21 March 2000

Text: State Department's Pickering Before U.S.-Russia Business Council

 
A long view of Russia is needed, U.S. Under Secretary of State for
Political Affairs Thomas R. Pickering told the U.S.-Russia Business
Council March 21 in Washington.

"Russia's natural resources, the capacity of its people, and its place
in the world community have not changed and remain very significant
indicators of its potential," he said.

"For those reasons, I remain an optimist on Russia over the long term,
but with a major caveat: the raw ingredients of a vibrant economy
exist but its achievement will depend on the decisions Russian leaders
make. Resistance to reform must still be overcome."

As grounds for optimism, Pickering pointed to the upcoming
presidential election in Russia, the first democratic transfer of
power in that country's 1,000-year history, as well as to the three
nation-wide Duma elections and hundreds of regional and local
elections since the breakup of the Soviet Union.

Another "overlooked development," Pickering said, "is Russia's
progress toward developing a civil society, particularly outside
Moscow and St. Petersburg."

Economic policy is the "immediate challenge" facing Russia's incoming
presidential administration. Sustained growth, he said, "will require
more structural reform, more capital, more investment, more growth,
more jobs, and more of almost everything except crime, corruption and
concentration of the economy in state hands."

"To keep rubles in Russia and attract dollars and deutsche marks from
abroad, the new government is going to have to fix its tax laws and
banking system, as well as to improve its overall investment climate,"
he said, urging his audience to let Russian officials hear from them
what is needed if they are to invest and do business in Russia.

On the subject of Chechnya, Pickering said, "Russia's conduct of
military operations has implications far beyond Chechnya. Allegations
about atrocities by Russian forces have raised questions about the
Russian Government's commitment to human rights and international
norms."

He expressed the hope that Russia will move quickly to investigate
allegations of atrocities "in concert with the international
community."

"The Russian Government's decision to clamp down on the media's
ability to cover the conflict and its treatment of Radio Liberty's
Andrei Babitsky have raised questions about its commitment to freedom
of the press," he added.

After enumerating the many areas in which Russians and Americans have
cooperated -- ranging from combating nuclear proliferation to
peacekeeping in Bosnia and Kosovo -- Pickering said that he could see
"a future relationship that is increasingly defined by business and by
people-to-people contacts."

"I firmly believe that a partnership of business and government is the
best way to further our country's interests in Russia, and that
engagement with Russia is in our enduring national interest," the
under secretary of state for political affairs concluded.

Following is the text of Pickering's remarks:



Department of State
Washington, D.C.
March 21, 2000
Remarks of Thomas R. Pickering
Under Secretary of State for Political Affairs 
Before the U.S.-Russia Business Council

RUSSIA AT A DECISION POINT

Thank you very much, Gene, for inviting me to be here today. Just
before I left Moscow nearly four years ago, I gave a speech at the
American Chamber of Commerce. I emphasized then America's Commitment
to Russia's transition to democracy and a market economy, and I
forecast, a bright future for the Russian economy.

My words then reflected the enthusiasm we all felt. At that time,
Russia was the best performing emerging market economy.

However, we were proven wrong. The crash of August '98, as a result in
part of the Asian financial crisis, set us all back a very long way.

Most telling are the economic conditions in which many Russians find
themselves today. Over 35% of Russia's population lives on just over
one dollar a day. Inflation is down from 80% in 1998, which is good
news, but still reached 36% in 1999, which is continuing difficult
news.

These figures are discouraging for what they suggest about the
possibilities for consumer spending and investment, as well as the
effects of such poverty on the public's faith in the new economy, on
its health, infrastructure, and social institutions.

Nonetheless, a long view is needed. Russia's natural resources, the
capacity of its people, and its place in the world community have not
changed and remain very significant indicators of its potential.

For those reasons, I remain an optimist on Russia over the long term,
but with a major caveat: the raw ingredients of a vibrant economy
exist but its achievement will depend on the decisions Russian leaders
make. Resistance to reform must still be overcome.

It will take longer than we all thought, but there are some positive
indicators even at this time. The Russian economy is growing, despite
setbacks, because of the country's natural wealth and skilled
workforce. Contrary to the dire predictions of economic collapse after
the ruble devaluation in the fall of 1998, the Russian economy seems
to be on the rebound. And with that rebound comes opportunity for
American investors. I would be interested in your views about what it
will take for foreign investment to regain momentum.

As for the United States Government, we will stay committed to
engagement with Russia because it is in our enduring national
interests to do so.

Today, would like to talk about Russian-American relations and our
take on what's going on inside Russia as its presidential elections
approach this weekend.

Putin-ology has become a cottage industry in Moscow and Washington.
You only have to read the daily papers to know that. We've all heard
about Putin as KGB Colonel in the 80's; Putin as St. Petersburg
reformer in the 90's.

Pundits are even analyzing the acting president's fascination with
judo to predict what he will do, if elected.

Most pollsters predict that Putin will win a first round victory on
Sunday and become the Russian Federation's second president. They may
be right, but we need to wait until the voters have made their choice,
and then until Putin, when and if he gains the presidency, makes his
choices.

The important thing is: that this election will mark Russia's first
democratic transfer of power in its 1,000-year history. One of the
most overlooked facts about this election is that democracy is
becoming unchallenged in Russia as the way to select leaders.

Since the break-up of the Soviet Union, there have been three
nationwide Duma elections and now two presidential elections, not to
mention hundreds of regional and local elections.

Another overlooked development is Russia's progress toward developing
a civil society, particularly outside Moscow and St. Petersburg. This
is something that was evident to me in my travels in Russia four years
ago and I think it is even more evident now.

Russia today boasts 65,000 non-government organizations, up from just
a handful a decade ago.

The immediate challenge for Russia's incoming Presidential
administration will be economic policy. Rising oil prices and import
substitution have helped Russia's economy rally over the past year.

But sustained growth will require more structural reform, more
capital, more investment, more growth, more jobs, and more of almost
everything except crime, corruption and concentration of the economy
in state hands.

To keep rubles in Russia and attract dollars and deutsche marks from
abroad, the new government is going to have to fix its tax laws and
banking system, as well as to improve its overall investment climate.

Acting President Putin made some positive points last week in a
meeting with foreign investors. He promised quick action on investment
legislation, the tax code and production-sharing agreements. Let me
say, we have heard that before. Now, he will have a real opportunity
to demonstrate that he can make it happen.

Both Putin and his team understand the need to accelerate progress
toward the adoption of international accounting standards by companies
listed on the Russian stock market.

On the tax front, Putin has announced greater deductibility for
advertising and other expenses. This is a good start and suggests that
Putin has accepted that Russia needs to engage according to
international standards.

No matter who wins next Sunday, this is the right, business-friendly
approach for Russia's incoming government. It shows that Russia's
leaders today understand that the idea of a separate, purely Russian
path of economic development is not a viable option.

Russian businessmen, as much as foreign investors, are clamoring for
structural reforms. In my travels around Russia, I talked to
businessmen and bankers who advocated an overhaul of Russia's
regulatory environment and tax system.

Recent public opinion polls show that the economy is one of the top
issues in the voters' minds today.

The other big issue for ordinary Russians is crime and corruption,
which has been singled out as a priority by nearly all of the
presidential candidates.

Progress toward the rule of law applied fairly to all is clearly going
to be difficult, but it is the only way forward.

Nine and a half years after the fall of communism, no one is under the
illusion that Russia's path to democracy and a full market economy is
getting any easier.

The transition will require continued dedication on the part of
Russia's leaders and patience on the part of its people.

It will require the same of American officials and business leaders. I
hope we have now put the "Who Lost Russia?" debate behind us.
Secretary Albright said it best when she declared that, "The
suggestion made by some that Russia is ours to lose is arrogant; the
suggestion that Russia is lost is simply wrong."

The hearts and minds of Chechnya's people, both Russians and Chechens,
however, are Russia's to lose. I frankly must tell you how
disheartened I was when fighting in Chechnya began again last fall. I
lived through the previous conflict and saw its divisive toll not only
in the Caucasus but throughout Russian society.

We don't dispute Russia's right to fight terrorism on its soil. An
armed incursion by Chechen separatists into Dagestan last August and
apartment bombings may be the events that triggered the current
fighting.

That, however, does not excuse the Russian Government's decision to
use massive force against civilians inside Chechnya. The numbers speak
for themselves: 200,000 people displaced, thousands of innocent
civilians dead or wounded, and thousands of homes and businesses
destroyed since last September. It will take decades and millions of
dollars to rebuild Chechnya.

Russia's conduct of military operations has implications far beyond
Chechnya. Allegations about atrocities by Russian forces have raised
questions about the Russian Government's commitment to human rights
and international norms.

I hope that Russia will move quickly to investigate these allegations
in concert with the international community. Moreover, Russia needs to
protect all of its citizens and their basic freedoms enshrined in the
Russian Constitution.

The Russian Government's decision to clamp down on the media's ability
to cover the conflict and its treatment of Radio Liberty's Andrei
Babitsky have raised questions about its commitment to freedom of the
press.

With the fighting in Chechnya, many Americans naturally ask why their
government remains committed to engagement with Russia. The answer is
a simple one, because our policy of engagement with Russia advances
the safety and security of the American people.

By working with the Russians over the past eight years, we have helped
to deactivate almost 5,000 nuclear warheads in the former Soviet
Union, removed nuclear weapons from three countries, destroyed
hundreds of missiles, bombers and ballistic missile submarines that
once targeted our country, strengthened the security of nuclear
weapons and materials at more than 50 sites, purchased more than 80
tons of highly enriched uranium -- enough to make more than 3,000
nuclear warheads -- and helped put in place barriers against illicit
trafficking in weapons materials and technologies.

Today, that cooperation continues. Programs under our Expanded Threat
Reduction Initiative will help Russia to tighten export controls,
improve security over its existing weapons of mass destruction, and
provide opportunities for thousands of former Soviet weapons
scientists to participate in peaceful commercial and research
activities.

To combat nuclear proliferation, the U.S. and Russia have been
partners in developing the foundations of a stronger international
non-proliferation regime, based upon the Treaty on Non-Proliferation
of Nuclear Weapons.

Our policy of engagement is also designed to help Russians build the
prosperous and democratic country that will be America's partner in
meeting the challenges of this century.

U.S. assistance programs have brought more than 35,000 young Russians
to the U.S. for training, they have helped 275,000 Russian small
businessmen with financing or training, and they have reached out to
300 independent TV stations in Russian's provinces.

Russia and America also have common interests on many international
issues. Over the past year, too much attention has been paid to the
few areas on which our countries have strong public disagreements. Too
little attention has been paid to our practical work together.

Last year alone, Russian and American soldiers stood side-by-side to
keep the peace in Bosnia and Kosovo; our diplomats helped to negotiate
the adapted Treaty on Conventional Armed Forces in Europe signed by 53
members of the Organization for Security and Cooperation in Europe;
and our scientists worked to ensure that Y2K brought no nuclear
mishaps.

Lastly, I would like to emphasize that we realize U.S. engagement is
not limited to our government, but it must also involve you American
business men and women. Under the right conditions, I can see a future
relationship that is increasingly defined by business and by
people-to-people contacts.

I know we agree that Russia has enormous potential to create a
competitive economy that in fact will provide widespread opportunity
to its citizens. An important element to success is investment both
from inside Russia and abroad.

But, as I have told officials in Moscow many times, Russia will only
attract the investment it needs if it creates the right business
climate to spur more of you to invest money there.

Ultimately, Russia's future depends on the decisions that Russians
must make. Russia is on the eve of an historic election. Decades from
now, historians will not only note the election, they will judge the
leaders based on their performance in office.

There has been much talk of reform, but talk is not what you or your
Russian counterparts or the Russian people really need. Action is
needed.

If Putin is elected as expected, his tenure will be judged in large
measure on his willingness and his ability to overcome resistance to
reform.

Russian officials need to continue to hear from all of you about what
it is that is needed, including tax reform, banking reform and
WTO-conforming trade legislation.

I know that many of you have experienced very serious problems in
doing business in Russia. I want to assure you that our very
distinguished Ambassador in Moscow, Jim Collins, and I are here to
continue to act as your advocates in creating a level playing field
and user-friendly environment for American business there. I know that
if there is any way in which we can be of help to you, you will not
hesitate as in the past to contact us.

I firmly believe that a partnership of business and government is the
best way to further our country's interests in Russia, and that
engagement with Russia is in our enduring national interest.

Thank you.


(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: usinfo.state.gov)