U.S. GOVERNMENT PRINTING OFFICE

63–831 CC WASHINGTON : 2000

U.S. POLICY TOWARD RUSSIA, PART III:

ADMINISTRATION VIEWS

HEARING

BEFORE THE

COMMITTEE ON

INTERNATIONAL RELATIONS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

October 19, 1999

Serial No. 106–91

Printed for the use of the Committee on International Relations

(

(II)

COMMITTEE ON INTERNATIONAL RELATIONS

BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania

JAMES A. LEACH, Iowa

HENRY J. HYDE, Illinois

DOUG BEREUTER, Nebraska

CHRISTOPHER H. SMITH, New Jersey

DAN BURTON, Indiana

ELTON GALLEGLY, California

ILEANA ROS-LEHTINEN, Florida

CASS BALLENGER, North Carolina

DANA ROHRABACHER, California

DONALD A. MANZULLO, Illinois

EDWARD R. ROYCE, California

PETER T. KING, New York

STEVE CHABOT, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

MATT SALMON, Arizona

AMO HOUGHTON, New York

TOM CAMPBELL, California

JOHN M. MCHUGH, New York

KEVIN BRADY, Texas

RICHARD BURR, North Carolina

PAUL E. GILLMOR, Ohio

GEORGE RADANOVICH, California

JOHN COOKSEY, Louisiana

THOMAS G. TANCREDO, Colorado

SAM GEJDENSON, Connecticut

TOM LANTOS, California

HOWARD L. BERMAN, California

GARY L. ACKERMAN, New York

ENI F.H. FALEOMAVAEGA, American

Samoa

MATTHEW G. MARTINEZ, California

DONALD M. PAYNE, New Jersey

ROBERT MENENDEZ, New Jersey

SHERROD BROWN, Ohio

CYNTHIA A. MCKINNEY, Georgia

ALCEE L. HASTINGS, Florida

PAT DANNER, Missouri

EARL F. HILLIARD, Alabama

BRAD SHERMAN, California

ROBERT WEXLER, Florida

STEVEN R. ROTHMAN, New Jersey

JIM DAVIS, Florida

EARL POMEROY, North Dakota

WILLIAM D. DELAHUNT, Massachusetts

GREGORY W. MEEKS, New York

BARBARA LEE, California

JOSEPH CROWLEY, New York

JOSEPH M. HOEFFEL, Pennsylvania

RICHARD J. GARON, Chief of Staff

KATHLEEN BERTELSEN MOAZED, Democratic Chief of Staff

MARK GAGE, Senior Professional Staff Member

MARILYN C. OWEN, Staff Associate

(III)

C O N T E N T S

WITNESSES

Page

The Honorable Strobe Talbott, Deputy Secretary, U.S. Department of State .... 8

APPENDIX

Prepared statements:

The Honorable Benjamin A. Gilman a Representative in Congress from New

York and Chairman, Committee on International Relations ........................... 40

The Honorable Strobe Talbott ................................................................................ 42

Additional Material:

Question for the Record, submitted by The Honorable Earl Pomeroy, a Representative in Congress from North Dakota ...................................................... 51

Response to Question for the Record raised by Representative Earl Pomeroy,

answered by letter dated November 8, 1999 (with attachments) from The

Honorable Barbara Larkin, Assistant Secretary, Legislative Affairs, U.S.

Department of State ............................................................................................ 52

Attachments to Letter from The Honorable Barbara Larkin: .............................

(1) Letter directed to The Honorable Gennadiy Nikolayevich Seleznev,

Chairman of the State Duma of the Russian Federation, Moscow, dated

September 30, 1999, from The Honorable James F. Collins, United

States Ambassador, Moscow, Russia ........................................................... 54

(2) Letter directed to His Excellency Sergey Vadimovich Stepashin, Prime

Minister of the Russian Federation, Moscow, dated June 29, 1999,

from The Honorable James F. Collins, United States Ambassador, Moscow, Russia .................................................................................................... 56

(1)

U.S. POLICY TOWARD RUSSIA, PART III:

ADMINISTRATION VIEWS

TUESDAY, OCTOBER 19, 1999

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERNATIONAL RELATIONS,

WASHINGTON, D.C.

The Committee met, pursuant to notice, at 10 a.m. In Room

2172, Rayburn House Office Building, Hon. Benjamin A. Gilman

(chairman of the Committee) Presiding.

Chairman GILMAN. The Committee will come to order.

Over the last 2 years, our Committee on International Relations

has held a number of important hearings concerning developments

in Russia. Looking back over the testimony we have taken in those

hearings, particularly those of the last 2 weeks, I believe that we

have to make several conclusions of a serious nature, conclusions

that should persuade us that a thorough reexamination of our current policy toward Russia is now warranted and long overdue.

First, it is my belief that it is time for an accounting by Russian

officials of their lack of any real action over the past few years in

the face of the fantastic and growing corruption in their country.

Given estimates that anywhere from $100 billion to $500 billion in

Russian moneys have been siphoned out of the Russian government budget and the Russian economy, that accounting is long

overdue.

A sincere and thorough accounting might readily find that the

highest officials in the current Russian government, including

those in the Kremlin and in the Russian security and police agencies, are themselves culpable in this massive thievery. Still, our nation ought to press for such an accounting, because we need to

show the Russian people by our actions, not just our statements,

that we as a nation don’t condone this kind of corruption.

Second, it is time to begin an exploration here in our nation of

where that Russian money has gone. One of our witnesses in a recent hearing, a retired analyst with the U.S. Central Intelligence

Agency, has speculated that much of that money may have come

to rest here in our own nation.

Whether such an exploration is carried out by our House International Relations Committee or by our House Banking Committee,

which has jurisdiction over international financial issues, a thorough examination of that flow of money should be considered. If

such huge amounts of Russian money have been siphoned, stolen

or laundered, with much of it perhaps having ended up in some of

our own banks, investments and real estate, do we dare make a

complacent assumption that those who have arranged that thievery

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will not put their financial power to use here in America in ways

we would not approve?

Third, it would appear that loan funds provided by the International Monetary Fund, particularly the almost $5 billion tranche

provided in July 1998, may well have been diverted, through redemption of Russian bonds, to benefit Moscow’s ‘‘tycoons.’’

Fourth, even if IMF loans are not being diverted in Russia, they

are just replacing, and only in part, moneys that are disappearing

from the Russian government budget. In light of these facts, while

we can and should audit IMF funds and while we might even just

transfer them from one account to another without ever sending

them to Moscow, we should understand that if the Russian government is increasingly insolvent due to the incompetency, or worse,

of its officials, we are simply hastening the day when Russia may

default on its IMF obligations by continuing to provide those loans.

Finally, if current trends continue in Russia, it is highly unlikely

that we will see the stability in that nuclear-armed country that

both Democrats and Republicans support here in our own nation.

The signs of deterioration are evident in Russia, including impoverishment of large numbers of Russians, epidemics, growing antiSemitism and possible fascist movements.

Certainly, those trends alone should lead us to re-examine our

current policy toward Russia, but the massive corruption in that

country requires it, in my view. Let me note that, over the past 3

years, our Committee has held several hearings during which we

have asked dozens of witnesses to share their insights on our relationship with Russia. Many of those witnesses have raised warning

flags about our policy and whether it has actually been achieving

what we would like to achieve in Russia and adequately serving

our own nation’s interests with regard to that important country.

I think it is clear that, where the Yeltsin government in Moscow

has had a shared interest with us to see something happen, such

as to ensure the denuclearization of the States that border Russia,

it has worked diligently to support such objectives. However, where

that government has interests that are starkly at odds with our

own nation’s objectives, such as Russia’s support for the ugly dictatorship of Alexander Lukashenko in Belarus, or the obvious, ongoing proliferation of dangerous Russian weapons technology to

Iran, our current policymakes little, if any, progress.

Some observers now question, in fact, whether progress toward

democratization in Russia is as substantial as we would like to believe and whether elections there have resulted in more of a facade

of democracy than in a growing accountability of those elected to

the people who have elected them.

In my capacity as Chairman of our Committee, I have shared

with the President and top Administration officials over the past

few years my concerns regarding the direction of our policy toward

Russia and what our policy has actually been achieving. Let me

make one thing clear. No one disagrees that we need to engage

with Russia. But many of us have for some time now questioned

how well our current policy of engagement with Russia is working.

Raising such questions does not make one an isolationist or a partisan.

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Such questions have been raised by Members of this Committee

for some time now, in the hearings I have mentioned as well as in

past letters written to the President and in opinion pieces published in our major papers. In particular, the fact that the House

passed the ‘‘Iran Non-Proliferation Act of 1999’’ to establish sanctions for Russian proliferation to Iran by a unanimous vote of 419

Republicans and Democrats just one month ago, ought to clearly

show that there is a bipartisan concern over our current policy toward Russia.

Finally, let me note that it is unlikely that a partisan approach

is behind the retired Foreign Service and Central Intelligence

Agency personnel who have alleged in recent months that our Administration has mishandled our policy toward Russia.

This morning our Committee is pleased to welcome Deputy Secretary of State Strobe Talbott, who represents the Administration’s

views on our policy toward Russia, and who will hopefully respond

to such allegations by former personnel of our Foreign Service and

the CIA. Mr. Talbott has been the ‘‘point man’’ on the United

States’ policy toward Russia since early 1993, serving first as the

State Department’s Ambassador at Large for Russia and the other

former Soviet Republics, serving as well on the National Security

Council’s Interagency Group on Russia, and supporting the bilateral process of the so-called ‘‘Gore-Chernomyrdin’’ Commission.

After assuming his current post of Deputy Secretary of State, Mr.

Talbott has remained heavily engaged in the conduct of policy toward Russia, as evidenced by the very frequent meetings that he

has had recently with top Russian officials.

We are pleased, Mr. Talbott, to have you join us this morning,

and I would like now to recognize our Ranking Minority Member,

Congressman Gejdenson, for any opening remarks he might care to

make at this time. Mr. Gejdenson.

Mr. GEJDENSON. Thank you, Mr. Chairman; and it is great to

have Secretary Talbott here with us. I think that anybody who assumed that the transition from the Soviet totalitarian government

to a democratic and free society would be an easy one had no sense

of history or knowledge of it.

What we have gone through here is an unprecedented historical

transformation. A totalitarian government with a centrally run

economy is in the process of trying to transition to a democratic society, one with a free market and democratic institutions. I think

all of us understood this would be a difficult and challenging road,

but we have some tremendous successes.

We have deactivated over 1,500 nuclear warheads, destroyed 300

missiles, and we now have the Ukraine, Kazakhstan and Belarus

as nonnuclear nations. I agree with you, Mr. Chairman, the situation in Belarus is a distressing one. Think how much more distressing it would be to be viewing Mr. Lukashenko today if he still

had nuclear weapons.

The advancement of human rights and the promotion of basic

freedoms and press freedom, travel freedom, and even elections are

now routine in much of what had been the Soviet Union and Russia. These aren’t modest achievements when you think about one

of the few countries on the European continent that had no history

of democratic institutions or civil society.

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American bilateral aid, by and large, 98 percent of it spent on

American goods and services, has begun to build that civil society

using our resources to build a civil code, a criminal code, and trying

to help develop a legislative process, transparency in Russian capital markets, enacting policies that could fight money laundering

and corruption. These battles will go on for some time.

When we take a look at where we are today and where we want

to go, the answer is clear. We don’t want to go back to where we

were with Russia. We don’t want the kind of confrontation that

could cost us billions of dollars and many lives, or a return of the

Cold War which had some very hot elements to it. We want to

move forward in trying to include Russia in a civilized society,

helping them combat crime and corruption, trying to deal with

issues of nonproliferation, regional threats and electoral reform. We at the end of World War II spent $90 billion in 5-years on

the Marshall Plan, trying to save Western democracy. The billions

that we have spent on Russian are far less than that in today’s dollars. Money is not the only answer here, but there is no country

in Europe, in my opinion, that is either a greater challenge or more

important to American security than our relationship with Russia.

I credit Mr. Talbott and the Administration for getting us through

some very difficult times. I am sure there are going to be very difficult times ahead, but I think we are on the right course.

We have to constantly make sure that the IMF and other programs are monitored, everybody agrees with that. But while reviews are always important, I would like to hear from the Chairman, or others on his side, any alternatives they have to the

present policy, what kind of actions we can take. I think the Chairman is right. Nobody wants to disengage. Anybody who argues for

disengagement doesn’t recognize that there are still lots of very important issues for American’s national security in this relationship

that we can’t abandon.

Chairman GILMAN. Thank you, Mr. Gejdenson.

Do any other Members seek recognition?

Mr. Royce.

Mr. ROYCE. Thank you, Mr. Chairman; and I thank you also for

holding these hearings.

The relationship between the United States and Russia remains

critical, and I am looking forward to hearing from today’s witnesses

about where we have been and where we are going. But I would

like to point out that 5 years ago this very Committee held hearings on Russian organized crime. Unfortunately, we were ahead of

the curve.

At that time, I said that our aid to Russia should be conditioned

on assurances from the Russian government and our government

that all is being done that can be done to monitor and counter the

growing threat of Russian crime syndicates before they choked off

the infant democratic experiment in the former Soviet Union. My

concern was about countering a real threat to the chances for a

successful political and economic transition in the former Soviet

Union and about stopping an international crime wave before it

crested on our own shores. Unfortunately, that was not done, and

we are all here 5 years and billions of dollars later, and these concerns may have risen to the level of a scandal, frankly.

5

American taxpayers deserve better. Our important relationship

with Russia deserves better, as does the integrity of the American

financial system. Over the last several weeks, the Administration

has been telling us that our relationship with Russia has been

moving in the right direction. It has stood behind the Internation

Monetary Fund’s yet again commitment to reform.

Many of these problems were quite evident 5 years ago. Some of

us on this Committee raised these issues, but these things were allowed to slide.

I hope today’s hearing is about better understanding where we

have been so that we can better understand where we are going,

both with the international financial institutions and with the overall U.S.-Russia relationship. It is my hope that this Committee and

the Congress will redouble its oversight efforts to help see that

something positive comes out of the serious shortcomings in the

management of our relations with Russia that are now so evident

to all.

I thank you again, Mr. Chairman, for holding these hearings.

Chairman GILMAN. Thank you, Mr. Royce.

Mr. Lantos.

Mr. LANTOS. Thank you very much, Mr. Chairman.

I want to welcome Secretary Talbott, and I want to take this opportunity to publicly commend him for his extraordinary contributions to U.S. foreign policy during the course of the last 7 years and

particularly for his leadership in terms of U.S.-Russian relations.

This is not a case, Mr. Chairman, of whether the glass is half full

or half empty. As one who made his first visit to the Soviet Union

in 1956 and has been back to the Soviet Union and subsequently

to Russia on a very regular basis, most recently last month, I am

as aware of all the shortcomings and difficulties that Russia confronts as anybody in this Committee, but I am equally aware of the

enormous achievements of the last few years in which our policy

played a key role. So to put this hearing in some kind of a perspective, allow me to just enumerate some of the facts about Russia in

the fall of 1999.

Russia, after 1,000 years of autocratic and dictatorial regimes

and 7 decades of a Communist dictatorship, is now a developing political democracy. There are free elections in Russia. We would

have given our right arm for free elections 10, 15, or 25 years ago.

The Russian parliament, the Duma, will be elected in free elections. The new Russian president will be elected in free elections!

Russia has a free press. Russia has a free press. We would have

given our right arm at the time of Pravda and Izvestia and Moscow

television controlled by the Communist Party for a free press.

Every Russian citizen has the right to travel abroad. Everybody

has a passport.

As one who spent a lot of time in the 1980’s fighting for human

rights and religious freedom in Russia, I am delighted to remind

ourselves there is religious freedom in Russia. All religious faiths

are free to practice, to build new places of worship. I just visited

some while I was in Russia months ago, and I think it is important

to underscore that. There is a burgeoning and growing market

economy.

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Now, there is corruption. That corruption is about 1,000 years

old. There is crime. Crime used to be a monopoly of the government. It has now become privatized. But to be surprised that there

is crime and corruption in Russia reveals to me a degree of historical amnesia which is almost frightening. There is far less crime

and far less corruption in Russia than at any time in Russian history. Only these activities, as I said, have become privatized.

Since you, Mr. Chairman, talked about the mistakes of the Administration, allow me to point out that the collapse of the Soviet

Union unfolded during the tenure of the previous administration,

the Bush Administration, and I think it is important to realize, as

we so ruthlessly at times criticize Boris Yeltsin, that we have come

to know many Boris Yeltsins during the course of the last decade.

Boris Yeltsin was the first democratically elected President of

Russia in 1,000 years. We did not pick him. The Russian people

picked him. Boris Yeltsin stood on top of the tank when the attempt was made to reverse the trend of history and make Russia

again a totalitarian police state. Now we have plenty of reservations, I do, about Boris Yeltsin in 1999, but I think it is important

to realize that at a certain point in time, just like Gorbachev, he

played a critical and historic role in setting Russia on a new path

of democracy and openness.

Finally, Mr. Chairman, if I may make just one additional point.

You started your opening comments about the vast amounts of

funds that have been spirited out of Russia, and you are absolutely

correct. There has been large capital flight out of Russia. This capital flight represented overwhelmingly resources of Russia. That

doesn’t make the capital flight any better. These are funds that

should be put to the use of the Russian people, but these were not

foreign aid funds, and these were not IMF funds, in large measure.

As a matter of fact, the total amount of aid and assistance to Russia during this whole period of the last decade is a fraction of the

capital flight from Russia during this same period. So it is important to keep our perspective.

The bulk of the money shipped out of Russia, however undesirable, deplorable a phenomenon it was, it was not Western money.

It was money and resources of the Russian people that, given the

new oligarchy, they were able to spirit out of the Russia.

The final observation, Mr. Chairman, since there is a great deal

of confusion, some of it deliberate, about the West provided minimal economic aid to Russia, during the course of the last decade,

and it is the failure to lubricate the process of transformation from

a totalitarian police state with a dysfunctional economy to a democracy with a market system which is the core problem we face. West

Germany provided much more aid to East Germany in one single

year, in any single year of the last decade than the whole of the

aid from the West, governments, international institutions or whatnot, to Russia during this decade. West Germany provided $100 billion of aid to East Germany every single year. Total Western aid,

European countries and international institutions was less than

that during the whole decade to Russia and the other successor

states.

I look forward to Secretary Talbott’s presentation.

Chairman GILMAN. Thank you, Mr. Lantos.

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Mr. Rohrbacher.

Mr. ROHRABACHER. Thank you very much, Mr. Chairman.

Mr. Talbott, I worked in the Reagan Administration for 7 years.

I was one of Ronald Reagan’s speech writers for 7 years.

Chairman GILMAN. Allow me to briefly interrupt, Mr. Rohrabacher. I have asked some of our Members to go over to the Floor

to vote, and we will continue our hearing without taking a break.

Please proceed, Mr. Rohrbacher.

Mr. ROHRABACHER. I seem to remember during that time period

that you were one of a chorus of critics of President Reagan’s policies. Many of the things that we have heard today that have been

touted as great achievements I frankly believe, Ronald Reagan deserves credit for much of this, whether it is free press or free elections or free travel. I remember during Reagan’s tenure people

were saying that Ronald Regan was being very unrealistic in trying

to demand that type of reform in Russia, and in fact, it was his

tough stance that I think brought about this great change.

While you were not in power then and were criticizing Ronald

Reagan, you are somewhat influential in American policy toward

Russia today. During this transition, for the last 6 years at least,

you have been helping direct the policies that have molded Russia

as it is today as compared to some of the more bold things that I

say started during the Reagan Administration.

Today, I respectfully disagree with my friends on the other side

of the aisle. The transition is not going well. As far as I am concerned, it appears that the legacy of Ronald Reagan when he left

office, his legacy of hope and of progress and of democracy in Russia, now is being squandered. It is going down the drain in a swirl

of corruption, where the hopes and the dreams of the Russian people are being dashed.

How my colleague, whom I do respect and I think is one of the

most knowledgeable Members of our Committee, Mr. Lantos, can

suggest with the massive corruption that is going on in Russia

today that the problem is we didn’t give them enough aid, it

stretches credibility. I mean, it just stretch’s one belief in what

kind of policy can we have.

I am the Chairman of the Space and Aeronautics Subcommittee,

and I have dealt directly with the policies of this Administration

concerning the space station. That is just one little element, and

just in the space station, this Administration has had policies that

have led to corruption and undermined the transition that Russia

should be going through. Mr. Chairman, just one thought on that,

this Administration has been insisting on government-to-government relations when it should have instead been insisting on an

opening up of their government to commerce and to direct contacts

with the outside.

In terms of the space Administration, Mr. Talbott, as you know,

we pushed for direct contracting with Russian providers and Russian industries. This Administration insisted that we spend money

through the government, through the Russian government, which

is part of the money that has just disappeared. That is the one I

know most about because that is the one I am personally involved

with here. But you take that and stretch it across the wide variety

of dealings that we have with the government in Russia—and I will

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have to say that, yes, I agree with Mr. Lantos—it should be no surprise that there was going to be private sector corruption during

this transition.

What is a surprise is this Administration’s policies in light of the

fact that this was a predictable situation. The Administration’s

policies, I believe, have led to a capital drain in Russia and led to

the institution of corruption in the Russian government and, again,

has squandered the legacy that Ronald Reagan left us so many

years ago.

I thank you very much. I am looking forward to your testimony.

Chairman GILMAN. Thank you, Mr. Rohrabacher.

If there are no further comments by any of our Members, I will

proceed with our witness.

Mr. Talbott, as I indicated, has had a long career in government.

He has also had a long career with ‘‘Time’’ Magazine, serving as

its diplomatic correspondent, White House correspondent, State Department correspondent, and East European correspondent, then

as the Washington Bureau Chief and finally as editor at large from

September 1989 to March 1993.

Joining the Clinton Administration in early 1993, Mr. Talbott

first served as Ambassador at Large for the New Independent

States in the former Soviet Union from April, 1993, to February,

1994, and then assumed his current post as Deputy Secretary of

State.

Chairman GILMAN. Mr. Talbott, you may summarize your written statement which, without objection, will be inserted in the

record in full. Please proceed.

STATEMENT OF THE HONORABLE STROBE TALBOTT, DEPUTY

SECRETARY, U.S. DEPARTMENT OF STATE

Mr. TALBOTT. Thank you, Mr. Chairman, very much, and I will

do as you suggest and submit my full statement for the record and

make some briefer comments here at the outset which I hope will

be responsive to at least some of the points that you and your colleagues have made here in the opening.

First of all, Mr. Chairman, in addition to thanking you and your

colleagues for holding this hearing at what is obviously a very relevant time to be discussing these issues, I want to thank you for

the statement that you made in your opening comments with regard to engagement. That is welcome news, and I want to engage

with the Committee very much on the premise of what you expressed, and that is that it is not a question of whether we should

disengage from Russia but how we can engage better.

The second point I would like to make is that, obviously, we can

indeed do better in this regard, as we can in virtually all aspects

of national policy and foreign policy.

The third point is you called for a reexamination of the premise

or assumptions underlying our policy. I want to assure you, Mr.

Chairman, as I have done in the past when I have appeared before

this Committee, that those of us working on policy toward Russia

and the other New Independent States of the former Soviet Union

are constantly in the process of reexamination of the premises and

assumptions, and an important part of that ongoing reexamination

is a chance to exchange views and analysis and recommendations

9

with key Members of Congress. So it is very much in that spirit

that I am here before you today.

I would suggest, as a general matter, as an assumption which I

hope the Committee will help me reexamine during the course of

this hearing, that the most fundamental standard we should apply

to our policy at large toward Russia and also to every specific detail

of that policy on every front is very simple: Does it advance the interests of the American people? As a result of pursuing that policy

or investing those taxpayer dollars, are the American people going

to be better off, are they going to be safer over the long run? That

is the standard that we apply, and I assume that that is the one

you would want us to apply, and we can take that general principle

and apply it to specifics during the course of the day.

Secretary Albright sends her greetings, by the way, Mr. Chairman. She is traveling in Africa on a very important mission—recently laid out a kind of a template for our relations with Russia,

and she basically divided our policy into two categories: Those initiatives and ongoing efforts that are intended to increase our security by pursuing arms control, by reducing Cold War arsenal, by

curtailing and stopping proliferation of weapons of mass destruction, an issue on which you personally have shown considerable

leadership in this body, Mr. Chairman, and I know you are going

to want to talk more about that during the course of the hearing,

and also encouraging stability and integration in Europe, which is

a topic I hope we can come back to at some point.

The second category of initiatives that we rely on to try to affect

the situation in Russia has to do with support for Russia’s own internal transformation, and this I believe goes to a number of the

points that you and your colleagues have made.

Russia is very much a work in progress. Its redefinition of itself

is a suspenseful and uncertain enterprise. It is also an ongoing one.

There has been significant progress, as a couple of Members of the

Committee have also pointed out, and there have also been very

real setbacks. I think it is certainly worth keeping in mind what

might have been, even as we contemplate the difficulties that we

are grappling with today, including the ones that we are going to

be talking about this morning.

Perhaps the single most important positive aspect of what is happening in Russia is democracy and democratization, the fact that

the Russian people are now able to express their hopes and their

fears, their aspirations and their apprehensions at the ballot box,

and they will be doing so very shortly. They will be going to the

polls in December and electing a new Duma, and then next year

they will be electing a new president. Meanwhile, they are at a

grassroots level, assembling the building blocks of a civil society,

and a civil society is one that is capable of dealing with crime and

corruption, which, of course, has been one of the themes that you

and your colleagues have mentioned this morning.

Finally, in this regard, Secretary Albright has asked me to reiterate the case that she has made before this Committee and elsewhere for more resources than the Congress is currently willing to

support in order to defend and advance American interests around

the world, but particularly in Russia.

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If the Russians are going to succeed in the positive aspects of

what they are trying to do, it is going to be with the help of the

outside world. The United States must continue to be a leader in

that effort.

It is the conviction of the President and the Administration that

the foreign operations appropriations bill that the President felt

compelled to veto yesterday failed for many reasons, including that

it contained a 30 percent cut for programs in Russia and the other

New Independent States of the former Soviet Union. The funding

levels proposed by the Congress would have forced us to make unacceptable tradeoffs between our core economic and democracy programs, as well as programs that prevent the proliferation of weapons of mass destruction.

I hope we can come back to some of those specific issues, because

it relates to the ongoing workings of our own democratic process as

we seek to do as much as we possibly can to help Russia and other

countries that are in transition to democracy around the world.

I think that the negative or cautionary points that the Chairman

made before you took the chair, Mr. Bereuter, in his opening statement and that Mr. Royce and Mr. Rohrabacher made are not in a

way profoundly contradictory of some of the positive comments that

Mr. Gejdenson and Mr. Lantos made. Rather, they are part of the

interaction between Russia’s dreadful past, which Mr. Lantos

knows particularly well, and its aspiration for a better future.

I cannot help but recall that in 1956, when Mr. Lantos first visited Russia—I am a little younger than he is and I was just becoming aware of what was going on in the world—and 1956 made a

big impression on me because that, of course, was the year that Soviet troops crushed a revolution in Hungary as the Hungarian people sought to gain their independence. That is an emblem I think

of the kind of Russia that we never want to see again, and it is

worth bearing in mind even as we grapple with these other problems.

Now with regard to crime and corruption, if I could just say a

word on that, because it has figured very prominently so far.

The word accountability has come up several times. I want to assure you, Mr. Bereuter, and through you the Committee, that accountability will continue to be a watchword in the way that we

Administer all of the programs supported by the U.S. Congress in

Russia. Mr. Leach, who is not here today, held extensive hearings

with Larry Summers not long ago in which they talked about applying the principle of accountability to international financial assistance.

But in the final analysis, Russia is going to succeed or fail only

if it can institute the principle of accountability in the way it does

business. It isn’t just a matter of how we assist Russia. It is a matter of how Russia governs itself, and that I think goes back again

to the question of democracy as the sunlight that will ultimately

serve as a disinfectant to get rid of this terrible scourge of crime

and corruption in Russia. Once again, I am sure we can explore

this during the course of the hearing.

It is a little strange in some ways, given the extensiveness of the

comments that were made by the Chairman and other Members of

the outset, that perhaps the single most disturbing thing hapVerDate 11-SEP-98 08:31 May 03, 2000 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 63831.TXT HINTREL1 PsN: HINTREL1
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pening in Russia wasn’t even mentioned this morning, and I would

like to say a word about it now. That is the conflict that is currently under way in the North Caucasus, which has real potential

to create instability not only in Russia at a time that that country

can ill afford it but also in neighboring countries which are no

longer in the same state as the Russian Federation.

I want to stress this here at the outset, because I think that if

this situation is not developed in a favorable and acceptable manner, it will jeopardize everything else that we are talking about of

a positive nature in Russia today, including Russia’s evolution as

a civil society.

The conflict is, of course, taking place on the territory of the Russian Federation within the boundaries of the Russian Federation.

Chechnya, Dagestan, Ingushetia, these are all republics inside of

Russia, and we must recognize that Russia has an obligation to

protect its citizens not only against terrorism but also the kind of

instability that has erupted in that region over the past weeks. But

we also believe very strongly and we have conveyed to the Russians

at all levels what I would call the parameters of U.S. Policy, and

I want to use this hearing today to lay those out. They are basically five concerns.

First, that a spread of violence in the region will be contrary to

everyone’s interests except those who rely on violence as a means

to their political ends, including the political end of separatism or

tearing parts of Russia out of the Russian Federation.

Second, Russia’s last war in Chechnya, 1994 to 1996, demonstrated that there cannot be a purely military solution to the

problem there. I will say, by the way, that we have heard from

high levels of the Russian government, including from the prime

minister himself recently, that this is a principle that they accept.

To turn that principle into reality, there must be a vigorous and

conscientious effort to engage regional leaders in political dialogue.

The third factor or parameter is that all parties should avoid indiscriminate and disproportionate use of force.

The fourth is the one that I referred to earlier, and that is that

Russia’s significant progress toward developing a civil society,

which means inclusive democracy and rule of law, will be in jeopardy if it permits a backlash against citizens because of their ethnicity or religion, that is to say, if there is a tendency in the heartland of Russia or in the capital of Russia to round people up and

deport them because they have Islamic last names or are of a darker complexion than ethnic Russians.

Then the fifth and last principle is that in defending its own territory, Russia should take special care to respect the independence

and security concerns of neighboring states, especially Georgia and

Azerbaijan.

I hope it is all right, Mr. Bereuter, for me to have added that

issue to the agenda, and I am ready to enter into a discussion with

you and your colleagues on all the issues that have come up here

this morning.

Mr. BEREUTER. [Presiding.] Secretary Talbott, thank you very

much for your testimony. I regret the fact that all Members were

not here to hear it, since you departed so dramatically from your

written statement, which was made a part of the record. I particuVerDate 11-SEP-98 08:31 May 03, 2000 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 63831.TXT HINTREL1 PsN: HINTREL1
12

larly appreciate the five principles that you have just enunciated.

I think they are important. We will try to bring them to the attention of the Members.

Mr. BEREUTER. Based upon arrival, we will now turn to the gentleman from North Carolina, Mr. Ballenger, under the 5-minute

rule for questions.

Mr. BALLENGER. Thank you, Mr. Chairman; and, Secretary

Talbott, good to see you again. I miss all the fun we had in Central

America since you are spending all your time in Russia nowadays.

But I would like to ask a couple of questions, and you brought

up Chechnya, so let me just ask, from the reports we get from the

news media, there seems to be substantial support for the

Chechnyans from elsewhere, Iraq, Iran or somewhere like that. The

fundamentalist Moslem effort seems to be developing or have already developed in both physical and individual aid. It seems to be

appearing. Is that true or could you give us some background on

that?

Mr. TALBOTT. The short answer is, yes, there does indeed seem

to be a dangerous degree of what might be called internationalization of the conflict. There is no question that radical elements operating from bases out of Chechnya have had support from elsewhere, primarily in the arc of countries from the Arabian Peninsula to South Asia.

We have had very frank and specific discussions with the Russian authorities about this. We are following up on any leads that

they give us because they allege—the Russians allege—that some

of the bad actors, if I can put it that way, who are behind some

of the trouble in the North Caucasus are also people who have, we

believe, carried out acts of terrorism against American targets and

American citizens.

I might add that this is an issue that we have discussed with

other countries as well because, if I could make a general point

here, it would be a good thing, it would be a hopeful thing if the

Russian government could see the problem that it faces in the

North Caucasus as a global threat, that is, a threat to civilized nations and legitimate governments all around the world. To deal

with it as such, which means to deal with it in cooperation with

other countries, including the United States, and to deal with it in

a way that meets international norms, rather than treating this

problem in the North Caucasus as a reason to draw back from the

world and to do things in the old Russian way.

I think part of what is happening in the Caucasus is that some

evil history is coming home to roost. The people who live in the

Caucasus have, of course, been fighting a running battle with Moscow from the time of the czars. The population of Chechnya, for example, was lock, stock and barrel deported under the most brutal

conditions by Stalin to Kazakhstan, many to their deaths, and one

Moscow government after another, czarist, Communist, post-Communist, has allowed conditions of terrible poverty and social backwardness to fester down there which, of course, makes it easier for

both indigenous and international terrorist and extremist elements

to come in and prey on that.

Mr. BALLENGER. If I could mention real quickly—it appears also

that in the money that has disappeared, especially IMF money, at

13

least from what we read in the newspapers, that IMF was very

strict in the way money was managed in Mexico and South Korea

and Indonesia and Brazil, but it doesn’t seem that they paid much

attention to what was going on with their money in Russia. Is that

a mistake?

Mr. TALBOTT. I think with respect, Congressman, that is an overstatement, and in fact our Treasury Department, which has,

through Secretary Summers, addressed this issue at length in

hearings that Mr. Leach and the Banking Committee ran about 6

weeks ago, has addressed this in detail. But, as a general proposition, the willingness of the international financial institutions,

the IMF, the World Bank to put money into Russia has always

been conditioned on transparency, accountability, sound practices,

as well as macroeconomics stabilization policies on the part of the

Russian government.

Now was it perfect? No, of course it was not. There was no recipe

book on the shelf on how to assist a country in this situation because we never had anything quite like this.

Going back to well before this most recent round of revelations

and speculation developed, the International Monetary Fund and

the Treasury were tightening up safeguards, and for the last year

no new IMF money has been going into Russia at all except in this

most recent program which is basically to help the Russians restructure their own debt. In other words, it is money that is going

in a circular account within the IMF and is not available for any

kind of misuse or malfeasance.

In fact, back in 1996 there were several cases where disbursements were delayed because the Russians weren’t meeting their

end of the standard. What we have been trying to do over the past

year is to tighten those standards up and to get through to the

Russians that if they ever want to see any more IMF money they

have got to clean up their own act.

Mr. BEREUTER. Thank you. The time of the gentleman has expired.

The distinguished Ranking Member, Mr. Gejdenson of Connecticut.

Mr. GEJDENSON. Thank you, Mr. Chairman.

Let me ask you two or three questions. First, it may take a little

time in hindsight to see what you would have done differently if

you had it to do over again, and second, while I think Mr. Lantos’

assessment is correct, we have gone from a state where the government had the monopoly on crime in Russia to the public taking it

over to some degree. We don’t want to forget the history as we try

to convince the Russians to deal with their criminal problems and

money laundering and other criminal activities. The problem in

Russia, historically at least, has not been a too-weak police force.

How do we make sure they don’t go back and use, whether it is

the Chechnyan situation or the economic crisis, an excuse for reinstating police-state kinds of actions.

Last, if you could go over the IMF situation, the last loan it

seems to me was basically as if we had refinanced the loan without

really refinancing it. We found a new mechanism where we set up

a fund and then we used that fund to pay down some of the debts.

So it is almost like a restructuring.

14

But don’t we have the basic problem, anyplace the IMF goes,

that what it is really doing is replacing capital flight and what we

hope is that this stabilizes the situation and then reduces the need

for further infusions? That worked in Mexico very successfully,

where we made a profit I guess on the infusion of American and

IMF funds.

Do we need to take a whole new look at the IMF, whether it is

in Indonesia, Russia, or anyplace else, on instituting a more sophisticated mechanism, a more complex mechanism than we have

today? Because I think you are starting to lose public support for

simply infusing cash in the hope that you will stabilize the situation.

Mr. TALBOTT. Mr. Gejdenson, I am going to accept your invitation to make what might be called not-so-much New Year’s resolutions as engage in a little retrospective self-criticism, because I

think it is in the spirit that Chairman Gilman established at the

outset. I want to do so, though, in the following context, and I invite the Committee to join me in this.

The really key question, I think, is whether the fundamental objectives that we have been trying to serve, whether the mechanisms we put in place to serve those objectives, have been borne

out by the experience of the last 7 years or whether they should

be overhauled and fundamentally changed. I would strongly suggest—and we could come back in terms of specifics to discuss the

point further—that actually the assumptions and the mechanisms

stand up pretty well.

That does not mean with the wisdom of 20/20 hindsight we can’t

see some things that we should have done better. I, for example—

and I am going to limit myself to one thought that I have some personal responsibility for and let others speak for others—I think we

should have been more public and emphatic in pushing a money

laundering bill with the Russians. Now, we did push it, but we

tended to do it in a way that was quiet, on the pretty sound theory

that you are more likely to be able to influence a government if you

are not lecturing them in public but working with them in private.

But I think, in retrospect, we should have pushed the money laundering bill more in public.

I am interested to see a press report that a colleague just handed

me that Prime Minister Putin told Attorney General Reno today

that his Administration will put the money laundering bill back in

front of the Duma and try to get one in place, better late than

never. We might have been able to ameliorate some of that problem

if we had pushed it harder and earlier.

I think that with regard to our technical assistance to Russia, exchange programs, working with grassroots organizations, helping

them develop civil society institutions, helping them manage the

transition both to democracy and to a market economy, we should

have done more. We should have put more money in early in this

Administration, never mind the previous Administration. I wish we

had asked for more and gained support for more at that time.

With regard to the Caucasus, I think we should have been more

explicit on the cautionary points and the dangers that we saw during the previous Chechen war than in fact we were. Frankly, it is

15

one reason we want to make absolutely sure and take advantage

of every opportunity to get it right this time.

I guess the general point I would make—I see the red light is

on, but if I could just have one more crack at the last of your questions—the key thing here for keeping money in Russia is that the

Russians themselves can develop an investment climate or environment that will attract both Russian capital and foreign capital. An

awful lot of the capital flight that has come out of Russia has been

fleeing, as it were, lousy and capricious tax laws and inadequate

property protections and things like that.

Again, I think the kind of macro answer to the problem is democracy, and for the Russians over time to elect people to the Duma

who will put in place both laws and enforcement mechanisms for

those laws that will address those needs.

Chairman GILMAN. [Presiding.] Thank you, Mr. Gejdenson.

Mr. Talbott, earlier I stated my belief that we need to reexamine

our policy approach toward Russia as we seek to continue to engage Russia. Can we expect the Administration now to reexamine

its past approach and take on a new approach in light of the vast

amount of capital leaving Russia, the corruption, and the problems,

internal problems in Russia? Are we going to be taking a new approach with regard to our policy toward Russia?

Mr. TALBOTT. I may have touched on this, Mr. Chairman, while

you were out voting, but I said that I welcome the chance to look

at specific ways in which we can do a better job, and I certainly

acknowledge that there are ways that we, working with Congress

and, by the way, with our international partners, can do a better

job. I am echoing here something that I heard, I think, from one

of your colleagues in an opening comment.

We are always listening carefully to those who offer constructive

criticism, notably including those in the U.S. Congress, and one of

the things we are listening for is what is an alternative, what is

a better way to do this. That doesn’t mean our default position is

to reject a better way if we hear it proposed; quite the contrary,

and maybe in the course of our remaining discussion this morning,

you can suggest some ways which we can do better.

On the issue that seems to concern you particularly, Mr. Chairman, the Treasury Department over the past year has been taking

very real and I think concrete measures to ensure that there is a

higher standard of assurance that money provided by the international financial institutions does what it is intended to do and

goes where it is intended to go.

With respect to bilateral assistance programs, because very little

of it is in cash, because very little of it goes into Russian wallets

or bank accounts or even into the treasury there, we have a higher

degree of assurance that there won’t be malfeasance. In fact, there

have been relatively few, if any, serious allegations of that money

going awry.

Chairman GILMAN. Mr. Secretary, some of the analysts and experts that we have had appear before our Committee stress that

instead of more lending to Russia by international funding institutions, we ought to consider directing more funding to the people of

Russia for projects that directly benefit those people. They suggest,

for example, housing in some very critical areas and, where there

16

are shortages investment to promote employment. What are your

thoughts about that kind of assistance instead of going through the

International Monetary Fund and international banking institutions?

Mr. TALBOTT. I think it should be in addition to, rather than instead of, and whatever the IMF and the international financial institutions do in the future will depend on Russia being able to meet

these more stringent safeguards and conditions that I made a moment ago.

We ought to keep in mind that while there obviously has been

a lot of problems with the international financial institution assistance, the work that the IMF did in Russia, going back to 1992 at

the time of the Bush Administration, was actually quite important

in a positive way as well. It helped the Russians over the initial

phase of their transition. It helped keep perhaps the most dangerous beast of all, economically speaking, hyperinflation, at bay,

and it basically bought them some time to dismantle the old Soviet

command economy.

That said, Mr. Chairman, I take the point to which you are referring. We have in the past looked at ways of helping with the housing market. There was some specific work done in 1993 and 1994

in housing for Russian officers who were being withdrawn from the

Baltic States. Having all Russian forces out of the Baltic States on

schedule was an extraordinarily important development. We also

have a whole series of investment funds operating with the cooperation of the U.S. Government to support small- and mediumsized businesses in Russia.

But these are only going to succeed if Russia can put in place the

laws and the regulatory mechanisms that will not only attract that

money but will keep that money in Russia, rather than having it

take advantage of the freedom that now exists to send it elsewhere.

Chairman GILMAN. I hope you will be encouraging that.

Mr. Secretary, notwithstanding the Administration’s diplomatic

efforts and the imposition of sanctions by the Administration on 10

Russian entities, entities in Russia have continued to transfer dangerous weapon technology to Iran without any significant interruption. Many analysts believe that the volume and the pattern of the

continued transfers to Iran from Russia could not exist without the

acquiescence, if not the encouragement, of at least some elements

in the Russian government. Do you feel that we have been successful in our efforts to curtail the flow of sensitive missile and related

technology from Russia to Iran, and what steps are we taking in

that regard?

Mr. TALBOTT. We have made some progress, but nowhere near

enough. There has been certainly movement on the Russian side,

both to put in place laws and executive orders and also enforcement mechanisms, including watchdog facilities or Committees in

suspect or vulnerable entities and companies.

The key point and the area where there needs to be the most

progress, and it needs to come soon, is in implementation of those

laws. It is not good enough, in other words, for them simply to say

we recognize that it is contrary to Russia’s interest as well as the

United States, not to mention Israel, for Iran to acquire ballistic

missile technology, and therefore, we are not going to permit it. We

17

have to actually see, as it were, with our own eyes that this kind

of activity is being curtailed.

I think that we have worked quite well with the Congress in general on this issue and with you personally, Mr. Chairman, and your

Committee. We have some reservations about the particular bill

that you have sponsored. We are concerned that it could be counterproductive in some ways, but we are prepared to use the coming

days and weeks to see if we can narrow our differences on this. It

is useful to us, by the way, when we talk to the Russians to point

to the very high level of concern in the U.S. Congress.

Chairman GILMAN. We appreciate your continued efforts in that

direction.

Mr. Lantos.

Mr. LANTOS. Thank you, Mr. Chairman.

There are so many unspoken, underlying assumptions in this

dialogue that I would like to take a moment to deal with them

head on.

Unlike Germany and Japan at the end of the Second World War,

two countries we defeated and where we installed our own government, when the Third World War ended, which we called the Cold

War, and the Soviet empire collapsed, we did not install an American government in Moscow. There was no General Douglas MacArthur sitting in the Kremlin as there was a General Douglas MacArthur running Japan.

I think it is important to separate in our own minds the flaws

and failures and mistakes and stupid and corrupt policies of Russian governments in the last 10 years, as if those would have been

our mistakes. We did not defeat Russia in battle. We did not have

an American proconsul sitting in Moscow calling the shots. These

were Russians. They made their own mistakes. They engaged in

their own corruption. They engaged in their own criminality.

I think it is important to clear up our own mind on this issue,

to understand that. We did not run Russia. We had a very marginal influence on Russia, and a very marginal influence because

our financial involvement was minimal.

You mentioned, Mr. Chairman, the desirability of helping them

with housing assistance. If my memory serves me right, the Agency

for International Development has provide $200 million for housing

aid in Russia. This is about a dollar and a quarter per Russian for

the last decade, and it is about 80 cents per American. So we were

not a major factor in Russian housing, and you only need to visit

Moscow to realize how little has been done in the field of housing.

I would like to ask you, Mr. Secretary, to deal with the basic instrumentality that we as a country used in attempting to improve

efficiency, productivity, and cooperation with Russia, namely, the

GoreeChernomyrdin Commission. I followed very closely the work

of the GoreeChernomyrdin Commission. I was enormously impressed by the series of achievements of that commission across a

tremendous spectrum of issues ranging from space cooperation to—

you name it. The agenda was endless. Since you played a pivotal

role as a top Russian expert in the work of the Gore-Chernomyrdin

Commission, I would like to ask you to indicate what, in your view,

have been the achievements of that commission, even though the

name will now have to be changed.

18

Mr. TALBOTT. It is now, of course, the Gore-Putin, and before

that was the Gore-Stepashin and before that Gore-Primakov and

long ago was the Gore-Chernomyrdin Commission. But, by the

way, the Vice President has been in touch with Prime Minister

Putin to indicate a willingness to continue the work of the binational commission, as we call it.

A general point, Mr. Lantos, and then a couple of specific ones.

The original idea that I think has been more than vindicated is

that it is a useful thing to have upper working levels, I would call

it, of various agencies and departments of the U.S. Government

working on real world problems with comparable levels in the Russian government. We have learned a lot and it has given us insights into both the problems and the possibilities on the Russian

side. I would like to think that they have learned a lot seeing how

a country that has been a new independent state for 220 years is

able to work with these issues.

In the specific area, the Vice President spent an awful lot of

time, particularly during the early days of the commission, working

on security issues, and that meant particularly the

denuclearization of the former Soviet Union. The commission gave

him a way of helping make sure that Ukraine and Belarus and

Kazakhstan would not be nuclear weapon states. Also, the commission has been a forum for cooperative threat reduction, which is a

program we hope to continue and indeed enhance if we can persuade you and your colleagues to fund the enhanced threat reduction program under the bill that was just vetoed.

This would, among other things, take American money and invest it in the safety of the American people the following way: by

helping scientists in Russia, particularly nuclear weapons scientists, missile technology specialists and that kind of thing, make

the conversion to a civilian economy and to peaceful enterprises

rather than being quite so vulnerable to ads in the Baghdad Daily

help-wanted section, if I can put it that way.

Then there is the whole issue of export controls. The question on

which Chairman Gilman has been so concerned, which is to say the

leak of Russian technology to rogue states, particularly Iran, is an

issue that the Vice President pursued vigorously with Mr.

Chernomyrdin and his successors and made some very real

progress there.

We also used the commission to establish a mutual legal assistance agreement with Russia which helps in the area of rule of law,

establishing a basic framework for bilateral law enforcement cooperation which has actually come in quite handy. We have had

some real law enforcement issues to talk to them about in recent

weeks because of the revelations with regard to the diversion of

money.

Then, finally, there is the issue of space. The

GoreeChernomyrdin Commission established Russian participation

in the international space station and has allowed us to forge a

commercial space launch agreement that enables joint ventures,

and that, in turn, produces real revenues for the United states.

So I think it is a classic example of win-win for both sides, and

I hope it persists not only through this Administration and this

19

particular Vice President and Russian prime minister, but on into

the next Administration.

Mr. LANTOS. Thank you very much.

Chairman GILMAN. The gentleman’s time has expired. Thank

you.

Mr. Rohrabacher.

Mr. ROHRABACHER. Mr. Talbott, I certainly agree with you that

those of us who are critical of the Administration’s policy should

also have positive alternatives and should not just say you did this

wrong or did that wrong, and I take that criticism of the Congress

to be constructive criticism of us. A lot of times we don’t do that.

However, let me note that among those of us who believe that

you have failed in establishing the policies that would lead to a

more stable, prosperous Russia, there are many people who have

been involved with offering alternatives to the Administration’s

policies and the Administration has chosen to go another direction.

One example, which I would use because I am very involved with

this particular area, as I mentioned in my opening statement, is

the goal that you just established which is to see that there was

a transition for Russian scientists to move outside of their military

work, and that it is something that would be nonthreatening to the

United states and perhaps something involved with private sector

space or other engineering projects.

That is a goal, not a policy, let me add. What you have outlined

there is not a policy. It is a goal, and certainly the Republicans

agree with that, and I have been a champion of that for many

years, through my involvement in the Space and Aeronautics Subcommittee. Chairman Sensenbrenner pleaded with this Administration over and over again to have a policy toward Russia in terms

of the space station that would ensure that Russia was able to be

a contractor, of which it was capable, but not be a partner, and

that the money that we would then make available for Russia

would be sent to Russian companies, Energiya, et cetera, for fulfilling certain obligations.

Instead, this Administration insisted on government-to-government relations, insisted on making Russia a partner, of which it

was incapable. Then the money that we shipped to Russia, instead

of going to a company and going to those scientists that you are

talking about, went into the Russian space agency, which in turn

was sucked into a black hole and disappeared—hundreds of millions of dollars, if not billions of dollars.

Mr. Sensenbrenner and I have been deeply involved in trying to

have a positive program toward the goals you suggested but

through a different policy, a different method of achieving it. Let

me just say, this Administration’s policies have failed miserably in

this regard, and it is unfortunate.

Mr. Curt Weldon, whom we all know and who takes a very special interest in Russia, has suggested instead of having money

guaranteed or coming from the United States into Russia via the

IMF or just direct grants, that we should set up a mortgage fund,

for example, which Curt was advocating, which could have been

used to provide money for homeownership throughout Russia. Instead, the Administration opposed Mr. Weldon’s idea and, instead,

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20

ment-to-government programs rather than trying to get the money

to the Russian people themselves. Again, a considerable sum of

that money has simply disappeared.

I would be pleased to have you comment on my observations that

your goals are certainly laudable but your policies to achieve those

goals have been miserable failures. I wish you success in the future, but I think we need a change of those policies.

One last thought, and that concerns Chechnya. This Committee

has heard me over and over and over again complaining about this

Administration’s policy toward Afghanistan, and over and over

again I have said that Afghanistan would destabilize all of central

Asia and Pakistan. Is it not now true that the miserable failure of

this Administration in Afghanistan is what has brought about this

Chechnyan war? Because isn’t Chechnya being financed by drug

money from Afghanistan? Isn’t that what is going on right now?

Again, laudable goals, a lot of good rhetoric from the Administration, but a miserable failure in shepherding through this transition

to democracy in Russia.

Any comment on any or all of what I have said? I have said this

with a spirit of trying to offer constructive alternatives.

Mr. TALBOTT. I can see that, Mr. Rohrabacher, and the red light

is on, so I will simply thank you for your good wishes, certainly.

I also say, in an equally serious vein, that part of the problem

we are dealing with here—and, by the way, I have had a chance

to work with Congressman Weldon on a number of occasions, more

as it happened in the Balkans, but I am aware of his interest in

housing.

The institutions that you are talking about that he would like to

see us work through, alternatively, don’t really exist in Russia. So

it is a question of how you get them up and running. Indeed, as

a goal of policy, I think it would be a very good thing if we could

work with the Russians to help them develop what we consider to

be a modern and effective mortgage market. It isn’t there now, but,

particularly with more support for some of our bilateral assistance,

I think that is certainly an area where we could do more in the future.

I think that regarding your comments on the connection between

Afghanistan and Chechnya, I look at it quite differently. Afghanistan is very much a problem in its own right. It is a problem with

deep historical roots, as you understand; and its own complex role

in the collapse of the Soviet Union and the Cold War has produced

some aftereffects that our predecessors didn’t anticipate and we are

having trouble dealing with, no question about that. However, I

think you are overdrawing the connection between Afghanistan

and Chechnya.

I would actually make a point that is a little more, what shall

I say, sharp with regard to the Russian Federation on Chechnya.

In some ways it is not so much Afghanistan that has come back

to haunt them in Chechnya. It is more the policy that the Russian

Federation pursued in 1993, of stirring up trouble in the South

Caucasus and particularly in Georgia. There were Chechen fighters

who went down and helped the Auka separatists in Georgia in

1993 who gained some skills and some enthusiasm and backing

that they brought back into Chechnya. That is the point that we

21

often make to the Russians while talking through this problem

with them.

Chairman GILMAN. The gentleman’s time has expired.

Mr. Berman.

Mr. BERMAN. Thank you, Mr. Chairman.

Yesterday, the President vetoed the foreign operations bill. The

Republicans printed up talking points and ran to the House Floor

to claim that this was an effort by the President to raid the Social

Security Fund in order to fund foreign aid, thinking that the American people are stupid.

They read this as if it was an edict coming from some party Committee at the top, with talking points in the greatest form of democratic centralism. This very program is less than one percent of

government expenditures in the context of appropriation bills,

which in several areas far exceed what the President requested.

That this now became the basis for making a plausible or serious

contention that the Social Security Fund was raided.

Today we have heard a lot of talk about the importance of our

anti-proliferation efforts, of dealing with loose nukes, of dealing

with Russian scientists, engaging them seriously. I wasn’t quite

clear on Mr. Rohrabacher’s point regarding the space station, but

what I do know is that the Administration requested $1.032 billion

for aid to the Newly Independent States, obviously Russia and all

the other ones in the former Soviet Union.

This year’s level of funding was $801 million. The Administration asked for an addition of $307 million for an expanded threat reduction initiative. The Republican majority in both Houses cold cocked

them and simply threw out this requested program and cut the foreign assistance level to all of the Newly Independent States by $65

million. I am wondering to what extent the expanded threat reduction initiative had in it items that would have funded programs to

protect our nuclear security, to stop proliferation, to strengthen export monitoring and suspect plans, to provide the kinds of programs that would deal with the goals that apparently people on

both sides laud in terms of the Administration’s interest with respect to Russia.

Mr. TALBOTT. Lots, is the short answer, and let me elaborate just

a little bit. I think that the expanded threat reduction initiative is

about as vivid an example as we are ever going to see of how American taxpayer dollars spent in the right way at the right time cannot only save immense amounts of money down the road—a stitch

in time—but can also enhance the safety of the American people.

Russia is going to get back on its feet. We are in an interim period here, and I don’t know how long it is going to last, when the

problems that we cope with coming from that vast country tend to

be associated with the weakness of that state, rather than the

strength of that state. It is probably going to be a strong state

again; and when that day comes, we will, I would hope, be in a position to look back and congratulate ourselves, or our successors

and progeny will, for having done the right thing at the right time,

and this is a perfect example.

This is a 5-year program, as you know, totaling $4.5 billion, with

lots of different agencies involved and lots of objectives including

the ones that you have mentioned. It will help tighten up export

22

controls so that Russian technology in these times of both indiscipline and a certain amount of desperation are less likely to go out

of Russia and end up in places like Iran and other rogue states.

It will prevent or at least curtail the proliferation of weapons expertise by helping to keep gainfully and peacefully employed 8,000

to 10,000 additional scientists. It will redirect biological weapons’

expertise to civilian science projects.

There is actually one other point, which is a bit of a detail, Mr.

Berman, but it is very much on my mind. This has to do with conventional forces in Europe, a treaty that is under negotiation right

now.

We are trying to use our good offices to induce an agreement between Russia and Moldavia and Russia and Georgia to get Russian

military equipment and personnel out of those countries in accord

with the wishes of the host governments. There is money in the expanded threat reduction initiative that would help bring about that

goal as which will not only help put in place another treaty that

is very much in the interest of the United States, but will help undergird the independence of two small deserving Republics that

used to be Republics of the U.S.S.R.

Mr. BERMAN. Mr. Chairman, my time has expired. At some point

in the hearing I think it would be interesting—I know Mr.

Delahunt may be pursuing part of this—but in the context of the

Senate rejection of the test ban treaty, I would be curious about

Secretary Talbott’s reaction to how that will play.

Mr. ROHRABACHER. [Presiding.] Perhaps with unanimous consent

we might grant you one extra minute to ask that question. With

unanimous consent, so ordered.

Mr. BERMAN. Thank you.

How will that play into the Administration’s efforts to get the

flexibility in the ABM treaty to deal with the kind of national missile defense to deal with the rogue states that our policy is so focused on?

Mr. TALBOTT. I am sometimes accused of being an optimist, so

let me begin on an optimistic note. I would answer your question

this way. If the Administration can be more successful in persuading the Senate that the CTBT is indeed in the vital interests

of the United States, that will certainly help in numerous ways. I

would hope that the word bipartisan, which I have heard used several times here this morning, would end up being part of the vocabulary of a happy ending on the CTBT.

That issue is, of course, still very much open. The President has

made clear that we are not going to do anything to undercut the

CTBT. We are going to continue the moratorium on testing, and we

are going to use every avenue that we can to reengage with the

Senate on this.

Mr. Berman, I might just say to you that I was in Europe when

the Senate voted down the CTBT, and that news had a devastating

effect on a lot of our very closest and best friends in Europe. I

haven’t come to the question about NMD, which may require a

whole new set of lights here; but the long and short of it is that

they are very much hoping that we will be able to make sure that

the United States is a leader in the area of achieving a comprehensive test ban, just as it is in every other aspect of arms control.

23

You and I have in other settings talked occasionally about South

Asia, India and Pakistan. One of the principal benchmarks of nonproliferation that we have been pursuing with the Indians and the

Pakistanis, and we are going to engage with the Indians now that

their elections are behind them, is CTBT. I would say, to use Olympic terms, the degree of difficulty has maybe gotten a little harder

in that argument, but I hope it is not impossible.

Why don’t I hold on the connection to NMD and maybe we can

come back to it.

Chairman GILMAN. [Presiding.] Thank you, Mr. Berman.

Mr. Royce.

Mr. ROYCE. Thank you.

Secretary Talbott, one of the observations that you have made is

that the President has vetoed the foreign aid bill yesterday. I think

one of the arguments is because the aid provided to Russia is 30

percent less than the aid that the Administration wanted to be provided. Indeed, overall, I guess we provided $3 billion less in foreign

aid than the Administration wanted, and so they vetoed the bill.

I thought I would explain our thinking here in Congress and

then ask for your response on this issue. We remember the words

of Boris Fyodorov, who was the former Russian finance minister,

who repeatedly warned that providing more IMF loans to the Russian government would simply allow the government to ignore corrupt activities while the IMF moneys kept it afloat. As a matter

of fact, at one point he is quoted as saying, ‘‘I told Mr. Summers

that if you release the loan without conditions it will end up in

Switzerland.’’ I think his exact words were, ‘‘It will end up in a

bank in Zurich.’’

These are the concerns we have with putting more money into

the problem, and I will tell you why. In the Banking Committee

last month, we heard testimony from Russian Duma members.

There were seven separate members from seven different political

parties, and every one of them gave us, during our meetings with

them here, the same advice that the Russian finance minister had

given the U.S., in which they said, ‘‘Don’t do this by picking a government and giving the aid to the government. Instead, build institutions.’’ It should be the rule of law, not of men, and they asked

us why we were so focused on propping up Yeltsin and

Chernomyrdin and supporting government-to-government aid rather than trying to force reforms.

This was the point they made. How credible is it, they said, when

Boris Yeltsin twice had vetoed the bill passed by the Duma against

Russian money laundering when several hundred billion dollars

had been laundered outside of the country, and here we continue

to provide the aid even as the Administration vetoes the very bill

that would stop it. These are the questions raised by Duma members. These are the questions raised by former finance ministers in

Russia, and that is why we are not eager to provide all of these

additional billions in aid. We have already done that.

So I would just like to understand what it is going to take to get

the President to sign the foreign aid bill. I mean, will we have to

spend the $3 billion in additional aid money?

Mr. TALBOTT. The short answer is, more money for advancing

and defending the interests of the United States.

24

By the way, Mr. Royce, knowing of your Chairmanship of the Africa Subcommittee and your knowing of where my boss is today,

namely, in Africa, I am sure she would want for me to stress the

importance of more support for our various Africa programs and

initiatives; but you have asked me to address the specific issue of

Russia.

You have actually touched on several different points here. Let

me say, in a way that I intend as much more than courtesy, I think

it is a terrific thing that you are meeting with Duma members and

interacting with them. When I appeared before the Senate Foreign

Relations Committee several weeks ago, there was a delegation

from the Duma there as well. I hope that congressional parliamentary exchanges can be more and more a part of our interchange

with Russia.

The long and short of it is that this 30 percent cut simply squeezes the life out of an awful lot of programs that we feel go to the

very heart of what we are trying to do in Russia. It is a goal, if

I can use Mr. Rohrabacher’s word, a policy goal for which I hear

a lot of support from this Committee. That is, helping the Russians

make this transition that we are talking about, not pumping money

into the Russian treasury and certainly not putting money into

hands that are dirty or that will allow it to find its way out of the

country.

We are talking about nonproliferation programs. We are talking

about democracy. We are talking about buildup of the NGO community there, exchanges which I continue to think are absolutely

vital, building up a free media.

Now, on the point that Boris Fyodorov, who I know well and

have worked with over the years, has made, the real answer to

your question is that Mr. Summers and the leadership of the IMF

have made clear that they are in a new mode with regard to lending to Russia, and it is not a new mode that started when the revelations came out this summer. It goes back to August of last year

and the Russian financial crisis. They have instituted much tougher safeguards to protect against a lot of the things that Mr.

Fyodorov is warning about.

Just to say one other thing. Mr. Berman, who has now left, asked

about the expanded threat reduction program. If I am not mistaken, half of the funds in that program are for the benefit of nonRussian New Independent States, that is, other countries besides

Russia and very much for the benefit of the United States itself.

Chairman GILMAN. Would the gentleman yield a moment?

Mr. ROYCE. I will yield.

Chairman GILMAN. Thank you.

Mr. Talbott, the President had requested an increase in aid to

Russia to fight proliferation and raised that initiative in his State

of the Union speech in January, but I don’t believe there was ever

any followup to our Committee or to the Congress with regard to

that proposal. Could you comment on that?

Mr. TALBOTT. I am not entirely clear what you mean there. I can

assure you that there has been followup in that we have continued

to work on the problem of nonproliferation at virtually every level.

There is going to be a continuation of expert level talks later this

week. Ambassador Galuchi remains engaged with Dr. Kokiyef. It

25

figured on the agenda of the meeting in Auckland between President Clinton and Prime Minister Putin. So we have continued to

pursue the nonproliferation agenda, but I have a feeling you have

something more specific in mind.

Chairman GILMAN. The President proposed this in his 1999 State

of the Union message, but we didn’t see any followup by him personally with regard to that proposal, and I was wondering if you

might want to comment on that.

Mr. TALBOTT. Let me do this. Perhaps after the hearing, I can

get some clarification both of what you are referring to from the

President’s side and where you feel there is lack of followup. I can

assure you there is no issue on which we more want to followup

with you than that one, because it is almost literally the case that

hardly a meeting goes by with our Russian counterparts where we

don’t press this agenda, and particularly the issue of Iran, that you

are so concerned about.

Chairman GILMAN. Thank you.

Mr. ROYCE. Reclaiming my time, Mr. Chairman, since the subject

of Africa was brought up, I do want to make the point that we had

a real change in Nigeria because we disengaged completely with respect to aid. Just another perspective—and I was there for the elections in the Nigeria—the IMF and the United States disengaged.

We did not continue to reward. We demanded and we sought leverage and we got that leverage, and eventually we had free elections

several months ago in Nigeria and a duly elected government. So

there is more than one approach. It is because we want to make

certain that there is leverage exerted that Republicans raise these

points, and I wanted to share that with you.

Mr. TALBOTT. Mr. Royce, you know both Russia and Nigeria, and

you don’t need to hear from me the profound differences between

them. Russia is now entering its fourth round of democratic elections since it became a democracy, and I am sure you are not suggesting disengagement is the way to go to with Russia.

Mr. ROYCE. What about leveraged engagement?

Mr. TALBOTT. I like that. Conditional engagement, leveraged engagement, effective engagement, all of those I would certainly subscribe to.

Chairman GILMAN. Mr. Delahunt.

Mr. DELAHUNT. Yes. Thank you, Mr. Chairman.

I think what I am hearing, Mr. Secretary, is the concern expressed by those that have spoken before me on the other side of

the aisle is that this is a government-to-government relationship in

terms of assistance and loans, grants. Your position is that, particularly early on in the private sector or in the quasi-private sector, those institutions simply did not exist.

Now, presumably once there was a viable private sector, with institutions in which the Administration could have confidence in

terms of their integrity, that consideration in terms of commercial

relationships and providing assistance might very well be considered. Is that a fair statement in terms of where we are along the

continuum of progress within Russia?

Mr. TALBOTT. Yes, Mr. Delahunt.

Mr. DELAHUNT. In defense of the Administration, I think there

did not exist that option, in the early years of this decade. Even

26

in a mature democracy like ours, with institutions such as our

banking system that are well regulated, corruption exists. In this

morning’s newspaper there was a front-page story relative to fraud

in a small bank somewhere in the south that amounted to an excess of $500 million. We have been through a period in our own

history, the S&L debacle, for example.

So I want to be clear I don’t disagree with where you have gone,

and I would agree with the comment by Mr. Lantos that there was

not an option available.

It would also appear that some would suggest the reason or the

cause of capital flight in Russia is corruption—that as soon as the

money comes in from wherever, it is taken out and put in Swiss

bank accounts. Is there any evidence of that or would you suggest

that it is primarily the tax laws of the Russian state that create

an incentive for Russian citizens to seek havens elsewhere on the

globe to avoid paying these confiscatory taxes? If that be the case,

is the Russian government and the Duma addressing that particular issue in terms of making fundamental changes within their

own tax code?

Mr. TALBOTT. Mr. Delahunt, can I first offer my condolences on

a certain athletic event that occurred?

Mr. DELAHUNT. I would prefer you remain silent, Mr. Secretary.

Don’t pick on the scab, please.

Mr. TALBOTT. Speaking of scab, sitting behind is my executive

assistant Phil Goldberg, who is from Boston and who barely came

in this morning, but he is such a good public servant that he is

here to serve the national interest.

Mr. DELAHUNT. He is also a man of great courage to be here this

morning.

Mr. TALBOTT. I think both sets of points that you have made are

very germane, and this actually—we have lost Mr. Royce—but

something that Mr. Royce said earlier actually resonates with the

point that you made.

One reason that the Russians felt, including Mr. Fyodorov, that

they had to make a clean break with the past and do a hellbentfor-leather privatization, which created a lot of controversy back in

the early part of this decade, was because Russia became an independent and democratic country but it was still a country that was

dominated by the Soviet system. The state ran everything and the

state owned everything, and they made the calculation, on which

I think history will pass judgment, but on which we cannot pass

final judgment, that the only way to deal with that was just dismantle the old system virtually overnight, even though they didn’t

have a new one to put in place.

You are certainly also right that the problem of corruption was

very much part of the legacy from the old system. I remember the

first time I ever heard the word ‘‘kleptocracy’’ was in the context

of the Soviet Union and not Russia. They have, in fact, if you look

at what has happened in the NGO sector and the small business

sector, made incredible strides. There are lots and lots of little businesses doing OK in Russia today.

Now, bigger businesses that require investment, and this goes to

your second point, operate under a huge burden, and it is the one

that you identify. It is not just the tax law but it is also property

27

laws which are either inchoate or chaotic or very capricious; and,

as a result, it is not a good climate for investment, whether it is

from Russian investors or from foreign investors. Now, are they

doing something about it? Not yet and not very fast.

The real question is, what will happen when they have a new

Duma? They are going to the polls on the 19th of December to elect

a new Duma. I am not about to hazard any predictions about what

is going to happen in that election or any other democratic election

coming up on the horizon, but I can tell you that there are pressures building within the Russian economy and within Russian society to get a grip on some of these core problems, crime, corruption, lousy tax system, right at the top.

Chairman GILMAN. Thank you, Mr. Delahunt.

Dr. Cooksey.

Mr. COOKSEY. Thank you, Mr. Chairman.

Mr. Talbott, starting in 1995–1996—I think it was in the 1993

to 1994 period—a former State Department official, a Mr. Wayne

Merry, was in charge of reporting the political activities from Russia back to the States and to our embassy in Moscow. He wrote an

article that was in a publication, and he said during 1993 and 1994

there was an unmistakable shift in the Clinton Administration’s

priorities from, ‘‘telling us what is happening to’’, ‘‘telling us that

our policy is a success.’’

I understand that Mr. Wayne Merry had had some important

Foreign Service positions and he was in a position, or his role or

his responsibility was, to help policymakers here make decisions;

and yet during the 1996 campaign, the message that was given to

the public was that our foreign policy program in Russia was indeed a success story. Why do you think he came to this conclusion?

Why did this former State Department official feel that they want

to give a message that our economic policy there had been a success? Was it just a political statement to get through a campaign

or was this part of policy? What was the policy of the Administration, the State Department?

Mr. TALBOTT. A couple of points here, Dr. Cooksey.

First, since you are citing Wayne Merry, let me just say I remember him well. I worked with him in two of my capacities and

I think two of his because he was in the Department of Defense,

if I am not mistaken, after leaving the Department of State. He is

a fine public servant and a very fine analyst.

I disagree with his analysis in this case and, insofar as you have

accurately conveyed it, his opinion or his characterization of the instructions that Embassy Moscow received from Washington. Our

instructions to our embassy, whether it was under Ambassador

Pickering or Ambassador Collins, has always been to tell it like it

is and, by the way, Wayne Merry always did and often very compellingly.

I don’t think that the word success is really appropriate yet, and

probably won’t be for quite some time to come. You proclaim something a success when you see how it has turned out. Russia is a

long way from establishing itself either as a success or as a failure.

What we try to do is monitor the trends and the developments,

and we have had a lot of discussions here along those lines. Russia

is a mixed bag. There are extraordinarily promising and favorable

28

developments, the most important of which is democratization.

There are also deeply disturbing and dangerous developments,

crime and corruption being one cluster of those issues, and the resumption of violence in the Caucasus being another. Russia is a

country, not for the first time in its history, God knows, that is undergoing a struggle between its best possibilities and the worst of

its past and the worst that is still there in the present.

Mr. COOKSEY. Thank you.

I certainly respect your credentials because you do have a good

background on Russia, and I know you have spent a lot of time

there, but it is also my understanding that you reported that part

of the driving force behind the policy. Our responsibility—and,

quite frankly, I think Congress fails in this responsibility—our responsibility as Members of Congress—our constitutional responsibility, is oversight. I feel that a lot of times Congress is not aggressive enough in carrying out its oversight responsibilities to make

sure that the taxpayers’ money is spent properly. There is the feeling I think across the country and certainly in my District that

probably the taxpayers’ money has not been well managed in our

effort to help the Russian people come out of this period of a command economy, central economy, a period of Communist political

model.

Do you think this is an accurate perception? If so, do you think

that the policies were used because there was some naivete on the

part of the people that were making the decisions? What is the future?

Mr. TALBOTT. They are all very fair questions, and I totally agree

that I think this hearing bears it out that Congress has a critical

role to play, not only in giving Administration witnesses a chance

to explain and defend our policy but also in interacting with parliamentarians from Russia and from other countries who are trying

to learn how we do business in this country.

I think that we, the U.S. Government, going back over the two

Administrations who have been involved in the post-Soviet transition, have done a solid job that you can represent as such to your

constituents in protecting the integrity of our assistance programs

for reasons that we have already talked about. But if you have any

specific questions in that regard either now or to followup after the

hearing, I will be glad to answer them.

I can tell you that we have the highest standards of accountability and safeguards in the money that goes from us, the United

States of America, to various projects in Russia.

The more controversial and problematic area is the international

financial institutions, and there again I think that the verdict of

history will be positive. I think that the fact that the IMF was willing to step in early, going back to the Bush Administration but continuing into this Administration, to help the Russians get over the

first and the worst and the most dangerous part of the transition,

has to be counted against the fact that the Russians—we can’t

want reform for Russia more than Russians themselves want it—

fell down on the job in a number of respects. I mean, the worse

year for them was 1998, a year that, by the way, also included an

international financial crisis; but the Russian government at the

time, Mr. Kiriyenko’s government, could not get the Duma to put

29

in place the kind of laws, including tax laws, that were necessary

in order to justify some of the risks that the IMF had taken. The

IMF, as a result, has tightened up further its conditionality.

Mr. COOKSEY. Good. Thank you, Mr. Talbott.

Thank you, Mr. Chairman.

Chairman GILMAN. The gentleman’s time has expired. Thank

you, Dr. Cooksey.

Ms. Danner.

Ms. DANNER. Thank you, Mr. Chairman.

I made notes of some of the statements that you have made as

we have gone along. You made a comment that we need more

money for Russians, that this is to the benefit of the American people. I am wondering if some of the American people we represent

who are here right now, let us just say the senior citizens who have

to decide between purchasing their drugs for their well-being or

food, and there certainly are many of them in our country, students

who are looking at education needs, where they know they don’t

have the facilities or the technological advances that exist today,

married couples who are paying as much as $1,400 more in income

tax each year because they are married, what we call the marriage

tax penalty—obviously, you can see I am a cosponsor of that legislation or even the general infrastructure of our country.

Following up on what John Cooksey had to say, I wonder how

many of our people, the people that we represent, think that we

spend our money well? They remember that we spent an awful lot

of the American taxpayers’ dollars for the Cold War when Russia

was the enemy. Now we are spending money because they are our

purported friend. So, friend or enemy, Russia is costing us a lot

more money.

So the question is, how well is it spent. The oversight question

came up, and your last comment was that we are protecting the integrity of our assistance programs. As I was making note of that,

I thought I heard you say something about the fact that you could

provide us with some information on how you are doing that. I

know that I would certainly appreciate that information, and I can

assume that the other Members of this Committee would like to

know exactly how you are indeed protecting the integrity of our

programs. Because if we are going to spend this money, if my senior citizens, if my young people know that they have less for their

needs because we are sending money overseas, I think the very

least they can be expected to receive in return is evidence that this

money is well spent.

I, like many of my colleagues, do fear and feel that much of it

does make its way to Swiss bank accounts, and I would like to note

that we are putting in process and in progress some kind of a program to ameliorate that problem. In Russia, recently I understood

that in, for example, Saint Petersburg, as many as 70 percent of

the populace lives in communal apartments with families of eight

or more, and one bathroom and one kitchen shared by eight families. Even the bathroom shared by eight families staggers my

imagination. But we would like to know that the money goes to the

people and not to the government, to a few people who are sending

it possibly into Switzerland.

30

So if you would provide us with that information, I think we

would all appreciate receiving it.

Mr. TALBOTT. Thank you very much, Ms. Danner.

You have raised a specific issue and a more general issue. I will

provide to you and to Dr. Cooksey and, if the Chairman wants, to

the Committee as a whole a breakdown on the programs that we

are funding and would hope to fund in the future under what we

call the Freedom Support Act, which is the umbrella for those regions.

One of the things you will see is that a great many of those programs involve either technical assistance where our people with

know-how go over there and explain how to do things, how to run

a stock market, how to set up a securities exchange commission,

how to run an NGO or local election. So money doesn’t change

hands. Exchanges, of course, mean bringing them over here and

sending our people over there. Again, money does not fall into

harm’s way.

Then there is also a good deal of highly sophisticated equipment

used to dismantle Soviet era nuclear weapons, weapons that used

to be aimed at the United States but, again with a lot of controls,

to make sure that nothing is diverted.

As to what you tell your constituents more generally, I would

hope that in discussing this issue with them that you would remind

them during the Cold War the United States spent literally trillions of dollars to deter the Soviet Union, to contain the Soviet

Union and, let us face it, to be prepared to make global thermonuclear war against the Soviet Union. That was a very expensive,

as well as a very dangerous operation, dwarfing the amount of

money we are talking about now. Waging the peace and waging the

relationship with a Russia that is no longer our enemy is much less

expensive but I think requires a little bit more in the way of resources than the Congress is currently willing to give us.

Chairman GILMAN. The gentlelady’s time has expired.

Mr. Tancredo.

Mr. TANCREDO. Thank you, Mr. Chairman.

I have two questions, one dealing directly with your testimony

today, Mr. Talbott, and one with the speech you actually gave in

Colorado a little over a month ago, and I will deal with the latter

first, although it may take us afield. I hope it doesn’t do so. I hope

it doesn’t go to far.

You stated that in the speech that you gave at the Aspen Institute, and I quote the old system of nation states, each sovereign in

its exercise of supreme, absolute and permanent authority, is giving way to a new system in which nations feel secure enough in

their identities and in their neighborhoods to make a virtue out of

their dependence on one another.

You went on to say, this means pooling sovereignty in certain

areas of governance and in other areas granting greater autonomy

to regions. You said it means simultaneously relinquishing some

powers upward and devolving others downward.

I wonder if you could help me here by being a little more specific

about which powers you think, for instance, the United States

should devolve downward or relinquish upward in order to achieve

this new system of nation states.

31

Mr. TALBOTT. The short answer is none. I wasn’t talking about

the United States in this speech that I gave.

I am sorry, I am having trouble looking at you.

Mr. TANCREDO. Some people have that, probably when there is

no one in between.

Mr. TALBOTT. I should look you in the eye when I say this. I was

talking very specifically about what is happening in Europe. I was

talking about the institution of the European Union and the way

in which the phenomenon of European integration as represented

by the European Union can be used to avert in southeastern Europe, and particularly the Balkans, the kind of crisis that has occurred there.

Mr. TANCREDO. I do recognize and should perhaps have made

that more specific in my question, that you were talking about Europe. But when you say the old system of nation states is essentially dissolving, I can hardly assume that meant only in Europe

in your mind.

Mr. TALBOTT. I can’t leave it entirely to the Chairman. I am not

sure we have time today to pursue this, but I would like very much

to pursue this. I do not think that the United States is a classic

Westphalian nation state. I was talking about nation states which

means, of course, states built up around particular nationality

groups that came about as a result of the treaty of Westphalia in

Europe, and Europe is now moving beyond that.

I think one of the United States’ great strengths and one of the

reasons to be both very proud and also very protective of our sovereignty and national interest is that we are more than a nation

state. We are a state made up of many, many different nationalities. You have a country on the map today called France which is

made up of mostly of French, and Germany, Germans, and Sweden,

Swedes, and so forth and so on, and that tends to talk about people

of a particular ethnic group, a particular language group, and very

often a particular religious group.

In the United States, we are a wonderful, rich mixture. There is

no such thing as American nationality in the same sense that there

is in the old European state, and I tried elsewhere in that speech

with what is probably overlong, as this answer may be, to make

the distinction between the United States and the EU in that regard.

Mr. TANCREDO. I am certainly glad to hear that at least that distinction exists in your mind, although it is again a little difficult

to understand or see a world developing in a way that one half of

a significant chunk of it would be operating in the manner in which

you describe in devolving or evolving into something else, where

the United States would only be an observer; but, nonetheless, I

am glad to hear that this is a distinction you carry on.

The last part of the question is dealing with your response to a

question by Congressman Lantos when he specifically asked you to

respond to the GoreeChernomyrdin Commission or whatever

iteration it is in now, and you went on to tell us that you were

quite excited by the outcomes and believed it, in fact, had been

quite successful.

Going back then to something that Mr. Cooksey brought up, I

refer to Mr. Wayne Merry again who also wrote, especially after

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you characterized Mr. Wayne Merry as you did, as a very competent employee, a very professional individual, he wrote that

every program or project associated with the so-called

GoreeChernomyrdin bilateral commission’s meetings always had to

be deemed, quote, a success. He argued that the commission should

have been disbanded long ago, making a case that it was part and

parcel of the Administration’s interest to have State Department

tell it, in his words, that our policy is a success. So how should we

gauge your response in light of this characterization by Mr. Merry

and your characterization of Mr. Merry?

Mr. TALBOTT. I think my characterization of Mr. Merry is both

accurate and generous, and my response to him is total disagreement. I haven’t read everything that Mr. Merry has written of late,

but I assume you are accurately characterizing. I think he is just

plain wrong on the facts and on the merits.

For those of us working with the Vice President on the binational

commission, we are well aware that there were some areas where

we could have a brass-ring type success—for example, getting

Kazakhstan to accede to the nonproliferation treaty which involved

some work with the Russians. That happened. That is a success.

You can chalk that up. But getting Russia to cooperate for reasons

that have to do with its own self-interest in curtailing and eliminating the illicit transfer of dangerous technology to Iran, that is

an ongoing effort and an uphill one, but certainly not one that we

would ever have instructed anyone to characterize as a success, not

least because we are accountable to the U.S. Congress, and we

have to come up here and describe to you how it is going, and the

answer is it is ongoing and it is difficult, but we want to keep doing

it.

Chairman GILMAN. Thank you, Mr. Tancredo.

Mr. Davis.

Mr. DAVIS. Secretary Talbott, I have agreed to yield about a

minute of my time to Representative Pomeroy.

So, within that timeframe, we have discussed today a number of

issues that relate to moving Russia closer to a democratic society,

our attempts to influence how the money is spent within that country, and our attempts to influence a movement toward the rule of

law. My question for you is, based on the lessons we have learned

here in dealing with Russia, what can we begin to talk about in

terms of changing the way we use the IMF to more realistically influence how the government and institutions within that country

move closer to the rule of law and putting money in places we

would like to see it put in? In other words, are there more creative

or aggressive ways that we can use the IMF to try to influence

their internal affairs or should we just continue to look at some of

the other alternatives in addition to the IMF to try to accomplish

those goals?

Mr. TALBOTT. That is the first and I hope only question today

that I am going to candidly dodge in a sense. I think it is such a

good question that I really should defer to my colleagues at the

Treasury Department on that because they are the custodians, and

very good custodians there by relationship with the IMF.

Larry Summers has been part of, and if I can put it this way,

the IMF/Russia team from the beginning of the Administration is

33

deeply engaged on this. He has testified on it to Mr. Leach, and

I wouldn’t want to get out in front of him on this. I am sure he

would accept the general proposition that of course we can do better, but what he would want to do is put a context in answering

your question that takes account of the IMF global responsibility,

its mission worldwide. I think it is a very good question, and I hate

to make work for Larry, but I suggest you find some way of asking

it to him.

Mr. DAVIS. Thank you.

I would like to yield the balance of my time to Representative

Pomeroy.

Mr. POMEROY. I thank very much the gentleman for yielding.

Mr. Secretary, I commend you on superbly stated testimony. It

is very clear and very, very good.

I hope that going forward, if there is a partisan debate about

Russia—and I, for the life of me, don’t understand why that is necessarily so, we have plenty of other things to fight about—it will

concern what best advances our interest, what best reduces a nuclear threat, either through direct engagement over there or proliferation, and what best further achieves a restoration of stability

in the march to democracy and free market economy over there, as

opposed to the inane battle of who lost Russia, as if Russia is lost

in any event.

I think that your testimony would help all of us refocus the debate in a much more constructive path than it seems to be unfolding. But my question involves the building of financial infrastructure capable of supporting growth of free market enterprise at a

household level, at a small business level, on a big business level;

and I find that insurance, the ability to allay risk, is a critical dimension of building economic viability, especially in a system that

doesn’t have the meaningful risk protection available presently.

There is a vote that has been highly contentious in the Duma.

In fact, they passed a very restrictive, basically anti-competitive insurance measure that would have kept out foreign insurers, significantly reducing insurance capacity within Russia. Yeltsin vetoed

that bill, to considerable political risk. Who understands his political calculations? In any event, it was unpopular for him to veto

that bill, and the bill I understand is being considered in the Duma

on an override effort.

I am wondering if the Administration would like to put into the

record any comments it might have about the role of insurance in

Russia’s march toward building a vibrant, free economy and

thoughts about this measure in particular.

Mr. TALBOTT. I am sure we would. Would you mind if I did that

in writing in followup to this meeting? Because it is such an important and good question that I want make sure the words, especially

after your kind remarks, are exactly the right ones. I mean, insurance is another part of what might be called the economic infrastructure of reform that has an awful long way to go. I know that

there are some American companies that are very vigorously pursuing entry into that market and that they are having some difficulty. I don’t know the legislation you are speaking of, but let me

look into that and get a letter back either to you or to the Chairman.

34

Mr. POMEROY. Mr. Secretary, I would appreciate that very much

and would alert you that I think the measure is pending in the

Duma. It may even be slated for voting on this week and so would

urge that you do that quickly.

In the event that you want to take a pass on it, that is fine, too,

but I think a statement might be help from the Administration.

Mr. TALBOTT. I think I hear you saying that it is a statement we

should make fairly promptly.

Mr. POMEROY. Correct.

Mr. TALBOTT. Make sure that Jim Collins and our colleagues in

Moscow get it around there.

Mr. POMEROY. I am going to say it is an issue that is important,

it is out there, and if you choose to make a statement, it ought to

be done promptly. If you choose to pass, I understand.

Mr. TALBOTT. Thank you.

Chairman GILMAN. The gentleman’s time has expired.

Since Mr. Talbott has limited time, and we have a vote on the

House Floor, I am going to ask our Members to limit themselves

to 1 minute, and we will try to get to everyone.

Mr. Campbell.

Mr. CAMPBELL. Secretary Talbott, on October 6th, Ken

Timmerman said the following about you. I want to read it to you,

and I want you to respond for the record.

Chairman GILMAN. Please be brief so each Member can query.

Mr. CAMPBELL. ‘‘The Shahab–3 missle in particular—is capable

of targeting Israel with nuclear, chemical or biological warheads

and should, in my view, have Mr. Talbott’s name written all over

it.’’

Let me briefly summarize the more detailed chronology I provided in the written statement for Mr. Talbott’s responsibility for

the Shahab–3 missile.

Later in the colloquy, I speak to Mr. Timmerman:

Mr. Timmerman, your comment about the Shahab–3 having

Strobe Talbott’s name on it is chilling. I wanted to ask you if it is

your belief that Deputy Secretary of State Strobe Talbott knew of

the diversion of the technology, whether he could have taken steps

to prevent it and chose not to.

Mr. Timmerman: Yes, on both counts, Mr. Campbell. I was certainly not privy to the type of classified briefings to which Mr.

Talbott was privy. One of the most astonishing things that I found

out was that, after Mr. Talbott was initially briefed by the Israelis

in September or October 1996, he never once asked a question of

our intelligence agencies until the Israelis came back and briefed

Mr. Gore through his aid, Leon Fuerth.

I then further asked Mr. Timmerman: Again, just for the sake

of getting the full story out, if he, Mr. Talbott, were here, he might

say he undertook a lot of steps but they were publicly known. You

categorically state that he knew and did nothing. On what do you

base that judgment, Mr. Timmerman?

For the first 3 months, I am saying between late 1996 and February, 1997, absolutely nothing was done. This I have both from

U.S. Government sources and from Israeli sources. Afterward, Mr.

Talbott was tasked specifically by the Vice President’s office—he

35

was put in charge of dealing with the Russians on this issue. He

had exchanges with the Russians, but he never pressed them.

I end the quotations, and I ask you to make your response.

Mr. TALBOTT. Nonsense, is my response.

Chairman GILMAN. The gentleman’s time has expired.

Mr. CAMPBELL. Mr. Chairman, it is not fair to the witness. I ask

unanimous consent to allow the Secretary to respond to the serious

charges which I quoted.

Mr. TALBOTT. The suggestion, the allegation is utter nonsense.

You will understand, of course, Mr. Campbell, that in this setting

neither I nor any of us can get into intelligence matters in a detailed reconstruction of the way in which this Administration, notably including the Vice President, has dealt with the very real issue

which has been kind of a theme throughout the morning of the

leakage of dangerous technology from Russia to Iran.

I can tell you that this Administration and, insofar as I have

been part of the policy, which is considerable, I myself have been

quite assiduous in following up on all information that we have

gotten and pressing the matter with the Russians. I think that we

can review the history of this episode if you want in some other

setting, but the bottom line is that when we knew there was a

problem we acted on the problem, and we are several years down

the road now. We are closer to a solution to that problem as a result of our unstinting work with the Russians to get a grip on this,

but we are not as close as we need to be for the problem to be——

Chairman GILMAN. The gentleman’s time has expired.

Mr. Payne.

Mr. PAYNE. Thank you, Mr. Chairman.

Let me say, Mr. Talbott, it is good to see you, and certainly I

know of your record of public service, and I don’t know of any that

has a more impeccable record, and it is a pleasure to see you. First, I also would like to add my dismay to the $2 billion that has been cut from the President’s request for Russia, $1 billion less

than last year. But also I might add that 40 percent of the development fund for Africa has been cut, $175 million from essential loan

programs, $157 million cut from global environmental programs,

$87 million cut from debt relief for the poorest countries in the

world, $50 million cut from African development loans, $200 million cut from economic development and democracy building in Africa and around the world, $35 million cut from the Peace Corps.

It makes absolutely no sense when we are trying to make the world

safer.

I come from one of the poorest districts in the country, but I have

to totally disagree with my colleague from Missouri when he says

that Americans are outraged about the President’s $13 billion request for the foreign aid bill, which is less than one percent of what

we spent on foreign aid. I think it is disgraceful that we spent so

little. The greedy are really taking from the needy. I think that foreign aid is a hedge on a world that is safe and secure.

If you can in New York City and Manhattan get a bite from a

mosquito that comes from three continents away—and you die—

and you are cutting money from world health, it is silly. If we are

worried about our children and our children’s children, about balancing the budget, we are going to have a world that is going to

36

be unfit to live in if we continue the nonsense of this tunnel vision,

this head-in-the-sand silliness that we see in the House.

I guess my minute is up. So I don’t have a question. Thank you.

Chairman GILMAN. Thank you, Mr. Payne.

We are pleased that we have with us the gentlelady from Ohio,

Ms. Kaptur, who is the Ranking Member on the Agriculture Subcommittee on Appropriations.

Ms. KAPTUR. I thank the Chairman very much and my colleagues

for allowing me to sit in on this important hearing, and I will be

brief.

The first statement I just wish to make to Mr. Talbott in welcoming him back to the House is that I hope you will use your full

powers within the Administration to get additional precinct monitors into Ukraine for the upcoming elections. There are 30,000 precincts, and perhaps all Americans living and working in the

Ukraine could volunteer that day. I think the situation is becoming

more serious.

You don’t have to respond to that.

But the major reason I am here today is to say I hope that when

you leave today you and the staff members that are here with you

from State will be imbued with greater fervor to deal with the

issue of Russian food security as fundamental to Russian stability.

Your testimony deals primarily with military security, which I can

understand, but I would hope, Mr. Talbott, that you could spearhead an effort within the Administration and your allies here in

Congress to take a fresh look at how to better use the food aid and

its monetized value to achieve reform in Russia and her surrounding former client states.

We know that collective farms were fundamental to the structure, the architecture of the Russian system. They have collapsed,

and their entire social welfare system was tied to that.

Chairman GILMAN. The gentlelady’s time has expired. Thank you

very much, Ms. Kaptur.

Mr. Manzullo.

Mr. MANZULLO. Mr. Secretary, you referred earlier in your testimony to theater missile defense systems. Let me ask you to comment on the recent series of stories that I have seen in the newspaper of granting concessions to Russia to literally abandon or

modify greatly the ABM treaty, especially in light of the fact that,

in 1995, the Clinton Administration said that shoring up the ABM

treaty was of high priority.

Mr. TALBOTT. Mr. Chairman, I want to just agree with and respond affirmatively to Mr. Payne and Ms. Kaptur.

Chairman GILMAN. We have very limited time.

Mr. TALBOTT. Right, and perhaps we can followup.

Mr. MANZULLO. Could you answer mine? Mine is more of a question. Theirs is a statement.

Mr. TALBOTT. I understand that. That is exactly what I was saying, and if the Chairman feels we have run out of time, I would

be glad to pursue this with you, either in person or by letter.

The word concession is not in the vocabulary of the dialogue that

we are conducting with the Russian Federation on the subject of

national missile defense and the Antiballistic Missile Treaty and

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START III. The word cooperation, however, is very much part of

that vocabulary.

President Clinton has made clear repeatedly that we and Russia

face a common problem, which is the proliferation of ballistic missiles to third countries, rogue states that could threaten both

American territory and Russian territory, and we should therefore

work cooperatively to meet that threat. That will require, almost

certainly, amendments to or adjustments in the ABM treaty, but

it will also require new levels of thought and ultimately work in

the area of cooperative strategic defense. It is in that context that

this issue arises.

Mr. MANZULLO. Thank you.

I have to go vote. If I could send you a letter for more detail, I

would appreciate it.

Mr. TALBOTT. I would be happy to respond.

Chairman GILMAN. We want to thank our witness for appearing

today. The Chair may submit to the State Department questions

on behalf of the Committee’s Members for expeditious answers in

writing, and I thank you once again, Mr. Talbott, for being here

today.

The Committee stands adjourned.

[Whereupon, at 12;20 p.m., the Committee was adjourned.]

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OCTOBER 19, 1999

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