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RUSSIA: ITS CURRENT TROUBLES AND ITS ON-GOING TRANSFORMATION Prepared testimony of Strobe Talbott, Deputy Secretary of State, before the House International Relations Committee, October 19,1999'

Thank you, Mr. Chairman, for the chance to discuss with you and your colleagues on the Committee developments in Russia and U.S. policy toward that country. You have chosen a good time for this hearing. Russia is much on our minds these days, and rightly so. Not for the first time, and probably not for the last, the Russian people are undergoing what many of them call "a time of troubles."

The trouble that has received the most attention of late is the fighting in the North Caucasus. Before that crisis erupted, our attention was focused on a spate of allegations and revelations about large-scale financial malfeasance, including charges of moneylaundering through American banks.

These two issues are both, in the first instance, challenges to the leaders and people of Russia. But they are also a challenge to us and to our principal foreign partners. That is because it is in our interests that Russia be fully integrated into the community of democracies of which we are a part. That can happen only if Russia manages its affairs -- including its struggle against terrorism, ethnic conflict, political extremism, crime and corruption -- in a way that meets international standards and that enables us and others to help.

In that regard, let me make several points about the current conflict in the North Caucasus. Chechnya, Dagestan, Ingushetia -- these are all republics on the territory of the Russian Federation. We recognize Russia's international boundaries and itsobligation to protect all of its citizens against separatism and attacks on lawful authorities. We also acknowledge that the current outbreak of violence began when insurgents, based in Chechnya, launched an offensive in Dagestan. Russia has also been rocked by lethal bombings of apartment buildings deep in the Russian heartland, including in Moscow itself. The Russians are still investigating these tragic events, and we hope that the culprits are brought to justice.

In our dealings with the Russian government of late -- particularly Secretary Albright's various communications with Foreign Minister Ivanov, as recently as this past weekend -- we have stressed all these points.

But we have raised a number of concerns as well: 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 separatism; second, that Russia's last war in Chechnya -- in 1994-1996 -- demonstrated that there cannot be a purely military solution to the problem there, and that there must be a vigorous and conscientious effort to engage regional leaders in a political dialogue; third, that all parties should avoid indiscriminate or disproportionate use of force that would harm innocent civilians; fourth, that Russia's significant progress toward developing civil society, inclusive democracy and rule of law will be in jeopardy if it permits a backlash against citizens because of their ethnicity or religion; and fifth, 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. We will continue to press these points publicly and privately, bilaterally and multilaterally.

I would be happy to pursue these points further with you this morning. But before doing so, let me suggest an overall context for our discussion: First and foremost, our policy must advance the national-security interest of the United States - both in the shortterm and the long-term. The test we must apply -- day in and day out, year in and year out, from one Administration to the next -- is whether the American people are safer as a result of our policy. This Administration's Russia policy meets that test.I'll start with the most basic respect in which that is true: our physical safety and our military security. When the Administration came into office, there were roughly 10,000 intercontinental nuclear weapons in four states of the former Soviet Union; most were aimed at the United States. Today, there are about half as many -- some 5,000; they're only in Russia; none are targeted at us; and we're discussing significant further reductions in overall numbers and further steps to diminish the nuclear threat in all its aspects.

That task will be tougher in the weeks and months ahead as a result of the Senate's rejection of the Comprehensive Test Ban Treaty. But we will press ahead. The President has declared that the U.S. will continue to refrain from nuclear testing. We've called on Russia, along with China, France, Britain and other countries, to do the same. This Administration remains committed to the ratification of this treaty. CTBT is critical to protecting the American people from the dangers of nuclear war. Even as we continue to build a consensus of support for the treaty here at home, we will be working to strengthen the one that already exists abroad.

There are other vital issues on our agenda with Russia -- issues literally of war and peace that Secretary Albright has discussed with you in the past: peace in the Middle East, in the Balkans, in the Gulf.

And then there is the issue of Russia's nature as a state and role in the world, which will have a lot to do with what sort of 21st century awaits us.

For a decade now, Russia has been undergoing an extraordinary transformation. In fact, it is undergoing three transformations in one: from a dictatorship to an open society; from a command economy to a free market; and from a totalitarian empire and ideological rival toward becoming what many Russians call -- and aspire to -- a "normal, modem state," integrated into the international community of which we are a part. We've been helping keep that process going.

Just as one example, the Freedom Support Act and other programs have helped Russia make dramatic improvements in the development of an independent media, protection of human rights and religious freedom. All of us are realistic about the difficulties. Russia's transformation has encountered plenty of obstacles, none greater and more challenging than the crucial need to create the laws and institutions that are necessary to fighting crime and corruption in an open society and market economy.

Still, the transformation continues, and so must our commitment to stay engaged.

While there are no easy answers and no quick answers to what ails the Russian body politic today, there is one over-arching principle that is fundamental to creating the forces for change that will drive the scourge of corruption out of Russian society, and that is democracy.

If the Russian people and the leaders they choose can stay on the course of constitutional rule and electoral democracy, not only will they be better off, but so will we. That's the hard-headed essence of why we must continue to support them in coping with the difficulties they face, notably including those that are in the headlines today. Indeed, one way to look at today's troubles in Russia is as part of the legacy of an evil past and a result of an incomplete but ongoing transition to a better future.

The solution to those troubles is for them to keep moving forward, and for us to support them as they do so.

Since the Cold War ended, the United States has, as Secretary Albright pointed out in her speech last month at the Carnegie Endowment for International Peace, pursued two basic goals in our relations with Russia. The first is to increase our security by reducing Cold War arsenals, stopping proliferation and encouraging stability and integration in Europe. The second is to support Russia's effort to transform its political, economic and social institutions. Both of these goals are very much works in progress.

In the years since Russia helped bring the Soviet system to an end, our work with that nation has helped secure some breakthroughs that are clearly in the national interest.

First, the Soviet Union dissolved in a largely peaceful fashion with its nuclear weapons insecure hands, an outcome that was not fore- ordained. Imagine the chaos the world would face if the Soviet Union, and its nuclear arsenal, had come apart in the same way Yugoslavia has. First the Bush Administration and then the Clinton Administration worked assiduously to ensure that such a nightmare did not come to pass.

Second, Russia helped dismantle the apparatus of the Soviet system and has rejected the forcible reformation of the Soviet Union or the creation of a new totalitarian super-state. It has no practical option to turn back the clock.

Third, the people of Russia, and their leaders, have embraced democracy and have held a series of free and fair elections at the national and local levels, followed by a stable transition of offices and power, and more broadly, are assembling the building blocks of a civil society based on public participation. When I travel to Moscow, as I do with some frequency, I'm always struck by the preoccupation of virtually everyone I meet with the upcoming parliamentary and presidential elections. For the first time in their history, Russian citizens are now voters; they can register their grievances and express their aspirations through the ballot box or, for that matter, on a soap box. Their grievances prominently include disgust with corruption; their aspirations prominently include good governance, honest governance -- and peace on their territory and on the borders. Fourth, Russia has made important strides toward replacing central planning with the infrastructure and institutions of a market economy.

Fifth, Russia is more inclined than ever before to working with the U.S. and other nations of the international community on common challenges. Even when we disagree with Russia, Russia's willingness to engage with the international community has been essential to finding common solutions.

If Russia is going to stay on the course we would hope in its foreign policy, it must also continue its internal transformation in a positive direction. International support is an essential part of helping Russia take difficult steps to restructure itself. The President, the Vice President, Secretary Albright and the rest of us have always understood thatRussia has been tearing down dysfunctional Soviet structures, but it has only begun to put in place the mechanisms of a modern state.

This is an enormous and time-consuming task. Russia, after a millennium of autocracy and more than 70 years of communism, had little or no historical memory of civil society, of a market economy or the rule of law. The Soviet system itself was in many ways institutionalized criminality. I first heard the phrase "kleptocracy" used to describe the Soviet state. There are no "good old days" of real law and order or legitimate private enterprise to which Russia can return.

In short, crime and corruption are part of the grim legacy of the Soviet Communist experience. The rampancy of that problem has impeded Russia's own progress and impeded our ability to help Russia move forward. Moreover, as Russia dismantled communism and sought to create a new market economy, the weaknesses inherent in its new economic institutions created vulnerabilities to corruption. That is why, in his 1995 visit to Moscow, President Clinton called for "a market based on law, not lawlessness."

Yet, just as we cited these dangers, we were also engaged in finding solutions. U.S. assistance, as well as that of multilateral bodies such as the International Monetary Fund, have focused on building the broader structures that will allow the democratic citizens of Russia -- who have the most to lose from corruption -- to bring transparency and accountability to both government and business dealings.

We have consistently emphasized the need for transparency and accountability in our dealings with Russia, and in the dealings of the international financial institutions working with Russia. When problems have arisen, we have insisted on full and complete investigations and will continue to do so. In instances where there have been concerns about Russian practices, the IMF has tightened controls, performed audits and reduced leading levels.

The IMF has conditioned further tranches on effective safeguards that ensure lending will not be misappropriated, provide for a satisfactory accounting of relevant Central Bank activities and reinforce genuine broad-based implementation of reforms that go beyond simple commitments. Both multilateral and bilateral support for Russia will be shaped by this kind of realism. A Russian interagency law enforcement team headed by Federal Security Service Deputy Director Viktor Ivanov was in Washington last month to meet with Justice, FBI, Treasury and State officials. By the way, while this visit was primarily to deal with the Bank of New York case, the Russian team also met with FBI Director Freeh and State Department counter- terrorism officials to discuss the recent bombings in Russia that have cost more lives than we here in this country lost in the World Trade Center and Oklahoma City.

I'd like to turn briefly to the programs in Russia on which we spend American taxpayers' money. We do so primarily to safeguard American security. Let me emphasize that three-quarters of Freedom Support Act assistance is spent on programs that do not involve the Russian government, as part of our effort to help build grassroots support for change. The U.S. government has worked to build relationships with Russian law enforcement and judicial entities and helping them increase their capabilities to operate in a professional and ethical manner. We have also promoted the rule of law at the grassroots level by working with non-governmental organizations, human rights advocates, and independent media watchdogs, and by promoting ethical business practices.

For example, USAID's Rule of Law Project, which was developed in response to a presidential initiative that arose out of the 1993 Vancouver Summit, works with core Russian legal institutions on judicial training, legal education reform and strengthening legal non- governmental organizations. The project has assisted the legislative drafting and the training of hundreds of judges from the commercial courts.

In addition, several US law enforcement agencies have representatives based in Moscow who are working directly with their Russian counterparts on issues of mutual concern. There are three FBI attaches in Moscow working on ongoing criminalinvestigations and prosecutions. The U.S. Customs Service, DEA, U.S. Secret Service, DOJ and INS also have representatives in Moscow.

Law enforcement agreements with Russia allow us to share information on cases and cooperate on investigation, prosecution and prevention of crime. The current Mutual Legal Assistance Agreement between the United States and Russia allows each side to request information, interviews and other background material to support investigations. In June 1999, the U.S. and Russia signed a Mutual Legal Assistance Treaty which, when ratified and brought into force, will replace the Agreement. The Treaty will expand and strengthen the scope of cooperation, facilitating investigation and prosecution of transnational criminals.In addition, in the recognition of the transnational dangers posed by the increased crime in the NIS and Central Europe, the U.S. government established the Anti-Crime Training and Technical Assistance Program. An interagency effort administered by the State Department, this effort is designed to help law enforcement officials develop new techniques and systems to cope with crime while simultaneously strengthening the rule of law and respect for individual rights. A major goal of this program is to develop partnerships between American and New Independent States law enforcement agencies that will enable them to combat organized crime and prevent organized crime in the New Independent States from spreading in the U.S.

In conclusion, Mr. Chairman, Secretary Albright has asked me to use this occasion to reiterate the case that she has made to you and your colleagues for the resources we need in order to defend and advance American interests. The current appropriation bill contains a 30 percent cut from the President's Freedom Support Act budget for programs in Russia and the other New Independent States. That is one of many reasons why the President has vetoed this bill. The funding levels proposed by the Congress would force us to make unacceptable trade-offs between our core economic and democracy programs and programs that prevent the proliferation of weapons of mass destruction. The President believes such cuts would be dangerously short-sighted, because the purposes of this assistance - from building an independent media to promoting small businesses -are fundamentally in our interests.

The President and the Secretary see engagement with Russia as one of many bipartisan goals that serve the long-term interests of the American people.

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