itself and international strategic stability. ...

The damage wrought by ABM will trigger a new arms race and lead to an about-face in 

the positive trend that appeared in world politics after the end of the Cold War. ... 

Analysis of the international situation shows that the demand of a certain nation to amend 

ABM on the pretext of missile threat is totally unjustified. The proposal to revise ABM is 

actually a ruse to cover its attempt to violate ABM.109

In addition, the summit's Joint Statement endorses Beijing's opposition to theater missile defense for 

Taiwan, and for Northeast Asia as well. And it takes pains to distinguish Moscow's proposal for a 

Russian-European cooperative theater missile defense system. The Joint Statement thereby finesses 

Beijing's concern that the Russian theater missile defense proposal could be broadened to embrace 

defense against the PRC's missile forces, and reinforces the impression that the Russian proposal was 

more an anti-American wedge-driving exercise than a constructive effort to reach a compromise on the 

ballistic missile threat. In the words of the joint Russia-PRC statement:

A non-strategic missile defense program and international cooperation in such areas, 

which is not prohibited by ABM, should not undermine security interests of other 

countries, not lead to the establishment of any closed military or political bloc, or threaten 

global and regional stability and security. China and Russia are deeply concerned that a 

certain country in the Asia-Pacific region might deploy any such non-strategic missile 

defense system, and steadfastly oppose this.

The incorporation of Taiwan into any foreign missile defense system is unacceptable. ...

China and Russia call on the international community to heed continuously the activities 

of a certain country to develop a missile defense system, which is detrimental to global 

strategic balance and stability, and to do what is necessary to prevent such a dangerous 

situation from continuing. ...

Based on the strategic partnership featured by equality and trust, China and Russia will 

continue their close cooperation on these issues.110

President Putin's July 2000 summit with North Korean dictator Kim Jong-Il revealed a similar hostility 

to American policy and interests in the area of missile defense. The "Democratic People's Republic of 

Korea-Russia Joint Declaration" issued at the Pyongyang summit recites "the DPRK and Russia view 

that it is totally groundless ... that the so-called missile threat from some countries is used as an excuse 

to justify the plan to amend the 1972 ABM Treaty," which is described as "a cornerstone to strategic 
stability and a basis for further reducing strategic offensive weapons." Both governments likewise stated 

that "deploying a bloc-style closed Theater Missile Defense system in Asia and the Pacific could 

seriously destroy regional stability and security."111

Most controversially, Putin and Kim Jong-Il separately broached a scheme that would in essence create 

an "Agreed Framework" for North Korea's missile program--embarrassingly for the Clinton 

administration, a replica of the 1994 arrangement it brokered whereby the United States, South Korea, 

and Japan would in essence bribe the North Korean dictatorship to suspend its nuclear program. 

Pursuant to this agreement, the North Korean dictatorship, arguably the worst human rights violator on 

earth, has become the largest recipient of U.S. aid in East Asia--and continues its program of nuclear and 

missile development.

Although Russian officials have claimed that under their proposal North Korea might be forced to use 

launch facilities and rockets in third countries, the Kim Jong-Il government has refused to repeat this 

reassurance.112 Moreover, the notion that the North Korean dictatorship is genuinely interested in 

peaceful scientific activities in outer space, or that such a desperately poor government should be 

pursuing such an expensive discretionary expense, is grotesque. The Clinton administration, however, 

has accepted such sophistries from North Korea before, as illustrated by its proposal of the 1994 Agreed 

Framework based on the premise that North Korea was building nuclear reactors only to generate 

electricity.

Even an offer by Pyongyang for an "Agreed Framework" to forbear in its pursuit of missile 

developments would not necessarily include a promise not to sell missiles and missile technology 

abroad. Given Pyongyang's propensity to demand payment for the same concessions repeatedly, this is 

hardly a hypothetical risk.113 Yet despite the manifest implausibility of the offer from Pyongyang and 

Moscow, the Clinton administration has allowed itself to be put on the defensive internationally by the 

initiative--until Kim Jong-Il similarly embarrassed Putin by claiming that his offer was only meant as a 

joke.114

In almost all material respects, the Clinton administration's bungling of U.S. missile defense deployment 

parallels its bungling of NATO enlargement. In each case, the Clinton administration let slip the best 

opportunity to cement U.S.-Russian agreement on a major initiative. In the case of both NATO 

enlargement and national missile defense, subsequent events drove the administration to endorse the 

policy belatedly and half-heartedly. In both cases, temporizing and delaying hardened rather than 

mitigated Russian opposition. And in both cases, the administration's policy secured the worst possible 

outcome: it severely compromised the potential benefits to the United States, while ensuring that the 

issue would indefinitely remain an irritant in U.S.-Russia relations.

Ersatz Missile Defense: The Clinton "Detargeting Agreement"
The Clinton administration's superficial approach to missile defense is perfectly illustrated by its 

celebrated "Detargeting Agreement" with Russia.

In January 1994, Presidents Clinton and Yeltsin signed a Detargeting Agreement that Clinton hailed as 

reducing the nuclear threat to America by ensuring that no Russian missile was aimed at a U.S. 

target.115 Subsequently, on more than 147 separate occasions, President Clinton, Vice President Gore, 

members of the cabinet, and other senior administration officials have touted the agreement as a boon 

for U.S. national security.116 For example, on August 26, 1996, in a speech in Toledo, Ohio, the 

president proclaimed that "... for the first time since the dawn of the nuclear age, on this night, this 

beautiful night, there is not a single nuclear missile pointed at a child in the United States of 

America."117

The emptiness of the Clinton administration's rhetoric was made abundantly clear in hearings held by 

the House National Security Committee in 1997. At a hearing of the Military Research and 

Development Subcommittee, Dr. Bruce Blair, a Brookings Institution expert on nuclear security policy, 

testified of the detargeting agreement and associated Russian and American actions:

Neither removed the wartime aim points from [Russian] missiles portfolios of 

preprogrammed targets. Neither lengthened the amount of time needed to initiate a 

deliberate missile strike. And the risk and consequences of an accidental or unauthorized 

launch were not significantly affected by their pledge [to detarget].118

Because the detargeting agreement contains no verification provisions, there is to this day no reliable 

evidence that the Russian nuclear missiles were ever detargeted.119

Even assuming that the detargeting has been carried out, the benefits for U.S. national security are 

minimal. First, the Russian General Staff has publicly stated that it would take at most a few minutes to 

retarget the missiles on their previous targets.120 Under the detargeting agreement Russian missiles are 

to be set on a "zero flight plan;" however, because the missiles can store multiple flight plans, and the 

Russian military can quickly switch between these flight plans, the detargeting presents little 

impediment to a deliberate launch.121

The Clinton administration has also argued that while a deliberate launch would not be impeded, the 

danger from an accidental or unauthorized launch is reduced by detargeting. However, in the event of an 

accidental or unauthorized launch, a Russian missile set on a "zero flight plan" would snap back to its 

wartime flight path and strike one of the real target points stored in the missile's database. Conversely, 

American missiles that have been detargeted would fall into the sea in the event of accidental or 

unauthorized launch.122

The Russian government has been forthright about the ephemeral benefits of the detargeting agreement. 

In a 1995 interview, a senior adviser in the Ministry of Defense said that, "When it was decided to 

detarget missiles, the decision was mostly of a political, propaganda character."123
Rather than being honest with the American people, the Clinton administration has used the detargeting 

agreement for just such a "political, propaganda" purpose in an effort to distract attention from the 

absence of a more reliable missile defense for the United States.

Clinton's Rootless Russia Policy

One of the standard criticisms of the Clinton administration's Russia policy is that it has failed to 

cultivate a broad range of support within Russia. It has focused on Moscow in preference to the regions, 

on government in preference to private actors, within government on the executive branch in preference 

to the legislature, and within the executive branch on a handful of individuals in preference to a broader 

spectrum of officials and bodies. This lazy diplomatic shortcut has left American policy and prestige in 

Russia a hostage to the reputation, honesty, and ability of as few as five or six Russian officials--

Chubais, Gaidar, Chernomyrdin, Yeltsin, and a handful of others.

Less often noted is the parallel to the Clinton administration's approach to pursuing its policies in the U.

S. Congress. Its tactics at home have similarly produced a narrowly based policy bereft of public and 

congressional understanding and support. At home, as well as in Russia, the administration eschewed 

working with the leaders of the legislative branch and doing the hard work of either cultivating support 

or compromising differences. As a result, the administration's policies have won understanding and 

support in neither party.

The Clinton approach at its most self-defeating was on display in the negotiation of the 1997 New York 

Protocols to the ABM Treaty, and the ensuing refusal to submit them to the Senate for ratification. The 

Protocols effectively represented a collaboration by the American executive branch with foreign 

governments--including the contemptible Lukashenka regime ruling Belarus--against the American 

legislative branch.

The president and vice president were well aware that the demarcation and multilateralization protocols 

were utterly unacceptable to Congress in general and to the Senate in particular. Instead of seeking either 

to persuade the Congress or to reach an honorable accommodation of the differences, the administration 

collaborated with foreign governments to circumvent the American legislature and create "facts on the 

ground" that would make it impossible for Congress to execute its constitutional role.

The Russian government obliged this year. When the State Duma conditioned its ratification of START 

II on Senate ratification of the 1997 Protocols, it completed the work of the Clinton administration, 

which had deliberately failed to submit the 1997 Protocols to the Senate for its advice and consent for 

three years. When Under Secretary of State Pickering testified before the Speaker's Advisory Group on 

May 10, 2000, he said that it was "inopportune" to submit the protocols to the Senate, because they were 

integrally related to START III and issues of national missile defense. He gave no explanation of why it 
was "opportune" for the President to sign the protocols, but not for the Senate to have the opportunity to 

ratify them.

By acquiescing--indeed, encouraging--the Russian Duma's linking of START II to the protocols, the 

Clinton administration has jeopardized the historic reductions in offensive nuclear forces that President 

Bush had achieved in cooperation with a Democratic Congress--all in the interest of coercing Congress 

to abdicate its long-held views on missile defense.

The Clinton administration's defiance of the Senate's constitutional role is not unique to this episode, or 

even its Russia policy generally.124 From the beginning of the Clinton administration, consultation with 

Congress on Russia policy has consisted of little more than the annual budget presentation. Requests by 

the House International Relations Committee for documents bearing directly on the failure of the 

Clinton administration Russia policy have gone unanswered; senior administration policy makers such 

as Strobe Talbott have routinely been "unavailable" to the committees of jurisdiction. Talbott refused to 

meet with the leadership of the six committees of jurisdiction that comprise this Speaker's Advisory 

Group on Russia.125

In July 2000, the Clinton administration ignored strenuous objections by the Senate and House 

committees of jurisdiction and leadership to its policy on rescheduling Russian debt.126 As a result, it 

was strongly rebuked on July 19, 2000, by an overwhelming 275-146 vote for a resolution approving a 

bar on such restructuring until the President certifies an end to Russian use of a spy facility at Lourdes, 

Cuba. The passage by enormous bipartisan majorities of successive Russia-Iran missile proliferation 

bills in the face of veto threats similarly underscores the administration's credibility gap.127

In the United States as in Russia, the self-defeating nature of the Clinton administration policy process 

has not dissuaded the administration from pursuing it to the end: the last major policy gambit of the 

administration, the so-called "grand bargain" compromise with Russia that the President sought to unveil 

at the Moscow summit, was rejected by the Russian government in part because it was clear that Clinton 

and Gore had done nothing to secure congressional support for it.

Conclusion: A Cold Peace

Russian-American relations now bear a troubling resemblance to the pre-perestroika Cold War. In 

response to American proposals to amend the ABM Treaty, the Russian government has now announced 

that if the United States does not accede to its position, it will withdraw not only from strategic arms 

agreements but also from the 1987 Intermediate-Range Nuclear Forces (INF) Treaty, which banned 

intermediate-range missiles in Europe. Clinton's policy has brought U.S.-Russia relations full circle, 

returning to the last and most heated Soviet-American controversy of the Cold War.

In the meantime, the Russian government seeks to weaken ties between the United States and NATO 
Europe, reviving Soviet-era proposals to substitute a pan-European collective security structure for the 

current alliance-based security system. And Moscow has threatened to deploy multiple warheads on 

Topol intercontinental ballistic missiles in violation of START II as part of its "asymmetrical" response 

to a U.S. withdrawal from the ABM Treaty.128

Russia is continuing and possibly intensifying the proliferation that has made a U.S. national missile 

defense essential. As recently as June 2000, just weeks before President Putin's visit to Pyongyang with 

its ostensible purpose of ending North Korea's missile program, missile component companies in Russia 

and Uzbekistan were reportedly collaborating to sell North Korea a special aluminum alloy, laser 

gyroscopes used in missile guidance, and connectors and relays used in missile electronics.129

The Russian government is accelerating its rapprochement with the rogue's gallery of former client 

states that the Soviet Union supported during the Cold War--not only reviving the Soviet intelligence 

relationship with Castro based on the listening post at Lourdes, Cuba, but also working with Beijing to 

renew both political and military ties with the pariah regimes in Iraq,130 North Korea, and Libya,131

and cultivating the Milosevic dictatorship in Belgrade. A more troubling contrast to the atmosphere of 

the early 1990s could hardly be imagined.

CHAPTER 11

'THE ENEMY OF MY 

ENEMY IS MY FRIEND': 

RUSSIA EMERGES AS A 

STATEGIC PARTNER OF 

THE PEOPLE'S 
REPUBLIC OF CHINA

11-1

A REAL 'STRATEGIC PARTNERSHIP': Russian President Vladimir 

Putin (left) and Chinese President Jiang Zemin toast each other in 

Beijing's Great Hall of the People, July 18, 2000. Although the 

Clinton administration has long boasted of its "strategic partnership" 

with Russia, the Russian government unmistakably disavowed any 

such relationship in its authoritative Foreign Policy Concept, 

approved by President Putin in June 2000. The Foreign Policy 

Concept flatly states that "certain plans relating to establishing new, 

equitable, and mutually advantageous partnership relations of 

Russia with the rest of the world"-plans embodied in the 1993 

version of the Concept approved as President Clinton was taking 

office-"have not been justified." To challenge America's dominance, 

Russia today cultivates its strategic partnership with the People's 

Republic of China-a partnership explicitly targeting American policies 

and interests around the globe, and founded on increasing both the 

PRC's and Russia's military capabilities against the United States. 

This is in stark contrast to Russia's explicitly seeking an alliance and 
missile defense cooperation with Washington in 1992. AP Photo/Greg 

Baker

American foreign policy in the 1990s 

pursued one foreign policy toward 

Russia and another toward China; 

neither has been considered in light of 

the other, and neither has proven 

successful. 

Through most of the past seven years, 

the Clinton administration has seemed 

almost bent on creating an antiAmerican community of interest between 

Moscow and Beijing.

Charles Hill, Blundering Toward a Second Cold War?

Although the Clinton administration has long boasted of its "strategic partnership" with Russia, the 

Russian government unmistakably disavowed any such relationship in its authoritative Foreign Policy 

Concept, approved by President Putin in June 2000. The Foreign Policy Concept flatly states that 

"certain plans relating to establishing new, equitable, and mutually advantageous partnership relations of 

Russia with the rest of the world"--plans embodied in the 1993 version of the Concept approved as 

President Clinton was taking office--"have not been justified."

Instead, the June 2000 Concept lists first among the threats to Russia "a growing trend towards the 

establishment of a unipolar structure of the world with the economic and power domination of the 

United States." To challenge America's dominance, Russia today cultivates its strategic partnership with 

the People's Republic of China--a partnership explicitly targeting American policies and interests around 

the globe, and founded on increasing both the PRC's and Russia's military capabilities against the United 

States. This is in stark contrast to Russia's explicitly seeking an alliance and missile defense cooperation 

with Washington in 1992.
Russia and the PRC have rapidly increased the level of their cooperation in opposing American plans for 

national and theater missile defense, NATO enlargement, U.S. security cooperation with Taiwan, and U.

S. opposition to the North Korean missile program.

Even more troubling is the dramatically-increasing scale and sophistication of Russian arms and 

technology transfers to the PRC: Sovremenny-class destroyers equipped with Moskit surface-to-surface 

missiles, state-of-the-art weapons systems specifically designed to destroy U.S. aircraft carriers; ultraquiet Kilo-class diesel submarines; Su-30 long-range attack aircraft and MiG-31 long-range fighterinterceptors; AWACS radar systems; T-80U tanks; state-of-the-art Russian surface-to-air missiles; and 

rocket engines, as well as many other weapons systems and technologies. Negotiations are reportedly 

underway for still more sophisticated weapons systems and technology. There are also reports of farreaching Russian military commitments to the PRC in the event of hostilities over Taiwan.

After over $20 billion in U.S. assistance and eight years of mismanagement by the Clinton 

administration, the U.S.-Russian relationship is in tatters, characterized by deep and growing hostility 

and divergent perceptions of international realities and intentions. The Sino-Russian relationship, by 

contrast, has grown steadily stronger, and has steadily assumed a more overtly anti-American aspect.

Because of Russia's current and future importance, the consequences of this failure are difficult to 

overstate. They almost certainly exceed the consequences of the American defeat in Vietnam, and the 

fall of the pro-American government in Iran. To find a foreign policy failure of comparable scope and 

significance, it would be necessary to imagine that after eight years of American effort and billions of 

dollars of Marshall Plan aid, public opinion in Western Europe had become solidly anti-American, and 

Western European governments were vigorously collaborating in a "strategic partnership" directed 

against the United States.

First Principles

Relations between Russia and the People's Republic of China and the triangular relationship those 

countries share with the United States are a critical element in U.S.-Russia policy.

Consolidation of a monolithic Sino-Soviet alliance after Mao Zedong's victory in 1949 was regarded in 

the United States as one of the gravest strategic reverses ever suffered by the United States, and was 

directly responsible for the Korean War. Dissolution of the Sino-Soviet alliance bought invaluable 

breathing room for freedom in Asia and Europe during the 1960s. Particularly after President Nixon's 

opening to China in 1970, the United States made it a priority to prevent Sino-Soviet strategic 

collaboration against the West throughout the remainder of the Cold War. America's success in the 

1970s and 1980s in restoring a strategic equilibrium in Eurasia through such "triangular diplomacy" was 

an historic triumph for the United States.
In light of current Russian suspicions about American policy, it is crucial to specify that even at the 

height of the Cold War this policy was defensive in nature: neither the United States nor its allies desired 

to dominate Eurasia, either directly or by fostering hostility between the Soviet Union and the PRC on 

the principle of divide and conquer. Neither has America, then or now, maintained any territorial claims 

on Russia or China. Rather, long-standing U.S. policy has been designed to prevent any great power 

from dominating Eurasia, either alone or in combination. As former Secretary of State Henry Kissinger 

has written:

Geopolitically, America is an island off the shores of the large landmass of Eurasia, whose 

resources and population far exceed those of the United States. The domination by a 

single power of either of Eurasia's two principal spheres--Europe or Asia--remains a good 

definition of strategic danger for America, Cold War or no Cold War.1

The consistency of this approach can be seen in American policy during the mid-20th century Chinese 

civil war, when the United States sought to avert the victory of Chinese Communists at that time closely 

allied with the Soviet Union; in American policy before and during the Second World War, when the 

United States fought to prevent Axis domination of Eurasia; and as far back as America's Far Eastern 

policy at the close of the 19th century, when the United States sought to preserve Chinese territorial 

integrity and forestall the efforts of any of the great powers to dominate China either economically or 

politically.2

In the 21st century, in the aftermath of the Cold War, the United States continues to have a strong 

interest in cordial relations between Russia and China. War between those great powers would affect 

critical American allies throughout the Asia-Pacific region, tens of thousands of U.S. troops in the 

region, and global security and prosperity. Even continued military tension between them would divert 

the energies of both societies away from economic modernization, and would strengthen the most 

retrograde political forces in each country.3

The end of the Cold War and the dissolution of the Soviet Union fundamentally altered the dynamic of 

both NATO's and China's relations with Moscow, by ending the direct Soviet military threat to both. But 

it did not alter the critical imperative of preventing great power dominance over Eurasia, particularly if 

such dominance is exerted in the form of a strategic partnership directed against American interests.

In pursuing such a policy the United States enjoys several inherent advantages, including more extensive 

economic and cultural ties with Russia and China than either of those nations shares with the other. 

Moreover, although the United States projects its power in both the Pacific and Europe, it is not a 

territorial sovereign anywhere on the Eurasian landmass. America has thereby avoided territorial 

conflicts such as the centuries-old disputes between Moscow and Beijing that have frequently arisen 

along their 2,200-mile border.

To these natural advantages must be added the extraordinarily favorable strategic environment in East 

Asia that the Clinton administration inherited in January 1993. There existed a genuine détente between 
Russia and the People's Republic of China that plainly did not extend to military or strategic cooperation 

against the United States, or its friends and allies. The acute military tension between the Soviet Union 

and the PRC, which at its height had led to military clashes along the Ussuri River and the Xinjiang 

frontier in 1969, and large-scale Soviet military exercises along the PRC's northern border during the 

1979 conflict between China and Soviet client Vietnam, had ended. The new Russian Federation had 

largely removed the offensive military threat that the Soviet Union had posed to the PRC, and that had 

overshadowed the relationship since the Sino-Soviet split in 1960.4

The easing of military tensions between the two countries had begun even before Russia's independence. 

In 1987, Gorbachev announced a five-year phase-out of the Soviet military presence in Mongolia, which 

had long been regarded by the PRC government as acutely threatening. In April 1988, the Geneva 

Accords provided for withdrawal of Soviet troops from Afghanistan by 1989, relieving a source of 

anxiety beyond the PRC's northwestern border. In December 1988, Gorbachev announced at the U.N. a 

reduction in Soviet conventional forces of 500,000 troops, including 120,000 troops deployed against 

the PRC. Between 1989 and December 1992, eight rounds of force-reduction talks led to an agreement 

to reduce troops and offensive weaponry in a zone extending 60 miles on either side of the border.

Agreements in May 1991 and September 1994 delineated virtually the entire Sino-Russian border. A 

Joint Declaration signed during Yeltsin's December 1992 visit to Beijing, renouncing the use of force 

against each other, and foreswearing any "military and political alliances directed against the other party, 

or ... detrimental to the state sovereignty and security interests of the other party,"5 formally normalized 

the cross-border relationship.

Russian arms sales to the PRC, which began with the June 1990 Moscow visit of Gen. Liu Huaqing, 

Vice Chairman of the PRC's Central Military Commission, were strictly limited by Russia's concerns 

over enhancing the PRC's military posture vis-à-vis Russia itself. In 1992, Russian arms sales contracts 

with the PRC were less than $2 billion.6 Despite President Yeltsin's claim at the December 1992 Beijing 

summit that Russia would sell the PRC "the most sophisticated armaments and weapons,"7 Russian 

arms sales to the PRC during this period were subject to comparatively strict qualitative controls. The 

sales appear to have been predominantly motivated by economic rather than strategic considerations, 

and were part of a broader effort to transform the former Soviet Union's unprofitable, policy-based arms 

transfer program into a profitable, economically-motivated element of Russian trade.

By the end of this process, in December 1992, the triangular Washington-Beijing-Moscow relationship 

was as favorable to the United States, the West, and international peace and security as it ever has been. 

Cordial, normalized relations between Moscow and Beijing had been established for the first time in 

three decades, but not at the expense of the United States or its allies and friends.

Indeed, Moscow clearly sought much closer military and political ties with the West than with the PRC, 

as outlined in Chapter 2.8 The PRC's support for the August 1991 coup against Gorbachev, contrasted 

with American opposition to the plotters, remained a vivid memory in Moscow for several years.
The Inverted Triangle: The Advent of Sino-Russian Cooperation Against the United States

By 1999, U.S. relations with both Moscow and Beijing had changed dramatically, reaching their lowest 

point in many years. 9 In both capitals thousands of people took part in violent anti-American 

demonstrations in front of the respective U.S. Embassies--a poignant contrast with events a few years 

before, when thousands of Russians had paraded through Moscow with American flags, and tens of 

thousands of residents of Beijing had gathered in Tiananmen Square around the American-inspired 

statue of the Goddess of Democracy.

The contrast between the excitement and enthusiasm with which a joint session of Congress greeted 

President Yeltsin in June 17, 1992, and the indifference and hostility shown by the Duma toward 

President Clinton on June 5, 2000, is similarly dramatic. This was the scene in Washington on June 17, 

1992:

Yeltsin's ringing denunciation of communism and call for U.S. assistance in rebuilding 

Russia's shattered economy drew one of the most enthusiastic responses ever seen in 

Congress for a foreign leader. Billed in advance as the political highlight of the first 

formal U.S.-Russian summit since the collapse of communism, the speech was interrupted 

by nine standing ovations and chants of "Boris, Boris" from the packed House chamber.10

Eight years later almost to the day, Clinton was in Moscow to address the Duma. He was received with a 

mixture of indifference, hostility, and contempt:

When Mr. Clinton addressed the Duma ... only about one-third of the legislators bothered 

to show up. The rest of the audience was composed of staffers and others dragooned into 

filling the seats.11

Most of the applause for Clinton's speech came from the large entourage of American officials who 

followed the president into the chamber, to the chagrin of the Russian audience. Both inside and outside 

the chamber, the president was jeered and insulted.12

A few weeks later, President Putin was warmly received in Beijing, reviewing goose-stepping soldiers 

of the People's Liberation Army in the square where the Goddess of Democracy had once stood.

1993-95: From Sino-Russian Détente to 'Partnership'

________________________________________________________
China is the most important state for us.

President Yeltsin, remarks at a foreign policy meeting in the Kremlin, June 1995 13

Russia's turn toward the PRC, like its growing hostility toward Washington, was rooted in the setbacks 

experienced by American-sponsored "reforms " and "reformers" during this period. The progressive 

discrediting of the Clinton administration economic policies invested the "Chinese model of 

development" and the PRC leadership with new prestige. As early as December 1992, Yeltsin himself 

had praised "the Chinese tactic of reform" during his visit to Beijing,14 and this sort of praise became 

steadily louder and more ubiquitous as Russia's economic turmoil showed no sign of ending.

Just as Russian "westernizers" who favored domestic reform tended toward a relatively pro-Western 

foreign policy, so too the opponents of democracy and free enterprise at home tended to favor an 

orientation toward American rivals or enemies abroad. The most powerful of these by far was the 

Communist government in Beijing.15

Several witnesses who testified before the Advisory Group observed another factor that encouraged 

Moscow's turn toward Beijing: the perception among the Russian elite that while the PRC had adopted a 

far more anti-American foreign policy than Russia, it was benefiting from far greater trade and 

investment. This perception intensified after the Clinton administration's well-publicized 1994 decision 

to reverse its earlier linkage of trade and human rights. Thereafter, many Russians believed, the Clinton 

administration directed more high-level attention to the PRC, accorded it priority over Russia in trade 

negotiations and admission to the World Trade Organization, and steadily increased the disparity in 

American economic ties.

The perceived contrast between America's aggressive economic engagement with the PRC and its virtual 

disengagement from Russia strengthened those in Russia--and in the PRC--who argued that a harder line 

against the United States in the foreign policy and security spheres does not hurt in the sphere of 

economics and trade, and possibly might help.16

Finally, the protracted failure of the Russian economy made foreign sales of weapons and military 

technology increasingly vital for a whole range of actors--from the Russian government as a whole, the 

armed forces, and the military-industrial complex down to individual ministries, industries, factories, 

military units, and research institutions, and even to individual bureaucrats, company officials, officers, 

soldiers, and scientists. The PRC--"one of the most solvent nations in the world," as Yeltsin remarked at 

the December 1992 Sino-Russian summit in Beijing17--was a potential key customer for these highly 

motivated sellers.18

The change in tone of Sino-Russian relations was apparent even before the September 
1994 Moscow summit between Yeltsin and Jiang.19 The Sino-Russian Joint Statement 

issued there described the relationship between Russia and the PRC as "a constructive 

partnership." The same statement pledged opposition to "hegemony, power politics, and 

the establishment of antagonistic political, military, and economic blocs"--a thinly veiled 

reference to the United States that would become steadily more strident at each successive 

Sino-Russian meeting.

By the May 1995 summit meeting, President Jiang would announce that Russia and the PRC had 

"decided to establish and develop a constructive Sino-Russian partnership that would strategically gear 

us toward the next century."20 From then on, the formulation "strategic partnership" would be used to 

describe the relationship.

1996-98: Solidifying the Russian-PRC 'Strategic Partnership'

________________________________________________________

[T]he communique [issued by Yeltsin and Jiang in Shanghai in 

April 1996] represents nothing less than a declaration of 

independence by both Moscow and Beijing from the strategic 

triangle that had evolved in the two decades since Richard 

Nixon's opening to China. A basic premise of that triangle was 

that the United States place itself closer to both Beijing and 

Moscow than either was to the other, achieving a strong 

bargaining position vis-à-vis each. This new Shanghai 

communique symbolizes the demise of that process and a 

deliberate effort by both China and Russia to reduce America's 

options in Asia.

Former Secretary of State Henry Kissinger, May 14, 1996 21

________________________________________________________

There is no such pair in the world.

President Yeltsin, remarks on Sino-Russian relations at the April 1996 Beijing summit 22

The transition between a limited Sino-Russian détente and the new "strategic partnership" reached a 

critical juncture in 1996-98, when a number of factors emerged to crystallize a far-reaching change in 
Moscow's relations with Beijing and Washington. Beijing viewed the replacement of Russian Foreign 

Minister Andrei Kozyrev by the veteran Communist diplomat Yevgeny Primakov in 1996 as a 

repudiation of Russia's heretofore "bankrupt pro-Western foreign policy."23

Chinese and Russian officials ostentatiously paraded the new understanding between Beijing and 

Moscow at their summit meetings during those years. At the September 1994 summit in Russia, Jiang 

Zemin had cautiously stated that "[n]either confrontation nor alliance corresponds to the fundamental 

interests of the two peoples."24 But by the April 1996 summit in Beijing, Russia and the PRC pledged 

"their resolve to develop a strategic partnership of equality, mutual confidence and mutual coordination 

toward the 21st century."25

Ironically, the initiative for this characterization came not from the PRC, although the U.S. and the PRC 

had just endured the March 1996 military confrontation in the Taiwan Strait. Instead, it was the result of 

the personal initiative of the Clinton administration's partner President Yeltsin--a striking example of the 

failure of the Clinton troika to capitalize on their personal relationships with the Yeltsin administration, 

especially given the strenuous efforts the Clinton administration was then making for his re-election.26

At the April 1996 summit, Russia and the PRC also institutionalized semiannual summit meetings, 

created a new Moscow-Beijing hotline, and pledged to further develop both military exchanges and 

"cooperation on military technology." While approvingly noting a supposed trend toward a "multipolar" 

world, the Joint Communique also acidly cited the continuation of "[h]egemonism, power politics, and 

repeated imposition of pressures on other countries," as well as "new manifestations of bloc politics"27--

points repeated and embellished in subsequent Sino-Russian statements and documents.

In November 1996, Russian Foreign Minister Primakov stated unequivocally that "[t]he stronger China 

becomes, the more peace and stability in the region will benefit."28

Their Own Gore-Chernomyrdin Commission

During Premier Li Peng's visit to Moscow from December 26-28, 1996, Russia and the PRC held the 

first meeting of their own version of the Gore-Chernomyrdin Commission, complete with standing 

subcommittees devoted to transportation, energy, trade, and economic and scientific cooperation.29 By 

elaborately duplicating the Gore-Chernomyrdin structure for its relationship with the PRC, the Russian 

government went out of its way to erase the notion that Washington was its preferred interlocutor. The 

inaugural meeting of the Commission committed both sides to a highly ambitious--and ultimately 

unrealistic--target of $20 billion in trade by 2000.

An extremely public demonstration of the change in Sino-Russian relations played out over the winter of 

1996-97. The Russian Defense Minister, Igor Rodionov, who had included the PRC among potentially 

threatening countries during a military conference of the Commonwealth of Independent States on 
Christmas Day in 1996,30 was rebuked publicly by both the Russian Foreign Ministry and President 

Yeltsin's spokesman. In January 1997, Rodionov sent an official message to the Russian armed forces 

praising Sino-Russian relations, and disavowing his earlier statement.31

At the April 1997 Moscow summit, both presidents went to the unusual length of publishing a "RussianChinese Joint Declaration on a Multipolar World and the Formation of a New International Order." It 

reaffirmed that Russian-Chinese relations aimed at "strategic cooperation."32 Although the references to 

the United States and NATO are characteristically opaque, the declaration is a concise brief against what 

Moscow and Beijing conceived of as American policy.

Such an explicit itemization of Russian criticisms of the United States should have been viewed as a 

striking development in a year when the "Dream Team" of westernizing reformers was in power in 

Moscow,33 and just one month before Russia and NATO signed the "Founding Act" in Paris.34 But 

neither the Clinton troika nor the administration as a whole seemed capable of adjusting their policies to 

fit the rapidly changing situation.

By the time Clinton met Yeltsin at the funereal September 1998 summit, immediately in the wake of 

Russia's complete economic collapse, the would-be American "strategic partnership" with Moscow had 

become a hollowed-out shell. The thorough discrediting of the U.S.-inspired Russian economic 

"reforms" and the now-fundamental U.S.-Russian disagreements over virtually the entire spectrum of 

major foreign policy issues--Iraq, Iran, the Balkans, and NATO--had left the relationship in tatters. 

Though the summit documents and statements continued ritually to allude to a Russian-American 

"partnership,"35 they were unable to paper over explicit disagreements on these topics.36 The 

disagreements went unresolved, and had no analogues in the burgeoning Sino-Russian partnership.

1999-2000: 'A New Stage of Development' in the Strategic Partnership

Worse was to follow. As NATO military intervention in Kosovo in 1999 sparked a free-fall in U.S. 

relations with both Russia and the PRC, Russian and Chinese threats and denunciations of the United 

States that were unprecedented since the Cold War37 were surpassed only by weapons transfers of 

extraordinary scope and sensitivity from Russia to the PRC.

At the end of NATO negotiations with Milosevic--though not before--Russia cooperated to some extent 

with NATO. 38 Nonetheless, neither Yeltsin nor Russia's foreign and defense policy makers were 

prepared to forget Kosovo. Instead, they appear to have concluded that Russia could more safely and 

appropriately respond half a world away, by strengthening the security relationship with Beijing. The 

PRC government, outraged by NATO's accidental bombing of Beijing's Embassy in Belgrade, was also 

thoroughly willing to deepen the "strategic partnership."

During a lengthy visit to Russia in June 1999, General Zhang Wannian, Deputy Chairman of the PRC's 
Central Military Commission, spoke by telephone with the ailing President Yeltsin and met in Moscow 

with Prime Minister Stepashin, Defense Minister Sergeyev, and then-FSB head and Security Council 

Secretary Vladimir Putin. Stepashin told Zhang that his father had been a Soviet military adviser in the 

PRC: "My father served with the navy and helped build China's armed forces. Now, meeting you, I feel I 

am continuing my father's cause." Putin told Zhang, "Highest-level ties are developing very fruitfully. ... 

Russia's and China's interests in the present international circumstances largely coincide."39

Gen. Zhang was given unprecedented access to Russian military facilities. He visited air force and air 

defense command posts, a Strategic Rocket Forces installation near Novosibirsk, the Pacific Fleet's 

commanders at Vladivostok, and the commanders of the Far Eastern Military District at Khabarovsk. A 

Russian Defense Ministry spokesman told the press that during Gen. Zhang's visit to Novosibirsk, he 

was shown a Topol SS-25 intercontinental ballistic missile and given an explanation of its potential for 

overcoming the defenses of a "potential foe."40

At Vladivostok, Gen. Zhang told the press that Russo-Chinese "military-technical cooperation has the 

best prospects" among Sino-Russian initiatives. The upcoming summit in the fall, he said, would 

probably further strengthen such bilateral relations.41

Gen. Zhang's prediction was amply justified. The PRC-Russia summit in the Kyrgyz capital of Bishkek 

in August 1999, which also included the Central Asian republics of Kazakhstan, Tajikistan and 

Kyrgyzstan, was a debacle for United States relations with both the PRC and Russia. Going far beyond 

earlier formulations, Yeltsin bluntly told the press, "I am in fighting form, ready for battle, especially 

with Westerners. ... The current summit is taking place in conditions of an aggravated international 

situation. Some nations are trying to build a world that would be convenient only for them, ignoring that 

the world is multi-polar." 42

Yeltsin and Russia were once again more assertive in denouncing American policy than the PRC itself--

a further striking example of the failure of the Clinton administration's reliance on a personal 

relationship with Yeltsin.43

At the same time, the Sino-Russian commission for economic cooperation, headed by Deputy Premier 

Ilya Klebanov, the point-man for Russia's military-industrial complex, was proving itself considerably 

more potent than the Gore-Stepashin Commission. It was busy preparing a cornucopia of Russian 

weapons sales for the planned Russian visit to Beijing to meet with Zhu Rongji, Li Peng, and Zhang 

Wannian.

The Russian delegation included Alexei Ogaryev, head of the Rosvooruzhenie arms-export monopoly, 

and Yuri Koptev, the head of the Russian Space Agency. President Jiang, newly returned from the 

Bishkek summit, met the delegation on the final day of their visit. According to Deputy Premier 

Klebanov, the Russian delegation brought "several new, very serious suggestions, including on military 

and technological cooperation ... Russia and China are strategic partners."44
Col. Gen. Leonid Ivashov, the head of the Defense Ministry's International Cooperation Department and 

an outspoken critic of Washington and NATO, promised the press that "[m]ilitary cooperation between 

our two countries will considerably expand in all aspects soon."45

Ivashov was as good as his word. Press accounts reported that Presidents Yeltsin and Jiang had already 

agreed on a $1 billion purchase of at least two Akula-class nuclear-powered attack submarines at the 

Bishkek Summit.46 In Beijing, a $2 billion contract to purchase Su-30MKK long-range fighters was 

announced.47 At the last Yeltsin-Jiang summit in Beijing in December 1999, the two presidents 

repeated a litany of anti-American charges, and hailed the "coordination" of their foreign policies in 

opposition to the American government.48 By the end of 1999, CIA Director Tenet was reportedly 

ordering a "crash effort" to assess Sino-Russian ties.49

These developments continued in 2000 under the incoming Putin administration. The large Russian 

delegation to the July 2000 Beijing summit was a who's who of the Russian military-industrial complex. 

It included Defense Minister Sergeyev; Foreign Minister Ivanov; Rosvooruzhenie chief Ogaryev; 

Atomic Energy Minister Yevgeny Adamov; and Deputy Premier Klebanov, the government lead for 

arms sales. The collective presence of such powerful figures was eloquent testimony to the pervasive 

military orientation of the Sino-Russian partnership.50

The "Beijing Declaration by the People's Republic of China and the Russian Federation" issued at that 

summit is uncompromising in tone:

China and Russia support in the international arena forces of peace, stability, 

development, and cooperation, defy hegemonism, power politics and group politics, and 

oppose attempts to amend the basic principles of international law, to threaten others by 

force or to interfere in other countries' internal affairs. ...

The further and comprehensive development of economic, trade, scientific and 

technological, and military-related technological cooperation between China and Russia is 

vital for the expansion of the Sino-Russian strategic partnership of cooperation based on 

equality and trust.51

The July 2000 Sino-Russian summit in Beijing represented, in the words of President Jiang, "a new 

stage of development" in the strategic partnership between Moscow and Beijing.52 It marked the 

evolution of the Russian-PRC relationship into an explicitly anti-American political and military 

compact. The summit dispelled rumors that Russia was planning to curtail military technology transfers 

to the PRC,53 just as it went far toward allaying Beijing's uncertainty over the Russian proposal for 

cooperation with NATO on theater missile defense research and deployment by making clear that the 

proposal was not intended to protect either the United States or Northeast Asia. And the summit made 

explicit that the core of the Russo-Chinese strategic partnership was now opposition to American 

interests around the world.
11-2

THE TIES THAT BIND: President Putin, right, introduced President Jiang, center, to Russian Defense 

Minister Igor Sergeyev during a welcoming ceremony in Beijing's Tiananmen Square, July 18, 2000. 

The two leaders discussed increasing military cooperation and their mutual opposition to U.S. 

proposals for an anti-missile defense. AP Photo/Sergei Karpukhin, POOL

As with the deterioration in U.S.-Russian relations, the strengthening of the Sino-Russian relationship 

from 1993 to the present is clearly traceable in the Russian and PRC foreign policy and security 

doctrines. The January 1993 Foreign Policy Concept of the Russian Federation discussion of Asia began 

with the United States:

For Russia, the time has become objectively ripe for close cooperation with the United 

States in the Asia-Pacific region, with whom we are today brought together by adherence 

to singular democratic values and an unconditional interest in stability in the region. It 

would be expedient for us to share responsibility with the United States for the provision 

of security in the Asia-Pacific region, to become strategic partners here. For these 

purposes, we should reorient our military potential in the direction of ensuring regional 

stability and creating reliable guarantees of common security together with the United 

States.54

The immediately following section on the PRC, by contrast, posited much more distant relations:

A realistic transformation of the nature of relations with China must consider the 
differences in ideology and the socio-political systems of the two countries, and must also 

proceed from the principle of no alternative for Russia other than good neighborly 

intensive and substantial relations with it. In the past, confrontation with the PRC cost the 

U.S.S.R. (as well as China) much too dearly, and was one of the main reasons for our 

alienation from the region.55

Notably, the 1993 Concept stated that "[i]n spheres of military-technical cooperation, we should 

measure our commercial interests against the task of maintaining stability in the region and not 

permitting the re-creation of a situation from the cold war times, when the United States armed Taiwan, 

while we armed Communist China."56

By contrast, the revised Foreign Policy Concept of the Russian Federation issued in June 2000 states 

that:

The concurrence of the fundamental approaches of Russia and the PRC to the key issues 

of world politics is one of the basic mainstays of regional and global stability. Russia 

seeks to develop mutually advantageous cooperation with China in all areas. The main 

task is, as before, bringing the scale of economic interaction in conformity with the level 

of political relations.57

Russian foreign and security policy doctrine is now virtually coextensive with that of the People's 

Republic of China. The PRC's July 1998 White Paper on China's National Defense stated that

hegemonism and power politics [Moscow's and Beijing's code words for U.S. policy] 

remain the main source of threats to world peace and stability; Cold War mentality and its 

influence still have a certain currency, and the enlargement of military blocs and the 

strengthening of military alliances have added factors of instability to international 

security; some countries, by relying on their military advantages, pose military threats to 

other countries, even resorting to armed intervention.58

As in the Russian documents, the immediacy and malevolence of the American threat is even more 

dramatically portrayed by the PRC in 2000. The PRC Foreign Ministry's formal presentations depict a 

much more threatening international environment, animated by the United States. "China's View on the 

Development of Multi-polarity" bemoans that while the international situation on the whole has become 

more relaxed since the end of the Cold War, nonetheless

over a period of time, world forces have become increasingly out of balance, hegemonism 

and power politics have further developed, and regional crises have occurred frequently. 

This shows that the move toward multi-polarization of the world is a tortuous and long 

process. At present, by virtue of its economic, technological, and military advantages, an 

individual country is pursuing a new "gunboat policy" in contravention of the United 

Nations Charter.59
Thus, the practice and doctrine of both PRC and Russian foreign and security policy are increasingly 

converging. Whereas Russia accorded a privileged position to the United States in 1992, it has now 

reversed field. From practical and doctrinal equidistance by the mid-1990s (symbolized by the creation 

of a mirror-image Sino-Russian joint commission to counterbalance the Gore-Chernomyrdin 

Commission), Russian practice and theory by 2000 unquestionably had established a privileged 

relationship with the PRC, and had adopted the PRC's view of the United States as a threat.60

As disturbing as these developments are for U.S. national interests and security, there have been 

persistent reports of much more far-reaching covert cooperation and agreements between the PRC and 

Russia. According to the Washington Post in February 2000, "Western experts and Asian diplomats say 

that over the last year, and especially since the Kosovo war last spring, Moscow's security ties have 

surpassed the simple cash-for-weapons transactions that characterized the relationship for years and are 

evolving into something more complex and potentially far-reaching."61

In testimony before the House Armed Services Committee on July 19, 2000, Prof. Stephen Blank of the 

U.S. Army War College surveyed reports beginning in 1995 and extending through 2000 of explicit 

Russian solicitations of a formal military-political alliance with the PRC, together with more recent 

reports that the PRC is warming to such proposals. According to Prof. Blank,

on July 12, 2000 at least two Chinese language sources, one from New York, reporting 

from Taipei, and another from Hong Kong, as well as the Singapore Straits Times, stated 

that President [Putin] told President Jiang Zemin at the July 5 Dushanbe Summit of the 

Shanghai Five ... that in the event of a war with Taiwan, should the U.S. Seventh Fleet sail 

to Taiwan's rescue, he had ordered Russia's Pacific Fleet ... to block our forces from 

getting to Taiwan.62

Prof. Blank further noted there was substantial additional evidence that conflicts with such reports.63 He 

summarized that:

while it would be rash to conclude that an alliance in the classical sense is on until we 

have further confirmation, these reports should ring alarm bells in the White House, 

intelligence community, and the Pentagon.64

Today, Russia and the PRC coordinate their policies across the spectrum of sensitive foreign policy and 

security issues. Both vehemently oppose U.S. national and theater missile defense programs, and U.S. 

efforts to amend the 1972 Anti-Ballistic Missile Treaty. Both oppose NATO expansion, despite the 

evident lack of a PRC national-security interest in Central Europe. Both bitterly denounce the sanctions 

and U.S. use of force against Iraq. Both oppose NATO policy in Kosovo. Both reject any outside 

scrutiny of their human rights abuses in Chechnya, Xinjiang, and Tibet. Moscow supports Beijing's 

position on Taiwan, and Beijing supports Russia's war in Chechnya.

After eight years of Clinton policies designed to woo both Moscow and Beijing, the United States is the 
odd man out.

Arms Sales: The 'Glue' of the Sino-Russian Partnership

From its inception, the new Sino-Russian partnership has been built on Russian transfers of arms and 

military technology to the PRC--transfers seen by Russia as serving both economic and political 

goals.65 Steady increases in the size and quality of these transfers have accompanied and enabled each 

improvement in the "strategic partnership":

In 1991-96 Russia sold China an estimated $1 billion a year worth of weapons and related 

technologies. That figure doubled to $2 billion a year by 1997. ... In 1999 the two 

governments doubled that military assistance package for a second time. Thus there is 

now a five-year program through 2004 of $20 billion worth of such transfers. ...

Every year 8-12 military delegations of various services will conduct mutual visits to the 

other country to promote bilateral military ties. Every year 1,200-2,000 Chinese military 

students will study in Russian military academies. Both governments' armed forces will 

conduct joint exercises at an appropriate time. ...

A mechanism for the exchange of military intelligence will be established and there will 

be a mechanism for cooperation in the manufacture of naval, air, and air defense weapons. 

And given the scope of other exchanges in technology and know-how it would seem that 

still more cooperation is in the offing.66

Sales of increasingly advanced armaments remain, as one senior People's Liberation Army official at the 

PRC's Moscow Embassy recently stated, "the glue" binding bilateral Sino-Russian relations.67 The 

sharp increase in the quantity of Russian weapons and technology transfers has accompanied a 

progressive easing of qualitative restrictions on Russian exports to the PRC of weapons that most 

threaten the United States.

Military Aircraft

In 1992 Russia began delivering Su-27 air superiority fighters to the PRC. By 1994 it reportedly agreed 

to sell the PRC the Su-30MKK long-range attack variant of the Su-27, capable of carrying twice as 

much armament. The Su-30MKK is capable of carrying the most advanced Russian short- and mediumrange air-to-air missiles. It has also been reported that the PRC will be acquiring the newly-developed 

Su-32 tactical bomber once it is made available for export in 2002.68
By Yeltsin's April 1996 Beijing summit, Russia and the PRC had reached a licensing agreement for PRC 

production of the Su-27.69 Such licensing agreements transfer far more technological capability than offthe-shelf weapons sales.

Beijing has also reportedly ordered Tu-22M Backfire bombers70--long-range supersonic strategic 

bombers capable of performing precision anti-ship missions, as well as conventional and nuclear strikes. 

The Backfire's potential use as an intercontinental bomber made it the subject of rancorous arms-control 

negotiations between the U.S. and the U.S.S.R. Its capabilities against U.S. carrier battle groups would 

arguably be of still greater interest to the PRC.71

The PRC is also reportedly negotiating to acquire Su-37 long-range attack aircraft--arguably the world's 

most capable jet fighter.72

In 1997 the PRC acquired the license to produce MiG-31 long-range fighter-interceptors--the most 

capable Russian interceptor, and the first with an effective look down-shoot down capability.73

The PRC is seeking to acquire an AWACS radar system from Russia in the wake of Israel's withdrawal 

from a planned sale. It has already acquired Ilyushin Il-76 transport aircraft suitable for carrying the 

AWACS system.74

In late 1997, the Russian firm Phazotron contracted to provide the PRC with improved Zhuk radars for 

the PRC's new F-8II fighter, and for the Chengdu J-10 fighter.75

Warships

During then-Premier Li Peng's December 1996 visit to Moscow, the PLA Navy ordered two 

Sovremenny-class destroyers equipped with Moskit ("Mosquito") SS-N-22 surface-to-surface missiles. 

These are weapons specifically designed to destroy U.S. aircraft carriers and their AEGIS escort vessels. 

The sale represented "the first export of several state-of-the-art Russian weapons systems, including not 

only the ship but also the supersonic Moskit anti-ship missile ... new electronic warfare systems and 

other naval technology."76 According to Jane's Intelligence Review:

The Sovremennys will also provide the [PLA Navy] with its first viable medium range airdefense system in the form of the Mach 3 SA-N-7, which has a 25 km range. The new 

warships also have a strong anti-submarine armament, including a bow-mounted sonar, 

torpedo tubes, rocket launchers and a Russian Ka-28 'Helix' helicopter.77

The PRC's purchase of this anti-U.S. carrier weapons system followed U.S. deployment of two aircraft 

carrier task forces to the Taiwan Strait during the missile firings that Beijing ordered during Taiwan's 
1996 presidential elections. The first of the Russian-built destroyers, the Hangzhou, arrived in the PRC 

in February 2000; the second is expected to arrive in November 2000.78

In March 2000, Russian Deputy Prime Minister Ilya Klebanov announced that "China is interested in 

buying not two but a larger number of Russian destroyers equipped with Moskit missiles."79 The 

acquisition of these vessels and their missile systems provides a "vital upgrade" to the PLA Navy in its 

continuing effort to erode the U.S. Navy's ability to assist Taiwan:

This class of destroyer is equipped with modern, well-proven Russian weapons and 

sensors and has been successful in Russian service. ... The new missiles pose a potential 

threat both to Taiwan's recently modernized navy and to any U.S. carrier battle groups that 

may be deployed to the Taiwan Straits. ... The addition of the Sovremenny destroyers to 

the Chinese order of battle should substantially reduce the nation's susceptibility to such 

defense diplomacy. ... The Sovremenny destroyers represent a quantum leap in [PLA 

Navy] capabilities. ...80

In a July 2000 hearing on the PRC's military capabilities, the House Armed Services Committee was 

informed that "American military sources have stated that the Moskit is possibly the most lethal antiship weapon in the world, and that the U.S. Navy has nothing that can stop it."81

11-4

 

11-4b

DESIGNED TO DESTROY U.S. CARRIERS: During then-Premier Li Peng's December 1996 visit to 

Moscow, the PRC Navy ordered two Sovremenny-class destroyers equipped with Moskit ("Mosquito") 

SS-N-22 surface-to-surface missiles--weapons specifically designed to destroy U.S. aircraft carriers 

and their AEGIS escort vessels.

Submarines

Russia has sold the PLA Navy four Kilo-class submarines, with deliveries beginning in early 1995. The 

Director of Naval Intelligence testified in April 1999: "The last two diesel submarines ordered from 

Russia were upgraded variants of the Kilo design. This variant is one of the quietest diesel submarines in 
the world and was previously only seen in service with the Russian Navy."82 The PRC reportedly 

intends to obtain licensing rights for construction of Kilo-class submarines, as well.83

The Defense Department's Annual Report on the Military Power of the People's Republic of China for 

2000 notes that this acquisition "reportedly has provided the [PLA Navy] with access to technology in 

quieting and sonar development, as well as weapons systems." The Annual Report further notes that the 

PRC's most advanced indigenously-built diesel attack submarine, the SONG, reportedly incorporates 

technologies acquired from both Russia and Western countries, and that "Beijing's next-generation 

nuclear submarine programs are expected to reflect a significant amount of Russian influence."84

Russia reportedly is also prepared to sell the PRC a conventionally-armed version of its Shkval-E 

weapon, designed to protect Russian ballistic missile submarines.85

Armor

Russia approved the sale of 50 T-72 main battle tanks to the PRC's People's Liberation Army in 1992. 

By 1995 it had agreed to upgrade the PLA to T-80U tanks, and by 1999 Russia was discussing the sale 

of T-90C tanks.86

11-3

FROM RUSSIA TO THE PRC: Russia's 50-ton T-90 Main Battle Tank is the most advanced armor unit 

deployed by the Russian Army. Russia approved sales of 50 T-72 Main Battle Tanks to the PRC's 

People's Liberation Army in 1992, in 1995 it approved orders for T-80U tanks, and by 1999 Russia was 

discussing selling T-90C tanks to the PRC.

Beyond-Visual-Range Air-to-Air Missiles
It has been reported that in the near future the PRC will begin receiving shipments of the Vympel R-77 

medium-range air-to-air missile, dubbed the "AMRAAMSKI" because of its similarity in capabilities to 

the American AIM-120 AMRAAM. The R-77's estimated range of approximately 55 miles makes it a 

fully functional beyond-visual-range air-to-air missile. This missile is useful in attacking existing U.S. 

fighters such as the F-16 and F-15, and will challenge the superiority of even newer U.S. aircraft such as 

the F-22 and F/A-18E/F. According to one analyst, the result of the PLA's acquisition of Vympel R-77 

missiles is that "[t]he Chinese air force will pose a greater threat to Taiwan after its acquisition of one of 

the best [air-to-air-missiles] in the world." 87

Surface-to-Air Missiles

According to the Defense Department's Annual Report for 2000, in recent years the PRC has embarked 

on an aggressive program to procure state-of-the-art Russian surface-to-air missile systems and related 

technologies. To date, limited numbers of Russia's SA-10b, the SA-10c, and SA-15 SAMs have been 

sold to the PRC.88

Intercontinental Ballistic Missiles

Either or both of the PRC's two new land-mobile ICBMs, the DF-31 and DF-41, "may be armed with 

multiple independently targetable warheads (MIRVs) based on technology provided by Russia and 

illicitly acquired from the United States."89 In 1995 the Russian Ministry of Defense violated the 

Missile Technology Control Regime by selling upper-stage rocket engines to the PRC.90 It has been 

reported that in 1995, Russia was preparing to sell heavy SS-18 "Satan" ICBMs to the PRC.91

Russia and the PRC are reportedly close to agreement on joint use of Russia's GLONASS satellite-based 

global positioning system. This would aid the PRC military in targeting its rockets and air-to-air 

missiles.92

Russia and the PRC are also exploring the possibility of cooperating on a ballistic missile defense--an 

ironic form of collaboration, given the two nations' outspoken opposition to U.S. missile defense 

efforts.93

Military Technology

In addition to arms transfers and licensing agreements, Russia has transferred significant defense 
technology and know-how to the PRC:

Perhaps more serious than Russia's sale of military hardware to China is the transfer of 

production technologies. China and Russia signed a memorandum on defense technology 

cooperation in 1996 in which Russia agreed to assist China's development of new 

weapons systems. ...

China has also attracted a significant number ... of Russian scientists to work in China's 

defense industry. These elements of China's military relationship have long-term 

implications for China's overall military modernization program in that they may facilitate 

a comprehensive upgrading of Chinese defense research, development, and production 

capabilities.94

The PRC's arms acquisitions from Russia have multiple rationales:

First, they are endeavoring to fill pressing near-term military needs. Second, and perhaps 

more importantly, however, they are attempting to acquire advanced military and militaryrelated know-how. The foreign purchases also represent hedges against the failure of 

indigenous development programs.95

The Clinton Administration 'Welcomes' Russian-PRC Military Cooperation

Necessarily attempting to put the best face on the unraveling of its Russia policy, the Clinton 

administration has affected to be unconcerned by the Sino-Russian strategic partnership, or the arms 

sales that have undergirded it. Indeed, in May 1998, Walter B. Slocombe, Under Secretary of Defense 

for Policy, went so far as to say that, "far from seeing a threat to U.S. interests ... we welcome it, as a 

step toward Russia being a constructive partner in the region."96

In July 1998, Ambassador Stephen Sestanovich stated that "[t]o date, Russian arms sales to China have 

not significantly improved China's military capabilities." Notwithstanding the PRC's well-known hard 

currency reserves, Sestanovich further opined that it "is far from clear that China will be willing or able 

to pay for significant quantities of additional weaponry."97

When asked if the Clinton administration shared our East Asian allies' concern that the PRC-Russian 

strategic partnership was a threat to peace and stability, he replied:

[N]o, we do not share that assessment, but agree that we must remain watchful. Both 

Russia and China have explicitly declared that their improved relationship is not directed 

against the U.S. The U.S. supports the warming in relations between Beijing and 

Moscow.98
Likewise, when asked In February 2000 about the implications for U.S. security of Russian arms sales to 

the PRC, and whether the U.S. has yet expressed any opposition to them to Moscow, Secretary of State 

Albright evaded both inquiries in her reply for the record:

While China's purchase of two guided missile destroyers will clearly improve its naval 

capabilities, the Department of Defense has indicated that it does not pose a significant 

military threat to the U.S. military posture in Asia and that it will not fundamentally alter 

the regional balance of power. The United States maintains an active dialogue with Russia 

on the issue of arms sales, reflecting our concern about proliferation and regional 

security.99

The Clinton administration's seeming nonchalance belies a far more serious set of concerns beneath the 

surface. In their totality, Russian sales of arms and technology to the PRC now account for more than 

90% of the PRC's military imports.100 As House Armed Services Committee Chairman Floyd Spence 

recently reported, "[w]eapons purchases from Russia have given China, for the first time, power 

projection capabilities that can be expected to pose new challenges to U.S. forces operating in the China 

Seas."101 Sherman Garnett, former Principal Deputy Assistant Secretary of Defense for Russia, 

Ukraine, and Eurasia, testified in March 1999:

China's military modernization requires substantial improvements in its air force, 

command, control and communications, naval power projection, and space technology. 

Russia has accommodated or appears willing to accommodate China in all these areas. ... 

These sales--and the broader defense and technology cooperation that are linked to them--

could over time help to alter regional military balances in areas of vital U.S. interest in 

East and Southeast Asia or the Taiwan Strait.102

The sale of increasingly sophisticated Russian weaponry and technology to the PRC, and the 

establishment of close security cooperation between Beijing and Moscow, calls into question the 

fundamental prediction undergirding much Clinton administration security planning: that the United 

States will face no peer competitor in the military field during the next two decades.103 Any truly 

thoroughgoing combination of Russian and PRC technology and resources would surely produce a peer 

competitor for the United States more quickly than is otherwise commonly supposed.

Nor are the national security consequences to the United States limited to the military posture of the 

PRC or Russia. Because of the PRC's track record as a significant weapons proliferator, these Russian 

exports can be expected to have a cascading effect in other regions of vital importance to the United 

States:

China is not simply an importer of arms, it is a major exporter of arms and missile 

technology. ... China is a particularly important supplier to Iran and has been a major 

supplier to Iraq in the past. Any Russian transfers of advanced military technology are 
likely to eventually pass on to potentially hostile states once China absorbs them and 

begins to produce similar equipment or weapons.104

An Unnatural Alliance

It is a striking indictment of the Clinton administration's policies that the Sino-Russian strategic 

partnership could have taken such deep root during the last eight years despite the latent contradictions 

inherent in it. Both Beijing and Moscow have each had to pay a significant price for their strategic 

partnership, which remains narrowly based on weapons transfers and self-defeating antagonism towards 

the United States.

Russia and the PRC have both been disappointed in their expectations for a broadly-based economic 

relationship. Although in 1996 both nations set a goal of $20 billion in bilateral trade by 2000, trade 

levels have stagnated at around $6 billion annually.105 Moreover, they remain overwhelmingly focused 

on PRC purchases of weapons and nuclear power technology. Sino-Russian trade overall fell in 1997 

and 1998, and has yet to reach its exceptionally modest level of 1993.106

Initial Russian hopes that flourishing transborder trade with the PRC would assuage the economic crisis 

in the Russian Far East--arguably deeper even than the other depressed areas within Russia--were 

dashed by a host of factors, including the inherent limitations of barter trade, high customs duties, 

corruption, burdensome regulation on both sides of the border, and Russian complaints about the quality 

of Chinese exports.107 Beijing and Moscow have already de-emphasized transborder trade and looked 

instead to improved political relations between the two national governments to expand the economic 

basis for the emerging partnership.

These hopes also remain unfulfilled. In 1997, Sino-Russian trade represented only 2% of the PRC's total 

trade. In that year, Russia ranked just eighth among the PRC's trading partners. Russia's total trade with 

the PRC was barely a tenth of Japan's, and less than a sixth of that with Hong Kong and the United 

States.108

Even in the Russian Far East, the PRC has failed to become a predominant factor in Russian commerce. 

The United States remains the largest investor in the Russian Far East--a far larger investor than the 

PRC, whose own vast appetite for capital limits drastically its capacity for foreign investment. South 

Korea, not the PRC, is the leading exporter to the Maritime Province; Japan, not the PRC, is the leading 

importer of Maritime Province products.109

Russia's June 28, 2000, Foreign Policy Concept states that "[t]he main task [in Russian relations with the 

PRC] is, as before, bringing the scale of economic interaction in conformity with the level of political 

relations." There is little reason to think that either party will accomplish this "main task":
China wants airplanes from Boeing or Airbus, not Tupolev; it has sought joint ventures 

with Audi and General Motors, not Lada. ... The hoped-for benefits to Russian industry 

from [economic ties with the PRC] have not materialized. ...

Corruption and rent-seeking have made many rich but seldom have made the enterprises 

or their workers better off. Although widespread benefits are usually touted when deals 

are signed--proceeds from Russian-Chinese arms sales in late summer 1997 were 

designated to pay the salary arrears of Russian officers--little seems to trickle down 

beyond the senior enterprise and government officials who are the prime beneficiaries of 

such deals.110

Despite much talk of the "complementarity" of the two economies, "Russia cannot provide 

China with what it needs for the modernization of its economy. It cannot provide large 

scale investment, because such investment is desperately needed inside Russia itself. ... 

China, which has had a great influx of foreign investment, is itself reluctant to invest in 

Russia. ... Financially, economically, and technologically, both countries still depend more 

on the West than on each other."111

The key element in Russia's economic relations with the PRC--its weapons sales, licensing 

agreements, and technology transfers--are ultimately self-defeating not only on 

commercial but also strategic terms. Not only are Russia's weapons transfers to the PRC 

significantly improving the military capabilities of an unpredictable neighboring power, 

but over time Russia's technology transfers will erode both the PRC and the international 

market for further arms sales, as the PRC strengthens its domestic military-technological 

capabilities, reduces its dependence on Russian imports, and itself becomes a competitor 

of Russia's in the international arms trade.

Despite the muting of official Russian concern over its potential military, economic, and 

political rivalry with the PRC, Russian foreign and defense policy planners foresee not 

only growing PRC interest in the energy resources of the former Soviet republics of 

Central Asia112--which Russia regards as a vital sphere of influence--but also the 

potential for PRC intervention in that region, should declining Russian power or 

destabilization of the current secular regimes cause this region to become a source of 

support for ethnic or Islamist separatists in Xinjiang.113 Moreover, the PRC policy of 

expanding economic links with Central Asia "is effectively undermining Russia's 

influence there. The reality of the Chinese economic boom and the Russian economic bust 

is causing a shift in the economic orientation of sections of the Central Asian region from 

the north to the east."114

The imbalance of power between the PRC and Russia in the Russian Far East, a region comprising over 

one-third of the Russian Federation's territory but containing only 5.1% of its population, will eventually 

require Russia to seek better ties with not only the United States but Japan, South Korea, and other East 
Asian states. As one observer has written,

Russia is an Asian power geographically, militarily, and politically--but not 

demographically or economically. ... Siberia and the Russian Far East produce more than 

90% of the country's oil and gas, all the diamonds, and a great share of other important 

natural resources ... [yet only] 7.5 million of the nearly 150 million Russian citizens live in 

the Russian Far East. ... In 1990-92, for perhaps the first time since Russia annexed the 

region in the nineteenth century, there was a net out-migration of more than 225,000. 

Moreover, the rate of out-migration was increasing.115

And although Beijing has, at least temporarily, put on ice its far-reaching potential claims to vast tracts 

of the Russian Far East wrested from Qing China during the past 250 years by "unequal treaties," this 

vast expanse could theoretically be claimed by the PRC to be as much an irredenta as the island of 

Taiwan.

While the emerging causes of friction between Russia and the PRC are based on long-standing 

differences, the causes of the current friction between Russia and the United States are not. A U.S. 

national missile defense does not begin to threaten Russia's deterrent forces. Kosovo and Bosnia are, in 

fact, tangential to both Russian and American strategic and economic interests. NATO enlargement does 

not threaten Russia and is not designed to exclude it from Europe. Nor does the United States seek to 

exclude Russia economically, politically, or militarily from Central Asia or the Caucasus.

The United States has a profound national security interest in Russia's becoming economically strong, 

free, and democratic. If Russia were to succeed in moving decisively from its Communist past to a free 

enterprise system, its future relationship with the United States could well mirror that of Japan, 

Germany, France, or England.

But Russia's current flirtation with the PRC's heavily statist economy, to the exclusion of opportunities 

with the United States, is destined to delay indefinitely its progress toward that goal. The current 

"strategic partnership" with the PRC, designed for joint confrontation and competition with the United 

States, is indeed an unnatural alliance that will only further delay Russia's economic transformation and 

further test the patience of the long-suffering Russian people.

Nearly a decade after the end of the Soviet Union, the task ahead for Russia remains the same. But her 

estrangement from the American model of freedom has taken Russian on a destructive detour of 

unknown duration and uncertain destination.

The Future: 'A Strategic Partnership for the Twenty-First Century'?

________________________________________________________
[T]his [Sino-Russian] relationship has reached a mature stage of 

strategic military-political coordination, if not alliance, mainly 

directed against U.S. policies and interests.

Professor Stephen J. Blank, U.S. Army War College116

The coin of "strategic partnership" has been badly debased in recent years. During the same period in 

which Russia and the PRC were flaunting their "strategic partnership," President Clinton and Vice 

President Gore were using the same term to describe U.S. relations with both of those countries.117 As 

Peter Rodman has testified: "The Clinton Administration still speaks glowingly of its 'strategic 

partnership' with a democratic Russia. Yet, for Russia, 'strategic partnership' is the phrase used for its 

ties with Iran and China--which happen to be America's most serious strategic problems."118

The Clinton administration's mismanagement of U.S. relations with Russia has led to a growing military 

and political relationship between Russia and the PRC that is meant to seriously challenge the United 

States, our allies, and existing security arrangements in the Pacific. Two significant factors, moreover, 

are currently strengthening the "partnership." Russia's continued economic disarray and the financial 

crisis in the Russian military-industrial complex remain powerful motives for arms sales and 

proliferation activities. Second, largely for this reason, the "Moscow Consensus" on foreign policy 

appears to be firmly in place, with the result that the Russian domestic political premium on 

demonstrating distance from Washington is even greater now than in the past.

It is not only deeply ironic but tragic that this state of affairs follows $112.2 billion in Western assistance 

to Russia. After eight years of a Clinton administration policy that has yet to place highest priority on the 

basic steps needed to create a free enterprise economy in Russia, the U.S.-Russia relationship is in ruins, 

characterized by deep and growing hostility and divergent perceptions of international realities and 

intentions.

CHAPTER 12
DESPITE YEARS OF POLICY 

FAILURE, A BRIGHT 

RUSSIAN FUTURE IS STILL 

POSSIBLE

12-1

A SPIRITUAL GATHERING: Russian Orthodox Patriarch Alexei II 

took part in a service marking the 10th anniversary of his installation 

inside Christ the Savior Cathedral, in Moscow, June 10, 2000. The 

giant cathedral, which Josef Stalin had torn down and turned into a 

swimming pool, was restored in 1997. Seventy bishops, 400 priests 

and deacons, and thousands of believers sang at the anniversary 
ceremony, which was covered by all of Russia's major television 

channels and newspapers and marked with an official statement by 

President Putin highlighting the importance of the Orthodox Church 

to Russian society. "The Russian Orthodox Church," Putin said, 

"plays a colossal role in the spiritual gathering of Russian lands after 

years of unbelief, moral downfall and theomachy." Today, after the 

battle against the false gods of Communism was won, a bright future 

is finally possible for Russia. AP Photo

It is my fervent hope that the two of us 

can begin a process which our 

successors and our people can continuefacing our differences frankly and openly 

and beginning to narrow and resolve 

them; communicating effectively so that 

our actions and intentions are not 

misunderstood; and eliminating the 

barriers between us and cooperating 

wherever possible for the greater good 

of all.

President Ronald Reagan, November 14, 1985, on the eve of his first meeting 

with Mikhail Gorbachev in Geneva

Seeds of Hope

Nearly a decade after the fall of the Soviet Union it is easily forgotten that for most of the 20th century, 

America stood toe-to-toe with a Communist enemy armed with tens of thousands of nuclear weapons, 

which had killed at least 20 million of its own citizens and sought to spread its anti-democratic system of 

state control of the individual across the planet.
The end of the Soviet Union on Christmas Day 1991 was as profound a victory as the West had achieved 

against Imperial Japan and Nazi Germany in World War II. Just as Germany and Japan were guided 

through skillful execution of U.S. policy to their current status as free enterprise democracies and strong 

U.S. allies, so too did our victory in the Cold War offer the prospect that the Russian Federation would 

achieve its people's new dream of freedom, democracy, demilitarization of the economy, and alliance 

with the United States.

The 1990s did not witness such a transformation of Russia. Instead of capitalizing on America's most 

significant foreign policy opportunity since World War II, the policies of the Clinton administration--

focused on strengthening the Russian central government rather than deconstructing the state and 

building from scratch a free enterprise system--contributed to the profound injury of Russia and her 

people.

During the last decade, Russia endured the rise of organized crime, oligarchy, and corruption. By 1998, 

Russia's economy had collapsed--the culmination of years of deterioration as Soviet central planning 

was replaced with neither market competition nor even government-enforced civil order. The 

consequent pathologies--from domestic social ills, to increasing weapons proliferation for hard currency, 

to a foreign policy marked by a deepening estrangement from the pro-American outlook of the early 

Yeltsin period--are the legacy of the post-Cold War era thus far.

The task ahead for Russia in 2000 is essentially the same as it was in 1992. Indeed, as Michael Dobbs 

reported in the Washington Post in August 2000, "most people are worse off than they were in 1991."1

Since so little progress has been made toward putting in place the building blocks of a democratic free 

enterprise system, one that serves the people and not the corrupt few, that work must now begin in 

earnest. But whereas conditions in Russia in 1992 were eminently hospitable to such an undertaking, the 

ensuing years of policy failure have squandered that advantage. Now, with so many Russians having 

soured on "reform," the necessary work will be much more difficult.

Despite the dimensions of the task ahead, the outlook for Russia is not entirely bleak. The economic 

collapse of 1998, while devastating, has given way to a determined effort to dig out from beneath the 

rubble and start afresh. The hostility engendered by the statist, incoherent, and clumsily-administered 

Clinton administration foreign policy need not create an enduring cold peace.

The seeds of hope sown in the Russian soil in 1991 have not yet blossomed into a vibrant, prosperous, 

free society, but they have withstood the crony capitalism and outright corruption of Chernomyrdin and 

Chubais and the deluge of Clinton administration-orchestrated debt that was wasted by the Russian 

government. Hope that was not crushed by Stalin's purges, the KGB, and the epic human misery of the 

longest failed social experiment in human history is not easily extinguished. If nurtured, the still-living 

seeds of hope can and will produce a bright Russian future.
Russia's Slow Economic Recovery Since the Crash of 1998

Russia's total economic collapse in 1998 inflicted pain, suffering, and disruption on millions of 

Russians. It is a testament to the storied Russian character that Russia has survived, and is fighting back. 

If given a chance, freedom can yet succeed in making Russia prosperous.

The collapse of 1998 gave evidence that reliance on the state had been broken. For the most part, 

Russians were forced to survive on their own; few looked to the state for help. "No one I know expects 

anything from the government or any other authorities," writer Tatyana Tolstaya matter-of-factly stated. 

"People try to survive without the government as much as possible."2

This view was confirmed by a survey of Russians carried out at the end of September 1998, in the 

depths of the economic crisis. Of those polled, 61% said that they were relying on themselves to get 

through the crisis, while 14% were depending on families, neighbors, and friends. Only 12% said they 

had turned to the state for aid. Asked what will enable them to live through Russia's economic collapse, 

none mentioned the state.3

"The August crisis was a great economic shock, but the psychological shock was even stronger," pollster 

Yuri Levada noted. "But after several months, the country began to calm down."4 The rise in world 

energy prices provided a needed respite for Russia to begin its gradual economic reconstruction in 1999.

Virtually all of Russia's major economic indices improved modestly in 1999. This is not surprising, of 

course, given the exceptionally low 1998 base from which percentage "improvements" were measured. 

Nevertheless, according to official Russian government statistics, the economy grew 3.2% in 1999; 

industrial production rose 8.1%; and inflation was lower than expected at 36.5%.5

The slow economic progress that began in 1999 has gained some momentum in 2000. The Russian 

government reported in July 2000 that the economy was growing at an annual rate of 7.3% during the 

first six months,6 while industrial output from January to June rose 8.6%.7 Unemployment, which had 

been as high as 13% of the workforce after the 1998 economic collapse, fell slightly to 11.7% by the end 

of 1999. 8 By June 2000, it remained at 11.5% of the 73.6 million citizens of working age. 9

Inflation after the first six months of 2000 had further improved and was expected to fall to 20% for the 

year.

The surge in oil prices has meant a major windfall in export earnings for Russian energy companies. 

Russian oil and gas exports now account for more than half of all federal tax receipts.10 Fueled by 

strong energy exports, Russia's trade surplus reached $27 billion for the first five months of this year.11

The resuscitation of Russia's economy and the rising export earnings have increased the government's 

tax revenue and boosted the Russian Central Bank's reserves to a post-crash high of $23.2 billion in 

August 2000.12
Promising Tax Reform

The Russian government is using the breathing room created by high oil prices and import substitution 

to implement much-needed tax simplification and government spending reductions.

After President Boris Yeltsin's December 1999 resignation, Russia's Center for Strategic Research was 

tasked with drafting an economic reform program for the incoming Putin government. Headed by 

German Gref, whom Putin subsequently appointed Russia's Minister for Economic Development and 

Trade, the Center released its report in June 2000. It emphasized:

* Reducing government spending

* Balancing the state's budget

* Eliminating many state subsidies

* Implementing a 13% flat income tax

* Reducing turnover taxes on business

The 13% flat income tax, in particular, has gained popular support in part because it is seen as a way to 

eliminate tax evasion by wealthier Russians. The flat tax passed the State Duma overwhelmingly on July 

19, 2000, and it passed the Federation Council with an unexpectedly strong vote of 115 to 23 seven days 

later.13 Vladimir Putin signed the flat tax into law on August 7, 2000, calling it, "the most important 

event in the country's life."14
The turnover tax, which is a major source of revenue for, as well as abuse by, the regional governors, 

was reduced from 4% to 1%. The Russian central government had hoped to abolish this tax on business 

revenues; but facing strong opposition from the governors, the Putin government settled for a 75% 

reduction in rates.

Both the flat tax and the deep cut in the turnover tax are designed to simplify the tax code, spur foreign 

and domestic investment, reduce capital flight, and encourage higher tax compliance. "I believe that 

these measures will encourage the return of some money that left the country as capital flight, not 

criminal money, but money that went because of high taxes," Russian Prime Minister Kasyanov said.15

Capital flight, the estimates for which range from $150 billion to $500 billion over the past decade, has 

also recently dropped to $300 million per month.16 Growing repatriation of Russian capital, the signs of 

which have been evident for several months, is essential if Russian investment is to improve over the 

long term. Relief from an onerous tax system, greater transparency, and legal guarantees against 

expropriation will remove much of the incentive for Russians to send their cash abroad to safer havens.

To encourage the growth of the entrepreneurial sector, Putin has established an Entrepreneurial Council 

to coordinate ties between Russia's executive agencies and businesses. The Council, which is chaired by 

Prime Minister Kasyanov, will work with its counterpart in the Duma to improve the laws affecting 

small businesses.17
Small and medium business in Russia produce just 12% of Russia's gross domestic product, compared to 

70% in European economies. Entrepreneurs remain bogged down in taxes and red tape and are starved 

for cash due to the unwillingness of local banks to provide inexpensive loans for longer than two years. 

The Putin government views small business as key to raising living standards, creating wealth, and 

increasing employment in a short period of time.18

A Wired Russia

Like all other countries, Russia must utilize information technology if it is to succeed in the 21st century. 

In his State of the State address, President Putin noted: "Countries like Russia have to think hard about 

how they're going to get the investment to allow people to become part of the global, information 

economy."

While estimates put the number of Russian Internet connections at 1.9 million, many of those are multiuser sites hosted by universities and civic organizations. According to a U.S. market research firm, the 

number of Russians going online has increased 32% in the first quarter of 2000 alone. This same firm 

predicted in June 2000 that Internet users in Russia will reach 6.6 million by the end of the year, while 

another study estimated that 11 million Russians would have access by then.19

Russia's nascent use of credit cards and its limited banking system make business-to-customer ecommerce a difficult proposition in the near term. And Russia's ability to enjoy the benefits of 

information technology will be severely compromised if Russians lack confidence in its security and 

privacy--issues directly implicated by reports that the Russian government plans to closely monitor 

electronic communications.20 But Russians' growing enthusiasm for the Internet may help overcome 

these obstacles.

12-5

WIRED RUSSIA: Moscow student Maksim Gusev uses the Internet in Moscow's Internet Chevignon 

cafe to ask then-Russian President Boris Yeltsin questions on May 12, 1998. MSNBC organized 

Yeltsin's Internet debut. The Internet and Internet access are growing in Russia, facilitating 
international trade and promising economic growth. AP Photo/Mikhail Metzel

Foreign Investors Tentatively Consider a Return to Russia

In a sign that foreign investors are starting to return to Russia, foreign investment is slowly returning to 

pre-August 1998 levels.21 More than $10 billion in foreign capital has gone into Russia during the first 

five months of 2000--twice as much as during all of 1999.22 According to official figures, foreign direct 

investment in 1999 totaled only $4.26 billion,23 although that was 250% higher than the extraordinarily 

depressed 1998 figure.

In 1999, foreign direct investment in Russia amounted to $61 per capita; by comparison, the per capita 

figures for Poland and the Czech Republic were $389 and $967, respectively.24 But foreign direct 

investment in Russia for the first quarter of 2000 rose to $2.4 billion, 57% higher than for the same 

period the year before. The trend, at least, is favorable.

Portfolio investment, more so than foreign direct investment, has remained extremely low--$31 million 

in 1999 compared to $3.3 billion in 1997.25 This is reflected in the continued depression of the Russian 

stock market, compared to its levels before the 1998 economic collapse.

According to a May 2000 report by the Bank for International Settlements, international banks continued 

to lower their exposure to Russia in the second half of 1999 to their lowest point since the end of 1994--

unsurprising, given Russia's extremely poor record of servicing debt owed to the London Club of 

commercial debtors. American banks, according to the report, reduced their exposure from $7.78 billion 

in mid-1998 to $1.68 billion by the end of last year.26 But others are making up at least a small part of 

this loss:

* A Western syndicate of banks in August 2000 announced a $50 million loan to oil 

conglomerate Yukos, the first such private loan since the August 1998 collapse.

* The European Bank for Reconstruction and Development in May announced a $150 

million three-year loan for oil giant Lukoil.

* The U.S.-Russia Investment Fund in June announced plans for at least $150 million in 

investments in Russia over the next 18 months, with the option of investing more if the 

Russian economy improves.

* Ford Motor Company recently started construction of a $150 million plant near St. 

Petersburg.
* In early June, Royal Dutch/Shell bought from Marathon Oil a 37.5% stake in a Far East 

oil and gas exploration project, Sakhalin 2, in a deal worth an estimated $350 million.

Meanwhile, Russia continues to maintain a positive balance of trade, helping to replenish its weakened 

foreign currency reserves. The European Union is now Russia's largest trading partner.

The United States continues to be the largest foreign direct investor in Russia.27

A New Generation

The younger generation in Russia--less influenced by the legacy of Soviet Communism than its parents--

has a positive attitude about what Russia could become, as well as the desire and initiative to obtain the 

skills required for the 21st century economy.

Perhaps most important for Russia's future is that young Russians are significantly more supportive of 

democracy than their older countrymen. In a recent public opinion poll, fully two-thirds of young 

respondents favored "West-European-style democracy" for Russia.28 While support for democracy 

among some Russians has eroded somewhat over the last few years, the strongest support for basic 

democratic rights is among youth.

While older Russians debate whether Russia's future is in the West or East, the younger generation more 

clearly sees Russia's future with a Western orientation. Importantly, they are "less inclined to pine for 

the Soviet Union" than their older counterparts,29 and those young people who do view the 

disintegration of the U.S.S.R. negatively are focused on narrow, practical issues such as the difficulties 

involved in traveling between the new independent states of the former Soviet Union.30

Young Russians also display an entrepreneurial spirit unknown to previous generations. Remarkably, 

three-quarters of 18-29 year-olds believe that it is important, "to achieve success with a business of their 

own."31 This energy and vigor can transform Russian society and Russia's economic future, if it is not 

indefinitely stifled by current government impediments to the market.

Three-fifths of Russians under the age of 30, according to a 1996 study, favored allowing foreign 

businesses to operate in Russia.32 More generally, younger Russians are also more likely to endorse 

Russia's integration into the international community.33

Younger Russians overwhelmingly are more interested in seeing their country become economically 

prosperous than in seeing it become militarily strong. A 1998 survey by the U.S. Information Agency 

found that young people favored Russia becoming, "a prosperous country in which people live well," 

over "a great military power respected by other nations," by a margin of 80% to 15%.34 Even among 

young people in the military, 65% chose prosperity over great power status.35
These encouraging signs suggest that Russia's rising generation is unlikely to support a return to the 

Soviet Union's state-controlled and excessively militarized economy--or the repressive domestic policies 

and threatening foreign policy behavior that accompanied it.

A Rebirth of Faith

While public confidence in many institutions is low, the Russian Orthodox Church enjoys greater 

support than any other institution. Sixty-three percent of Russians expressed confidence in the Orthodox 

Church.36 As a result, the Russian Patriarch, Alexei II, has become one of the country's most influential 

public figures.

Religious faith has sharply increased since the collapse of the Soviet Union. As one sociologist noted, 

"in a remarkably brief period of time, Russia has become one of the most God-believing countries in 

Europe."37

Between 1991 and 1998, those willing to tell pollsters they held a belief in the existence of God 

increased by one-third, from 45% to 60%.38 One-quarter of Russians surveyed responded that they had 

not believed in God previously, but had changed their minds since the fall of Communism. (The 

respondents who had changed their views were concentrated among the young and the educated.) 39 At 

the same time, the number of Russians identifying themselves as Orthodox believers nearly doubled, 

from 30% to 58%.40

Religious belief now plays an increasingly prominent role in Russian public life. In fact, in the campaign 

preceding Russia's 1999 Duma election, even Communist leader Gennady Zyuganov appealed for the 

support of Orthodox voters.41 That the leader of the successor to the militantly atheist Communist Party 

of the Soviet Union would make such an appeal demonstrates how profoundly Russian society has in 

fact been transformed.

12-9
REBIRTH OF FAITH: The Kursk tragedy tested Russian believers and left the nation grief-stricken. 

Here, sailors Denis Kopylov, Maxim Yegorov, Alexander Avronyonok (left to right), light candles in a 

Moscow church for the fallen sailors, Aug. 23, 2000. AP Photo/Mikhail Metzel

Russian President Vladimir Putin has professed his own Orthodox faith and has strongly endorsed the 

role of the Orthodox Church in Russian life. For example, Putin attended an Orthodox service conducted 

by the Patriarch in the Kremlin's Annunciation Cathedral immediately following his inauguration.42

And on the tenth anniversary of the election of Alexei II as Russia's Patriarch, Putin sent the following 

message: "The Russian Orthodox Church plays a colossal role in the spiritual gathering of Russian lands 

after years of unbelief, moral downfall and theomachy."43

Churches long in disrepair or completely demolished by the Soviet state have been restored, and in many 

instances reconstructed from the ground up. The most celebrated restoration is the rebuilding of the 

Cathedral of Christ the Savior, destroyed under Stalin, on the banks of the Moscow River. There are 

many examples of individuals privately raising the funds needed to rebuild or restore churches damaged 

under Communist rule. In Red Square, a church that had been destroyed to make room for public toilets 

and kiosks has been reconstructed to its former glory with private funds raised from Muscovites. Some 

of the original bricks, faithfully kept by believers for years, were used in the reconstruction.

Charitable giving is rising in Russia, to the benefit of both organized religion and private civic and social 

organizations. The extremely limited resources of most Russians, coupled with the past expectations that 

the government would provide, make even such modest growth in charitable giving as Russia has 

witnessed impressive. Charitable giving is continuing even though corrupt officials and organized crime 

groups have embezzled donated funds and sought to abuse the special tax treatment and duty-free status 

enjoyed by many Russian charities in order to import duty-free cigarettes and alcohol. In the aftermath 

of the Kursk disaster, Russians ranging from oligarchs and oil companies to ordinary citizens have 

donated funds for the crewmembers' families, despite fears that the funds might be misused.44 The 

goodwill of ordinary citizens seems inexhaustible.

Russia's Growing Habit of Civic Involvement

During the 74-year existence of the Soviet Union, social organizations existed only with the approval 

and funding of the Communist Party. Even where such organizations professed goals of promoting 

human rights, press freedom, or social justice, they were mere fronts for a party unalterably opposed to 

such aspirations.

Despite this legacy of exclusion from civic life, a number of genuinely private groups have been 

founded in recent years. The number of human rights organizations has grown from fifty in 1996 to over 
1,200 in 1999.45 According to the U.S. Agency for International Development (USAID), there are 

approximately 65,000 active civic and social groups of all kinds in Russia.

Many of these new Russian civic groups have received modest funding support from the United States, 

which has contributed to more than 13,500 civic activists. The Eurasia Foundation, the International 

Republican Institute, and the National Democratic Institute for International Affairs, working through 

USAID and the National Endowment for Democracy, have contributed in this area.

There are signs that privately-organized civic activism is taking root in the new Russia. For example, 

more than 60 Russian environmental organizations sent a letter to World Bank President James 

Wolfensohn calling on the World Bank to cease lending to Russia. The cutoff was urged in protest of 

President Putin's May 19 decree abolishing the State Committees on Environment and Forestry and 

transferring the two committees' responsibilities to the Ministry for Natural Resources--which is also 

responsible for mining and exploiting Russia's oil, gas, and mineral wealth. Among those signing were 

environmentalist Alexei Yablokov and Aleksander Nikitin, the former navy officer who had been 

imprisoned after revealing the extent of the Russian navy's harmful nuclear pollution.46

Russians are now accustomed to such elements of civic life as participating in talk radio and debating 

domestic and foreign policy openly in the public square. There is a new sense of individual 

responsibility for civic life. The habits of participatory democracy and community-based social action 

are increasingly well learned.

A Well-Trained Workforce

The Soviet Union's education system was notoriously ideological. It indoctrinated students in 

Communist ideology and used the classroom as a tool of state control over the population. Yet precisely 

because so much was banned from Soviet classrooms, Russians received a healthy dose of such 

politically "safe" subjects as mathematics, physics, chemistry, and engineering. Likewise, training in 

classics, ancient history, languages, and geography was politically acceptable under Communism.

A silver lining to the Soviet state's lack of academic freedom was thus its success in training scientists 

and specialists. The high level of education and skills in these areas among much of the Russian 

workforce is an asset that Russia still possesses intact.

But while Russia still excels at teaching applied sciences, the complete collapse of the Russian economy 

in 1998, and the rocky years of the 1990s that preceded it, took a drastic toll on the Russian education 

system. There has been an overall decline in quality due to cutoffs of state funding. Russian schools--

virtually all state-run--in recent years have been incapable of supporting their own operation. Some 500 

Russian schools closed in 1999 alone.47 "Some teachers complain of not being paid for months at a 

time,"48 and often many teachers work while still owed back salary from the previous academic year.
Russia's technically educated workforce is thus not being replenished. Improving Russian education to 

train a 21st century workforce will require not only building on the strength of its technical and scientific 

education in the past, but also unlocking the potential of a new academic freedom that was born with the 

end of Communism. To the extent that the economy recovers, the government will also be able to 

provide greater funding to the education system.

Just as importantly, Russia has the potential to develop its fledgling private education system--only 0.5% 

of Russia's 70,0000 schools were private in 1992--into an alternative means of training its workforce, 

particularly in the areas of trade schools, technical institutes, and higher education.

Despite her government's desperate fiscal straits, Russia remains a technologically advanced nation with 

many leading scientists and engineers, a superb educational ethic, and a broadly talented workforce. 

Whether these assets can be deployed productively in the private sector, for the benefit of all of Russia's 

146 million people, is a challenge that still lies ahead for Russia's leaders.

Culture

Russia has a rich culture which ties its people together and is universally admired. Russian masters such 

as Pushkin, Gogol, Dostoevsky, Chekhov, Turgenev, Goncharov, and Tolstoy have provided a "common 

language" of reference for Russians and a fascinating insight into Russia for the world. While the long 

period of Soviet censorship stifled Russia's creativity (so that the emergence of long-suppressed works 

by such writers as Bulgakov, Pasternak, and Solzhenitsyn was the exception), the nation's 

extraordinarily rich pre-Communist literary tradition is an asset that has only appreciated with each 

passing year.

Russian ballet, music, and opera are world-renowned. Great Russian composers such as Shostakovich, 

Tchaikovsky, Moussorgsky and Glinka have combined folk music with the European classical tradition 

for uniquely Russian operas that not only survived Communism but are currently providing an ageless 

foundation for 21st century artists to build upon. Russian music and theater are today valued and 

enjoyed as much as they have ever been in Russian history. Regional theaters in cities such as Perm and 

Novosibirsk are training grounds for the dancers who go on to the Bolshoi.

Russian art is likewise a great source of pride, from Rublev in the 15th century and Ushakovin in the 

17th to the more contemporary works of such artists as Kandinsky and Korovin and the work of jeweler 

Faberge. This heritage, too, is one of the new Russia's appreciated assets.
12-7

A BOWL OF CHERRIES: People put flowers at a newly opened monument to Anton Chekhov outside 

Moscow's Art Theater on the theater's 100th anniversary. The theater, which catapulted Chekhov and 

Konstantin Stanislavsky onto the world stage, turns 102 years old on Oct. 26, 2000. It gained 

widespread acclaim after the success of one of its first plays, Chekhov's "The Seagull," in 1898, and 

went on to become one of the century's most influential theaters. AP Photo/ Alexander Zemlianichenko

Despite a Decade of Frustration, Russians Still Support Democracy

The election of Vladimir Putin to the Russian presidency is widely attributed to the public longing for 

order after a decade of chaos. A widely-quoted public opinion survey taken prior to the March 2000 

presidential election showed that approximately one-third of Russians were willing to sacrifice some 

freedom to gain order.49 But despite the unmistakable public clamor for a crackdown on crime and 

corruption, a majority of Russians are not prepared to give up their most cherished and hard-won 

liberties.

Russians are indeed strongly committed to their new civil and political liberties. An August 1999 U.S. 

government survey found that 73% of respondents opposed loosening restrictions on police and security 

forces, 66% opposed banning meetings and demonstrations, 62% opposed canceling elections, and 53% 

opposed media censorship. Significantly, these views were expressed when Russians were asked if the 

above steps were permissible "to establish strict order in Russia."50

Three-fifths of those polled in a recent survey expressed the view that the state "should not interfere in 
their private life."51

Support for Communism and for Russia's Communist Party continues to decline. Thus, for example, 

Communist Party leader Gennady Zyuganov received two million fewer votes in Russia's 2000 

presidential election than he received in the first round of the 1996 election.52 Russia's Communist 

Party does not have a bright future, with the most support for Soviet-style socialism evidenced among 

those over 55.53

Evolving Political System

Seeds of hope exist within Russia's evolving political system as well. A majority of Russians have come 

to see elections as an essential component of political life. Moreover, as Russians have become more 

experienced voters, they have been increasingly unwilling to "waste" their votes on small parties that do 

not achieve significant representation in the parliament.54 Extremist parties have either adjusted their 

platforms or suffered marginalization and in some cases extinction.55

Russia's political system has also stabilized in the wake of Russia's recent parliamentary and presidential 

elections. Relations between the executive and legislative branches, always strained under Yeltsin, have 

improved to some degree. President Yeltsin appeared before the Duma rarely--usually to urge the Duma 

to approve his choice of Prime Minister or approve the budget--and was often critical, accusing the 

Duma of "political anarchy" when it challenged his authority.56 President Putin has had significantly 

greater success to date in working with the legislature to achieve key goals.
12-10

A BRIGHT DAY: A troupe of young dancers from Siberia visit St. Basil's, on a warm Saturday, June 4, 

2000--the day President Clinton met nearby in the Kremlin with Russia's newly-elected President. The 

girls are part of an ensemble called "Mechta" ("dream"), from the city of Omsk, and had been 

performing in Moscow. The younger generation in Russia--less influenced by the legacy of Soviet 

Communism than its parents--has a positive attitude about what Russia could become and are "less 

inclined to pine for the Soviet Union" than older generations. AP Photo/J. Scott Applewhite

The government's new support in the parliament--and a more general political realignment in the Duma--

have also significantly improved the prospects for the passage of long-needed legislation to repeal 

Soviet-era controls and subsidies and establish more sturdy protections for private property rights. Thus 

far, Putin and his government have been able to muster what Russian observers call a "dynamic 

majority" in the Duma to pass government-sponsored bills, notably including a 13% flat income tax in 

July 2000.

Deep concerns remain over Russia's future direction. The U.S. Congress has already expressed strong 

opposition to Russian government attacks on press freedoms, and there are serious questions about the 

government's commitment to civil and political liberties--particularly in light of the extraordinary 

brutality of the war it has pursued in Chechnya. But whatever the government's policies may become, 

there can be little doubt that Russia's people have not given up their support for democracy and 
individual liberty. If Russia eventually succeeds in becoming a free enterprise democracy, this, too, will 

be one of the important reasons.

Conclusion

In the most narrow sense, Secretary of State Madeleine Albright is correct in stating that Russia is not 

America's to win or lose. Russia is a great nation, and must determine her own course. If it is to make a 

successful transition from nearly a century of Communism to a free enterprise democracy built upon 

individual decision making and individual rights, it will be because of Russians' initiative and 

determination to do so.

Yet Albright's comment seems to imply that America should wash its hands of responsibility for 

Russia's course. In that, she is profoundly wrong. Why should Russia not be able to look to the United 

States for advice and assistance in constructing a free enterprise economy? The complete domination of 

every sphere of economic life by the Soviet state and the Communist Party had a profound impact on the 

Russian experience. No living Russian who did not escape the Soviet police state had any experience 

with an economic life based on the sanctity of private property, private contract, and private initiative.

As the world's only remaining superpower at the conclusion of the Cold War, and the leading free 

enterprise democracy on earth, the United States offered the quintessential model for Russia's future, if 

Russia chose freedom. It was then, and is now, America's opportunity--if not our duty--to respond.

Never have so many millions of people had so much to gain so quickly as did the citizens of the Russian 

Federation in December 1991. Russia's obvious and plentiful national assets--from its people, to its rich 

culture, to its expansive territory, to its natural resources--had been forcibly rendered unproductive by 

Soviet Communism. The sudden destruction of that perverse system, as if by a lightning bolt, had 

literally set Russia free.

Despite the fact that neither the Russian government nor the United States has responded adequately to 

this historic opportunity, the new freedom that individual Russians enjoy has been increasingly 

consequential throughout this decade. Whereas individual initiative was stifled in the Soviet Union, it is 

alive and growing in today's Russia. Spirituality was stamped out by the Communist Party, but is 

thriving today. And while the most basic tools for the individual creation of small businesses are not yet 

at hand, millions of young people have made it clear that starting one's own business is the new "Russian 

dream."

America and Russia have lost a decade. The growing estrangement of Russia from the United States, the 

incipient hostility to American interests reflected in Russia's foreign policy, and the telltale signs of 

authoritarianism in the post-Yeltsin era provide ample evidence that the world is a more dangerous place 

because U.S. foreign policy was weak, and did not lead. But it is not too late for the United States to stop 
impeding and start assisting the transition from Communism to free markets, from authoritarianism to 

democracy, and from disorder to order. It simply requires that we begin anew--but this time with a clear 

purpose.

RECOMMENDATIONS

The Advisory Group's recommendations for U.S.-Russia policy proceed from ten principles:

* Russia's immense economic potential as a trading partner, its ability to influence Europe, 

the Middle East, South and Central Asia, and the Far East, its military importance as a 

friend rather than a foe, and the fundamental commonality of Russian and American 

interests make the U.S.-Russia relationship of continued central importance in U.S. 

foreign policy. Russia's importance in the world is multidimensional, and is not confined 

to its current or potential military power.

* The United States, our friends and allies, and the world are more threatened today by 

Russian economic, political, and social weaknesses than by Russian strength. Virtually 

every major problem in U.S.-Russia relations is directly or indirectly traceable to Russia's 

failure to complete a successful transition from Communism to free enterprise, and from a 

Soviet police state to a stable, securely democratic, and free society. U.S. policy should 

never seek to prolong or exploit Russia's weakness, but should seek to empower Russia to 

build upon her strengths.
* The unprecedented, across-the-board deterioration in Russian perceptions of the United 

States and of democracy and free enterprise during the past eight years represents a United 

States foreign policy disaster of the first magnitude. Unmitigated, the implications could 

be comparable to the collapse of democratic values in interwar Germany, or the early and 

mid-20th century triumph of Communist dictatorships in Russia, China, and Central 

Europe.

* It is a vital interest of the United States to revive the strong relationship with the newlyindependent Russian Federation that existed in 1992. Despite the extent of the damage U.

S.-Russia relations have suffered during the intervening years, the United States must not 

perceive this damage as irreversible, nor that the current impasse in relations with Russia 

is intractable, nor that Russia's negative perceptions of the United States, democracy, and 

free enterprise are immutable.

* A stable, secure, democratic, and prosperous Russia is a vital American interest. 

Therefore, essential elements of rebuilding the U.S. relationship with Russia are an 

immediate focus upon the creation of the legal foundation for a free enterprise economy 

premised upon private economic decision making and the creation of intermediary 

financial institutions that serve the people of Russia rather than a corrupt elite. The 

counterproductive nature of American economic advice and aid in the past--in particular, 

support for massive, virtually unconditional subsidies to the Russian central government--

should cause the United States to rethink the economic strategies it has promoted, not to 

abandon efforts to help Russia build a strong and free economy. These efforts must, 

however, be pursued in a different spirit. The Clinton administration's attempts to 

macromanage Russia's economy have harmed Russia and U.S.-Russia relations, just as 

Russian maintenance of Soviet-era controls on the economy have done. American policy 

must proceed from the premise that individual Russians--not the Russian government, or

the U.S. government--must create their own economic future.

* U.S. friendship with Russia requires a clear articulation of American interests, values, 

and policies. It requires that the U.S. government speak frankly when and if Russia 

engages in activities harmful to America's national interests. This does not require 

hectoring or seeking unilateral advantage, and does not preclude acceptable compromises 

of honest differences. It does preclude the Clinton administration's lack of directness 

concerning such serious bilateral disputes as weapons proliferation to Iran, a U.S. defense 

against ballistic missiles, the war in Kosovo, the war in Chechnya, or NATO enlargement. 

By protracting negotiations over such fundamental issues and by failing to proceed with 

the execution of American priorities (as, for example, in its dragging out of NATO 

enlargement over more than the entirety of two presidential terms), the Clinton 

administration raised false hopes in Moscow, damaged American credibility, and 

significantly strengthened Russian hostility. An honest acceptance of such differences 

would have been healthier for U.S.-Russian relations. Honesty and forthrightness are far 
better long-term guarantees of friendship than disingenuous temporizing.

* It is vital that the U.S. government avoid exaggeration of success and concealment of 

failure in U.S.-Russia relations. Such practices have been a hallmark of U.S. Russia policy 

during the 1990s. Misleading the American people--for example, about the empty 

"detargeting" agreement that President Clinton and Vice President Gore trumpeted to the 

public--ultimately engenders cynicism and undermines the necessary base of American 

public support for stronger U.S.-Russian relations.

* Building a successful Russia policy requires the full attention and active direction of the 

President of the United States. President Clinton failed to make the reconstruction of 

Russia at the end of the Cold War his priority. He failed to devote sufficient time and 

sustained attention to formulating a Russia policy. He failed to promote the Russia policy 

of his subordinates to the Congress, to the American people, and to others within his own 

executive branch. Each failure made the U.S. policy-making process less disciplined and 

less focused. These failures contributed directly to economic and foreign policy debacles 

in Russia. The President must lead.

* The United States must build a broad base for its policy in Russia, extending beyond 

relationships among a handful of executive branch officials to a broad spectrum of 

government officials, factions of the State Duma, regional governors, legislators and 

political leaders, and, most importantly, Russian private citizens and private-sector 

organizations interested in developing not oligarchy but free enterprise.

* The United States and Russia share equal responsibility for our future relations. The 

Russian government should be expected to forthrightly advance the Russian national 

interest. But as we seek close relations with Russia we must do so on the basis of 

American values and international norms such as respect for sovereignty and the 

inviolability of national borders. A willingness to accept America's legitimate interests as 

a basis for a bilateral relationship based on mutual advantage remains an essential 

ingredient of successful U.S.-Russian relations.

With these principles in mind, the Advisory Group recommends:

1. Engage Russians across the political spectrum.

During the Clinton administration, a small group of American and Russian executive branch officials 

dominated the U.S.-Russia relationship. The Advisory Group recommends that the next administration 

undertake a much broader engagement across the Russian political spectrum and institutions of 

government. This engagement would extend to the full range of relevant executive branch decision 
makers and the main factions in the Duma, and also include the regional governors, regional legislatures, 

mayors, and other local government officials. The range of American interlocutors for Russia should 

also be expanded beyond the U.S. executive branch. The Advisory Group recommends the creation of 

institutional relationships and opportunities for increased communication and cooperation at all levels of 

government. The existing Duma-Congress Study Group is a model for creating institutional relationships 

between American and Russian governors, mayors, and legislators.

Of even greater importance, however, is an expansion of the U.S. government's engagement beyond the 

political sphere to the private sector, including the business community, non-governmental 

organizations, the academy, think tanks, the clergy, and rural and agricultural sectors in all regions of the 

Russian Federation.

The broader and deeper engagement these initiatives would promote is a prerequisite for U.S. policy 

makers to maintain perspective on events in Russia, and will give a wider range of Russians a direct 

account of U.S. policy and motivations.

2. Give priority to private, not government, solutions.

The most basic failing of U.S. policy during the Clinton and Yeltsin administrations was the emphasis 

on strengthening the Russian central government, instead of focusing on the essential task of limiting the 

role of the state in Russia and constructing the basis for a free enterprise system in which private 

individuals order economic affairs. The United States should redirect its efforts into assisting Russia to 

identify laws and regulations that continue to place the state in a central economic role in Russia, and to 

replace them with laws to fully legalize: private property; limited-liability private partnerships and 

corporations for the pursuit of commercial and agricultural enterprises of all types; private insurance; 

private intellectual property; private commercial, investment, and merchant banks; and private capital 

markets. This project should be undertaken in cooperation with the Duma, the executive branch, and 

regional executive and legislative branches--and should be pursued with more urgency than has thus far 

been the case.

Russia's private sector will not flourish, and foreign money will not be invested in sufficient quantity, 

until a world-class banking system, which pays and charges free-market interest rates and otherwise 

conforms to international norms of commercial behavior, is established, and until domestic and foreign 

investors enjoy reliable legal protections. The United States should stand ready to assist in the creation 

of such banking legislation to the extent requested by Russia or Russians.

The United States should assist in the further development of a uniform commercial code in the Russian 

parliament and each of Russia's 89 regional legislatures. Such a code remains necessary to provide a 

basic set of rules that can be relied upon by any person who wishes to participate in the Russian 

marketplace.
3. Engage the Russian people, not just the Russian government.

U.S. relations with Russia should be more broadly based than institutional relations among 

governmental bodies. The Advisory Group endorses expansion of existing people-to-people exchange 

programs such as the Library of Congress' Russian Leadership Program and the Center for Citizen 

Initiatives program, as well as programs run by the State Department such as the Fulbright Program, the 

Internet Access and Training Program, the Russian-U.S. Young Leadership Program, and the 

International Visitors Program. Such programs give individual Russians the opportunity to observe 

American democracy and the market economy, while helping Americans better understand the 

opportunities and challenges in Russia, and allowing both host and guest to share experience and 

expertise. Such programs are particularly valuable to the extent that they promote contacts with Russians 

living outside of the capital. The Advisory Group particularly endorses an expansion of the number of 

Russian exchange students at American universities, especially where the exchange programs assist 

students studying economics, business, marketing, and agriculture.

4. Enlist the support of the U.S. private sector for the establishment of a cooperative surveying and 

titling project in each of Russia's 89 regions on a far more urgent basis than has thus far been 

undertaken.

The enactment of sturdy legal protections for private property, privately-made contracts, and 

commercial transactions is a fundamental prerequisite to the development of free enterprise in Russia. 

Entrepreneurial activity and the growth of competitors to the "privatized" monopolies will be severely 

stunted without the capital that private property rights will make available to the Russian economy.

The availability of marketable title to privately-owned real estate is an essential--and still missing--

ingredient of the free enterprise system that Russia seeks to develop. Russia's land is a source of 

enormous potential wealth, both as security for commercial lending and as a valuable asset in its own 

right for the development of Russian housing, agriculture, commerce, and recreation. To permit Russia's 

citizenry to tap this existing source of wealth, a nationwide effort must be undertaken to precisely 

describe the boundaries and ownership history of all potentially marketable state-owned and privatelyowned land in Russia--and to do so on a far more accelerated basis than has been considered feasible in 

recent years.

The legal descriptions of surveyed property and the complete record of its ownership, including all 

legally valid claims, liens, and rights of others besides the recorded landowner, should be published on 

the Internet, as well as stored in publicly-accessible land title registries within each region. The project 

should draw upon the expertise of American surveyors, cartographers, abstracters, title insurers, and 

other real estate, civil engineering, and land title professionals, and should have as its objective the 
establishment of the basis for a flourishing competitive market in private title insurance and real estate 

services throughout Russia by 2005.

5. Make U.S.-Russia relations a presidential responsibility of first importance.

The Advisory Group recommends that the next president and secretary of state take direct responsibility 

for U.S. relations with Russia, instead of diminishing their importance by delegating plenary 

responsibility to subordinates. The Advisory Group further recommends that the focus on summits be 

replaced with regular and frequent interactions similar to the relationships the U.S. maintains with its G7 partners. This will broaden the scope of U.S.-Russia relations beyond the obvious issues where the two 

countries have diverging views, as well as promoting reasonable compromises that serve American 

interests on such issues.

6. Place greater reliance on available sources of U.S. intelligence and analytic capability regarding 

Russia.

During the Clinton administration, information developed by the U.S. government, either by the 

intelligence community or by the American Embassy in Moscow, was routinely disregarded if it clashed 

with the administration's policy views or political interests. The Advisory Group recommends that the 

next administration not only give more attention to reporting on the effects of its policies, but also 

strengthen intelligence and analytic capabilities. The deconstruction of a large part of the intelligence 

community's analysis and collection capability on Russia has proven to be a serious mistake. Russia's 

enormous strategic importance requires that it receive the most thorough attention and analysis. 

Congress should direct, through the intelligence oversight committees of the House and Senate, 

additional resources to rebuild our Russia-related intelligence capabilities--not to Cold War levels, but to 

levels reflecting Russia's relative importance.

The United States government should also give appropriate weight to the observations of Americans in 

Russia--including U.S. Embassy personnel, members of the intelligence community, U.S. 

correspondents writing from Russia, and private individuals--to provide for more thoughtful analysis of 

facts, trends, political developments, and financial, academic, and social information concerning Russia.

7. Consolidate U.S. assistance programs.

The Advisory Group, recognizing that the Clinton administration's macroeconomic assistance for Russia 

has failed, recommends the consolidation of U.S. assistance into a few core projects that will accelerate 
Russia's transition to free enterprise, including exchanges, training and compensation for judicial branch 

officials, enactment of legislation to establish enforceable property rights and a commercial code, and 

privately-owned housing, and building on regional initiatives started under the Freedom Support Act. 

Such aid should be properly directed whenever possible toward the regions, rather than Moscow, and 

should be focused on the creation of a broad-based Russian middle class.

8. Improve humanitarian assistance for Russia's health problems.

In light of the deepening health challenges following Russia's 1998 economic collapse, the Advisory 

Group recommends that the United States consider ways to improve the effectiveness of the 

pharmaceutical, medical, and health-care assistance provided to Russia, taking particular care to do no 

further harm to the only long-term solution to such challenges--the inclusion of these sectors in a 

growing market economy.

9. Protect the Russian people from further governmental abuse of IMF lending.

The Russian government's dangerous accumulation of debt via the International Monetary Fund and 

other international lenders, and the misapplication of that money through corruption within and without 

the Russian government, contributed to the total collapse of Russia's economy in 1998. It has also 

created a heavy burden of debt. The Advisory Group notes that for these reasons many reform-minded 

Russian officials have strongly advocated an end to further borrowing from the IMF.

The Advisory Group recommends that the United States condition any further support in the IMF of new 

Russian sovereign borrowing, and through its participation in the IMF Board of Governors work to 

condition any such lending to Russia (whether for refinancing of existing Russian debt or the extension 

of any new credit), on the enactment of legal reforms needed to establish a free enterprise economy in 

Russia, and to stem capital flight and money laundering. Among the other conditions that should be 

sought are an end to Russian barriers to international trade and cooperation with U.S. and other law 

enforcement authorities in combatting money laundering.

In addition, in evaluating its support for lending by the IMF and other international financial institutions, 

the U.S. should insist on Russian cooperation in efforts to curtail the use of off-shore havens for "hotmoney" transfers, and to identify and prosecute money laundering schemes. Such cooperation in rooting 

out money laundering would do much to reduce capital flight and instill foreign and domestic 

confidence in Russian financial institutions.

Any such lending agreement should itemize with specificity the proposed use of any loan proceeds, 

which should not include the financing of operating deficits of the Russian central government, 
subsidization of state-owned or private industry, or investment in state-owned or commercial projects. It 

should also include effective accounting and monitoring controls.

Finally, in considering whether to support such further lending the United States should assess Russia's 

progress towards seeking a political solution to the war in Chechnya, an end to Russian subsidies and 

loans to Serbia, Belarus, and Cuba, and the cessation of exports of potentially destabilizing weapons to 

countries of concern.

10. Consider only conditional rescheduling of Russia's inherited Soviet-era debt.

The Advisory Group recommends, in light of Russia's existing foreign reserves, that the United States 

oppose outright debt forgiveness for Russia, but offer support for conditionally rescheduling that portion 

of Russia's external debt incurred by the Soviet Union before 1992. Because the bulk of Russia's debt is 

owed to governments other than the United States, the Advisory Group specifically recommends that the 

United States not exert pressure upon other allied governments to agree to debt rescheduling, and further 

recommends that to the extent rescheduling is considered, the United States suggest meaningful and 

enforceable conditions, which should include a political solution to the war in Chechnya; an end to 

Russian subsidies and loans to Serbia, Belarus, and Cuba; the cessation of exports of potentially 

destabilizing weapons to countries of concern; an end to Russian barriers to international trade; and 

cooperation with U.S. and other law enforcement authorities in combatting money laundering.

11. Work to combat the spread of Russian crime abroad, and its influx into the United States.

The Clinton administration has failed to adequately respond to requests for assistance from international 

prosecutions of money laundering activities connected to Russia. The Advisory Group recommends that 

to combat the spread of crime from Russia the U.S. government improve cooperation with honest 

foreign law enforcement.

12. Repeal Cold War-era laws that impede relations with Russia.

The Advisory Group recommends that the committees of jurisdiction in the U.S. Congress carefully 

examine all aspects of the current statutory framework governing U.S. relations with Russia with the 

intention of removing outdated Cold War-era restrictions on full and normal U.S.-Russian relations. 

Much work in this area was accomplished by the 1993 Friendship Act, which sought to remove many of 

the legal impediments to normal relations with Russia. Congress should complete the process by reexamining remaining provisions imposed during the Cold War.
13. Promote Russia's integration into the world economy.

The Advisory Group recommends that the United States promote Russia's integration into the world 

economy. Today, many Russian policies directly or indirectly discourage foreign investment and 

international trade. The United States should encourage Russia to adopt and enforce laws and policies 

that will allow Russia to enjoy the benefits of participation in the international marketplace. The United 

States should work with Russia for the adoption and enforcement of laws and policies that would enable 

Russia to accede to the World Trade Organization under appropriate commercial terms.

14. Review the status of human rights in Russia.

The Advisory Group recommends in light of developments in Chechnya, as well as questions 

concerning the state of press, political, and religious freedoms in Russia, that Congress and the executive 

branch conduct a comprehensive review of the status of human rights and democracy in Russia 

(including in particular the treatment of minorities and religious freedom), building on the work of the U.

S. Commission on International Religious Freedom, the Advisory Committee on Religious Freedom 

Abroad, the Annual Report on International Religious Freedom called for by the International Religious 

Freedom Act of 1998, and the State Department's annual country report on human rights.

15. Forthrightly defend America's interests.

The Clinton administration has delayed and undercut vital national security initiatives, including a U.S. 

national missile defense, in a failed attempt to palliate the Russian government's opposition. These 

efforts have damaged America's national interest without diminishing--indeed, while actually 

increasing--Russian opposition. The next President should seek to negotiate a new security framework 

with Russia that allows the United States to defend itself effectively against the threat of ballistic missile 

attack. Previous agreements with the Soviet Union during the Cold War were negotiated in a bipolar 

strategic environment that no longer exists. The global proliferation of ballistic missiles and weapons of 

mass destruction necessitates a rethinking of this Cold War security paradigm. The United States should 

take all necessary actions to ensure that Americans and our allies and friends around the world are 

defended against this real and growing ballistic missile threat. To the maximum extent possible, this 

should be done cooperatively with Russia, in a way that makes clear that such defenses are not intended 

to secure unilateral advantage or to threaten Russia. However, U.S. policy should be clear and clearly 

articulated: the United States will not allow its people to be held hostage to the threat of ballistic missile 

attack.
The United States should forthrightly support continued enlargement of NATO, and should not mislead 

the Russian government through repetition of the Clinton administration's disingenuous promises of 

either an explicit or tacit veto over any nation's accession to the alliance, or of alliance activities. NATO 

and NATO enlargement promote stability and democracy, strengthen international peace, and do not 

threaten the legitimate interests of Russia or any other country. The United States should also strongly 

support the independence of the Baltic states, Ukraine, and the other nations that became independent at 

the fall of the Soviet Union. Their continued full independence and sovereignty are vital to international 

peace and security and a key goal of the United States.

NOTES

Chapter 1

1 Craig Whitney, "Gorbachev Predicts an Accord on Budget," N.Y. TIMES, Jan. 4, 1991, p. A6.

2 Andrei Orlov, "Soviet Parliament Discusses Federal Budget," TASS, January 11, 1991.

3 Andrew Katell, "Yeltsin Calls for Ligachev's Resignation," Associated Press, May 30, 1988.

4 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA (New York: Random House, 1994), p. 36.

5 In January 1990, to check the growing nationalist movement in Azerbaijan, Gorbachev sent a large contingent 

of Soviet troops to Baku. The Soviet Army killed 134 people and wounded more than 600. Today, the people of 

Azerbaijan remember this as "Black January."

6 In Tbilisi, on April 10, 1989, Soviet troops killed 20 Georgians, and injured more than 200, as they attempted 

to disperse thousands of nationalist demonstrators. These events are remembered today in Georgia as the "Tbilisi 

Massacre."

7 DAVID REMNICK, LENIN'S TOMB (New York: Vintage, 1994), p. 388.
8 Id. at p. 389. Remnick reported that word of Bloody Sunday got back to Moscow not via the primary Moscow 

media outlets, but through Radio Liberty and the BBC. See also Cathy Young, "Soviet Democrats Aren't Backing 

Down," NEWSDAY, Feb. 5, 1991, p. 37.

9 JUDY SHELTON, THE COMING SOVIET COLLAPSE (New York: Free Press, 1989).

10 See Sergei Roy, "The Economics of Suicide," MOSCOW NEWS, Sept. 22, 1999, p. 36.

11 Associated Press, Feb. 9, 1991.

12 Id.

13 John-Thor Dahlburg, "West is also Likely to Ignore Lithuania Vote," L.A. TIMES, Feb. 11, 1991, p. A4.

14 Chairman of the Council of Nationalities of the U.S.S.R. Supreme Soviet Rafik Nishanov explained the 

referendum this way in an interview a few days before the vote: "The main purpose of the forthcoming 

Referendum is to give every Soviet man and woman a chance to express his attitude to the Union of Soviet 

Socialist Republics, to say 'yes' or 'no' to our new homeland--the renovated federation of equal sovereign 

republics, where the rights and freedoms of all nationalities will be fully guaranteed." Official Kremlin 

International News Broadcast/PRAVDA, Mar. 13, 1991, via Federal Information Systems Corp./NEXIS.

15 Esther B. Fein, "Russians' Big Worry: New Sales Tax," N.Y. TIMES, Mar. 18, 1991, p. A10.

16 Id.

17 Associated Press, Apr. 29, 1991.

18 Elizabeth Shogren, "Soviet Georgia Declares its Independence," L.A. TIMES, Apr. 10, 1991, p. A8.

19 Id.

20 Id. See also "Statement by Georgian Commission on Deaths in Tbilisi Rally," in which the commission 

concluded that the massacre "was a punitive operation amounting to well organized slaughter of innocent people. 

It was carried out with particular brutality and involved the use of banned chemicals. It bore the hallmarks of an 

international crime and, specifically, of a crime against humanity."

21 Elizabeth Shogren, "Soviet Georgia Declares its Independence," L.A. TIMES, Apr. 10, 1991, p. A8. A year 

earlier, on April 3, 1990, Gorbachev had nullified Article 72 of the 1977 "Brezhnev" constitution, which 

purported to grant the republics the right freely to secede from the Soviet Union. See text of 2,700-word law in 

PRAVDA, Apr. 7, 1990; see Brian Crozier, "Soviet constitution," Letter to the Editor, THE TIMES (LONDON), 

Mar. 15, 1993. Instead, Gorbachev set out an impossibly bureaucratic procedure for secession--a process so 

tortuous it was never commenced by any of the seceding republics except Armenia.

22 Francis X. Clines, "Ukrainians Declare Republic Sovereign Inside Soviet System," N.Y. TIMES, July 17, 
1990, p. A1.

23 Serge Schmemann, "Gorbachev Agrees, Sort of, to Negotiate the State of the Union," N.Y. TIMES, Apr. 28, 

1991, p. A6.

24 "The Soviet Economy on the Brink," ECONOMIST, Mar. 16, 1991, p. 72.

25 Id.

26 Patricia Lee Dorff, ed., "Chronology 1991: The Soviet Union and Eastern Europe," FOREIGN AFFAIRS, 

1991/1992 AMERICA AND THE WORLD.

27 Stephen Sestanovich, "Fiddler on the Roof: Gorbachev's Balancing Act," NEW REPUBLIC, May 27, 1991, 

p.19.

28 Thom Shanker, "Soviets to Send Some Supplies to Lithuania," CHI. TRIB., June 14, 1990, p. A1.

29 Ann Imse, "Gorbachev Proposes Union of Sovereign States," Associated Press, June 13, 1990.

30 IZVESTIYA, Aug. 13, 1990.

31 Editorial, "Baltic Breakthrough," ORANGE COUNTY REGISTER, June 14, 1990, p. B10.

32 Alison Mitchell, "Yeltsin's Sweeping Victory; City Voters Stick it to 'Leningrad,'" NEWSDAY, June 14, 

1991, p. 7.

33 Thom Shanker, "Old Russian City Switches Heroes and Its Name," CHI. TRIB., June 14, 1991, p. 24.

34 Patricia Lee Dorff, ed., "Chronology 1991: The Soviet Union and Eastern Europe," FOREIGN AFFAIRS, 

1991/1992 AMERICA AND THE WORLD.

35 Carey Goldberg, "Soviet Officials Accused of Capitalizing on Bargain Country Homes," L.A. TIMES, July 

15, 1991, p. 4.

36 Id.

37 Amy Borrus and Rose Brady, "The Soviets are Looking to Swap Reforms for Aid. Again," BUS. WEEK, June 

3, 1991, p. 30.

38 John Lloyd and Lionel Barber, "The Moscow Summit: Bush Stresses need to Unleash Business Spirit," 

FINANCIAL TIMES (London), July 31, 1991, p. I3.

39 Id.
40 IZVESTIYA, July 11, 1991 (BBC translation).

41 Id.

42 See infra Chapter 3.

43 Andrew Rosenthal, "The Soviet Crisis, Bush Gamble: Coup Can Be Reversed," N.Y. TIMES, Aug. 21, 1991, 

p. A11.

44 MIKHAIL GORBACHEV, MEMOIRS (New York: Doubleday, 1995), p. 656.

45 Of course, such a step would also make the post of union president obsolete, completing the political 

destruction of Gorbachev.

46 Alison Mitchell, "Yeltsin Abandons Union: Russian leader proposes commonwealth, undercuts Gorbachev," 

N.Y. TIMES, Dec. 8, 1991, p. A7.

47 The Commonwealth of Independent States was created by the leaders of the three Slavic Republics (President 

Boris Yeltsin, Ukrainian President Leonid Kravchuk, and Byelorussian Parliamentary Speaker Stanislav 

Shuskevitch) in Viskuoi, a hunting lodge near the Polish-Belarus border. The joint communiqué committed the 

leaders to "unified control over the Soviet Union's 27,000 nuclear warheads."

48 The Intelligence Community, and particularly the CIA, have been unfairly criticized for allegedly failing to 

predict the fall of the Soviet Empire and the rise of Russia. In fact, a 1985 National Intelligence Estimate stated:

The U.S.S.R. is afflicted with a complex of domestic maladies that seriously worsened in the late 

1970s and early 1980s. Their alleviation is one of the most significant and difficult challenges 

facing the Gorbachev regime. ...

Over the next five years, and for the foreseeable future, the troubles of the society will not present 

a challenge to the system of political control that guarantees Kremlin rule, nor will they threaten 

the economy with collapse. But, during the rest of the 1980s and well beyond, the domestic affairs 

of the U.S.S.R. will be dominated by the efforts of the regime to grapple with these manifold 

problems. ...

The underlying cause of most of these problems is the repressive nature of a political system that 

discourages initiative throughout the society on which economic and social progress depend, and 

that limits the private freedom Soviet citizens desire. ...

Gorbachev has achieved an upswing in the mood of the Soviet elite and populace. But the 

prospects for his strategy over the next five years are mixed at best. ...

Bruce D. Berkowitz and Jeffrey T. Richelson, "The CIA Vindicated: The Soviet Collapse was 
Predicted," NAT'L INTEREST, Fall 1995. As the collapse approached, the CIA assessment 

became so grave that in September 1989 the Bush administration appointed a secret contingency 

planning group chaired by director of Soviet Affairs Condoleezza Rice to deal with the failure of 

Gorbachev's government. Cf. Vice President Al Gore's reaction to intelligence data, Chapter 6, 

infra.

49 President Reagan always considered the triumph of freedom to be inevitable:

I have discussed on other occasions the elements of Western policies toward the Soviet Union to 

safeguard our interests and protect the peace. What I am describing now is a plea and a hope for 

the long term--the march of freedom and democracy which will leave Marxism-Leninism on the 

ash heap of history as it has left other tyrannies which stifle the freedom and muzzle the selfexpression of the people.

Address to the Members of Parliament, London, June 8, 1982.

In a speech that today reads as prophetic, President Reagan also emphasized the economic 

problems faced by the Soviet Union and what he viewed as a mission "to preserve freedom as 

well as peace."

50 See, e.g., Strobe Talbott, "Rethinking The Red Menace," TIME, Jan. 1, 1990, p.66 ("The doves 

in the Great Debate of the past 40 years were right all along"); Talbott, "Brezhnev's Legacy," 

TIME, Nov. 22, 1982, p. 31. In the same article Talbott derided at length a whole succession of 

American administrations of both parties for attempting to influence the composition and attitudes 

of the leadership in Moscow--an ironic criticism in light of Talbott's unprecedented involvement 

in Russian internal politics during the Clinton administration.

Chapter 2

1 Within the flourishing Soviet black market, American-made jeans, cigarettes, and other Western products 

commanded the highest prices on the streets of Moscow and other Soviet cities. By the end of the 1980s, the 

Soviet Union was quietly--and illegally--undergoing a consumer revolution as the demand for and acquisition of 

Western products became widespread.

2 The widespread need to commit "economic crimes"--offenses that would not be crimes in a market economy--

had the unfortunate effect of diminishing respect for the rule of legitimate law even after Russia abandoned 

Communism.

3 NICOLAI N. PETRO, RUSSIAN FOREIGN POLICY (New York: Longman, 1997) p. 131.

4 European Bank for Reconstruction and Development, Transition Report Update, p. 75.
5 In fact, the use of the ruble by several of the new nations of the former Soviet Union left Russia with little 

practical control over its money supply. It was not until November 1992 that Ukraine introduced its own 

currency. Other nations followed suit over the next few months, but the damage was done.

6 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY (Seattle: Univ. Wash. Press, 1999).

7 ROSE BRADY, KAPITALIZM (New Haven: Yale Univ. Press, 1999), pp. 29-30, 36-37.

8 In January 1991, the Russian Supreme Soviet proposed a question on a national referendum for a directly 

elected presidency. In March, Russians voted for constitutional reform, and on April 24 the Russian Supreme 

Soviet approved a new law on the Presidency. Yeltsin was subsequently elected President.

9 Mary Dejevsky, "Yeltsin Gets Free Hand for Reforms," THE TIMES (London), Nov. 2, 1991. Yeltsin was 

given additional power to appoint governors in the oblasts and issue decrees that could override existing laws and 

reorganize the government without going through parliament.

10 See Thomas Ginsberg, "New Russian Prime Minister Will Soften Reforms," Associated Press, Dec. 14, 1992; 

WHO'S WHO IN RUSSIA AND THE CIS REPUBLICS, Vladimir Morozov, ed. (New York: Henry Holt and 

Co., 1995), p. 54. The centrist Civic Union faction, composed of Arkadii Volsky's Union of Industrialists and 

Entrepreneurs, Vice President Alexander Rutskoi's People's Party of Free Russia, and Nikolai Travkin's 

Democratic Party of Russia, played a key role in Chernomyrdin's appointment.

11 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA, Catherine A. Fitzpatrick, trans. (New York: Times 

Books, 1994), pp. 197-201. "Gaidar had no chance of being approved by the Congress, so, given the reality of the 

situation, I settled on Viktor Chernomyrdin. Once again, he seemed to be a compromise figure ... I was dictated--

let's face it--by regrettable necessity." Id. at 200.

12 See infra, Chapter 5.

13 See Thomas Ginsberg, "New Russian Prime Minister Will Soften Reforms," Associated Press, December 14, 

1992; WHO'S WHO IN RUSSIA AND THE CIS REPUBLICS, Vladimir Morozov, ed. (New York: Henry Holt 

and Co., 1995.), p. 54; APS Review Oil Market Trends, "From Privatisation to Restructuring the Petroleum 

Sector to Gazprom," Aug. 7, 2000 (available on NEXIS).

14 Id.

15 Karen LaFollette, "Soft Assistance for Russian Hard Reform," The Institute for Political Economy, 1993.

16 Alexander Rahr, "The First Year of Russian Independence," RFE/RL Research Report, Jan. 1, 1993, p. 54.

17 HUMAN RIGHTS COUNTRY PRACTICES (Washington, DC: Department of State, Jan. 1993), p. 884.

18 FREEDOM IN THE WORLD--1992-1993 (New York: Freedom House, 1993), p. 428.
19 HUMAN RIGHTS COUNTRY PRACTICES, pp. 889, 890.

20 Id., p. 888.

21 FREEDOM IN THE WORLD--1992-1993, p. 428.

22 HUMAN RIGHTS COUNTRY PRACTICES, p. 885.

23 FREEDOM IN THE WORLD--1992-1993, p. 428. Ironically, the fact that the Russian Federation permits 

complete freedom of emigration has never been recognized in U.S. law. The 1974 Jackson-Vanik amendment, 

which imposed special scrutiny on Soviet emigration policy, still applies to Russia.

24 Rahr, Id., p. 51.

25 Testimony of Boris Fyodorov, Joint Meeting of the Speaker's Advisory Group on Russia and the House Policy 

Committee, July 12, 2000. To prevent gaps in legal regulation during the transition period, Russia relies on 

Soviet-era legislation. Soviet laws and regulations are applicable when Russian domestic law is silent and Soviet 

law does not conflict with other existing Russian law. These Soviet acts are considered transitional and are in 

force only until the Russian Parliament enacts replacement legislation. The application of Soviet legislation on 

Russian territory is governed by the 1990 Law on the Application of Acts and Organs of the U.S.S.R. on the 

Territory of the R.S.F.S.R. (Russian Soviet Federal Socialist Republic) and the Supreme Soviet's decree ratifying 

the Agreement on the Creation of the Commonwealth of Independent States. According to these enactments, 

Soviet laws apply only if they do not contradict the legislative acts of the Russian Federation adopted after June 

12, 1990, when Russia proclaimed its independence. The 1993 Constitution adopted the same approach. In the 

area of land use alone, several Soviet-era laws are partially or fully enforced.

26 James Billington's works on Russia include: THE FACE OF RUSSIA: ANGUISH, ASPIRATION, AND 

ACHIEVEMENT IN RUSSIAN CULTURE (1998); RUSSIA TRANSFORMED: BREAKTHROUGH TO 

HOPE: MOSCOW, AUGUST 1991 (1992); and THE ICON AND THE AXE: AN INTERPRETIVE HISTORY 

OF RUSSIA (1970).

27 James Billington, Remarks to the Speaker's Advisory Group on Russia in Executive Session, June 14, 2000.

28 See, e.g., Larry Rickman, "Russia Plans to Remove Remaining Price Subsidies," Associated Press, Feb. 27, 

1992; Howard Witt, "New Face of Russia: A Year after Coup, Ordinary Citizens Adapt to Change," CHI. TRIB., 

Aug. 16, 1992, p. C1.

29 For example, in the poll reported in Itar-TASS News Digest, July 24, 1992, good relations with the United 

States. were second only to Russian ties with other countries of the former U.S.S.R., where some 25 million 

ethnic Russians resided.

30 "'Santa Barbara' Receives Rave Reviews in Russia," PR Newswire, Feb. 21, 1992.

31 "Moscow Days and Nights; Clash of Cultures," MACLEAN'S, Feb. 15, 1993, p. 28.
32 See, e.g., DAVID REMNICK, RESURRECTION: THE STRUGGLE FOR A NEW RUSSIA (New York: 

Random House, 1997), pp. 44-45.

33 "Summit at the U.N.; Excerpts from Speeches by Leaders of Permanent Members of U.N. Council," N.Y. 

TIMES, Feb. 1, 1992, p. A5.

34 Although President Bush signed the START II treaty less than one month before the inauguration of Presidentelect Clinton, Gov. Clinton was fully briefed on the agreement and "encouraged" the Bush administration to sign 

the treaty. Gov. Clinton also said that he was "fully supportive" of efforts to sign the agreement before he entered 

office. See Elaine Sciolino, "U.S. and Russia Agree on Atomic Arms Pact Slashing Arsenals and the Risk of 

Attack," N.Y. TIMES, Dec. 30, 1992, p. A1. President Clinton's efforts to reach arms control agreements lacking 

such broad bipartisan support before he leaves office are described in Chapter 10 infra.

35 Serge Schmemann, "Summit in Moscow," N.Y. TIMES, Jan. 4, 1993, p. A1.

36 Michael Dobbs and Don Oberdorfer, "Yeltsin Appeals for American Aid," WASH. POST, June 18, 1992, p. 

A1.

37 "Russian Federation President Boris Yeltsin Addresses Joint Meeting of U.S. Congress," Federal News 

Service, June 17, 1992.

38 This important Russian-American initiative's promising beginnings, and the Clinton administration's 

subsequent unilateral decision to cancel it, are described in Chapter 10 infra.

39 "Russian Military Drastically Gearing Down," CNN, June 17, 1992.

40 Id.

41 See Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?," CRS Report for 

Congress, Sept. 4, 1997, p.11.

42 Roman Zadunayskiy, "Parliament Adopts Law on Defense," Itar-TASS, June 26, 1992.

43 Captain O. Odnokolenko, "Parliamentary Hearing on Draft Law on Defense," KRASNAYA ZVEZDA, May 

14, 1992.

44 Guy Chazan, "Russian defense conversion program hits snags," UPI, Feb. 6, 1992.

45 Gennady Talalayev, "President Yeltsin Meets Managers of Defense Enterprises," Itar-TASS, May 13, 1992.

46 "Russian Defense Ministry to Sell Off Unwanted Military Property," Itar-TASS, Nov. 30, 1992.
47 S. Ostanin, "Russian Defense Collegium Discusses Military Procurement Problems," Itar-TASS, Aug. 1, 1992.

48 Vladlas Burbulis, "Russian Troop Withdrawal from Lithuania as Scheduled," Itar-TASS, Oct. 13, 1992. 

Western assistance, in particular a large German aid program, was launched to assist the repatriation of Russian 

troops.

49 Andrei Naryshkin, "Yeltsin Meets Top Military Brass," Itar-TASS, Nov. 23, 1992.

50 See infra Chapters 9-11.

51 U.S. Policy Towards Russia, Part I: Warnings and Dissent: Hearing Before the House Committee on 

International Relations, 106th Cong. (1999).

52 As the most prominent reformer of the time, Yegor Gaidar, himself acknowledged: "The initial response of 

Western political and financial elites toward Russian economic reform was very wary and cool. ... [A]s far as the 

reforms already begun were concerned, Western thought was that over the past few years there had already been 

a great deal of talk, and a dozen or so official programs, so how did they know that this wasn't just more of the 

same? Better to wait and see." DAYS OF DEFEAT AND VICTORY, pp. 141-42.

53 "Address to the Nation on Reducing United States and Soviet Nuclear Weapons," Bush Presidential Library 

online collection, http://www.bushlibrary.tamu.edu/papers/1991/91092704.html.

54 Freedom for Russia and Emerging Democracies and Open Markets Support Act of 1992, P.L. 102-511, Oct. 

24, 1992.

55 U.S. Policy Towards Russia, Part I: Warnings and Dissent: Hearing Before the House Committee on 

International Relations, 106th Cong. (1999), p. 60.

56 The Clinton administration has not lived up to this example of bipartisanship and willingness to engage 

Congress. Notwithstanding the fact that this examination of U.S.-Russia policy was commissioned by the 

Speaker of the House of Representatives--the third-ranking constitutional officer--and performed by the 

Chairmen of five standing committees of the Congress, Strobe Talbott, the administration "coordinator" for 

Russia policy, has refused even to respond to invitations to discuss the policy informally with the House 

leadership. To his credit, Secretary of the Treasury Lawrence Summers did meet with the Speaker's Advisory 

Group.

57 Curt Tarnoff, "U.S. Assistance to the Soviet Union and Its Successor States 1991-1998: A History of 

Administration and Congressional Action," CRS Report for Congress, Apr. 16, 1999.

58 P.L. 102-511, Secs. 101, 102.

Chapter 3
1 See generally STÉPHANE CORTOIS, NICOLAS WERTH, JEAN-LOUIS PANNÉ, ANDRZEJ 

PACZKOWSKI, KAREL BARTOSEK, JEAN-LOUIS MARGOLIN, THE BLACK BOOK OF COMMUNISM, 

trans. Jonathan Murphy and Mark Kramer (Cambridge: Harvard Univ. Press, 1999), p. 4.

2 MICHAEL BERSTAN & MICHAEL RABUSHKA, FIXING RUSSIA'S BANKS: A PROPOSAL FOR 

GROWTH (Stanford: Hoover Institution Press, 1998), p. 7.

3 Nina L. Khrushcheva, "Cultural Contradicts of Post-Communism: Why Liberal Reforms Did Not Succeed in 

Russia," paper prepared for the Council on Foreign Relations, Working Group on Development, Trade and 

International Finance.

4 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY (Seattle: Univ. Wash. Press, 1999), p. 273.

5 Merton J. Peck & Thomas J. Richardson, eds., WHAT IS TO BE DONE? PROPOSALS FOR THE SOVIET 

TRANSITION TO THE MARKET (New Haven: Yale University Press, 1991), p. 152.

6 European Bank for Reconstruction and Development, Transition Report 1999: Tens years of Transition, p. 110.

7 Letter Report from the General Accounting Office, 803-95, GAO-NSIAD-95-156. This is from an assessment 

of the Urban Institute's efforts to promote housing policy reform in Russia.

8 Id.

9 Paul H. Rubin, "Growing a Legal System in the Post-Communist Economies," CORNELL INTERNATIONAL 

LAW JOURNAL, Winter 1994.

10 "Built on Sand," THE ECONOMIST, June 3, 2000, p. 19.

11 Louis Uchitelle, "The Art of a Russian Deal: Ad-Libbing Contract Law," N.Y. TIMES, Jan. 17, 1992, p. A1.

12 Lyudmila Yermakova, "Market Economy Cannot Develop Without Court of Arbitration," Itar-TASS, Dec. 29, 

1992.

13 John I. Huhs and Ramaz A. Beridze, "Dispute Resolution in Russia," AMERICAN LAWYER, Nov. 1992.

14 Id.

15 Louis Uchitelle, "The Art of a Russian Deal: Ad-Libbing Contract Law," N.Y. TIMES, Jan. 17, 1992, p. A1.

16 Paul Klebnikov, "A Market Grows in Russia," FORBES, June 8, 1992, p. 78.

17 Vladimir Gubarev, "How to get your money back from con men," MOSCOW NEWS, Oct. 18, 1992. This 
article covers attempts by Russian businesses to reclaim funds lost to dishonest American and Western firms. See 

infra Chapter 7, for further discussion of Russian organized crime.

18 Duncan Robinson, "Weak Russian Contract Enforcement Takes Toll on Companies from US," JOURNAL OF 

COMMERCE, July 31, 1992, p. 4A. At least one American law firm advised its clients that they would be 

"naked" in Russia's legal system and should try to establish their own dispute resolution mechanisms.

19 In the last years of the Soviet Union, the monolithic Gosbank spawned a handful of specialized banks, 

including Pomstriobank, Zhilstosbank, Agrobank, Vneshekombank, and Sberbank.

20 MICHAEL BERSTAN & MICHAEL RABUSHKA, FIXING RUSSIA'S BANKS: A PROPOSAL FOR 

GROWTH, (Stanford: Hoover Institution Press, 1998).

21 Elizabeth Neuffer, "Capitalism takes hold in Russia," BOSTON GLOBE, Jan. 3, 1992, p. 1.

22 Jose Piñera, "Russia Unbound: A Report from Moscow," May 2000.

23 Michael McFaul, "Russia Needs True Reform, Not Higher Taxes," WALL ST. J., Aug. 4, 1998, p. A13.

24 "Presidential Decree on Bankruptcy," BBC Summary of World Broadcasts, June 29, 1992.

25 "Yeltsin Issues Various Decrees, on Bankrupt Enterprises and Other Issues," RUSSIA AND 

COMMONWEALTH BUSINESS LAW REPORT., Vol. 3, No. 5, June 26, 1992.

26 "Two Steps from Bankruptcy," OFFICIAL KREMLIN INTERNATIONAL NEWS BROADCAST, Federal 

Information Systems Corporation, Dec. 4, 1992. This admission was made by L. Paidiev, the chief of the Russian 

Economics Ministry department in charge of providing assistance (subsidies) to troubled enterprises.

27 Id.

28 Sen. Bob Packwood and James Carter, "Time is Ripe for US-Russia Free Trade," J. OF COM., Mar. 2, 1998, 

p. 7A.

Chapter 4

1 Acceptance Speech, New York City, July 16, 1992.

2 Acceptance Speech, New York City, July 16, 1992.

3 "A New Covenant for American Security," remarks at Georgetown University, Washington, D.C., Dec. 12, 

1991.
4 Robert Bartley, "How Gore Lost Russia," WALL ST. J., Aug. 21,2000, A19.

5 Bruce W. Nelan, "The No-Guts, No-Glory Guys," TIME, Nov. 22, 1993, p. 48.

6 See text box, infra.

7 Elaine Sciolino, "Who'll Win Russia?", N.Y. TIMES, May 19, 1996, p. 1.

8 Thomas L. Friedman and Elaine Sciolino, "Clinton and Foreign Issues: Spasms of Attention," N.Y. TIMES, 

Mar. 22, 1993, p. A3.

9 Ann Devroy and Ruth Marcus, "President Clinton's First 100 Days; Ambitious Agenda and Interruptions 

Frustrate Efforts to Maintain Focus," WASH. POST, Apr. 29, 1993, p. A1.

10 President Clinton in a June 5, 2000, speech to the Russian Duma cited the fact that he has visited Russia 

during his two terms more frequently than any other president as evidence of his personal commitment to Russia 

policy making--an example of the substitution of form for substance that typified the administration's entire 

approach to Russia. In similar fashion, the Gore-Chernomyrdin Commission--to which the president handed over 

so much responsibility--produced a vast bureaucracy and voluminous reports, but little in the way of substantive 

results.

11 See infra Chapter 5.

12 According to legend, Prince Potemkin, the favorite of Catherine the Great, had sham villages erected along the 

route of one of her journeys to give the Czarina a delusive impression of the prosperity of her realm. It has been 

proverbial for more than two centuries.

13 Ceci Connolly, "Gore Labels GOP Drug Plan a Facade," WASH. POST, July 4, 2000, p. A6.

14 Bill Sammon, "Occidental Deal Benefits Gores; Sale of Federal Oil Field Boosts Family Fortune," WASH. 

TIMES, June 26, 2000, p. A1; "Gore, Hitting Bush for Oil Ties, is Knee Deep in His Own Crude; Owns 

$500,000 of Occidental," WASH. TIMES, June 23, 2000, p. A1; Patrick Cockburn, "Al Gore's Family Linked to 

Corrupt Oilman; Why the Vice President Knows So Much About Russia: Tycoon Armand Hammer Had the 

Politician's Father 'In His Back Pocket,'" THE INDEPENDENT (London), May 21, 2000, p. 21 ("The American 

press missed the point over the Gore-Chernomyrdin scandal," a diplomat in Moscow said last week. "Gore had 

access to the Soviet and then the Russian leadership long before he met Chernomyrdin because of his father's 

links to Hammer and Hammer's high-level contacts in the Soviet Union."); Alexander Cockburn, "Al Gore's 

Teapot Dome: Occidental Petroleum acquires large portion of Elk Hills," THE NATION, July 17, 2000, p. 10 

("Normally, the Department of Energy would have been responsible for examining whether the sale of this 

important national asset was in the best interests of the country. But the DOE was absolved from this task. 

Instead, Gore arranged for the consulting firm ICF Kaiser International to assess the sale. The chairman of ICF 

Kaiser was none other than master-fixer Tony Coelho, friend of Al and for a time overseer of the Gore 

presidential campaign. ICF Kaiser duly delivered a wholehearted and unqualified certification of the deal.").
15 Bruce Stokes, "Treasury Undersecretary Lawrence Summers on ..." NAT'L J., Feb. 26, 1994, p. 470.

16 Ambassador-at-Large, Special Adviser to the Secretary of State for the New Independent States.

17 Thomas L. Friedman and Elaine Sciolino, "Clinton and Foreign Issues: Spasms of Attention," N.Y. TIMES, 

Mar. 22, 1993, p. A3.

18 Talbott has been described in the press as "chronically disorganized." Steven Erlanger, "Russia Vote Is a 

Testing Time for a Key Friend of Clinton's," N.Y. TIMES, June 8, 1996, p. A1. See also Margaret Carlson, 

CNN's Capital Gang, Jan. 1, 1994.

19 Strobe Talbott, Hearing of the Senate Foreign Relations Committee on the Nomination of Strobe Talbott to be 

Ambassador-at-Large and Special Adviser to the Secretary of State on the Commonwealth of Independent States, 

Mar. 23, 1993.

20 See infra Chapter 5.

21 As Russia scholar Dimitri Simes told the New York Times in 1996, "I think [Talbott's] self-confidence was a 

little misplaced ... And the combination of his know-it-all phenomenon and his closeness to the President and his 

bureaucratic skills undermined the normal analytic process of policy making." Steven Erlanger, "Russia Vote Is a 

Testing Time for a Key Friend of Clinton's," N.Y. TIMES, June 8, 1996, p. A1. See also testimony of David H. 

Swartz, former Ambassador to Belarus under the Bush and Clinton administrations, before the House 

International Relations Committee, "U.S. Policy Towards Russia, Part I: Warnings and Dissent," Oct. 6, 1999, 

pp. 63-64 ("In my experience, Talbott always knew best ... refuting, rebutting, rejecting, or simply ignoring 

advice from his ambassadors in the field and other assistants.").

22 Meeting between Summers and the Speaker's Advisory Group, June 28, 2000.

23 Statement to the Speaker's Advisory Group on Russia by Thomas Graham, June 7, 2000. On Summers and 

Chubais, see also JANINE WEDEL, COLLISION AND COLLUSION: THE STRANGE CASE OF WESTERN 

AID TO EASTERN EUROPE 1989-1998 (New York: St. Martin's Press, 1998), pp. 124-127.

24 Peter Reddaway, "Questions about Russia's 'Dream Team'," CSIS POST-SOVIET PROSPECTS, Vol. V, No. 

5, Sept. 1997.

25 General Accounting Office, "Harvard Institute for International Development's Work in Russia and Ukraine," 

GAO/NSIAD-97-27, Nov. 27, 1997, p. 4.

26 JANINE WEDEL, COLLISION AND COLLUSION: THE STRANGE CASE OF WESTERN AID TO 

EASTERN EUROPE 1989-1998 (New York: St. Martin's Press, 1998), pp. 127-128. See also Michael Dobbs 

and Paul Blustein, "Lost Illusions About Russia; U.S. Backers of Ill-Fated Reforms Now Portrayed as Naïve," 

WASH. POST, Sept. 12, 1999, p. A1; "Tainted Transactions: An Exchange," NAT'L INTEREST, Summer 2000 

(comments by Jeffrey Sachs, Anders Åslund, Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, 

Michael Hudson, David Ellerman, Steven Rosefielde, and Janine Wedel).
27 Remarks by Deputy Treasury Secretary Lawrence Summers at the U.S.-Russia Business Council Conference, 

Federal News Service, Apr. 1, 1997.

28 Michael Dobbs and Paul Blustein, "Lost Illusions about Russia; U.S. Backers of Ill-Fated Reforms Now 

Portrayed as Naïve," WASH. POST, Sept. 12, 1999, p. A1.

29 See, e.g., Peter Baker, "Clinton Treads Careful Path Through Unsettled Moscow," WASH. POST, Sept. 2, 

1998, p. A27; John M. Broder, "Summit in Moscow: The Overview; Clinton Tells Moscow Crowd That Future 

Won't Be Easy," N.Y. TIMES, Sept. 2, 1998, p. A1.

Chechnya Section

1 Maureen Greenwood, Amnesty International USA, "Increased Level of Torture in the Russian Republic of 

Chechnya," testimony before the Commission on Security and Cooperation in Europe, June 21, 2000.

2 Jim Nichol, "Chechnya Conflict: Recent Developments," CRS Report for Congress, May 3, 2000.

3 Steven Erlanger, "Christopher, Visiting Russia Hints at Support for Yeltsin," N.Y. TIMES, Mar. 23, 1996, p. 

A4; Michael S. Lelyveld, "U.S. Downplays Russia's Misdeeds, Experts Say," J. OF COM., Mar. 28, 1996, p. A1 

("In an hour long meeting with Mr. Yeltsin this morning, Mr. Christopher stressed the positive, workmanlike, 

constructive side of the United States-Russian relationship, his aides say, and touched not at all on major sore 

points, like ... the ongoing warfare in Chechnya.").

4 David Hoffman, "Clinton, Yeltsin Gloss Over Chechen War; Russian Leaders Denies Fighting Continues 

Despite Rising Death Toll," WASH. POST, Apr. 22, 1996, p. A1.

5 Elaine Sciolino, "Who'll Win Russia? For America, Uncertainty Drops the Riddle," N.Y. TIMES, May 19, 

1996, p. 1.

6 See generally Rajan Menon and Graham Fuller, "Russia's Ruinous Chechen War," FOREIGN AFFAIRS, 

March/April 2000, pp. 32-44.

7 David Hoffman, "Russian Premier Pins Bombing on Chechens," WASH. POST., Sept. 16, 1999, p. A26.

8 Yabloko originally supported the war but called for negotiations--on tough terms--shortly before the election. 

Clinton administration troika ally Anatoly Chubais called Yavlinsky a traitor for suggesting the time had come 

for talks. Yabloko lost a number of seats in the new Duma because of its "soft" stance on the Russian 

intervention.

9 Dmitri Trenin, "Chechnya: Effects of the War and Prospects for Peace," Carnegie Moscow Center.
10 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12, 

2000.

11 Bill Clinton, "Remembering Yeltsin," TIME, Jan. 1, 2000.

12 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12, 

2000.

13 TIME (int'l ed.), Jan. 17, 2000.

14 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12, 

2000.

15 Gore has made at least one incoherent statement Moscow could interpret as approval for a wider war, 

applying the term "rogue state," which has since been banished from the Clinton administration's lexicon, to the 

region surrounding Chechnya: "I took on the task of leading our effort to work with Russia--not because it was 

politically popular, but because it was right for America's security, and right for the spread of democracy around 

the world." Vice President Al Gore, Boston, Mass., Apr. 30, 2000. "And in the talks that we have been having 

with them, there are signs of an increasing recognition within Russia that the threats that they face on their 

southern border from extremist groups, from the potential emergence of rogue states in the area to their south 

they have all the conflict they're trying to deal with in the region now that's produced a new awareness on their 

part that they might have something to gain from allowing a limited system." LATE EDITION WITH WOLF 

BLITZER, CNN, Apr. 30, 2000.

Chapter 4 continued

30 Testimony of Dimitri Simes, President of the Nixon Center, before the Speaker's Advisory Group on Russia, 

Apr. 13, 2000.

31 Testimony of Strobe Talbott before the House Appropriations Committee, Apr. 19, 1993.

32 Testimony of Strobe Talbott before the House Foreign Affairs Committee, Oct. 6, 1993.

33 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA (New York: Random House, 1994), p. 255 ("Formally, 

the president was violating the Constitution, going the route of antidemocratic measures, and dispersing the 

parliament--all for the sake of establishing democracy and the rule of law in the country. The parliament was 

defending the Constitution--in order to overthrow the lawfully elected president and establish total Soviet rule."). 

See also id., p. 242.

34 "Brief on Upcoming Exchange Conference to Promote Trade between the U.S. and the Newly Independent 

States," Federal News Service, Oct. 13, 1993 (emphasis added).
35 Dimitri K. Simes and Paul J. Saunders, "The Icon and the Hacks," NAT'L REVIEW, Oct. 12, 1998, p. 44.

36 Indeed, administration favorite Anatoly Chubais branded Yavlinsky a "traitor" in the fall of 1999 for 

suggesting that negotiations with Chechen leaders could be appropriate.

37 See, e.g., Natalia Dinello, "Bankers' Wars in Russia: Trophies and Wounds," POST-SOVIET PROSPECTS, 

Vol. VI, No. 1, Feb. 1998, p. 3.

38 Id., p. 4.

39 Leonid Bershidsky, "Loans for Shares Unraveling," MOSCOW TIMES, Feb. 3, 1996. See also Stephanie 

Simon, "Russia's Lofty Plan to Privatize State Companies is Near Collapse; Auctions: Some Firms Have Been 

Sold, But Critics Say Politics, Ineptitude Have Kept Many Choice Holdings Off the Block," L.A. TIMES, Dec. 8, 

1995, p. D1.

40 Matt Bivens, "Laundering Yeltsin: How US Hypocrisy Feeds Russian Corruption," THE NATION, vol. 269, 

no. 10, Oct. 4, 1999, p. 11.

41 Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, p. 21.

42 Id., p. 20.

43 Jonas Bernstein, "Loans-for-Shares Nets $1 Billion," MOSCOW TIMES, Dec. 30, 1995.

44 FRONTLINE, Public Broadcasting Service, May 9, 2000.

45 Id.

46 Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, p. 20. In one case, for 

example, Menatep Bank reportedly received a "strange deposit" of $50 million from Russia's Finance Ministry 

that was essential to its bid to acquire Sibneft. See Jonas Bernstein, "Loans-for-Shares Nets $1 Billion," 

MOSCOW TIMES, Dec. 30, 1995.

47 Although the system of "authorized banks" was eventually scrapped, it had a profound impact on the structure 

of Russia's banking system.

48 FRONTLINE, Public Broadcasting Service, May 9, 2000.

49 Testimony of Secretary Summers before the Speaker's Advisory Group on Russia, June 28, 2000.

50 See, e.g., Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, pp. 22-24.

51 DIMITRI K. SIMES, AFTER THE COLLAPSE: RUSSIA SEEKS ITS PLACE AS A GREAT POWER 
(New York: Simon & Schuster, 1999), pp. 171-72; John Lloyd, "The Russian Devolution," N.Y. TIMES, Aug. 

15, 1999.

52 FRONTLINE, Public Broadcasting Service, May 9, 2000.

53 Lee Hockstader and David Hoffman, "Yeltsin Campaign Rose From Tears to Triumph; Money, Advertising 

Turned Fortunes Around," WASH. POST, July 7, 1996, p. A1.

54 David Hoffman, "Yeltsin Dismisses 3 Hard-Line Aides From Key Positions," WASH. POST, June 21, 1996, 

p. A1.

55 STEPHEN WHITE, RUSSIA'S NEW POLITICS: THE MANAGEMENT OF A POSTCOMMUNIST 

SOCIETY (New York: Cambridge University Press, 2000) p. 97; "International Observer Mission: Election of 

President of the Russian Federation 16th June 1996 and 3rd July 1996 Report on the Election," OSCE/ODIHR.

56 In addition to the suspected use of IMF funds as a piggy bank for the Yeltsin campaign, the OSCE 

documented several examples of election irregularities, including Yeltsin supporters accosting citizens as they 

entered the voting booths and sometimes even entering the voting booths and emerging with multiple ballots. 

"Final Statement of the OSCE/ODIHR Observer Mission--First Round of Voting," Organization for Security and 

Cooperation in Europe, June 18, 1996.

57 This ostrich-like approach to inconvenient possibilities often went to remarkable lengths. In January 1996, 

when observers in Congress and the executive branch were deeply concerned about the possibility of a 

Communist victory in the upcoming Russian presidential elections, "Deputy Secretary of State Strobe Talbott's 

first draft of a major analysis of Russia policy last January omitted any discussion of what to expect if the 

Communists won. Only after colleagues drew the omission to Mr. Talbott's attention did he insert a 'what if' 

section in the final version." Elaine Sciolino, "Who'll Win Russia? For America, Uncertainty Drops the Riddle," 

N.Y. TIMES MAGAZINE, May 19, 1996, p. 4. The point, of course, is not that the Clinton administration should 

have been indifferent to the outcome once the election became a choice between Yeltsin and the Communists, but 

that the administration habitually failed to consider negative contingencies in Russia--some of which failed to 

arise, like a Communist victory in 1996, while others, like dishonesty among the administration's Russian 

"partners," came to haunt U.S.-Russian relations.

58 Janine R. Wedel, "Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin," NAT'L INTEREST, 

Spring 2000.

59 Even now, the Clinton administration continues to promote the number of privatizations rather than the 

results: "Tens of thousands of state-owned enterprises have been privatized and more than 900,000 small 

businesses have been established, contributing to Russia's recent economic rebound." Leon Fuerth, "Russia's 

Future: Progress, Prospects, and U.S. Policy," remarks to the Woodrow Wilson International Center for Scholars, 

July 25, 2000. The issue is not that enterprises were transferred from the state--it is to whom and into what 

conditions they were transferred--and the effect those transfers had on future economic growth. With respect to 

small business, many are of course formed by entrepreneurial Russians who have been thrown out of work, and 

900,000 in a nation of 146 million is not particularly impressive. Finally, the primary cause of recent economic 

good news in Russia is higher oil prices. Russia's much more valuable human resources remain sadly 
underutilized.

60 Testimony of Lawrence Summers before the Senate Banking, Housing, and Urban Affairs Committee, Feb. 8, 

1994.

61 Fiscal Year 1995, "USAID/Russia: An Overview of Program and Objectives."

62 Testimony of Strobe Talbott before the Senate Foreign Relations Committee, Mar. 23, 1994.

63 Boris Fyodorov, "Killing with Kindness: No More 'Help' for Russia, Please," EUROPEAN WALL ST. J., 

June 8, 2000.

Financial Aid Chart

1 This is the amount of cumulative expenditures for activities carried out by the Departments of Defense ($790 

million), Agriculture ($2.42 billion), and Energy ($584 million), and other smaller agencies. The amount 

budgeted for non-FREEDOM Support Act activities for Russia is $5.17 billion, and the amount obligated is 

$4.54 billion.

2 The United States contributes 18.25% of the IMF's total quotas (about $35 billion), the largest contribution of 

any country.

3 Includes FREEDOM Support Act funds only. This is the amount of cumulative expenditures for Freedom 

Support Act Funds. The amount budgeted for Russia is $2.49 billion, and the amount obligated is $2.44 billion.

4 Includes lending through July 1999, done through the International Bank for Reconstruction and Development 

(IBRD) and International Development Association (IDA), both part of the World Bank. More than $11 billion 

has been approved but only $6.6 billion has been disbursed--$2 billion for investment loans and $4.6 billion for 

adjustment loans. Calculated based on a U.S. share of 16%.

5 The U.S. has a 10% share in the European Bank for Reconstruction and Development and is the largest single 

shareholder.

Chapter 4 continued

64 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY, (Seattle, Wash.: Univ. Wash. Press: 1999), p. 143.

65 See supra Chapter 3.
66 Joseph Stiglitz, "The Insider," NEW REPUBLIC, Apr. 17, 2000, p. 56.

Chapter 5

1 Joint Statement by President Clinton and President Yeltsin at the Vancouver Summit, Apr. 4, 1993.

2 Id.

3 Remarks by Leon Fuerth at the Foreign Press Center, Dec. 22, 1993.

4 The White House, "Facts on the U.S.-Russia Joint Commission on Economic and Technological Cooperation," 

July 27, 1999.

5 Testimony of Thomas Graham, Jr., before the Senate Foreign Relations Committee, Sept. 30, 1999.

6 Thomas W. Lippman, "An Obscure Force in National Security Edges Into Limelight," WASH. POST, June 16, 

1998, p. A19.

7 Id.

8 E. Wayne Merry, "Gore Should Own Up to His Part in Russian Mess," NEWSDAY, Sept. 8, 1999, p. A40.

9 Testimony of Thomas Graham, Jr., before the Senate Foreign Relations Committee, Sept. 30, 1999.

10 The Gore-Primakov Commission's one plenary session was dramatically cancelled by Prime Minster 

Primakov, who ordered his airplane to turn back to Russia in midflight to signal his objection to Western policy 

in Kosovo. See Chapter 10 infra. The most recent Russian prime ministers, Putin and Kasyanov, have apparently 

chosen to downplay the Commission, which has not met this year.

11 The White House, "Joint Report of 10th GCC Meeting," Mar. 11, 1998.

12 Mariya Bogatykh, "Gore-Kiriyenko Talks Break with Past," MOSCOW SEGODNYA via FBIS Translation, 

July 24, 1998, p. 5.

13 E. Wayne Merry, "Gore Should Own Up to His Part in Russian Mess," NEWSDAY, Sept. 8, 1999, p. A40.

14 Id.

15 Fritz Ermath, "Seeing Russia Plain," NAT'L INTEREST, Spring 1999, p. 5.
16 Remarks by Vice President Gore at press conference, Dec. 16, 1993.

17 Marcia Smith, "Space Stations," CRS Report to Congress, July 12, 2000, p. 9.

18 Id.

19 Testimony of Joe Rothenberg, NASA Associate Administrator for Human Spaceflight, before the House 

Science Committee, Mar. 19, 1998.

20 Johnson Space Center, Briefing on the International Space Station for Congressional Staffers, Feb. 19, 1999.

21 The appropriations bills for FY 2001 include no funds for further payments to Russia.

22 Remarks by Vice President Gore at a press conference with Russian Prime Minister Chernomyrdin, Jan. 30, 

1996.

23 David Hoffman, "Russians Go From Atoms to Low-Tech; Nuclear Scientists Push New Consumer Goods," 

WASH. POST, Oct. 25, 1995, p. A21.

24 House Committee on International Relations, Report on the Iran Missile Proliferation Sanctions Act of 1997 

(H. Rept. 105-375), p. 5.

25 See infra Chapter 9 for a more complete discussion of the extent of Russian proliferation during the Clinton 

and Yeltsin administrations.

26 Remarks by Vice President Gore and Prime Minister Chernomyrdin at a press conference, Feb. 7, 1997.

27 The Additional Views were signed by the ranking Democrat on the Committee, Lee Hamilton, and by Sam 

Gejdenson, Bob Clement, Tom Lantos, Gary Ackerman, Eni Faleomavaega, Pat Danner, and Howard Berman. 

See House International Relations Committee, Report on the Iran Missile Proliferation Sanctions Act of 1997, p. 

14.

28 Bill Gertz, "Gore Raises Sale to Iran with Chernomyrdin," WASH. TIMES, Feb. 13, 1997, p. A10.

29 Report on the Iran Missile Proliferation Sanctions Act of 1997, pp. 4-6.

30 William J. Clinton, "Message to the House of Representatives Returning Without Approval the 'Iran Missile 

Proliferation Sanctions Act of 1998,'" June 29, 1998.

31 Bill Gertz, "Russia, China Aid Iran's Missile Program," WASH. TIMES, Sept. 10, 1997, p. A1.

32 Joint Statement of the Co-Chairmen of the U.S.-Russian Joint Commission on Economic and Technological 

Cooperation, July 27, 1999.
33 Director of Central Intelligence, Unclassified Report to Congress on the Acquisition of Technology Relating 

to Weapons of Mass Destruction and Advanced Conventional Munitions, 1 January-30 June 1999, released Feb. 

2000.

Chapter 6

1 John Lloyd, "The Russian Devolution," N.Y. TIMES MAGAZINE, Aug. 15, 1999, p. 34.

2 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, NOV. 23, 1998, p. A8.

3 Paul Starobin, "Moscow Mirage," NAT'L JOUR., vol. 31, no. 16, Apr. 17, 1999, p. 1034.

4 David Ignatius, "Russian Crapshoot," WASH. POST, Sept. 1, 1999, p. A23.

5 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23, 1998, p. A8.

6 David Ignatius, "Russian Crapshoot," WASH. POST, Sept. 1, 1999, p. A23.

7 Julia Rubin, "Gore Backs Chernomyrdin at Start Of Moscow Visit," Associated Press, June 28, 1995.

8 Peter Reddaway, "Better Than Whitewater: Scandal Dogs Russia's Rising Star," WASH. POST, Aug. 20, 1995, 

p. C3. See also Reddaway, "Is Chernomyrdin a Crook?", POST-SOVIET PROSPECTS, Vol. III, No. 8, August 

1995 (describing the "avalanche of public, high-level charges that Prime Minister Viktor Chernomyrdin has 

'robbed Russia' to make himself a billionaire").

9 Reddaway, supra, POST-SOVIET PROSPECTS, Vol. III, No. 8, August 1995.

10 Steven Erlanger, "A Corrupt Tide in Russia From State-Business Ties," N.Y. TIMES, July 3, 1995, p. A1.

11 Thomas Pickering, "How Russia Is Ruled: The Political And Economic Lobbies," March 1995. Pickering's 

cable was intended to describe how "Russia [is] ruled by an oligarchy of economic and bureaucratic pressure 

groups ... able to [put] pressure directly on the political elite."

12 Fred Hiatt, "Political Elites Vie for Power In Russian Quasi-Democracy; Transition From Communism at 

Stake," WASH. POST, Mar. 26, 1995, p. A1. The $30 billion figure is in Anders Aslund, "Russia's Sleaze 

Sector," N.Y. TIMES, July 11, 1995, p. A19.

13 LILIA SHEVTSOVA, YELTSIN'S RUSSIA (Washington: Carnegie Endowment, 1999), p. 141.

14 VALERY STRELETSKY, MRAKOBESIYE (Moscow: Detektiv-Press, 1998), p. 15.
15 Id.

16 See David Filipov, "A real gem of a scandal: Russian magnate may have stolen millions in jewels," BOSTON 

GLOBE, June 27, 1998, p.A2; Alexander Shashkov, "Ex-Premier Chernomyrdin questioned in court over 

diamond deal," Itar-TASS, May 26, 2000.

17 Oleg Lurye, "Switzerland as the Mirror of the Kremlin--A Look at the Top People in Government From the 

Perspective of Lake Geneva; An Exclusive Interview with High-Ranking Officials of the Swiss Police and 

Prosecutor's Office by a Novaya Gazeta Correspondent," Novaya Gazeta (Electronic Version, in Russian), No. 

25, June 26 to July 2, 2000, p. 6.

18 Bruce D. Berkowitz and Jeffrey T. Richelson, "The CIA Vindicated: The Soviet Collapse was Predicted," 

NAT'L INTEREST, Fall 1995.

19 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23, 1998, p. A8.

20 David Ignatius, "Who Robbed Russia? Did Al Gore know about the massive lootings?" WASH. POST, Aug. 

25, 1999, p. A17.

21 Christopher Marquis, "Clinton administration unveils plan to combat money laundering," Knight Ridder/

Tribune News Service, Sept. 23, 1999.

22 Fritz Ermarth, "Seeing Russia Plain," NAT'L INTEREST, Spring 1999, No. 55, p. 12. Ermarth, who retired 

from the CIA in 1998, has served as Chairman of the National Intelligence Council and in a variety of other 

senior government posts.

23 "Conceptual Provisions of a Strategy for Countering the Main External Threats to Russian Federation 

National Security," INOBIS, Moscow Institute of Defense Studies, October 1995, pp. 4-5.

24 Interview of Al Gore by Tim Russert, MEET THE PRESS, July 16, 2000 (Emphasis added).

25 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23, 1998, p. A8.

26 James Risen, "CIA Denies That It Withheld Reports on Russian Corruption," N.Y. TIMES, Nov. 25, 1999, p. 

A6.

27 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23, 1998, p. A8.

28 Id.

29 Interview of Al Gore by Tim Russert, MEET THE PRESS, July 16, 2000. Gore continued:
I think that in his dealings with our country, he proved to be a person whose word was worthy of 

respect, and we accomplished a great deal with Chernomyrdin. In fact, right here at the Naval 

Observatory, I talked with him personally and worked out the provisions by which the war in 

Kosovo was ended, and he played a major role in that. And you know, Russia is now--for all of its 

many problems, the question there is not whether or not to return to communism, the question on 

the table in Russia is: How fast are they going to move forward with the reforms? They now have 

a privatized market. They have more private ownership in their economy than many countries in 

Western Europe. They have a democracy. ...

Gore's attribution to Chernomyrdin of credit for Russian democracy and the absence of a 

Communist comeback in Russia is grossly exaggerated. For Chernomyrdin's unhelpful role in 

mediating the end of the Kosovo conflict, see Chapter 10 infra.

30 David Hoffman, "Russia Was Lab For Theories on Foreign Policy," WASH. POST, June 4, 2000, p. A9.

31 Peter Reddaway, "Better Than Whitewater: Scandal Dogs Russia's Rising Star," WASH. POST, Aug. 20, 

1995, p. C3.

32 David Hoffman, "Russia Was Lab for Theories on Foreign Policy," WASH. POST, June 4, 2000, p. A9.

33 For the Gore-Chernomyrdin Commission's work product, see Chapter 5 supra.

34 In February 1999, Vice President Gore gave a speech on the self-evident evils of corruption in which he 

appropriated without attribution the words of Edmund Burke ("Corruption has so frequently triumphed in our 

world because good men and women did nothing") while proposing no more specific plan of action than further 

discussions and meetings. The patent irony of his notorious association with some of the most corrupt figures in 

Russia spoke more eloquently even then Burke's famous words on this occasion. Closing remarks of Vice 

President Al Gore at the Global Forum on Fighting Corruption, Washington, D.C., Feb. 26, 1999.

35 For further problems with the Commission see Chapter 5 supra.

36 Testimony of Wayne Merry, Director, the Atlantic Council of the United States, before the Senate Foreign 

Relations Committee, on "Corruption in Russia," Sept. 23, 1999.

37 FRONTLINE, Public Broadcasting Service, May 9, 2000

38 Id.

39 Id.

40 Robert Kaiser, "Pumping Up the Problem; Has Investing in the Yeltsin Machine Put America's Relationship 

With Russia at Risk?" WASH. POST, Aug. 15, 1999, p. B1.

41 Thomas Graham, Statement to the Speaker's Advisory Group on Russia, June 7, 2000.
42 Stephanie Nebehay, "Swiss want U.S., Russian help in laundering probe," Reuters, June 9, 2000.

43 Paul Starobin, "Moscow Mirage," NAT'L JOURNAL, Vol. 31, No. 16, Apr. 17, 1999, p. 1034.

Chapter 7

1 Aaron Lukas, Gary Dempsey, "Mafia Capitalism or Red Legacy in Russia?", CATO Institute, Mar. 4, 2000, p. 

4.

2 Id., p. 4.

3 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT (Washington, D.C.: 

Center for Strategic and International Studies, 1997), p. 3.

4 Christian Caryl, Anne Nivat, "Reality is Virtually Horrible," U.S. NEWS & WORLD REPORT, Nov. 8, 1999, 

p. 60; Nikolai Styazhkin, "Five Policemen Sentenced in Budennovsk Hostage-Taking Drama," Itar-TASS, July 

15, 1996.

5 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT (Washington, D.C.: 

Center for Strategic and International Studies, 1997), p. 20.

6 "[I]nstitutional economics literature and extensive empirical analysis ... show that the structure and activities of 

organized criminal groups are significantly shaped by the state." Curtis J. Milhaupt and Mark D. West, "The Dark 

Side of Private Ordering: An Institutional and Empirical Analysis of Organized Crime," 67 U. CHI. L. REV. 41, 

Winter 2000.

7 Francis T. Miko, "International Crime: Russian Organized Crime's Role and U.S. Interests," CRS Report to 

Congress, Oct. 30, 1998.

8 RUSSIAN ORGANIZED CRIME (Washington, DC: Center for Strategic and International Studies, 1997), p. 2.

9 Interfax, June 23, 2000.

10 Paul J. Saunders, Testimony before the House Committee on Banking and Financial Services, U.S. House of 

Representatives, Sept. 15, 1998.

11 "300,000 Economic Crimes Uncovered Last Year," Itar-TASS, Feb. 10, 2000.

12 "Business Law Review," Interfax, Apr. 4, 2000 Volume S, FBIS CEP20000404000276.
13 "300,000 Economic Crimes Uncovered Last Year," Itar-TASS, Feb. 10, 2000.

14 "Top Russian Police Officer Gives Organized Crime Figures," Foreign Broadcast Information Service, RIAVESTI, June 7, 2000, FBIS-SOV-2000-0607-000085; "Russian Interior Ministry: 95 Criminal Communities 

Acting in Russia," Interfax, June 8, 2000, Foreign Broadcast Information Service, FBIS-SOV-2000- 0608-

000127.

15 "Top Russian Police Officer Gives Organized Crime Figures," RIA-VESTI, June 7, 2000, Foreign Broadcast 

Information Service, FBIS-SOV-2000-0607-000085. The editor-in-chief of the information agency for the 

International Association for Combating Drug Addiction and Drug Trafficking, Vladimir Shashkov, reported that 

40,000 firms in Russia "controlled by organized crime groupings" were "laundering narco-money." Interfax, June 

23, 2000.

16 "Russia's Criminals Go Global," JANE'S INTELLIGENCE REVIEW, Mar. 2000, p. 10.

17 Pat Milton, "Russian mob seeks money and power in America and overseas," Associated Press, June 18, 2000.

Such groups have also been compared to parasites:

But the problem in Russia today is that organized crime is well on the way to becoming a major, 

perhaps in time a dominating, factor in the Russian polity. An example from the world of biology 

may help make the point. In the early stages of its growth on a host tree in the rain forest, the 

strangler fig looks like many other parasitical vines. But the strangler fig's tendrils ... grow 

stronger and slowly more and more vines work their way down the tree, join one another, and 

become a circular shell, an outer trunk that completely surrounds the tree. The tree inside begins 

to die, and in the final stages what was once a healthy host tree with a few vines on it becomes 

nothing but the rotten core of a new strangler fig tree. The parasite replaces its host. ... There are 

definitely more than just a few organized crime tendrils on the Russian tree.

R. James Woolsey, former Director of Central Intelligence, testimony before the House National 

Security Committee, hearing on "Challenges Posed by Russia to United States National Security 

Interests, June 13, 1996, p. 18. "Banking, the extractive industries, exporting oil, gas, timber, and 

other natural resources, and many manufacturing enterprises are thoroughly penetrated by 

organized crime. Even more troubling, so are important parts of the security services, the military, 

and other parts of the government." Id.

18 "Challenges Posed by Russia to United States National Security Interests," June 13, 1996, H.N.S.C. No. 104-

40, p. 31. (The Committee was the Committee on National Security during the 104th Congress.)

19 Id., pp. 32-33.

20 Svyatoslav Timchenko, "Land of Brazen Killers; 17 contract Killings in St. Petersburg Since the Beginning of 

the Year but Not One of Them Has Yet been Solved," MOSCOW NEZAVISIMAYA GAZETA, May 6, 2000; 

"Commercial Banker Shot Dead in Contract Killing," Itar-TASS, June 14, 2000; EKHO MOSKVY RADIO, June 

16, 2000; MOSCOW KOMMERSANT, May 23, 2000; Gregory Feifer, "Uralmash Director Killed in 

Sverdlovsk," MOSCOW TIMES, July 11, 2000.
21 Daniel Williams, "Fees for Eternity: The Long Arm of Organized Crime Reaches Deeply in St. Petersburg's 

Cemeteries," WASH. POST, May 28, 2000, p. A20.

22 Svyatoslav Timchenko, "Land of Brazen Killers; 17 contract Killings in St. Petersburg Since the Beginning of 

the Year but Not One of Them Has Yet been Solved," MOSCOW NEZAVISIMAYA GAZETA, May 6, 2000; 

"Commercial Banker Shot Dead in Contract Killing," Itar-TASS, June 14, 2000; EKHO MOSKVY RADIO, June 

16, 2000; MOSCOW KOMMERSANT, May 23, 2000; Gregory Feifer, "Uralmash Director Killed in 

Sverdlovsk," MOSCOW TIMES, July 11, 2000; "Being a journalist in Russia is really risky," Agence France 

Presse, July 30, 2000; Russia Today, July 31, 2000, citing BBC Monitoring of Itar-TASS report.

23 See supra, Chapter 4.

24 Janine Wedel, "Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin," NAT'L INTEREST, 

Spring 2000, citing U.S. General Accounting Office, "Foreign Assistance: Harvard Institute for International 

Development's Work in Russia and Ukraine" (Washington, DC: GAO, Nov. 1996), p. 60; Russian Privatization 

Center 1994 Annual Report, pp. 5, 24; interview with and documents provided by Veniamin Sokolov (auditor at 

the Chamber of Accounts of the Russian Federation), May 31, 1998; Veniamin Sokolov, talk at American 

University, June 2, 1998.

25 R. James Woolsey, testimony before the House National Security Committee, hearing on "Challenges Posed 

by Russia to United States National Security Interests," June 13, 1996, p. 18 ("If an American businessman meets 

with a nattily-dressed and articulate Russian who claims that he is with an international trading and banking firm 

in Moscow and he would like to discuss a joint venture covering, say, the export of Russian oil, such an 

individual may be what he says he is. Or he may be a Russian intelligence officer operating under commercial 

cover. Or he may be an important member of a Russian organized crime group. But the really interesting point is 

that there is a reasonable chance that he is all three--and that none of those three institutions sees any problem 

with such an arrangement.")

26 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1997), p. 3.

27 Lee S. Wolosky, "Putin's Plutocrat Problem," FOR. AFFAIRS, Mar./Apr. 2000, p. 18.

28 The ownership of Gazprom remains a mystery to the press today. "Many analysts--and at least one official 

inquiry--believe that Itera [International Energy Corporation, with offices in Jacksonville, Florida] and these 

other companies in Gazprom's close orbit are owned by Gazprom's management or their relatives." Charles 

Clover, "Gazprom's sweetheart reaps Arctic Russia's riches: A company of uncertain ownership has been very 

well treated by the gas monopoly," FIN. TIMES, Aug. 11, 2000, p. 3. See also David Hoffman, "Itera: Mystery 

Player in Russia's Natural Gas Market," WASH. POST, May 21, 2000, p. H1. While it is generally accepted by 

analysts that Chernomyrdin became extremely wealthy thanks to his Gazprom connections, the Russian energy 

industry does not appreciate such publicity. In April 1997, Izvestia republished a Le Monde report that 

Chernomyrdin had amassed a personal fortune of $5 billion in connection with "privatization." In an example of 

the extraordinary ties between the energy and media sectors in Russia, after Izvestia's publication of this report, 

the petroleum giant Lukoil, a major Izvestia shareholder, "promptly called an extraordinary shareholders meeting, 
took a majority on the newspaper's board, and sacked its top editors." Andrew McChesney, "Paper Says Lukoil 

Menaced Reporter," MOSCOW TIMES, Feb. 1, 2000; Daniel Williams, "'Citizen Kane' on Pushkin Square: 

Rough Politics, Secret Deals End in Corporate Coup at Russia's Izvestia Newspaper and De Facto Dismissal of 

Longtime Editor," L.A. TIMES, July 13, 1997. Former Russian Finance Minister Boris Fyodorov had written in 

Izvestia May 26, 1995 that Chernomyrdin had acquired 1% of the stock in Gazprom, a company that could be 

worth $700 billion. See Peter Reddaway, "Is Chernomyrdin a Crook?" POST-SOVIET PROSPECTS, Vol. III, 

No. 8, August 1995, at http://www.csis.org/ruseura/psp/pspiii8.html (Reddaway was the director of the Kennan 

Institute for Advance Russian Studies; a shorter version of the paper was published in the Washington Post, Aug. 

20, 1995.). See Chapter 6 supra.

29 "American University Transnational Crime and Corruption Center's Organized Crime Watch," Vol. 1, No. 3, 

Mar./Apr. 1999, pp. 21-22.

30 Id. pp. 22-23.

31 "In 1991 we did fight the Persian Gulf War. We did win. And now gas prices are very high, highest they have 

been. And I think the reason they're high now is because we more or less asked OPEC to raise oil prices in hopes 

of helping Russia be able to sell its oil on the international market, make more foreign exchange and be able to 

develop its economy." Bill Bradley, debate with Vice President Al Gore, Mar. 1, 2000.

32 Andrew Hamilton, "How the White House Helped Pump Up the Price," WASH. POST, Apr. 30, 2000, p. B3.

33 Marc Lacey and David E. Sanger, "The President's News Conference: Clinton Moves to Give Northeast Aid 

With Fuel Oil," N.Y. TIMES, Feb. 17, 2000, p. A20.

34 Paul J. Saunders, testimony before the House Committee on Banking and Financial Services, Sept. 15, 1998; 

Clifford G. Gaddy & Barry W. Ickes, "Russia's Virtual Economy," FOR. AFFAIRS, Sept./Oct. 1998.

35 Saunders, Id.

37 "In 20 regions, wage and pension payments are more than three months behind schedule, and in 27 more 

arrears are continuing to mount. Only 5 of Russia's 89 regions have no wage and pension debts: St. Petersburg, 

Moscow, Krasnodar, Yamal-Nenets, and Taimyr." "Economy: Wage Debts Decline," RUSSIAN BUSINESS 

NEWS UPDATE, JOSH ZANDER FINANCIAL AND MANAGEMENT CONSULTING SERVICES, Apr. 1, 

1999.

38 Included in this are teachers, state hospital doctors, city service providers, and others.

39 "MP Says Capital Flight Losses $20 Billion Monthly," INTERFAX, May 24, 2000, Foreign Broadcast 

Information Service, FBIS-SOV-2000-0524.

40 Foreign direct investment in Russia between 1993 and 1999 totals $17.73 billion, according to the BISNIS 

web site of the Department of Commerce (http://www.bisnis.gov). Capital flight also exceeds Russia's total 

foreign debt ($178 billion according to the World Bank's web site, http://www.worldbank.org).
41 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1997) p. 4.

42 Id. p. 16.

43 Paul J. Saunders, testimony Before the Committee on Banking and Financial Services, United States House of 

Representatives, Sept. 15, 1998.

44 "American University Transnational Crime and Corruption Center's Organized Crime Watch," vol. 1, no. 3, 

Mar./Apr. 1999, pp. 25-27; "Deputies to the Federation Council and Deputies to the State Duma shall possess 

immunity throughout their term in office," Russian Federation Constitution, chap. 5, art. 98.

45 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1999) p. 5.

46 Stefan Leader, David Wiencek, "Drug money: The Fuel for Global Terrorism," JANE'S INTELLIGENCE 

REVIEW, Feb. 1, 2000.

47 Columbia is now the world's largest cocaine producer with over 100,000 hectares of land under coca 

cultivation, up from 25,000 hectares in 1994.

48 Douglas Farah, "Colombian Rebels Tap E. Europe for Arms; Guerrillas' Firepower Superior to Army's," 

WASH. POST, Nov. 4, 1999, p. A1.

49 Thomson Adam, "'Mafia links' boost Colombia cocaine exports," FIN. TIMES, Nov. 29, 1999, p. 5, quoting 

Colombia's police intelligence director, Col. Oscar Naranjo.

50 See infra, Chapter 9.

51 Thomson Adam, "Mafia Links Boost Colombia Cocaine Exports," FIN. TIMES, Nov. 29, 1999, p. 5.

52 Douglas Farah, "Colombian Rebels Tap E. Europe for Arms; Guerrillas' Firepower Superior to Army's," 

WASH. POST, November 4, 1999, p. A1. Thomson Adam, "Mafia Links Boost Colombia Cocaine Exports," 

FIN. TIMES, Nov. 29, 1999, p. 5.

53 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1997) p. 6.

54 Id.

55 Id. In Prague on May 11, 2000, Freeh announced plans to open an FBI office there, accepting a 1994 offer 

from Vaclav Havel. Czech police, and those from 25 other nations, have attended an FBI training center in 

Budapest that has been open for five years. "FBI to open office in Czech capital," Czech news agency CTK via 
BBC WORLDWIDE MONITORING, May 12, 2000. While the FBI has 38 offices around the world in which 

agents are assigned to U.S. embassies, it announced the opening of its first permanent office abroad in Budapest 

in February to concentrate on Russian organized crime. "FBI to open its first office abroad in Hungary," 

Associated Press, Feb. 22, 2000.

56 "Yavlinsky on Russian Economic Data, Political Corruption," INTERFAX, Sept. 21, 1997, Foreign Broadcast 

Information Service, FBIS-SOV-97-264.

57 "Prospects for the Russian Economy," presentation by Yevgeny Yasin at the Nixon Center, Sept. 13, 1999.

58 Deputy Secretary Strobe Talbott, testimony before the House International Relations Committee, Oct. 19, 

1999.

59 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1999) p. 12, 13-14.

60 Michael Dobbs and Paul Blustein, "Lost Illusions About Russia; U.S. Backers of Ill-Fated Reforms Now 

Portrayed as Naïve," WASH. POST, Sept. 12, 1999, p. A1.

61 "American University Transnational Crime and Corruption Center's Organized Crime Watch," Vol. 1, No. 3, 

(Mar./Apr. 1999) pp. 21-22.

62 Study by the All-Russia Center for the Study of Public Opinion, Apr. 14-17, 2000, results posted on www.

polit.ru, Apr. 21, 2000.

63 Aaron Lukas and Gary Dempsey, "Mafia Capitalism or Red Legacy in Russia?", CATO Institute, Mar. 4, 

2000, p. 3. See also CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, 

(Washington, D.C.: Center for Strategic and International Studies, 1997) p. 20 ("The perception of a state in 

chaos has fueled ... the yearning of many Russians--especially the older generation--for a return to ... 

authoritarian and paternalistic forms of governance ... . This desire, attributable in large part although not 

exclusively to the surge of [Organized Crime], may yet impel the Russian people to surrender their new political 

freedom and opt for a return to the familiar authoritarian institutions of the past.").

64 "Money would go into the central bank; a hundred million dollars would go in, and the Russian Mob would 

walk out with $105 million." Robert Friedman, NATIONAL PUBLIC RADIO, May 3, 2000.

65 "Most Russians Not Confident of Police Protection," Itar-TASS, June 7, 2000, Foreign Broadcast Information 

Service, FBIS- 2000-0607.

Chapter 8
1 Remarks by Lawrence Summers at a U.S.-Russia Business Council Conference, Apr. 1, 1997. While Kirienko 

was not well-known, it did not take the Clinton administration long to get behind him. "This is a good news day 

for Russia and for the United States," President Clinton said in response to his confirmation as Prime Minister. 

"We have a high opinion of [Kirienko]." David Hoffman, "Third Vote Confirms Kirienko as new Russian 

Premier," WASH. POST, Apr. 25, 1998, p. A1. What the President failed to realize, however, was that Yeltsin's 

threat to dissolve the Duma if it did not confirm Kirienko fatally undermined the new Russian government's 

relations with the parliament, making it impossible to pass the very reforms being advocated. Even after the 

consequences of Yeltsin's threat became clear, U.S. officials remained outwardly optimistic, as evidenced by 

Secretary Rubin's correspondence with the U.S. Congress and elsewhere. Kirienko was ousted barely five months 

later.

2 Paul Blustein, "IMF Battens Down For More Ill Wind," WASH. POST, July 29, 1998, p. A16.

3 Sharon LaFraniere, "Russian Bailout Fails To Ease Market Fears," WASH. POST, July 28, 1998, p. A1.

4 Celestine Bohlen, "Ruble's Crash Sets Off Boom in Survival Strategies," N.Y. TIMES, Aug. 30, 1998, p. A1.

5 Celestine Bohlen, "As Ruble Crashes, Hangover Hurts a Lot," N.Y. TIMES, Sept. 9, 1998. p. A12.

6 Michael Gordon, "Russia's Communists Add to Pressure on Yeltsin," N.Y. TIMES, Sept. 10, 1998, p. A1.

7 Alan Philips, "Stoic Russians watch savings disappear again as the rouble [sic] plunges to new lows," DAILY 

TELEGRAPH, Sept. 5, 1998, p. 13.

8 Boris Aliabyev, "Searching for ATM Cash a New Pastime," MOSCOW TIMES, Aug. 21, 1998.

9 KOMMERSANT DAILY, Sept. 3, 1998.

10 ECONOMIC REPORT OF THE PRESIDENT (Washington, D.C.: 2000), p. 364.

11 European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

12 Non-payment of wages spread throughout the entire population, much of which had already seen wages 

withheld. Many doctors, teachers, and factory workers had gone unpaid for months prior to the August 1998 

crash. Celestine Bohlen, "Ruble Down, Prices Up: A Russian City Flinches," N.Y. TIMES, Aug. 23, 1998, p. A3.

13 Peter Boone and Simon Johnson, "Russia After Yeltsin: Economic Alternatives: Boom or Bust or Both," 

paper prepared for "Russia Post Yeltsin," Wye River Conference, Aug. 19-20, 1999.

14 GOSKOMSTAT, Sotsialno-Ekonomicheskoye Polozhenie Rossiii.

15 BISNIS, Department of Commerce,
www.bisnis.doc.gov/bisnis/country/000225russiaovw-partl.htm.

16 Michael Wines, "As Ruble Falls, Moscow Unravels Faster and Faster," N.Y. TIMES, Sept. 4, 1998, p. A4.

17 "1999 Country Reports on Economic Policy and Trade Practices," Bureau of Economic and Business Affairs, 

U.S. Department of State, March 2000; Peter Boone and Simon Johnson, "Russia After Yeltsin: Economic 

Alternatives: Boom or Bust or Both" Paper prepared for "Russia Post Yeltsin," Wye River Conference, Aug. 19-

20, 1999.

18 "Trading on Russian stock market is suspended," AGENCE FRANCE PRESSE, Sept. 17, 1998.

19 European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

20 Christia Freeland, "How Bad Can It Get?," FIN. TIMES, Sept. 2, 1998, p. 14.

21 Christia Freeland, "Rouble [sic] plunges to 13.46 against dollar," FIN. TIMES, Sept. 4, 1998, p. 1.

22 Timothy O'Brien, "As Banks Falter, Russians Search for their Savings," N.Y. TIMES, Sept. 6, 1998, p. A6.

23 Mark Whitehouse, Betsy McKay, Bob Davis and Steve Liseman, "Bear Tracks: In a Financial Gamble, Russia 

Lets Ruble Fall, Stalls Debt Repayment," WALL ST. J., Aug. 18, 1998, p. A1.

24 Michael Gordon, "As Ruble Withers, Russians Survive on Barter," N.Y. TIMES, Sept. 6, 1998, p. A6.

25 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF 

CURRENT EVENTS, Sept./Oct. 1998.

26 Celestine Bohlen, "Ruble Down, Prices Up: A Russian City Flinches," N.Y. TIMES, Aug. 23, 1998, p. A3.

27 Richard Paddock, "Russia Shelves Rhetoric to Accept U.S. Food Aid," L.A. TIMES, Dec. 24, 1998, p. A1.

28 Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW TIMES, Jan. 26, 2000.

29 Daniel Williams, "Russian Crisis Sapping Health Care System," WASH. POST, Sept. 10, 1998, p. A26.

30 The population fell 0.02% in 1992, 0.2% in 1993, 0.04% in 1994, 0.2% in 1995, and 0.3% in 1996, 1997, and 

1998, and another of 0.5% in 1999. Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW 

TIMES, Jan. 26, 2000.

31 CIA World Fact Book, 1999.

32 Murray Feshback, "A Sick and Shrinking Nation," WASH. POST, Oct. 24, 1999, p. B7.
33 Murray Feshback, "Drink, disease and depression eat away at Russian population," AGENCE FRANCE 

PRESSE, Feb. 22, 2000, p. B7.

34 CIA World Fact Book, 1999.

35 FRONTLINE, Public Broadcasting Service, May 9, 2000.

36 Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW TIMES, Jan. 26, 2000.

37 Id.

38 Murray Feshback, "An AIDS Catastrophe," MOSCOW TIMES, Jan. 14, 2000.

39 Political Risk Services, "Report on Russian Social Conditions," May 1, 2000.

40 Lee Hockstader, "IMF, Russia Set Loan for $10 Billion," WASH. POST, Feb. 23, 1996, p. A1.

41 Michael Gordon, "Russia and IMF Agree on a Loan for $10.2 Billion," N.Y. TIMES, Feb. 23, 1996, p. A1.

42 "Approach Used to Monitor Conditions for Financial Assistance," General Accounting Office Report to 

Congress, June 1999 (GGD/NSIAD-99-168), pp. 144-145.

43 Id.

44 See, for example, "To Buy a Russian Election," WASH. TIMES, Mar. 28, 1996, p. A18; "No IMF Loans to 

Russia," Executive Memorandum, The Heritage Foundation, Feb. 16, 1996; Charles Krauthammer, "It's Their 

Economy, Stupid," WASH. POST, Feb. 8, 1996, p. A21.

45 Secretary Summers testified before the Speaker's Advisory Group that the Clinton administration consistently 

urged Russia to increase revenues. Meeting with the Speaker's Advisory Group on Russia, June 28, 2000.

46 According to EBRD statistics, the budget deficit as a percent of GDP was 8.6% in 1996, 7.6% in 1997, and 

8.0% in 1998. European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

47 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF 

CURRENT EVENTS, Sept./Oct. 1998.

48 Id.

49 Id.

50 Id.
51 Id.

52 Id.

53 Peter Rutland, "Western Policy and the Failure of the Economic Transition in Russia," Jamestown Foundation 

Conference Paper, June 1999, p. 9. "Russia Sets 80% Limit for Wednesday GKO Primary Yields," Interfax, July 

8, 1998. The 100% rate was in secondary trading. Yields reached 50% at the end of May. "GKO Yield Curve," 

Capital Markets Russia, May 28, 1998.

54 Id.

55 Peter Rutland, "Western Policy and the Failure of the Economic Transition in Russia," Jamestown Foundation 

Conference Paper, June 1999, p. 9.

56 Former Treasury Secretary Robert Rubin, testimony before the House Appropriations Committee, 

Subcommittee on Foreign Operations, Mar. 18, 1999.

57 Martin Crutsinger, "U.S. Hopeful Russia Will Get Loans," Associated Press, May 27, 1998.

58 Treasury Secretary Lawrence Summers, meeting with the Speaker's Advisory Group on Russia, June 28, 2000.

59 Remarks by John Odling-Smee at a press conference, July 13, 1998.

60 Press Briefing by Mike McCurry, July 13, 1998.

61 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF 

CURRENT EVENTS, Sept./Oct. 1999.

62 Michael Gordon and David Sanger, "The Bailout of the Kremlin: How U.S. Pressed the I.M.F.," N.Y. TIMES, 

July 17, 1998, p. A1.

63 Id.

64 Statement by the President of the United States, May 31, 1998.

65 "Russian Government Officially Cancelled Auction for Sale of Rosneft," KOMMERSANT DAILY, Nov. 5, 

1998, p. 7.

66 Memorandum of the Government of the Russian Federation and the Central Bank of the Russian Federation 

on Economic and Financial Stabilization Policies at

http://www.imf.org/external/country/RUS/index.htm.
67 Statement by the President of the United States, May 31, 1998.

68 Patrice Hill, "Russia loses $800 million from IMF," WASH. TIMES, July 21, 1998, p. A1.

69 "More records fall as Russia surges," FIN. TIMES, July 15, 1998, p. 50.

70 John Thornhill and Jeremy Grant, "Russian markets hit by austerity package doubts," FIN. TIMES, July 28, 

1998, p. 1.

71 "More records fall as Russia surges," FIN. TIMES, July 15, 1998, p. 50

72 "Yeltsin sacks security chief and orders Gazprom sell-off," FIN. TIMES, July 27, 1998, p. 1.

73 Michael Wines, "Foreign Investors Need Good News, Top Russian Official Says," N.Y. TIMES, July 29, 

1998, p. A2.

74 Letter from Treasury Secretary Robert Rubin to Speaker of the House Newt Gingrich, July 28, 1998.

75 Paul Blustein, "IMF Battens Down For More Ill Wind," WASH. POST, July 29, 1998, p. A16.

76 "Russia's Tumble Continues," Reuters, Aug. 19, 1998.

77 Paul Blustein, "Rescue Of Russian Economy Failing; Experts Predict New Bailout Effort," WASH. POST, 

July 14, 1998, p. A1.

78 Daniel Williams, "Russian Banks Stop Loans to One Another," WASH. POST, Aug. 13, 1998, p. A23.

79 Art Pine, "Pressure is Mounting for Russian Reforms," L.A. TIMES, Aug. 15, 1998, p. A8.

80 "The next Russian bail-out," THE ECONOMIST, Aug. 15, 1998, p. 60.

81 Celestine Bohlen, "Russia Acts to Fix Shrinking Finances," N.Y. TIMES, Aug. 18, 1998, p. A1.

82 Mark Whitehouse, Betsy McKay, Bob Davis, and Steve Liseman, "Bear Tracks: In a Financial Gamble, 

Russia Lets Ruble Fall, Stalls Debt Repayment," WALL ST. J., Aug. 18, 1998, p. A1.

83 Sylvia Nasar, "Denied Western Funds, Russia Makes Its Choices," N.Y. TIMES, Aug. 18, 1998, p. A8.

84 The Russian government's revised Foreign Policy Concept, approved by President Putin on June 28, 2000, 

appears to reflect a distinctly jaundiced view of "[g]lobalization of the world economy", which is described as 

bringing not only "additional possibilities for socio-economic progress" but also "new dangers, especially for 

economically weak states, and increase[d] ... probability of large-scale financial and economic crises." The 

Concept continues, "There is a growing risk of dependence of the economic system and information environment 
of the Russian Federation on outside impact." The growing role of international economic and political 

institutions like 'Group of Eight,' the IMF, the World Bank, and others" is described immediately thereafter.

85 Testimony of Robert Rubin before the House Appropriations Committee, Subcommittee on Foreign 

Operations, Mar. 18, 1999.

86 Richard Paddock, "Russia Plays Loose with IMF Billions," L.A. TIMES, Sept. 24, 1998, p. A1.

87 David Kramer, "It may be the summit of embarrassment," BOSTON GLOBE, Aug. 30, 1998, p. E2.

88 GOSKOMSTAT, Sotsialno-Ekonomicheskoye Polozhenie Rossiii, March 2000, in Jamestown Foundation 

"Monitor Report," June 20, 2000.

89 Stefan Wagstyl, "Further reform needed to consolidate gains," FIN. TIMES, May 10, 2000, p. II

90 Guy Chazan and Jeanne Whalen, "Russia's Miniboom May be Sustainable," WALL ST. J., May 17, 2000, p. 

A23.

Chapter 9

1 Indeed, the defense and military-industrial sectors have been excluded from Russian privatization plans almost 

from the outset.

2 See Chapter 10 infra.

3 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: 

Center for Strategic and International Studies, 1997) pp. 32, 1.

4 Id. at 32, 1. After the 1996 agreement ending the first Chechen war, the Yeltsin government promised funds for 

the reconstruction of Chechnya and established a Commission for the Restoration of the Chechen Economy 

under chairmanship of Soskovets, whom Fortune magazine called "the most powerful man under Yeltsin until 

mid-1996." FORTUNE, June 12, 2000. The reconstruction money--16.2 trillion rubles in reconstruction funds, 

and an additional one billion dollars in foreign loans that Yeltsin's decree also dedicated to this purpose--was 

"plundered by Soskovets and his allies." The citizens of Chechnya never saw any reconstruction; electricity, 

water, and heating fuel were never restored, and housing destroyed or damaged during the war was never 

reconstructed. "Nowhere has the level of corruption been more scandalous." John B. Dunlop, "Sifting through the 

Rubble of the Yeltsin Years," paper presented at Jamestown Foundation Conference "Russia: What Went 

Wrong? Which Way Now?", June 9-10, 2000.

5 Maura Reynolds, "Commandos Show Who's Got Power," L.A. TIMES, June 28, 2000, p. A8. Once before, in 

September 1995, troops forced two electricity substations to restore power to a nuclear submarine base in the 
northern Kola Peninsula, where electricity had been cut off because of unpaid bills. Id. See also Pavel 

Felgengauer, "Budget Fray Begins to Boil," MOSCOW TIMES, June 29, 2000 ("Several years ago the power 

supply of the huge underground command center of the Strategic Missile Forces west of Moscow was also cut 

off; the military was forced to activate emergency power generators.") See Dale Herspring, "The Russian Military 

Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, pp. 573-86 (By 1998 only 30% of Russia's 

weapons were modern, versus 60-80% for NATO; on current trends, by 2005 only 5-7% of Russian weapons will 

be new); Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for 

Congress, Sept. 4, 1997, pp. 2-3 ("A clear consensus has emerged among specialists ... that Russian conventional 

military capabilities have been degraded to such an extent that the armed forces face the possibility of collapse or 

implosion if present trends continue much longer ... Russian expert assessments of the Russian military tend to be 

even more negative than American assessments." (Footnotes omitted.)).

6 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, p. 

576 (footnotes omitted). "In October 1998 ... a major and a lieutenant colonel committed suicide in Moscow. An 

investigation revealed that their families were starving and both officers knew that if they committed suicide their 

families would get their death benefits." Id. p. 577-78 (footnote omitted). In mid-1998, 110,000 soldiers and 

160,000 discharged servicemen were without housing. Id. p. 579.

7 "In Russia, a Big Effort to Evade the Draft," Scripps Howard News Service, May 24, 2000, citing the Russian 

Soldiers' Mothers' Committee.

8 State Department Annual Report on Military Expenditures, 1998.

9 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, 

Sept. 4, 1997, p. 4. Regarding the "dying fleet," for example, the subsequent fate of the Kursk, which may have 

been doomed by the inadequate training and infrequent exercises of the Northern Fleet, is not the only example. 

The first two Sovremenny-class destroyers purchased by the PRC's People's Liberation Army Navy (PLAN) were 

originally laid down for the Russian Navy but instead were sold. Trevor Hollingsbee, "Sovremenny delivery will 

give PLAN a bigger sabre to rattle over Taiwan," JANE'S INTELLIGENCE REVIEW, Jan. 1, 2000.

10 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOTRAKIZATSIYA, Fall 1999, 

p. 574 (footnotes omitted).

11 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for 

Congress, Sept. 4, 1997, p. 8.

12 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, 

p. 574 (footnotes omitted).

13 Nikolai Novichkov, "Russia Expands Strategic Bomber Fleet on Completion of START II Ratification," 

JANE'S DEFENSE WEEKLY, May 17, 2000.

14 An ongoing dispute among senior officers in the Russian military involving a number of issues, including to 

some extent allocation of resources, has received widespread attention recently in the Russian and foreign press. 

David Hoffman, "Russian Defense Chief Vetoes Cuts to Rocket Forces," WASH. POST, July 14, 2000, p. A16. 
See Chapter 10 infra.

15 Pavel Felgengauer, "Both Sides of Battle Right," MOSCOW TIMES, July 20, 2000.

16 Lt. Gen. Patrick Hughes, USA, Director, DIA, testimony before the Senate Armed Services Committee, Feb. 

3, 1999.

17 Pavel Felgengauer, "Both Sides of Battle Right," MOSCOW TIMES, July 20, 2000.

18 Nikolai Sokov, "Russia--A Conflict of Strategic Interests," JANE'S DEFENSE WEEKLY, Aug. 2, 2000.

19 Id.

20 Pavel Felgengauer, "Limited Nuclear War? Why Not," DEFENSE AND SECURITY, May 6, 1999, p. 1.

21 Nikolai Novichkov, "Russia Expands Strategic Bomber Fleet on Completion of START II Ratification," 

JANE'S DEFENSE WEEKLY, May 17, 2000.

22 Igor Khripunov, "Last Leg of Triad; Russia's Strategic Rocket Force," BULLETIN OF ATOMIC 

SCIENTISTS, July 1, 2000, p. 58.

23 Dana Priest, "Russian Bombers Make Iceland Foray; U.S. Jets Intercept 2 Planes Near NATO Ally; Moscow 

Defends Exercises," WASH. POST, July 1, 1999, p. A1.

24 Id.

25 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for 

Congress, Sept. 4, 1997, p. 17.

26 Richard Staar, "The Bear Sharpens its Claws," HOOVER DIGEST 1997, No. 4. For a more extended 

discussion of the implications of these facilities see Chapter 10 infra.

27 Rear Admiral L.E. Jacoby, Director of Naval Intelligence, statement before the Seapower Subcommittee of 

the Senate Armed Services Committee on "Submarine Warfare in the 21st Century," Apr. 13, 1999.

28 Id.

29 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for 

Congress, Sept. 4, 1997, p. 8.

30 "Nuclear Nonproliferation: Status of U.S. Efforts to Improve Nuclear Material Controls in Newly Independent 

States," GAO/NSIAD/RCED-86-89, Mar. 8, 1996.
31 "Idled Arms Experts in Russia pose Threat; Many Take Talents to Developing States," WASH. POST, Dec. 

28, 1998, p. A1.

32 Jonathan B. Tucker and Kathleen M. Vogel, "Preventing the proliferation of Chemical and Biological Weapon 

Materials and Know-How," NONPROLIFERATION REVIEW, Spring 2000, p. 88.

33 Id.

34 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, 

p. 575 (footnote omitted).

35 Pavel Felgengauer, "Defense Dossier: The Arms Bazaar Beckons," MOSCOW TIMES, September 24, 1998 

("Russia could cancel the 1995 memorandum that effectively stopped the signing of new arms contracts with 

Iran. Russia could begin totally unrestricted sales of the most advanced weapons to the Middle East. This would 

bring in much-needed money and create jobs in Russia depressed defense industry.").

36 Stuart Goldman, Kenneth Katzman, Robert Shuey, and Carl E. Behrens, "Russian Missile Technology and 

Nuclear Reactor Transfers to Iran," CRS Report for Congress, Dec. 14, 1998, p. 3.

37 Id.

38 Bill Gertz, "Russia Disregards Pledge to Curb Iran Missile Output; Tehran, Moscow Sign Pacts for Additional 

Support," WASH. TIMES, May 22, 1997, p. A3.

39 BILL GERTZ , BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

40 Id.

41 Kenneth Timmerman, "The Russian Missiles We Could Have Stopped," testimony before House Committee 

on International Relations, Oct. 6, 1999.

42 BILL GERTZ , BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

43 Report of Proliferation-Related Acquisition in 1997, submitted to Congress by the Director of Central 

Intelligence.

44 BILL GERTZ , BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

45 Bill Gertz, "Russian says U.S. staged missile sting; Berger discloses evidence of continuing sales to Iran," 

WASH. TIMES, June 23, 1998, p. A1.

46 Executive Summary of the Report of the Commission to Assess the Ballistic Missile Threat to the United 

States, July 15, 1998.
47 George Tenet, Director of Central Intelligence, testimony before the Senate Armed Services Committee, 

hearing on "Threats to National Security," Feb. 2, 1999.

48 The entities sanctioned were INOR Scientific Center, Grafit, Polyus Scientific Production Associates, 

Glavkosmos, the MOSO company, Baltic State Technical University, and Europalace 2000. On January12, 1999, 

the Administration sanctioned three additional Russian entities believed to be assisting Iran's missile and nuclear 

programs. The three entities sanctioned were NIKIET (Scientific Research and Design Institute of Power 

Technology), the D. Mendeleyev University of Chemical Technology, and the Moscow Aviation Institute.

49 CIA Nonproliferation Center, Unclassified Report to Congress on the Acquisition of Technology Relating to 

Weapons of Mass Destruction and Advanced Conventional Munitions, Feb. 2, 2000. The subsequent CIA report 

on WMD proliferation during the latter half of 1999, released on August 9, 2000, confirmed that during that 

period "[e]ntities in Russia, North Korea, and China continue to supply the largest amount of ballistic missilerelated goods, technology, and expertise to Iran." CIA Nonproliferation Center, Unclassified Report to Congress 

on the Acquisition of Technology Related to Weapons of Mass Destruction (WMD) and Advanced Conventional 

Munitions, 1 July-31 December 1999," Aug. 9, 2000.

50 Kenneth Katzman, "IB93033: Iran: Current Developments and U.S. Policy," CRS Report for Congress, May 

5, 2000.

51 Bill Gertz, "Russia, China Aid Iran's Missile Program," WASH. TIMES, Sept. 10, 1997, p. A1. The consensus 

of Western experts is that the missile has only military purposes. "Iran Missile for Military, Not Civilian UseJane's," Reuters, Feb. 16, 1999.

52 Kenneth Timmerman, "The Russian Missiles We Could Have Stopped," testimony before House Committee 

on International Relations, Oct. 6, 1999.

53 Audrey Hudson, "Analyst fears U.S. helps Iran develop missile via Moscow," WASH. TIMES, July 14, 1999, 

p. A10.

54 In 1987, at the request of the United States, the G-7 nations established the Missile Technology Control 

Regime (MTCR). The MTCR is an informal arrangement consisting of guidelines for the transfer of sensitive 

missile technology, including an annex of controlled items. Member nations agree to adopt the guidelines as 

national policy and agree to control missile and technology transfers through export controls. Thirty-two nations 

are members of the MTCR. Russia joined the MTCR on Aug. 8, 1995.

55 Kenneth Katzman, "Iran: Current Developments and U.S. Policy," CRS Report for Congress, May 5, 2000.

56 "Ministry Plans to Build Reactors for Iran, India," B.B.C. SUMMARY OF WORLD BROADCASTS, April 

14, 2000, translation of IZVESTIYA, Apr. 4, 2000.

57 James Risen, Judith Miller, "C.I.A. tells Clinton an Iranian A-Bomb Can't be Ruled Out," N.Y. TIMES, Jan. 

17, 2000, p. A1.
58 Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction 

and Advanced Conventional Munitions 1 July Through 31 Dec. 1999, p. 10.

59 Judith Miller , William J. Broad, "The Germ Warriors, A Special Report. Iranians, Bioweapons in Mind, Lure 

Needy Ex-Soviet Scientists," N.Y. TIMES, Dec. 8, 1998, p. A1.

60 Ed Blanche, "War of attrition as Iraq absorbs the ongoing US punishment," JANE'S INTELLIGENCE 

REVIEW, June 1, 1999.

61 Jamie Dettmer, "Russians said to sell missiles to Saddam; Arms deals would flout U.N. embargo," WASH. 

TIMES, Feb. 22, 1999, p. A1.

62 Kenneth Katzman, "Iraqi Compliance with Cease-Fire Agreements," CRS Report for Congress, May 10, 2000.

63 R. Jeffrey Smith, "Did Russia Sell Iraq Germ Warfare Equipment? Document Seized by U.N. Inspectors 

Indicates Illicit Deal," WASH. POST, February 12, 1998, p. A1.

64 TOM MANGOLD AND JEFF GOLDBERG, PLAGUE WARS (St. Martins Press, New York: Feb. 2000), p. 

162.

65 Id., p. 209; Sonni Efron, "Russia Investigates Alleged Chemical Arms Smuggling," L.A. TIMES, Oct. 25, 

1995, p. A4.

66 Steven Lee Myers, "Led By U.S., Arms Sales Surge Globally," N.Y. TIMES, Aug. 21, 2000, p. A9.

67 "Is Vladimir Putin the Salesman with a Hidden Agenda?" JANE'S DEFENCE INDUSTRY, May 1, 2000 

("[Thirty-two percent] of Russia's arms exports go to Iran, Algeria, Greece, the United Arab Emirates and 

Vietnam. Russia is also revitalising exports to dormant countries such as Malaysia, Libya, Syria, and Ethiopia. It 

is attempting to break away from its traditional spheres of influence by negotiating contracts with Brazil, 

Columbia, Greece, Kuwait, and Turkey ... Russia has also signed military-technical collaboration deals with 

Bangladesh, Malaysia, Singapore, Sri Lanka, and Ukraine.").

68 Judith Matloff, "Russia Cranks Up Arm Production, Sales," CHRSTN. SCI. MONITOR, Dec. 29, 1999, p. 1.

69 The Russian arms export firms Promexport and Rossiiskiye Teknologii were merged pursuant to a 

Presidential Decree in April 2000.

70 "Is Vladimir Putin the Salesman with a Hidden Agenda?" JANE'S DEFENCE INDUSTRY, May 1, 2000.

71 Id.

72 For Russian arms and technology transfers to the PRC, see Chapter 11 infra.
73 Judith Matloff, "Russia Cranks Up Arm Production, Sales," CHRISTIAN SCI. MONITOR, Dec. 29, 1999, p. 

1.

74 Simon Saradzhyan, "Countries Race for Russian Weapons," ST. PETERSBURG TIMES, July 9, 1999.

75 "Russia Resumes Arms Sales to Syria," BBC translation of VREMYA NOVOSTEY, Apr. 14, 2000.

76 "Is Vladimir Putin the salesman with a hidden agenda?," JANE'S DEFENCE INDUSTRY, May 1, 2000.

77 "Konkurs Licensed Production Approved," INFORMATION ACCESS CO., May 5, 2000.

78 "Russian Arms Sales in 1997," MOSCOW TIMES, Nov. 17, 1998.

79 Douglas Davis, "Russia to upgrade Iraqi air-defense system," JERUSALEM POST, Apr. 17, 2000.

80 Mikhail Kozyrev, "Act On Proliferation," KOMMERSANT DAILY, Russian Press Digest, RUSSICA 

Information Inc., RusData DiaLine, May 11, 2000, p. 1.

81 Id.

82 "Russia's Leading Arms Trader's Orders to Hit 12 Billion Dollars," Agence France Presse, June 23, 2000.

83 Steven Erlanger, "U.S. Telling Russia to Bar Aid to Iran by Arms Experts," WASH. POST, Aug. 22, 1997, p. 

A1.

84 David Hoffman, "Idled Arms Experts in Russia Post Threat; Many Take Talents to Developing States," 

WASH. POST, Dec. 28, 1998, p. A1.

Chapter 10

1 Russia has been conservatively estimated to possess 21,980 of the world's 33,600 nuclear warheads, some 65% 

of the global total. The United States possesses less than half of the Russian total. ( "Non-Proliferation Project: 

Nuclear Numbers--Worldwide Nuclear Weapons Stockpile," the Carnegie Endowment, Aug. 21, 2000. http://

www.ceip.org/files/projects/npp/NuclearNumbers/index.htm)

2 "World Crude Oil and Natural Gas Reserves, January 1, 1999," U.S. Department of Energy's Energy 

Information Agency, posted at http://www.eia.doe.gov/oil_gas/petroleum/info_glance/resources.html.

3 James Billington, "Russia: Between a Dream and a Nightmare," N.Y. TIMES, June 1, 1998, p. A31.

4 Three-quarters of the American public believe that productive relations with Russia consistent with the national 
interest are a vital interest of the United States. Chicago Council on Foreign Relations, "America's National 

Interests," July 2000.

5 Secretary of State Madeleine Albright, address to the Carnegie Endowment for International Peace, Sept. 16, 

1999.

6 See supra, Chapter 4.

7 Anatoly Shub, "Many Russians Still Admire America, but More and More Disapprove of U.S. Foreign 

Policies," USIA Office of Research and Media Reaction Opinion Analysis, M-31-99, Mar. 23, 1999, p.2.

8 "Opinion Analysis: Russians' Mistrust of the U.S. At New High," Department of State Office of Research, 

March 14, 2000, p. 1 (among the 75% of Russians surveyed who claim to follow international affairs).

9 Anatoly Shub, "Many Russians Still Admire America, but More and More Disapprove of U.S. Foreign 

Policies," USIA Office of Research and Media Reaction Opinion Analysis, M-31-99, Mar. 23, 1999, p. 2.

10 Presentation of Hon. James Billington, Librarian of Congress, before the Speaker's Advisory Group on 

Russia , June 14, 2000.

11 "Opinion Analysis: Russians' Mistrust of the U.S. At New High," Department of State Office of Research, 

Mar. 14, 2000, p. 1.

12 Id.

13 Id. at 2.

14 Id. at 4.

15 Michael McFaul, "Russia's Many Foreign Policies," DEMOKRATIZATSIYA, Summer 1999, p. 405. This 

polling occurred during U.S.-Russian tensions over Kosovo.

16 Paul Goble, Communications Division Director, RFE/RL, testimony before the House International Relations 

Committee, hearing on "the U.S. and Russia: Assessing the Relationship," July 16, 1998, p. 115 ("As those of 

you who traveled to Russia during Soviet times will certainly recall, ordinary Russians were remarkably proAmerican and pro-Western ... . That attitude, unfortunately, is changing and changing fast. Ever more Russians 

according to polls and anecdotal evidence now believe that the American people and the American government 

somehow want them to suffer in the aftermath of the collapse of the Soviet Union ... . To the extent that Russia 

becomes a more democratic or at least more participatory political system, such attitudes are likely to condition 

the policies not only of the current Russian government but even more the future ones.").

17 Paula J. Dobriansky, "Russian Foreign Policy: Promise or Peril?", WASHINGTON QUARTERLY, Winter 

2000, pp. 135-36.
18 Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military Development," IN 

CHINA'S SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY 

DEVELOPMENT, Jonathan Pollack and Richard Yang, eds., (Santa Monica, Cal.: RAND, 1998) p. 78 ("Since 

Russia cannot compete as before on equal terms with the USA for world supremacy, it promotes multipolarity in 

international relations. This policy for its part requires a balanced approach to various blocs and countries, 

disregarding their ideological colors, unlike in 1991-92 when Moscow tried to join the West in spreading the 

democratic gospel around the globe. Helping to move the world toward multipolarity constitutes the essence of 

current Russian strategy in the world. The Russian ruling elite believes that international relations will be much 

smoother and satisfactory if instead of American hegemony calling the shots, a number of power centers assert 

their power and influence.").

19 Statement of Peter W. Rodman, Director of National Security Programs at the Nixon Center for Peace and 

Freedom, before the House International Relations Committee, Hearing on "The U.S. and Russia: Assessing the 

Relationship," July 16, 1998 (citing Primakov's September 1996 address to the U.N. General Assembly deploring 

"tendency to establish a unipolar world" as "unacceptable to the overwhelming majority of the international 

community.").

20 "Russian Military at a Loss for Friends But Old Standbys Tend to Remain Foes," Office of Research, 

Department of State, Aug. 2, 2000. ("Among foreign threats, the United States is preeminent. Not only is the U.S. 

seen as harboring hegemonistic ambitions but - as the driving force behind NATO and its eastward expansion - 

the Americans [are believed to] pose a more concrete problem practically on the Russian' doorstep." See also

Prof. Stephen Blank, U.S. Army War College, "The State of Russian Foreign Policy and U.S. Policy Towards 

Russia," The Heritage Lectures, Apr. 6, 1998 ("Russian military thinking has retained the Soviet 'us vs. them' 

approach and the most sterile forms of correlation-of-forces theory ... The failure to demilitarize the political 

process and the environment within which security policy is formulated and executed has had a decisive and 

lasting significance for foreign policy."). Military attitudes at lower levels of the officer corps are less 

problematic. Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report 

for Congress, Sept. 4, 1997 pp. 29-30 (survey results reflect majority support for democracy, non-support for 

authoritarianism and forcible restoration of the U.S.S.R.). See also Leon Aron, "Russia's New Foreign Policy," 

American Enterprise Institute, Spring 1998, p. 9 ("[T]he Ministry of Foreign Affairs and the Russian diplomatic 

corps [are] perhaps the most authentic and recalcitrant relic of the Soviet past among Russian institutions, a class 

whose fall from the pinnacle of Soviet society in terms of material stature and prestige can be compared only 

with that of the military."); Paula Dobriansky, "Russian Foreign Policy: Promise or Peril?", WASHINGTON 

QUARTERLY, Winter 2000, p. 138 ("While foreign policy-related concerns are limited to a fairly small segment 

of the Russian elite, these individuals appear to exhibit a growing sense of anti-Western and anti-American 

sentiments. Even a casual perusal of the Russian media illustrates a profoundly disturbing phenomenon: Russian 

commentators, both pro-Communist and pro-government, are hostile to U.S. goals and policies."); Ariel Cohen, 

"What Kind of Relationship? What Kind of Russia?", "The State of Russian Foreign Policy and U.S. Policy 

Toward Russia," the Heritage Foundation, April 6, 1998 ("[T]he Defense Ministry, the military, the security 

services, and the foreign policy apparatus remain untouched, almost pristine in their Soviet mindset."). The 

Russian military has also become increasingly politicized over the last decade. Stuart Goldman, "Russian 

Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4, 1997, p. 27. 

Examples include refusals to obey presidential directives in the first Chechen conflict and possibly the seizure of 

Pristina airport during the Kosovo conflict, which some observers believe occurred without Yeltsin's involvement.

21 Lev Volkov, "Critical decisions: The START II and START III Treaties Do Not Resolve Problems of 
Strategic Stability," NEZAVISIMOYE VOYENNOYE OBOZRENIYE, Oct. 1, 1999

22 Alexei Arbatov, "Arbatov on U.S.-Russian Arms Reduction," Carnegie Endowment Non-Proliferation Project, 

May 18, 2000.

23 Bruce G. Blair, Senior Fellow, Brookings Institution, testimony before the House National Security 

Committee's military research and development subcommittee on Russian Missile Detargeting and Nuclear 

Doctrine, March 12, 1997.

24 PETER V. PRY, WAR SCARE: RUSSIA AND AMERICA ON THE NUCLEAR BRINK (Westport, Conn.: 

Praeger 1999). For more on Russian military views of American aggressiveness, see also Maj. Gen. (ret.) V.A. 

Ryaboshapko, "Nuclear Conditions: Conditions of Possible Resort to Nuclear Weapons" (East View) p. 11 ("In 

light of the latest events in the Balkans, it is growing more and more evident that the U.S. and NATO military 

and political leaders rely on solving international problems by force. Talk about necessity of solving these 

problems by peaceful methods is only a cover, and the diplomats' work becomes only a deceptive maneuver. And 

as today negative global public attitude to the Serbs and Serbia has been formed, tomorrow the same can be done 

to Russia, in case it will take an active stance in defending its interests."). Gen. Ryaboshapko outlined a variety of 

factors that, at least until 2005, "create a need for substantially wider range of factors that lead to use of NW 

[nuclear weapons]," including NATO enlargement, weaker Russian conventional forces, and weaker Russian 

capability to detect aggressive preparations. Id. at 12. He emphasized the hair-trigger nature of nuclear decision 

making that Russian strategists believe they now confront: "[I]t is necessary to draft a well-founded decision [on 

using nuclear weapons] beforehand, so that it could be realized in most short time and could not be discovered by 

technical intelligence." Id.

25 Although the United States has allowed senior Russian officers and officials access to such sensitive facilities 

as NORAD headquarters at Cheyenne Mountain and STRATCOM headquarters in Omaha, the Russian 

government has refused repeated requests to provide access to Yamantau Mountain, including a Sense of 

Congress resolution that the House of Representatives unanimously passed in 1998 and a reported inquiry from 

the President at the April 1996 Moscow summit. See David Hoffman and John F. Harris, "Clinton, Yeltsin Gloss 

over Chechen War," WASH. POST, Apr. 22, 1996. See also Michael R. Gordon, "Despite Cold War's End, 

Russia Keeps Building a Secret Complex," N.Y. TIMES, Apr. 16, 1996 (American officials say facility "involves 

a major investment of resources" and "is as big as the Washington area inside the Beltway"); John Omicinski, 

"Underground Bunker in Russia Called Concern by U.S. General," Gannett News Service, Mar. 31, 1998 

(STRATCOM commander Habiger says 20,000 workers involved in construction at Yamantau). Other commandand-control facilities built or upgraded include bunkers for Russian leaders at Voronovo and Sharapovo, both 

near Moscow, the latter connected to Moscow by a special subway route. See Bill Gertz, "Moscow builds 

bunkers against nuclear attack," WASH. TIMES, Apr. 1, 1997.

26 By contrast, the ballistic missile defenses advocated by the United States are not prompted by a fear of 

intentional Russian attack and are incapable of protecting against it.

27 Statement of Hon. Curt Weldon, Chairman, Research and Development Subcommittee, House Armed 

Services Committee, before the Conference on Assured Strategic Command and Control, National Defense 

University, Apr. 7-8, 1998. The combination of this extraordinary level of suspicion with Russia's new strategic 

doctrine of greater reliance on nuclear forces, including possible first use; the "disorganization and poor 
morale ... endemic to much of the [Russian] armed forces, [which] has to some degree reached the Strategic 

Rocket Forces;" and "the gaps in early warning that the Russians now have" produce in combination incalculable 

risks for the United States. "It is very troubling to contemplate what might happen if some combination of factors 

produced a belief on the part of senior Russian leaders that they were under attack." Testimony of R. James 

Woolsey, former Director of Central Intelligence, before the House Armed Services Committee, hearing on 

"Threats to United States National Security," Feb. 12, 1998, p. 53.

28 "Conceptual Provisions of a Strategy for Countering the Main External Threats to Russian Federation 

National Unity" INOBIS (Moscow: Institute of Defense Studies, 1995) p. 2. The study attributed to the "West" an 

"attempt to cut Russia off from the Transcaucasus by encouraging separatism in the North Caucasus, above all in 

Chechnya." Id. at 6. NATO enlargement "is seen as an attempt to isolate Russia and ultimately oust it from 

Europe ... [W]e are dealing with a resumption of German expansion in the eastern and southeastern directions 

twice interrupted in this century ...". Id. According to this study, a disparity between Russian and American 

nuclear forces anticipated under START II "will be perceived in the West as grounds to regard Russia as a 

second-rate nuclear power, which the only remaining nuclear superpower, the United States, will be able to 

subject to nuclear blackmail for purposes of dictating its will." Id. at 8. The study also advocated Russian military 

occupation of the Baltic republics in the event of their accession to NATO, a course that it deemed safe because 

"no one in the West plans to fight Russia over the Baltic"--an argument that casts an interesting light on claims 

that Baltic accession to NATO threatens Russian national security. Id. at 11-13. A further INOBIS study, "Army 

Reform and Security," published in February 1996 and translated by the Heritage Foundation, explicitly rejects 

the 1993 military doctrine's thesis that Russia had no external enemies, adding: "Currently, Russia's basic 

probable enemies remain the United States and the NATO countries. ... [American] orientation toward a [nuclear] 

first strike not only has not disappeared but has actually increased." By contrast, "it is not practical to view Iran 

and Russia as probable enemies of Russia, at least in the near future, because there are no objective causes for 

confrontation between the Russian Federation and those countries." The document notes the "increased demands 

for combat readiness in the strategic nuclear forces." See Valery Dementyev and Anton Surikov, "Army Reform 

and Security," Institute for Defense Research (INOBIS), Moscow, February 1996, translated in Ariel Cohen, 

"Russian Hardliners' Military Doctrine: In Their Own Words," Heritage Foundation, May 30, 1996, pp. 3, 4, 7.

29 Even in 1993, these included "efforts by right-wing conservative circles in the United States to ensure for 

themselves unilateral advantages in the process of disarmament, and to achieve a review of the ABM Treaty on 

their conditions," and the possibility that the U.S. would, "under the guise of mediation and peacemaking 

efforts ... take Russia's place in the countries of its traditional influence... ." 1993 FOREIGN POLICY CONCEPT 

OF THE RUSSIAN FEDERATION, Jan. 25, 1993, pp. 8-9.

30 Id. at 5 (emphasis added).

31 Id. ("Of course, there are forces in the United States that skeptically evaluate the possibility of a RussianAmerican partnership. However, the prevailing tendency, which rests on the two-party principle [i.e., enjoys 

bipartisan support], is the line towards increased cooperation with Russia.") See also id. at 6-7 (references to 

"increasing mutual understanding, trust, and partnership with the leading countries of the world, including 

interaction with the Western defense structures;" dialogue on military doctrine with Russia's "main partners, 

primarily the United States, based on the task of consolidating on a functional level the attained understanding 

that they no longer view each other as military enemies;" and "coordinating and realizing plans of cooperation ... 

with NATO and the North Atlantic Cooperation Council, increasing contacts on a bilateral and multilateral basis, 

interacting with NATO agencies on matters of strengthening peace and security by means of developing political 
contacts, military ties, exchange visits, conducting joint maneuvers, exchange of experience, and interaction in 

the settling of crisis situations.")

32 2000 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, June 28, 2000 (emphasis added).

33 Id.

34 Id. "Relations with European states is [sic] Russia's traditional foreign policy priority. ... an important resource 

for Russia's defense of its national interests in European and world affairs. And for the stabilization and growth 

of the Russian economy."

35 Id. "Asia enjoys a steadily growing importance in the context of the entire foreign policy of the Russian 

Federation, something which is due to Russia's direct affinity with this dynamically developing region and the 

need for an economic upturn in Siberia and the Far East."

36 Id.

37 The 1997 document was itself a revision of a provisional 1993 military doctrine, which also concluded that 

the threat of direct foreign military aggression against Russia was slight. (Stuart Goldman, "Russian 

Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4, 1997, p. 45.)

38 "Russian Federation National Security Blueprint," ROSSIYSKAYA GAZETA,, Dec. 26, 1997.

39 Id.

40 "National Security Concept", NEZAVISIMOYE VOYENNOYE OBOZRENIYE, Nov. 26, 1999 

(Downgrading the United Nations; weakening Russia's influence in the world; "a strengthening of militarypolitical blocs and alliances, and above all NATO eastward expansion"; the possibility of foreign military bases 

or forces in immediate proximity to Russia's borders; and a strengthening of centrifugal forces in the CIS.).

41 See, e.g., G.D. Bakshi, "The War in Chechnya," STRATEGIC ANALYSIS, August 2000, Vol. XXIV, No. 5.

42 For example, polling conducted by USIA's Office of Research and Media Reaction in the Spring of 1996 in 

four key Russian regions--the Moscow, St. Petersburg, Ekaterinburg, and Vladivostok metropolitan areas--

revealed that NATO enlargement was essentially irrelevant to the Russian general public: "Half the people in 

Ekaterinburg, and one-third in each of the other regions, say they know nothing about proposals to expand 

NATO eastward. Those who do know something are more inclined not to worry, or to favor some compromise, 

than to support creation of a military counter-bloc." And "in April 1996 many more said that Russia's 

participation in the [NATO] Partnership [for Peace] strengthened the country's security than said that it weakened 

it (42% to 9%). ... Among the elite, the pattern was similar: 45% thought that Russia's participation in the 

Partnership enhanced Russia's security, while 12% thought that it weakened its security." See Richard B. 

Dobson, "Is Russia Turning the Corner?: Changing Russian Public Opinion, 1991-1996 (USIA Office of 

Research and Media Reaction September 1996) p. 23. More recent polling after Kosovo shows that the elite in 

Russia consider NATO a tool of U.S. foreign policy (92%), leading 50% to see NATO as a threat. "Russian Elite 
Aware of Kosovo Complexities, But Still Vexed by U.S./NATO Intervention," Office of Research, Department 

of State, Nov. 18, 1999. While an August 2000 poll shows NATO enlargement and "U.S. geopolitical ambitions" 

top the list of foreign threats perceived by both the Russian military and the Russian elite ("Russian Military at a 

Loss for Friends But Old Standbys Tend to Remain Foes," Office of Research, Department of State, Aug. 2, 

2000.), for the general public 35-40% continue to have no knowledge or opinion on NATO enlargement. This 

lack of broad public interest led the State Department to drop the question from its polling.

43 GERALD B. SOLOMON, CSIS: THE NATO ENLARGEMENT DEBATE, 1990-1997, (Westport, Conn.: 

Praeger, 1998), pp. 23-24.

44 Strobe Talbott, "Rethinking the Red Menace," TIME, Jan. 1, 1990 (in an article naming Gorbachev "Man of 

the Decade").

45 Like the 1997 Founding Act, the Partnership for Peace, at least as conceived by the Clinton administration, 

was a compromise designed to delay the resolution of conflicting Russian and Western views of NATO and the 

future of Central Europe. See, e.g., Henry Kissinger, "Be realistic about Russia," WASH. POST, Jan. 25, 1994 

("[I]f the Partnership for Peace is designed to propitiate Russia, it cannot also serve as a way station into NATO, 

especially as the administration has embraced the proposition rejected by all its predecessors over the last 40 

years--that NATO is a potential threat to Russia."); see also Sen. Richard Lugar, "European Security Revisited," 

Washington D.C. June 28, 1994, quoted in GERALD B. SOLOMON, CSIS: THE NATO ENLARGEMENT 

DEBATE, 1990-1997 (Westport, Conn.: Praeger, 1998), p. 49 (calling PFP a "policy for postponement"). The 

Clinton administration, reportedly at the behest of Strobe Talbott, see id. at pp. 28-29, 33, preferred to elaborate 

the "Partnership for Peace" program as a means to defer the question of NATO enlargement and preserve the 

primacy of Russia in administration policy.

46 "NATO: Congress Addresses Expansion of the Alliance," CRS Report for Congress, May 24, 1999, p. 3.

47 "United States Security Strategy for Europe and NATO," Office of International Security Affairs, U.S. 

Department of Defense, June 1995.

48 Founding Act on Mutual Relations, Cooperation, and Security between NATO and the Russian Federation, 

May 27, 1997.

49 Richard C. Paddock, John-Thor Dahlburg, "NATO, Russia OK Pact Creating Joint Council; Diplomacy: 

Accord Would Smooth Alliance's Planned Eastward Expansion. Interpretations of Agreement Conflict," L.A. 

TIMES, May 15, 1997, p. A1.

50 Letter of President Clinton to Chairman Floyd Spence, July 3, 1997 ("The Founding Act contained language 

explicitly underscoring NATO's right to act independently--in any way, on any issue. ... We also made clear to 

the Russians throughout the negotiating process that nothing in the Founding Act would provide them a means to 

influence in any manner NATO's internal decisions--including those the Alliance is preparing to make regarding 

enlargement.") The Senate was sufficiently concerned to attach to the resolution consenting to the admission to 

NATO of the Czech Republic, Hungary, and Poland the requirement that the President certify that the Founding 

Act does not, inter alia, give Russia a veto over NATO decision making. Former Secretary of State Kissinger, in 

a vehement attack on the Founding Act written shortly after it was signed, noted that it had already occasioned 
disputes with Russia over whether it was binding and whether it gave Russia a veto, and concluded that "Yeltsin's 

interpretation appears accurate;" he dismissed the argument that the Founding Act was non-binding as one that 

"may carry weight in law schools [but is] irrelevant to the diplomacy that will result from an instrument signed 

by 17 heads of state and ratified by the Russian Duma." Henry Kissinger, " The Dilution of NATO," WASH. 

POST, June 8, 1997.

51 Dimitri K. Simes, "Western Policies: What Went Right, What Went Wrong, What Could Have Been Done 

Differently," conference paper, Jamestown Foundation, June 1999.

52 Robert Zoellick, testimony before the Senate Foreign Relations Committee, Apr. 27, 1995.

53 Among these bills are:

* Rep. Ben Gilman's NATO Expansion Act of 1994, which authorized transition assistance to 

facilitate the integration into NATO of the Czech Republic, Hungary, Poland, and Slovakia and 

other candidates for membership.

* Rep. Henry Hyde's NATO Revitalization Act of 1994, calling on NATO to establish 

benchmarks and a timetable for admission to the Atlantic Alliance.

* The NATO Participation Act of 1994, sponsored by Rep. Ben Gilman, Republican Sen. Hank 

Brown, and Democratic Sen. Paul Simon, authorizing transfer of defense equipment to the Czech 

Republic, Hungary, and Poland.

* The Contract With America's NATO Expansion Act, which endorsed NATO enlargement in 

Central Europe by no later than 1999.

* The NATO Enlargement Facilitation Act of 1996, providing $60 million in assistance to 

facilitate integration of the Czech Republic, Hungary, Poland, and Slovenia into NATO, and 

authorizing the President to designate other countries for assistance.

* The European Security Act of 1997, affirming that NATO enlargement would confer equal 

rights on new members, that non-members could not veto or delay membership decisions.

* The Senate's 1998 Resolution of Ratification approving accession of the Czech Republic, 

Hungary, and Poland to NATO, which reiterates that the North Atlantic Council is the "supreme 

decision-making body of NATO," and that its decisions are not subject to review by the NATORussian Permanent Joint Council or any other non-member state or organization. (The Resolution 

also included an amendment by Republican Sen. John Kyl calling on the administration to 

negotiate a NATO Strategic Concept and citing as a threat to NATO, inter alia, a revived 

"hegemonic power" and rogue nations seeking weapons of mass destruction.)

54 Russia's longstanding and increasing pressure on the states on its periphery provides further justification for 

NATO enlargement.
55 Significantly, as early as July 1990, in the London Summit Declaration, NATO declared that the then-Soviet 

Union was no longer an "enemy" of the Alliance and announced a new program for cooperation open to all 

former Warsaw Pact states. Consistent with this threat perception, U.S. conventional forces in Europe have 

declined by almost two-thirds since the Cold War, from over 300,000 to some 100,000--a decline more than 

matched by our European allies. In sum, from 1990-96, "NATO defense budgets collectively declined 15%, land 

forces 50%, naval forces 40%, and air forces 30%, prompting some observers to question whether NATO forces 

could defend Poland, Hungary, and the Czech Republic in the event of a conflict." Paul Gallis, "NATO: Congress 

Addresses Expansion of the Alliance," CRS Report for Congress, May 24, 1999, p. 8. The United States has only 

a few nuclear gravity bombs in Europe at this time. Id. p. 7. Significantly, Russian official opinion has been 

particularly opposed to the accession of the Baltic States to NATO, notwithstanding their precarious strategic 

position vis-a-vis Russia. See id. p. 9 ("The Baltic states, hinged against Russian territory, are in the view of 

many NATO military officials, in a starkly more disadvantageous strategic position.").

56 The fact that the pledge is contained in a non-binding document and is couched in terms of NATO's unilateral 

intention does not diminish the political impact of the pledge, as Secretary Kissinger has pointed out. Henry 

Kissinger, "The Dilution of NATO," WASH. POST, June 8, 1997.

57 See supra Chapter 4.

58 See supra Chapter 4.

59 Russian military circles and the foreign policy establishment had long been concerned by NATO enlargement 

(a concern no doubt exacerbated by the grandiose 50th anniversary celebration held in Washington during 

Kosovo military operations on April 23-25, 1999), and had been increasingly outraged by Western intervention 

in Bosnia in 1995 and by Operation Desert Fox, the December 1998 air campaign waged against erstwhile Soviet 

client Saddam Hussein. In addition to seeking assurances that Washington was not planning on using nuclear 

weapons against Iraq as part of Operation Desert Fox, see text and note supra, General Kornukov, Commanderin-Chief of the strategic air force, put his nuclear bombers on alert during the operation against Iraq.

60 Vladimir Brovkin, "Discourse on NATO in Russia during the Kosovo War," DEMOKRATIZATSIYA, Fall 

1999 ("What was most striking in spring 1999 was the unanimity with which Russians from various walks of life 

and political parties condemned the NATO bombing. ... A great discovery for Western observers was that the 

Russian media, who were supposedly free and fair, were completely one-sided in coverage of Kosovo events. 

News media essentially reproduced Serbian propaganda and footage.").

61 Jim Nichol, "Kosovo Conflict: Russian Responses and Implications for the United States," CRS Report, June 

2, 1999; see also Paul E. Gallis, "Kosovo: Lessons Learned from Operation Allied Force," CRS Report for 

Congress, Nov. 11, 1999, pp.12-13.

62 Michael McFaul, "Russia's Many Foreign Policies," DEMOKRATIZATSIYA, Summer 1999, p. 405. (citation 

omitted). "Anti-American sentiment in Russia ... is nothing new. What is new about this crisis, however, is both 

the degree of consensus and the new composition of the anti-American chorus. Traditionally, Russia's foreign 

policy elite rant about U.S. hegemony, and Russian grandmothers show up at anti-American demonstrations. At 

the beginning of the Kosovo conflict, however, it was young people throwing beer bottles at the U.S. embassy in 

Moscow and organizing university teach-ins." Id. p. 405.
63 Subsequent polling, however, reinforces the view that the Russian general public's harsh opinion of the United 

States traces back to American economic policy rather than Kosovo: in another survey Russians gave US 

economic assistance as the reason for a negative attitude towards the U.S. more than U.S. military action against 

Serbia. "Russians' Mistrust of the U.S. At New High," Office of Research, Department of State, Mar. 14, 2000.

64 Marcus Warren, "Yeltsin outraged at air strikes," ELECTRONIC TELEGRAPH, Mar. 25, 1999.

65 Christopher Lockwood, Ben Aris, and Philip Smucker, "Don't push us too far, says Yeltsin," ELECTRONIC 

TELEGRAPH, Apr. 10, 1999.

66 Viktor Chernomyrdin, "Impossible to talk peace with bombs falling," WASH. POST, May 27, 1999, p. A39. 

Throughout this period, Clinton, Gore, and Talbott were meeting intensively with Chernomyrdin in Washington 

and Moscow. See Jim Nichol, "Kosovo Conflict: Russian Responses and Implications for the United States," 

CRS Report for Congress, June 2, 1999, p. 5.

67 Paul E. Gallis, "Kosovo: Lessons Learned from Operation Allied Force," CRS Report for Congress, Nov. 11, 

1999, p. 13. Russia ultimately proved willing to recede from its demand for a separate sector of occupation and 

accept a unified peacekeeping command in Kosovo. At a superficial level, differences with the West were 

patched up at the "G-8" summit in Cologne, where Yeltsin stated that he was "among friends" and that "we need 

to make up after a fight." Yelena Tregubova, "Yeltsin Liked To Make Peace After Fight," KOMMERSANTDAILY, June 22, 1999, pp. 1-3.

68 2000 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, June 28, 2000.

69 Yeltsin and Lukashenka signed the "Charter of the Union of Belarus and Russia" on May 23, 1997. On 

December 25, 1998, Yeltsin and Lukashenka signed a further unification treaty on equal rights for citizens, equal 

conditions for economic entities, and a declaration that commits the two countries to further steps of unification, 

including supranational governing bodies, a single currency, and a unified budget.

70 John B. Dunlop, "Reintegrating 'Post-Soviet Space,'" JOURNAL OF DEMOCRACY, Vol. 11, No.3, July 2000

71 Testimony of Ambassador David H. Swartz, Retired Senior Foreign Service Officer, "U.S. Policy Toward 

Russia," before the House International Relations Committee, October 6, 1999.

72 Id.

73 Id. at. 43-44.

74 Id. at 40.

75 Secretary of State Madeleine Albright, Director of Central Intelligence George Tenet, and FBI Director Louis 

Freeh all traveled separately to Central Asia in the spring of 2000.
76 See, e.g., Grigory Nekhoroshev, "Russia, China and Central Asian Countries Continue to Draw Closer to Each 

Other," NEZAVISIMAYA GAZETA, July 6, 2000.

77 Testimony of Ambassador David H. Swartz, Retired Senior Foreign Service Officer, "U.S. Policy Toward 

Russia," before the House International Relations Committee, October 6, 1999

78 See "Islands of Excellence: The Paradox of Russia's Military," in Chapter 9 supra.

79 Robert Legvold, testimony before the Senate Foreign Relations Committee on "Corruption in Russia," Sept. 

23, 1999.

80 Lt. Gen. G.D. Ivanov, "Main Points of a Presentation ... [on] Russia's Nuclear Doctrine," October 1994.

81 See "Islands of Excellence: The Paradox of Russia's Military," in Chapter 9, supra.

82 Bruce G. Blair, Senior Fellow, Brookings Institution, testimony before the House National Security 

Committee's military research and development subcommittee on "Russian Missile Detargeting and Nuclear 

Doctrine," March 12, 1997.

83 Episodes like the 1995 "war scare" and the demarche during Operation Desert Fox, as well as the vast efforts 

underway to build facilities designed to survive nuclear war at sites like Yamantau and Kozvinsky Mountains, 

reflect this fact. This continuing distrust is reflected in the Russian Navy's reaction to the loss of the Kursk, as 

well.

84 Richard Staar, "A Tsar Is Born," HOOVER DIGEST 2000 No. 3 (Current ratio of 80% of defense funds for 

strategic missile forces to drop to 30%, with balance for state-of-the-art conventional forces).

85 President Bush, Address Before a Joint Session of the Congress on the State of the Union, January 29, 1991.

86 H.R. 2100; 102nd Cong., 1st Sess. §1 (1991), pp. 30-34.

87 Dr. Keith Payne and Dr. Andrei Kortunov, "The Character of the Problem," "COLD PEACE" OR 

COOPERATION? THE POTENTIAL FOR U.S.-RUSSIAN ACCOMMODATION ON MISSILE DEFENSE 

AND THE ABM TREATY, National Institute for Public Policy, January 22, 1997, p. 26.

88 Id.

89 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW,

June 19, 2000. The Russian government has been using this formulation ever since. See, e.g., Igor Ivanov, 

Foreign Minister, Russian Federation, "The Missile Defense Mistake: Undermining Strategic Stability and the 

ABM Treaty," FOREIGN AFFAIRS, Vol. 79, No. 5, Sept./Oct. 2000.

90 Dr. Keith Payne and Dr. Andrei Kortunov, "The Character of the Problem," "COLD PEACE" OR 
COOPERATION? THE POTENTIAL FOR U.S.-RUSSIAN ACCOMMODATION ON MISSILE DEFENSE 

AND THE ABM TREATY, National Institute for Public Policy, January 22, 1997, pp. 26-27; Dr. Keith Payne 

and Willis Stanley, "Alternative Futures," Id. at 72-74; Dr. Andrei Kortunov and Dr. Andrei Shoumikhin, 

"Expanding the Potential for Russian-American Accommodation and Cooperation," Id. at 86-87; testimony of 

Dr. Andrei Shoumikhin, Washington Director, Moscow Public Science Foundation, before the House Armed 

Services Committee, September 1996.

91 Defense Secretary Aspin, Defense Department Briefing, Federal News Service, May 13, 1993.

92 Testimony of Gen. Malcolm O'Neill, Acting Director of the SDIO, before the Senate Appropriations 

Committee Defense Subcommittee regarding FY 1994 SDIO programs, May 4, 1993.

93 See, e.g., Igor Ivanov, Foreign Minister, Russian Federation, "The Missile Defense Mistake: Undermining 

Strategic Stability and the ABM Treaty," FOREIGN AFFAIRS, Vol. 79, No. 5, Sept./Oct. 2000 ("Is such a 

system worth serious deterioration in Russia-U.S. relations, global strategic stability, and, ultimately, U.S. 

security?").

94 Department of State Office of Research, Opinion Analysis: Russians' Mistrust of the U.S. At New High 

(March 14, 2000), p.4.

95 Bill Gertz, "Intelligence report warns of missile launches against U.S.," WASH. TIMES, May 14, 1996, p. A3.

96 "Foreign Missile Threats: Analytic Soundness of Certain National Intelligence Estimates," General 

Accounting Office, GAO/NSIAD-96-225, August 1996.

97 Report of the Commission to Assess the Ballistic Missile Threat to the United States, July 15, 1998.

98 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW,

June 19, 2000.

99 Mary McGory, "Out to Lunch," WASH. POST, Mar. 30, 2000, p. A3.

100 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW,

June 19, 2000.

101 At the most recent Shanghai Five summit in Dushanbe, Tajikistan, on July 5, 2000, the assembled heads of 

state noted that "the 1972 Anti-Ballistic Missile (ABM) Treaty must be unconditionally maintained and strictly 

respected," and that "the Asia-Pacific region will see its stability and security destroyed by an eventual 

deployment of the theater missile defense (TMD) system, which will lead to an escalation of the arms race." 

They explicitly opposed TMD for Taiwan. "Shanghai Five Nations Sign Joint Statement," PEOPLE'S DAILY, 

July 6, 2000. See also Sharon LaFraniere, "Missile Shield Under Attack," WASH. POST, July 6, 2000, p. A14.

102 Interview with Marshal Sergeyev in "Sergeyev Warns of Danger to Strategic Stability from U.S. NMD," 

NEZAVISIMAYA GAZETA, June 22, 2000, pp.1, 6. See also Judith Ingram, "Russia Rejects U.S. Missile 
Assurances," WASH. POST, June 23, 2000.

103 "[The two Presidents] agree that the international community faces a dangerous and growing threat of 

proliferation of weapons of mass destruction and their means of delivery, including missiles and missile 

technologies, and stress their desire to reverse that process. ... They agree that this new threat represents a 

potentially significant change in the strategic situation and international security environment." Paras. 6 and 7, 

Joint Statement by the Presidents of the United States of America and the Russian Federation on Principles of 

Strategic Stability, June 4, 2000. In Para. 8, the Joint Statement refers to "this emerging threat to security." Id.

104 WELT AM SONNTAG, June 11, 2000, pp. 2-3.

105 "New Russia-U.S. Arms Talks Set for Saturday," RUSSIA TODAY, June 23, 2000. See also,"Russia: No 

Progress in ABM Talks," WASH. POST, June 14, 2000. (Quoting Gen. Leonid Ivashov, head of the Ministry of 

Defense Department of International Cooperation, as accusing the United States of "demoniz[ing]" North Korea 

and stating, "We evaluate the threats, the true missile threat, to the United States, as being nil.")

106 David Hoffman, "Russian Generals Diverge from Putin-Clinton Stance on Missile Threat," WASH. POST, 

June 30, 2000, A27. Gen. Ivashov attributed Iran's interest in acquiring missiles to "the wish to create a 

counterbalance to deployment of missiles by neighbors--Israel above all--and to the presence and constant 

involvement of American military personnel in the Persian Gulf." Id.

107 Igor Ivanov, Foreign Minister, Russian Federation, "The Missile Defense Mistake: Undermining Strategic 

Stability and the ABM Treaty," FOREIGN AFFAIRS, Vol. 79, No. 5, Sept./Oct. 2000.

108 2000 Foreign Policy Concept of the Russian Federation, July 28, 2000.

109 Joint Statement on the ABM Issue by the Presidents of the People's Republic of China and the Russian 

Federation, July 18, 2000.

110 Id.

111 "Democratic People's Republic of Korea-Russia Joint Declaration," P'yongyang Korean Central 

Broadcasting Station, July 20, 2000. On the issue of relations between the two Korean governments, Moscow and 

P'yongyang announced that they would not "permit outside interference in this process," i.e., possibly that the 

four-party negotiations involving both Koreas, the PRC, and the U.S. should be replaced by purely bilateral intraKorean negotiations excluding the United States. The two governments promise full consultation in the event of 

threat of invasion or threats to peace and security. By jointly promising not "to participate in any kind of action, 

measure or alliance ... opposed to the stability of the other's sovereignty, independence, and territory," Russia 

could possibly be promising not to participate in any multilateral sanctions against North Korea, no matter what 

the North Korean action that provoked them and notwithstanding the authority imposing them. Indeed, Russia 

may be committing to veto any action against North Korea by the U.N. Security Council, the only body that 

Russia deems competent to authorize such action. The summit was preceded in February 2000 by conclusion of a 

new Russian-North Korean Treaty of Friendship to replace the Soviet-era alliance scrapped by Yeltsin.
112 Cf. Michael Richardson, "Russia Assures U.S. on North Korea Missile Program," INTERNATIONAL 

HERALD TRIBUNE, July 28, 2000, with Doug Struck, "North Korean Missile Stance Unclear," WASH. POST, 

July 29, 2000 (North Korean Foreign Minister tells Secretary of State Albright in Bangkok that he "declined to 

provide further clarification."). As the House Select Committee on U.S. National Security and Military/

Commercial Concerns with the People's Republic of China documented in great detail in 1999, the process of 

integrating satellites and launch rockets provides extensive opportunities for transfer of militarily significant 

technical expertise.

113 For example, P'yongyang had already promised the United States at a September 1999 meeting in Berlin to 

impose a moratorium on launches as long as North Korea felt that bilateral negotiations over the launches were 

proceeding satisfactorily. Similarly, the Clinton administration initially claimed that the 1994 Agreed Framework 

froze the DPRK nuclear program in its entirety, only to subsequently discover that its incompetent negotiation 

had secured only a freeze on nuclear activities at two locations.

114 "Just Kidding in Korea," WASH. POST, Aug. 16, 2000.

115 Press Conference by President Clinton and President Yeltsin, Jan. 14, 1994.

116 Testimony of J. Michael Waller before the House Armed Services Committee Subcommittee on Military 

Research and Development, Mar. 13, 1997.

117 Remarks by the President to the People of the Toledo Area, Aug. 26, 1996. This statement and the many 

others like it by the Clinton administration fail to account for the missiles from the People's Republic of China 

that are still aimed at the United States. The PRC rejected a Clinton proposal for a similar missile detargeting 

agreement.

118 Testimony of Bruce G. Blair before the House Armed Services Committee Subcommittee on Military 

Research and Development, Mar. 13, 1997.

119 In a July 1, 1996, letter to the House National Security Committee, then-Secretary of Defense Perry wrote 

that, "There are no procedures to verify detargeting."

120 "Don't Count Them Out; Russia Continues to Prepare for War by Upgrading Missile Systems, as Does the 

United States," 60 Minutes, June 18, 1995.

121 Testimony of Bruce G. Blair before the House Armed Services Committee Subcommittee on Military 

Research and Development, Mar. 13, 1997.

122 Id.

123 "Russian Expert Comments on Retargeting Problem," Itar-TASS, March 10, 1995.

124 The administration's refusal to submit the Kyoto agreement to the Senate, its duplicitous concealment from 

Congress of the so-called "Iran-Bosnia affair," and its humiliating defeat in the Comprehensive Test Ban Treaty 
vote are all similar examples of a foreign policy process that is at once fundamentally dishonest and selfdefeating.

125 Deputy Secretary Talbott failed to respond to repeated oral and written requests for testimony by the 

Speaker's Advisory Group, which comprises inter alia eight committee and subcommittee chairmen with 

jurisdiction over Russia policy.

126 Letter to President Clinton of Senate Majority Leader Trent Lott, Chairmen Jesse Helms, Senate Foreign 

Relations Committee, John Warner, Senate Armed Services Committee, and Mitch McConnell, Senate 

Appropriations Committee Foreign Operations Subcommittee, July 18, 2000.

127 Indeed, the Democratic Views in the International Relations Committee's report on the Iran Missile 

Proliferation Sanctions Act of 1997 criticized the administration's "weak" consultation process and unwillingness 

to provide detailed, timely information from the Executive branch ... ." "Iran Missile Proliferation Sanctions Act 

of 1997," Report of the Committee on International Relations, H.R. Rept. No. 105-375, 105th Cong., 1st Sess. 

Pg. 14 (1997).

128 Simon Saradzhyan, "U.S. NMD Effort Fueling Russia's New Missile Plan," DEFENSE NEWS, July 10, 

2000.

129 Bill Gertz, "Russia sells missile technology to North Korea," WASH. TIMES, June 30, 2000, p. A1.

130 See Chapter 9 supra.

131 Russia recently announced that President Putin will visit Libya. Charles Clover, "Putin to visit Libya," 

FINANCIAL TIMES, July 31, 2000.

Chapter 11

1 HENRY KISSINGER, DIPLOMACY (New York: Simon and Schuster, 1994), p. 812. See also James 

Billington, "Russia: Between a Dream and a Nightmare," N.Y. TIMES, June 17, 1998, p. A31 ("America has 

fought five wars in this century--all basically to prevent authoritarian power from gaining control of Eurasia.").

2 More distantly, our policy represents a continuation of the historic Anglo-American opposition to hegemonic 

dominance by any great power--a policy dating back to British policy toward Louis XIV and Napoleon. At least 

since the era of the Napoleonic Wars, critics of this British or American policy have themselves denounced it as a 

screen for hegemonic ambitions. Current criticism of U.S. "hegemonism" faithfully echoes this argument.

3 As Kissinger wrote in describing the opening to China, "We did not consider our opening to China as 

inherently anti-Soviet. ... We moved toward China ... to shape a global equilibrium. It was not to collude against 

the Soviet Union but to give us a balancing position to use for constructive ends--to give each Communist power 

a stake in better relations with us. Such an equilibrium could assure stability among the major powers, and even 
eventual cooperation, in the Seventies and Eighties." HENRY KISSINGER, WHITE HOUSE YEARS, (Boston: 

Little, Brown and Company, 1979), pp. 191-192. "The prospect of military conflict along the Sino-Soviet border 

faced us with nightmarish choices." Id. at 693-94. "Triangular diplomacy ... could not be a crude attempt to play 

off China against the Soviet Union. ... To the extent that we tried to aggravate rivalry we would lose in other 

ways. ... Any attempt to manipulate Peking might drive China into detaching itself from us, perhaps to reexamine its options with the Soviet Union, to gain control of its own destiny. Equally, any move by us to play the 

Chinese card might tempt the Soviets to end their nightmare of hostile powers on two fronts by striking out in 

one direction before it was too late. ... Equilibrium was the name of the game." Id. at 763-64.

4 The most acute phase of Sino-Soviet military tension had ended by 1982, when the U.S.S.R. attempted a 

limited rapprochement with Beijing as its relations with NATO worsened.

5 Stuart D. Goldman and Robert Sutter, "Russian-Chinese Cooperation: Prospects and Implications", CRS Report 

for Congress, Jan. 27, 1997.

6 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: RUSSIAN 

ARMS TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), p. 71. Even that 

modest level, however, made Russia the PRC's leading arms supplier, reflecting the efficacy of Western nations' 

export controls and the PRC's tendency during this period not to use hard currency to purchase significant 

Western weapons systems.

7 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19, 1992, p. A1.

8 For a Chinese comparison of Russia's ties to the West and the PRC in this period, Li Jingie, "From Good 

Neighbors to Strategic Partners," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS IN A 

CHANGING ASIA, Sherman Garnett, ed., (Washington, D.C.: Carnegie Endowment for International Peace, 

2000) p. 73 ("The great transformation in Eastern Europe, the one-by-one fall of communist parties, and the 

subsequent breakup of the Soviet Union did, in fact, interrupt relations with China. At first, the new Russian 

leadership ranked China behind Japan, India, and South Korea in its Asian foreign policy priorities. The 

democratic faction still rebuked China on human rights and democracy questions, from time to time. Under these 

circumstances, many Chinese political leaders and analysts estimated that the international situation had become 

extremely serious, worrying that a united West joined by the new Russia might be able to concentrate pressure on 

China as the only remaining socialist power.") Li is director of the Institute of East European, Russian, and 

Central Asian Studies of the Chinese Academy of Sciences.

9 As Dmitri Simes stated, "[I]n recent years we have seen Russia and China consistently maintain far closer 

relations than either of them has with the United States. This is the first time since thirty years ago, before the era 

of President Richard Nixon, that this could be said." Martin Sieff, "Russia-China summit aims at U.S. policy," 

UPI, August 24, 1999.

10 Michael Dobbs and Don Oberdorfer, "Yeltsin Appeals For American Aid; Reforms 'Must Succeed,' Hill 

Told," WASH. POST, June 18, 1992, p. A1.

11 Jim Hoagland, "'We Should Be Building Trust' With the New Russia," WASH. POST, June 29, 2000, p. A31.
12 Elaine Sciolino, "In Speech to Russian Duma, Clinton Urges Careful Policy Choices," N.Y. TIMES, June 2, 

2000, p. A1.

13 Yeltsin continued:

It is a neighbor, with whom we share the longest border in the world and with whom we are destined to live and 

work side by side forever. On the success of our cooperation with China depends Russia's future. Relations with 

China are extremely important to us in global politics as well. If we can rely on the Chinese shoulder in our 

relations with the West, the West will be more considerate to Russia.

Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military development," IN CHINA'S 

SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY 

DEVELOPMENT, Jonathan Pollack and Richard Yang, eds., (Santa Monica, Cal: RAND, 1998), p. 80 (footnote 

omitted).

14 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19, 1992, p. A1.

15 Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military Development," IN 

CHINA'S SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY 

DEVELOPMENT, Jonathan Pollack and Richard Yang, eds., (Santa Monica, Calif.: RAND, 1998), pp. 70, 71-

73. These generalizations are subject to numerous exceptions. "Westernizers" and "reformers" often proved to be 

enthusiastic proponents of "multipolarity," or at least opportunistic enough to truckle to anti-American opinion; 

some extreme nationalists were even more paranoid about a Chinese inundation of Siberia than they were about a 

NATO invasion of Russia.

16 In this regard, the failure of Russian reforms has had a highly-significant opportunity cost in the PRC, as well, 

by discrediting what the PRC leadership characterizes as the "Western model" of reform. The PRC leadership 

remains acutely aware that one of the key triggers for the Tiananmen demonstrations was the Chinese public's 

awareness of the reform process in the U.S.S.R., and in particular the visit of then-Soviet President Mikhail 

Gorbachev to Beijing. Had subsequent Russian reforms succeeded, they would have powerfully reinforced proreform opinion in the PRC.

17 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19, 1992, p. A1.

18 The number of individual actors involved and the weakness of central controls in Russia make it hazardous to 

assume a coherent policy making apparatus with a consistent policy. See Stephen Blank, "Russia's clearance 

sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

19 Jennifer Anderson, "The Limits of Sino-Russian Strategic Partnership," (Adelphi Paper 315), The 

International Institute for Strategic Studies 1997, p. 20 ("In late May 1994, Jiang informed Chernomyrdin that 

China was 'willing to join Russia in raising Sino-Russian relations to a new level,' and set the date for his first 

visit to Russia since the collapse of the Soviet Union.").

20 "Sino-Russian Joint Statement," Xinhua, Sept. 3, 1994; see also "Jiang, Yeltsin on Ties," Xinhua, May 8, 
1995 (Remarks of President Jiang). At a time when Russian military doctrine was broadly lowering the threshold 

for first use of nuclear forces, Russia and the PRC agreed to adopt a no-first-use nuclear doctrine and a 

detargeting agreement.

21 Henry Kissinger, "Moscow and Beijing: A Declaration of Independence," WASH. POST, May 14, 1996, p. 

A15.

22 Quoted in Peter W. Rodman, testimony before the House International Relations Committee, Hearing on "The 

U.S. and Russia: Assessing the Relationship," July 16, 1998, p. 93 (footnote omitted).

23 Li Jingjie, "From Good Neighbors to Strategic Partners," RAPPROCHEMENT OR RIVALRY?: RUSSIACHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed., (Washington DC: Carnegie Endowment 

for International Peace, 2000), p. 86. See also Jennifer Anderson, "The Limits of Sino-Russian Strategic 

Partnership," (Adelphi Paper 315), The International Institute for Strategic Studies 1997, p. 22 ("Under 

Primakov, the Russian Foreign Ministry officially claimed the priority status of the relationship with Beijing; 

Chernomyrdin promoted the interests of the industrial, energy and arms sectors trading with China.").

24 Id. at 82. Similarly, whereas the Russian Foreign Ministry ranked the PRC sixth among Russian concerns in 

1993 (after the CIS, arms control and international security, economic reform, and relations with the U.S. and 

Europe), by 1996 Foreign Minister Primakov ranked the PRC third, after the CIS and Eastern Europe. Alexander 

Lukin, "Russia's Image of China and Russian-Chinese Relations," EAST ASIA: AN INT'L QUARTERLY, vol. 

17, no. 1, Spring 1999.

25 Sino-Russian Joint Communique, signed in Beijing by Chinese President Jiang Zemin and Russian President 

Boris Yeltsin, April 25, 1996.

26 Jennifer Anderson, "The Limits of Sino-Russian Strategic Partnership," (Adelphi Paper 315), The 

International Institute for Strategic Studies, 1997, p. 21 ("[J]ust 24 hours before the meeting, Yeltsin telephoned 

Jiang from his stop-over in Khabarovsk, formally proposing that the two establish a 'strategic partnership for the 

twenty-first century'. Jiang immediately accepted the proposal."); see also Li Jingjie, ""From Good Neighbors to 

Strategic Partners," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING 

ASIA , Sherman Garnett, ed. (Washington DC: Carnegie Endowment for International Peace, 2000), p. 88; 

Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

27 Id.

28 Peter W. Rodman, testimony before the House International Relations Committee, hearing on "the U.S. and 

Russia: Assessing the Relationship," July 16, 1998, p. 95 (footnote omitted). During Yeltsin's April 1996 visit to 

the PRC he and President Jiang also met in Shanghai with the Presidents of three Central Asian republics, 

Kazakhstan, Kyrgyzstan, and Tajikistan, established the so-called "Shanghai-Five" group. Creation of this 

grouping, which agreed to conduct periodic summits, reflects common Sino-Russian concerns over the potential 

dangers of ethnically or religiously-based separatism across the expanse of central Eurasia, reflecting Beijing's 

concerns over Tibet and Xinjiang and Russia's concerns over unrest in the Caucasus and Central Asia. These 

concerns are shared to differing degrees by the Central Asian governments themselves. These concerns have 

intensified for all parties recently. The second Chechen conflict has heightened Russian and Central Asian 
sensitivity to perceived "Islamist" threats, and intensified Uighur separatist violence--not just in Xinjiang but in 

Beijing also. See Mark Burles, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN 

REPUBLICS (Santa Monica, Calif.: RAND, 1999), pp. 9-10. At the most recent Shanghai Five summit in 

Dushanbe, Tajikistan on July 5, 2000, President Jiang called for the member-states to "cooperate in the security 

field at a deeper level and take joint actions to crack down on the activities of all brands of separatist, terrorist, 

and extremist forces." "'Shanghai Five' Summit Successfully Ends in Dushanbe," Xinhua Domestic Service, July 

5, 2000. In addition, the Shanghai Five signed Five-Party Military Agreements in 1996 and 1997 that 

significantly demilitarized the former Sino-Soviet border, and were complementary to the Sino-Russian border 

agreements.

29 Joint Sino-Russian Communique issued during PRC premier Li Peng's visit to Moscow of late December 

1996, Xinhua, Dec. 26-28, 1996 (FBIS-CHI-96-251).

30 "Rodionov Identifies 'Sources of Military Danger,'" Interfax News Agency, Dec. 25, 1996.

31 Peter W. Rodman, testimony before the House International Relations Committee, hearing on "The U.S. and 

Russia: Assessing the Relationship," July 16, 1998, pp. 96-97; Grigory Arslanov, "Russian Defense Minister 

Hails China Strategic Partnership," Itar-TASS, Apr. 15, 1997.

32 By contrast, the much less elaborate Joint Statement issued by Presidents Jiang and Clinton during the 

October 29, 1997 summit in Beijing announced the two Presidents' "determin[ation] to build a constructive 

strategic partnership ... through increasing cooperation to meet international challenges and promote peace and 

development in the world."

33 See Chapter 8 supra.

34 See "Yeltsin, China's Jiang Call for a 'Multipolar' World," ROSSIISKIYE VESTI, April 25, 1997. The Joint 

Declaration stated that "[n]o one country should strive for hegemony, conduct a foreign policy from a position of 

strength, or monopolize international affairs;" it opposed "attempts to expand and strengthen military blocs, since 

this trend may pose a threat to the security of individual countries and cause tension on a regional and global 

scale"--a swipe at both NATO enlargement and the nexus of bilateral U.S. security ties in the Western Pacific. It 

espoused settlement of international differences "without using force or threatening to use it," and affirmed that 

the U.N.'s role "cannot be supplanted by any other international organization"--a pointed jibe at American 

military interventions in various contexts unsanctioned by U.N. mandates. It omits even pro-forma references to 

such U.S. desiderata as weapons proliferation or human rights. Id.

35 See, e.g., Joint Statement on Common Security Challenges at the Threshold of the Twenty-First Century, 

September 2, 1998; Kremlin press conference by President Clinton and President Yeltsin, Sept. 2, 1998.

36 Id. (Yeltsin reference to disagreements over Iraq, Kosovo, NATO).

37 Foreign Minister Ivanov called the NATO bombing the worst aggression in Europe since World War II, and 

called for war crimes trials for the NATO leaders who had instigated airstrike "genocide." Id. Senior Russian 

officers were less restrained, and did not confine themselves to rhetoric: General Kvashnin, the Chief of the 

Russian General Staff, publicly volunteered to lead a division, while General Kortunov, the commander-in-chief 
of the strategic air force, conducted an exercise simulating a nuclear war over the Balkans. Russia sent a naval 

presence to the area and provided intelligence support to Milosevic. The major Russian initiative in Yugoslavia 

itself--the surprise deployment of Russian paratroopers to Pristina airport--remains of uncertain provenance, 

although Yeltsin quickly disavowed it and abandoned the General Staff's related efforts to secure an independent 

Russian peacekeeping zone in Kosovo. See Michael McFaul, "Russia's Many Foreign Policies," 

DEMOKRATIZATSIYA, Summer 1999, pp. 406-7. (citation omitted); see also Paul E. Gallis, "Kosovo: Lessons 

Learned from Operation Allied Force," CRS Report for Congress, Nov. 11, 1999, p. 13.

38 Yeltsin's political maneuvering during this period, which included appointing Viktor Chernomyrdin as special 

mediator in mid-April and replacing Primakov as prime minister in mid-May, have given rise to speculation 

concerning the extent to which he was leading, following, or attempting to undercut both popular and official 

Russian opposition to NATO's Kosovo operations.

39 "Russian PM seeks closer strategic ties with China," Reuters, June 10, 1999.

40 Mikhail Shevtsov, "China's general visits Russian missile division," Itar-TASS, June 12, 1999.

41 "Chinese military official speaks of rapprochement with Russia," Interfax News Agency, June 13, 1999.

42 There is some implication that his reference was both to the West and to "westernizers" within Russia.

43 Ben Aris and David Rennie, "Yeltsin presses for anti-NATO alliance with the Chinese," Electronic Telegraph, 

Aug. 26, 1999. Foreign Minister Igor Ivanov elaborated on Yeltsin's comment: "You need to understand this as a 

fight for the future world order, but we are not indifferent to what happened in the Balkans and the Persian Gulf 

and other situations that threaten stability." "Russian, Chinese Presidents discuss 'strategic partnership,'" Agence 

France Presse, Aug. 25, 1999.

44 "Premier of State Council of China hails Russo-Chinese ties," Itar-TASS, Aug. 24, 1999.

45 Michael Walker, "Russia, China plug a 'multipolar' world," THE STRAITS TIMES, Sept. 1, 1999.

46 Oliver August, "China increases nuclear threat," LONDON TIMES, Sept. 2, 1999; Simon Saradzhyan, 

"Russia ponders selling nuclear submarines to China," DEFENSE NEWS, Sept. 27, 1999 (reporting that 

Primakov approved Akula sale in April 1999, and that the submarines would be able to attack carrier battle 

groups in the open sea).

47 Michael Walker, "Russia, China plug a `multipolar' world," THE STRAITS TIMES, Sept. 1, 1999; "China to 

get first SU-30MKKs," JANE'S DEFENCE WEEKLY, July 26, 2000.

48 Joint Communique, Dec. 10, 1999.

49 Bill Gertz and Rowan Scarborough, "Inside the Ring," WASH. TIMES, Sept. 3, 1999, p. A6.

50 "Sino-Russian summit begins," FINANCIAL TIMES, July 18, 2000. Apparently rumors that Moscow was 
considering curtailing transfers of military technology because of fears that they would undercut sales of off-theshelf Russian weaponry are unfounded. See "Russia Rethinking Scope of Arms Sales to China?", JAMESTOWN 

MONITOR, Vol. 6, Issue 52, Mar. 14, 2000.

51 Beijing Declaration by the People's Republic of China and the Russian Federation, July 18, 2000. The 

Declaration reaffirms all previous Sino-Russian political documents and promises further preparations for a 

formal China-Russia treaty of friendship and cooperation. Id.

52 "Jiang Hails Summit with Putin," SOUTH CHINA MORNING POST, July 18, 2000.

53 "Russia Rethinking Scope of Arms Sales to China?", JAMESTOWN MONITOR, Vol. 6, Issue 52, Mar. 14, 

2000.

54 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, Mar. 25, 1993. The 1993 Concept 

expressly disclaimed suspicion of Western designs on the CIS, stating that "[t]he leading democratic states of the 

world are interested in ensuring stability in the geopolitical space of the former U.S.S.R., and recognize the role 

of Russia and its policy in supporting such stability."

55 Id. at 13. The Concept noted that good relations with the PRC would facilitate implementation of internal 

reforms and ensure that "third countries are not tempted to use it against Russia, just as China is not tempted to 

play the 'Russian card' in its relations with other countries."

56 Id.

57 Id.

58 "China Issues Defense White Paper," Xinhua News Agency, July 27, 1998. The 1998 PRC White Paper 

nonetheless concluded that "[p]eace and development are the major themes of the present era" and "[i]n general 

the present international security situation has continued to trend toward relaxation." This note of somewhat 

forced optimism has largely vanished from the PRC's official formulations today. See infra.

59 Ministry of Foreign Affairs of the PRC, "China's View on the Development of Multi-polarity." This document 

concludes more optimistically that hegemonism "is against the tide of history and is doomed to failure." It too 

nevertheless concludes that "overall the general trend of the international situation [is] moving toward relaxation. 

and any attempt aimed at setting up a single pole in the world is doomed to failure." Id. The tension in these 

documents between acknowledging current and, on the evidence of Desert Fox and Kosovo, possibly growing 

American military power and predicting the coming demise of hegemonism reflects a continuing debate within 

the PRC's foreign policy establishment about the pace of the multipolar trend. See generally MICHAEL 

PILLSBURY, CHINA DEBATES THE FUTURE SECURITY ENVIRONMENT (Washington, D.C.: National 

Defense University Press, 2000) pp. 3-62.

60 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony 

before the House Armed Services Committee hearing on "Military Capabilities of the People's Republic of 

China," July 19, 2000, p. 6 ("Both partners embrace positions on major issues of today's national security agenda 
in direct opposition to the United States and its allies in the U.N. and are particularly active in doing so across 

Central, South, and East Asia. Their partnership comprises economic, political, ideological, and military 

dimensions, and in each of these dimensions of the partnership Beijing and Moscow are forming closer and 

deeper bonds despite difficulties, and ever more openly voice the partnership's overt anti-American character.").

61 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," 

WASH. POST, Feb. 10, 2000, p. A17. See, e.g., Wen Jen, "China and Russia to Jointly Hold Military Exercises," 

HONG KONG TAI YANG PAO, Aug. 7, 2000 (asserting that Russia and the PRC had agreed during a July 27, 

2000, hotline discussion to expedite conclusion of a treaty of friendship and cooperation, cooperate in developing 

a new generation of aircraft and high-technology weapons, expand military exchanges, conduct joint military 

exercises, and purchase $15 billion in advanced military equipment).

62 Stephen J. Blank, U.S. Army War College, testimony before the House Armed Services Committee on "New 

Strategic Trends in Russo-Chinese Relations," July 19, 2000, pp. 4-6 and notes 11-18.

63 Blank testified:

At least since 1995 Russian leaders--Defense Minister Pavel Grachev in 1995, according to U.S. intelligence 

analysts, the Russian government in 1998, Vladimir Putin in 1999--have regularly asked China for a militarypolitical alliance. ... The Russian media has often talked of an alliance and German diplomats in Moscow 

believed it was possible by 1996. ... Publicly China continues to reject these requests.

Id.

Professor Blank notes that there is also a substantial body of evidence that conflicts with these reports.

64 Id. at 6.

65 The consensus view of policy makers in Moscow is that arms sales to the PRC serve both economic and 

policy interests, and that the point of potential conflict between those interests has not yet been reached. Yevgeny 

Bazhanov, Vice President of the Russian Diplomatic Academy and Director of the Foreign Ministry's Institute of 

Contemporary International Studies, wrote in August 1997 that Russian arms sales to the PRC are "profitable not 

only economically, but politically as well, [since] they tie Russia and China to each other and help build our 

mutual confidence." Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military 

Development," IN CHINA'S SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY 

AND MILITARY DEVELOPMENT, Jonathan Pollack and Richard Yang, eds., (Santa Monica, Calif.: RAND, 

1998), p. 81 (footnote omitted). See also Sherman W. Garnett, Senior Associate, Carnegie Endowment, 

testimony before the House International Relations Committee, hearing on "Russian Foreign Policy: Proliferation 

to Rogue Regimes," Mar. 25, 1999, p. 59 ("Sino-Russian arms and defense technology sales are driven by several 

different factors. There is obviously an ideological element in the Sino-Russian relationship as a whole. ... 

Russia's desperate economic condition provides additional incentive for arms sales. ... Greed is a considerable 

stimulus for much of Russian behavior in the arms and technology area. Industrialists, middlemen and even the 

regulators make money. ... [And] public gains are frequently cited to generate further support for the sales. Arms 

sales are seen, rightly or wrongly, as a critical element in the survival of the Russian military industrial base.")
66 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony 

before the House Armed Services Committee hearing on "Military Capabilities of the People's Republic of 

China," July 19, 2000, p.7 (footnote omitted). As Professor Blank further testified, these dollar figures include 

only official transfers and omit not only "what we know to be large-scale military-technological transfers in the 

so-called gray and black market" but also "the large number of human exchanges either through the internet or 

through Russian scientists in China or Chinese scientists in Russia who are working to upgrade Chinese 

capabilities." Id.

67 Sherman Garnett, Senior Associate, Carnegie Endowment, testimony before the House International Relations 

Committee, hearing on "Russian Foreign Policy: Proliferation to Rogue Regimes," Mar. 25, 1999, p. 58.

68 Piotr Butowski, "Show Report--Farnborough," JANE'S DEFENCE WEEKLY, Aug. 9, 2000.

69 The 1996 decision to license Su-27 production is an interesting example of the interplay of the differing 

institutional interests at play in Russian proliferation of advanced weaponry: reportedly the license was 

transferred by the Sukhoi Design Bureau "without official authorisation or knowledge," in order to generate 

funds for development of the Bureau's Su-37 fighter; "Moscow had to accept this deal, as retraction would have 

angered China and undermined a crucial pillar of its Asian and overall foreign policy." See Stephen Blank, 

"Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

70 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: 

RUSSIAN ARMS TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), pp. 

75-76. See also "Russia to Send China First Su-30MKK Fighters by End of 2000," Itar-TASS, July 6, 2000; Paul 

Beaver, "China acquires more arms technology," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997 (PRC 

production license for Su-27s worth $1.5 billion over 10 years).

71 Richard D. Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," 

James R. Lilley and David Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. 

Sharpe, 1999), p. 147.

72 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," 

WASH. POST, Feb. 10, 2000, p. A17. Only one model of the Su-37 currently exists, though it is currently being 

advertised in a Rosvooruzhenie catalog. Because of the Su-37's advanced capabilities and the Tu-22M's strategic 

functions, if the reports concerning them are correct they would represent both the collapse of any qualitative 

restrictions on Russian sales of military aircraft to the PRC and a willingness to suffer extremely severe 

repercussions in relations with other Asia-Pacific powers. See, e.g., Richard D. Fisher, Jr., "Gallery of Known 

and Possible Future Foreign Military Acquisitions by China," James R. Lilley and David Shambaugh, eds., 

CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), p. 147 (sale of Tu-22M would 

"likely result in a political firestorm for Russia in Asia").

73 Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

74 Sam Greene, "Russia Reaping Rewards from Lucrative Arms Sales to China," RUSSIA TODAY, July 18, 

2000.
75 "Recent Developments in a Flourishing Arms Trade," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

76 Steven J. Zaloga, "Sovremenny: the instrument of Eastern power projection," JANE'S INTELLIGENCE 

REVIEW, December 1, 1997. In 1998, Russia announced that it would sell the PRC a version of the Moskit 

adapted for launch from both the PRC's Su-27s and Su-30MKKs. Michael Waller, "Will Gore's Slips Sink U.S. 

Ships?", INSIGHT, May 15, 2000, pp. 22-24.

77 Trevor Hollingsbee, "Sovremenny delivery will give PLAN a bigger sabre to rattle over Taiwan," JANE'S 

INTELLIGENCE REVIEW, Jan. 1, 2000.

78 "China to Receive Second Russian Destroyer in November 2000," Novosti News Agency, July 10, 2000.

79 J. Michael Waller, "Will Gore's Slips Sink U.S. Ships?", INSIGHT, May 15, 2000, pp. 22-24.

80 Trevor Hollingsbee, "Sovremenny delivery will give PLAN a bigger sabre to rattle over Taiwan," JANE'S 

INTELLIGENCE REVIEW, Jan. 1, 2000. The author notes, however, that the destroyers' crews "must 

successfully negotiate a steep learning curve if they are to be deployed effectively."

81 June Teufel Dreyer, University of Miami, testimony before the House Armed Services Committee hearing on 

"Military Capabilities of the People's Republic of China," July 19, 2000. See also John Pomfret, "Russians Help 

China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb. 10, 2000, p. A17 

("The U.S. military has yet to come up with a viable deterrent to the [Moskit] missile. ...").

82 Rear Admiral L.E. Jacoby, Director of Naval Intelligence, statement before the Seapower Subcommittee of 

the Senate Armed Services Committee on "Submarine Warfare in the 21st Century," Apr. 13, 1999. Wakehoming torpedoes are exported with all Russian Kilo-class submarines. Id.

83 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: 

RUSSIAN ARMS TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), p. 79.

84 U.S. Department of Defense, Annual Report on the Military Power of the PRC, June 2000, p. 16. See also

Richard D. Fisher, Jr., "Foreign Arms Acquisition and PLA Modernization," James R. Lilley and David 

Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), pp. 102-3.

85 John Downing, "How Shkval ensured Soviet SSBN survivability," JANE'S INTELLIGENCE REVIEW, Nov. 

2, 1999. Unconfirmed press reports have stated that Yeltsin and Jiang agreed at the August 1999 Bishkek summit 

on a $1 billion purchase of two top-of-the-line Typhoon-class ballistic missile submarines, as well as at least two 

Akula-class nuclear-powered attack submarines. See, e.g., Oliver August, "China increases nuclear threat," 

LONDON TIMES, Sept. 2, 1999; Simon Saradzhyan, "Russia ponders selling nuclear submarines to China," 

DEFENSE NEWS, Sept. 27, 1999 (reporting that Primakov approved Akula sale in April 1999, and that the 

submarines would be able to attack carrier battle groups in the open sea). Russian sale of the Typhoon SSBN 

seems unlikely.

86 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: 
RUSSIAN ARMS TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), pp. 

72-3; Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

87 Richard D. Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," 

James R. Lilley and David Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. 

Sharpe, 1999), p.160. See also Fisher, "Foreign Arms Acquisition and PLA Modernization," in id., p. 99. See 

also Brian Hsu, "Increased Threat," THE TAIPEI TIMES, May 10, 2000.

88 U.S. Department of Defense, Annual Report on the Military Power of the PRC, June 2000, p. 15. The Annual 

Report states that these systems "provide only a rudimentary, limited defense against aircraft and cruise 

missiles." Id.

89 Chairman Floyd Spence, House Armed Services Committee, "China in the Ascendancy: A Growing Threat to 

U.S. Security?", NATIONAL SECURITY REPORT, May 2000, p. 3. See also Stephen Blank, "Russia as Rogue 

Proliferator," ORBIs, vol. 44, Winter 2000 p. 97 ("Russia has sold the SS-18 and SS-19 control and guidance 

systems to China for its DF-31 and DF-41 missiles. ... Whole factories were transferred to China to make parts 

for the Topol-M (SS-27) mobile ICBM. ... Russia also sold China mobile, multiple-warhead, high-accuracy solid 

and liquid propellant technology to increase Chinese ICBMs' accuracy") (citations omitted).

90 James Lilley, former Ambassador to the PRC, testimony before the Senate Governmental Affairs Committee 

Subcommittee on International Security hearing on "China and "Proliferation," Apr. 10, 1997; Stephen Blank, 

"Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997.

91 Christoph Bluth, "Russia and China consolidate their new strategic partnership," JANE'S INTELLIGENCE 

REVIEW, Aug. 1, 1998. For a detailed discussion of PRC acquisitions from Russia and other suppliers, see

Richard D. Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," James R. 

Lilley and David Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 

1999), pp. 85 et seq.

92 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," 

WASH. POST, Feb. 10, 2000, p. A17.

93 Id.

94 MARK BURLES, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS, 

(Santa Monica, Calif.: RAND, 1999), p. 36 (footnotes omitted); see also John Pomfret, "Russians Help China 

Modernize its Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb. 10, 2000, p. A17 ("Asian 

officials ... say that as many as 2,000 Russian technicians are employed by Chinese research institutes working 

on laser technology; the miniaturization of nuclear weapons; cruise missiles; space-based weaponry; and nuclear 

submarines."); Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1, 1997:

More recently the Russian media reported that China's Military-Technical Co-operation Coordinating Centre invites Russian weapons designers and other specialists to China for 

preliminary talks. Russian scientists give mainly 'secret' lectures on Russian defense exports. 

Chinese sources report that the information they receive saves around 15-20 years of research and 
development and hundreds of millions of dollars ... Hundreds of Chinese technicians work at 

Russian defense plants and many Russian plants work exclusively for the Chinese market or 

Chinese owners. Chinese delegations of highly-skilled specialists wander around Russian defense 

plants and negotiate contracts. They see practically everything so that these factories might win 

orders.

Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology 

Transfers," Center for Strategic and International Studies, April 5, 1999, pp. 13, 27 ("The most 

critical transfers of technology may take the form of 'invisible' sales of designs, industrial 

techniques, specialized production equipment, and advisory services. These ... may be 

proportionally more damaging than conventional weapons transfers. ... [I]t is important to note 

that China may have far more access to Russian technology than is apparent from major arms 

buys or than Russia intends.").

95 "China's Military Modernization," in Zalmay Khalilzad, et al., THE UNITED STATES AND A RISING 

CHINA: STRATEGIC AND MILITARY IMPLICATIONS, (Santa Monica, Calif.: RAND, 1999), p. 49.

96 Under Secretary Walter B. Slocombe, testimony before the House International Relations Committee 

Subcommittee on Asia and the Pacific, May 11, 1998.

97 Ambassador Stephen Sestanovich, response to questions for the record, in House International relations 

Committee, Hearings on "The U.S. and Russia: Assessing the Relationship," July 16, 1998, pp. 158-59.

98 Id.

99 Secretary of State Madeleine Albright, response to questions for the record, U.S. Senate Committee on 

Foreign Relations, Feb. 2, 2000.

100 Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology Transfers," Center 

for Strategic and International Studies, Apr. 5, 1999, p. 22.

101 Chairman Floyd Spence, "China in the Ascendancy: A Growing Threat to U.S. Security?", House Armed 

Services Committee, National Security Report, May 2000, p. 3.

102 Sherman Garnett, testimony before the House International Relations Committee, hearing on "Russian 

Foreign Policy: Proliferation to Rogue Regimes," Mar. 25, 1999, p. 58.

103 Testimony of DIA Director Lt. Gen. Patrick Hughes before the Senate Armed Services Committee, Feb. 2, 

1999 ("Assuming we retain the capability and will to remain engaged worldwide, no other state--or any likely 

coalition or group of states--has the wherewithal to usurp the U.S. position within the next 15-20 years. The most 

significant potential competitors--including Russia and China--all have fewer advantages and more problems. 

This is especially true in the military arena.").

104 Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology Transfers," Center 
for Strategic and International Studies, Apr. 5, 1999, p. 22. Cordesman is, on balance, a skeptic of the impact of 

the past Russian transfers on the PRC's capabilities, but he concludes that "[t]he past ... is not necessarily the 

prelude to the future. Some Russian technology transfers are already important, and Russia could provide China 

with a wide variety of far more advanced weapons that could dramatically increase its warfighting capabilities 

against the U.S. or its allies." Id. at 25.

105 Craig Smith, "Putin Visits China in Hope of Strengthening a Strategic Axis," NEW YORK TIMES, July 18, 

2000, p. A11.

106 Sino-Russian trade went from $3.9 billion in 1991 to $5.8 billion in 1992, and peaked at $7.68 billion in 

1993. Thereafter, it fell to $5.1 billion in 1994, $5.5 billion in 1995, $7.2 billion in 1996 (the year when Yeltsin 

and Jiang pledged that Sino-Russian trade would reach $20 billion by 2000), $6.12 billion, and $5.48 billion in 

1998. See Elizabeth Wishnick, "Chinese Perspectives on Cross-Border Relations," RAPPROCHEMENT OR 

RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed., (Washington, D.

C.: Carnegie Endowment for International Peace, 2000), pp. 235-36

107 The PRC's northeastern rustbelt, which had banked on developing economic ties with Russia to redress its 

own relative underdevelopment vis-à-vis the booming south, was particularly hard-hit: Heilongjiang's trade with 

Russia fell by 7.2% in the second half of 1993 and by 56% in the first half of 1994. "In Heihe and other cities, 

stores were boarded up, streets deserted, and thousands of firms driven out of business. The brain drain to South 

China from Harbin and other intellectual and industrial centers continued." Gilbert Rozman, "Turning Fortresses 

into Free trade Zones," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS IN A 

CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment for International Peace, 

2000), p. 189.

108 Russia's trade with the PRC was a fourth of South Korea's, less than a third of Taiwan's, and less than half of 

Germany's. Mark Burles, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS 

(Santa Monica, Calif.: RAND, 1999), pp. 19, 21.

109 See Elizabeth Wishnick, "Chinese Perspectives on Cross-Border Relations," RAPPROCHEMENT OR 

RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.

C.: Carnegie Endowment for International Peace, 2000), pp. 249, 256, n. 92.

110 Sherman Garnett, "Limited Partnership," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA 

RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment for 

International Peace, 2000), p. 10.

111 Alexei D. Voskressenski, "Russia's Evolving Grand Strategy toward China, in Garnett, id., at 133 

("Economics plays the largest role [in limiting the relationship].). Voskressenski is deputy head of the RussiaChina Center of the Institute of Far Eastern Studies in Moscow.

112 The PRC, which became a net importer of oil in 1993, may need to import as much as 3.6 million barrels of 

oil a day by 2010, and in 1997 the PRC signed contracts on oil and pipeline projects in Kazakhstan worth $9.6 

billion. Of course, the PRC is also eager to develop energy and pipeline projects in Russia itself, and in 1997 also 

signed a contract reportedly worth $8 billion-10 billion to develop a natural gas field near Lake Baikal and an 
associated pipeline to the PRC. Mark Burles, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL 

ASIAN REPUBLICS (Santa Monica, Calif.: RAND, 1999), pp. 24-25.

113 See, e.g., Dmitri Trenin, "The China Factor: Challenge and Chance for Russia," RAPPROCHEMENT OR 

RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.

C.: Carnegie Endowment for International Peace, 2000), p. 57:

Moscow analysts now foresee the possibility of a Russian-Chinese clash in Central Asia and 

propose that territorial integrity of the CIS countries be ensured with the help of the Russian 

nuclear umbrella. ... Russia will try to close its eyes to the internal conflict in Xinjiang, but this 

effort will become more difficult if Beijing, frustrated in its attempts to counter Turkic and 

Muslim separatism, attempts direct interference in the territories of Central Asian countries, 

which Russia considers to be the zone of its vital interests.

For now Beijing is content to let Russia act as its gendarme in the region against ethnic and 

religious separatism.

114 Mark Burles, CHINESE POLICY TOWARDS RUSSIA AND THE CENTRAL ASIAN REPUBLICS 

(Santa Monica, Calif.: RAND, 1999), pp. 46-47. On July 21, 2000, Putin told a conference on Far Eastern 

development in Blagoveschensk that "[I]f we don't make a real effort to develop Russia's Far East, then in the 

next few decades the Russian population will be speaking mainly Japanese, Chinese, and Korean." "Putin Warns 

of Losing Far Eastern Region to the Orient," RUSSIA TODAY, July 21, 2000.

115 Sherman Garnett, "Limited Partnership," RAPPROCHEMENT OR RIVALRY? RUSSA-CHINA 

RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment for 

International Peace, 2000), p. 19.

116 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony 

before the House Armed Services Committee hearing on "Military Capabilities of the People's Republic of 

China," July 19, 2000, p. 13. Professor Blank concludes, "Thus the Sino-Russian cooperation is threatening in 

many ways. It seeks to arrest the spread of democracy and to threaten the United States and its allies. The 

comprehensive scope of Russo-Chinese political coordination aims to frustrate the realization of U.S. interests, to 

preserve multiple areas of conflict in the world by which to tie down or restrict and contain American power. 

They are actively supporting the proliferation of nuclear and perhaps chemical or biological warfare capabilities. 

They are attempting to undermine democracy or democratic tendencies in Eurasia, and to threaten the United 

States itself. ... [I]f [the United States] refuses to acknowledge the true dimensions of this relationship and rethink 

its strategy, policy, and military posture, the United States, other governments and other peoples may well pay an 

exorbitant price for its complacency and blindness." at 17.

117 See, e.g., Joint U.S.-China Statement during President Jiang's visit to Washington on October 29, 1997 ("The 

two Presidents are determined to build toward a constructive strategic partnership between the United States and 

China. ..."). The PRC itself at one time returned the favor. In his speech at Harvard during a fall 1997 visit to the 

United States, President Jiang stated that "China and the United States should strengthen cooperation and work to 

build a constructive strategic partnership oriented toward the 21st century." See also remarks of President Clinton 

and President Jiang in Exchange of Toasts, October 29, 1997 ("President Clinton and I reached agreement on the 
goal of the future development of China-U.S. relations--namely ... China and the United States should strengthen 

cooperation and endeavor to build a constructive strategic partnership oriented toward the 21st century.") 

Subsequent PRC descriptions are less fulsome. See Stephen J. Blank, U.S. Army War College, "New Strategic 

Trends in Russo-Chinese Relations," testimony before the House Armed Services Committee hearing on 

"Military Capabilities of the People's Republic of China," July 19, 2000, p. 1 and n. 1.

118 Testimony of Peter Rodman, Director, National Security Program, The Nixon Center, before the House 

International Relations Committee, hearing on "The U.S. and Russia: Assessing the Relationship," July 16, 1998.

Chapter 12

1 Michael Dobbs, "The New Russia," WASH. POST, Aug. 13, 2000, p. B1.

2 Michael R. Gordon, "Hardened by Their History of Hardships, Russians Simply Stretch the Rubles Farther," N.

Y. TIMES, Aug. 23, 1999, p. A8.

3 Survey carried out by ISM Research Centre of 3400 respondents across Russia, ECONOMIST, Oct. 3, 1998, p. 

60.

4 Michael R. Gordon, "Hardened by Their History of Hardships, Russians Simply Stretch the Rubles Further," N.

Y. TIMES, Aug. 23, 1999, p. A8.

5 European Bank for Reconstruction and Development, Annual Report 2000, p. 75.

6 Ben Hooson, "Optimistic Government Predicts 5.5% Growth," MOSCOW TIMES, July 28, 2000.

7 Magen Mongush, "Statistics Chief Unveils Rosy Figures," MOSCOW TIMES, Aug. 1, 2000.

8 Id.

9 Id.

10 Russia Country Analysis Brief, Energy Information Administration, Feb. 2000.

11 "27 Billion Trade Surplus," MOSCOW TIMES, July 26, 2000.

12 "In Brief: Central Bank Reserves," MOSCOW TIMES, Aug. 4, 2000.

13 Michael Wines, "Russia's Powerful Regional Chiefs Yield Meekly to Putin," N.Y. TIMES, July 27, 2000, p. 

A3.
14 Peter Graff, "Putin Signs Revolutionary Russian Tax Overhaul," Reuters, Aug. 7, 2000.

15 "Kasyanov Says Tax Reform Will Bring Money 'Out of Shadows,'" Reuters, June 13, 2000.

16 "Russian Capitol Flight Drops to $300 Million a Month," Reuters, June 20, 2000.

17 "Government Sets Up Entrepreneurial Council," RFE/RL NEWSLINE, Vol. 4, No. 15, Aug. 8, 2000.

18 Catherine Belton, "Loan Scheme to Help Small Business," MOSCOW TIMES, June 27, 2000.

19 WALL ST. J., June 21, 2000; Russian National Institute for Social and Psychological Research, Jan. 2000 at 

http://www.cisco.com/warp/public/779/govtaff/factsNStats/Internet_Usage.html#EUROPE.; see also Interfax, 

"Internet Use in Russia on the Increase," Aug. 17, 2000.

20 See, e.g., Gazeta.Ru, "Consumers to Pay for FSB Eavesdropping," Aug. 23, 2000 ("Communications Minister 

Leonid Reiman has issued an order allowing the Federal Security Service (FSB) to eavesdrop on telephone 

conversations, pager messages and personal communication across the Internet without having to obtain a court 

decision or warrant beforehand.").

21 Foreign investment in Russia is expected to be 92% of the pre-August 1998 levels. Magen Mongush, 

"Statistics Chief Unveils Rosy Figures," MOSCOW TIMES, Aug. 1, 2000.

22 This includes direct investment, portfolio investment, and loans. According to official figures, foreign direct 

investment for all of 1999 totaled only $4.26 billion, although that was 26% higher than the horribly depressed 

1998 figure. "Foreign Investment Figure Corrected," RFE/RL NEWSLINE, June 5, 2000.

23 "Foreign Investment Figure Corrected," RFE/RL NEWSLINE, June 5, 2000.

24 According to the Commerce Department's BISNIS Country Report.

25 Id.

26 Igor Semenenko, "International Banks Reduce Exposure," MOSCOW TIMES, May 16, 2000.

27 U.S. Dept. of Commerce BISNIS Information Service. From 1993-99, the U.S. accounted for 36% of 

cumulative foreign direct investment, or $4.54 billion, Cyprus was second followed by Germany.

28 "Russia: Back to the Future?" Dept. of State Opinion Analysis, M-190-99, Oct. 22, 1999, p. 3.

29 Richard B. Dobson, "Is Russia Turning the Corner?" CHANGING RUSSIAN PUBLIC OPINION, 1991-1996 

(USIA Office of Research and Media Reaction, September 1996), p. 24.

30 "For Young Russians, 5 to 1, Prosperity More Important than Great Power Status," USIA Opinion Analysis, 
M-130-98, p. 2.

31 Richard B. Dobson, "Young Russians' Lives and Views," USIA Research Report, R-10-98, September 1998, 

p. 1.

32 Richard B. Dobson, "Is Russia Turning the Corner?" CHANGING RUSSIAN PUBLIC OPINION, 1991-1996 

(USIA Office of Research and Media Reaction, September 1996), p. 14. By comparison, only one-fifth of 

Russians over 60 expressed the same sentiment.

33 Id., p. 24.

34 "For Young Russians, 5 to 1, Prosperity More Important than Great Power Status," USIA Opinion Analysis, 

M-130-98, p. 2.

35 Twenty-seven percent chose great power status. Id.

36 "The People Have Spoken: Global Views of Democracy, Vol. II," USIA Special Report, September 1999, p. 

24.

37 "Russia Growing More Religious," CHI. TRIB., Apr. 7, 2000, p. 8.

38 Id.

39 Id.

40 Id.

41 Yelena Yugina, "Communists seek to win Orthodox believers over for polls," Itar-TASS, Aug. 21, 1999.

42 "Putin goes to Kremlin's Annunciation Cathedral for service after inauguration," Itar-TASS, May 7, 2000.

43 "Putin congratulates Alexei II on 10th election jubilee," Itar-TASS, June 9, 2000. The interest shown by 

Russian politicians in capitalizing on the public's confidence in the Orthodox Church does pose the danger of 

intentional or unintentional discrimination against other religions, or of state limitations on the freedom to 

practice other faiths. The U.S. State Department's 1999 Human Rights Report suggests that registration of other 

religious organizations--required even under Russia's post-Soviet laws--has become more difficult.

44 Yevgenia Borisova, "Charities for Kursk Spring Up," MOSCOW TIMES, Aug. 23, 2000.

45 William H. Courtney, "Human Rights in Russia," Briefing of the Commission on Security and Cooperation in 

Europe, Sept. 8, 1999.

46 Harry Dunphy, "Greens Call for Suspension of World Bank Loans," MOSCOW TIMES, July 13, 2000.
47 Sergei Blagov, "Education Suffers All Round Decline in Post-Soviet Years," BUSINESS AND INDUSTRY, 

Apr. 25, 2000.

48 Id.

49 "The People Have Spoken: Global Views of Democracy, Vol. II," USIA Special Report, Sept. 1999, p. 4.

50 Id.

51 "Russian Poll: State Should Not Interfere in Private Life," Itar-TASS, Mar. 5, 2000.

52 Zyuganov received 24,211,790 votes in 1996 ("Final Results for First Round of Presidential Election," BBC 

SUMMARY OF WORLD BROADCASTS, June 21, 1996) and 21,928,471 votes in 2000 ("Russia Election Boss 

Announces Voting Results," Itar-TASS, Apr. 5, 2000).

53 "Russia: Back to the Future?" State Dept. Opinion Analysis, M-190-99, Oct. 22, 1999, p. 3.

54 Michael McFaul, "Despite All the Bad News, Democracy Marches On," L.A. TIMES, Oct. 3, 1999, p. 2.

55 Id. For more on Russian political party development see STEPHEN WHITE, RUSSIA'S NEW POLITICS: 

THE MANAGEMENT OF A POSTCOMMUNIST SOCIETY (New York: Cambridge University Press, 2000), 

pp. 34-50; Michael McFaul, "Party Formation and Non-Formation in Russia," WORKING PAPERS SERIES OF 

THE RUSSIAN AND EURASIAN PROGRAM NUMBER 12, Carnegie Endowment for International Peace, 

May 2000.

56 LILIA SHEVTSOVA, YELTSIN'S RUSSIA: MYTHS AND REALITY, (Washington, D.C.: Carnegie 

Endowment for International Peace, 1999).

END OF FULL DOCUMENT