RUSSIA'S ROAD TO

CORRUPTION
How the Clinton Administration Exported
Government Instead of Free Enterprise and
Failed the Russian People

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 .flfjJsSgg*

Members of the Speaker's Advisory Group on Russia

United States House of Representatives 106th Congress

Hon. Christopher Cox, Chairman

Chairman, House Policy Committee

Hon. Ben Gilman

Chairman, Committee on International Relations

Hon. Porter Goss

Chairman, Permanent Select Committee on Intelligence

Hon. Jim Leach

Chairman, Committee on Banking and Financial Services

Hon. Floyd Spence

Chairman, Committee on Armed Services

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 Hon. C.W. Young
Chairman, Committee on Appropriations

Hon. Tillie Fowler

Vice Chair, House Republican Conference

Member, Committee on Armed Services

Hon. Jim Saxton

Vice Chairman, Joint Economic Committee

Hon. Spencer Bachus

Chairman, Banking Subcommittee on Domestic and International Monetary Policy

Hon. Sonny Callahan

Chairman, Appropriations Subcommittee on Foreign Operations

Hon. Curt Weldon

Chairman, Armed Services Subcommittee on Military Research and Development

Co-Chairman, Duma-Congress Study Group

Hon. Roger Wicker

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 Co-Chairman, House Russian Leadership Program

Member, Foreign Operations Appropriations Subcommittee

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

Report Date: September 2000

Additional copies of this report may be obtained from the Internet at http://policy.house.gov/russia. This is a U.S. government
document and its text may be reproduced without additional permission or payment of fees. Most photographs are available to
Associated Press subscribers or from AP/Wide World Photos, 50 Rockefeller Plaza, New York, NY 10020, (212) 621-1930,
and may not be reproduced without the permission of the Associated Press. All cover photographs by AP/Wide World
Photos, except center photo by PhotoDisc, Inc. Printed in the United States of America

TABLE OF CONTENTS
Introduction

Executive Summary

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

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

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

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

CHAPTER 5 The Gore-Chernomyrdin Commission

CHAPTER 6 'Bull****': Gore and Other Administration Policy Makers Systematically Ignore
Evidence of Corruption of Their 'Partners'

CHAPTER 7 The Rise of Organized Crime

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

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

CHAPTER 10 From Friendship to Cold Peace: The Decline of U.S.-Russia Relations During the
1990s

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

the People's Republic of China

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

Recommendations

Index

INTRODUCTION
In March 2000, as Russia prepared for the presidential election that would formally establish the
successor to the Yeltsin administration, the Speaker of the House tasked the leadership of six
committees of the House of Representatives to assess the results of U.S. policy toward Russia during the
Yeltsin years. This report is the result ofthat effort.

The Speaker's Advisory Group on Russia comprises the Chairmen of the Committees on Armed
Services, Appropriations, Banking, Intelligence, and International Relations, as well as the House Vice
Chairman of the Joint Economic Committee, and additional members of the House leadership and the
committees of jurisdiction. The Advisory Group and its professional staff met several times each week
over the past five months with key Clinton administration policy makers, leaders of Russia's executive
and legislative branches, and leading academic and private sector experts on Russia and U.S.-Russian
relations from both countries. The Advisory Group reviewed the voluminous committee work and
official reports produced by each of the relevant committees of Congress, as well as a wide range of
primary and secondary sources. In addition, the Chairman, and members of the Advisory Group, and its
professional staff have traveled to Russia on several occasions since March 2000.

The persons with whom the Advisory Group and its staff met in the course of preparation of this report
include Treasury Secretary Lawrence Summers; Ambassador Thomas Pickering, Under Secretary of
State for Political Affairs; U.S. Ambassador to Russia James Collins; Ambassador Stephen R.
Sestanovich, Special Advisor for the Newly Independent States; Thomas Dine, Director of Radio Free
Europe/Radio Liberty; Prime Minister Mikhail Kasyanov; Foreign Minister Igor Ivanov; former
Secretary of the Security Council Andrei Kokoshin; First Deputy Minister of Defense Nikolay
Mikhailov; State Duma Member Igor A. Annensky, Deputy Chairman of the Banking Committee; State
Duma Member Alexei Arbatov, Deputy Chairman of the Defense Committee; State Duma Member
Boris Gryzlov, leader of the Unity party in the Duma; State Duma Member Konstantin Kosachev,

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Deputy Chairman of the International Affairs Committee; State Duma Member Viktor S. Pleskachevsky,
Chairman of the Subcommittee on the Funds Market; State Duma Member Vladislav Reznik, Deputy
Chairman of the Committee on Budget and Taxes; State Duma Member Dimitri O. Rogozin, Chairman
of the International Affairs Committee; State Duma Member Vladimir Ryzhkov; State Duma Member
Alexander Shabanov, Deputy Chairman of the International Affairs Committee; State Duma Member
Alexander N. Shokhin, Chairman of the Credit Organizations and Financial Markets Committee; State
Duma Member Grigory Yavlinsky, leader of the Yabloko party; Andrei Babitsky, journalist, Radio Free
Europe/Radio Liberty; Scott Blacklin, President, American Chamber of Commerce, Moscow; Dr. James
Billington, Librarian of Congress; Paula Dobriansky, Vice President, Council on Foreign Relations;
Pavel Felgengauer, military analyst and author; former Russian Finance Minister Boris Fyodorov; Dr.
Thomas Graham, Senior Associate, the Carnegie Endowment for International Peace; Sergei Karaganov,
Chairman, Council on Foreign and Defense Policy; Igor Malashenko, Media MOST; Arkady Murashev,
Chairman of the Center for Liberal-Conservative Policy and former Duma Member; Ruslan Pukhov,
Director, Center for Analysis of Strategy and Technology; Peter W. Rodman, Director of National
Security Programs at The Nixon Center; Ivan Safranchuk, Project Director, Center for Policy Studies in
Russia; Dimitri Simes, President of The Nixon Center; and Dimitri Trenin, Deputy Director, Carnegie
Endowment for International Peace (Moscow Center).

This report begins with a summary of the historic events that led to the collapse of the Soviet Union in
December 1991 and a description of the conditions in Russia during the last year of the Bush
administration and at the commencement of the Clinton administration. It assesses the task ahead for
Russia in moving from a century of state control to a free enterprise democracy, and compares that
agenda with the actual policies pursued by the Clinton administration from 1993 to the present. The
manifold failures of both Russian and U.S. government policy are surveyed: the early corruption of the
non-market "privatization" to insiders; the spread of organized crime; the eventual complete collapse of
the Russian economy in 1998; the rise of weapons proliferation as a means of generating hard currency;
and the increasing estrangement of Russia from the United States, essentially reversing the trends that
existed in 1992.

Finally, the report addresses itself to the opportunities for U.S.-Russian relations that still remain, despite
years of failure. Recommendations of the Advisory Group for future policy appear at the conclusion of
the report.
September 2000

EXECUTIVE SUMMARY

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 t&^SS^A

The Fall of the Soviet Union and the Rise of Russia

The collapse of the Soviet Union brought to an end one of the cruelest, most violent, least humane, and
most viciously ideological regimes in the history of the world. The Soviet Union-more aptly, the Soviet
Empire-collapsed of its own weight, crushed by the material and spiritual burdens of its collectivist
ideology.

In the final days of the Soviet Union, President Gorbachev desperately sought billions in foreign loans,
and many in the West endorsed a policy of providing enormous amounts of aid in an attempt to save the
collapsing Soviet economy. President Bush believed this would not work. "A shortage of foreign capital
is not what plunged your economy into crisis, nor can your economic ills be cured by an infusion of
cash," he told the Moscow State Institute for International Relations in a speech on July 31,1991, five
months before the Soviet Union ended.

When the Soviet Union's Vice President, Prime Minister, Defense Minister, KGB Chairman, and other
hard-line Communists launched a coup against Gorbachev on August 19,1991, the Russian President,
Boris Yeltsin, denounced it as unconstitutional. The following day, on the only functioning phone line,
Yeltsin spoke to President Bush, who firmly pledged that the United States would not recognize the coup
government. Bush's action in support of Yeltsin and the Russian people proved decisive.

The rapid failure of the coup demonstrated the weakness of hard-line Soviet Communist Party elements.
Within a month after the coup, 11 of the Soviet Union's 15 republics had declared their independence.

Following the coup, U.S. Secretary of State James A. Baker III and Gen. Vladimir Lobov, Chief of the
Soviet General Staff, signed an agreement to dramatically reduce the number of short-range nuclear
weapons in the U.S. and Soviet arsenals. By the end of the year, the United States had committed $400
million to help dismantle Soviet nuclear weapons.

When Mikhail Gorbachev resigned as the last leader of the Soviet Union on December 25,1991,
America's relations with the largest of the captive nations newly freed from the Soviet Empire were
auspicious.

Conditions in Russia at the Outset of the Yeltsin and Clinton

Administrations

The West's victory in the Cold War presented America with its greatest foreign policy opportunity since
the end of World War II. Just as America's defeated enemies, Nazi Germany and Imperial Japan, had
become free enterprise democracies and close U.S. allies, so too might the new Russian Federation.

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The U.S.-Russian relationship that President Clinton inherited could only have been dreamed of by his
predecessors from Truman to Reagan. American values, including free enterprise and democracy,
enjoyed an astonishing level of prestige and popularity among the Russian people. Building a
relationship with the United States was the highest priority for the Russian government. Prior to 1993,
Moscow worked harmoniously with Washington across virtually the entire spectrum of international
issues-including Operation Desert Storm, waged against the Soviet Union's client state Iraq; arms
control, culminating in a START II treaty that slashed U.S. and Russian nuclear arsenals by 66%; and
ballistic missile defense, on which President Bush and President Yeltsin launched negotiations that were
aimed at the changes in the ABM Treaty of 1972 necessary to take account of the spread of ballistic
missiles and weapons of mass destruction.

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

State Control

The collapse of Communism in Russia ended not only the Soviet police state but the Soviet-era
centrally-planned economy. In January 1992, there was for the first time in the experience of most living
Russians a genuine opportunity to build the foundation of a free enterprise system.

The necessary bricks for that foundation were clear enough. The question was not whether, but
where~and how--to begin. To move from the Soviet Union's state-controlled economy to a free
enterprise system based on private property, markets, and individual choice called for change on a
breathtakingly large scale.

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

* New legal protections for private property and private contracts would have to be enacted,
and the courts would have to build public confidence that private contracts would be
enforceable.

* Private banks that paid for deposits at market rates, evaluated credit risks according to
market criteria, and served as genuine intermediaries between sources of capital and start-up
private enterprises would have to be legalized.

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

forced into competition.

* Over 1.5 trillion acres of arable land owned by the Soviet government would have to be
transferred to private ownership to provide a source of wealth to the Russian people,
collateral for commercial and agricultural lending, and the basis for home ownership and
mortgage finance.

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

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

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

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

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 discipline.

* A lower tax rate and simpler tax code would have to be enacted to demonstrate that the
new Russian government was not bent on redistributing income but rather sought to
promote a market economy.

* A commercial code~a basic set of rules that could be relied upon by any Russian citizen
or foreigner who wished to buy or sell something—would have to be enacted.

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

The opportunities that awaited Russia in 1992 were exhilarating, but dismantling the Soviet system of
government controls, and erecting in its place a free market economy based on private decision making
and risk taking, was a task of monumental proportions. It required significant new legislation from
Russia's parliament. Yet the ultimate objective was abundantly clear: the new Russian government's job
was to get itself out of the economy and facilitate private actors through clear commercial rules for
enforcement of private property rights and private contracts.

The Fundamental Flaws of the Clinton Administration's Russia Policy

During his 1992 campaign and the first several years of his administration, President Clinton made clear
his unwillingness to involve himself in foreign policy generally, and the critical issue of U.S. policy
toward Russia specifically. The virtual absence of any non-ceremonial presidential involvement in the
greatest foreign policy opportunity for the United States since World War II was to prove crippling to the
development and execution of United States policy toward Russia.

Lacking presidential attention, decision making on Russia policy eventually devolved to a troika of
subordinate officials: Vice President Gore (assisted by his foreign policy mentor Leon Fuerth), Strobe
Talbott at the State Department, and Lawrence Summers at the Treasury Department. Creation of the
Gore-Talbott-Summers troika vested authority for the development and execution of Russia policy in an
elite and uniquely insular policy-making group without accountability to the normal checks and balances
within the executive branch.

The structure of the policy-making troika left the rest of the government either unwilling or unable to
critically assess the direction of the Clinton administration policy. The policy decisions that emerged
were marked with the personal biases and predispositions of these three individuals. Their small circle
soon became an echo chamber, reinforcing their own views and excluding independent information,
analyses, and recommendations from the national security, foreign policy, and intelligence professionals
throughout the U.S. government.

The troika also excluded Congress from the development of the Clinton administration's Russia policy,
thereby further isolating it from outside review, and failing to develop the broader institutional and
popular support that it would need to succeed in America and abroad. As a result, the Clinton
administration's policy has repeatedly been repudiated by bipartisan majorities in Congress.

The unorthodox "troika" institutional arrangement produced the following fundamental flaws in U.S.
policy toward Russia from 1993 forward:

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 * A strong preference for strengthening Russia's central government, rather than
deconstructing the Soviet state and building from scratch a system of free enterprise

* A close personal association with a few Russian officials, even after they became corrupt,
instead of a consistent and principled approach to policy that transcended personalities

* A narrow focus on the Russian executive branch to the near exclusion of the Russian
legislature, regional governments, and private organizations

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

democratic ends through decidedly non-democratic means

* An unwillingness to let facts guide policy, or even to make mid-course corrections in light
of increasing corruption and mounting evidence of the failure of their policies

By focusing on strengthening the finances of the Russian government and on transforming state-owned
monopolies into private monopolies, instead of building the fundamentals of a free enterprise system, the
Clinton administration ensured that billions in Western economic assistance to Russia would amount to
mere temporizing. The Gore-Talbott-Summers focus-on macromanagement of the Russian economy
instead of the legal fundamentals that would permit individuals to start businesses, grow a competitive
market economy, and create a tax base-doomed their "privatization" efforts to failure.

Worse, by using massive lending and aid to plug the gap in the Russian central government's operating
budget, the Clinton administration exposed these funds to theft and fraud.

For its part, the Russian government lacked the facility to turn these massive aid flows into real
economic reform. Instead, the aid had the opposite effect: it made possible the subsidies to the Soviet
enterprise network that allowed it to continue operating. Effectively unconditional large-scale
international assistance simply contributed to Russia's problems by killing incentives to reform and
propping up a government whose policies were bankrupting the Russian people.

The flood of loans also added to Russia's growing foreign debt, which continues to burden the central
government's operating budget and weigh down the nation's economic prospects.

The Clinton administration was unwilling to recognize the costs to Russian democracy-and to Russian
perceptions of America~of its unquestioning support for its Russian partners despite their corrupt
conduct. The Clinton administration's enormous political stake in its Russian partners gave it an
overwhelming incentive to ignore and suppress evidence of wrongdoing and failure by officials
including Viktor Chernomyrdin and Anatoly Chubais, who had come to personify the administration's
Russia policy. The Clinton administration's closeness to a few Russian individuals impaired its ability to
confront genuine differences between U.S. and Russian interests~as, for example, in the case of
Chechnya, where President Clinton compared Yeltsin to Abraham Lincoln.

The Clinton administration's exceptionally close personal relationship with its few official Russian
partners was a sharp contrast with its merely pro forma engagement with Russia's legislature, its
opposition parties, and its regional governments.

The Clinton administration encouraged disregard for the legislative branch by the Yeltsin administration,
and thus played a part in undermining the growth of pluralistic, democratic government in Russia. This

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has aptly been called a "bolshevik" approach to accomplishing "reform"--authoritarian measures in both
the political and economic spheres, typified by Yeltsin's propensity to rule by decree. It virtually
guaranteed that the legal reforms needed to establish a genuine free enterprise system would not be
enacted in the Duma or in the regional legislatures.

The Gore-Chernomyrdin Commission

In April 1993, during his first meeting with President Yeltsin, President Clinton effectively delegated the
management of U.S.-Russian relations to Vice President Gore. The charter of the U.S.-Russia
Commission on Economic and Technical Cooperation, co-chaired by Gore and Russian Prime Minister
Viktor Chernomyrdin, was eventually expanded to include the full range of U.S.-Russia relations.

Clinton's abdication to Gore of authority over the most important foreign policy opportunity for America
since World War II~the rebuilding of Russia after the collapse of the Soviet Union-had fateful
consequences. By assigning this portfolio of overarching importance to his second-in-command~whose
priorities were "reinventing government," environmental issues, and technology policy-Clinton
guaranteed that Russia policy would receive only desultory attention.

The Gore-Chernomyrdin Commission's function and structure offered a perfect blueprint for the eventual
failure of the entire Clinton administration policy toward Russia. By superseding normal policy making
and well established intra- and inter-governmental channels of communication, the Gore-Chernomyrdin
Commission would come to impede the information flow to decision makers in Washington. The
Gore-Chernomyrdin Commission likewise distracted Russian government officials from what should
have been their main focus: constructing the essential elements of a free enterprise economy.

The meager accomplishments of the Commission could hardly mask its fundamental failures. Russia
even today lacks the most basic elements of a free market economy; the costs and delays from
U.S.-Russian space cooperation (the initial project of the Commission) continued to escalate; the
"privatization" of Russia's energy sector (another Commission priority) was becoming criminally
corrupt; and Russia was accelerating its proliferation of dangerous technology. The Commission worked
to divert attention from this string of major policy failures, and issued frequent proclamations of minor
successes.

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

Russia. It refused to acknowledge failure, and, even worse, celebrated failure as if it were success. The
Clinton administration's dependence on the Gore-Chernomyrdin Commission, coupled with the
Commission's refusal to listen to independent information, meant that administration Russia policy was
both procedurally and substantively unsound.

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

Ignore Evidence of Corruption of Their 'Partners'

In 1995, CIA officials dispatched to the White House a secret report based upon the agency's large
dossier documenting the corrupt practices of then-Russian Prime Minister Viktor Chernomyrdin.
Chernomyrdin's private assets accumulated in his official position, according to Russian security

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sources, ran into the billions of dollars. When the secret report on Chernomyrdin reached Vice President
Gore, he refused to accept it. Instead, according to several CIA sources, he sent it back to the agency
with the word "BULL****" scrawled across it.

It is difficult to imagine a more dangerously intemperate reaction to official corruption in Russia. Yet
this was hardly an isolated incident. The administration had ignored repeated earlier warnings of
corruption by Chernomyrdin and other senior Russian officials. Several Clinton administration senior
officials have stated publicly that, by 1995, they had received a number of reports from the CIA alleging
corruption by Chernomyrdin, and that the CIA had submitted many other reports alleging corruption
among other senior Russian leaders, including Clinton administration favorite Anatoly Chubais.

Gore's close personal relationship to Viktor Chernomyrdin--and not any superior intelligence that he
possessed as Vice President-was obviously decisive in his emotional dismissal of the CIA intelligence
report of Chernomyrdin's corruption. (While Gore has publicly denied the "bull****" incident, he has
also re-stated his harsh criticism of CIA reporting on Chernomyrdin's corruption.) This reflexive
dismissal of corruption allegations against Viktor Chernomyrdin was all the more remarkable given
contemporaneous Russian and U.S. media reports about Chernomyrdin's alleged corruption and
continuing links to the Russian gas conglomerate Gazprom after his entry into government.

At precisely the same time that Gore was receiving reports of Chernomyrdin's corruption, the vice
president was effusive in his public comments about Chernomyrdin, stating in June 1995 in Moscow:
"Friends have a right to be proud of friends."

In this way, the Clinton administration-and Gore personally-contributed not only to the spread of
corruption, but to Russia's failure to overcome it. Since Chernomyrdin served as prime minister for five
years, it is clear that this embrace of corruption fundamentally compromised Russia's efforts at economic
reform.

Vice President Gore has hedged his denial of the "bull****" incident, saying "I don't think" that I "ever
wrote a message ofthat kind." Moreover, while denying writing the word "bull****," Gore plainly
referred to a specific CIA report, saying "whoever sent that over there [could not have] expected the
White House to be impressed with it... it was a very sloppy piece of work."

Other administration officials, defending Gore's position, dismissed the CIA reports of Chernomyrdin's
corruption as lacking "conclusive proof." But agency reporting is necessarily based on intelligence
sources, often covert. By conveniently demanding a "smoking gun" whenever they sought to suppress
uncomfortable facts, Gore and other top Clinton administration officials established a rigged system that
rejected "inconvenient" intelligence whenever it suited the preferences of the White House.

CIA officials have described the intelligence information concerning Chernomyrdin that was provided to
Gore as "more detailed and conclusive than allegations of bribery and insider dealing that have been
made in the Russian media and elsewhere." Yet when asked--as recently as July 2000-whether
Chernomyrdin is corrupt, Gore replied: "I have no idea."

The Rise of Organized Crime

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

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

The Clinton administration's failure to focus its full attention on replacing Communism with the basic
legal elements of the free enterprise system helped create the conditions in which organized crime has
flourished. Without such essentials as legislated protections for private property, a modern commercial
code, and honest, efficient, and speedy courts to enforce property rights, the "privatization" of
government entities in Russia predictably resulted in chaos.

Organized crime came to be responsible not only for grisly mayhem and violence, but also for functions
as diverse as enforcing contracts and court judgments, providing personal security, and even allocating
scarce resources (through bribes to corrupt officials). The ability of some Russian organized crime
groups to draw upon the specialized expertise and contacts of former Soviet security personnel further
increased their ability to compete with such legitimate law enforcement as existed, both in technological
sophistication (in areas such as cyber-crime) and geographic reach.

The oligarchic economy, created with the advice and assistance of the Clinton administration, also
tightened the stranglehold of official corruption over the Russian government and the large sector of the
ostensibly "privatized" economy that it influenced. This official corruption both obstructed law
enforcement and created a symbiotic relationship between corrupt government officials and organized
crime, assisting them in laundering money and in the commission of other crimes.

The Clinton administration's decision to base U.S.-Russian relations on Vice President Gore's
relationship with Viktor Chernomyrdin and a handful of other high officials sent a strong public signal
that the United States would not only tolerate but embrace figures clearly identified in the Russian media
and public consciousness with corruption-further undercutting law enforcement, and demoralizing not
only the out-manned and underpaid Russian foes of organized crime, but also the Russian people.

Russia's rampant capital flight, estimated at as much as $500 billion since Russian independence, is
another serious consequence of corruption and organized crime. Even the most conservative estimates of
capital flight demonstrate that the amount of money leaving Russia has far outstripped the money
coming in from all sources-including foreign direct investment in Russia, Russia's soaring foreign debt,
and direct Western aid to Russia.

The Clinton administration, prone to "spinning" bad news and ignoring its implications, has addressed
both organized crime and capital flight superficially. The administration's efforts against organized crime
have focused on modest technical assistance to Russian law enforcement and the creation of an FBI
presence in Russia, in every case channeling that assistance through their Russian "partners" who were
central to the corruption of the Russian government. By its own admission, the administration gave
insufficient priority to Russian money laundering~as revealed by the Bank of New York scandal,
involving the laundering of as much as $10 billion.

The Clinton troika inferred from these phenomena no lessons about the consequences of its failure to
promote the basic elements of a free enterprise economy to replace Communism.

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

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vf-SISStSSPPpK?

The culmination of the Clinton administration's fatally-flawed macroeconomic policy for Russia
occurred in August 1998, when Russia's default on its debts and devaluation of the ruble led to the
nation's total economic collapse. By all measurements, the disaster was worse than America's Crash of
1929.

The disaster that began on August 17,1998, spread immediately throughout Russia. Millions of ordinary
men and women who had deposited their money in Russian banks lost everything. ATM and debit cards
ceased to work. Dozens of banks became insolvent and disappeared. Angry depositors besieged Russian
banks, only to learn they had been wiped out.

Millions of senior citizens, whose meager pension income had been suspended for months, were cut off
completely. When the dust finally settled in March 1999, the ruble--and with it, every Russian's life
savings—had lost fully 75% of its value.

The devastation of Russia's economy was worse than what America experienced in the Great
Depression. By 1932, the U.S. gross national product had been cut by almost one-third. But within just
six months of the 1998 crash, Russia's economy, measured in dollars, had fallen by more than
two-thirds. From $422 billion in 1997, Russia's gross domestic product fell to only $132 billion by the
end of 1998.

At the end of 1929, following America's disastrous stock market crash, unemployment in the United
States reached 1.5 million, representing 1.2% of the total population. The 1998 collapse of the Russian
economy was far worse: 11.3 million Russians were jobless at the end of 1998-7.7% of the nation's total
population.

In the Crash of 1929, stock prices fell 17% by year end-and 90% by the depth of the Great Depression
four years later. By contrast, the Russian stock market lost 90% of its value in 1998 alone.

"Most fundamentally," said Sergei Markov, an analyst at the Institute of Political Studies, "it is a crisis of
the real economy-Russia doesn't work."

Foreign investment in Russia plummeted from $4 billion in 1997 to $1.7 billion in 1998. The collapse of
international trade not only curtailed the supply of foreign goods, but also created scarcities and high
prices for Russian-made goods with foreign components. Drugs and medicines, always in short supply,
became even more difficult to come by. Shortages of meat and cooking oil were so severe that
humanitarian food aid from the West, which had not been necessary since the collapse of Communism,
was resumed on emergency basis.

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

The 1998 economic collapse also accelerated Russia's deepening social pathologies. Russia's population,
which has fallen every year since 1992, shrunk at an accelerated pace as deaths outnumbered births by
784,000 in 1999, the year following the crash. The economic hardship of raising a child further inflated
Russia's sky-high abortion rates: for every birth in Russia, there are now two abortions. Drug use and
addiction in Russia have skyrocketed, fueled by the growth in organized crime and widespread economic
depression.

Alcoholism, a chronic problem in Russia, has grown worse as economic conditions have worsened:
according to a January 2000 report, the number of deaths resulting from alcohol poisoning is over 100
times that in the United States.

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The jump in drug use has also led to an increase in HIV infections. Drug addicts account for 90% of all
HIV-infected people in Russia. The collapse of the Russian economy in 1998 coincided with a massive
increase in the number of people living with HIV. Russia's HIV population literally doubled between
1997 and 1999--the fastest growth rate in the world.

The road to this crisis had been littered with warning signs that the Clinton administration ignored for
years. The U.S. encouragement of increasingly massive loans to the Russian central government from
the IMF continued despite the lack of basic free market legislation in place to justify it. With no market
in banking services, no reliable protection for private property rights, no mortgage lending, and no
commercial dispute resolution, capital flight-fueled by IMF hard currency-approached 10% of Russia's
gross domestic product.

Russia's heavy reliance on borrowing to finance its annual operations caused investors to demand
exorbitant premiums to hold Russian debt. The government offered ever-higher interest rates~at times
approaching 250%. The process was unsustainable. In a full-blown Ponzi scheme, new higher-interest
Russian bonds were issued to pay interest on old bonds. By mid-1998 some 30% of Russia's budgetary
outlays were devoted to debt service.

As they had for five years, the Clinton administration and its tight policy clique miscalculated the effects
of their policies and closed their eyes to the consequences. On July 28,1998, Treasury Secretary Robert
Rubin wrote to then-House Speaker Newt Gingrich that the Russian government could now be expected
to "finally take the myriad steps needed to put its finances on a sustainable path." The same day, Stanley
Fischer, the IMF's Deputy Managing Director, insisted: "The pressure is off the ruble."

In early August 1998, President Clinton was concerned about his scheduled September 1998 summit
with Yeltsin. The White House dispatched a Treasury Department official to Moscow "to ensure that the
show stays on the road for the next three weeks at least."

On Monday, August 17, the Russian government formally declared its insolvency, and the horrific
economic consequences rapidly followed. The Clinton troika strategy of massive lending to the central
government as a substitute for the construction of a free enterprise system in Russia had proved an error
of historic proportions.

The administration had, in effect, hijacked the IMF to implement its economic strategy, and the IMF
debt, far from solving Russia's problems, had exacerbated its difficulties. But despite having engineered
the entire series of loans that contributed to Russia's complete economic collapse, the Clinton
administration immediately attempted to distance itself from the fiasco. "It was the Russians' choice,"
said one Clinton administration official.

Few in Russia accepted this version of events. Many Russians, not surprisingly, blamed the West, the
IMF, and the United States for intentionally leading Russia down the path of ruin. The heavy-handed and
wrong-headed involvement of Clinton administration officials in Russian government economic policy
made America an easy scapegoat for disgruntled Russians. Since the beginning of the Clinton
administration, U.S. officials had urged a steady diet of borrowing to mask the Russian economy's
fundamental weaknesses-prolonging and deepening the eventual collapse.

Russia's economic collapse in August 1998, after six years of American advice and scores of billions in
Western aid, shattered the last illusions in both Russia and the West that a free market and prosperity
were making slow but steady progress in Russia. It marked the final bankruptcy of the Clinton

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administration's economic strategy of macroeconomic "stabilization" and massive aid inflows, and
contributed to the discrediting of American advice and institutions within Russia.

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

Weapons Proliferation Feeds a Corrupt and Cash-Starved System

The failure of the Clinton administration's economic strategy for Russia has had profound implications
for Russia's policy on proliferation of weapons and technology, and therefore for America's national
security interests.

Between 1992 and 1999, the Russian economy contracted 25%. Currently, 13.3% of the labor force is
officially unemployed, compared with only 4.8% in 1992. The complete collapse of Russia's economy in
1998 saw industrial and agricultural output drop sharply. Investment in Russia suffered as capital flight
crippled the private sector. These increasingly severe financial pressures, coupled with a paucity of
alternate sources of much-needed hard currency, tempted the Russian government to both legal and
illegal weapons sales as a way out.

Russia's failure to create a working free enterprise system likewise stalled conversion of the military
sector of the economy. In Soviet days, the one industry in which Russia enjoyed a true comparative
advantage in global markets was its military hardware, weaponry, and related technologies. When the
Soviet Union collapsed in 1991, Russia inherited a massive infrastructure devoted to the development
and production of weapons. Despite the 1992 beginnings of downsizing in the former Soviet
military-industrial complex, much ofthat infrastructure remains in Russia.

The decline in Russian military spending and the general failure of Russia's economy during the
Clinton-Yeltsin years meant that this immense military-industrial complex faced urgent incentives to sell
as much as possible as quickly as possible, often irrespective of the long-term implications for Russia's
own security.

At some former research facilities, fully half of the scientific personnel had been laid off by the fall of
1995, but the Russian economy could not absorb them. As a result, individual officers, bureaucrats, and
scientists, whole research facilities, design bureaus, ministries and even the central government had
economic incentives to sell extraordinarily-sensitive weapons and technology to any nation or groups
that would buy them.

To many in the Russian government, exporting such hugely valuable contraband seemed to solve several
problems. It would generate hard currency; it would utilize existing Russian assets; and it would put
possibly hundreds of thousands of unemployed Russians back to work. For the many Russians
increasingly involved in organized crime, there was yet another benefit: the opportunity for significant
personal wealth.

Official Russian policy was eventually brought into line with these expedients. Under the rubric of
"strengthening multipolarity," the avowed purpose of the new Russian consensus on foreign policy and
national security is to increase the strength of global forces arrayed against the United States. This
consensus helps allay any concerns that Russian officials, scientists, and businessmen might have about

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

President Putin recently amended Yeltsin's 1992 decree limiting Russian nuclear assistance to countries
whose nuclear programs are not fully monitored by the International Atomic Energy Agency, including
Iran and North Korea. When Russia's national interest is understood to be strengthened by weakening the
United States, the Russian military-industrial complex can do well by doing good.

The Clinton administration's culpability for this proliferation extends considerably beyond helping to
create the economic prerequisites for it. The administration has consistently de-emphasized proliferation
in its discussions with Russia-ignoring credible American and Israeli evidence of proliferation,
accepting Russian assurances that were patently not credible, and strongly opposing bipartisan
Congressional efforts to take a stronger stand against proliferation.

This has been particularly true of Vice President Gore's stewardship of the issue of Russian proliferation
to Iran. In fact, Congress' efforts to combat Russian proliferation to Iran have drawn far more vocal
opposition from the administration than the dangerous spread of weapons that Congress seeks to
address. The administration has been compromised from the outset by an unwillingness to admit that its
anointed Russian "partners" might have been dishonest in their assurances, or unwilling to live up to
their commitments, that weapons proliferation would stop.

From Friendship to Cold Peace: The Decline of U.S.-Russia Relations

During the 1990s

Eight years ago, when President Clinton took office, the stated objective of the Russian government was
a formal alliance with the United States. Russia pursued a strongly pro-American foreign policy, and the
United States enjoyed unprecedented affection and admiration among ordinary Russians. Today, the
United States' relationship with Russia has been shattered.

Where 70% of Russians held a favorable view of the United States when President Clinton took office,
37% hold such views today. More than 80% of Russians polled by the U.S. government in February
2000 thought that the United States was seeking to weaken Russia, while 85% believed that the United
States sought world domination.

The quality of the economic advice that the Clinton administration has offered to Russia has been so
bad, and its results so dismal, that 81% of Russians believe it was purposely designed to make Russia a
second-rate power. President Clinton himself has become one of the most unpopular international
figures in Russia, second only to Saddam Hussein in some polling.

These negative views of America have grown steadily worse throughout the course of the Clinton
administration, and are shared by all levels of Russian society and by all age groups. As a result, ordinary
Russians today are now working up hostility toward the United States, a phenomenon decades of Soviet
propaganda had been unable to achieve during the Cold War.

The collapse of American prestige in Russia has been largely caused by the failure of what Russians
perceive as the "American model" of economic and political reform-that is, the policy advice proffered
by the Clinton administration. Russians find evidence of this failure all around them. Russia today is

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more corrupt, more lawless, less democratic, poorer, and more unstable than it was when President
Clinton and Vice President Gore took office—a society some Russian and American observers chillingly
describe as "Weimar Russia."

The political and policy vacuum created by this failure has empowered some of the most retrograde,
anti-American elements of the Russian foreign policy and military establishments. Many of their views
have lately entered the mainstream of official Russian thinking. As a result, the Russian government
today works against American foreign and defense policy around the world, often at the expense of
Russia's own long-term interests. In concert with a rogue's gallery of rivals and enemies of the United
States, Russia is today maintaining its intelligence relationship with Castro and its listening post at
Lourdes, Cuba; working with Beijing to renew both political and military ties with the pariah regimes in
Iraq, North Korea, and Libya; and cultivating the Milosevic dictatorship in Belgrade.

Eight years after Russia announced its pursuit of a formal alliance with the United States, Russian
foreign policy has retrogressed toward that of the pte-perestroika Cold War period. Whereas Presidents
Yeltsin and Bush had agreed to pursue amending the ABM Treaty to take into account the proliferation
of ballistic missiles, the Russian government has recently stated that U.S. failure to observe the treaty as
the linchpin of our mutual security will cause Russia to renew the nuclear threat to Europe. Moscow has
also threatened to deploy multiple warheads on its Topol intercontinental ballistic missiles (in violation
of the Bush-Yeltsin START II agreement) as part of its "asymmetrical" response to the U.S. position that
the ABM Treaty is outdated.

Russia is simultaneously continuing the very proliferant activities that have made a U.S. missile defense
essential. As recently as June 2000, just weeks before President Putin's visit to North Korea, missile
component companies in Russia and Uzbekistan were reportedly collaborating to sell North Korea a
special aluminum alloy for missile manufacture, laser gyroscopes used in missile guidance, and
connectors and relays used in missile electronics.

The Russian government has intensified its opposition to NATO enlargement, and zealously seeks to
weaken ties between the United States and NATO Europe. Recent Russian policy has revived Soviet-era
proposals to substitute a pan-European collective security structure for the current alliance-based
security system.

A more troubling contrast to the atmosphere of the early 1990s could hardly be imagined. Yet,
confronted with the consequences of its policies, the Clinton administration has applauded itself for
having avoided an even worse scenario such as a Soviet Communist restoration, a military dictatorship,
or nuclear war. That is a remarkably inadequate vision of what could have been made of the most
significant opportunity in this century for Russia, and the greatest foreign policy opportunity for the
United States since World War II.

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

Partner of the People's Republic of China

Although the Clinton administration has long boasted of its "strategic partnership" with Russia, the
Russian government unmistakably disavowed any such relationship in its authoritative Foreign Policy
Concept, approved by President Putin in June 2000. The Foreign Policy Concept flatly states that
"certain plans relating to establishing new, equitable, and mutually advantageous partnership relations of

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Russia with the rest of the world"-plans embodied in the 1993 version of the Concept approved as
President Clinton was taking offlce--"have not been justified."

Instead, the June 2000 Concept lists first among the threats to Russia "a growing trend towards the
establishment of a unipolar structure of the world with the economic and power domination of the
United States." To challenge America's dominance, Russia today cultivates its strategic partnership with
the People's Republic of China--a partnership explicitly targeting American policies and interests around
the globe, and founded on increasing both the PRC's and Russia's military capabilities against the United
States. This is in stark contrast to Russia's explicitly seeking an alliance and missile defense cooperation
with Washington in 1992.

Russia and the PRC have rapidly increased the level of their cooperation in opposing American plans for
national and theater missile defense, NATO enlargement, U.S. security cooperation with Taiwan, and
U.S. opposition to the North Korean missile program.

Even more troubling is the dramatically increasing scale and sophistication of Russian arms and
technology transfers to the PRC: Sovremenny-dass destroyers equipped with Moskit surface-to-surface
missiles, state-of-the-art weapons systems specifically designed to destroy U.S. aircraft carriers;
ultra-quiet Kilo-class diesel submarines; Su-30 long-range attack aircraft and MiG-31 long-range
fighter-interceptors; AWACS radar systems; T-80U tanks; state-of-the-art Russian surface-to-air
missiles; and rocket engines, as well as many other weapons systems and technologies. Negotiations are
reportedly underway for still more sophisticated weapons systems and technology. There are also reports
of far-reaching Russian military commitments to the PRC in the event of hostilities over Taiwan.

After tens of billions of dollars in Western assistance and eight years of mismanagement by the Clinton
administration, the U.S.-Russian relationship is in tatters, characterized by deep and growing hostility
and divergent perceptions of international realities and intentions. The Sino-Russian relationship, by
contrast, has grown steadily stronger, and has steadily assumed a more overtly anti-American aspect.

Because of Russia's current and future importance, the consequences of this failure are difficult to
overstate, and almost certainly exceed the consequences of the American defeat in Vietnam and the fall
of the pro-American government in Iran. To find a foreign policy failure of comparable scope and
significance, it would be necessary to imagine that after eight years of American effort and billions of
dollars of Marshall Plan aid, public opinion in Western Europe had become solidly anti- American, and
Western European governments were vigorously collaborating in a "strategic partnership" directed
against the United States.

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

The task ahead for Russia in 2000 is essentially the same as it was in 1992. Since so little progress has
been made toward putting in place the building blocks of a free enterprise economy, that work must now
begin in earnest. But whereas conditions in Russia in 1992 were eminently hospitable to such an
undertaking, the ensuing years of policy failure have squandered that advantage. Now, with so many
Russians having soured on "reform," the necessary work will be much more difficult.

Despite the dimensions of the task ahead, the outlook for Russia is not entirely bleak. The economic
collapse of 1998, while devastating, has given way to a determined effort to dig out from beneath the

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rubble and start afresh. The hostility engendered by the statist, incoherent, and clumsily-administered
Clinton administration foreign policy need not create an enduring cold peace.

The slow economic progress that began in 1999 has gained some momentum in 2000. The Russian
government reported in July 2000 that the economy was growing at an annual rate of 7.3% during the
first six months, while output from January to June rose 8.6%. Fueled by strong energy exports, Russia's
trade surplus reached $27 billion for the first five months of this year.

Importantly, the Russian government is using the breathing room created by high oil prices to implement
much-needed tax simplification and government spending reductions. After President Boris Yeltsin's
December 1999 resignation, Russia's Center for Strategic Research was tasked with drafting an
economic reform program for the incoming Putin government. The Center released its report in June
2000, which emphasized:

* Reducing government spending

* Balancing the central government's budget

* Eliminating many state subsidies

* Implementing a 13% flat income tax

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

Amidst these signs of slow economic recovery, foreign investment is tentatively trending toward
pre-August 1998 levels. More than $10 billion in foreign capital has entered Russia during the first five
months of 2000—twice as much as during all of 1999.

Russia has other inherent assets that were not wiped out by the economic collapse of 1998, nor erased by
decades of Soviet Communism. For example, a silver lining to the Soviet state's lack of academic
freedom was its focus on training scientists and specialists. The high level of education and skills in
these areas among much of the Russian workforce is an asset that Russia still possesses intact.

Perhaps most important for Russia's future is that young Russians are significantly more supportive of
democracy and free enterprise than their older countrymen. The younger generation in Russia—less
influenced by the legacy of Soviet Communism than its parents-displays an entrepreneurial spirit
unknown in Soviet days. Remarkably, three-quarters of 18-29 year olds believe that it is important "to
achieve success with a business of their own." This energy and vigor can transform Russian society and
Russia's economic future, if it is not indefinitely stifled by current government impediments to the
market.

Religious faith has sharply increased since the collapse of the Soviet Union. As one sociologist noted,
"in a remarkably brief period of time, Russia has become one of the most God-believing countries in
Europe." Interestingly, the revival of faith in Russia is concentrated among the young and the educated.

Despite the Soviet legacy of outlawing private civic organizations, a number of civic groups have been
founded in recent years. The number of human rights organizations has grown from 50 in 1996 to over
1,200 in 1999. According to the U.S. Agency for International Development, there are now
approximately 65,000 active civic and social groups of all kinds in Russia.

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Russia's rich culture, which ties its people together and is universally admired, also provides a base upon
which the nation is building anew today.

The successful elevation of Vladimir Putin to the Russian presidency is widely attributed to the public
longing for order after a decade of chaos. But despite the unmistakable public clamor for a crackdown on
crime and corruption, public opinion surveys show that a majority of Russians are not prepared to give
up their most cherished and hard-won liberties. An August 1999 U.S. Information Agency survey found
that 73% of respondents opposed loosening restrictions on police and security forces, 66% opposed
banning meetings and demonstrations, 62% opposed canceling elections, and 53% opposed media
censorship.

Russia is a great nation, and must eventually determine its own course. If it is to successfully make the
transition from nearly a century of Communism to a free enterprise democracy built upon individual
decision making and individual rights, it will be because of the determination of Russia's people to do
so. As the world's leading free enterprise democracy, the United States offers the quintessential model
for Russia's future, if Russia chooses freedom. It was in 1992, and is now, America's opportunity~if not
our duty—to respond.

America and Russia have lost a decade. The growing estrangement of Russia from the United States, the
hostility to American interests reflected in Russia's foreign policy, and the telltale signs of
authoritarianism in the post-Yeltsin era provide ample evidence that Russia faces a more formidable task
because U.S. foreign policy was weak, and did not lead. But it is not too late for the United States to stop
impeding and start assisting the transition from Communism to free markets, from authoritarianism to
democracy, and from disorder to order. It simply requires that we begin anew~but this time, with a clear
purpose.

CHAPTER 1

1991: THE FALL OF THE

SOVIET UNION AND THE
RISE OF RUSSIA
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 STANDING UP FOR FREEDOM: Russian Federation President Boris
Yeltsin stood atop an armored personnel carrier in Moscow Aug. 19,
1991, to urge Russians to resist a central government takeover by
Soviet hardliners. Russians proved their courage and their love for
freedom in 1991, ending Soviet domination in Eurasia with a peaceful
determination that stood in stark contrast to the terror imposed on them
for seven decades, AP photo

I've met with business people and leaders of the republics and
reformers at all levels, and in spite of the vast array of challenges
before you, a deep undercurrent of enduring optimism runs here.
The forces of reform, the drive toward democratization, political
pluralism, market economies—all offer real hope for lasting stability
and prosperity.

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

service of a greater good. We believe that while men and women
may for a time be intimidated by force, mankind finds inspiration in
freedom. So if, as Chekhov once wrote, man is what he believes, let
us believe in freedom.

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 President George Bush, in Moscow, August 1,1991

On Christmas Day, 1991, the Soviet Union ended. The people of Russia had made it clear they were
prepared to build the truly free society that Gorbachev could not achieve. The Soviet Union lost the Cold
War, but Russia had won it.

The collapse of the Soviet Union brought to an end, with surprisingly few casualties, one of the crudest,
most violent, least humane, and most viciously ideological regimes in the history of the world. The
Soviet Union-more aptly, the Soviet Empire-collapsed of its own weight, crushed by the material and
spiritual burdens of its collectivist ideology.

A Titanic Clash Over the Budget

On January 3,1991, Mikhail Gorbachev, President of the Union of Soviet Socialist Republics and
General Secretary of the Communist Party Central Committee, announced on state-controlled Soviet
television that the empire's ritual budget deliberations were completed. "Solutions were worked out that
made it possible to hold a session of the Federation Council today and to coordinate the basic provisions
of an economic agreement," Gorbachev said.l

But this time, the General Secretary's decree was not routinely accepted. In what the state-controlled
news agency TASS called the "mutiny" of Russia, the largest of the Soviet Union's 15 republics refused
to contribute its "required sum" to its putative Soviet masters.2 The President of the Russian Republic,
Boris N. Yeltsin, was defiant.
And so, the opening scene in the world-shaking drama of 1991, the final year of the Soviet empire,
began with a fight over money.

The dispute between Yeltsin and Gorbachev was not new, and it was personal as well as ideological. On
July 12,1990, Yeltsin had resigned from the Communist Party "because processes in the party are too
slow, because the party is still lagging behind, because the process of democratization in the party does
not develop, [and] because the style and method of work are behind those processes ofperestroika."3
Yeltsin, moreover, had openly defied the U.S.S.R.'s claim of sovereignty over the Baltic states of
Lithuania, Latvia, and Estonia. And he had mounted a withering attack on Gorbachev's perestroika
reform effort as insufficient.

But beyond these policy differences, Yeltsin resented his constant humiliation by Gorbachev, beginning
at the Communist Party's October 1987 Plenum, when Yeltsin was expelled from the Politburo. In his
memoirs, Yeltsin wrote that "the motivations for many of my actions were embedded in our conflict."4

Tanks to Vilnius
Riots and uprisings in Azerbaijan5 and Georgia,6 the war between Armenia and Azerbaijan over the
Nagorno-Karabakh enclave, and moves to restore the independence of the Baltic nations threatened to

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tear the U.S.S.R. apart. Over the course of 1990, nationalist sentiments in the republics matured from
disparate popular movements to a central fact of political power. Leaders of popular groups took control
of legislatures from the Baltics in the north to the Transcaucasus in the south.

In an eight-month period during 1990, legislatures in every republic, beginning with Lithuania and
ending with Kirghizia (now the Kyrgyz Republic), declared their sovereignty or outright independence.
The cries "To a free Estonia!" and "To a free Latvia!" by Lithuanian crowds rejoicing at their
legislature's vote for independence from Moscow testified to the snowballing effect of the independence
movements.

Although Gorbachev assured the Federation Council that he would not use force to rein in the
independence movement, within hours of his statement Soviet special police forces opened fire on
pro-independence Lithuanian demonstrators in Vilnius, killing 15 and wounding hundreds more. A week
later, Soviet forces killed four civilian protesters in Latvia.

Yeltsin, meanwhile, was taking up the cause of Baltic freedom. He signed a mutual security agreement
with representatives of the three Baltic States in which the parties pledged to respect one another's
sovereignty, and-importantly-to provide assistance in the event the Soviet central government resorted to
force.

The Soviet crackdown in Vilnius, known as "Bloody Sunday," proved a turning point.7 In the past,
Soviet state control of the media could suppress the facts sufficiently to maintain order. But the January
13 bloodbath in Vilnius led to protests by 100,000 citizens in the streets of Moscow and sent
Gorbachev's approval rating from 29% to less than 10%-dangerous even for a Soviet ruler, and
especially so when a powerful rival in the form of the Russian president presented himself as an
alternative. 8

BRINGING DOWN THE KGB: Russians celebrate their newfound freedoms by toppling the statue of
KGB founder Felix Edmundovich Dzerzhinsky, early Friday, Aug. 23,1991, in front of the KGB
headquarters in Moscow. AP Photo/Alexander Zemlianichenko

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The KGB and 'Economic Sabotage*

Gorbachev reacted by tightening the reins. A month before the violence in the Baltics, Foreign Minister
Eduard Shevardnadze resigned, warning of a coming dictatorship. On January 26,1991, Gorbachev
issued a decree giving the KGB and the MVD (the Soviet Interior Ministry) wide-ranging powers to
investigate "economic sabotage"-an ideological crackdown on unauthorized economic reforms and
privatization then underway.

The move was intended to shore up support among Communist critics ofperestroiku-GorbacheVs
ambitious plan to restructure the Soviet economy and modernize Communism-but it had the opposite
effect. The already demoralized security forces saw their role being trivialized. Instead of protecting the
nation, they were being asked to monitor white-collar crime and rifle through desk drawers.

The decree's retreat to criticism of "selfish interests" seems in retrospect to have been a dying gasp of
Marxist economics. Certainly, the January 1991 edict to the KGB and MVD exemplified the inherent
weakness of Gorbachev's perestroika, which was doomed to failure because it intended not to supplant
Communist economic doctrine, but to make it work, somehow. Thus, despite the genuineness of the
policy of glasnost, or openness-which, at least relative to previous Soviet regimes, allowed some modest
new freedom of speech and thougfat-perestroika amounted to little more than fiddling while Rome
burned.

Two years before the collapse of the Soviet Empire, in 1989, American economist Judy Shelton had
confidently predicted the collapse of the Soviet Union.9 By 1991, it was even clearer that the Soviet
Union did not have sufficient domestic resources to deal with its aging factories, increasing shortages,
and impending famine. 10

Although the official Soviet Bank for Foreign Economic Affairs had met all its immediate obligations,
the Soviet Union had built up substantial arrears to Western suppliers through its foreign trade
organizations, ministries, and state-controlled enterprises. Contemporaneous Western estimates put the
default in the range of billions of dollars. To disguise this economic disarray, the Soviet government
kept two sets of books: public books to deceive outside lenders, and private books that alerted
Gorbachev to serious cash shortages.

Thus, the collapse of the Soviet economy was not the result of "economic sabotage," but of the inherent
weaknesses of the Communist system itself. In unintended acknowledgement of this fact, Gorbachev in
the final days of the Soviet Union turned to capitalist-supported international lending programs for
assistance.

German banks-with a 90% guarantee by the German government-financed a loan to repay arrears to
German companies. In another turn toward capitalism for help, De Beers Consolidated Mines provided a
$1 billion loan using Soviet diamonds for collateral.

In the end, however, international lending did no more than unnaturally extend the life of the terminally
sick Soviet system. It did no more to address the fundamental problems of the state-controlled
Communist economy than did the decree broadening powers for the KGB and the MVD.

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 STORAGE: The statue of the KGB founder stands in a
museum storage yard in downtown Moscow, April 16, 2000.
The President Hotel is in the background. SAGR Photo

Lithuania Votes for Freedom

On Thursday, February 7,1991, three days before Lithuanians went to the polls to cast their ballots on
the issue of independence, Soviet military officials announced ten days of maneuvers in Lithuania,
Latvia, and Estonia. 11 Despite the military presence, the yellow, green and red Lithuanian flag was
defiantly flown, and posters bearing gruesome pictures of the Bloody Sunday attack appeared
everywhere. On election day, Sajudis, the anti-Soviet independence and human rights movement, won
overwhelmingly. 12 One month later, Vytautus Landsbergis, a mild-mannered university music professor
who had spent years in Soviet prisons, became President. It was "a victory against lies, against attempts
to scare us, against fear," President Landsbergis said in a televised message. 13

Taxes, Strikes, and Sovereignty

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

In the midst of this strife, a referendum, organized by Gorbachev and opposed by Yeltsin, showed that
75% of the people, including 71% of Russians, favored the continued existence of a union of republics.
But because the referendum framed its object as a federation of sovereign states intended to protect "the
rights and freedoms of all nationalities," it attracted the votes of many whose sympathies were with
Yeltsin-and ultimately settled nothing. 14

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

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external debt obligations, by levying new taxes. 15 What came to be known as the "presidential tax," an
additional 5% sales tax on goods, infuriated Russian consumers, already outraged by shortages of most
necessities. "'Did you read this list?'" the New York Times quoted a burly Muscovite as saying about the
schedule of commodities to which the new tax would apply. "'It looks like someone went into a store and
made an inventory of all the things he couldn't find.'" 16

Yeltsin pounced on the sales tax issue, urging repeal and agreeing to support Gorbachev's "Anti-Crisis"
economic plan only in exchange for elimination of the tax. 17

Soviet taxes, Soviet labor controls, and Soviet central control over the people and affairs of every one of
the Republics were completing the century-long destruction of the Russian economy. Neither glasnost
nor perestroika had even really addressed them.

Secession Momentum

On April 9, the Soviet republic of Georgia formally declared its independence from the Kremlin. 18 The
Georgian people completed this act in defiance of their Communist rulers by dancing in the streets. 19 A
rally originally scheduled to mourn the deaths of 20 civilians killed by Soviet troops in the 1989 Tbilisi
Massacre20 (a tragedy contemporaneous with the Chinese Communist Party's Tiananmen Massacre)
spontaneously became an independence celebration. The demonstration came 10 days after balloting in
which nearly 99% of Georgians had voted for secession from the Soviet Union.21

The appetite of the peoples of the various Republics, including the Russians, to manage their own affairs
was far ahead of Gorbachev's extremely limited promises.22 Momentum for secession thus grew in
Russia as elsewhere in the Soviet Union.

By the end of April, Gorbachev agreed to meet with Russian President Yeltsin and the leaders of nine
Slavic and Muslim republics in a village outside Moscow. According to contemporaneous accounts, a
visibly changed Gorbachev for the first time showed a willingness to listen to grievances. 23 And,
sensing his weakening grasp on power, Gorbachev responded to critics at a plenary meeting of the
Communist Party Central Committee two days later by offering to resign. The offer was rejected.

Yeltsin and Coal

Gorbachev's motivation for ceding ground to his political antagonists was primarily economic.
Communist central economic planning had left the Soviet Union starved for cash.

Oil, which accounted for 60% of export revenues, was becoming costlier to produce as Soviet engineers,
operating on short-term Communist Party commands to increase immediate production, turned to
recovery techniques that wasted oil and damaged pipelines.24 Disorder and mismanagement in the oil
industry, as a result of Gorbachev's failed economic reforms, compounded the problem. Strikes and
martial law in Azerbaijan, the main supplier of oil-producing equipment, left the Siberian oil fields short
of spare parts.25

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

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production. But the coal industry, too, was plagued with strikes. Over the course of 1990, the Soviet
system was starved of coal by major mine strikes that escalated into rampant unrest in the Donetsk and
Western Siberian coal fields.

Still other problems conspired to make matters worse. The notoriously inadequate Soviet computers
failed to keep track of rolling stock and warehouse inventories, with the result that thousands of freight
cars filled with coal, fuel, food, and other commodities were stolen or more often lost and left to rot.

The resulting energy shortages provoked further unrest among both the miners and the general
population. Yeltsin, who had supported the miners against the dictatorial control of the Soviet "center" in
Moscow, seized on these events to obtain concessions from Gorbachev. In return for a transfer of the
mines to Russian control, he would end the strike by decree.

Gorbachev was forced to concede. On May 1, Yeltsin asserted his authority over Russian coal mines,
and a month later the strikes were over.26

This significant addition to the sovereignty of Russia at the expense of the Soviet Union signaled another
major crack in the foundations of the Empire. As one writer noted at the time:

Yeltsin's handling of the miners' strike is further evidence that he will use his
truce with Gorbachev to advantage.

Some liberals worried that their boss might have been maneuvered into
opposing the strikers by the crafty Gorbachev. (The myth of this man's political
genius dies hard!) Instead, Yeltsin made his support for the strikers a bargaining
chip to force Gorbachev to cede control of the mines to the Russian republic.

The coal pits are not exactly the jewel in the crown of Soviet mineral wealth,
but their transfer to local ownership will begin the breakup of the central
government's monopoly control of exportable natural resources.

Coal today; oil tomorrow. At some point people will have to stop saying that
'opposition' forces are too weak to run the country; they will be running it.27

The Vote for Russian Sovereignty

On June 13,1990, a year before the people of Russia elected him to the newly created office of
president, Boris Yeltsin had told the parliament of the Russian Federation, "Russia cannot survive
without the country [i.e., the Soviet Union] and the country also cannot survive without Russia."28

The emphasis was on the indispensability of Russia, for in that same week in June 1990, at Yeltsin's
urging, the Russian parliament adopted a formal declaration of the sovereignty of the Russian republic,
which asserted that Russian law would now take precedence over Soviet law, by a vote of 907-13.29

Throughout the Russian Republic, Yeltsin actively courted regional leaders, at one point telling them to
"take as much sovereignty as you can stomach."30 He encouraged leaders in the U.S.S.R.'s other
republics to seek autonomy from the "center." His aim was to outflank and undermine the central

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government and to increase his appeal to local officials.

The Russian sovereignty declaration was a watershed. "Of course," one prescient U.S. newspaper
observed, "Gorbachev's Soviet Union still controls the organs of terror, the Red Army and the KGB. But
he may realize he cannot prevent the breakup of the Soviet 'Union' and that his 'federation' idea, perhaps
resembling the European Economic Community/NATO or the British Commonwealth, is his only hope
for maintaining any position at all."31

The Russian parliament's near-unanimous vote for sovereignty and Yeltsin's campaigning had
emboldened leaders in other republics, particularly the Baltic states. Similar sovereignty measures had
followed in other republics within months.

Now, a year later in 1991, support for Yeltsin-and opposition to Communism-was overwhelming.
Yeltsin was swept to a decisive victory as the first popularly elected president in Russia's history in June
1991, as Leningrad voted to restore the city's historical name of St. Petersburg in a stinging repudiation
of Vladimir Lenin, the ultimate icon of Soviet Communism.32 The new mayor of this city of five
million, Anatoly Sobchak, won his post in the same election, and would soon become one of the leading
Russian reformers.33 Sobchak appointed as one of his deputies a young, unknown former KGB agent
named Vladimir Putin.

Supreme Soviet 'Privatization'

Meanwhile Gorbachev and the old guard were struggling to keep up with events. On July 1,1991, the
Supreme Soviet approved, for the first time, a law authorizing the sale of state assets.34 This step,
though unprecedented, represented less free-market reform than a desperate attempt to generate cash for
the crumbling Soviet system. Not only was it unsuccessful in raising money for the state, but it was soon
taken hostage by the Communist nomenklatura, the privileged ruling elite. The state assets they sought
to auction-to themselves-were dachas or private resorts.

"In one of the juiciest scandals to touch President Mikhail S. Gorbachev's administration," the Los
Angeles Times reported, "the Soviet press and a legislative watchdog commission are accusing top
officials of using their pull to buy government-owned dachas and their lavish furnishings at
bargain-basement prices."35 This Communist insider dealing was a harbinger of things to come. The
dacha scandal, the Times reported, encouraged suspicions "that when the time comes to sell state
property to private buyers, only the well-connected will really have the chance to buy."36

Neither scandal nor shame would quell the Soviet appetite for cash-Gorbachev sought $20 billion from
the Japanese alone; he asked for $100 billion in Western aid. Harvard economist Jeffrey Sachs suggested
$150 billion for a five-year plan.37

President Bush knew that such schemes would not work. "A shortage of foreign capital is not what
plunged your economy into crisis, nor can your economic ills be cured by an infusion of cash," he told
the Moscow State Institute for International Relations in a speech July 31.38 Instead of
government-to-government aid, President Bush said, the Soviet Union and the United States should
facilitate business-to-business dealings between private individuals and firms.39

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

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Soviet structure survived. On July 11, Izvestiya published the text of the latest Soviet "reform" plan. The
program correctly cataloged the economy's ills:

The socio-economic situation in the country has become extremely acute. The
fall in production has affected virtually all sectors of the national economy. The
finance and credit system is in a state of crisis.

Exports and foreign currency earnings are falling. The consumer market is
disorganized, the food shortage is being felt everywhere and the population's
living conditions have deteriorated considerably.40

But Gorbachev's proposed remedies called for more of the same: government action to restore
production volume, "targeted measures" to "normalize" the supply of consumer items, and "a
Union-Republic program of support for entrepreneurial activity"-a concept as oxymoronic as a U.S.S.R.
federation of "sovereign states. "41 While the program reflected an attempt to move away from statist
economics, it fell far short of meeting the prerequisites for beginning the necessary transformation to a
market economy. 42

The Coup Attempt

Increasingly concerned by Gorbachev's inability to deal effectively with what they correctly saw as a
fundamental threat to the survival of the Soviet Union-and believing that Gorbachev planned to dismiss
some or all of them imminently-eight senior Soviet officials, including Vice President Gennady
Yanayev, Defense Minister Dimitri Yazov, and KGB Chairman Vladimir Kryuchkov, launched a coup
in the early morning hours of Monday, August 19,1991.

The coup attempt began while Gorbachev was away at his official summer residence in the Crimea.
Muscovites and others throughout the Soviet Union awoke to the news from the state-controlled media
that "due to the condition of his health" Gorbachev had been relieved of his duties. A State Committee
on the State of Emergency, TASS reported, had been established to run the country.

The State Committee was made up of most of the highest-ranking orthodox Communists in the Soviet
government, and all had worked closely with Gorbachev. In addition to Defense Minister Yazov and
KGB Chairman Kryuchkov, it included Interior Minister Boris Pugo, Soviet parliament Speaker Anatoly
Lukyanov, the Chief of Apparatus for the Communist Party Oleg Shenin, and Prime Minister Valentin
Pavlov. Each saw the Union Treaty which Gorbachev was about to sign as the last straw. In their view it
would end the primacy of the various institutions that they controlled.

Russian President Yeltsin, at his dacha in Arkhangelskoye, was busy working the phones. He issued a
statement denouncing the coup as unconstitutional, which was broadcast by Russia's first independent
radio station, Echo Moskvy. Ninety minutes after the coup was announced on radio Yeltsin left for the
Russian White House, the seat of the Russian government. Along the way, he encountered tanks and
armored personnel carriers brought in to intimidate the public. Long tank columns were positioned along
streets leading to the center of the city, and tanks were stationed on both sides of every bridge across the
Moscow River. In Lithuania and Latvia, Soviet troops seized the television and radio centers.

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

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Taman Division, which was positioned outside the Russian White House, and read a defiant statement
calling the coup unconstitutional and demanding Gorbachev's release from house arrest at his dacha in
the Crimea.

Muscovites moved to protect the White House by blocking approaches to it with buses and trolleys. By
Monday evening, people had erected barricades and formed a human chain around the building.

A Firm U.S. Response

On Tuesday, August 20, on the only functioning phone line remaining available to him, Yeltsin spoke
with George Bush. The American President stated firmly that the United States would not recognize the
Yanayev government. President Bush also reported that he had already spoken with the other G7 leaders
and believed they would follow America's lead.

The coup plotters apparently calculated that the United States would not take sides in a Soviet
Communist power struggle. But Bush's action in support of Yeltsin and the Russian people took "the
United States into largely uncharted territory by trying to influence Soviet politics more directly than
anytime in more than 70 years."43

Shortly after midnight on Wednesday morning, 30 tanks and 40 armored personnel carriers, along with
1,000 troops, approached the barricades surrounding the White House under orders to storm it. In the
skirmishes that ensued the troops set several vehicles ablaze, and in the brief fighting three civilians
died. But in the end most soldiers proved unwilling to fire on the crowds.

Later that afternoon, Yazov and the other coup leaders arrived to see Gorbachev, who had been trapped
in his dacha and cut off from the outside world since the coup began. Gorbachev refused to meet them,
and ordered their arrest. Instead, he received a delegation of Russian government representatives-a
deeply symbolic gesture suggesting that Gorbachev finally had taken sides with Russia. The coup was
unraveling.

The next day, Gorbachev arrived in Moscow. What he found on his return from his brief detention in the
Crimea was a fundamentally changed political landscape.

The coup's rapid failure conclusively demonstrated the weakness of hard-line Soviet Communist Party
elements and the irrelevance of the Party to developments in the U.S.S.R. It further accelerated the
movement of public opinion in Russia and the other republics-particularly the Baltic States, Ukraine, and
Georgia-toward support for independence. In the month after the coup, eleven of the Union's fifteen
Republics declared their independence.

Yeltsin Takes Command

Boris Yeltsin's defiance of the coup-captured forever in the minds of Russians by the image of him
standing atop the tank in front of the Russian White House-solidified his status as Russia's pre-eminent
political leader and inspired millions more people outside Russia. The strength of the newly-elected
Russian president contrasted sharply with Gorbachev's impotence.

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Yet Yeltsin, as would be seen so clearly in the last years of his presidency, was more a populist than a
democrat. While serving as Moscow's Communist Party Secretary, Yeltsin often rode the city's subway
system and mingled with city residents. Many Russian democrats, led at the time largely by intellectuals
and former dissidents like Andrei Sakharov, viewed Yeltsin with great skepticism. Sakharov was
reportedly unwilling to vote for Yeltsin in Russia's 1989 parliamentary balloting because of concerns
about his demagogic tendencies.

Many committed democrats were loath to follow a former Communist Party Politburo member. Many
intellectuals, moreover, were uncomfortable with what they perceived as Yeltsin's lack of political
sophistication. Even his popular appeal was troubling to some who felt that Yeltsin had hijacked for his
own personal ends a movement they had suffered greatly to develop. That leaders of the democracy
movement of the time expressed concern at the authoritarian tendencies already evident in his leadership
should have been a warning to U.S. policy makers that they should support democracy and free
enterprise, not just Yeltsin.

But Yeltsin, the first elected president of Russia, was an irreplaceable transitional leader at a time when
Russia needed not just ideas with which to oppose Communism, but action-notwithstanding his failure
in later years to live up to the expectations of either Russians or the West.

From Union to Independence

Despite the failed coup, or perhaps encouraged by it, work continued on a new Union Treaty that would
allow each member state to define its own terms of participation. On October 18, 1991, Gorbachev and
the leaders of eight republics (Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikstan,
Turkmenistan, and Uzbekistan) signed an agreement on an economic community. A month later, the
U.S.S.R. State Council agreed on a framework for a confederation of sovereign states with a limited
central authority.

Though Yeltsin had expressed support for a union as late as mid-November,44 he had simultaneously
been pursuing a separate track intended to eliminate centralized authority over the remaining states
interested in some form of union.45 The October and November agreements ceded much authority, but
they were not enough for President Yeltsin.

Yeltsin's insistence on delaying the signing of Gorbachev's State Council agreement until after Ukraine's
December 1 independence referendum (in which, as Yeltsin must have anticipated, 90% of the voters
supported independence) bought him time to gain support for his strategy. A few days after the
Ukrainian independence referendum, Yeltsin proposed a "Commonwealth of Independent States"
without a central government. As the press observed at the time, Yeltsin's plan "killed off Mikhail
Gorbachev's foundering plan to preserve the Soviet Union."46

By December 8, Yeltsin was able to go outside the Gorbachev-led process and sign an agreement with
the leaders of Ukraine and Belarus declaring the end of the U.S.S.R. and the creation of the new
Commonwealth of Independent States (CIS). At the time, these three republics accounted for 70% of the
population and 80% of the industrial output of the U.S.S.R. A joint communique stated: "As founding
states of the U.S.S.R....we declare that the U.S.S.R. is ceasing its existence as a subject of international
law and a geopolitical reality." 47

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

LENINISM'S DEFEAT: Children play on the fallen statue of

Vladimir Lenin in Vilnius, Lithuania, Aug. 30,1991. The
statue of the Soviet dictator, who had called for the defeat
of Russia in World War I before launching the bloody
Russian civil war, was toppled after the failed 1991 Kremlin
coup. AP Photo/Mindaugas Kulbis

The End of the Soviet Empire

Yeltsin had won the economic battle with the unwitting help of Gorbachev-whose openings to the West,
as tentative as they were, exposed Russians to the possibilities of wealth generated by real market
economies. Gorbachev and other senior leaders had recognized that the existing Soviet Communist
system was economically bankrupt and unsustainable. This extraordinarily unfavorable economic
situation was part of the Soviet Union's legacy to the newly independent Russia.

The collapse of the U.S.S.R. laid bare the catastrophic material impoverishment and decay that had been
wrought by Communism over seven decades. Although missed by many observers,48 the unsustainable
economic, environmental, moral, and social ravages of Soviet Communism were obvious not only to a
few far-seeing individuals such as Ronald Reagan49 and Judy Shelton, but also to the leaders of the
Soviet Union itself.

Ironically, it was the liberal intellectual elite in the West that not only failed to see the collapse coming,
but argued against the very U.S. and European policies that helped accelerate it. One supposed Soviet
expert, Time magazine's Strobe Talbott, repeatedly chastised President Reagan for pursuing his

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ultimately successful policy of peace through strength.50 Talbott would later be appointed by President
Clinton to coordinate his Russia policy. The fact that Americans who were wrong about the defeat of the
Soviet Empire ended up running U.S. relations with its former subjects is an irony of history.

The disintegration of the Soviet Union is often viewed as the culmination of the collapse of Communism
in Central and Eastern Europe. But, while the death of the U.S.S.R. brought closure to the revolutions of
1989 and the Communist era in Europe, the events of 1991 in Russia were fundamentally different from
what took place elsewhere in the former Soviet bloc.

The historical experience of Russia and most of the other Republics of the Soviet Union differed widely
from those of the U.S.S.R.'s former satellites in Central Europe. Although the Russian Empire had
undergone exceptionally rapid economic development in the last decades before 1917, by the late 20th
century it lagged significantly behind most of Central Europe politically, socially, and economically.
The Bolshevik revolution and the succeeding decades of Leninism and Stalinism, as well as the
pervasive corruption of the Brezhnev era, devastated both economic life and civil society throughout
Russia and the other nations of the U.S.S.R. The Soviet occupation of Central Europe since World War
II was significantly briefer and wrought comparatively less damage to those societies, which to varying
degrees had previously possessed capitalist economies, democratic institutions, or, at a minimum, more
highly developed civil societies.

Subsequent underdevelopment even compared to former Warsaw Pact countries would significantly
complicate attempts at economic and political reform.

The Legacy of 1991

The events of 1991 were part of a much larger process, with deeper roots. "[T]he Soviet Union is not
immune from the reality of what is going on in the world," President Reagan had explained in 1982. "It
has happened in the past: a small ruling elite either mistakenly attempts to ease domestic unrest through
greater repression and foreign adventure, or it chooses a wiser course-it begins to allow its people a
voice in their own destiny."

Once the people of the many captive nations of the Soviet Empire began to find that voice, their
liberation became increasingly more likely. Indeed, the Russian people were instrumental in that result,
and stood to reap the greatest gain. The Russian nation, led by a freely elected president, had liberated
itself from the staggering economic, political, social, environmental, and moral burden that the Soviet
empire had imposed on the Russian people.

With more than half the population of the Soviet Union and three-fourths of its land mass, Russia's
victory over the Empire left it well-stocked in both human and material resources, if not in market
mechanisms. A newly free Russia was finally prepared to emerge as a world economic power in its own
right.

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 CHAPTER 2

CONDITIONS IN RUSSIA
AT THE OUTSET OF THE
YELTSIN AND CLINTON
ADMINISTRATIONS

CONGRESS CELEBRATES FREEDOM FOR RUSSIA: In an historic

Joint Session of Congress, June 17,1992, Russian President Boris Yeltsin was
interrupted by nine standing ovations as he described a country "devastated" by
seven decades of Communist rule. "We have no right to fail in this most
difficult endeavor, for there will be no second try, as in sports. Our
predecessors have used them all up. The reforms must succeed." The Russian
people, however, are more resilient than Yeltsin predicted, having survived the
failure of "reform" and the nation's complete economic collapse in 1998. Today

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 they are hoping for a second chance.
Office of Photography/U.S. House of Representatives

I see Russia and the United States-which was the modern

world's first democracy-developing a very special relationship, and I
hope I can play a role for my country in Washington like that
Franklin playedfor his in Paris. For Russian
democracy to succeed, we need help.

I love the United States.

Russian Ambassador Vladimir P. Lukin, as quoted in the Los Angeles Times, April 9,1992

The newly independent Russian Federation seemed to many to be poised for rapid integration into the
Western community of nations and, after a period of adjustment, economic and political rebirth.

Externally, Moscow enjoyed a favorable environment in which its former rivals, including the United
States, were eager to assist morally, materially and technically in its renewal. Moreover, just as the
collapse of the Soviet Empire redefined America's international security environment, Russian
conditions were likewise favorably transformed. Taking into account the vast share of the Soviet
economy directed to the military, Russia's potential "peace dividend" stood to be quite large.

At the same time, Russia possessed a large, well educated, and highly skilled workforce. Though the
closed Soviet economy had been insulated from international products and competition, causing Russia
to lag behind the West in many areas of technology, the country's overall technological level was high in
the global context.

The nation's 6.5 million square miles of land offered a vast storehouse of potential wealth, if it could be
placed in private ownership and used as the basis for commercial lending.

Finally, Russia possessed tremendous natural wealth, ranging from oil and gas to aluminum and
diamonds. Russia's combination of natural and human resources seemed destined to return its people to
greatness.

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CLINTON SPEAKS TO THE RUSSIAN DUMA: In an embarrassing contrast to the reception Boris Yeltsin earned
in the United States, President Clinton delivered an uninspiring speech to a half-empty Duma during a visit to
Moscow, June 5, 2000. AP Photo/ Misha Japaridze

Russia also faced enormous challenges. Never in human history had so many people for so long been
denied all economic and personal freedoms. The legacy of Soviet Communism was economic and
political chaos. Russia inherited an economy thoroughly mis-developed and in steep decline. The
massive resources devoted to military production meant that consumer goods were shoddy and scarce.
The central planners' obsession with enormous industrial plants concentrated workers in far-flung
one-company towns that could not be expected to survive serious restructuring from market discipline,
yet the displaced workers had nowhere else to go because of a crippling housing shortage throughout the
country.

The Soviet Union's state-controlled economy also left Russia without the basic legal and institutional
components of a market economy. The illegality of private property in the Soviet system ensured that
such functions as land title registries, real estate brokerage, securities exchanges, or even classified
advertising did not exist. Similarly, there were no effective laws to enforce private contracts, protect
intellectual property, or resolve commercial disputes between private individuals.

ACCORD: Presidents Ronald Reagan and George Bush enjoyed productive relationships with their Soviet and
Russian counterparts and high popularity among the Russian people. U.S. President Ronald Reagan, right, and
Soviet General Secretary Mikhail Gorbachev are shown at the negotiating table in Moscow, June 1,1988, the
fourth day of a summit. While relations with the Soviet Union and Russia were at high-water marks at the end of
the Reagan and Bush terms, respectively, Russia appeared more interested in European, Chinese, and even
North Korean relations than in improved ties with the United States at the end of the Clinton administration. AP
Photo/Doug Mills

In the absence of such basic elements of a market economy, and without the elementary laws to support
rights in private property, few Russians, let alone foreigners, would be willing or able to make a go of it
in the chaotic Russian economy.

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Russia's long Communist nightmare also had heavy political consequences. First and foremost, Russia
lacked experience with democratic consensus-building; government officials knew how to command,
but not how to lead.

Nor did Russia's new politicians have any experience in reading and responding to public opinion. As a
result, Russia's political system soon became fragmented, as popular figures established movements or
parties based on their own idiosyncratic views. Russia's reform-oriented parties were largely in disarray.
Only the Communist Party of the Russian Federation, having inherited a structure and membership,
began the new era with any organizational discipline.

In spite of all of this, the people of Russia were in high spirits. After 75 years of Communist privation
and fear, they were ready for a fresh start.

The Soviet System

The prospects facing Russia's 146 million people following the fall of the Soviet system were
exhilarating but daunting—because what had just ended was one of the most dysfunctional political
economies in history.

Under the Soviet system, Gosplan, the Soviet economic planning agency, decided what and how much to
produce throughout the Soviet Union, and its decisions were promulgated in rigid "five-year plans."
Gosplan paid little heed to consumers' preferences; it relied on production quotas, rather than
profitability, to measure success. Inferior quality and chronic shortages were the hallmarks of the
Communist economy.

The grossly inefficient Soviet economic system met the needs of neither the Russian people nor those
who lived in the Soviet Empire's captive nations. A black market in Western products, which expanded
quickly in the final years of the Soviet Union, helped reveal the defective nature of the Communist
economic system. 1

Because the Soviet economy produced so little that the rest of the world wanted to buy, its currency, the
ruble, was worthless outside the Soviet Union. A lively black market in Western currencies flourished at
all levels of Soviet society despite its illegality.2

Military needs also weighed heavily on the Soviet economy. It has been aptly stated that while the
United States had a military-industrial complex, the U.S.S.R. was a military-industrial complex:
throughout the Cold War, the Soviet military annually consumed between 40% and 50% of the Soviet
Union's output, leaving few resources to meet consumers' needs.3

The Russian Economy at the Collapse of the Soviet Empire

At the outset of 1992, Russia's leaders confronted the social, economic, and political disarray they had
inherited from Soviet Communism. The new Yeltsin government, in the throes of a chaotic transition,
faced tasks that included the consolidation of political power in the wake of the August 1991 coup

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attempt; Russia's establishment as a separate nation in the international arena; laying the political
groundwork for a democratic, civil society; and constructing a free enterprise economy from the ground
up.

Yeltsin's chief economic adviser and First Deputy Prime Minister, Yegor Gaidar, took responsibility for
the economic turnaround. He became acting Prime Minister in June 1992.

The economic conditions that Gaidar had inherited from the Soviet Union were grim: inflation for 1992
was 2,500%, while the shrinking economy posted a "negative growth" of-14.5%.4

These horrific conditions had been long in the making. The Soviet war in Afghanistan, the additional
military spending the Soviet Union had undertaken to compete with the Reagan policy of peace through
strength, and the complete failure of the civilian economy to produce meaningful tax revenues and
foreign exchange had all contributed to increasing deficit spending by the Soviet Union throughout the
1980s. As early as 1986, the government of the U.S.S.R. had come to rely heavily on international loans
to finance its yearly operations.

But foreign borrowing to finance the government's annual deficits had also created new burdens on the
economy, as budget expenditures rose for debt service. By 1991, the last year of the Soviet Union, the
central government's budget deficit had risen to 20% of the entire nation's economy. As the situation
worsened, the U.S.S.R. began to default on its foreign loan payments.

The end of the Soviet Union also meant the end of the Cold War. The good news for Russia was that it
no longer had to compete with the United States in the arms race. But the military sector of the economy
was one of few in which former Soviet enterprises enjoyed a comparative advantage~and for which
there were willing foreign buyers. Somehow, Russia needed to convert its military production to
technologies and products demanded by a consumer economy.

The majority of Russians vaguely recognized that building a market economy was the essential first step.
They seemed prepared for at least some period of transition before conditions would eventually
improve. As Gaidar and his colleagues began their work, they could not have asked for a bigger challenge
or, in the circumstances, a more supportive climate of public opinion.

1992 and the Beginnings of Economic Reform

On January 2,1992, on the advice of Gaidar's team, the government lifted price controls on many items.
The expected result--a widespread increase in what had been artificially depressed prices~in fact
occurred. But the brisk winds of market pricing were soon augmented by strong gusts of
counterproductive monetary policy, which sabotaged Gaidar's anti-inflation strategies.

Rationalizing its inflationary monetary policies on the ground that it was difficult to collect taxes, the
Russian Central Bank began to print money. At the same time, the neighboring newly independent states
likewise printed rubles without concern for the consequences. The result was hyperinflation.5 The 250%
inflation rate for January 1992 wiped out the value of people's savings accounts, created a fear of hunger,
and undermined confidence in market reforms.

Gaidar and his team of economists, believing that they would not last much longer than a year in office,6

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decided to move rapidly to promote their economic agenda. The believed that they needed to put
state-owned companies into private hands as quickly as possible to disperse economic power and thus
ensure against a possible return of Communist rule. As a result, they resorted to decrees to promulgate
laws without legislative backing, stiffening the Soviet-era legislature's resistance to legislative
implementation of their policies.

So began a tactic that would be used by the Communists in the legislature for years thereafter: portraying
the executive branch of the new government as solely responsible for soaring prices and economic
disarray, while refusing to participate in policy making through responsible legislation. In this way,
legislators could assume the role of vigilant protectors of the common Russian interests, without bearing
any of the political risk or responsibility for the enormous changes needed.

An average increase in wages of 50% in January only fractionally offset the month's 250% inflation. The
standard of living fell, and poverty rose. Supply shortages were aggravated by the economy's saturation
with rubles. By removing price controls, the Gaidar team had intended to let price rationing regulate
demand while providing incentives for increased production. But the chaotic monetary policy of Russia's
Central Bank frustrated these objectives.

Industry, which was accustomed to direction as to what and how much to produce, seemed incapable of
heeding consumer demands. The Russian government, fearing food and other shortages, continued to
issue production orders just as in Soviet days. Moreover, the government did not free all prices, out of
concerns that certain staples would become too expensive—and that industries like energy,
transportation, and communications could not sustain market pricing.7

The transition from a planned economy to a market economy was thus off to a bumpy start.

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 RELIGIOUS FREEDOM: The 1991 holiday season brought evidence that freedom was taking root and optimism
about religious freedom, even before Gorbachev resigned as the last Soviet president on Christmas Day. Here,
workers in Moscow erect a Menorah for Hanukkah. The Ukraine Hotel is in the background. On Sunday evening,
Dec. 1, ABC's Forrest Sawyer reported "another first today for religious freedom in the Soviet Union. Not only were
Jews allowed to openly celebrate Hanukkah, Soviet television even covered the lighting of the Menorah at the first
ever Hanukkah ceremony at the Russian Parliament." Warm American-Russian relations were marked by the
presence of American Jews in Moscow for the ceremony. The Associated Press reported that Russia's
"19-year-old Lena Rosenblat watched intently to learn about her own religion. 'Unfortunately, we don't know much
about our own traditions,' said the business student, standing with her 10-year-old sister Zhenya. 'I think we're the
first generation in our family not to know about this.'" Lena and her family "huddled in the cold wind on the
Parliament steps where barricades stood during the August coup. The coup's collapse, and the ensuing spirit of
liberation, hastened changes that led to Sunday's celebration in the Soviet capital. 'Our lights are a guarantee
against darkness,' said Rabbi Yitzhak Kogen, a member of the New York-based Lubavitch movement, which
organized the ceremony. 'Everyone can use this light of Hanukkah.' He spoke to 200 people on the parliament
steps watching the lighting of the 20-foot iron menorah, erected by the Lubavitch movement with permission from
Boris Yeltsin's government. After several speeches, the rabbis were hoisted aloft by a crane and, while reciting a
prayer, lit two kerosene lamps atop the center and far left branches of the eight-armed candelabrum. A vibrant
'Amen' rang out below and the sound of the Jewish songs reverberated off the white marble walls of the building.
... Communist rulers for decades suppressed Judaism and other religions in the name of official atheism. Though
underground services and schools persisted, most Jews learned little or nothing about their own religion....' For
Rosenblat, the Hanukkah celebration may have sparked optimism. 'Maybe we'll go to America or Israel. Or
maybe,' she said, flashing a cheerful smile, 'we'll stay here.'" APPhoto/AiexanderZemiianichenko

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The Political Landscape

After the January shock, inflation slowed to 10% by August 1992. But throughout the year, the Russian
government and the Central Bank continued to extend credits to inefficient, corrupt enterprises in a
misguided effort to boost production.

The results were predictable: more inflation. Inflation rose to 25% by October, and remained at that level
for the balance of the year. Production continued to lag, as anti-competitive subsidies for money-losing
industries continued. The ever-weakening ruble, combined with growing uncertainty about the future of
their economy, led Russians to trust dollars over rubles.

During the year of economic tumult following Yeltsin's January 1992 decision to move toward market
pricing without creating a free market in production, he lost support in the Russian parliament.

The Sixth Congress of the Russian People's Deputies, elected in March 1990, had convened in April
1992 amid protests over government economic policies. Yeltsin sacrificed his chief adviser, Gennady
Burbulis, to quiet the outcry, but the respite was short-lived. Opposition came to a head in December
1992, when the Congress of People's Deputies rejected Yeltsin's nomination of Yegor Gaidar, who had
been serving as the acting prime minister since June.

For the first two years of Yeltsin's administration, Russia continued to function under the Soviet-era
constitution. (Not until December 1993 would Russia finally adopt its first constitution since
independence.) Under the Soviet-era constitution of the Russian Federation, real legislative power
existed only in theory.

The Russian legislature under the Soviet-era constitution was the Congress of People's Deputies and its
smaller, full-time component, the Russian Supreme Soviet. In Soviet times, this body, like its
counterparts in the other Union Republics, was a docile rubber stamp for measures already decided by
the Communist Party Central Committee.

But without a ruling Communist Party from which to take orders, the Russian legislature's nominal
powers took on new significance. Thus, when Russians created the presidency in 1991 8 its powers in
comparison with those of the legislative branch were modest. While the president was the "highest
official of the Russian Federation and the head of executive power," Yeltsin had to work through a
Supreme Soviet elected in March 1990. The Supreme Soviet could override a presidential veto with a
simple majority in both houses and could impeach the president if it found that he violated his oath of
office.

In the early days of Russia's rebirth, however, Boris Yeltsin enjoyed high popularity~and therefore
authority in fact, if not authority in law. On November 1,1991, the Russian Congress of People's
Deputies acknowledged this fact and voted to grant Yeltsin the power to rule the economy by decree
until December 1992.9

On November 6,1991, the Russian president moved to enhance his power, announcing that he would
serve as his own prime minister and assume personal control of Russia's transition. The parliament's
decision to give Yeltsin the power to make economic policy by decree was a significant precedent,
because in so doing they failed to establish a democratic process to make policy.

Yeltsin's broad powers were based on his personal popularity rather than law, and therefore proved

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vulnerable to changing public opinion. In the early period of his presidency, he enjoyed considerable
power, and was able to effect controversial measures, including those that all agreed would bring
short-run economic hardship. But his failure to forge a political base of support for such measures or to
secure their enactment by the legislature left him as the inevitable target of criticism from other
popularly elected leaders.

In December 1992 Yeltsin retained sufficient authority, however, to reach an accord with the legislature.

A Setback to Market Reforms: Chernomyrdin Replaces Gaidar

In a compromise organized by the centrist Civic Union, Gaidar was replaced by Viktor Stepanovich
Chernomyrdin, who before becoming deputy prime minister in Gaidar's government had been the head
of the Soviet Union's largest monopoly, Gazprom~the state-run natural gas giant. 10

Chernomyrdin's appointment was a devastating step backward. But Yeltsin's decision was a pragmatic
one: Gaidar and his reforms had become associated with the disruption in people's lives, and the Russian
parliament had grown increasingly hostile toward Yeltsin. 11

Chernomyrdin, whom U.S. Vice President Al Gore would soon make the focus of U.S.-Russia policy,12
was neither a democrat nor a believer in free markets. The international press described him as a
"Communist-trained technocrat... [who] comes to the job with a background in Soviet industrial
management and political back-scratching." 13

Chernomyrdin was born in Orenburg in 1938, graduated from the Polytechnical Institute at Kyubyshev,
and received a degree in engineering economics by correspondence from Moscow's AU-Union
Polytechnical Institute. He worked as a machinist at the Orsk Oil Processing Plant starting in 1960,
joined the Communist Party's local branch the next year, and rose to prominence through party ranks.

In 1978, he became an industrial adviser to the Communist Party Central Committee. In 1982, he was
appointed deputy minister of the Soviet Ministry of Gas Industry, and, in 1985, he became minister
under Gorbachev. In August 1989, when the Ministry became Gazprom, Chernomyrdin became
chairman and CEO. He remained there until August 1992, when Russian President Boris Yeltsin made
him deputy prime minister for the fuel and gas industry. During his career, Chernomyrdin was awarded
several Communist Party honors, including the Order of the October Revolution, the Order of the Red
Banner of Labor, and the Order of the Badge of Honor. 14

Chernomyrdin's statist economic background was a fair predictor of his forthcoming performance as
prime minister. On December 31,1992, shortly after taking office, Chernomyrdin signed a resolution
re-imposing price controls on a wide range of goods. The new prime minister also proposed increasing
subsidies to protect insolvent state enterprises. 15

Yeltsin's agreement to appoint Chernomyrdin was purchased with a commitment from hard-liners to
hold an April 1993 referendum to approve a new constitution, as well as to test public support for
continued moves away from Communism.

Yeltsin's maneuvering to obtain a vote on whether to continue market reforms was shrewd. The results
of the referendum--15 months into Yeltsin's tenure-showed that 53% of voters approved of his

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economic course, notwithstanding the extreme hardship it imposed. Moreover, 67% supported early
legislative elections to replace the Communist hardliners in the legislature~a powerful public
endorsement of Yeltsin and his policy.

None of this deterred centrists and hardliners in the parliament from attempting to put the brakes on
economic reform to give greater attention to "social needs." 16

New Liberties and the Rule of Law

The U.S. Department of State reported that in its first year of independence Russia had "made substantial
progress toward democratic change, the reform of its political and economic systems, and the
dismantling of the remnants of the former Soviet state." 17

As democratization advanced, the number and activity of political, civic, and other groups exploded. In
its annual survey, Freedom in the World, Freedom House called attention to "a multitude of parties, as
well as non-political civic, cultural, social, business, youth, and other organizations" in Russia in
1992.18 The State Department estimated that some 300 strictly political organizations operated
"unhindered" in the country, adding that public demonstrations were commonplace throughout the year
and took place "routinely" without government interference. 19

Similarly, the State Department reported that freedom of speech and the press at this time were "widely
respected," and that most periodicals were now free of government control.20 A new law prohibiting
censorship and the creation of media monopolies guaranteed the freedom of Russia's print media.21

The new Russia took other important steps in 1992 to undo the Soviet legacy. The parliament passed
legislation dismantling the Soviet Union's KGB into several agencies. The new outfits were ordered to
respect human and civil rights, and submit to legislative oversight.22

Russia's citizens generally enjoyed freedom of religion and growing freedom of movement in 1992. By
the end of 1992, all adult citizens were granted the right to travel abroad.23

The 1992 creation of Russia's Constitutional Court was likewise an important step for the protection and
expansion of Russians' new freedoms, and the establishment of the rule of law. Two major Court
decisions in 1992--a January ruling overturning a Yeltsin decree merging the KGB and the Interior
Ministry, and a November decision that Yeltsin's ban on the Communist Party after the August 1991
coup attempt was unconstitutional-implemented the important principle of judicial review of the
legitimacy of executive acts, and marked important progress toward the establishment an independent
judiciary.24

Just as importantly, President Yeltsin's acceptance of the verdicts was a hopeful sign for development of
the rule of law in Russia. For a Soviet court to have ruled against a measure promulgated by the
Communist Party leadership, or for Party leaders to have obeyed such a decision, would have been
unthinkable.

Despite these encouraging signs, much work remained then, and remains now, to establish the rule of
law. Unlike the American Revolution of 1776, the French Revolution of 1789, or even the Bolshevik
Revolution of 1917, the Russian Revolution of 1991 did not overturn existing laws or destroy the

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governing institutions. Not only did the Soviet constitution remain in force for two years, until
December 1993, but even today many Soviet-era laws continue to be enforced.25

Popular Views of Democracy, Reform, and the United States

According to Librarian of Congress James Billington, a renowned Russia scholar,26 Russia has many
times in its past turned to its principal adversary for new thinking and institutions. As Russia rebuilt its
society after the Cold War, it looked to America for guidance,27 offering an historic opportunity for both
countries.

Never was this fascination with the United States, its people, its values, and its structures more apparent
than in the first years of Russian independence. As 1992 opened, Russian enthusiasm for democracy and
a market-based economy was manifest. After 75 years of Communism, Russians yearned to become
what they called a "normal" country.

Pro-democracy groups sprang up and independent political groups proliferated as Russians tested their
new political rights and showed their excitement about democracy. Public opinion polls showed
remarkably resilient support for Yeltsin's economic reform program, including privatization and other
measures,28 even after the economic hardships of price liberalization. Conversely, the Russian
parliament lost support as the public began to perceive it as a hindrance to reform.

In addition to displaying enthusiasm for the American model of democracy and free markets, Russians
wanted broad and close ties to the United States. This was apparent not only in opinion polls, where
strong relations with America registered as a top priority,29 but also in a general fascination with
American popular culture.

American clothing, films, and music surged in popularity, particularly in Moscow and St. Petersburg. In
early 1992, over 70% of Russians surveyed were viewers of the soap opera "Santa Barbara." Russia's
RTR television network estimated the audience for the program to be 80 million.30

Nor was Russian popular fascination with America and Western culture limited to television
programming. According to the Russian Press Ministry, the best-selling book in Russia in 1992 was
Margaret Mitchell's Gone With the Wind, followed by Edgar Rice Burroughs' Tarzan of the Apes.
Western artists dominated pop music charts. The Beatles accounted for two of the top three selling
albums of the year, as the White Album and Abbey Road ranked first and third, respectively. In Moscow
movie theatres, Gone With the Wind had the largest ticket sales of any foreign movie.31

Russians were obviously enamored of things American—both material goods, such as McDonald's
hamburgers and Levi's jeans, and Western governmental and economic institutions.32

Such interest gave the United States an unprecedented opportunity to assist the Russian people in their
transition from Communism to free enterprise and democracy.

Russian Foreign and Defense Policy

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Russia's foreign policy reflected the overwhelming goodwill of Russia's citizens toward the United
States in 1992. The rhetoric of Russian government leaders was positive. President Yeltsin's speech on
January 31,1992, at the United Nations in New York-which had so often been the site for showdowns
between the United States and the Soviet Union-was remarkable:

Russia considers the United States and the West not as mere partners but rather as allies. It
is a basic prerequisite for, I would say, a revolution in peaceful cooperation among civilized
nations.

We reject any subordination of foreign policy to pure ideology or ideological doctrines. Our
principles are clear and simple: supremacy of democracy, human rights and freedoms, legal
and moral standards.33

Later in the year, Russia supported U.S. efforts in the U.N. Security Council for sanctions against Libya
for its terrorist activities, as well as condemnation of the government of Yugoslavia for its interference in
the civil war in Bosnia-Herzegovina. This support was essential to American attempts to isolate both
Tripoli and Belgrade.

Russia's rejection of its former Communist ideology in foreign policy, and its emphasis on the universal
values of democracy, human rights, individual freedom, and pubic morality, went well beyond
Gorbachev's comparatively timid "new thinking" in Soviet foreign policy. It was not too much to hope
that the spirit of brotherhood between the U.S. and Russia forged in the battle against fascism during
World War II would supplant decades of Cold War antagonism.

The Bush-Yeltsin Watershed

During Yeltsin's June 1992 visit to Washington he and President Bush signed agreements that
engendered great hopes for enduring cooperation between Washington and Moscow. Most significant
was a joint understanding that was to serve as the framework for the START II Treaty that Presidents
Yeltsin and Bush signed on January 3,1993.34 START II was an agreement to reduce both countries'
nuclear warheads by almost 75%, eliminating highly destabilizing multiple-warhead land-based
missiles.35

There were dozens of other agreements, including a Charter for American-Russian Partnership and
Friendship that laid out an ambitious plan for cooperation in preventing and limiting international
conflicts, a statement on joint work to develop a missile warning system, and agreements on
non-proliferation, space, and investment.36

The spirit of the times was captured by the extraordinary reception President Yeltsin received when he
called for closer U.S.-Russian cooperation in the address he gave during a June 1992 visit to a Joint
Session of Congress. Saying Russia was "extending its hand of friendship to the people of America," he
invited America "to join [Russia] in partnership in the quest for freedom and justice in the 21st
century."37

During his address to Congress, Yeltsin renounced the most confrontational aspects of Soviet foreign
policy, including U.S.S.R intervention in Afghanistan and support for Cuba's Communist regime. He
also announced that he had ordered Russia's Defense Ministry to begin to remove the country's most

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dangerous missiles, its land-based multiple warhead SS-18s, from alert status.

Russian overtures to America at this time also included cooperation on non-proliferation, reductions in
conventional weapons, and~of special note-discussions of a cooperative global anti-ballistic missile
(ABM) system.38 Russia played a key role in facilitating the Lisbon Protocols to START I, which
guaranteed that Belarus, Kazakhstan, and Ukraine would transfer Soviet nuclear weapons to Russia for
destruction and assume non-nuclear status. The subsequent unhappy evolution of Belarus under
President Alexander Lukashenka is a reminder of the importance of this agreement to contemporary
international security.

Early Military Conversion Efforts

Perhaps the most significant development in the early days of the new Russia was the initiative for a
massive de-militarization of the Russian economy.

Russia's 1992 military budget called for expenditures to be one-half the previous year's, with a
substantial majority of the funds to be spent on personnel and operations and maintenance.39 Military
procurement was sharply reduced. While the U.S.S.R. had bought 3,000 tanks in 1991, Russia was slated
to purchase only 30 in 1992.40 Altogether, spending on military hardware was cut by 80%.41

At the same time, the law "On Defense" adopted by parliament in June 1992 limited the size of Russia's
peacetime military to 1% of the country's population, or about 1.5 million soldiers.42 The Russian
military planned to reduce its forces by some 700,000 men during the period 1992-94.43

Russia's demobilization in 1992 was fraught with political peril. Cuts in procurement placed thousands
of jobs in Russia's oversized military-industrial complex in jeopardy, at the very time that the rest of the
economy was also under heavy pressure. Russia had ambitious plans for the conversion of military
plants to civilian production. Conversion, however, required even more spending than continued military
production.
According to Mikhail Bazhanov, the head of the State Conversion Committee, Russia would need to
invest 1.2 million rubles in converting to civilian production for every one million rubles it received
from state orders for military production.44

Bazhanov worried that Russia could be forced to turn to arms sales to finance its military conversion
effort. President Yeltsin concurred, but vowed that Russia would not sell weapons to countries under
U.N. sanctions.45 Yeltsin also decreed that the Defense Ministry should be permitted to sell all excess
property other than weapons and ammunition in order to raise funds.46

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INVESTMENT, NOT AID: President Bush and President Boris Yeltsin leave the stage after meeting with business
executives in Washington when Yeltsin was in the United States for a summit. "In effect," New York Times foreign
affairs columnist Thomas L. Friedman wrote at the close of the June 16-17 summit, "these two days marked the
moment when the currency of American-Russian relations shifted from warheads to dollars.... The importance of
the economic agreements signed today, offering most-favored-nation trade benefits to Russian exporters, export
credits, a taxation treaty, insurance to American companies want-ing to invest in Russia and a treaty to govern
mutual investment, is that they promote what will really transform the Russian economy: not foreign aid, but private
investment. One thing American officials have learned from the experience of Poland is that while Western aid is
necessary for transformation to a free market," Friedman continued, more is necessary. "There is no capitalism
without capitalists, and unless Russia is opened up to investment, unless state-owned industries are privatized
quickly, unless the ruble is made convertible and unless there is a modicum of internal stability to attract foreign
businesses, no external aid package will be big enough." Clinton administration officials, however, attempted to
rely on aid, neglecting the prerequisite for its effectiveness, the creation of a market economy. AP Photo/Dennis
Cook

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BIPARTISAN POLICY: Russian President Boris Yeltsin received a warm bipartisan welcome in Congress in 1992.
Despite the fact that 1992 was an election year, Republicans and Democrats worked together to pass the
FREEDOM Support Act. Had this legislation been properly implemented during President Clinton's two terms, it
would have provided for much better conditions in Russia and for a more positive U.S.-Russia relationship. Office
of Photography/U.S. House of Representatives

Bringing Troops Home

The withdrawal of Russian military forces from abroad and the partial dissolution of unnecessary
military units created similar economic challenges. In August 1992, some 104,000 military personnel
were without housing; the number was expected to increase substantially as additional troops were
pulled from foreign bases.47 Large numbers of potentially disaffected current and former military
personnel were a major political concern of the Yeltsin government.

Nevertheless, Russia began the withdrawal of substantial military forces stationed in Central and Eastern
Europe and the Newly Independent States of the former Soviet Union during 1992. For example, some
15,000 soldiers and officers had withdrawn from Lithuania by fall.48

Despite these very practical problems, the trends were unmistakable: whereas the Soviet Union had
devoted itself chiefly to the maintenance and expansion of its military and empire, the new Russia-at
least in its early days-was committed to channeling its enormous potential into the construction of a free
enterprise civilian economy.

The collapse of the Soviet Union and the newly pro-western orientation of Russia's foreign and military
policies also had consequences for the mission of the Russian military, as political leaders reevaluated its
fundamental purposes. At the end of 1992, Boris Yeltsin identified the top priorities of the Russian army
as preventing war, conducting demilitarization, converting military enterprises to civilian purposes, and
reducing troop strength.49 The Russian military was to be oriented primarily toward its own internal
restructuring and downsizing.

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As President Clinton took the oath of office on January 20,1993, the Russian government was
completing the Foreign Policy Concept of the Russian Federation, an authoritative statement of its
goals, which—as issued in final form five days later—announced that the conclusion of a
Russian-American alliance was the formal objective of Russian foreign policy. There was no hint of the
dramatic deterioration in the U.S.-Russian relationship and the anti-American Russian military and
foreign policy that were to come. 50

U.S. Russia Policy at the Outset of the Clinton Administration

At the outset of the Clinton administration, the Bush administration and Congress had put in place the
necessary tools for the United States to assist the Russian people in their historic transition from
Communism to free enterprise. In the same way that America's former enemies, Germany and Japan, had
become friends, allies, and significant U.S. trading partners, it appeared that so too might Russia and the
new nations of the former Soviet Empire.

The Bush administration's Russia policy during the closing days of Gorbachev's government had been
one of cautious engagement-supporting freedom, but avoiding potentially counterproductive steps such
as the large-scale infusion of cash into a system in transition.51

As early as 1990, the United States had begun to provide limited assistance to the Soviet Union to show
support for reform. Before the final collapse of the Soviet Union in December 1991, the Bush
administration took several steps to prevent adverse social consequences from the thus-far peaceful
revolution, including signing an agreement to extend normal trade relations to all of the republics of the
Soviet Union, providing nearly $1.2 billion in food aid and agricultural credits, and extending medical
assistance.

The caution and reserve of the Bush administration, which was apparent to Russian observers at the
time,52 compared favorably to the approach of its successors-particularly in terms of the positive results
it produced.

On the strategic front, President Bush in 1991 announced several significant initiatives, including the
elimination of U.S. short-range nuclear weapons, the stand-down of strategic bombers and ICBMs slated
for destruction under the START agreement, and a proposal to eliminate ICBMs with multiple warheads
(eventually a key part of START II).53 The administration continued this approach in 1992, taking
important steps to reduce tensions while protecting America's strategic interests.

Support for Freedom

The most important Bush administration initiative of 1992 was the Freedom for Russia and Emerging
Eurasian Democracies and Open Markets (FREEDOM) Support Act.54 During a difficult U.S. election
season, the Bush administration successfully pushed this path-breaking legislation through a Congress
controlled by the opposing party, despite unusually strained relations between Congress and the
executive branch.

"During my tenure," said Richard Armitage, former Coordinator for U.S. Humanitarian and Technical

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Assistance, "I communicated directly, often, and in great detail, with the appropriate Committees of
Congress. I wanted very much to have the advice of key Members and staff and share with the Congress
my sense of just how daunting the task of undoing the effects of 70 years of Communism would be. We
reached, I think, a bipartisan consensus."55

The Bush administration's willingness to expend significant political capital and engage the Democratic
Congress to achieve the historic bipartisan Freedom Support Act insured that, had the administration not
changed, both branches would have subsequently followed through on its implementation. 5 6

The Freedom Support Act provided the executive branch with "broad authority for the conduct of a wide
range of humanitarian and technical assistance programs."57 The premise of the legislation, as stated in
the Act itself, was that developments in Russia and the other independent nations of the former Soviet
Union presented "an historic opportunity for a transition to a peaceful and stable international order and
the integration of the independent states of the former Soviet Union into the community of democratic
nations." The legislation specifically authorized technical cooperation, medical aid, food assistance,
assistance for the development of democratic institutions, and encouragement of trade and investment. It
cited as objectives the establishment of the rule of law, the adoption of commercial codes, and replacing
the Soviet regulatory system with transparent regulations hospitable to domestic and foreign investment.
The Act also created the Office of Coordinator of U.S. Assistance to the New Independent States.58

A Newly Free People

The rapid transformation of Russia from a closed, militarized, state-run society to a pro-Western,
democratic, free-thinking nation presented the United States with the most significant foreign policy
opportunity since World War II. But Russia's new freedoms were neither complete nor secure. At the
end of 1992, as Russians stood on the ashes of the Soviet system, they looked hopefully toward America
and the world—not for charity, but for inspiration.

How President Clinton, the new leader of the free world, would address this opportunity, and whether
Russia's new leaders would stay the course of dismantling the Soviet Communist state, hung in the
balance.

CHAPTER 3

THE TASK AHEAD:

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CREATION OF A FREE
ENTERPRISE SYSTEM
AFTER A CENTURY OF
STATE CONTROL

FROM THE BERLIN WALL TO THE INVISIBLE WALL: "General

Secretary Gorbachev," President Reagan asked at the Berlin Wall, June 12,
1987, "if you seek peace, if you seek prosperity for the Soviet Union and
Eastern Europe, if you seek liberalization: Come here to this gate! Mr.
Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!" The Berlin
Wall fell, but at the outset of the Clinton and Yeltsin administrations, an
invisible wall of high tax rates, limited market competition, weak contract and
property rights, and no real banking system confined Russians. Clinton policy
reinforced this invisible wall with bad economic advice that contributed to
Russia's economic collapse in 1998. Trade with the Communist-controlled
People's Republic of China was a higher priority than trade with Russia. Tax
collections were emphasized over rate cuts. Government-to-government loans
substituted for growth policy. Capital flight undermined investment in Russia.
Predictably, Russia's economic output plunged 40%. Clinton policy
contradicted advice from President Reagan in his Berlin Wall speech: "In West
Germany and here in Berlin," the President said, "there took place an economic

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 miracle, the Wirtschaftswunder. Adenauer, Erhard, Reuter, and other leaders
understood the practical importance of liberty-that just as truth can flourish only
when the journalist is given freedom of speech, so prosperity can come about
only when the farmer and businessman enjoy economic freedom. The German
leaders reduced tariffs, expanded free trade, lowered taxes. From 1950 to 1960
alone, the standard of living in West Germany and Berlin doubled." APPhoto/j. Scott
Applewhite

For 72 years, Communism in Russia waged a silent war against the

human soul. Sometimes screams were heard from torture chambers
deep in prisons and in detention centers, but mostly the war was
fought with ideas and incessant public propaganda ... Communism
... wounded the habits of honesty and trust, self-reliance andfidelity
to one's word... The transition from Communism to a free society is
consequently a severely demanding moral task... How that
transition goes is perhaps the greatest issue of our time.
Michael Novak, writing in Commentary, June/July 2000

Economic science adds that the more successfully private business is

run in society and the more (so to speak) whole coats there are, the
firmer are its foundations and the more the commonweal flourishes.
Thus, while busy acquiring only and exclusively for myself, I
actually, at the same time as it were, acquire for all and help bring
about a
condition in which my neighbor receives something more than a torn
coat. And he receives it not from the private charity of a few but as a
result of overall improvement. The idea is a simple one.
Unfortunately, it has been too long in reaching us.
Fyodor Dostoyevsky, Crime and Punishment, 1866

Without justice, what is the state but a band of thieves?

St. Augustine, The City of God

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The English philosopher John Locke argued that the essential function of government is to protect life,
liberty, and property. The Soviet Communist system-which killed at least 20 million Russians, denied
freedom of thought and expression, and confiscated property—turned Locke's prescription upside down.l

The task facing the Russian people in January 1992 was to replace Communism with a free enterprise
system and a democratic government that would protect life, liberty, and property.

The collapse of Communism in Russia ended not only the Soviet police state, the gulag, the one-party
dictatorship, and the monopoly of state-controlled media but also the Soviet centrally-planned economy.
The perestroika of the last Communist Party General Secretary, Mikhail Gorbachev, had been an effort
to refine, not to replace, the command system of the Soviet Union. But now, in January 1992, there was
for the first time in the experience of most living Russians a genuine opportunity to build the
foundations of a free enterprise system.

The necessary bricks for that foundation were clear enough:

* Market-determined prices and production

* Binding, enforceable private contracts

* Individual ownership rights in land

* Private mortgage lending

* Commercial banking

* Uninhibited individual investment in for-profit enterprises

* Taxes light enough to minimize tax penalties on work, savings, investment, and
risk-taking

The question was not whether, but where—and how—to begin.

A Dysfunctional System
The economic system in Russia at the dissolution of the Soviet Union was fundamentally dysfunctional
because the state attempted to control far too many aspects of life. Whereas in Eastern Europe for some
45 years Communism had been superimposed on largely market economies, in Russia Communism had
been in place for the better part of a century, and had been imposed on a society with comparatively little
experience of free markets.

Any small private farms that had existed before Communism in Russia were brutally collectivized. In
Stalin's phrase, the people who owned the farms were "liquidated as a class"~and often as individuals. In
Poland, by contrast, small, privately-owned farms survived the post-World War II imposition of
Communism: by some estimates, 30% of the Polish economy was privately controlled even during
Communist rule.2 The seeds of free enterprise in Russia would be planted on less fertile soil.

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 SMITH BURIES MARX: Nina Khrushcheva, the 32-year-old granddaughter of the late Soviet Premier and Cold
War leader Nikita Khrushchev, signs autographs with President Nixon's grandson, Christopher Cox, for visitors
July 28,1996 at the Richard Nixon Library and Birthplace in Yorba Linda, Calif. In the background is a photograph
of Khrushchev with Nixon. While her grandfather told Nixon "we will bury you," Nina Khrushcheva noted that the
challenge facing Russia at the outset of the Clinton administration was that "there could not have been a culture
more out of touch with Adam Smith." AP Photo/Damian Dovarganes

According to Nina Khrushcheva, granddaughter of Soviet dictator Nikita Khrushchev: "There could not
have been a culture more out of touch with Adam Smith."3 Acting prime minister Yegor Gaidar put it
this way: "[A]fter seven decades of a regime for which private enterprise was not merely a dirty word but
a criminal act...[t]he hostility toward private property permeated all of Soviet legislation and law
enforcement. "4

The Soviet economic bureaucracy in Moscow made decisions for 270 million people inhabiting eleven
time zones. Soviet planners constructed an economy devoid of individual initiative and dominated by
military spending. Individuals in the Soviet Union who sought to earn a profit were subject to
imprisonment for the crime of "speculation." Central planning affected all aspects of the individual's life.

To move from this vast state-controlled economy to a free enterprise system based on private property,
markets, and individual choice called for change on a breathtakingly large scale.

For the government, there were three main tasks:

* Soviet-era laws and regulations governing commerce would have to be repealed~not just
in Moscow, but in each regional legislature.

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

* The courts would have to build public confidence that privately-made contracts would be
binding and enforceable.

Critiques of the reform process in Russia have often centered on a handful of generalities. Analysts of all
ideologies decry the lack of "transparency" in Russian regulation, the need for the government to
establish the "rule of law," and the need for the government to build efficient "institutions." In testimony
before the House International Relations Committee in September 1998, then-Deputy Treasury Secretary
Lawrence Summers repeated these formulations. However, the economic challenge that faced Russia in
1992, and continues today, is not simply to establish a better-working government. It is to fundamentally

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shift the responsibility for economic activity away from the government, and to individuals.

Transparency, the rule of law, and efficient institutions indeed are all vital elements of a well functioning
free enterprise system. But they can also be consistent with statist economic systems, from Communism
to Fascism to Socialism. What distinguished the Russian predicament in 1992, and required remedial
action above all else, was that private economic behavior and private property had for so long been
illegal.

Russia's task would be to focus all its energies on building the foundation for private initiative in place
of government involvement in the economy. These historic circumstances demanded that the central
government be cut down to size, and private enterprise legalized and encouraged.

From Gosplan to Supply and Demand

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Before Russia could prosper, the complex Soviet system, a portion of which is reflected in the chart above, had to
be replaced with the elegantly simple market system of supply and demand, depicted below in a graph familiar to
all students of introductory economics. Russians eliminated the Soviet planning bureaucracy, which included
50,000 territorial administrative units, but other prerequisites to prosperity, including competition, enforceable
contract and property rights, and efficient debt and equity markets, were delayed. "Privatizing" Russian assets
before the creation of a market economy, rather than after, left individuals and firms unable to transmit accurate
supply and demand messages to each other, which in turn caused economic contraction instead of growth. Soviet
planning chart courtesy of Congressional Research Service

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 p=Price Q=Quan% S=Suppty D=Demancl

Tearing Down the Soviet Network

The Russian economy was divided into about 200,000 state-owned enterprises. Of these organizations,
about 600 gigantic industries were responsible for 47% of the Soviet Union's non-military industrial
production.5

For most of these industries, competition was non-existent: they enjoyed a state-enforced monopoly in
particular markets. The management of these firms was uninvolved in the strategic decisions normally
made by a company's executives. Instead, central planners in Moscow determined quantity and quality,
chose suppliers and distributors, and decided what markets were open to industry. This reduced
management to little more than production foremen.

During the final months of the Soviet Union, control over enterprises had in some cases been partially
devolved to governments in the republics, complicating the prospects for privatization by giving
multiple and competing levels of government claims on controlling the privatization of particular
industries. In many cases, the resulting limbo left local plant managers and workers in control of
factories regardless of the nominal ownership.

The inertia of 70 years of central planning kept producer-supplier relationships in place, despite the
collapse of government-organized payment arrangements.

The "privatizations" of the 1990s would later fail to disintegrate the network of inefficient supplier
relationships established under the Soviet command economy. This was true in part because the
management remained the same, but just as importantly, because the incentives to change were missing.

Thus, the Soviet enterprise network continued to operate in essentially the same manner even after the
fall of the Soviet Union. Products were still produced in qualities and quantities unrelated to market
realities. And while a market economy would have quickly bankrupted inefficient companies that
consistently lost money, in Russia these companies continued to limp along, often through continued
state subsidies.

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The European Bank for Reconstruction and Development later reassessed the first years of economic
reform in Russia and Eastern Europe, concluding: "The consequences of the privatization strategy
adopted in Russia have been highly adverse for the governance of enterprises and the allocation of
resources, not least because of the clear failure to break the political constraints on restructuring and
company closures."6

"Privatization" is impossible without a functioning market economy into which formerly state-owned
assets can be sold. Nonetheless, throughout the 1990s both Russian policy makers and their American
advisors (who should have known better) rarely concerned themselves with doing the government's part
to establish a market economy. In a free enterprise system, government referees the game, but it is not a
player. In the Russian "privatization" scheme, the government relinquished only some of its rights to
play the game, and it continued to call too many—and sometimes all—of the plays. As a result, the
"privatized" Russian enterprises lacked the normal incentives that cause the efficient allocation of
resources in free markets.

Without enforceable property rights, the proprietors of "privatized" firms lacked the incentive to run
companies efficiently and in accord with economic reality. Instead, producing profits for the firm's
owners often required flatly illegal conduct. The government's continued subsidies for industry only
encouraged such conduct, by providing opportunities for owners to strip away assets for their own
personal profit, without market discipline.

The task in 1992 was to tear down the Soviet enterprise networks and provide neutral, pro-competitive
rules to permit individuals to build new firms in an expanding market. "Privatization" without genuine
private property and authentic markets could not accomplish this task.

Establishing Private Property Rights in Land

In 1991, the Russian language did not even have a word or term that captured the essence of private
property in land, underscoring how alien this notion was to the Soviet system. Property belonged to
everyone, and therefore to no one. As a result, incentives to maintain and enhance the value of real
property were absent in Soviet-era society.

The lack of any legal, cultural, or customary basis for private property in land in the Soviet system stifled
initiative, suppressed entrepreneurship, wasted valuable human and physical capital, and contributed
significantly to the ultimate collapse of the Soviet Communist regime.

In 1991, the Soviet state owned an estimated 1.5 trillion acres of arable land. Breaking the state
monopoly over real property was an important first step to allow Russians to use it to generate real
wealth. Beyond de-collectivization of the massive state farms and the "privatization" of state-owned
industry and housing, a means was required to distribute land to Russian citizens who for decades had
been deprived of the opportunity to own it.

The enormous task of moving vast acreages of Russian land from state control to private ownership was
not unprecedented. The United States faced a similar challenge in the 19th century. By the 1850s,
America's huge land acquisitions had left the government in control of over half of the continental
United States. Transferring government-owned land west of the Mississippi River to private ownership
became an enormous—and urgent—project.

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In 1862, President Abraham Lincoln signed the Homestead Act, one of history's most notable examples
of establishing private ownership from scratch. The Homestead Act allowed each citizen to claim
one-quarter square mile of surveyed government land for his home, as long as he improved it with a
dwelling and grew crops. If the owner maintained the property for five years, permanently clear title was
issued.

The Homestead Act and subsequent laws succeeded in transferring vast portions of the United States
from government control to private individuals in less than 20 years. Settlers first built homes of sod,
which were soon replaced by frame and brick houses. The private property owners invested in trees to
shield their dwellings, windmills to pump water from underground, and a host of technologies that made
farming profitable. This remarkable transformation of prairie to developed real property was only
possible through the establishment of a key element of the free enterprise system: individual ownership
of land.

With such vast portions of the Russian Federation under state control, Russia required legislation that
would do for it what the Homestead Act did for America almost 150 years ago~not only for residential
and agricultural land, but for real property that might be put to any use.

Even more basic prerequisites for establishing private property rights in land were accurate surveying as
the basis for certainty of title and public registration of ownership, so that others know who owns what.
For property ownership to be useful to individual Russians, titles would have to be open to public
inspection and well settled, with no "hidden" state or private claims or rights against the property.

A registry of deeds traditionally serves this function, although in today's global economy it is easy to
imagine that a private registry on the Internet or some other form of up-to-date database could just as
reliably catalogue real property ownership. The only essential is that title be unshakable, readily
transferable, and useful as collateral for loans. Any number of public or private solutions would suffice,
so long as the process was precisely accurate and trustworthy.

The owner of land must be able to sell his property on his own, without seeking anyone else's
permission-including that of the government. The owner of real property must also be able to use it as
security or collateral to borrow money. That, in turn, requires that the lender have a speedy, legally
reliable, and inexpensive way to acquire ownership of the property if the borrower defaults. To this end,
Russia's regional governments would need to enact laws clearly defining every one of these aspects of
ownership.

Finally, because "rights" in land are useful only if they are enforceable, Russia would need to establish a
court system that could be trusted to enforce protections for private property owners simply and cheaply.

Establishing private property rights in land was one of the most important elements of building a free
enterprise economy in place of Communism that Russia needed to undertake in 1992. By doing this, the
destructive linkages to the remnants of the Soviet system could be cleared away, and the vast potential
wealth in Russian land could be opened up as a source of start-up capital for individual enterprise.

Establishing Private Property Rights in Housing

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Converting the existing stock of Soviet-era state-owned housing to private ownership, and legalizing the
construction of more and better housing, was likewise an essential first step to build a successful free
enterprise economy. The housing shortage in Russia in 1992 was symptomatic of the inherent problems
of the Soviet system, including restrictions on business and individual ownership of residential real
property.

The pseudo-privatization of Russian apartments illustrates the difficulty that both the Soviet and Russian
political systems had in recognizing basic ownership rights. Just before the end of the Soviet Union in
1991, Russia had allowed some of its citizens to "own" their apartments at little to no cost. (By the end
of 1993,90% of Moscow residential property was theoretically "privatized" in this way.) But such
"private ownership" was illusory.

Buying and selling apartment units was legally and economically difficult or impossible.
Soviet-controlled rents-frozen since 1928-covered less than 5% of the operation costs. It was therefore
impossible for "owners" to pay for property improvements.

The problem was exacerbated when the government, which remained the landlord for "privatized"
housing, stopped paying for maintenance for newly-privatized apartments. Because their occupants did
not truly "own" them (in the sense that an investment in improvements could translate to an increase in
the owner's wealth), the apartments quickly fell into disrepair. 7

Nor had the government nominally gotten out of the ownership picture; in fact, it had devolved the
housing assets and responsibilities to municipalities as a way of relieving itself of the burdens of
managing the apartments.8

The underdeveloped legal system that existed in 1992, with multiple overlapping jurisdictions and poor
enforcement, was yet another contributor to the lack of a housing market in Russia.

Not only were the Russian Federation's property laws~the legacy of Soviet Communist
ideology—hopelessly restrictive and confusing, but also the courts were unwilling or unable to resolve
the conflicting mandates from federal, regional, and local authorities. A "war of laws" began as various
levels of government passed conflicting mandates.

Nor was there any mechanism for resolving such conflicts.9 Statutory contradictions were left for
individuals to resolve, with no recourse to any impartial interpretation of a person's rights or
responsibilities under the law. Thus, the profitable use of residential real property was subject to
arbitrary restriction, with little or no protection from the government.

In addition to the need for genuine privatization of housing, Russia needed private banks that would
create a market in mortgages. In order for ordinary Russians to afford to buy an asset as expensive as a
home, a convenient payment system over many years would be needed. The requirement was for a
marketable mortgage with a term of 20 to 30 years at a reasonable interest rate.

In 1992, Russia had none of these things, and thus enjoyed none of the benefits of a free market. Little
new housing was being created nor old housing sold. No new wealth was created in real estate. The
absence of unassailable land titles, the absence of mortgage finance, the lack of unfettered rights to set
prices for rents and for property itself-coupled with continued restrictions on the right to alienate real
property—amounted to no free market at all.

The lack of a viable mortgage lending system had consequences well beyond a lack of adequate housing:

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it deprived Russians of their most likely means of generating start-up capital for new enterprises. The
only significant tangible asset potentially available to the average Russian was the home he or she
occupied (and perhaps nominally owned). Mortgage finance could turn that home from merely a
maintenance cost into an asset useful for generating wealth—an asset that has been the stepping-stone to
the American Dream for generations of Americans working their way into the middle class.

If a competitive home mortgage industry were at work in Russia, first thousands, and eventually
millions, of Russians could use their homes as collateral for small-business loans, creating the
entrepreneurial competition needed to break up the Soviet enterprise network. Lacking this normal
vehicle for supporting the nascent entrepreneurial class, however, the most entrepreneurial Russians
were increasingly being forced to turn to illicit means to fund new businesses. The rest just didn't start
businesses at all.

As much as any other factor, the inability of ordinary Russians to use their homes as a means to build
businesses has slowed the creation of a broad middle class in Russia, and the realization of the economic
and political benefits that it would bring.

The British magazine The Economist summed up the challenge for the development of competitive
markets in Russian housing and mortgage finance:

Badly constructed houses, feckless owners, buyers with impenetrable personal finances, an
untested legal environment, crooked and incompetent banks, and almost universal political
interference in the economy. The reasons behind Russia's lack of mortgage lending are
hardly mysterious. 10

This well described the situation in 1992. Sadly, however, The Economist diagnosis was
made eight years later in 2000. Nothing had changed.

Making Contracts Enforceable

Yet another basic building block of a free enterprise economy is the freedom to make private contracts,
coupled with an effective mechanism for their enforcement. In 1992, Russians had neither.

Because Soviet enterprises were fully government-owned, the need for a fast, efficient, inexpensive, and
fair system of resolving commercial disputes between private individuals and firms had never been
recognized in the Soviet Union. Contracts between state-owned enterprises were relatively easily
enforced: once a dispute was resolved by the appropriate government entity, the loser had little choice
but to accept the judgment and act accordingly.

In most cases, moreover, the contracts themselves were dictated from higher levels-so neither party was
in a position to question them. 11

In 1992, recognizing that a sturdy and reliable system of dispute resolution would be required to handle
commercial disagreements between private parties, Russia enacted an arbitration code and established
local arbitration tribunals throughout the country. 12 But this was not nearly enough: most Russian courts
had no experience with arbitration awards, and they were often uncertain of the procedures required.

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As a result, while the new law endeavored to legitimize private contracts, it failed in practice to
guarantee truly useful contract rights.

Even when a court or arbitration panel could be made to stand behind a contract, the court's judgment
was usually very difficult to collect. According to American analysts writing at the time, "the process of
identifying, seizing, and converting the assets of the Russian party [against whom a contract judgment
was rendered] to cash... [was] likely to be tedious, time-consuming, and expensive." 13

Moreover, without clear-cut property rights in land, buildings, and housing, few Russians owned any
marketable assets that could provide the basis for enforcing a judgment in a private dispute. 14

Russian firms attempting to operate in this environment in 1992 coped with the challenges through a
variety of means, including "blacklists" of unreliable suppliers, 15 penalties imposed by Russian
membership organizations, 16 and the use of organized crime groups as bill collectors and contract
enforcers. 17 These options were not readily available to foreign firms, however, with the result that the
lack of enforceable contract rights served as a significant impediment to foreign investment in the
Russian economy. 18

Private Commercial Banking

Just as clearly defined property rights are essential to creating assets of real value, establishment of a
private, competitive, legitimate, accessible, and reasonably-priced retail commercial banking system is
vital to creating entrepreneurial opportunities.

Without private commercial lending, neither startups nor expansions of businesses could occur. And
without the competition of new businesses, the Russian economy would forever remain captive to the
network of formerly state-owned enterprises.

The banking system that Russia inherited from the Soviet Union performed none of the normal functions
assigned to banks in the West. Instead of accepting deposits and using those deposits to make loans,
Soviet banks acted as the financial arm of the government and of Gosbank, the Soviet Central Bank. 19

Rather than make loans based on objective analysis of creditworthiness, Gosbank distributed and
reallocated resources to favored individuals, companies, groups, and industries at the direction of the
state.20 The Soviet government also used Gosbank as a means to enforce quotas and production
requirements, and its bank balances were a prime means for Moscow's economic planners to determine
if their targets had been met.

Ending this role for the central government and enacting sturdy, understandable, and pro-competitive
banking rules was thus of utmost importance in 1992.

Foremost in establishing a pro-competitive banking system is that banks must be able to maintain an
arms-length relationship with industry. This is necessary to allow individual banks the ability to
concentrate on the normal banking business of risk analysis, rather than on the implementation of
government-dictated economic policies, the subsidization of favored individuals or organizations, or the
management of industrial conglomerates. It is also important to avoid the perception of insider dealings
between the banks and the companies.

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In the Russia of 1992, there was ample evidence that no such arms-length relationship existed, and that
neither the banks nor the government could be counted upon to obey or neutrally enforce transparent
rules. In 1991, the Russian Supreme Soviet had passed a law mandating that savings accounts be
indexed for inflation if prices were liberalized. However, when prices were decontrolled in January
1992, the law was ignored with impunity by the state-owned banks then operating in Russia. Over the
next several months, 99% of the savings of the Russian population were lost.

Yet another challenge for Russia was to establish transparent accounting standards as a means of
building public confidence in the banking sector.

For private commercial banks to begin the normal business of banking-that is, accepting deposits and
making loans~the bankers themselves would have to be assured that they could make loans with the
assumption of only a reasonable risk. For this reason, too, Russia needed to establish real property rights
in law, honest and efficient courts, and legally useful means to enforce court judgments, so that bankers
could use land and buildings as valuable collateral.

Finally, Russia would need to convert its Central Bank into an independent entity charged with setting
monetary policy independent of political needs. This would establish confidence among the Russian
public and foreign investors that they would be protected against capricious changes in the value of their
currency, and from official corruption, thus encouraging deposits in the banking system and
discouraging capital flight from Russia.

Repeal of Soviet-Era Regulations

The regulatory structure in the Soviet Union was omnipresent, allowing little deviation from
state-determined norms. In 1992 the new Russian government inherited this panoply of regulations, and
one of its first challenges was to repeal them. So long as Soviet-era regulations remained in place, there
could be no free enterprise in Russia.

The regulatory regime that Russia inherited from the Soviet Union was nowhere more pronounced than
in the control of prices—the primary mechanism by which Soviet planners had attempted to control all
other aspects of production.

Government-administered pricing hurt both the quality and quantity of products. Prices were often so
artificially low that firms faced a choice between producing inferior goods, to keep costs in line with the
low prices, or producing goods of passable quality in quantities insufficient to meet public demand. In
other cases, by arbitrarily setting prices too high for consumers, the government intentionally (or
sometimes accidentally) decreased consumption.

Decontrolling prices was necessary to permit the economy to produce the high-quality goods and
services the Russian people needed. Just as important, price liberalization would have to be
across-the-board to avoid further disrupting the market.

As if to illustrate the latter point, partial price liberalization was undertaken in 1992. It injured and
confused the public, for example, by creating anomalies where the prices of some goods that had not
been decontrolled rose in spite of government restrictions. Meanwhile, prices for some other goods that

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had been decontrolled remained stable, due to pricing by the market, while other decontrolled items
soared in price.21

A series of export restrictions that limited firms' access to international markets further undercut the
potential competitiveness of Russian firms. These regulatory impediments to reaching overseas customer
markets made stripping a firm's assets more profitable than using them productively.

Regulations also forced the repatriation of export earnings, discouraging companies with export potential
from fully reporting their earnings.

The regulatory regime that Russia had inherited from the Soviet Union was keeping the economy
stagnant, and reinforced the predominance of the existing Soviet-era industrial and agricultural
enterprises.22 Dismantling this supporting structure of regulations, which inhibited existing companies
and limited the entry of new firms in established markets, was an important first step in dismantling the
Soviet enterprise network.

Freedom to Fail
Implicit in a functioning market economy is the ever-present possibility of failure: the obverse of reward
is risk. In the Soviet system, however, failure was impossible because state-owned companies were not
allowed to go bankrupt. A never-ending stream of subsidies ensured that no matter how poorly a
company performed, or how useless were its manufactures or services, operations would continue.

As newly-privatized firms were exposed for the first time to the semblance of market conditions that was
emerging in Russia in 1992, many began to realize that their business models, their method of
operations, or their products or services were wholly unsuited to the needs of their customers. In a
market economy, unsatisfied customers mean insufficient revenues—and firms that do not adjust to meet
customer demands quickly become unable to pay their suppliers and workers. As a result, they go
bankrupt.

Bankruptcy in this sense does not mean that the firms, their assets, their employees, or their products
would disappear. Instead, new management would be installed and the firm's operations could continue,
or the company's assets would be sold and deployed for more productive purposes.23

In 1992, Russia was plagued with hundreds of companies designed to function in a Soviet planned
economy, and poorly equipped to compete in a free enterprise system. Even when reincarnated as
newly-privatized companies, many continued to receive government subsidies to keep their
money-losing operations afloat.

So long as it failed to give such firms the "freedom to fail," the Russian government would hurt the
economy, and itself. The economy was hurt because resources were consumed inefficiently, taxes were
kept high in order to pay the subsidies, and competition was stifled. The government was hurt because
low sales and no profit left little to tax.

For all of these reasons, Yeltsin signed a decree on bankruptcy on June 14,1992. But the declaration had
little impact. First, it applied only to state-owned enterprises; bankruptcy of private and newly-privatized
enterprises was not addressed.24 Second, it prevented enterprises from being shut down, and prevented

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: ' *.'•";.■

large numbers of workers from being dismissed.25 Indeed, when the decree was superceded by
bankruptcy legislation in November 1992, it had not yet been used to shut down a single firm.26

Nor did the 1992 bankruptcy law have more than limited impact. Though the law established conditions
for both voluntary and mandatory bankruptcy proceedings, and directed the Russian government to
establish procedures to liquidate bankrupt enterprises, it was largely aimed at preserving insolvent
enterprises rather than eliminating them. Thus, one government official argued that "the first task" of the
new bankruptcy law "is to help an enterprise survive. "27

As of 1992, the lack of a workable bankruptcy procedure denied Russians the freedom to fail, assuring
that a large share of Russia's productive potential would not be realized, and therefore also denying
Russians the freedom to succeed.

Reducing the Tax Burden

Russia inherited Soviet tax laws that imposed a crushing burden on individuals and firms trying to
generate wealth. So-called "windfall profit" taxes on enterprises reached as high as 90%, almost entirely
negating the incentives to build profit-making businesses.

For individuals, Soviet personal income taxes were set at 13%, although the hard-pressed citizenry
routinely ignored the requirement with no consequences. In 1990, in an effort to raise revenue, the Soviet
Union raised the top income tax rate from 13% to 60% and imposed a new 5% sales surtax.

On top of these taxes, the Soviet Union imposed an additional tax on wages intended to dissuade
employers from raising workers' pay. The Communist central government feared that higher wages
would fuel inflation, because there were so few consumer goods available.

This high tax-rate regime left the system of government finance Russia would inherit from the Soviet
Union in shambles. Tax evasion was rampant. International lenders—seeing no end in sight to the
country's economic woes—were reluctant to make new loans.

Even more destructively, as Russia took more authority from the Soviet government in December 1991,
the Russian Supreme Soviet imposed a 28% value added tax on top of the taxes already in place-which
not surprisingly failed to increase government revenue.

Likewise, the Soviet bureaucracy of overlapping and multiple tax authorities, which provoked
widespread tax evasion, continued in independent Russia.

Both the Soviet and Russian attempts to raise tax revenue by squeezing the turnip did not and would not
work. To the contrary, lower tax rates were necessary to improve business conditions, reduce barriers to
entry for entrepreneurs, increase competition, and generate more business earnings that could be subject
to tax. Likewise, tax simplification was necessary to discourage tax evasion.

Lowering the tax rate and simplifying the tax code would demonstrate that the new Russian government
was not bent on redistributing income, as was the Soviet Union, but rather was serious about discarding
the Soviet system in favor of a market economy.

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Prescribing the Rules of the Road
Because private economic activity had been illegal in the Soviet Union, there were few norms to guide
private commercial transactions. Therefore, the challenge faced by Russia's central and regional
governments was to promulgate a basic set of rules that could be relied upon by any Russian citizen (or
foreigner, for that matter) who wished to buy or sell something.

While a system of clear, straightforward rules for the conduct of private business was unknown in the
post-Communist Russia of 1992, the free world had long since produced such rules.

The operation of commercial codes in the United States is nearly invisible, but they are an essential part
of a market economy. Clear, understandable, and well-settled rules for such everyday events as sales and
leases of private property, business credit, bulk transfers, warehouse receipts, bills of lading, and
investment securities are the infrastructure of the free enterprise system.

Today, neither Congress nor the legislature of any state is much concerned with the pressing issues of
19th century commercial law that gave rise to these codes. But that is not because these issues have been
overtaken by modern events; to the contrary, the old rules remain on the books, in largely the same forms
in which they first passed into the legal mainstream. They work so well that we have mostly forgotten
them. They are now so well-established that a man or woman of commerce need give no more thought to
such a question as "at what point during shipment does title pass?" than to breathing or walking.

The history of the United States' adoption of its various state commercial codes also holds lessons for
Russia. The United States' experience was strongly influenced by our federal system, where both the
federal government and the individual states have the power to pass laws (and where commercial
arrangements are largely governed by state law).

In the 19th century, as the demands of interstate business and individual movement throughout the
country accelerated, a unique solution to the problem of developing a nationwide commercial legal
infrastructure was achieved outside of government.

Neither the legislature of any state, nor the Congress, but rather private individuals comprised a
non-government body known as the National Conference of Commissioners on Uniform State Laws.
Formed in 1892 for promoting "uniformity in state laws on all subjects where uniformity is deemed
desirable and practicable," the Conference has since proposed more than 100 laws that have been
adopted by at least one state.

The greatest success of the "uniform law" approach in the United States has been in the field of
commercial and business law. The Commission's first product, the Uniform Negotiable Instruments
Law, was at one time in effect in all the states. Using this and the Uniform Sales Act (also widely
adopted) as a basis, the Conference (working together with another private body, the American Law
Institute) eventually produced the Uniform Commercial Code. The Uniform Commercial Code is now in
effect in some version in nearly all U.S. jurisdictions.

The fundamental principle of the Uniform Commercial Code is the empowerment of individuals to reach
agreements among themselves, without need of outside agencies of the state. Yet its greatest importance
lies in the specification of what terms apply if the parties to a transaction don't mention something.

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In the Russia of 1992, the lack of such clear rules meant that a butcher in Moscow could not make a
contract with a supplier in Sergeiv Posad, an entrepreneur in Smolensk could not import fabric from
overseas, and a builder in Chelyabinsk could not obtain lumber from a mill in Novosibirsk without
incurring needless financial risk.

The overriding need for such rules in the Russia of 1992 was to provide certainty and predictability to
economic transactions~a sharp contrast to the arbitrary dictates that had characterized the Soviet
command economy. Particularly because of its lack of a tradition of private commercial activity, the
enactment of a commercial code was a vital precondition for Russia's transition to a functioning market.

Welcoming Foreign Investment

Eliminating Soviet-era barriers to foreign investment in Russia was yet another basic step needed to
construct a free enterprise system.

The climate for foreign investment that Russia inherited from the Soviet Union was a fundamentally
inhospitable one. Not only were foreign investors deterred by the lack of market economy
essentials—enforceable private contracts, private property rights, an established commercial code,
competitive private banking, and a benign tax and regulatory climate--but also foreign investors faced
unique obstacles that rendered any significant commitment to the Russian economy unthinkable.

The laws limiting expatriation of earnings were a unique burden on foreign firms seeking to invest in
Russia. Capital controls limited a foreign firm's ability to return earnings from Russia to their
stockholders. Further, government regulations discriminated against what activities foreign firms could
engage in, creating uneven competition between foreign and domestic participants in the Russian
market.

The Russian tax structure of 1992 likewise discriminated against foreign investment and trade. Even
today, the average import tariff stands at 13%, the value-added tax on most imports is 20%, and the
excise tax on most imported luxury goods ranges from 20% to as high as 570%. On top ofthat, Russia
compounds various taxes when it assesses import levies. Combined with non-tariff barriers such as
import licensing and customs processing fees, these taxes make the Russian market especially
unattractive to foreign investors.28 By keeping international trade out of Russia, these Soviet-era
regulations reinforced the economic arrangements existing at the collapse of the Soviet Union. Instead of
promoting competition that could serve as a model and a spur to Russian entrepreneurs, Russian law
served to insulate the economy from these regenerating forces.

Tearing down these barriers to foreign investment was thus another key task facing the new Russia of
1992.

Creating a Market
The opportunities that awaited Russia in 1992 were exhilarating, but dismantling the Soviet system of
government controls and erecting in its place a free market economy based on private decision making

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and risk-taking was a task of monumental proportions.

Yet the means to achieve the creation of a free market economy were abundantly clear: the government's
job was to get out of the way of the economy, and facilitate private actors through the establishment of
enforceable private contract rights, private property rights, laws permitting private commercial banking,
commercial bankruptcy laws, a commercial code, a much-moderated tax burden, and the repeal of
Soviet-era regulations that inhibited both domestic and foreign investment and trade.

These fundamentals of a free enterprise system needed to be implemented quickly, or else "privatization"
would be a sham: "privatizing" assets into a non-market economy would represent merely the
continuation of the Soviet system, with the difference that the financial benefits would now accrue to a
few private individuals. It would lead to the development of a kleptocracy masquerading as a free market
economy.

What was needed was legality-the certainty that private property rights will be protected~and the
effective competition that this would inevitably produce.

CHAPTER 4

THE FUNDAMENTAL
FLAWS OF THE CLINTON
ADMINISTRATION'S
RUSSIA POLICY

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':■*-" ff-•?>.•',

THE TROIKA: Since 1993, U.S.-Russia policy has been administered by Vice
President Al Gore (speaking on the telephone with Russian President Boris
Yeltsin, July 24,1998 from Moscow), Treasury Secretary Lawrence Summers
(lower left), and Deputy Secretary of State Strobe Talbott (lower right).
President Clinton placed Gore in charge of U.S.-Russia policy in early 1993.
Summers, who carried the Russian aid portfolio in the Treasury Department
from the beginning of the administration, is a long-time proponent of
government-to-government lending programs. Talbott was
Ambassador-at-Large and Special Adviser to the Secretary of State for the New
Independent States before President Clinton nominated him to become Deputy
Secretary of State in December 1993. In his previous career as a journalist,
Talbott had been a persistent critic of the Reagan-Bush policies of peace
through strength that precipitated the collapse of the Soviet Union. Troika
policy operated outside of normal channels, suffered from a lack of presidential
involvement, and focused on the personal relationships of presidential
Subordinates. Photos from top: AP Photo/Ivan Sekretarev, AP Photo/Ivan Sekretarev, AP Photo/Misha Japaridze

The [IMF] money is all spent. It went to foreigners and Russian

speculators [who] took the money out of the country. To me, the
huge surprise is not the appearance of such a scam in the country.
But I cannot explain why the western financial institutions and the
governments
didn't pay serious attention to the presence of such things.

Dimitri Vasiliev, former Chairman of the Russian Federal Securities Commission,

as quoted in the Los Angeles Times, September 24,1998

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 We conned them out of $20 billion.

Anatoly Chubais (Viktor Chernomyrdin's top deputy), as quoted in the Los Angeles Times,
September 9,1998

The truth about the IMF is that it has consistently pursued a

prudent, responsible, and forward-thinking lending program for
Russia.

Leon Fuerth (Al Gore's National Security Adviser), July 25, 2000

A President Without a Plan

In 1992, Arkansas Gov. Bill Clinton and Tennessee Sen. Al Gore campaigned on the slogan, "it's the
economy, stupid."

The Clinton-Gore decision to avoid all discussion of foreign policy was partly for tactical reasons: their
political opponent, President George Bush, had just won a complete military victory in the Gulf War,
and had presided as the leader of the free world at the conclusion of America's victory over Soviet
Communism in the Cold War.

It was also a reflection of the genuine bias toward domestic affairs shared by both Clinton and Gore,
whose primary focus had long been such issues as the environment and technology.

For both of these reasons, the Democratic candidates for president and vice president in 1992 neglected
foreign policy more than any candidates in any national election since World War II. Despite the
collapse of Communism in Eastern Europe, the dissolution of the Soviet Union, and the advance of a
newly-free Russia-all of which presented America with its greatest foreign policy opportunity in the
post-World War II era-neither Clinton nor Gore devoted noticeable energy to these historic challenges
for America during the campaign year.

This gaping lacuna in the Clinton-Gore policy agenda was obvious in Clinton's 1992 acceptance speech
at the Democratic National Convention. While the collapse of the Soviet Union merited the briefest
mention, Clinton was absolutely silent on relations with the newly independent nation of Russia. 1 Gore's
speech was even more inexplicable. He devoted relatively more time to foreign policy in his address, and
yet gave neither the Soviet Union nor Russia specific attention.2

The primary focus of Clinton's three major foreign policy addresses during the 1992 campaign was
actually the domestic economy. In each of these "foreign policy" speeches, the subject of Russia served
as little more than a segue into calls for cuts in defense spending.

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In December 1991, at Georgetown University, Clinton said: "We need to remember the central lesson of
the collapse of the Soviet Union and of Communism itself.... [T]he Soviet Union collapsed from the
inside out, from economic and political and ultimately from spiritual failure.... [F]oreign and domestic
policy are inseparable in today's world."3 This determination to treat foreign policy as merely an
auxiliary to domestic policy was maintained throughout the campaign.

The inattention to foreign policy during the Clinton-Gore campaign carried over into the new
administration. A year into the Clinton administration, Secretary of State Warren Christopher was heard
to worry that Clinton did not spend enough time on foreign issues "because the lesson of the
campaign-that it's the economy-was over learned."4 One indication of Clinton's lack of interest in
foreign policy was the fact that for the first two years of his administration, James Woolsey, the Director
of Central Intelligence, had only two private meetings with him.

Clinton's occasional interventions in either the formulation or description of U.S. policy have frequently
been counterproductive--as demonstrated by his comparison of the savage attempt to suppress Chechnya
in 1994-96 to the American Civil War, and his reference four years later, during the even more brutal
second Chechen war, to the Russian "liberation" of the devastated Chechen capital. 5

No formal National Security Council meeting on Russia was held until February 1996, more than three
years into Clinton's first term. This was two full months after a major Communist victory in the Duma,
the Russian parliament.6 As late as 1996, the former candidate with no policy toward Russia had not yet
personally focused on one as president.

Given his predilection to focus "like a laser beam on the economy," President Clinton delegated away
virtually all of his authority over foreign and defense policy to subordinates. During the first Clinton
term, U.S. foreign policy was, for the first time since President Woodrow Wilson's prolonged illness
from stroke, conducted with minimal direct presidential involvement.

In a 1993 New York Times article entitled "Clinton and Foreign Issues: Spasms of Attention," Clinton
aides described the president's first-term foreign affairs management style "as one setting broad
guidelines, and paying spasmodic attention to different issues."7 Because the administration had no
developed strategy for foreign affairs, the urgent quickly overtook the important. Relatively minor but
exigent foreign policy crises in Haiti, Somalia, and Bosnia distracted Clinton from issues of more
fundamental importance to the United States.

Without sufficient guidance from the top, Clinton subordinates bounced from topic to topic. The
Washington Post reported, "the Clinton White House at times resembles a series of in-house graduate
seminars."8 The disorganization was worsened by the free-form nature of policy making in the Clinton
administration, where personal connections to the president trumped titles and formal processes.

The virtual absence of any non-ceremonial 9 presidential involvement in foreign policy was to prove
crippling to the development and execution of United States policy toward Russia. Only the president
can effectively direct the resources of disparate federal bureaucracies and enforce consistent policy
among competing agencies, policy makers, and priorities. Only the president can focus the attention of
the American public and generate the necessary popular support for critical foreign policy initiatives.

The challenge of helping to build a free enterprise economy in place of Communism in Russia was as
significant and complex as any that had faced the United States in its history. The failure of Russia,
America, and the world to meet that challenge during the 1990s is very much a reflection of the lack of

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U.S. presidential leadership.

A Troika Wrangles Over Russia Policy

The president's inattention to foreign policy in his first term created an environment in which nominally
sub-cabinet level officials could assume control over even such a major foreign policy issue as Russia.
The lack of an articulated presidential strategy for dealing with Russia, moreover, meant that such
subordinate officials felt at liberty to fabricate their own plans. Particularly in Washington, where power
abhors a vacuum, the attraction of ambitious underlings to this policy void was strong.

There were, of course, serious problems in this arrangement. Without adequate presidential involvement,
there was no limit to the number of contenders for policy-making power. Moreover, there was no
obvious mechanism for resolving policy disputes. The eventual devolution of Russia policy making into
the hands of not one but three Clinton aides~a policy "troika"-was a direct result of these problems.

The troika who eventually took charge comprised Strobe Talbott, a journalist for Time magazine;
Lawrence Summers, a 39-year old Harvard economist who had performed a two-year stint at the World
Bank; and Vice President Gore, whose preparation for directing Russia policy was never previously
noted.

Vice President Gore's role in Russia policy, like Talbott's, was the result of Clinton's explicit delegation.
At the Vancouver Summit in April 1993, Presidents Clinton and Yeltsin agreed to the creation of a
U.S.-Russia Commission on Economic and Technological Cooperation, to be chaired by Gore and
Russia's Prime Minister, Viktor Chernomyrdin. Although this assemblage, which quickly became known
as the Gore-Chernomyrdin Commission, was initially intended to focus mainly on cooperation in space
and on energy issues, it grew to become the main vehicle for high-level U.S.-Russian interaction. 10

Gore's lack of Russia experience was immediately evident. (Nor would the ensuing seven-year
apprenticeship on the Commission remedy his deficiency in Russian history: on July 3,2000, Gore
referred, in prepared remarks, to "the Potemkin village in World War II where the facade of the village
was presented to make it appear that it was a real town in order to fool the people." 11 The "Potemkin
village," a universally known image from Russian history, 12 in fact refers not to World War II but rather
to a story from the 18th century reign of Czarina Catherine the Great.) 13 He did, however, have one
connection to the Soviet Union. The recently-deceased Armand Hammer, who as CEO of Occidental
Petroleum courted Soviet leaders from Lenin to Gorbachev, also courted Gore and his father and was a
major Gore benefactor, contributing some $500,000 of Occidental stock that is now in the Gore family
trust. Hammer is reported to have introduced the younger Gore around during a trip to the Soviet
Union. 14

Gore arrived on his first trip to Russia as vice president in December 1993, the day after Russia's first
post-Communist parliamentary elections~a major setback for the Clinton administration's Russian allies.
The unfavorable election results caught the administration off guard: Gore and the administration's other
Russia policy makers expected his visit to be a celebration of a reformist victory. Upon his arrival in
Moscow, Gore denounced the results of the voting.

Gore also displayed an immediate penchant for large-scale International Monetary Fund lending to
Russia, which would soon become the foundation of the Clinton administration policy. Dismayed that

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not enough IMF debt was being obtained by the Russian central government, he launched a public attack
on the IMF for attaching "unreasonable" conditions to its Russia loans.

Before Gore had returned to the United States, then-Treasury Secretary Lloyd Bentsen publicly tried to
reaffirm pre-existing administration policy in support of conditionality for IMF loans. However, in a
display of the Clinton cabinet's lack of involvement with Russia policy, the administration changed its
position to match Gore's within two months. 15

Strobe Talbott was named "coordinator" for U.S. policy toward the nations of the former Soviet Union in
the second month of the Clinton administration. 16 The new president's deliberately anti-hierarchical
style led him to appoint such "coordinators" in order to give an individual crosscutting authority over all
aspects of a policy question. According to one senior Clinton administration official, this expedient was
adopted whenever "it looks like a presidential policy is going to require day-to-day management." 17

A journalist whose only previous management background was running Time magazine's Washington
bureau for five years, Talbott had no government, military, or political experience. 18 He had first met
President Clinton when they were both students at Oxford University. Subsequently, Talbott had been a
prominent and controversial participant in the arms control debate in Washington during the 1970s and
1980s, arguing against the Reagan policies that eventually forced the collapse of the Soviet Union.

Talbott, even more than Gore, sought to become the full-time manager of U.S.-Russia relations and soon
built his own policy making apparatus. He chaired the Former Soviet Union Policy Steering Group,
which he said carried "a presidential mandate to coordinate all elements of administration policy toward
the former Soviet Union." 19 The group was composed of under secretaries from various government
departments. These included the Departments of State, Treasury, Defense, Commerce, and Agriculture,
as well as a representative from the Vice President's office—usually the foreign policy advisor, Leon
Fuerth. Officials of other agencies also participated as required.

Lawrence Summers, then a subordinate Treasury official who had given a speech on U.S. policy toward
Russia at the president-elect's Economic Conference in Little Rock, Arkansas in December 1992,
acquired his Russia portfolio as a regular participant in Talbott's Working Group. From his new post as
Under Secretary of the Treasury for International Affairs, Summers, too, was a strong supporter of IMF
loans and economic assistance for Russia. His brief tenure as the World Bank's chief economist had left
him with a belief in the efficacy of international financial institutions such as the World Bank and the
International Monetary Fund.

This troika of subordinates, led by Vice President Gore, would soon come to dominate the Clinton
administration's Russia policy, as it still does today.

In this way authority for the development and execution of Russia policy devolved to an elite and
uniquely insular policy-making group without accountability to the normal checks and balances within
the executive branch. The policy decisions that emerged were marked by the personal biases and
predispositions of these three individuals, to the exclusion of competing analyses and recommendations
from the national security, foreign policy, and intelligence professionals throughout the U.S.
government. Their small circle soon became an echo chamber, reinforcing their own views and
excluding independent information.

The structure of the policy-making troika left the rest of the government either unwilling or unable to
critically assess the direction of the Clinton administration's policy. Since none of the three key
policymakers was experienced in or skilled at administration, each relied on further delegation to attempt

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to direct the large number of U.S. government agencies that are charged with diverse responsibilities for
various aspects of Russia policy. This created another layer of bureaucracy that further insulated Gore,
Talbott, and Summers from the traditional policy-making structures of the executive branch.

Ironically, the 1992 Freedom for Russia and Emerging Eurasian Democracies and Open Markets
(FREEDOM) Support Act had explicitly recognized the critical necessity of coordinating both policy
development and implementation in light of the numerous U.S. bureaucracies involved in Russia policy.
To that end, the Act created the senior-level statutory position of Coordinator of U.S. Assistance to the
New Independent States. But this was a different "coordinator" than the position to which Talbott was
appointed; the legally-mandated position was never used effectively by the Clinton administration to
coordinate Russia policy or activities.

The Talbott "coordinator" role failed to clarify Russia policy making, and doubtless rendered it less
transparent. In some respects, Talbott's role was superfluous, or an interference, or both. Multilateral aid,
for example, required coordination with international financial institutions as well as the allied nations,
and could only be accomplished through established channels at the Departments of State and Treasury.
Gore's U.S.-Russia Bilateral Commission further confused policy coordination by adopting its own
competing policies.20

An even more serious shortcoming of the troika policy-making structure was the didactic approach that
Gore, Talbott, and Summers brought to their task. The supreme self-confidence that typified the first
several years of the Clinton troika's policy making seems strangely anachronistic today, as the Clinton
administration has taken to defensively emphasizing the complexity and unprecedented nature of the
problems it confronted in Russia. The point, however self-serving, is accurate. If it had been appreciated
in 1993, when the Clinton administration Russia policy structure was adopted, then the key decision
makers could have approached their challenges with caution and humility, soliciting a full range of
policy and factual views—and showing a willingness to revise or abandon opinions and initiatives as they
were invalidated by events.

But neither Gore, nor Talbott, nor Summers approached their task in this spirit.21 To the contrary, the
Gore-Chernomyrdin Commission, Talbott's Policy Steering Group, and Summers' IMF and World Bank
portfolio were administered free from the constraints that routinely applied to others in the executive
branch. Over time, as their reputations and political interests became ever more deeply invested in
defending the path upon which they had embarked, they worked to avoid inconsistent information, and
relied increasingly upon a handful of Russian interlocutors for both data and validation of the correctness
of their approach.

Thus it was that a candidate with no foreign policy experience and no enunciated strategy for tackling
the historic task of facilitating Russia's transition from Communism to free enterprise relinquished his
responsibility for that task to a troika of strong-willed subordinates. Free from outside scrutiny, these
individuals crafted a policy that soon resulted in damage both to U.S.-Russian relations and to the
prospects for a democratic, free enterprise-oriented Russia.

There were several fundamental flaws in the Clinton administration's Russia policy that this unorthodox
arrangement produced. These flaws included:

* Support for and dependence on a few individual Russian officials instead of a consistent
and principled approach to policy that transcended personalities

* A focus on the Russian executive branch to the exclusion of the legislature and regional

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 governments

* An impatience with Russia's nascent democratic constituencies that led to attempts at

democratic ends through decidedly non-democratic means

* An unwillingness to let facts guide policy

* A preference for strengthening Russia's central government rather than building a system
of free enterprise

Personalities Over Principles

President Clinton encapsulated the first fundamental error of his Russia policy in his first major address
on that subject. His proposed "strategic alliance with Russian reform" was clearly different than an
alliance with all of Russia. It necessitated that the intimate group of Russian supporters of Clinton
administration policy be deemed "reformers"~while opponents ofthat policy, in both Russia's legislative
and its executive branches, were called "reactionaries" or "opponents of reform." The success of the
Clinton administration's policy thus became inextricably tied to the political success of their chosen
reformers, and to the political failure of other factions in Russia's struggling democracy.

The "reformers" identified by the Gore-Talbott-Summers troika were clustered around acting Prime
Minister Yegor Gaidar, and later his replacement Viktor Chernomyrdin. Talbott and Summers, in
particular, quickly developed extraordinarily close personal ties with one of these people, Deputy Prime
Minister Anatoly Chubais. Summers "always" met with Chubais when traveling to Russia.22 According
to Thomas Graham, a former senior political officer at the American embassy in Moscow, these personal
ties soon evolved into a partnership between small circles of senior officials in the United States and
Russia.23

The administration's definition of reform in Russia was based on the "Washington consensus," an
economic model that emphasized macroeconomics over establishing the fundamental preconditions for a
free enterprise economy. The Clinton administration, moreover, believed that its macroeconomic
policies could not be implemented if it lost influence in the Russian government. The administration was
thus rapidly drawn into Russian domestic politics as an active participant, bent on insuring that its
handful of allies continued in power. To this end, billions of dollars in loans and aid would eventually be
devoted to the political support of the Clinton administration's Russian partners.

Chubais became such a favorite of the Clinton troika that his presence or absence in the Russian
government seems to have been a major factor in American policy. Thus, for example, U.S. officials
expressed tepid support for additional IMF lending to Russia after Chubais was dismissed from the
Russian government in late January 1996~but when it became clear that Chubais had taken over the
Yeltsin presidential campaign, skepticism turned to enthusiasm. The IMF announced a $10.2 billion loan
less than one month later.

The Clinton administration unabashedly avowed its support for Chubais when discussing bilateral
assistance programs as well. In February 1997, Richard Morningstar, the State Department's coordinator
for assistance to the former Soviet Union, said:

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When you're talking about a few hundred million dollars, you're not going to change the country, but you
can provide targeted assistance to help Chubais.24

In fact, the U.S. government gave substantial cash assistance directly to Chubais and his allies. A large
portion of the $285 million in U.S. government grants that were supervised by Harvard University's
Institute for International Development25 went to individuals and groups affiliated with Chubais. The
incestuous arrangement was exacerbated by the fact that Summers' former colleagues at Harvard
received the U.S. government contracts without any competitive bidding, and-according to the U.S.
General Accounting Office-never provided an accurate accounting for the money. Indeed, two
Americans involved with the Harvard-Chubais project reportedly remain under investigation by the
Justice Department for abusing their access to inside information about Russia's economic plans for
personal gain.26

BAD DREAM TEAM: President Boris Yeltsin, Prime Minister Viktor Chernomyrdin, second left, and his two first
deputies Anatoly Chubais, left, and Boris Nemtsov, right, meet in the Kremlin, March 26,1997. Chubais ran
Yeltsin's 1996 campaign and was his chief of staff before becoming first deputy prime minister. Then-Deputy U.S.
Treasury Secretary Lawrence Summers, in an example of Gore-Chernomyrdin Commission spin, called Chubais
and Nemtsov an "economic dream team" for Russia. The dream soon became a nightmare, as corruption and
unsound policy led inexorably to Russia's economic collapse in 1998. For Chubais, however, there was a "dream"
ending: after years of negotiating international loans for Russia, he became the head of Russia's electricity
monopoly and one of Russia's most powerful "oligarchs"-and admitted "we conned them." AP Photo/ITAR-TASS

Summers' personal support for and closeness to Chubais was never more flagrantly on display than in the
spring of 1997, when Chubais moved into a key post in the Russian government, hi a description that
subsequently became notorious, Summers announced that "an economic dream team" was now in place
in Moscow.27

Later, despite the fact that he was no longer a member of the Russian cabinet, and notwithstanding his
prior supervision of the fraud-ridden "privatization" process, Chubais continued to receive exceptional
access in Washington. During a May 1998 visit, he was received by Summers and Talbott in their
homes, where they jointly worked out details of the July 1998 IMF loan that would burden the Russian
government with further billions in debt on the eve of Russia's total economic collapse later that
summer.28

Rather than seeking out key Russian political figures beyond the increasingly corrupt Yeltsin inner
circle, senior Clinton administration officials generally had substantive meetings only with their official
counterparts, confining themselves to pro-forma discussions with leaders outside the government. While
a broader guest list was included at large receptions and other events at the U.S. Embassy in Moscow,
the format of these events brought too many people together for too little time for substantive dialogue to
take place. (For obvious reasons, few Russian political leaders critical of the Kremlin insiders were
willing to engage in frank discussions in such public settings, with their political opponents present.)

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, .v-j.,....- •

However, such embassy gatherings permitted the administration to claim it had consulted with Russian
opposition politicians, without having to devote the time or effort to substantive, systematic discussions
with the full range of the Russian political spectrum that was required in light of the historic challenge of
supplanting Communism.

The administration displayed a similar indifference to the governors and legislatures in the 89 regions of
the Russian Federation. Despite frequent lip service to outreach to Russia's regions, Clinton and his
troika rarely devoted sustained attention to developments there-and almost never traveled outside
Russia's capital.29

The Clinton administration's exceptionally close personal relationship with its few official Russian
interlocutors-a sharp contrast with its merely pro forma engagement with Russia's legislature, its
opposition parties, and its regional governments-formed the narrow basis upon which was built the
entire U.S.-Russian relationship. Contrary to the administration's claim, the alternative to this approach
was not disengagement from Russia; rather, it was and is a broad and genuine engagement that reaches
out to all Russians.

Chechnya: Personalities Trump Policies, Again

The conduct of the first and second wars in Chechnya, and the U.S. administration's long
quiescence concerning it, reveal the tragic cost of the over-personalized Clinton Russia policy.
Rather than acting forcefully to advance U.S. values and interests, the Clinton administration
tacitly accepted Russia's agenda in Chechnya.

Because they believed Russian acceptance of their "reforms" was personal to Yeltsin,
Chernomyrdin, and Chernomyrdin's successors, Clinton and Gore were long unwilling to
criticize their "partners" for their actions in Chechnya. Despite calling the promotion of
democracy and human rights in Russia a key administration goal, the Clinton administration
said little and did less to justify that claim.

Russian troops committed widespread atrocities in both the first (1994-96) and second
(1999-present) Chechen conflicts. Amnesty International has reported on "filtration camps"
where "men, women, and children-are routinely and systematically tortured: they are raped,
beaten with hammers and clubs, tortured with electric shocks and tear gas."1 Indiscriminate
air, rocket, and artillery attacks on civilian targets killed tens of thousands of civilians over the
course of the two wars, in which much of the Chechen capital of Grozny was razed and
hundreds of thousands of Chechens, ethnic Russians, and other nationalities living in
Chechnya were driven from their homes. The 1994-96 operation resulted in up to 80,000
casualties alone.2

Despite worldwide condemnation of Moscow's first brutal campaign, the administration was
largely silent. When Secretary of State Warren Christopher met with Yeltsin in March 1996, he
failed even to raise Chechnya as an issue. His staff explained it as an oversight.3

The low point, however, came a month later, when Clinton at his April 1996 summit meeting

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with Yeltsin was asked "whether the United States should have been more critical of Russia's
use offeree, which has claimed more than 30,000 lives." Clinton responded, "I would remind
you that we once had a civil war in our country in which we lost, on a per capita basis, far more
people than we lost in any of the wars of the 20th century, over the proposition that Abraham
Lincoln gave his life for, that no state has a right to withdrawal from our union."4

As the New York Times reported, "[e]ven Mr. Clinton's aides were appalled by [his] off-the-cuff
remark"5-as well they might be. Clinton's comments ignored the difference between the union
of American states, which shared a common language and culture since their beginnings and
voluntarily formed a union less than a century before the Civil War, and the Chechen culture,
which had developed separately from Russia's for centuries prior to its annexation in the
nineteenth century.

ABRAHAM LINCOLN: President Clinton, responding to a question in Moscow, April 21, 1996, about
Russia's war against Chechnya, compared it to the U.S. Civil War and "the proposition that Abraham
Lincoln gave his life for, that no state has a right to withdraw from our union. "A few days later, the
widow ofChechen president Dzokhar Dudayev told CBS News that Clinton's support for Russia's war in
Chechnya had, "in effect, signed her husband's death warrant. "A few hours after Clinton had compared
Yeltsin to Lincoln, a Russian warplane rocketed Dudayev's car.

Chechens speak a non-Slavic language, are predominantly Muslim, and have a distinct
national culture. Chechnya did not freely join Russia; it was forcibly annexed by the czars after
the Napoleonic Wars-an annexation the Chechens resisted ferociously for decades during a
savage Russian campaign that took thousands of lives. The stubbornness of the Chechen
resistance has been proverbial in Russia ever since.

More recently, after a brief period of independence following World War I, Chechnya was
occupied again by the Bolsheviks. After its liberation from the Nazis in the Second World War,
it was subjected to one of the most notorious of Stalin's many atrocities during 1943-44, when
whole nationalities from the North Caucusus-including not only Chechens but Balkars, Ingush,
and Karachai-were deported for alleged "collaboration" with the Nazis from their homelands to
Central Asia under conditions that led to the deaths of as many as a third of the almost
620,000 deportees. The survivors remained in exile until the late 1950s, more than a decade
after their ordeal began-further fanning their disaffection.6 A less persuasive parallel to the

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history of the United States would be difficult to frame.

In addition to its inaccuracy, such a statement coming from the President of the United States
undercut those in Russia protesting the purpose of the war, the high civilian casualties, and
the human rights abuses taking place. Yegor Gaidar, Yeltsin's former acting Prime Minister,
took his Russia's Democratic Choice Party into opposition against the Yeltsin government
because of the war in Chechnya. But the party and the anti-war cause found no succor from
the Clinton administration.

The Clinton administration's failure to ensure that there were any significant consequences for
Russia for its conduct of the Chechen war for five full years-explicable only by its blind
devotion to Russia's government elite and President Yeltsin personally-effectively put it on the
side of Russia's military, and against ordinary Russians. Public opinion in Russia toward the
first Chechen war (1994-96) was decidedly negative. Russians were opposed to a war they
saw resulting in high Russian casualties caused by military ineptitude in the pursuit of
Moscow's desire to exert its will over the people of Chechnya.

Worse, by pressuring the IMF to grant $10.2 billion in credits to Russia in February 1996, the
administration effectively used the Fund to subsidize not only Boris Yeltsin's reelection
campaign, but also the Kremlin's war effort in Chechnya, thus squandering an important
opportunity for American leadership, and giving Moscow every reason to expect similar
indulgence if Russia again tried to crush Chechnya.

Following hundreds of deaths in September 1999 bombings in Moscow, Volgodonsk, and

Buinaksk, which Russian officials said were the work of Chechen terrorists,? the government
had no difficulty marshalling support for its war aims. Anger over the bombings, the relatively
low number of Russian military casualties in the early stages of the second war, and the
decisive leadership Putin displayed after a lack a vigor in the Kremlin for so long made the
second war popular with all segments of the Russian population. Virtually all the political
parties participating in the December 1999 Duma election supported the war, and it was a
significant reason for Putin's popularity.8

The failure of the Clinton administration to apply pressure and diplomacy to encourage a
political solution in Chechnya may have actually encouraged Russia to broaden its war
objectives in 1999. Originally, the military objective was to create a "cordon sanitere" around
Chechnya. Then the objective became to establish a security zone inside the Chechen
Republic. With the popularity of the war at home and no penalty to pay abroad, the goal
became the division of Chechnya along the Terek River. Finally, far from seeking a political
settlement, the objective became the "complete extermination of the rebels and seizure of the
entire territory of Chechnya."9

As former National Security Adviser Zbigniew Brzezinski testified recently:

[l]t is tragically the case that the administration's indifference to what has been
happening in Chechnya has probably contributed to the scale of the genocide
inflicted on Chechens. The Kremlin paused several times in the course of its
military campaign in order to gauge the reactions of the West, yet all they heard
from the president were the words'l have no sympathy for the Chechen rebels.'IO

Moscow's ultimate goal of reoccupying all of Chechnya necessitated the siege and capture of
the Chechen capital of Grozny, which Russian troops had occupied and lost in the first

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Chechen conflict. During the last months of 1999, Grozny was subjected to a savage rocket
and artillery bombardment that caused massive collateral damage and heavy civilian
casualties, triggering the flight of over 220,000 refugees. The devastated Chechen capital was
then subjected to attack from five directions, beginning on Christmas Day 1999. It was largely
in ruins by the time it was occupied in February 2000.

As the Russian attacks on Grozny were gathering momentum, President Clinton referred in a
Time magazine article on New Year's Day to the impending Russian "liberation" of the
Chechen capital of Grozny, already wrecked by the unrelenting Russian bombardmentl 1-a
phrase, as Dr. Brzezinski testified, that "is going to haunt the president and embarrass the
United States for a long time to come."12

Recently, the Clinton administration-at long last willing to acknowledge the horrors of the war
in Chechnya-has nonetheless sought to absolve itself of responsibility by complaining that it
has little leverage on Russia: as Secretary Albright stated after the G-8 summit, "I think,
frankly, we have had a marginal effect" on the conflict. After dispensing over $20 billion in U.S.
aid to Russia during the course of eight years, using American leverage to force further tens of
billions from the IMF and the World Bank, and having never conditioned any of it on a political
settlement in Chechnya, that is a remarkable statement indeed.

The damage to Russia, Chechnya, and the region is broad. Former Premier Yegor Gaidar
estimated in January 2000 that the war was costing Russia $148 million a month. 13 With
Russia's limited resources, these funds could have made a sizable contribution to its economic
recovery and debt service.

The Clinton administration's failure to respond meaningfully to Russia's treatment of Chechnya

may also have encouraged Russia's efforts to intimidate its neighbors, and discouraged those
nations from resisting such intimidation. As Dr. Brzezinski further told the Senate Foreign
Relations Committee,

[Sjome of Russia's immediate and most affected neighbors, such as the presidents
of Ukraine, Georgia, Azerbaijan, and Estonia, have been perplexed by the U.S.
disregard of the longer-term effects on Russian foreign policy of Moscow's reliance
on indiscriminate force in coping with Chechnya. Georgiais extremely vulnerable.
We see some evidence of rising Russian pressure in Estonia and Latvia already.
The Central Asian republics are beginningto make some degree of their own
accommodation with Moscow, largely because of the way they interpret our
passivity on Chechnya. 14

These actions are fraught with risks for the stability and security of these nations and for U.S.
interests in the region. Yet they too have drawn little effective response from the Clinton
administration.15

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""SfSptfs

CHECHEN WAR HUNGER: The czars forcibly occupied Chechnya, and after a brief period of
independence following World War I the Bolsheviks did the same. Solzhenitsyn described Chechnya as
the "one nation that would not give in." The Chechen people continue to be the victims of fighting in the
region. Azya Mirzoyeva, who lives in the train carriages of camp "Severny" in Ingushetia, gets one loaf
of bread once or twice a week to share among seven people-andfour bottles ofsunflower oil, about as
regularly, to share among 60. Amnesty International

CHECHEN WAR REFUGEES: Petimat Tursultanova witnessed the attack on the village of
Zakhan-Yurt on November 6,1999, in which a number of civilians were killed. She and her family wait
overnight at the central railway station in Nazran to be assigned seats on a train out ofIngushetia.
Amnesty International

Clinton Administration Support for Rule by Decree Abets Destruction of the Russian
Parliament
Not only was the group of Russian officials on which the Clinton troika focused too small and too
insular, but it was limited exclusively to officials in Russia's executive branch. This was a tragic blunder,
given that the essential task ahead in 1992 was enactment of the legal framework necessary for private
property and free enterprise to function. The enactment of such laws would be impossible without the
participation of Russia's legislative branch.

The Clinton administration not only failed to engage the Russian Supreme Soviet and the Duma, but, far
worse, it publicly dismissed the parliament out of hand as a "Communist-dominated" impediment to
reform. Because the Clinton troika's policy relied on the political ascendancy of a handful of ministers,
opposition groups in the Russian Duma were seen as enemies of U.S. policy.

The Clinton administration very publicly sided with the Yeltsin regime against Russia's opposition
parties, and more broadly, with the executive branch against the Russian legislature.

The Clinton troika's personal support for its allies in the executive branch reached an extreme in October
1993.

As tension between Yeltsin and the Russian legislature had grown since 1992, the Clinton administration

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had encouraged Yeltsin to take a confrontational approach to the Russian legislature even as it limited its
own contacts with legislators. In fact, when former president Richard Nixon advised Yeltsin in March
1993 to seek accommodation with the parliament, Yeltsin told Nixon that the Clinton administration had
given him the opposite guidance.30

When the Russian president took this confrontational advice, the Clinton administration's complicity in
Yeltsin's subsequent rule by decree was complete. But it did not end there. The extent to which the
Clinton troika undertook a personal crusade to denigrate Russia's elected legislature was illustrated by
Strobe Talbott's public praise for Yeltsin's "[throwing] down the gauntlet in Moscow before a parliament
that is dominated by reactionaries."31

Responding to growing and increasingly aggressive defiance from the leaders of the Supreme Soviet,
Yeltsin, on September 21,1993-in plain violation of the Russian Constitution-ordered the dissolution of
the parliament and new elections. Parliament refused to obey Yeltsin's orders, and the standoff escalated
into increasingly violent demonstrations in Moscow's city streets. Supporters of the legislature built
barricades around the Russian White House, where the parliament had met in emergency session to
replace Yeltsin with his former ally, Vice President Aleksandr Rutskoi, and where it was now
entrenched.

The increasingly dangerous standoff culminated in an even more extraordinary violation of democratic
norms, as opposition supporters stormed the mayor's office and sought to seize the Ostankino television
station and Russian troops mounted an armored assault on the parliament members in the White House.
The fighting killed 144 and injured over 400 Russians.

Shockingly, even after the bloody dissolution of the Russian parliament, Talbott continued to defend the
Russian executive's anti-democratic conduct. Testifying before the House Foreign Affairs Committee
just days after the attack on the parliament, Talbott said that the answer to the question of "whether
President Yeltsin was resorting to democratic means in his effort to resolve the crisis was yes. "32 Yeltsin
himself was not so bold-he admitted in his memoirs that he had acted outside the Russian Constitution
during the crisis.33

A week later, Talbott was even more brazen in claiming that U.S. support for the violation of Russia's
fundamental law could somehow be squared with support for democracy and the rule of law. In an
October 13,1993 briefing in the Capitol, he claimed that "our administration has staunchly and
consistently supported President Yeltsin and the reformist government of Russia when President Yeltsin
suspended the parliament and the Constitution"^ -thus standing the meaning of the term "reform" on
its head.

The administration's encouragement and subsequent endorsement of President Yeltsin's dissolution of

the Supreme Soviet in violation of Russia's then-controlling Constitution served to facilitate further
authoritarian conduct by the Russian president. In profound ways, it worked also to deeply undermine
respect for the rule of law among both participants in Russian politics and the public. The
Yeltsin-Clinton administration policy was clearly based on force-and just as damaging, it was also
deeply disdainful of the necessary role of Russia's elected legislature in enacting reform legislation.

Henceforth, Yeltsin would prefer to rule by decree, and the Clinton troika would encourage it. But the
lack of respect for Russia's legislature from the U.S. gov eminent would increasingly be reciprocated,
and the lessons of October 1993 long remembered.

Russia's new constitution, written by Yeltsin's team, was narrowly approved in December 1993. Yet

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even after Russians elected the 1993 and 1995 State Dumas under the Constitution written by Yeltsin,
the Clinton administration continued to ignore the newly elected members of the Russian legislature.
The consistent excuse they provided for this was that the 1993 and 1995 Dumas, too, were
"Communist-dominated." In fact, the most consistent opposition to the Yeltsin regime came not from the
Communist Party of the Russian Federation, or even from Vladimir Zhirinovsky's ultra-nationalist
Liberal Democratic Party of Russia, but from the pro-democracy, pro-reform Yabloko party.35

NARROW FOCUS: Grigory Yavlinsky, right, the leader of the pro-reform Yabloko party, speaks with Deputies
Igrunov and Sheinis in the State Duma, the Russian parliament's lower house, March 15,1996. The Clinton
administration strongly favored Yeltsin against Yavlinsky and all other contenders in the 1996 Russian elections,
despite polls in Russia showing many voters were unhappy with both incumbent President Yeltsin and his
Communist opponent, Gennady Zyuganov. In December 1999, merely suggesting Chechnya peace negotiations
earned Yavlinsky a "traitor" epithet from Clinton troika-favorite Anatoly Chubais, who had by then become the head
of Russia's electricity monopoly. Chubais was Yeltsin's 1996 campaign manager. AP Photo/Alexander
Zemlianichenko

The Clinton troika studiously ignored Yabloko and its leader, Grigory Yavlinsky, because recognizing
that a democratic party could oppose policies of the Yeltsin government would have called into question
the administration's embrace of both Yeltsin and Chernomyrdin as the personifications of Russian
democracy. Yabloko's existence contradicted the administration's repeated assertions that it had no
choice in its Russia policy except to depend exclusively on Yeltsin.36

At the same time, Yeltsin found rule by decree an increasingly attractive expedient to avoid the hard
work of compromise with the parliament, further undermining the fragile democratic structures
emerging in post-Soviet Russia. As always, he acted with the unflagging support of the Clinton
administration.

Such unquestioning support for the Russian executive stifled the healthy debate necessary in a
democracy, and taught Yeltsin exactly the wrong lessons about the importance of representative
government in a constitutional system. Worse, the Clinton administration virtually guaranteed that the
legal reforms needed to establish a genuine free enterprise system would not be enacted in the Duma,
and it utterly destroyed America's credibility in dealing with Russia's legislative branch. Worst of all,
however, was the role that the Clinton administration played in undermining the growth of pluralistic,
democratic government in Russia-and the impetus it provided for the abuses of executive power by the
Yeltsin administration that would shortly ensue.

Destructive Means to Unintended Ends

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The third fundamental flaw of Clinton administration policy was its unwillingness to recognize the costs
to Russian democracy-and to Russian perceptions of America-of its unquestioning support for its
Russian "friends" despite their often corrupt conduct. The tolerance of decidedly illegal conduct,
allegedly in pursuit of the rule of law, had profound and destructive consequences for Russia's struggle
to establish the rule of law.

No single policy of the Russian government did as much to discredit the notion of reform as the corrupt
"loans-for-shares" scheme. Devised by Soviet trade official-turned-banker Vladimir Potanin, and further
developed by a consortium of Russian banks, "loans-for-shares" was implemented by Anatoly Chubais,
the Clinton troika's key ally. In failing to oppose "loans-for-shares"-and continuing to endorse Chubais
strongly after its scandal-ridden failure-the Clinton administration tacitly endorsed means that
fundamentally undermined America's stated objectives in Russia.

OLIGARCH ETHICS: Oligarch Vladimir Potanin, left, speaks to Boris Nemtsov, right, of the Union of Right Forces,
with the head of the Uralmash-lzhora industrial group Kakha Bendukidze, at a July 28, 2000 news conference in
Moscow. Potanin designed the corrupt "loans-for-shares" "privatization" scheme that allowed the oligarchs to buy
Russia's most profitable companies for a fraction of their value. He acquired one of the more valuable Russian
companies, Norilsk Nickel. One week earlier, Potanin told the Financial Times that "Many oligarchs fly to the south
of France in their private jets and rent yachts, they spend $2 million-$3 million a year, but then they put these costs
down as business expenses. This is unethical." Also in July, the Russian government asked Potanin to reimburse
the state $140 million in connection with the privatization of Norilsk Nickel. AP Photo/Alexander Zemlianichenko

In 1995, Russia was under considerable pressure from the IMF and the Clinton administration to
implement the IMF-Clinton troika program of increasing tax revenues to meet arbitrary budget deficit
targets. The failure to enact legislation necessary for free enterprise, coupled with the rise of organized
crime and the war raging in Chechnya since December 1994, was undermining the Russian government's
ability to meet the aggressive tax collection goals. Russians' real income had dropped to the lowest levels
since Soviet days. The Russian government desperately needed cash, but a new IMF loan at the moment
seemed impossible since Russian government borrowing in 1995 had already soared to over 350% of the
prior year's.

To meet the IMF and Clinton administration demands for more government revenues, Potanin, Chubais,
and their colleagues devised a secretive plan in the spring and summer of 1995 for the Russian
government to borrow money from Russian banks. As collateral, the government would offer stock in

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premier state-owned industries.

The key feature of the "loans-for-shares" scheme was the proviso that if the government were unable to
repay the loans, the banks would have the right to auction the shares-primarily in the energy, natural
resources, metals, and manufacturing industries. Given the banks' ability to rig such auctions, and the
fact that the loans were heavily over-collateralized, default by the Russian government would yield a
bonanza for the banks' owners.

A number of observers believe the "loans-for-shares" scheme was actually designed with the intention of
turning over these enterprises to the select insider group who were allowed to participate, and that from
the inception the government neither intended nor was able to repay the loans. 3 7 The government
needed money, and this was a way of getting at least a small amount of it while simultaneously
accomplishing two other objectives: "privatizing" industries without Duma approval, and providing
political friends with enormous new wealth through a non-competitive process. Some Russian officials
apparently believed that the beneficiaries of "loans-for-shares" could then be counted upon as a powerful
political constituency in favor of market reforms.

In its execution, the "loans-for-shares" scheme failed to produce a constituency for reform-the bankers'
real interest was in increasingly lucrative sweetheart deals-but did succeed in winning the support of a
powerful group of businessmen for the Yeltsin government in the upcoming elections. It is not difficult
to see why: exceptionally valuable government assets were virtually given away at a fraction of their true
worth. As one of the oligarchs commented with significant understatement, "each ruble invested in one's
own politician yields a 100% profit. "3 8

When the shares pledged as collateral were eventually sold after the government failed to repay the loans
they secured, the winning bid was almost invariably submitted by an affiliate of the bank managing the
auction-and typically exceeded the minimum bid by only a nominal amount. Thus the "loans-for-shares"
program essentially offered a select group of Russian bankers an opportunity to acquire cut-rate shares in
prized state enterprises.

For example, despite Norilsk Nickel's $1.2 billion in profits in 1995, Oneksimbank-controlled by the
designer of the "loans-for-shares" scheme, Vladimir Potanin-bought 38% of the firm, which produced
one-fifth of the world's nickel and two-fifths of its platinum, for $170.1 million in a "loans-for-shares"
auction. Oneksimbank's offer was only $100,000 above the minimum bid-and a competing bank bid
nearly twice as much. The fact that Oneksimbank organized the auction was clearly decisive. 3 9

In the end, shares in twelve companies described as "the crown jewels of Soviet industry" were sold
off.40 The firms included not only Norilsk Nickel, but also the massive oil companies Sibneft, Yukos,
and Sidanko and other key enterprises. Controlling stakes in Sibneft and Sidanko, each of which
produced oil worth $3 billion per year, were acquired for $100.3 million and $130 million, respectively.
Ten percent of Sidanko was later sold to British Petroleum for $571 million.4 Yukos, one of the largest
oil companies in the world, produced more oil than Sibneft and Sidanko combined, yet control of the
firm cost a Russian bank only $159 million.42

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?-;;; ^ypf^y? S?'??^

NORILSK NICKEL: Norilsk is the world's largest city north of the Arctic Circle, and Norilsk Nickel, a sprawling
collection of profitable nickel, platinum, and palladium mines and hulking smelters, is the sole reason 230,000
Russians live in such a harsh place, where they work in mines and smelter shops such as this one, the Norilsk
subsidiary, Nadezhdinsky Metallurgical Works. Despite Norilsk Nickel's $1.2 billion in profits in 1995, the
well-connected Oneksimbank was able to buy 38% of the firm-the world's leading platinum producer-for a mere
$170 million. Oneksimbank made its killing by exploiting the notoriously corrupt "loans-for-shares" program
designed by Vladimir Potanin and pushed through by Anatoly Chubais. AP Photo/Alexander Zemlianichenko

But while the corrupt "loans-for-shares" program passed valuable state assets into the hands of a small
circle of well-connected bankers, it provided far too little money to solve the government's cash crisis.
Ultimately, the total revenue obtained through "loans-for-shares" was only about $1 billion-about half
the privatization revenue sought by the Russian government in 1995.43 Boris Fyodorov, Russia's former
Finance Minister, publicly described the "loans-for-shares" transactions this way:

It's very clear to me that once you start giving the crown jewels to cronies, it never helps,
first, the image of the country. Second, it doesn't help the budget, because not enough
money comes into it.

[The "loans-for-shares" program] was a disgusting exercise of crony capitalism, where

normal investors were not invited, where even among Russian so-called investors, only
those who were friends of certain people in the government were invited.

And since everybody knew that these loans will never be returned, clearly it was a kind of a
gimmick how to circumvent parliament in this case, and how to circumvent normal ideas of
privatization.

There is absolutely nothing which will preclude me [from] saying that it was basically
stealing. [T]his is a major, major black spot on the reputation of Russian reforms forever.44

Furthermore, said Fyodorov, "There's a big suspicion that no real cash came to the government. "45

Ironically, the funds used to purchase shares in the auctions probably included a great deal of the Russian
government's own money.46 Many of the top Russian banks whose owners benefited handsomely from
"loans-for-shares" were successful not as a result of genuine banking activity in the private sector but
through their roles as so-called "authorized banks" that handled government funds. Authorized banks
were supposed to receive funds from the Ministry of Finance or other government organizations and
transfer the money to its intended recipients. However, with the influx of so much hard currency from
the IMF and other Western sources, many of the bankers soon discovered that delaying those payments
allowed them to use government funds to speculate on currency markets or make other short-term
investments, and to keep the profits for themselves.47 Only in this fashion could the banks amass

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•vp~m:

sufficient capital to participate in the "loans-for-shares" auctions.

What did the Clinton troika and the IMF know about "loans-for-shares"? According to Fyodorov, the
West knew everything. "These loans-for-shares unleashed a wave of corruption like never before,"
Fyodorov said, "and the West, especially the IMF, kept quiet. "48 Although Secretary Summers testified
before the Advisory Group that he had advised the Russian government against the loans-for-shares
scheme,49 the administration's failure to object publicly or use its vaunted personal relationships with
the Russian leadership to modify a catastrophic approach is a policy failure of the first magnitude.

Far from consolidating a new capitalist order in Russia, "loans-for-shares" consolidated the power of the
"semibankirshchina"~the oligarchic "Rule of the Seven Bankers" who as a result of the loans-for-shares
scheme claimed to dominate 50% of the Russian economy. This oligarchy has proven to be a crippling
impediment to the development of a true free enterprise system in Russia, as well as exercising a
profoundly corrupting influence over Russia's nascent democracy.50

The Clinton troika's willingness to avert their eyes from the corrupt acts of their personal contacts in the
Russian government contributed to the widespread electoral irregularities of the 1996 presidential
election in Russia-many of which were direct outgrowths of the "loans-for-shares" process.

In February 1996, Anatoly Chubais-just fired by Yeltsin in part as a result of public outcry over
"loans-for-shares" and mounting popular anger over Russia's vast wage and pension arrears-held a
decisive meeting with several of the key beneficiaries of "loans-for-shares" on the sidelines of a session
of the World Economic Forum in Davos, Switzerland. Chubais reportedly convinced the new "oligarchs"
that their support for Boris Yeltsin's 1996 reelection campaign (which Chubais would soon take over)
was essential to prevent the victory of Communist leader Gennady Zyuganov~and the prompt
re-nationalization of their ill-gotten gains.51 During the campaign, the oligarchs illegally channeled vast
amounts of money into the Yeltsin campaign and promoted Yeltsin heavily in media outlets under their
control, including two major national television networks and a number of prominent newspapers.

The Clinton administration justified promoting Yeltsin's candidacy even in a multi-candidate field by
claiming that it was in the U.S. interest to defeat Communist leader Gennady Zyuganov. But opinion
polls show that both General Alexander Lebed and Yabloko's Grigory Yavlinsky were also credible
candidates at the time-Zyuganov was hardly the exclusive alternative to Yeltsin, who had single-digit
approval ratings at the beginning of the year.

Donald Jensen, Second Secretary of the U.S. Embassy in Moscow from 1993-1995, criticized the
administration's simplistic approach to Russian politics:

The choice was always black or white. The choice was always reform or going back to the
Soviet past. And that, I think, was oversimplified, did not reflect what was going on in
Russia. And it was something that we began to write about increasingly and, of course, little
attention was paid to it. 52

It is probable that Yeltsin, with all of the legitimate advantages of incumbency, would have won the
election honestly; but the Clinton administration chose not to test that proposition. Working with Yeltsin
campaign manager and troika favorite Anatoly Chubais, the Clinton administration pushed through a
new $10.2 billion International Monetary Fund loan in March 1996 that provided liquidity not only for
the Russian central government but for the Yeltsin campaign.

There were many allegations of campaign finance irregularities tied to abuse of these IMF funds and

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misappropriations from the Russian treasury.52 At one point between the two rounds of the election, two
Yeltsin campaign staff members were detained leaving the Russian White House with $500,000 in a
Xerox box.54 Expenditures on Yeltsin's reelection effort exceeded Russia's legal campaign spending
limits by orders of magnitude.55

The Clinton administration's complicity in the anti-democratic maneuvering56 was, ironically,

undertaken for the stated purpose of institutionalizing democracy in Russia. But by pursuing a policy of
"reform" that required the political victory of their reformers by whatever means necessary, the
administration undermined the democratic process itself.

Ignoring and Spinning 'Inconvenient' Facts

Perhaps the gravest consequence of the Clinton administration's de facto troika arrangement was that it
insulated policy making from the substantial volume of data and analysis generated within the normally
functioning channels of the U.S. government, permitting a handful of officials to press full speed ahead
in a manner that shut out facts and proved incapable of either mid-course corrections or admission of
failure.57 Operating at the very top of the bureaucratic pyramid and accountable to no one, these few
could effectively reinforce one another's rationalizations for viewing failure as success, and market this
view as fact to the American public and the world.

The corruption of the Russian "privatization" program even before the loans-for-shares scheme is an
important example of the Clinton administration's unwillingness to adjust policy to facts, or ever to
acknowledge failure. The administration's support for the program persisted even as it was hijacked by
former Communist insiders who possessed Russia's only real assets.

Beginning in October 1992, the so-called "voucher privatization" program provided for each Russian
citizen to be issued a voucher with a face value of 10,000 rubles, redeemable for state property (at
then-prevailing exchange rates the equivalent of about $32, or six times the average weekly wage in
Russia). The scheme was devised by troika partner Anatoly Chubais's U.S.-funded Russian Privatization
Center, with the assistance of the U.S.-funded Harvard Institute for International Development and the
U.S. Agency for International Development (AID). Thomas Dine, then AID Assistant Administrator for
Europe and the New Independent States, testified before the Senate Foreign Relations Committee in
October 1994 that "US AID expert advisers helped Russian counterparts in designing and implementing
the voucher system."

According to Dine's testimony, the "structured reform process" of establishing the basis for a
competitive, free enterprise economy was not a prerequisite for putting state monopolies into private
hands. Rather, only after completion of the voucher privatization program would the Clinton
administration plan "advance to the next logical steps in the structural reform process." In other words,
creation of an authentic free market environment was to follow conversion of control over Russia's
industrial assets into privately-owned assets of Russia's new oligarchs.

This decision would have disastrous consequences for Russia and her people. A small group of insiders
acquired the preponderance of the vouchers for themselves, leaving ordinary Russians as powerless as
before. The valuation of the industrial assets exchanged for the vouchers was manipulated for the benefit
of these same insiders. And once in control, they were able to strip the assets for piecemeal sale, leaving
Russia without even the productive capacity that these former state-owned monopolies had provided,

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and with no market-based competitors to fill the void. Essentially, enterprises were turned over to
Soviet-era managers and others intent on stealing their assets. Modernizing and adapting to market
conditions was not on the minds of Russia's "new managers." There were neither incentives nor
resources for investment, without which enterprises were doomed to fail.

Moreover, millions of U.S. taxpayer dollars provided directly to the Harvard Institute, and indirectly to
Chubais and the Russian Privatization Center, would be unaccounted for.

Yet both during and after the implementation of the voucher privatization program, the Clinton
administration hyped it as a policy triumph, with no regard for the realities of the situation. The vouchers
were intended to be used for the purchase of shares in any of the more than 5,000 companies slated to be
privatized before 1994. But the hyperinflation of 1992 increased the need of average Russians for cash,
so instead of investing for the long term by using the vouchers to purchase state-owned property, many
Russians sold their vouchers to well-financed former Communist speculators for the best price available.

The U.S. planners, under Chubais' direction, made no adjustment for this. As a result, those who had
financially profited during the Soviet regime, or who had connections to the Chubais clan, accumulated
enough vouchers to purchase control of many state enterprises during this period. Indeed, the millions of
dollars in U.S. aid tunneled through the Harvard Institute and the Russian Privatization Center-which the
Russian equivalent of the U.S. General Accounting Office described as "over funded and largely an
instrument in search of a mission"-may have funded the speculators.58

Moreover, the appraisals by which each industry was valued (to determine the quantity of vouchers
necessary to acquire it) were not routinely conducted at arm's length. Those with connections to the
government were able to manipulate the valuation to their advantage. In this way, assets of significant
value were acquired at cut-rate prices.

In the end, most Russians-as they saw the wealth that had been channeled from the state to the new
oligarchs-felt they had been wrongly deprived of their piece of privatization. The experience gave many
Russians a sour taste of what they believed was capitalism. The immediate result was that millions of
Russians who had previously been enthusiastic about "reform"-and who were prepared to wait and
endure while the infrastructure of free enterprise was built-now wanted none of it. A common pun in
Russia during this period substituted "prikhvatizatsiya"-"grab-it-ization"-for "privatizatsiya," the Russian
word for privatization.

Notwithstanding the perverse results of Russia's non-market "privatization," the Clinton administration
was eager to peddle a success story. No superlative was spared. "The privatization program carried out
by Deputy Prime Minister Anatoly Chubais has been nothing short of remarkable," Summers testified in
February 1994.

Summers drew attention to figures showing 70% of all small-scale shops and 7,000 large firms had been
"privatized." Like the Soviet system that was being privatized, Summers focused on quantity rather than
quality59 without remarking upon the fact that no new competitors had been created. Removing assets
from state control was deemed "privatizing" even though the management of many of the privatized
firms continued unchanged, and even though they remained monopolies operating in a non-competitive,
non-market economy.

"The difficult decisions of how to modernize Russia's companies rest in private hands,"60 Summers
stated categorically, despite the fact that two-thirds of Russia's industrial labor force remained under
state ownership and control.

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Others in the Clinton administration followed suit. In AID's 1995 annual report of its Russia work, it
described Russia's progress in "privatizing its economy" as "remarkable." Three sentences later,
however, the report acknowledged the major reasons the process wasn't working: "Development of the
legal, regulatory, and institutional infrastructures necessary to permit the newly-privatized companies to
attract investment and to restructure and reorient their operations to compete in the global marketplace is
still in the early stages."61

Notwithstanding "spin," the latter assessment still remains true today.

Subsidizing Government Instead of Building a Free Enterprise Economy

Relentless "spin" in the face of the facts was not limited to the results of "privatization." The Clinton
troika claimed wondrous results for their financing of the Russian central government with International
Monetary Fund debt, as well.

When Deputy Secretary of State Strobe Talbott testified before Congress in March 1994, he presented a
picture of Clinton administration economic assistance producing improved standards of living for
ordinary Russians. "Our assistance to promote economic reform targets projects that lead to tangible
improvements in the lives of ordinary people," he said. 62 But Talbott's claim flew in the face of
virtually all indices pointing to a significant deterioration in the standard of living for the vast majority
of Russians.

The focus of the Yeltsin "reformers" on strengthening the finances of the Russian government and on
transforming state-owned monopolies into private monopolies-instead of building the fundamentals of a
free-enterprise system-reflected the priorities of their Clinton administration and IMF advisers.

The Clinton troika placed the highest priority on macroeconomic planning worked out between the
Russian central government and the IMF, rather than on the free enterprise fundamentals necessary to
ensure the successful transition from Communism to a free market. Because the administration chose to
focus primarily on the financial predicament of the Russian central government instead of putting in
place the legal fundamentals that would permit individuals to start businesses, grow the economy in that
way, and create a tax base for the government, U.S. and IMF economic assistance to Russia amounted to
mere temporizing.

Worse, the Clinton administration virtually guaranteed that the billions of dollars in lending and aid that
it was providing would be wasted by allowing its use to plug the gap in the Russian central government's
operating budget, and by exposing these funds to theft and fraud.

Former Russian Finance Minister Boris Fyodorov, who met with the Speaker's Advisory Group on
Russia on July 12,2000, has derided the Clinton troika's reliance on IMF loans as a means of supporting
Russia. "The roughly $20 billion pumped into the Russian budget over the last decade have, in fact, had
no positive effect whatsoever," he wrote in the Wall Street Journal. He continued:

This is not surprising, given the black-hole nature of the Russian budget. Money, being
fungible, was misspent and ended up in the hands of a few well-connected people and in
Western banks. Russian citizens definitely did not benefit from this 'assistance,' judging by

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 the pitiful state of healthcare, education, public security, roads, and nearly every other public
sector.

Why reform anything in Russia if another IMF loan shipment is on its way and past scandals
can be swept under the carpet?63

Nevertheless, the centerpiece of the Clinton administration's Russia policy was the provision of massive
amounts of aid to the Russian central government through the IMF and directly from the U.S. Treasury.
At President Clinton's first meeting with the new Russian president, he promised $1.6 billion in aid. At
Clinton and Yeltsin's next meeting-during the Tokyo Economic Summit, in July 1993-Clinton offered
$2.5 billion more in direct, unconditional aid.

The 1993 Tokyo promise was not only functionally unconditional, but seemed to serve as a reward for
Russian inaction on legislation to protect private property rights-coming as it did just as Russian reform
was reaching a virtual standstill. The timing of the new aid was rendered even more inappropriate by the
fact that the Clinton troika were then facing bureaucratic and logistical obstacles to delivering
already-promised U.S. aid to the Russian government.

Meanwhile, in addition to this direct U.S. foreign aid, the administration was also pushing for billions
more in IMF loans to the Russian central government. This aid continued despite the repeated violation
of the unenforceable macroeconomic conditions attached to the loans, and despite the worsening Russian
economic performance that had gone hand-in-hand with previous IMF lending.

All told, since 1992 the United States alone has paid more than $20 billion into the Russian central
government, both directly and through multilateral institutions.

U.S. Financial Aid to Russia— 1992-1999

in millions
U.S. Commercial Financing $8,890
and Insurance (Ex-Jm Bank,
OPIG.USDA)
Non-FREEDOM Support $3,960
Act Funds1
International Monetary £3.830
Fund4
FREEDOM Support Act' $2,260
World Bank* $1,050
European Bank for $ 306
Reconstruction and
Development9
TOTAL $2030
SOURCES: IMF Summary of Disbursements and Repayments:
Russian Federation, World Bank Courtry Brief, EBRD Activities in
Russia, Dept of Stats'U.S. Government Assistance to and
Cooperative Activities with the New Independent States of the
Former Soviet Union: FY1999 Annual Report (January 2000)"

Absent a functioning free market economy, Russia lacked the ability to assimilate such enormous sums
without their being absorbed by the state. No private institutions were equipped to handle or

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intermediate such amounts.

For its part, the Russian government lacked the facility to turn these massive aid flows into competitive
economic activity. Instead, the aid had the opposite effect: it made possible the subsidies to the Soviet
enterprise network that allowed it to continue in operation. Large-scale international assistance thus
contributed to Russia's problems by killing incentives for legislative reform, and propping up a
government whose policies were bankrupting the Russian people.

There were long term adverse consequences as well. The flood of loans added to Russia's growing
foreign debt, which continues to burden the central government's operating budget and weigh down the
nation's economic prospects.

To a certainty, some of the funds financed the oligarchs in Russia whose agenda was to obtain and
preserve their favored position in the economy. These oligarchs, in turn, became a powerful constituency
for the corrupt status quo. In this way, too, U.S. policies have actually made reform more difficult.

The highly visible infusion of so much money into the Russian government with no resulting market
competition fueled public skepticism, making real economic reform less popular and therefore less
likely. Would-be Russian entrepreneurs were discouraged by the apparent aid to oligarchs. From the
beginning, the prospect of massive hard-currency transfusions into Russia had created false expectations,
and when they were not met the result was ill-will toward the West. "[W]hen the vast expectations borne
of such massive financial support collided with Russia's grim realities, serious political difficulties were
in store," Gaidar has summarized.64

Russian officials and the Clinton administration failed to recognize that without a market economy to
support market reforms, government efforts-both the United States' and Russia's- were doomed to
failure. The "privatization" of state companies was carried out in a vacuum, absent basic elements of a
free enterprise system including unquestioned property rights, a modern commercial code, the right to
make and legally enforce private contracts, readily accessible mortgage lending, and a comprehensible
regulatory and tax system. The logical result of such non-market "privatization" of state monopolies was
chaos.65

Joseph Stiglitz, former Chief Economist and Vice President of the World Bank, succinctly described this
fundamental flaw in the Clinton troika approach. Those advising the Russian government, Stiglitz
argued, "consisted largely of macroeconomists, whose faith in the market was unmatched by an
appreciation of the subtleties of its underpinnings-that is, of the conditions required for it to work
effectively. "66

But at the time, both the World Bank and the IMF seemed not to appreciate the importance of
establishing the conditions required for a free enterprise economy to work, either. In a December 1993
memorandum entitled "Economic Reform in Russia: Lessons from Experience," prepared by staff of the
two organizations, the "accomplishments" in the first two years made no mention of the establishment of
market prerequisites. The memorandum's list of tasks that remained to be done similarly excluded
virtually every one of the fundamental building blocks of a free enterprise economy that Russia since
1992 has urgently needed to enact.

The ultimate problem with the Clinton administration's economic policy was that the vast amounts of
money that were poured into Russia's central government-in the form of both bilateral and multilateral
lending and direct aid-became a substitute for and an impediment to the changes that were necessary to
move Russia from Communism to free enterprise.

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Conclusion

The Clinton administration's policy toward Russia was undermined by the president's declination to
make it a presidential-level priority for the United States. The de facto delegation of his responsibility to
a policy-making troika of Vice President Gore, Strobe Talbott, and Lawrence Summers led to
bureaucratic disarray within the administration caused by the troika's assertion of top-level authority over
programs relating to Russia more properly administered under the direction of cabinet secretaries and
agency heads, subject to the normal executive branch checks and balances. The Vice President's use of
the Gore-Chernomyrdin Commission to dispense benefits to Russia outside normal channels was a
particular cause of poor coordination and duplicated efforts.

This structural failure exacerbated several deep flaws in the administration's approach to the greatest
foreign policy opportunity for the United States since World War II.

The Clinton administration has often sought to defend its catastrophic policies in Russia by arguing that
it had "no alternative." But there were alternatives to administration policy at every step. United States
policy could have engaged broadly with Russia at any time in the past eight years. It could have
emphasized the development of the necessary building blocks of free enterprise instead of massive,
effectively unconditional IMF lending to Russia's central government. And it could have stopped
enabling Russian corruption.

It is quite correct that Russia is responsible for its own decisions and was never America's to lose-or for
that matter to win. But it is even more certainly the case that Russia in 1992 stood ready to become a free
enterprise democracy and a close friend of the United States, and was prepared to accept American
advice on how to achieve that result. To the extent that U.S. policy made a difference in Russia, it made
conditions worse, not better. President Clinton, Vice President Gore, Strobe Talbott, and Larry Summers
did not "lose Russia." But the policies they pursued did hurt Russia-badly.

CHAPTER 5

THE
GORE-CHERNOMYRDIN
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 COMMISSION

GORE-CHERNOMYRDIN: Vice President Al Gore and Prime Minister

Viktor Chernomyrdin embrace Sept. 24,1997. The Gore-Chernomyrdin
Commission failed to serve its stated function of ensuring implementation of
decisions made at the presidential level. Instead the Commission became the
primary forum and vehicle for U.S. policy toward Russia. Yet the Commission
was deeply flawed by its own structural defects-the need for a facade of success
regardless of the reality; an excessive dependence on personal relationships that
left the United States ill-prepared when Russia changed players; and a willful
blindness to conflicting information about Russian affairs from sources outside
the Commission's staff bureaucracy. As the Commission came to dominate
U.S.-Russia policy, these flaws infected the entire bilateral relationship, AP
Photo/Pool

The Gore-Chernomyrdin Commission is the instrument through

which the good intentions and principles articulated first by me and
then by Boris Yeltsin have made the United States-Russia
partnership the success it is.

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 Bill Clinton, November 1, 1997

The life of the nations is not contained in the lives of a few men, for
the connection between those men and the nations has not been
found. The theory that this connection is based on the transference
of the collective will of a people to certain historical personages is
an hypothesis unconfirmed by the experience of history.

Leo Tolstoy, War and Peace, 1869

Delegating Duties
In April 1993, during his first meeting with President Yeltsin, President Clinton effectively delegated the
management of U.S.-Russian relations to Vice President Al Gore. The "U.S.-Russia Commission on
Economic and Technical Cooperation" was to be co-chaired by Gore and Russian Prime Minister Viktor
Chernomyrdin. The first task of the Gore-Chernomyrdin Commission-as the Commission was soon
popularly known-was to promote cooperation between the United States and Russia on space and
energy issues. 1

At the April 1993 Vancouver summit, a joint Yeltsin-Clinton statement explained that the
Gore-Chernomyrdin Commission would assume even broader powers: "In particular, working groups
will be set up involving high-level officials of both governments with broad authority in the areas of
economic and scientific and technological cooperation. "2

By the end of 1993, the Commission's role had been expanded to include the full range of U.S.-Russia
relations. According to the vice president's chief foreign policy adviser, Leon Fuerth, in remarks at the
Foreign Press Center on December 22,1993: "In the aftermath of the first meeting here in Washington
between Prime Minister Chernomyrdin and the vice president, [the Commission] expanded.... This is a
very large enterprise involving a broad sweep of cabinet or ministerial level players on both sides. "3
Henceforth, the biannual meetings of the American and Russian presidents became little more than
high-visibility adjuncts to the Commission's own biannual meetings, and could not substitute for
Clinton's disengagement from his administration's policy.

Clinton's abdication to Gore of authority over the most important foreign policy opportunity for America
since World War II~the rebuilding of Russia after the collapse of the Soviet Union-is striking. No other
foreign policy development in the second half of the 20th century held as much in the balance as the
potential Russian transition from Communism to free enterprise and democracy. By assigning this
portfolio of overarching importance to his second-in-command~whose priorities were (and remain)
"Reinventing Government," environmental issues, and technology policy-Clinton guaranteed that
Russia policy would receive only desultory attention. By removing the Russia portfolio another layer
from the President, the administration also sent a signal that Russia was of secondary importance to the
United States.

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 ^Gore-Chernomyrdin Commission
VIII

RUSSIA IN THE BALANCE: Former Communist industrial manager Viktor Chernomyrdin (left) and Vice President
Al Gore preside over an elaborate meeting of the Gore-Chernomyrdin Commission Feb. 6,1997, at the U.S. State
Department. President Clinton delegated responsibilty for U.S. Russia policy to Gore, who measured the
bureaucratic Commission's success by the amount of paper it produced~"more than 200 intergovernmental and
interagency documents." AP Photo/Mark Wilson

A Bureaucracy Is Born
The Gore-Chernomyrdin Commission's function and structure proved an accurate blueprint for the even
tual failure of the entire Clinton administration policy toward Russia. In a self-congratulatory "fact
sheet" released in July 1999, the administration touted the Commission by asserting that "a dialogue
wouldn't take place without [the Commission]."4 In fact, by superseding normal policy making and well
established channels of communication within the U.S. government and between it and the Russian
government, the Gore-Chernomyrdin Commission would come to impede the information flow to
decision makers in Washington.

More basically, by ostentatiously placing great emphasis on the importance of the two central
governments, rather than on reducing the role of Russia's central government and devolving power to
private decision making, the Gore-Chernomyrdin Commission distracted Russia from what should have
been its main focus: constructing the essential elements of a free enterprise economy.

Finally, the Commission powerfully reinforced the overall tendency of the Clinton administration to base
U.S. Russia policy on personal relationships with a handful of Russian officials. Such personalization of
the bilateral relationship created a symbiotic political relationship between the two sets of officials,
making American policy dependent on the political fortunes of individual Russian politicians. It thus
created strong incentives to ignore their failings and believe their representations. A former State
Department official has testified that"... senior administration officials were tempted to turn to their
Russian partners [rather] than to the intelligence community and the Foreign Service for insight as to

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what was happening in Russia and how to proceed."5

A Pattern of Busywork and Neglect

The first meeting of the Gore-Chernomyrdin Commission, which consisted mainly of discussions
between Gore and Chernomyrdin, established what soon became its format: discussions between
representatives of two bureaucracies. It also developed its own elaborate bureaucratic structure. Over
time, its main activity became government contacts at the staff level.

As the years went by, the Gore-Chernomyrdin Commission developed a Secretariat-whose very name
conjured up memories of the Soviet bureaucracy. Numerous committees, each co-chaired by a U.S.
cabinet secretary and his or her Russian counterpart, were established for the purpose of exchanging
papers, distributing memoranda, and planning for additional meetings. Each committee, in turn, had its
own working groups and subgroups as well, all with their own assigned staffs.

The Gore-Chernomyrdin Commission Secretariat was divided into a Russian and an American
component. The American staff was headed by Gore's national security advisor, Leon Fuerth, who
became~in the words of the Washington Post-"the virtual day-to-day manager of U.S. relations with
Russia."6 By substituting a bureaucrat whom the Post called an "obscure force in national security"7 in
place of the vice president--who himself was already a stand-in for President Clinton~the importance of
U.S. policy making for Russia was further diminished.

Despite the Commission's elaborate structure and the hundreds of people involved, it had no full-time
professional staff. Instead, it relied on the various principals to detail their own staffs to the Commission
as needed. As a result, the preeminent forum for U.S.-Russia relations not only was twice-removed from
the President but also lacked a staff able to give it full-time attention.

The requirement that the staff assigned to the Gore-Chernomyrdin Commission discharge their other
duties and responsibilities, which were often unrelated to the Commission's objectives, ensured that the
individuals involved had inadequate time to carry out either of their jobs fully.

But what the Gore-Chernomyrdin Commission lacked in organizational focus and dedicated staff, it
made up for in numbers. By 1999, the U.S. delegation to a Commission meeting would consist of over
700 officials.8

The sheer size of the U.S. delegations to Commission meetings would require the U.S. Embassy in
Moscow to suspend normal activity for weeks in advance of a Commission meeting, just to handle the
logistics.9

The multitudes of part-time U.S. government bureaucrats associated with the Gore-Chernomyrdin
Commission were even harder for the Russians to handle. The Commission's constant demands for the
time and attention of Russia's already hard-pressed and mismanaged ministries kept them from focusing
on more vital and difficult tasks-such as dismantling the Soviet-era bureaucracy.

The distraction from real work caused by the Gore-Chernomyrdin Commission was especially severe
given the frequent turnover in the Russian government's senior personnel. Often, a new Russian minister
would have just assumed his duties before being called to devote time and resources to preparing for the

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next semi-annual meeting of the Gore-Chernomyrdin Commission (or, in its subsequent incarnations, the
Gore-Kirienko, Gore-Primakov, and Gore-Stepashin Commissions). 10 Gore's convening of the
Commission in July 1999, when Russia's Prime Minister Sergei Stepashin had been in office for less
than three months, is a recent example.

Mostly, the Gore-Chernomyrdin Commission's bureaucracy produced paper~a great deal of it. A report
issued on the occasion of the tenth meeting of the Commission, issued just months before the August
1998 economic debacle, boasted that it had issued "more than 200 intergovernmental and interagency
documents in every area and avenue of U.S.-Russian cooperation." 11 Not since the days of the Soviet
Union had the unrelenting issuance of so much government paperwork been viewed as a prime measure
of achievement.

From 1993 until 1998 (with the exception of 1995, when the Commission met only once), the
Gore-Chernomyrdin Commission and its immediate successor, the Gore-Kirienko Commission, met in
plenary session twice every year. In 1998, then-Russian Prime Minister Sergei Kirienko proposed
holding only one plenary session each year, thus cutting down on the excessive number of government
staff conclaves. The other meeting each year would be limited to the vice president and the prime
minister. (The two most recent meetings of the Commission, in July of 1998 and 1999, have been held
on this less formal basis.)

The Russian media applauded the less frequent meetings, saying "it was high time" to replace
"ostentatious gestures" with "effective actions." 12

According to E. Wayne Merry, formerly the head of the political section of the U.S. Embassy in
Moscow, the Gore-Chernomyrdin Commission was worse than mere ostentation; it very much got in the
way. Beyond the make-work from so many meetings and memos, the increasing public-relations demand
to hype the Commission's supposed "achievements" became a principal chore in its own right. Over
time, he reports, the need to pad the accomplishments of the Commission distracted both sides from
accomplishing substantive work:

Sadly, with time the Commission has taken on a bureaucratic life of its own and now
impedes rather than encourages innovation.

U.S. agencies cannot conduct normal cooperation with Russian counterparts, because the
Commission needs fodder for its summits: "new" programs to unveil, documents to sign,
photo ops for the principals....

Worse, U.S. staffs are under constant pressure to increase the list of summit "deliverables":
taxpayer-supplied evidence of American goodwill regardless of Russian performance,
honesty or even desires. 13

By proclaiming dozens of trivial successes, the administration hoped to divert attention from a string of
larger policy failures, including the fundamental failure of the Commission to perform its core functions:
Russia still lacked even the most basic elements of a free market economy; the costs and delays from
U.S.-Russian space cooperation continued to escalate; the privatization of Russia's energy sector was
becoming criminally corrupt; and the Russian military was accelerating its proliferation of dangerous
weapons and technology.

Indeed, despite the Clinton administration's perceived need to fill the Gore-Chernomyrdin summits with
apparent activity, major issues in U.S.-Russia relations often were not addressed. For example, the

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Commission did not even establish a working group to focus on corruption, money laundering, and
organized crime until 1999-long after the problem of Russia's crime and corruption scandals had gained
worldwide media attention.

This dynamic-hyping good news and ignoring problems-was increasingly apparent to lower-ranking
U.S. officials. A former State Department official acknowledged that over time "there was an
unmistakable shift in the administration's priorities, from 'tell us what is happening' to 'tell us that our
policy is a success.'" 14 Another former administration official described the "chilling" effect this attitude
had on reporting from the State Department and the intelligence community. 15

Bmatkm^^nmissbns

OUT OF THE LOOP: The logo of the "Binational Commissions" project as it appears on the State Department
web site. Govemment-to-government relations under the U.S.-Russia Commission, outside of normal diplomatic
channels and based on personalities rather than policy, compromised the ability of the United States to respond to
intelligence information, especially information about the head of the Russian Commission, Viktor Chernomyrdin.

The Gore-Chemomyrdin Space Station Debacle

From the outset in 1993, Russian-American space cooperation was a key item on the
Gore-Chernomyrdin Commission's agenda. Starting with the 1993 Vancouver Summit, the Clinton
administration-under the direction of the Gore delegation to the Commission-undertook an ill-fated
effort to integrate Russia fully into the International Space Station.

In 1993, Russia was economically and politically ill prepared to devote the necessary resources to
completing the space station on the ambitious schedule then contemplated. Nevertheless, the U.S. staff
of the Gore-Chernomyrdin Commission and others in the Clinton administration repeatedly asserted in
1993 that Russian involvement in the space station would actually accelerate its deployment. Even more
improbably, they claimed it would save money for United States taxpayers.

The vice president estimated that Russian participation in the space station program would save U.S.
taxpayers $4 billion and reduce the time needed to deploy the space station by two years. 16 But the error
in that optimistic estimate became apparent almost immediately. By April 1994, the savings promised by
the Clinton administration had been reduced to $1.5 billion, and the estimated time savings had been cut
to just over one year. 17 By the end of 1994, the promised savings had vanished entirely.

The actual result of the Gore-Chernomyrdin space station initiative has been not savings but added costs,
and not early deployment but seemingly endless delay.

The space station was originally scheduled to begin operation in 2002. The most recent revised schedule
calls for beginning full operations no sooner than 2006. Similarly, the original estimate of $4 billion in
savings has been changed to added costs: whereas the 1993 price tag for the space station was $17.4
billion, it has since ballooned to at least $24.1 billion. 18 In 1998 testimony before the House Science
Committee, Joe Rothenberg, NASA's Associate Administrator for Human Spaceflight, conceded that

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Russian participation in the program is responsible for $1 billion of these added costs. 19 The Johnson
Space Center has estimated that Russian participation in the space station has added $5 billion in
costs.20

Under the original Gore-Chernomyrdin proposal, the United States was to have paid Russia $400 million
for its role in the space station project. This money would take the form of direct payments from NASA
to its Russian counterpart, Rosaviakosmos. But the United States has already paid nearly twice this
amount to the Russian government, and further additional funds have been requested.21

In the final analysis, these cost overruns and delays are neither unprecedented nor wholly unexpected.
What is troubling about the Gore-Chernomyrdin Commission's role, however, is that it served chiefly to
deny and cover up the delays and cost overruns when they occurred. Three years into the Russian
participation in the space station program~and long after the rising costs and attendant delays had
become self-evident-Vice President Gore announced "an ambitious future schedule of cooperation in
space," as if the earlier schedule had never existed.22 Disregarding both the escalating costs for the
United States and the Russian government's failure to meet its commitments, the Commission has
produced similarly glowing statements about the health and vitality of U.S.-Russian space cooperation
throughout each of the past seven years.

When confronted with information that Russian participation in the space station was detrimental to the
station's success, the Clinton administration argued that the costs and delays in the space station program
might be justified as an effort to prevent a "brain drain" of Russian scientists to other countries seeking
their expertise in rocketry and missile development.23 But in fact the Russian government had proved
willing to provide these other countries with its scientists' missile and rocket expertise without the
scientists ever having to leave their Russian research institutes. U.S. assistance on the space station, it
was learned, actually subsidized the "brain drain" by supporting companies in the Russian
military-industrial complex that were simultaneously engaged in both the space station program with the
United States and missile proliferation to Iran.24

The Commission's failure in this, its first assignment~and, in particular, its demonstration of a willful
blindness to uncomfortable facts-would become symptomatic of its approach to the broad range of
issues in U.S.-Russia policy, and a microcosm of the Clinton administration's approach to unpleasant
realities in Russia.

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CONFLICT OF INTEREST: Viktor Chernomyrdin attends a board meeting of the Gazprom natural gas monopoly
in Moscow, June 30, 2000. He had announced the previous day that he would resign as chairman of the board of
Gazprom. Chernomyrdin reportedly obtained significant ownership of Gazprom during the firm's
privatization-which Russia's Deputy Prime Minister for Finance called "the biggest robbery of the century, perhaps
of human history." Chernomydin maintained ties to Gazprom as Prime Minister, simultaneously influencing both
Gazprom's affairs and Russia's energy, tax, and regulatory policies that directly affected the company. AP
Photo/Mikhail Metzel

Papering Over Missile Proliferation to Iran

The links between space technology and proliferation facilitated the Commission's assumption of yet
another area of responsibility: resolving differences between the United States and Russia on weapons
proliferation, especially proliferation to Iran.25

In 1995, the Gore-Chernomyrdin Commission claimed success in stemming Russian weapons

proliferation when Russia announced it would become a party to the Missile Technology Control
Regime. Unfortunately, this "success" was only the first in a string of meaningless Russian
pronouncements about arms proliferation. When the first public reports of Russian assistance to the
Iranian missile program subsequently surfaced in January 1997, the Clinton administration's weak
response was to begin a long and ultimately inconsequential dialogue through the Gore-Chernomyrdin
Commission. Such temporizing has failed to this day to stem Russian assistance to the weapons
programs of Iran and other rogue nations.

Despite urgent requests from the Israeli government, Vice President Gore failed to make the Iran
weapons proliferation issue a focus of the Gore-Chernomyrdin Commission plenary meeting in February
1997. Instead, the Commission focused on such weighty matters as commending itself for having
produced 160 documents during the four years since its creation.26 Not until the next Commission
plenary session, in September 1997, did Gore even raise arms proliferation in the Commission's public
discussions.

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Gore's reticence about directly confronting the Russian government on difficult bilateral issues surfaced
again when the Clinton administration refused to work with the U.S. Congress as it considered
legislation to provide for sanctions, not against Russia, but rather against Russian companies guilty of
selling missile technology to Iran. The Clinton administration's unwillingness to tackle the issue drew
the attention even of its Democratic allies in Congress. In the Additional Views filed by the minority in
connection with the Iran Missile Proliferation Sanctions Act of 1997, eight senior Democrats wrote:

Missile technology transfers to Iran have become a contentious issue between the
Committee [on International Relations] and the Executive branch, in part because the
consultation process has been weak. The Committee has had difficulty in getting detailed,
timely information from the Executive branch on this issue.27

Throughout 1997 and into the summer of 1998, following the advice of the Gore-Chernomyrdin
Commission and Vice President Gore himself, the Clinton administration refused to impose sanctions
against the Russian firms involved in proliferation to Iran. Instead of accepting the reports of the U.S.
intelligence community, Gore chose to trust Chernomyrdin's reassuring pronouncements that
proliferation to Iran was against Russian policy.28

The failure to listen to information beyond the elite coterie involved in the Gore-Chernomyrdin
Commission, which allowed Gore to credit Chernomyrdin's policy pronouncements above the economic
imperatives that are even now helping drive Russian proliferation to Iran, reflected a characteristic
weakness of the Commission's very structure, and of the Clinton administration's Russia policy as a
whole.

This weakness was again revealed in January 1998, when the Clinton administration chose to accept at
face value the Russian government's assurances that its export controls would soon be tightened. The
Clinton administration's refusal to accept the widespread reports of Russian violations of its
non-proliferation commitments came to a head in June 1998. An overwhelming, bipartisan, and
veto-proof supermajority of both houses of Congress passed the Iran Missile Proliferation Sanctions Act
of 1998.

The Act provided for targeted sanctions against those Russian firms that were engaged in furthering the
Iranian missile program.29 Despite the precision of the legislation, President Clinton-explicitly citing
the assurances the Gore-Chernomyrdin Commission and administration officials had received from
high-level Russian officials-vetoed the bill.30

Less than one month later, on July 22,1998, Iran tested the Shahab-3, a missile developed largely with
Russian assistance. 31 The public embarrassment of having vetoed legislation designed to prevent the
development of this new weapons system forced the administration finally to sanction ten Russian firms
instrumental in the Iranian missile program. Critics of this approach claimed that, of the ten entities
singled out for sanctions, only two or three would be affected by the sanctions, and the others that should
have had sanctions imposed on them were left off the list.

The Clinton administration's unwillingness to deal firmly with Russian proliferation to Iran~a policy
failure centered in the structural weaknesses of the Gore-Chernomyrdin Commission-continues to this
day. At the July 1999 meeting of what was then the Gore-Stepashin Commission, Gore rewarded Russia
for cooperation on proliferation with an increase in its U.S. satellite launch quota.32 Yet just one month
earlier, the U.S. intelligence community had reported that Russian assistance to Iran's nuclear program
continues.33 Although the unclassified version of the report was not released to Congress until February
2000, the Clinton administration had access to this information before the July 1999 Commission

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meeting.

Conclusion
Ultimately, Vice President Gore's U.S.-Russia Commission failed to serve its stated function of ensuring
implementation of decisions made at the presidential level. Instead the Commission became the primary
forum and vehicle for U.S. policy toward Russia. Yet the Commission was deeply flawed by its own
structural defects~the need for a facade of success regardless of the reality; an excessive dependence on
personal relationships that left the United States ill-prepared when Russia changed players; and a willful
blindness to conflicting information about Russian affairs from sources outside the Commission's staff
bureaucracy. As the Commission came to dominate U.S.-Russia policy, these flaws infected the entire
bilateral relationship.

Because the Commission was dominated on the American side by the same group of senior officials for
eight years, it became increasingly insular and resistant to oversight.

The Commission became far too reliant on its small circle of Russian interlocutors for its information
about conditions in Russia. This excessive dependence on Russian officials-including a series of
Russian prime ministers necessarily focused on their own political survival—led both Gore and the U.S.
delegation to the Commission to insulate themselves from discordant information that might cast doubt
on the success of the Commission or the Clinton administration's policy. Rather than making policy
based upon the best information available from all sources, the Gore delegation chose to depend on a
single source with clear motivations to distort.

Such information as the vice president and his staff did choose to receive through normal State
Department and intelligence community channels was eventually distorted by the same penchant for
exclusively good news, turning the Gore-Chernomyrdin Commission into a Potemkin village version of
the administration's Russia policy.

The Gore-Chernomyrdin Commission thus contributed to a deliberately uninformed U.S. policy toward
Russia. It refused to acknowledge failure, and even worse, celebrated failure as if it were success. The
Clinton administration's dependence on the Gore-Chernomyrdin Commission, coupled with the
Commission's refusal to listen to independent information, meant that administration Russia policy was
both procedurally and substantively unsound.

Beyond failing to properly assess Russia's problems or to offer sound advice to address them, the Clinton
administration's use of the Gore-Chernomyrdin Commission in place of established U.S. policy making
mechanisms resulted in its repeatedly being caught off guard by Russian developments-from Russia's
complete financial collapse in 1998, to the continued proliferation of missile and nuclear technology to
Iran, to Yeltsin's appointment of Vladimir Putin as Prime Minister. The dangerous substitution of the
vice president's bureaucracy for America's institutional eyes and ears in Russia left the Clinton
administration woefully unprepared to deal with what should have been America's most important
foreign policy priority since World War II.

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 CHAPTER 6

'BULL****': GORE AND

OTHER ADMINISTRATION
POLICY MAKERS
SYSTEMATICALLY
IGNORE EVIDENCE OF
CORRUPTION OF THEIR
'PARTNERS'

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 THE OLD GUARD: Left to right, former Russian Prime Minister Viktor
Chernomyrdin, a Communist-trained technocrat and Soviet industrial manager;
a portrait of Soviet dictator Josef Stalin; and Vice President Al Gore, who
supported Chernomyrdin's requests for subsidies to the Russian central
government. Gore ignored evidence of Chernomyrdin's corruption. He and
Chernomyrdin met in Stalin's country house in a Moscow forest on July 14,
1996. AP Photo/Pool

The truth about corruption is difficult to hear and difficult to speak.

But once the truth is spoken and heard and known, the truth itself
acquires a power that can transform nations and our world.

Vice President Al Gore, February 26,1999

There have been a lot of charges and innuendo [about Viktor

Chernomyrdin] but there has been no proof no smoking gun, and
certainly no indictment in a Russian court.

Leon Fuerth (Al Gore's National Security Adviser), as quoted in the Washington Post, July 27,
2000

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 Facts are stubborn things.

President Ronald Reagan, August 15,1988

The 1995 CIA Report

In 1995, CIA officials dispatched to the White House a secret report based upon the agency's large
dossier documenting the corrupt practices of then-Russian Prime Minister Viktor Stepanovich
Chernomyrdin, who with Vice President Gore co-chaired the Gore-Chernomyrdin Commission. The
private assets that Chernomyrdin had accumulated in his official position, according to Russian security
sources, ran into the billions of dollars. 1 When the confidential classified report on Chernomyrdin
reached Vice President Gore, however, he refused to accept it. Instead, he sent it back to the CIA with
the word "BULL****" scrawled across it.2

When the New York Times first reported these grotesque facts, White House and CIA officials denied
that the report existed. The National journal, however, reported approximately six months later that it
had independently confirmed the Times account. 3 A few months later still, the Washington Post wrote
that CIA sources, "had it that the report came back with TJUII—!' scrawled in the vice president's
handwriting. "4

It is difficult to imagine a more dangerously intemperate reaction by the vice president to official
corruption in Russia. Yet this was hardly an isolated incident. The administration had ignored repeated
earlier warnings of corruption by Chernomyrdin and other senior Russian officials. Several senior
Clinton administration officials have confirmed that they had received a number of reports from the CIA
alleging corruption by Chernomyrdin, and that the CIA had submitted many other reports alleging
corruption among other senior Russian leaders, including Anatoly B. Chubais.5 "My review of CIA's
published material persuades me that it has reported to its readership persuasively and in depth that
crime and corruption are pervasive problems in Russia," said a CIA ombudsman tasked with
investigating the CIA's work after the first New York Times article about the vice president's "barnyard
epithet" appeared.6

It is therefore clear that the vice president rejected not an initial report unsupported by other evidence,
but rather a detailed report built on extensive earlier work by the CIA of which Gore must have been
aware. Moreover, the allegations against Chernomyrdin were made in the context of numerous charges
against other senior Russian leaders-suggesting widespread corruption at the top levels of the Russian
government.

Gore's close personal relationship to Viktor Chernomyrdin~and not any superior intelligence that he
possessed as Vice President-was therefore obviously decisive in his emotional dismissal of the CIA

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intelligence report of Chernomyrdin's corruption. At the same time that he was receiving reports of
Chernomyrdin's corruption and the growing anger of the Russian people over the power of the oligarchs,
the vice president was effusive in his public comments about Chernomyrdin. In June 1995, as they stood
together in Moscow, he displayed his lack of objectivity. "Friends have a right to be proud of friends,"
Gore proclaimed. He added: "The longer one works with [Chernomyrdin], the deeper one's respect
grows for his ability to get things done. "7

Chernomyrdin Allegations-No Secret

The Clinton-Gore administration's knee-jerk dismissal of top-secret corruption allegations against Viktor
Chernomyrdin was all the more remarkable taking into account the extensive information available in
open sources, including the Russian and U.S. media.

For example, in the summer of 1995 a respected U.S. analyst of Russian affairs wrote a comprehensive
article in the Washington Post detailing wide-ranging charges against the Russian prime minister. 8 Peter
Reddaway, a political science professor at George Washington University and former director of the
Kennan Institute for Advanced Russian Studies, cited accusations by Boris Fyodorov, who had served as
Russia's Deputy Prime Minister for Finance, that Chernomyrdin illicitly obtained significant holdings of
stock in Ga2prom, Russia's gas monopoly, during the firm's privatization—a privatization that Fyodorov
characterized as "the biggest robbery of the century, perhaps of human history."9 Chernomyrdin was
thus made one of the ten richest men in Russia (Gazprom was worth up to $700 billion). Reddaway also
noted similar charges by Vladimir Polevanov, also a former Deputy Prime Minister, in a nationally
televised interview in Russia. The New York Times reported in July 1995 that Chernomyrdin's son was
building "an enormous country home" in a Gazprom compound, and that he was also thought to be "one
of the company's largest shareholders." 10

Chernomyrdin's continuing links to Gazprom after his entry into government were also widely reported.
In fact, a March 1995, cable from the U.S. Embassy in Moscow signed by then-Ambassador Thomas
Pickering directly alluded to Chernomyrdin's continuing involvement with Gazprom after he entered
government, and with Gazprom's extraordinary influence over the government:

A former 'Gazprom' director-Viktor Chernomyrdin, who Embassy sources report spends a

significant amount of his time on 'Gazprom' business-is prime minister. An aide to current
'Gazprom' director Rem Vyakhirev said recently that, when there are problems in his sector,
'they (the federal government) do not tell us what to do, we tell them what needs to be
done.'ll

Numerous public sources noted Chernomyrdin's specific role in ensuring that the gas monopoly paid
minimal taxes. One expert estimated that Gazprom's tax breaks cost the Russian budget up to $30
billionl2~an immense sum relative to total Russian revenues and expenditures (for example, Russia
received less than $15 billion from international financial institutions in the four-year period from 1992
to 1995). This lost revenue had a grave effect on the government's ability to cope with the struggling
Russian economy. In this sense, the Clinton administration's uncritical support for Chernomyrdin
directly undermined the U.S. policy of encouraging Russia to increase tax collections.

Gazprom in return had provided funds for Chernomyrdin's parliamentary campaign in December
1995.13

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iWp>HW»B

In 1998, a book by Russian security officer Valery Streletsky added further public evidence that
Chernomyrdin tolerated massive corruption within his government. The author, who headed a unit
tasked with investigating government corruption, states that Chernomyrdin's long-time chief of staff,
Gennady Petelin, amassed tens of millions of dollars in foreign bank accounts. 14 The author further
reported that Chernomyrdin's own chief of security personally told him:

Viktor Stepanovich [Chernomyrdin] relates seriously to cadres. This practice has been
worked out over years. He thinks: let a good person steal 10% but do what is necessary with
the other 90%. 15

MORE "BULL****"?: Vice President Al Gore on Meet the Press, July 16, 2000, where he denied scrawling
"Bull****" across a CIA report of Chernomyrdin's corruption in 1995, but inadvertently acknowledged both the
existence of the specific report and his categorical dismissal of it. Newsmakers/Mark Wilson

Chernomyrdin was recently brought into court to testify about his role in the illegal export of $180
million worth of diamonds and gold during his administration. 16 As this report was being prepared,
Russian press accounts quoted Swiss police sources as stating that tens of millions of dollars had been
transferred into Swiss bank accounts controlled by Chernomyrdin during his tenure as prime minister. 17
The transfers were made by Mercata Trading, a firm linked to Mabetex, which is at the center of a major
kickback scandal involving $300 million in Russian government contracts, including the scandal-ridden
renovation of the Kremlin itself.

Given that Chernomyrdin served as prime minister for five and a half years, his embrace of corruption
fundamentally compromised Russia's efforts at economic reform. In this way, the Clinton
administration~and Gore personally-contributed not only to Russia's failure to overcome corruption, but
to the spread of corruption throughout the Russian political system.

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Gore's failure to heed U.S. intelligence by showing discretion about Chernomyrdin and other corrupt
officials in his public diplomacy—his willful blindness, and that of other senior administration officials
to the overwhelming public and classified evidence of official Russian corruption-sent precisely the
wrong signal to U.S. intelligence analysts, who had proven their regional expertise by accurately
predicting the collapse of the Soviet Empire. 18

The New York Times reported the effect of the vice president's disdain for politically inconvenient
intelligence:

The incident has fostered a perception in the agency's ranks that the Administration is
dismissive of'inconvenient' intelligence about corruption among the Russian leaders with
whom White House and State Department officials have developed close personal
relationships. 19

One intelligence official has stated publicly: "They never want to hear this stuff." Another commented:
"They don't ignore it. But they don't want to have to act on it." Current and former U.S. intelligence
officials expressed similar views:

'"It [Chernomyrdin's corruption] was all laid out for Gore [in 1995]... and he didn't want to
hear it. Our government knew damn well what was happening.'"20

Senior administration officials including Gore "definitely didn't want to know about
corruption around Yeltsin. That was politically uncomfortable. "21

The former Chairman of the National Intelligence Council, Fritz Ermarth, who retired from the CIA in
1998, wrote of senior Clinton administration officials that they had a "disdain for analysis about
corruption of Russian politics and their Russian partners... "22 Ermarth notes that this disdain was
particularly strong during the critical 1993-96 period.

They Know That We Know

Russian assessments of what the U.S. knew about Russian corruption also undermine the Clinton
administration's claims of ignorance. For example, a report by a think tank associated with the Russian
military, the Russian Institute of Defense Studies, states specifically:

Special services of Western countries have full access today to all documentation of joint
ventures and other partners of Russian exporters, they have the originals of financial
documents, they are knowledgeable regarding the movement of commodity resources and
financial flows, they have information on bank account numbers of the 'new Russians,' and
they know about their real estate and securities transactions abroad.

The report, issued contemporaneously with the Gore "bull****" incident, further stated:

And it should be understood that... the outflow of resources and capital from Russia abroad
in the form in which it is being accomplished today is criminalized to the highest degree and
represents not only a violation of domestic laws but also the grossest violation of laws of the

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i- .„,.,.....--,.....

western countries themselves.23

Yet even as publicly available Russian sources concluded that information about the full extent of
Russian official corruption was known to Western intelligence services, the top Clinton administration
policy makers chose to ignore it.

A System for Rejecting All 'Inconvenient' Intelligence

Vice President Gore has hedged his denial of the "bull****" incident, saying, "I don't think" that "[I]
ever wrote a message ofthat kind." At the same time, however, he and other senior Clinton-Gore
officials have publicly dismissed the CIA reports. Indeed, when asked whether "bull****" had ever been
scrawled across a CIA report, Gore plainly referred to a specific CIA report, saying, "whoever sent that
over there [could not have] expected the White House to be impressed with it... it was a very sloppy
piece of work."24 Other administration officials dismissed the CIA reports as "rumor," and denied that
the CIA had provided "conclusive proof. "25

But agency reporting is necessarily based on intelligence sources, often covert. By conveniently
demanding a "smoking gun" whenever they sought to suppress uncomfortable facts, Gore and other top
Clinton administration officials established standards of proof that were impossible to meet. The result
was a rigged system for rejecting all "inconvenient" intelligence whenever it suited the preferences of the
White House.

Such misuse of intelligence data deepened the mistrust between the White House and the Intelligence
Community. CIA officials have described the resultant "frequent tensions between the agency and policy
makers over reporting."26 According to one CIA official:

These people [the Clinton-Gore administration] have expected something no one in the
intelligence community could provide—judicial burden of proof.... Did we have an
authenticated videotape of the person actually receiving a bribe? No. But reporting from
established, reliable sources was written off as 'vague and unsubstantiated.'27

CIA officials have described the intelligence information concerning Chernomyrdin that was provided to
Gore as "more detailed and conclusive than allegations of bribery and insider dealing that have been
made in the Russian media and elsewhere. "28 Yet when asked~as recently as July 2000-whether
Chernomyrdin is corrupt, Gore replied: "I have no idea."29

False Choices
Recently, Leon Fuerth, the vice president's national security adviser, has tried to play down the
widespread intelligence community condemnation of Gore's disdain for official reporting by arguing that
the problem of corruption "was on the [Gore-Chernomyrdin] Commission agenda."30 But it is difficult
to see how a Gore-Chernomyrdin Commission could meaningfully attack the problem of
Chernomyrdin's own corruption, or that of his associates. Indeed, addressing corruption in partnership
with Chernomyrdin, whom another former Russian official called "the chief mafioso of the country,"31
was tantamount to endorsing Russia's corrupt status quo.

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Gore's lavish praise for Chernomyrdin, and his intentional personalization of their relationship make it
equally impossible to accept Fuerth's claim that Gore had no alternative but to deal with the prime
minister. (The Clinton administration, Fuerth stated, had either to "boycott the government of Russia" or
"deal with [Chernomyrdin] "32~an obviously false choice.) Gore's embrace of Chernomyrdin and the
ever-larger role assigned to the Gore-Chernomyrdin Commission went far beyond what was justified by
what the U.S. government knew of him, and by the Commission's meager results.33

The pro-forma inclusion of official corruption "on the agenda" of the Gore-Chernomyrdin Commission,
along with scores of other topics large and small, is quite different from making its eradication a priority.
The content of the Clinton administration's policy on Russian corruption has amounted to general
disinterest. It has offered lip service34 while failing to act on specific problems such as
money-laundering until forced by events.

The very serious allegations made against the Russian Prime Minister and Vice President Gore's partner
in the Gore-Chernomyrdin Commission, amply set forth in official U.S. intelligence reports, were simply
rejected by the Clinton administration as the scope of the issues assigned to the Gore-Chernomyrdin
Commission was steadily increased. Indeed, to the extent that President Clinton seemed willing to give
an ever-increasing role in the U.S.-Russian relationship to the Gore-Chernomyrdin Commission, Gore
stood to benefit from maintaining his continued close personal relationship with Chernomyrdin.

In light of Chernomyrdin's notorious corruption, the expansion of the Gore-Chernomyrdin Commission's

role and the decision to make it the fulcrum of U.S. policy were a serious error that abetted the growth of
official corruption and crime in Russia, to the detriment of the Russian people and the longer-term
U.S.-Russian relationship.35 Broader, less centralized cooperation with the Russian government and a
less fulsome embrace of Chernomyrdin could have averted these problems, and kept the United States
on the side of reform.

The Larger Pattern

Vice President Gore's approach to evidence of Chernomyrdin's corruption is a microcosm of the
approach he and the Clinton administration took towards the problem of corruption, which extended far
beyond Viktor Chernomyrdin.

As Wayne Merry, a senior official at the Moscow Embassy during the first part of the Clinton
administration, testified in September 1999:

It is now asked, "What did our policy makers know about corruption in Russia and when did
they know it?" I can only say that anyone involved with Russia~in government or on the
street-knew about it all along. There was no secret. Even if the Embassy and the CIA had
not written a word, the Western press covered the story fairly well, while the Russian media
reported on corruption constantly.... Anyone who wanted to know, knew. The real
questions are, "Did our policy makers care, and what did they do about it? "3 6

The answer to these questions is clear, not only in the case of Chernomyrdin but in many other cases as
well. The Clinton administration repeatedly ignored evidence and sought to politicize the analytical
process, routinely dismissing or stifling reporting that did not support their policies or fit their political

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requirements.

Donald Jensen served as a second secretary in the U.S. embassy in Moscow from 1993-1995 and
returned to Moscow in 1996. During his 1996 work at the embassy, Jensen wrote a 10-page cable
identifying Russian oligarchs who were using their government connections to win control of prized
enterprises. According to Jensen, his cable was killed by a Clinton administration Treasury official who
worked in the Moscow embassy.

The administration official, Jensen stated, justified suppressing factual reporting about Russian official
corruption by arguing that "if the memo were sent to Washington, it could be leaked to the press, and
that would undermine U.S. policy."37

Jensen told "Frontline" that the cable was never sent because "it was bad news, and we [the Clinton
administration] were intent on making our policies work."38 Moreover, he added:

if corruption was shown to exist in any significant degree... that was criticism of the
[Clinton] policy because we had argued for a number of years that these things-these
policies—were for the good of Russia, and that if you now say that the government's
completely corrupt, that it's linked directly or indirectly with organized crime, you're
essentially saying the policy the U.S. government has followed over the past few years was
wrong.39

Thomas Graham, the head of the U.S. Embassy's political section in Moscow from 1994-1997,
confirmed Jensen's account in an interview in the Washington PostAO

In the same article, Graham's predecessor in Moscow, Wayne Merry, said the embassy, "was under
constant pressure to find evidence that American policy was producing tangible successes, especially
after the creation of the 'Gore-Chernomyrdin' working group." Merry also said that the Clinton
administration's desire to make the Gore-Chernomyrdin commission a success prevented reporting
"about the realities of crime and corruption... failures in the privatization and general bad news."

Graham argues compellingly that the dismissal of such reporting by senior Clinton administration
officials was a direct consequence of their personal relationships with a handful of Russian officials.41
Because senior Clinton administration officials became so close with their counterparts in the Russian
government, he suggests, over time they came to trust their Russian interlocutors more than reports from
within their own government. Thus, senior Clinton administration officials came to rely upon their
Russian partners not only for information, but for analysis and policy recommendations as well; as a
result, the CIA, the embassy staff, and other independent sources of information were marginalized.

At times the Clinton administration has positively hindered the uncovering of official corruption: the
Swiss government has recently complained of U.S. refusal to cooperate with its criminal investigations
into official Russian corruption. Laurent Kasper-Ansermet, a Swiss investigative magistrate, formally
requested assistance from the U.S. government in his investigation into the Bank of New York case in
September 1999 and began a series of detailed requests for information and assistance in January 2000,
but to date has received little cooperation.42

Groupthink

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An article in the National Journal suggests that the Clinton administration's policy toward Russia may
be a classic case of "groupthink," a psychological process in which "wishful thinking, shaky premises,
and a tendency to deny facts at odds with the cognitive underpinnings of a course of action to which a
group is committed" can lead to flawed decision-making and policy failures.43 Moreover, because the
decision-makers involved in "groupthink" are unable to admit their own errors, they become trapped in a
"tangled muddle of self-justification, denial, and distortion." The National journal analysis attributes
much of the problem in Russia policy to Deputy Secretary of State Strobe Talbott and Treasury Secretary
Lawrence Summers. They, like Vice President Gore, were unwilling, and eventually unable, to
distinguish the imagined world of their own policies from the real world of an increasingly desperate
Russia. As a result, the Clinton administration continued, and even intensified, activities that were
plainly destructive.

CHAPTER 7

THE RISE OF ORGANIZED

CRIME

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 THE NEW RUSSIANS: Russians pay their respects to a fallen gang member.
Mikhail Kuchin, portrayed on his tombstone, is holding keys to his Mercedes
Benz, a symbol of new Russian power. In the absence of market reforms in
Russia, organized crime replaced the state as property distributor and dispute
arbiter, while it stifled legitimate entrepreneurs. Yevgeny Kondakov

As the Soviet Union was reinvented as Russia [tjhe Russian

problem was redefined from being one of organized power into
one of organized crime.

James Kurth, The National Interest, Summer 2000

Paying the Price for Failure to Develop a Market Economy

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The Clinton administration's failure to place primary emphasis on replacing Communism with the basic
elements of the free enterprise system helped create the conditions in which organized crime has
flourished. Without such essentials as effective legislated protections for private property, modern
commercial codes, and honest, efficient, and speedy courts to enforce property rights, the "privatization"
of government entities in Russia predictably resulted in chaos. 1

The Russian economy did not work. People who needed to make ends meet, to save or invest money, or
to get something else done looked for alternatives. For those suffering miserable poverty, theft became
an option. Counterfeiting found favor among some who went months without wages. The prevalence of
a barter economy gave rise to opportunities for tax evasion, extortion, and "protection" from regulatory
authorities. Lagging enforcement of intellectual property rights encouraged black-market entrepreneurs.
A supply of private "enforcers" arose to meet the demand for a system of dispute resolution.

Thus, organized crime came to be responsible not only for grisly mayhem and violence, but also for
functions as diverse as enforcing contracts and court judgments, providing personal security, and even
allocating scarce resources (through bribes to corrupt officials). The ability of some Russian organized
crime groups to draw upon the specialized expertise and contacts of former Soviet personnel further
increased their ability to compete with the Russian government both in technological sophistication (in
areas such as cyber-crime) and geographic reach.

Moreover, the continuing and pervasive role of government in the economy has provided an enormous
impetus for organized crime:

[0]ne frustrated former Moscow prosecutor has summarized Russia's current organized
crime problem: "The main way the mafia penetrates into the economy is via the bureaucrats.
They are our main enemy. The mafiosi are only the second enemy."

Russia's reluctance to loosen remaining state economic controls ... is the biggest catalyst for
crime. Businesses seek to evade what are perceived as unacceptably high taxes or overly
restrictive regulations; mafia groups thrive by providing a means for them to do so .... Both
at the federal and local level, government levies a daunting array of transaction costs on
normal business activities. Rather than pay fees for countless licensing and permit
requirements, firms choose to avoid official red tape by paying less costly bribes .... The
mafia often plays the role of middleman in these situations, facilitating transactions between
businessmen and corrupt government officials.2

Ironically, the successive privatization schemes promoted by the Clinton administration, far from
remedying this problem, exacerbated it, creating an oligarchic economy that put many powerful
individuals visibly above the law, demoralizing ordinary Russians, and setting a tone of pervasive
lawlessness at the apex of the Russian economy. As the Center for Strategic and International Studies
reported in its study of Russian organized crime,

The principal beneficiaries of privatization-conducted at "auctions" rigged in favor of

pre-selected individuals or banks-have been the [organized crime] syndicates. According to
the Analytic Center of the Russian Academy of Sciences, "55 percent of the capital and 80
percent of the voting shares were transferred, during privatization, into the hands of
domestic and foreign criminal capital. "3

The oligarchic economy also tightened the stranglehold of official corruption over the Russian

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government and the large sector of the ostensibly "privatized" economy that it influenced. This official
corruption both obstructed law enforcement and created a symbiotic relationship between corrupt
government officials and organized crime, which assisted them in such tasks as laundering money.

The Clinton administration's decision to base U.S.-Russian relations on Vice President Gore's
relationship with Viktor Chernomyrdin and a handful of other high officials also sent a strong public
signal that the United States would not only tolerate but embrace figures clearly identified in the Russian
media and public consciousness with corruption-further undercutting law enforcement, and
demoralizing not only the out-manned and underpaid Russian foes of organized crime but also the
Russian people.

The fact that Vice President Gore and other top-level Clinton administration officials were willing to be
so closely linked to Chernomyrdin and others clearly known by the U.S. intelligence community to be
involved with organized crime could not help but influence public attitudes toward criminal behavior.
Low-level bureaucrats taking bribes for permits, soldiers selling weapons to criminal groups, and border
guards willing to let anything through for a price4 all lived by this logic: after all, why should criminals
and corrupt government officials be the only ones to benefit from Russia's chaos?

The result was a vicious cycle of increasing crime and disorder, and a growing disillusionment with
democracy and free markets:

[T]he privations of ordinary citizens stand in contrast to the opulent lifestyles of gangsters,
corrupt politicians, and entrepreneurs of questionable integrity. This deviation has promoted
the impression of a state hopelessly corrupt, out of control, and run by criminals who
continue to use illicit means to hold onto the privileges of the elite formerly reserved for
officials of the Communist Party.5

All of these pathologies were predictable responses to the lack of a genuine market economy and the rule
of law. The criminal world's mailed fist increasingly substituted for the invisible hand of the free market.
Organized crime became "the dark side of private ordering~an entrepreneurial response to inefficiencies
in the property rights and enforcement framework supplied by the state."6

It was the devil's due for Russia's failure to develop a market economy in place of Communism~a failure
abetted by the Clinton administration's economic strategy for Russia and its embrace of corrupt Russian
officials.

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 A BETTER IDEA: Former World Bank Senior Vice President and Chief Economist Joseph E. Stiglitz, who took a
more thoughtful approach to the establishment of a market economy in Russia, explained that there was an
alternative to the Gore-Summers-Talbott "privatization" plan. He suggests that a bottom-up approach to
privatization-selling off smaller enterprises first-could have avoided much of the looting of Russian enterprises.
This approach, Stiglitz suggests, would have allowed for the establishment of a free-enterprise economy into
which the large enterprises could then be privatized. Such a policy would have avoided the creation of the oligarch
class, and limited the ability of the owners of newly- privatized businesses to obstruct the growth of competitors
that worked against their venal interests. He analyzed the issue in the Keynote Address to the World Bank Annual
Bank Conference on Development Economics, which he entitled "Whither Reform? Ten Years of the Transition."
He appears above at a news conference Apr. 26,1999, at the start of the bank conference. AP Photo/Dennis
Cook

Half the Economy

The impact of organized crime in Russia is staggering. Russian officials estimate that up to 50% of the
nation's economy is in some way connected to organized crime.7 According to Russia's Ministry of
Internal Affairs, by 1997 organized criminals owned or controlled about 40% of Russia's private
businesses, 60% of state enterprises, and 50% to 85% of banks.8 Illegal drug traffic, the most recent
manifestation of Russia's organized crime pandemic, is currently valued at between $4 billion and $7
billion per year.9 Russian firms must often pay 10% or more of their revenues in protection money to
criminal organizations and bribes to corrupt officials. 10

In February 2000, the Main Administration on Combating Economic Crimes disclosed that Russian law
enforcement agencies had exposed 300,000 economic crimes in 199911 -an average of one crime for
each of the 300,000 legal entities registered in Russia to engage in foreign trade.12 About 125,000 of
those crimes were felonies. 13 The Interior Ministry considered 90% of the economic crimes involving
organized criminal groups "serious" or "very serious."

Efforts by organized crime groups to launder illicit proceeds into the legitimate economy have resulted
in the creation of large, sophisticated criminal networks in and out of Russia. The Interior Ministry
reports that eleven large organized criminal groups, 95 "criminal communities," and 1,000 "organized
criminal groups" operate in Russia. 14 These groups include 50,000 people organized into nearly 250
gangs controlling 5,000 companies, many with international reach. 15 Russian organized crime groups
operate in some 60 to 65 nations. 16 Raymond Kerr, the head of an FBI-New York City police task force

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on Eastern European organized crime, described them as "spreading like an e-mail virus." 17

From Stalinist Purges to Organized Crime Hits

"Organized crime" is the ongoing and systematic commission of public offenses. In Russia, no other
term could be used to describe the contagion of money laundering, tax evasion, bribery, embezzlement,
drug dealing, extortion, and contract murder that has taken such a deadly toll on the population since
1992.

The legacy of the Communist system that dominated Russia for over 70 years was human suffering,
death, fear, and economic chaos. The culture of crime that has now infiltrated large parts of the Russian
economy seems, for those Russians upon whom it has preyed, to be very much the same.

"Grime used to be a monopoly of the State under the old system," Russia scholar Richard Pipes testified
to the House Armed Services Committee. "It is now privatized." 18

"[T]he Communist Party of the old Soviet Union... bore all the characteristics ... of a Mafia," testified
Brookings Institution Scholar Clifford Gaddy. "[B]ut it was an extremely well-organized Mafia. What
we are seeing today is highly disorganized crime, and that is precisely why I think we are seeing so many
of the characteristics that we associate with it, the brutality, the murders."19

Nothing more vividly illustrates the horrible human toll than the growing epidemic of contract
killings.20 In St. Petersburg-the "crime capital of Russia," where organized crime controls even the
cemeteries--200 deaths have been labeled contract killings since 1997.21

The following is a sample of the hundreds of contract killings that have occurred just this year:

* January 10,2000: Ilya Vaysman, 36, director of the St. Petersburg Baltika brewing
company, was shot in the head and heart from a fifth-floor ledge a few feet from the kitchen
window of his apartment. Suspected motive: a dispute over the disposition of expected
investments. (Baltika's general director of marketing, Aslanbek Chochiyev, was shot to
death as he was getting out of his Mercedes on July 1,1999.)

* February 2,2000: Valeriy Potapov, 36, the general director of the Baltisykaya Zarya
timber company, was shot twice in the back of the neck near his house. Suspected motive:
Property dispute.

* March 11,2000: Dimitri Varvarin, 40, general director of the Russian-American Orimi
company, was shot in the back of the neck at point-blank range as he left his car. Orimi was
created in 1990 with the American firms NSTE and International Forest Technology, and
controls recently "privatized" businesses in timber, furniture, and fuels, and is one of the
biggest sellers of tea in Russia, Kazakhstan, and Ukraine. Varvarin personally owned a large
block of shares in shipbuilding and timber businesses in Russia, and had taken part in the
"privatization" of dozens of enterprises in St. Petersburg, Leningrad Oblast, Ukraine,
Kazakhstan, and Belarus. Suspected motive: a real estate battle.

* March 22,2000: Sergei Krizhan, 44, general director of the Russian Construction and

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Trading Group joint-stock company, was shot to death while driving in his Jeep, along with
his son, 20, an economics and finance student at St. Petersburg University. Krizhan owned
and founded about 10 St. Petersburg firms specializing in export and import activity,
consumer goods trade and production, repair and construction work, and realty operations.
Three of the firms were directly related to Orimi.

* April 4,2000: Gennady Ivanov, 45, director of the Kvarton firm, was killed on his way to
work by a round of automatic weapon fire aimed at his Volvo. Eyewitnesses saw the killer
slip into the archway of an apartment block where a car was waiting for him. Kvarton, with
4,000 employees, was created in St. Petersburg in 1994 and sells sewing threads, furniture
fabric, and hosiery. It holds large blocks of shares in textile enterprises in St. Petersburg,
Moscow, and Pskov.

* April 10,2000: Igor Bamburin, 47, head of Shatl and founder and cofounder of several
equipment and automobile firms, was shot in the head four times as he arrived at the home
of his daughter, a Technical University student. Despite reports that five or six people
witnessed the shooting, no arrest was made. Bamburin was previously an officer of the
Regional Administration for Combating Organized Crime.

* April 26,2000: Georgy Pozdnyakov, 44, co-owner of the "Hollywood Nights" nightclub,
was shot three times in the head and chest at the St. Petersburg Railways University sports
complex. Suspected motive: criminal conflict connected with the repartition of property.
(Pozdnyakov belonged to the entourage of St. Petersburg oil magnate Pavel Kapysh, killed
July 26,1998 on Vasilyevskiy Island.)

* May 22,2000: Dimitri Ogorodnikov, 36, chief of the Samara Internal Affairs
Administration Department for Combating Organized Crime, was shot in the head five
times in his automobile in the center of the city of Tolyatti. He was a 10-year veteran of the
Special Rapid Reaction Detachment of the Regional Administration for Combating
Organized Crime.

* June 14,2000: Alexander Sinayev, 47, the owner of the Leneksbank commercial bank,
was found shot twice in an Audi in Krasnodar in what the Territory's Public Prosecutor's
Office called a contract killing. "Leneksbank was one of the first bankrupts in the Kuban,"
TASS reported, "but Sinayev was able to pay back the deposits of over 15,000 depositors.
He promised to settle up with all deceived depositors."

* June 16,2000: Alexei Kachkov, 40, who owned several flower shops on Leninskiy
Prospect in Moscow, was shot six times at point-blank range in northeastern Moscow.

* July 10,2000: Oleg Belonenko, 51, managing director of the huge Uralmash machine tool
company, was shot twice in the head, days before he was to meet with President Putin, an
example of how contract killings have reached high up into the business world. Belonenko's
driver was also killed.

* July 26,2000: Sergei Novikov, 37, head of the only independent radio station in the
Smolensk region, was shot dead outside his apartment block, 300 miles outside of Moscow,
reportedly the 120th journalist killed in Russia since December 1991.

* July 31,2000: Sergei Isayev, 49, the rector of the Russian Academy of Theatrical Art,

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 was murdered in a contract killing in the settlement of Valentinovka, near the town of
Korolev. "Never before in Russia have contract killings of leaders of cultural establishments
and higher educational establishments taken place," said Russian Culture Minister Mikhail
Shvydkoy in an Itar-TASS interview following the murder.22

As is the case with virtually all of Russia's contract killings, none of these has been solved.

Corrupt 'Privatization' of Russian Monopolies Breeds Money Laundering and Organized

Crime
Organized crime was both a cause and an effect of Russia's corrupt "privatization" process.
Disappearance of government revenues due to corruption and organized crime encouraged the
government to pursue its notorious "loans-for-shares" insider privatization auctions in 1995.23 In turn,
these auctions were themselves subject to manipulation by organized crime.

The unrealized potential gains for the Russian government from its corrupt conduct of the privatization
process were substantial. Media reports of the prices paid by insider Russian firms at the auctions~and
the subsequent, much higher, prices those firms charged to Western investors seeking shares-suggest
that significant revenue was lost to criminal behavior. Further evidence of the cost of "privatization" is
offered by comparison to the results of the privatization of considerably fewer and smaller enterprises in
Central European countries, which proved vastly superior to Russia's poor results.

The "privatization" process was carried out with direct assistance and guidance from the U.S.
government. Janine Wedel, a noted scholar on Russian corruption, described the privatization process as
inherently corrupt:

The... flagship organization was the Russian Privatization Center, which had close ties to
Harvard University. Its founding documents state that Harvard University is both a
"founder" and "Full Member of the [Russian Privatization] Center." The center received
funds from all major and some minor Western donors and lenders: the United States, the
IMF, the World Bank, the European Bank for Reconstruction and Development, the
European Union, Germany, and Japan.

The center's chief executive officer, a Russian from the Chubais Clan, has written that while
head of the center he managed some $4 billion in Western funds. The Chamber of
Accounts, Russia's rough equivalent of the U.S. General Accounting Office... concluded
that the "money was not spent as designated. Donors paid ... for something you can't
determine."

When I interviewed AID-paid consultants working at the center, I was told that the funds
were routinely used for political purposes.24

The corrupt "privatization" of state enterprises has also reinforced organized crime by affording it
unprecedented access to the resources of the Russian state. Money, technology, equipment, trained
personnel from the military and security services, and vast state assets have been made available to
organized crime groups via the long-established connections between the "privatized" firms, their
management, and their customer-supplier networks.25

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The authoritative CSIS report "Russian Organized Crime" stated categorically that "[t]he principal
beneficiaries of privatization ... have been the [organized crime] syndicates," citing a Russian study that
found that 55 percent of the capital and 80 percent of the voting shares transferred during privatization
went into the hands of "domestic and foreign criminal capital."26

Stifling Competition in Chernomyrdin's Energy Industry

A fundamental flaw in Russia's "privatization" of huge state companies is that it created no new
competitors. Instead, it produced "oligarchs [who] dominate Russian public life through massive fraud
and misappropriation, particularly in the oil sector. "27

Indeed, the energy sector-in which Viktor Chernomyrdin allegedly netted billions of dollars as a result
of his participation in the "privatization" process-is a useful case study.28 Nothing in the
Gore-Summers-Talbott "privatization" strategy was designed to force the existing Russian energy
industry to compete with new firms on price, or on innovations in production and delivery. As a result,
Russian oil and gas companies failed to achieve any new efficiencies from competition. Had they done
so, Russia might have been able to produce oil and gas in sufficient quantities to compete even if world
prices remained low.

Instead, lacking the ability to produce profitably for world markets, the new owners of Russia's
production companies resorted to such artifices as selling oil below cost to holding companies they
controlled, which would then resell the oil at the market price. The results were highly profitable to the
oligarchs, but not to the shareholders in the production company-often including the state.29

Other oil and gas industry tactics have included stock scams, transfers of shares through offshore entities
for the benefit of managers at the expense of other shareholders, and other schemes that amounted to
theft of corporate property.30

The unanticipated and unintended consequence of this non-market "privatization" for U.S. policy was
that, as first charged by former Democratic Senator Bill Bradley, the Clinton administration found itself
promoting higher oil and gas prices in an attempt to help Russia—but to the obvious detriment of
consumers in the United States.31 As the Washington Post reported on April 30,2000, the Clinton
administration worked to encourage "the OPEC cartel to reduce production, and thus raise prices, last
year."32

By joining OPEC's price-fixing efforts, the Clinton administration aligned itself with the interests of the
oligarchs once more. Even when the world prices of oil and gas increased (with Energy Secretary
Richardson, in his words, "caught napping" while oil prices rose),33 Russia's oligarchs were enriched,
while the shareholders they had cheated saw few of the benefits of higher prices. And while higher oil
prices have generally helped Russia mitigate the effects of the August 1998 economic collapse, this has
come at the direct expense of higher U.S. gasoline and home heating oil prices.

Legacy of Russia's Organized Crime in the 1990s

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i&ffik «v>:

Organized crime undermines the Russian economy in a variety of ways, directly and indirectly. Beyond
the horrible human toll in lives and property, the costs of organized crime include money spent on
"protection" and bribes, and the significant burdens this places on small business; the lost tax, customs,
privatization, and other revenue to the state; the loss of domestic and foreign investment, which is the
consequence of crime's undermining confidence in the Russian economy; and the loss of individual
Russians' life savings, the result of the corruption of Russian banks. Political corruption, too, is both a
significant cause and effect of organized crime activity.

Through its traditional methods of discouraging competition with illegal tactics, ranging from threats to
murder, organized crime has increased the risks for small and medium businesses operating in Russia.
The increased costs of organized crime have made the already labyrinthine process of starting and
opening a business in Russia even more difficult, scaring off would-be entrepreneurs and inhibiting the
development of both a market economy and a Russian middle class.

An American Victim of Russian Organized Crime

Bh,

PAUL TATUM: Left, in a 1994 photo. Right, mourners reach to touch his coffin during a funeral
service in Moscow, Nov. 14, 1996. He was eulogized as a stubborn dreamer who died standing up to
danger. Contract killings have become common in Russia as means ofsettling business disputes. The
hotel that was the subject of the business dispute involving Tatum was a favorite of Clinton
administration visitors to MOSCOW. Photos: AP Photo/Sergei Karpukhin, AP Photo/Sergei Karpukhin/fls

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One particularly gruesome case of organized crime involves Paul Tatum, who on November 3,
1996, at age 41, was shot in the back 11 times with an AK-47. He died at the bottom of the
stairs to the Moscow subway, just yards from the Radisson-Slavjanskaya hotel, of which he
was a joint owner.

The slaying was immediately identified as an organized crime hit.

Tatum was the first U.S. businessman murdered in Moscow. Then-Russian Interior Minister
Anatoly Kulikov said one lead the Russian government was following connected Tatum's
murder to a long dispute over the ownership and management of the hotel with his partner, the
Moscow city government. Tatum's Americom Business Centers held a 40% share in the hotel.

Officially, however, the Russian government turned up no suspects-even though USA Today
was able to interview 150 people in eight countries in connection with the case, and found
many who knew that Paul Tatum was a marked man.

Neither the Clinton administration nor the Russian authorities seriously pursued any culprit in
connection with this contract slaying. As has proven the case with nearly all of Russia's
organized crime hits, the murder went unsolved and unpunished.

"Moscow observers state that more business deals have been cut in the lobby bar of the
Radisson hotel than anywhere else in Russia," the hotel bragged in a 1993 news release.
However, USA Today reported that the Radisson-Slavjanskaya quickly became "a place
where competing factions of bodyguards at times engaged in open warfare in the hallways."
Respectable Russians refused to meet visiting U.S. business and government leaders in the
hotel because of its reputation as a haven for gangsters. Nonetheless, the hotel was a favorite
of both President Clinton and Vice President Gore.

Despite the fact that the first contract killing of a U.S. businessman in Russia was so publicly
connected to a dispute over Tatum's claim that he had been cheated out of ownership of the
Radisson-Slavjanskaya by the Moscow city government, and despite Congressional urging to
President Clinton that he stay elsewhere in Moscow because of the hotel's connections to
organized crime, the president stayed at the hotel on his next visit to Moscow.

SOURCES: Nick Allen, "Radisson Claims Business as Usual," Moscow Times, Dec. 5,1996; Vanor Bennett,
"Slaying Victim's Russian Partner Loses U.S. Visa," L.A. Times, Dec. 1,1995; M.J. Zuckerman, Kevin Johnson,
and James Kim, "Murder and intrigue: A dream dies hard in Moscow," USA Today, June 9,1997.

Lost Tax Revenue

The economic consequences of tax revenue lost from organized crime are devastating. In August 1998,
the State Tax Service estimated that 60% of cash turnover in the economy takes place in transactions
hidden from the government in order to evade taxes.34 Other Russian estimates suggest that the volume

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of unreported economic activity may be up to one-half the size of Russia's official economy.

Tremendous budgetary pressures on the Russian government have influenced some of Moscow's most
damaging policy decisions—including both the "loans-for-shares" privatization fiasco and the Russian
government's willingness to take on tens of billions of dollars in IMF and other debt. Higher tax
collections would have made such policies less desirable to the Russian government.

The Russian government has also lost significant revenue from customs payments as a result of
smuggling, and the grant of customs exemptions to organized crime groups and corrupt businesses. An
example of the latter is the import-fee exemption granted to the National Sports Fund—a supposed
non-profit organization established in 1993 by Boris Yeltsin's former tennis coach-which permitted it to
import not only sporting goods but also alcohol and tobacco tax- free, at a cost to the Russian
government of several billion dollars. The total cost to the Russian government of such illicit
exemptions is undoubtedly in the tens of billions of dollars annually.35

The failure to collect taxes on criminal transactions has also exacerbated the Russian government's
unfunded wage36 and pension debts37 to state sector employees38 and retirees.

Lost Confidence
The most significant cost of Russian organized crime has been its contribution to the widespread loss of
confidence in the nation's economy. Not only have foreign investors been scared away, but potential
Russian investors have mounted a sustained capital flight that has depressed investment and domestic
savings, stifled job creation, and robbed the government of opportunities for revenue growth.

Most estimates of capital flight from Russia since its independence exceed $200 billion; some are as
high as $500 billion. Irina Khakamada, a reformist parliamentarian who chairs Russia's National
Anti-Corruption Committee, estimated the cost to Russia of capital flight at a stunning $20 billion per
month.39 Treasury Secretary Summers, in recent House testimony, provided a low estimate of $15
billion per year.

Even the most conservative estimates of Russian capital flight dwarf actual foreign investment in Russia,
as well as IMF lending and international financial aid flows into Russia.40

History's Biggest Money Laundering Scandal

In the summer of 1999, the Clinton administration's Russia policy-already under fire in the
wake of the 1998 collapse of Russia's economy, which many Russians blamed on bad
American advice-suffered another setback.

On August 19,1999, the New York Times reported that billions of dollars were thought to have

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been laundered from Russia through the Bank of New York. Initial reports in the Times and
elsewhere suggested that as much as $10 billion may have passed through Bank of New York
accounts, with the knowledge and approval of several bank employees. More than two-thirds
of the money came from the tiny Pacific island-nation of Nauru, not previously known as a
financial center. And many of the transfers originated at a Moscow bank chaired by a financial
advisor to the Yeltsin family known as the "ghost of the Kremlin" for his secretive ways.

Subsequently, three bank employees-Lucy Edwards, former vice president of the Bank, Peter
Berlin, her husband, and Svetlana Kudryavtsev, who worked for Edwards-entered guilty pleas
in connection with the case. Another vice president was fired for allegedly failing to report
supplemental income from Russian clients and yet another employee resigned because of the
scandal.

A year later, in August 2000, a Swiss judge investigating the possible use of banks there to
launder a 1998 IMF loan to Russia carried out two raids in Switzerland. In August 2000 the
judge traveled to the United States to determine why investigators here had largely ignored
requests for information about possible links to the Bank of New York case since January, in
what is now acknowledged to be history's largest money laundering scandal.

The Money Trail

Russia's lack of hard currency, and the contemporaneous flows of billions in hard currency
from the IMF to Moscow, made it appear that the United States and other Western countries
had provided the necessary liquidity for money laundering to occur.

In September 1998, British authorities alerted the FBI to an extraordinary volume of money
being transferred in a significant number of transactions.

Two years later, the Clinton administration has yet to recognize that its policy of pouring large
amounts of dollars into the Russian central government was financing not a transition to free
enterprise but rather capital flight on a massive scale.

The Spin: More Willful Blindness

Then-Deputy Treasury Secretary Lawrence Summers, at a House Banking Committee hearing

in September 1999, denied any connection between IMF money and Bank of New York
laundering: "With respect to the Bank of New York, there's no evidence that...there were any
IMF funds diverted in that context."

Summers acknowledged, however, that capital flight "drains perhaps $15 billion a year from
the Russian economy." Whether IMF funds were directly laundered through the Bank of New
York, or instead fueled capital flight by providing the means for Russian oligarchs to convert
rubles to dollars, it was clear that IMF funds were financing capital flight from Russia.

Deny and downplay was the strategy for Deputy Secretary of State Strobe Talbott, as well. In
a Newsweek interview, Talbott minimized the multi-billion dollar scandal with a dismissive plea
to "calm down, world." Then, resorting to a standard spin technique-treating breaking news as

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if it were unimportant because it is really "old news"--he added: "We have been aware from
the beginning that crime and corruption are a huge problem in Russia and a huge obstacle to
Russian reform."

The IMF's Köhler, in office just three months, had a less defensive explanation at the National
Press Club in August 2000: "Part of the mistakes we made was mostly because we had been
too euphoric, relying on rhetoric about reform programs. We need to see more implementation
of the good ideas."

But the bad ideas had already done their harm.

In addition to raising awareness about the extent of Russian money laundering and capital
flight, the Bank of New York scandal triggered concern that Russian criminal groups and
individuals had infiltrated Western financial institutions. As the Economist reported, the
money-laundering scandal "confirms that the evil of organized crime is woven into Russian
life-and that it is starting to infect the rest of the world."

What Did They Know and When Did They Know It?

House Banking Committee Chairman James Leach noted that while the British authorities
notified the FBI about the Bank of New York irregularities in September 1998, the Treasury
Department claimed not to have learned of the investigation until April 1999.

In any event, the administration continued to support IMF lending for Russia even in the face
of hard evidence of massive looting. "The Congress," Chairman Leach noted when Summers
testified, expects "substantially greater coordination within the Executive branch."

Washington Post columnist David Ignatius was not so statesmanlike in asking bluntly: "Did Al
Gore know about the massive lootings?"
SOURCES: Raymond Bonner and Timothy L. O'Brien, "Activity at Bank Raises Suspicions of Russia Mob Tie,"
N.Y. Times, Aug. 19,1999, p. 1; Wall St. J., Mar. 29, 2000, p. B5; Ann Davis and Paul Beckett, "Bank of New York
Executive is Fired for Not Reporting Pay Linked to Benex," Wall St. J., Mar. 13, 2000, p. A15; John Thornhill and
Thomas Catan, "NY bank in money laundering probe," Fin. Times, Aug. 20,1999, p. 2; Paul Beckett, Michael
Allen, "Bank of New York Probed on IMF Aid," Wall St. J., Aug. 23,1999, p. A3; Deputy Treasury Secretary
Lawrence Summers, testimony before the House Banking Committee, Sept. 21,1999; John Tagliabue, "Swiss
Take New Look at Transfers of I.M.F. Aid for Russia," N.Y. Times, July 26, 2000, p. C3; Charles Clover, "Swiss
Confirm IMF/Russia Credit Inquiry," Fin. Times, July 25, 2000; "Russian Organized Crime: Crime Without
Punishment," The Economist, Aug. 28,1999, p. 17; Michael Hirsh, Owen Matthews, 'The Gangster State,"
Newsweek, Sept. 6,1999, p. 35; Richard W. Stevenson, "U.S. Officials Acknowledge Early Notice of Bank Case,"
N.Y. Times, Sept. 8,1999; Chairman James A. Leach, House Banking Committee hearing, Sept. 21,1999; David
Ignatius, "Who Robbed Russia?" Wash. Post, Aug. 25,1999. Russia reduced its IMF debt from $16.3 billion to
$12.7 billion from July 31,1999 to July 31, 2000, according to IMF figures.

A Drag on Banking

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Organized crime in Russia exerts significant direct control over the nation's banking system. As the
CSIS study concludes, "[Organized crime] shaped the post-Communist banking industry and now
manages or influences it. And bank regulators complain they are powerless to sanction or close banks in
which evidence of criminal wrongdoing has been established beyond the shadow of a legal doubt. "41
The study further noted: "Banks are central components of [organized crime] activity [in Russia] both as
a primary target of extortion and as the main vehicle for extensive money laundering. "42

Organized crime imposes indirect costs on Russia's banking system, as well. Russians are fearful of
keeping their rubles in banks because they believe corrupt bank employees are likely to inform organized
crime groups of the accounts in exchange for a cut of money to be extorted from the account holder.
Partly as a result of these fears, ordinary Russians held an estimated $80 billion outside the banking
system as of 1998.43

Organized crime thereby robs the economy of the opportunity to efficiently pool savings to invest in
mid- to large-scale productive enterprise. The reluctance by Russian consumers to trust the banking
system because of the influence of organized crime also worsened cash shortages at the nation's banks
during Russia's economic collapse in 1998.

Guilt by Association
By eroding public confidence in the private economy—and by stunting the establishment and growth of
legitimate business—organized crime has limited the emergence of a pro-free enterprise reform
constituency, making it more difficult to achieve the public consensus necessary to enact legislation to
legalize free enterprise.

The fact that so many wealthy Russians criminally obtained a large proportion of the wealth that now
exists in Russia has significantly discredited legitimate commercial activity. This problem is particularly
acute in Russia because of its limited experience with a market economy.

Beyond undermining support for a truly competitive market economy, the rise of organized crime has
meant aggressive support in the Russian political system for the opposite of reform. In what has been
derisively termed "reinventing government," crime bosses and leaders of illicit businesses thwarted
police investigations and placed themselves and their allies in high office—including seeking seats in
Russia's State Duma-not only to legislate to their advantage, but also, on a more practical level, to win
immunity from investigation and prosecution.44 Staff positions in the Duma have been notoriously
made available for sale.45

Duma committee chairmen have been accused of holding committee meetings or hearings on an issue of
importance to an individual or enterprise in return for cash payments. Members of Vladimir
Zhirinovsky's Liberal Democratic Party of Russia, a notoriously mercenary extremist party, are widely
suspected of selling their votes on particular legislation to the highest bidder.

At the regional and local level, organized crime groups have intervened directly in the election process,
financing candidates, buying votes, and intimidating opponents. This highly visible corruption of
Russia's political system has only further weakened public support for continued democratization.

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«mmi

Organized crime also affects overseas businesses, including U.S. firms seeking to do business in Russia.
Some companies are merely approached to pay protection money or bribes; others suffer more seriously
when their investments in joint ventures are looted by Russian partners. The resultant lawlessness
threatens to infect governments and economies around the world with the consequences of money
laundering, bribery, extortion, and their attendant social pathologies.

Arms Sales to Colombia's Narco-Insurgency

Organized crime in Russia is also contributing to global instability. The arming of Colombia's Marxist
rebel groups with smuggled weapons made in Russia has profound foreign policy consequences. The
Revolutionary Armed Forces of Colombia (FARC) and the National Liberation Army (ELN), violent
Marxist groups seeking to overthrow the government, now control about half of Colombia, directly
threatening the continued existence of civil government there.46 These groups are also heavily involved
in narcotics trafficking: out of the $4 billion annual Colombian drug trade, FARC and the ELN are now
presumed to net an estimated $600 to $900 million each year.

Four-fifths of the cocaine and more than 60% of the heroin entering the U.S. now comes from
Colombia.47 Behind this growth in cocaine exports is a growing relationship between Russia's organized
crime and Colombia's drug lords.48

Colombian intelligence officials suspect that Russian criminal syndicates are exchanging sophisticated
Russian weapons for Colombian drugs.49 This has enhanced the military power of Colombia's Marxist
rebels and international drug cartels, further destabilized the government of Colombia, and facilitated the
entry of additional narcotics into the United States.50

In the last three and a half years, Colombian police have seized over 700 new Russian-made AK-47
assault rifles that were destined for FARC and ELN. Colombian police confirm that these weapons are
unlike the Soviet weapons used in earlier Central American wars, and of much more recent vintage. 51

A system has developed by which FARC and ELN guerrillas exchange illegal narcotics for sophisticated
Russian weaponry. In this way, the latest Kalashnikov assault rifles and Dragunov sniper rifles have
been shipped to Colombia in the same transport containers originally used to transport the drugs.

This burgeoning weapons trade with Colombia's Marxist insurgents thus threatens not only U.S.
anti-proliferation objectives, but also U.S. regional security interests in Central America and the
domestic struggle against illegal narcotics in the United States. The U.S. counternarcotics effort is now
pitted directly against smuggled Russian arms. American taxpayers, and American interests, now face
the effects of organized crime in Russia in this hemisphere.

Nor are Russian drug and weapons smuggling limited to Colombia or the Western hemisphere.
According to Barry McCaffrey, Director of the President's Office of National Drug Control Policy,
Europe now consumes between 80 and 130 tons of cocaine a year, and at least 10 tons of this cocaine is
shipped through Russia, with Russian criminal groups controlling the routes.52 As the 1997 CSIS study
found, "[organized crime] groups also are facilitating narcotics trafficking along new transit routes from
major heroin-producing areas in Asia (the Golden Triangle and Golden Crescent) that cross the former
Soviet Union, thus avoiding searches by West European law enforcement agencies along the more
traditional routes."53 Similarly:

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 [Organized crime groups] are trafficking increasingly in weapons by exploiting corruption,
subhuman living conditions, and chronically late wages in the Russian military. This
leverage gives them access to arms stockpiles. Theft and illegal sale of weapons, hardware,
and narcotics are moved by military transport vehicles that cannot be searched by law
enforcement officials. Western intelligence agencies believe that short- and medium-range
missiles have been smuggled to customers in the Middle East in this manner. 54

The Gulf Between Clinton's-and Yeltsin's-Words and Deeds

Organized crime's political influence has also had a more subtle effect: neutering the government's
willingness to confront and punish violations of law. The result has been a significant gulf between both
the United States and Russian governments' stated policies with respect to organized crime, on the one
hand, and their actual behavior, on the other.

For example, Boris Yeltsin launched seven campaigns in eight years as president to combat organized
crime. Yet organized crime groups expanded because punishment was generally limited to low-level
officials and those out of favor with the Kremlin. The growth of organized crime in the face of
ineffective government campaigns against it has contributed to public cynicism.

Similarly, official statements of concern about money laundering were unmatched by action. The
Russian government, in fact, served as an enabler of money laundering. On June 23,2000, the G-7's
Financial Action Task Force identified Russia as one of 15 nations that was "uncooperative" with
international efforts to combat money laundering.

The Russian government's ostentatious introduction of new measures to fight corruption has routinely
been followed by extensive public discussion of which individuals and political opponents are the "real"
objectives and targets. The influence of Russia's so-called oligarchs over Russia's mass media has
heightened this cynicism, as press outlets are viewed as the mouthpieces of particular economic and
political groups, rather than defenders of the public interest. Under such circumstances, each new effort
at reform has been met with increasing skepticism.

The Clinton administration, mirroring the policies of its Russian partners, has similarly failed to mount
an aggressive challenge to organized crime in Russia. The administration has attempted to address
organized crime merely as a technical law enforcement problem with programmatic assistance to
Russian authorities. The administration has concentrated on programs such as law enforcement training
and developing an FBI presence in Moscow.

Clinton administration law enforcement officials claim these efforts to combat Russian organized crime
are succeeding, crediting FBI Director Louis Freeh with establishing an aggressive Eastern European
organized crime policy when he took office in 1993.55 But in fact the administration's technical
orientation to Russian organized crime cannot substitute for its failure to address the underlying
economic and legal causes of organized crime.

A serious U.S. policy to help combat organized crime in Russia would also have required a significantly
more candid assessment of the various Russian political players with whom Vice President Gore and
other top administration officials were dealing, and a far greater willingness to distance themselves from

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corruption. As the democratic politician Grigory Yavlinsky has noted, "political will rather than the
Criminal Code is needed."56 The administration's close association with officials suspected of
corruption did little to encourage that political will in Russia.

Likewise, the Clinton administration failed to make the issue of organized crime a significant priority in
its official discussions with Moscow. Yevgeny Yasin, a reform-oriented former senior official in Russia
with key economic responsibilities during much of the Yeltsin era, recently criticized the Clinton
administration for failing to cooperate in addressing corruption and capital flight. Yasin complained that
Russian attempts to raise these issues and seek U.S. assistance as early as the 1995 Halifax Summit were
dismissed. 5 7

Deputy Secretary of State Strobe Talbott has also admitted that the Clinton administration did not give
sufficient priority to the problem of Russian money laundering. 5 8

Statements of concern by the Secretary of State, and pro-forma discussions of organized crime as one
among a long list of agenda items at the semi-annual meetings of the Gore-Chernomyrdin Commission,
were a poor substitute for genuine moves to show the Kremlin the seriousness of American resolve to
fight organized crime, and to make explicit the threat that it poses to United States and Russian national
interests. The Clinton administration never made explicit any consequences for Russia's failure to
address organized crime, either in the form of loan conditions or the withdrawal of U.S. cooperation on
other fronts. Indeed, when combined with the administration's unwillingness to confront the evidence of
corruption by its principal interlocutors in Russia, the Clinton administration's tepid approach to Russian
organized crime amounted to tacit acceptance.

Three years ago, CSIS's task force report on Russian organized crime included among its
recommendations:

Stringent requirements to ensure transparency in Russia's use of foreign aid, as well as

multilateral loans and export financing, should be implemented and enforced to insulate the
funds from [organized crime] and to ensure that the funds reach their intended destination.

Close U.S. government identification with corrupt elements of Russia's political

establishment risks serious popular backlash inside Russia. The United States must avoid
the appearance of unqualified support for what is routinely seen as a kleptocratic
establishment. Such linkage reinforces a growing popular perception that democratic
political and market economic systems are merely code words for rapacious criminality. The
United States should address this perception by increasing its public diplomacy discussion
of the causes of and cures for [organized crime in Russia].59

Such recommendations were ignored by the Clinton administration. For example, when Deputy
Secretary of State Strobe Talbott and then-Deputy Treasury Secretary Lawrence Summers met with
Anatoly Chubais at Talbott's home in May 1998 (where Chubais sought a new IMF bailout to stave off
the disaster that occurred three months later),60 why would corrupt Russian officials believe that
American protests over corruption were more than public relations? By that time, Chubais had become
wealthy by participating in the privatization process he was charged with supervising. He had also
simultaneously been responsible for the management of the Russian Privatization Center, which has
never produced an accounting for its use of $116 million in U.S. direct aid.61

In the Summer 2000 issue of the National Interest, E. Wayne Merry, a former diplomat at the Moscow
Embassy, summarized the problems with the Clinton administration's approach:

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 Washington officials claimed to be 'shocked, shocked' when the government-sanctioned
corruption and theft of public property in Russia could no longer be hidden. They then
piously demanded that Russian governance be all the things the Treasury and IMF had
insured it would not be: honest, accountable, transparent, law-based, public-spirited. ...
[W]hat remains "classified" is much worse.

The Rise of Putin: The Russian Public Reacts to Organized Crime

The impact of organized crime on Russian democracy has proven grave. It has generated a deep sense of
personal insecurity among Russians and widespread perceptions of declining public morality. Public
opinion polls, which understandably rank crime among Russians' greatest concerns, also show the extent
to which organized crime has undermined the Russian public's support for freedom and democracy.

Because the rapid growth in organized crime and Russia's efforts at political and economic reform
occurred simultaneously, the public mind closely linked the two. As a result, the ideas of democracy and
market-oriented economic reform have also been widely discredited in Russia, and are widely assumed
to be inconsistent with greater order:

Widespread violence and crime in Russia are even beginning to generate nostalgia for
authoritarian rule. Flagrant lawlessness has resulted in a resurgence of politicians who
promise to re-establish order and fairness using brute force. Increased criminal activities
fueled the backlash that contributed to Ultranationalist Vladimir Zhirinovsky's electoral
success in 1993. Zhirinovsky's platform included on-the-spot executions of criminal gang
leaders by firing squads and the wholesale seizure of assets thought to be criminal.63

Yet it is ironic that the primary reason organized crime has grown into such a significant parasite on the
Russian economy was the top-down "privatization" of state-owned monopolies, instead of the bottom-up
legalization of entrepreneurial activity that was (and still is) necessary to enable start-up enterprises
without criminal roots to compete in a genuine market. It was the lack of a genuinely competitive market
economy that created the conditions for organized crime to flourish. Rather than unleashing the
disciplinary power of competitive markets, the Gore-Summers-Talbott policy of massively underwriting
the Russian central government had the effect of indirectly funding organized crime through IMF and
World Bank loans.64

President Vladimir Putin's success in capitalizing on the public's longing for greater order can only be
understood in this context. Taking into account the fact that some 62% of Russians are not confident in
the ability of the country's police forces to protect them,65 it should not be surprising that Putin's
background as a KGB Lieutenant Colonel and head of the Federal Security Service (FSB), the KGB's
principal successor agency, enhanced rather than impaired his popular appeal. His KGB past has
contributed significantly to a public perception that he will "get tough" on organized crime. His election
was a gamble for Russians, nonetheless: they have only hope, and no guarantee, that he will not similarly
crack down on civil liberties, freedom of speech, and democracy.

Which way Putin and Russia will go is yet unclear. But this much is certain: the rebirth of
authoritarianism because of a popular backlash against organized crime in the wake of both Russia's and
America's failure to promote genuine free enterprise there is now a genuine possibility in Russia. Its

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return would be a tragic beginning indeed for the 21st century.

CHAPTER 8

1998: YEARS OF BAD

ADVICE CULMINATE IN
RUSSIA'S TOTAL
ECONOMIC COLLAPSE

SEARCHING FOR FOOD: Following the complete collapse of the Russian

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 economy in 1998, the number of people living below the official poverty
line—in Russia, a measure of truly desperate conditions—rose to nearly 40%.
Seniors in urban areas--with no access to jobs or land-were the hardest hit.
Unlike those in rural areas, who could subsist on homegrown food, they had
nowhere to turn. As in Soviet times, Russians were waiting in lines, hunting for
scarce goods, and hoarding what they could find. The devastation of Russian
life was by all measurements worse than America's Crash of 1929. U.S.
unemployment at the end of 1929 reached 1.5 million, representing 1.2% of the
total population, but more than 11.3 million Russians were jobless at the end of
1998-7.7% of the nation's total population. In the 1929 crash, stock prices fell
17% by year-end-and 90% by the depth of the Great Depression, four years
later. By contrast, the Russian stock market lost 90% of its value in 1998 alone.
Millions of ordinary men and women who had deposited their money in
Russian banks lost everything. Here, an elderly Russian woman takes fruit from
a trash bin in Moscow, August 28,1998. AP Photo/Misha Japandze

/ try, but they are hungry all the time.

Potatoes, potatoes, most of all they eat potatoes. It is potatoes all the
time. I am just trying to feed them.

Tatyana Shurmanova, a mother of six children in Kungur, Russia, as quoted in Newsday,

April 4,1999

On March 23,1998, five months before the Russian government's default on its international and
domestic debts led to the nation's complete economic collapse, Viktor Chernomyrdin was fired as Prime
Minister. The allegations of corruption against him had only reinforced the public impression that the
policy of a handful of powerful Russian officials was not the construction of a free enterprise system, but
rather the subversion of the public good through crony capitalism.

The unexpected firing of Chernomyrdin, Vice President Gore's partner in the highly visible
Gore-Chernomyrdin Commission, unnerved Clinton administration officials. They were just as
unprepared for the appointment of the little-known Sergei Kirienko to replace Chernomyrdin. Lawrence
Summers, then Deputy Secretary of the Treasury, had inauspiciously dubbed the outgoing Prime
Minister's deputies, Boris Nemtsov and Anatoly Chubais, "the Dream Team."l Summers'
characterization epitomized the wishful thinking of the administration, and its willful blindness to the
worsening reality in Russia.

As late as the summer of 1998, the Clinton administration still failed to grasp the fundamental error of
its policy of tunneling enormous amounts of money into a corrupt central government. Despite
widespread rumors that Kirienko, too, would soon be fired, the administration proposed nothing more
than pouring still more loans from the International Monetary Fund (IMF) into Russia's central

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government. Vice President Gore, Treasury Secretary Robert Rubin, and Summers set to work on an
additional $18 billion U.S. commitment to the IMF chiefly intended to support new lending to Russia.

"We have a significant opportunity to use the leverage of IMF financing to help the Russian
government," Rubin wrote to then-House Speaker Newt Gingrich on July 28,1998. "The basics are all in
the right direction," Stanley Fischer, the IMF's Deputy Managing Director, said the same day.2 The
administration successfully forced the $18 billion through Congress.

The reality of the situation, however, was that the Russian economy had already begun to collapse. The
stock market was plunging. The day before Rubin's letter to the Speaker of the House and the IMF's
blindly upbeat assessment, the market had suffered a 9% drop. "It's looking ugly," said one Western
economist on July 27. Said another Western investment strategist: "We're sitting and watching this in
shock and horror. "3

Over the next two weeks, the deterioration continued. Finally, on August 17~one month after the latest
bailout--the roof caved in.

The Russian government announced that it would no longer be able to pay its official debts. The ruble
was devalued at the same time. The default, coupled with the devaluation of the ruble after years of
promises that this would not occur, led to Russia's total economic collapse~a cataclysm by all
measurements worse than America's Crash of 1929.

The end of Soviet Communism had afforded the United States its greatest foreign policy opportunity
since the Allied victory in World War II. Barely six years later Russia's economy lay in ruins~an
opportunity lost.

The Crash of 1998

The disaster that began on August 17,1998, spread immediately throughout Russia. In just 24 hours,
some retailers raised prices by more than 30%.4 The free-falling ruble forced shopkeepers to raise prices
daily, even hourly. "People are in a state of shock," one Russian woman told the New York Times.5
Prices in the first week of September alone rose by 36%.6

RUN ON CASH: A security officer tries to prevent a photographer from taking pictures as a man withdraws cash
from an automatic teller machine in Moscow on Friday, Aug. 14,1998. Customers said the bank only allowed them
to withdraw money in rubles, even from accounts established in U.S. dollars. Individual deposits in Russia-which
before August 17 had totaled some $27 billion-fell in value to less than $12 billion. Shortly afterward, virtually all
ATMs in Russia ceased to function. AP Photo/Maxim Marmur

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Millions of ordinary men and women who had deposited their money in Russian banks lost everything.
Savings accounts throughout the country were frozen.7 ATM and debit cards ceased to work.8 Dozens
of banks became insolvent and disappeared. Angry depositors besieged Russian banks, only to learn they
had been wiped out. Within days, individual deposits in Russia-which before August 17 had totaled
some $27 billion-fell in value to less than $12 billion.9

Still more millions of senior citizens, whose meager pension income had been delayed for months, were
cut off completely. Pensioners who kept some money at home rather than in banks found their
purchasing power greatly diminished as the value of the ruble plummeted.

At the end of 1929, following America's disastrous stock market crash, unemployment in the United
States reached 1.5 million, representing 1.2% of the total population.10 But the 1998 collapse of the
Russian economy was far worse. Over 11.3 million Russians were jobless at the end of 1998-7.7% of
the nation's total population. 11

Those who kept their jobs frequently found their wages suspended. 12 When wage payments were finally
made, the average Russian saw his or her wages drop by two-thirds, from $160 to $55 per month. 13 The
number of people living below the official poverty line-in Russia, a measure of truly desperate
conditions-rose to nearly 40%. 14 The standard of living for the average Russian, already low by
international measures, plummeted by 30%. 15

In urban areas, Russian families with children and seniors-with no access to jobs or land-were the
hardest hit. Unlike those in rural areas, who could subsist on homegrown food, they had nowhere to turn.
As in Soviet times, Russians were waiting in lines, hunting for scarce goods, and hoarding what they
could find. Such staples as flour, butter, rice and sugar were purchased as soon as they appeared on
shelves. Retailers found it difficult to restock inventories. 16

The devastation of Russia's economy wreaked the kind of human misery that America experienced in the
Great Depression. By 1932, the U.S. gross national product had been cut by almost one-third. But within
just six months of the 1998 crash, Russia's economy, measured in dollars, had fallen by more than
two-thirds. From $422 billion in 1997, Russia's gross domestic product fell to only $132 billion by the
end of 1998.17

In the crash of 1929, stock prices fell 17% by year-end-and 90% by the depth of the Great Depression,
four years later. By contrast, the Russian stock market lost 90% of its value in 1998 alone. 18

Foreign investment in Russia plummeted by 60%. Amid a wave of panic among investors, foreign direct
investment fell from $4 billion in 1997 to $1.7 billion in 1998.19 "The financial markets are dead," said
Sergei Markov, an analyst at the Institute of Political Studies. "And, most fundamentally, it is a crisis of
the real economy-Russia doesn't work. "20

By the first week of September, the ruble had lost 60% of its value.21 When the dust finally settled in
March 1999, the ruble~and with it, every Russian's life savings-had lost fully 75% of its value.

The most immediate and dramatic result of the Crash of 1998 was the virtual collapse of Russian
banking. The government imposed a two-month freeze on withdrawals from the country's six largest
private banks. With the ruble dropping precipitously in value every day, ordinary Russians were forced

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to watch in horror as the money in their bank accounts lost its value. The experience of 66-year-old
Yevgeny Ushakov, who had spread his life savings of $4,000 among three different banks to diversify
his risk, was illustrative. "I didn't think all three would fail," he said.22

With prices rising uncontrollably, retail stores were forced to close repeatedly throughout the day, just to
figure out how much to charge.23 Even those Russians who had become accustomed to the occasional
Western product were forced to do without, as the price of imports soared beyond their reach.

The collapse of international trade not only curtailed the supply of foreign goods, but also created
scarcities and high prices for Russian-made goods with foreign components. Foreign providers refused
to let Russian firms buy on credit, because of fear of non-payment. Wary of the declining ruble, foreign
suppliers also demanded payment in hard currency, which most importers did not have. Such indignities
added to the growing anti-Western sentiment.

The lack of a reliable currency reduced much of Russia to a barter economy. Many citizens were paid
with whatever goods were currently available, regardless of the goods' practical value. Teachers in
Voronezh, for example, received cemetery headstones in lieu of cash payments.24 A textile machinery
plant in Kostroma tendered 6,000 pairs of socks to the local police in payment of its tax bill.25

Farmers were devastated by the 1998 economic collapse. Grain harvests fell 30% below 1997 levels.
The sudden impact of the ruble devaluation was especially harmful because existing levels of farm
production were already depressed, having fallen for years. In Kaluga, for example, local production had
fallen by 22% in the four years prior to the crash.26 Shortages of meat and cooking oil were so severe
that humanitarian food aid from the West, which had not been necessary since the collapse of
Communism, was resumed on an emergency basis.27

DEJÄ VU: Irate and bewildered customers at the closed doors of the Bank of United States, in New York City,
Dec. 11,1930. After the collapse in Russia, banks hired guards who let customers in one at a time to determine
the fate of their savings, much of which was wiped out in the August 1998 collapse. AP Photo

The fallout from the economic collapse greatly exacerbated many of the problems that plagued Russia.
In addition to the unemployment, lost wages and pensions, and financial hardship, there has been an
attendant social crisis.

Those who were sick or under a doctor's care were badly hurt by the crash. Russia's health care system,
in poor shape even before August 1998, suffered a run on medicine that quickly reduced supplies in
hospitals and pharmacies to Soviet-era levels. The collapse of the ruble's value, the widespread
unemployment, and the freeze on savings, wages, and pensions left millions of patients unable to pay for

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medical services.28

Hospitals suffered from shortages like every other Russian business. Drugs, always in short supply,
became even more difficult to come by~particularly those that had to be imported. Nurses and doctors
were forced to ration drugs to patients. In Novosibirsk the main hospital was reduced to a five-day
supply of food. The central hospital serving a community of 1.4 million citizens had no milk for patients,
and drugs sufficient to handle only 20 cases of severe injury.29

The 1998 economic crisis also helped worsen Russia's demographic crisis. According to the Russian
Statistics Agency, Russia's population has fallen every year since 1992.30 Deaths outnumbered births by
784,000 in 1999, the year following the crash.31 Russia's birth rate of 1.3 children per woman falls well
below the 2.1 needed to maintain the current population. Over the next 16 years, if current trends
continue, the Russian population will drop to between 130 and 138 million, compared to 146 million
today. Murray Feshbach, the leading Western expert on Russian demographics, projects a population of
just 80 million by 2050 if Russia does not arrest its social problems.32 The population decline is
expected to continue because of lower standards of living and mounting divorce, which in turn
contribute to Russia's depressed birthrate.

The economic hardship of raising a child is a significant factor in Russia's sky-high abortion rates: for
every birth in Russia, there are now two abortions.33 As women in poor health give birth to less healthy
children, the rate of infant mortality, too, is expected to grow. The CIA estimates Russia's infant
mortality rate at 23 deaths per 1,000 live births.34

Drug use and addiction in Russia have skyrocketed, fueled by growth in organized crime and widespread
economic depression. More than 3 million Russians are habitual drug users, according to the Ministry of
Interior.35

Alcoholism, a chronic problem in Russia, has grown worse as economic conditions have deteriorated:
according to a January 2000 report, the number of deaths resulting from alcohol poisoning is 35,000 per
year, compared to 300 a year in the United States.36

Russia's widespread joblessness, poverty, and drug use have led to an increase in crime, homelessness,
unemployment, and school dropout rates.

The jump in drug use has also led to an increase in HIV infections. According to Russian and World
Health Organization officials, drug addicts account for 90% of all HIV-infected people in Russia. The
collapse of the Russian economy in 1998 coincided with a doubling of the number of people living with
HIV: Russia's HIV population literally doubled between 1997 and 1999-the fastest growth rate in the
world.37 According to Russia's leading epidemiologist, Dr. Vadim Pokrovsky, 10% of Russia's
population will have the HIV virus by 2005.38 Tuberculosis, which has increased by 57% from 1994 to
1998, has reached near epidemic proportions in parts of the country.39

Causes of Russia's Economic Collapse

Russia received its first loan from the IMF in April 1992, for $1 billion. In 1993, the Russian
government took out another loan, this time for $1.5 billion. A year later the IMF provided still another
$1.5 billion. By December 31,1995, the Russian central government had borrowed over $10 billion

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through the IMF. When on March 26,1996, the IMF and Russian central government reached final
agreement on a new loan of $10.2 billion-the second-largest loan ever made to any borrower by the
IMF—many outside observers were dumbfounded.

In a single commitment, the IMF was preparing to flood the Kremlin with more money than it had
disbursed in the more than four years since the end of the Soviet Union. The extension of such
significant new credit was surprising because there was little in the way of basic free market reform
legislation in place to justify it. There was still no market in banking services, no reliable protection for
private property rights, no mortgage lending, and no honest system of commercial dispute resolution.

IMF Managing Director Michel Camdessus asserted that the enormous new lending was in furtherance
of a program of "free market reforms," but in fact the commitment had a political aura. At a time when
the Russian government was spending exorbitant amounts on the 14-month-old war in Chechnya and on
extravagant election campaign promises, there were virtually no strings attached, no effective legal
commitments as to how the proceeds should be spent, and no effective monitoring and accounting
controls to track where the billions of dollars were going. Camdessus described it as a gesture of support
for Russia: "We have a program, we have a country which needs support. It is our duty and moral
obligation to support this country. "40

Yeltsin was more forthright about the political nature of the IMF commitment. "We had to involve
Clinton, Chirac, Kohl, and Major," he said.41 In fact, Clinton had endorsed the loan a month before the
details of the commitment were even agreed upon. Because of the heavy U.S. influence on the IMF, his
endorsement left little doubt that the loans would be made. The United States is the only country in the
world with veto power over IMF actions. Using this influence, the Clinton administration turned the IMF
into an agent of U.S. policy in Russia.

From the administration's standpoint, the disbursal of the IMF moneys would help pave the way for
Clinton's planned visit to Moscow in April ofthat year and shore up the team chosen by the
administration to carry out Western aid policy.

On the merits, there was little economic justification for extending the IMF package in March 1996. The
loans-for-shares ersatz "privatization" of major Russian industries into the hands of a few insiders was
already notorious. The poor state of Russia's official budget and finances made it implausible to assume
that the government would ever repay the latest IMF loan. Worst of all, the loan did not effectively
stipulate economic conditionality: in the first year alone, the IMF granted three waivers for
"nonobservance of performance criteria. "42 The Clinton administration's decision to extend yet another
IMF loan was purely political.

Many in the West and in Russia argued against burdening Russia with more IMF debt. Boris Fyodorov, a
former Russian Finance Minister, immediately criticized the decision. "This money corrupts the system,"
he said the day the deal was announced. "The moment you get a billion dollars, you delay the necessary
reforms. "43

The sheer size of the loan caused concern among many other observers.44 Prior to March 1996, the
largest amount of money given to Russia from the IMF was $6.8 billion in April 1995. The 1995 loan
had been more than a six-fold increase from the first loan to Russia in 1992. With this 1996 loan, the
Russian central government had borrowed close to $15 billion from the IMF alone. Moreover, the IMF's
sister institution, the World Bank, had provided billions more in loans to the central government since
1992. A further $30 billion in direct bilateral assistance had been given to the Russian central
government by Germany, the United States, and other countries.

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Moreover, to the extent that the Clinton administration did hector for "reform," it repeatedly prescribed
bad medicine.

During America's Great Depression, the infamous Smoot-Hawley tariffand President Hoover's 1932
income tax increases were widely credited with shrinking the U.S. economy in an attempt to increase tax
revenues. Likewise, the Clinton administration saw the root of Russia's problems as the decline in
government revenues~as if Russia's mistake had been failing to impose sufficient government levies on
the struggling Russian economy.45

DESPERATE FOR MEDICINE: A pharmacy clerk looks for insulin on a shelf, while a Russian woman waits in
Moscow, Dec. 11,1998. Russia's 2.2 million diabetics rely on imported insulin, but imports dried up when the
government devalued the ruble. AP Photo/Oleg Nikishin

While Russia's revenue stream was indeed declining, it was declining due to the contraction of the
economy itself. The Clinton administration's insistence on raising taxes was in part responsible for the
worsening crisis, as Russia sought to squeeze more taxes from the economy.

In place of concrete steps to establish the building blocks of a free enterprise economy, the Clinton
administration used the loans to attempt to induce Russia to reduce its budget deficit to stipulated
targets: 4% of GDP in 1996,3% in 1997, and 2% in 1998. These goals were never reached.46 To the
contrary, as the Russian government continued to borrow, the rising costs of debt service added to the
strain on the budget.

In March 1997, when Nizhny Novgorod Governor Boris Nemtsov was appointed Deputy Prime
Minister, then-Deputy Treasury Secretary Lawrence Summers dubbed the new Russian economic team
of Nemtsov and Chubais the "Dream Team"--a typical example of the administration's tendency to
support individuals rather than actual policies. The "dream," however, soon turned into a nightmare for
146 million Russians.

The Stock Market Bubble Bursts

Vice President Gore, Treasury Secretary Rubin, and Deputy Treasury Secretary Summers were not the
only people taken in by the Chubais "Dream Team." In mid-1997, the Russian stock market-hyped up
on billions from IMF, World Bank, and bilateral aid that initially permitted the Russian Central Bank to
accumulate reserves at a pace of $1.5 billion a month-became the world's leading developing country
stock market, as speculators chased stratospheric investment returns.47

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The economic momentum, however, was exceptionally short-lived; it would not even last the year. By
the fall of 1997, the trends were again all negative.

The onset of the economic crisis in Asia had reminded investors in emerging markets to pay attention to
fundamentals, which for the Russian economy were not encouraging. Continued low gas and oil prices
worldwide reduced the value of Russia's energy exports, and the lack of productivity improvement in the
private sector was quickly erasing the justification for high stock prices.

After the brief euphoria, investment continued to decline in 1997; capital investment amounted to less
than 24% of the Soviet-era level of 1990.48 Capital flight at a rate of $2 billion to $3 billion per month
(equivalent to between 4% and 10% of Russia's entire GDP)49 was becoming a major drain on the
Central Bank's foreign currency reserves.

For many Russian businesses, debts and liabilities significantly outweighed assets. Back wages rose to
more than $4.4 billion by the end of 1997, and reached as high as $5.6 billion by July 1998.50 At the
start of 1998 business-to-business debt amounted to roughly $40 billion, while businesses* unpaid debt to
the government totaled more than $35 billion.51

Russian firms, still suffering under the weight of Soviet-era laws and regulations, were unable to earn
enough to pay taxes. The government's revenues were falling-at times as much as 50% below budgeted
tax receipts. The decline in tax collections was exacerbated by the notoriously inefficient Russian tax
system, as well as by corruption among tax authorities and sweetheart deals that granted tax leniency to
select enterprises, such as the gas monopoly Gazprom.

The Clinton-Yeltsin and Gore-Chernomyrdin response to reduced tax collections~a symptom of the
government's failure to building anything like a workable free enterprise system-was more government
borrowing. IMF and World Bank debt would be used as a means of balancing the Russian central
government's annual budgets, plugging the gap between the government's growing expenses and its
rapidly declining revenues.

The heavy reliance on borrowing to finance budget shortfalls caused investors to demand an increasingly
large premium to hold Russian debt. To attract investors, the government offered ever-higher interest
rates-at times approaching 250%. The process was unsustainable.52

GKOs and the Russian Debt Pyramid

Russia's rapidly inflating short-term debt was an important factor in the August 1998 collapse. Facing
budgetary pressures caused in part by already high debt service payments and expensive reelection
campaign promises, the Russian government turned to short-term borrowing through ruble-denominated
government bonds, known by their Russian acronym GKOs (Gosudarstvennykh Kratkosrochnykh
Obligatsii, "State Short-Term Obligations"). Rather than solving Russia's debt problem, GKOs only
delayed and intensified the final reckoning.

Russia's failure to develop a market economy and the concomitant poor investment climate meant the
government had to pay investors a steep premium to sell them the GKO risk. Interest rates, which had
averaged 26% in 1997, reached triple digits in July.53 This ensured that the government could not meet

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its obligations when GKOs came due without issuing more GKOs: "The GKO pyramid was by then a
full-blown Ponzi scheme, with new bonds being issued to pay the interest on old bonds."54 GKO debt
exploded during the spring and summer of 1998, and by then some 30% of Russian budgetary outlays
was devoted to debt service. 5 5

Russian and foreign investors earned enormous returns in the so-called "GKO casino." But investors
were eager to convert their ruble profits into dollars and other stable currencies. Such conversions
exerted more downward pressure on the already battered ruble, and raised the cost to the Russian Central
Bank, which was trying to prop it up.

A considerable portion of the International Monetary Fund's $4.8 billion July 1998 rescue package was
spent to prop up the ruble in the days before the collapse. Predictably, toward the end, only
well-connected Russian and foreign investors were able to convert their rubles, a fact acknowledged by
Treasury Secretary Rubin.56

The Clinton administration made consistent efforts to downplay the magnitude of Russia's economic
crisis before the collapse. In late May 1998, for example, on the very day Russia's Central Bank tripled
key refinancing rates to 150%, State Department spokesman James Rubin went out of his way to call the
Russian government's economic team "fully capable," while then-Treasury Secretary Rubin blandly
stated that "the Russian government is taking steps to deal with the situation. "57

When asked what the administration knew about GKOs in the summer of 1998, Lawrence Summers,
now Treasury Secretary, told the Speaker's Advisory Group on Russia that the administration was aware
of the GKO market, knew the interest rates, and regarded them as symptomatic of an untenable fiscal
situation.58 Nonetheless, the Clinton administration viewed maintenance of the GKO Ponzi scheme as
insufficient cause to turn off the cash spigot.

In light of the administration's previous enthusiasm for IMF lending to Russia, many investors may have
believed that the Gore-Talbott-Summers troika would squeeze new loans out of the IMF to insure that
Russia's economy did not fail and that their investments were protected. Ultimately, this perspective
proved only partially correct: the IMF was persuaded to issue new credits, but the Russian economy
would collapse nonetheless.

The Clinton Troika Pushes to Double IMF Lending to Russia

In mid-1998, just two months before Russia's economic collapse, IMF Managing Director Michel
Camdessus insisted that investors should not worry about Russia: "Contrary to what markets and
commentators are imagining, this is not a crisis," he said. John Odling-Smee, head of the IMF's Russia
department, predicted that "large-scale additional financial resources ... will fundamentally improve the
financial situation of the Russian government. "59

Similarly, the Clinton troika held the view that more IMF lending could fix whatever ailed Russia. White
House spokesman Mike McCurry bravely spun in July 1998 that the "program of Russian policy
commitments and international financial support can provide a sound basis for increased stability and
confidence."60 According to the New York Times, Summers and Under Secretary of the Treasury for
International Affairs David Lipton pressed the IMF to "double the amount of money it was willing to
lend to Russia,"61 even though this would dangerously deplete the IMF's resources.62

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NOT A PRAYER: President Boris Yeltsin looks for help from above during a meeting with regional leaders on the
1998 financial crisis in the Kremlin in Moscow, June 5,1998-just months before Russia's economic collapse. The
Yeltsin-Clinton prescription for the crisis was for Russians to pay more taxes, ignoring the fundamental cause of
Russia's increasingly poor fiscal condition: its failure to establish the basic elements of a free enterprise economy.
AP Photo/Pool

The Times reported that the Summers-Lipton diagnosis was that still more lending was required because
Russia might "catch the Asian flu. "63 Such emphasis on external factors revealed the Clinton
administration's inattention to the inherent problems in Russia's economy. By turning a blind eye to
Russia's failure to put in place the building blocks of a free enterprise economy, and instead pressuring
the IMF to put the Russian government still deeper into debt, the troika's policies exacerbated the depth
of the coming crisis.

In Washington, over Memorial Day weekend, Summers, Lipton, and Talbott met with Chubais, who had
been appointed as Special Emissary to the West after his dismissal from the Russian government. At
backyard barbecues, they discussed terms and conditions. Afterward, they started pushing publicly for an
agreement between the IMF and Moscow. A few days later, Clinton voiced support for the scheme and
began lobbying Congress for an additional $18 billion U.S. contribution to the IMF so that the Fund
would have enough money to cover the sizable new lending they had in mind. 64

In fact, the economic situation in Russia was rapidly deteriorating. It was becoming clear that even a
large-scale international financial package could not stave off the Russian free-fall. Angry miners began
demonstrating in Moscow to protest wage arrears. The sale of the state-owned oil company Rosneft,
projected to net the government $1.6 billion, was cancelled for the second time because of the
probability of fire-sale bidding.65 Interest rates on Russian debt were soaring. The Russian treasury
market was showing signs of collapse: a Russian treasury bill auction failed to attract enough interested
investors, despite sky-high interest rates. By July 1998, Russia's foreign currency reserves had fallen to
$12 billion, down more than $3 billion from the month before. Though the handwriting was on the wall,
the Clinton administration and the IMF chose to proceed with the loan.

The IMF Bails Out 'Insiders' Before the Ship Sinks

On July 16,1998, the Russian government and the International Monetary Fund, joined by the World
Bank and Japan, agreed on terms for the largest-ever infusion of cash into the central government of
Russia: $17.1 billion. On top of this borrowing, Russia anticipated another $5.5 billion in international

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lending from prior agreements, for a grand total of $22.6 billion.

The 1998 IMF debt agreement was premised on commitments from the Russian government to
implement a "comprehensive reform program," including a dramatic reduction of the budget deficit-this
time to 2.8% of GDP from its then current 5.8%.66 But the IMF funds were not conditioned on any legal
commitment to the IMF, or even actual Russian performance.67

The IMF board approved the deal on July 20,1998, even though the Duma balked at some of the reform
measures that Chubais had promised. Disbursements began that day with a first installment of $4.8
billion--$800 million less than had been envisaged earlier, reflecting concern over the Duma's vote. 68

The initial reaction to the IMF loan agreement was euphoric. The Russian stock market, after months of
free fall, recorded a 17% rise.69 This boost was short-lived, however. By the end of July, despite the
infusion of billions of dollars in IMF funds, the market resumed its plunge.

On July 27, the market dropped 9% in one day.70 Yields on the Russian government's short-term debt
hovered around 60%.71 In a desperate attempt to raise revenue, the Russian government prepared to sell
a 5% interest in Gazprom, despite the unfavorable market conditions.72

This was precisely the reverse of what the Clinton administration and the IMF had hoped for. Instead of
rewarding the Russian government for its temporarily cash-rich position, the market hammered it
because it was now deeply mired in debt, with no discernable means of repayment.

The huge July 1998 IMF loan agreement did, however, succeed in one important respect. Because it was
temporarily flush in IMF money, the Russian central bank was able to accommodate well-connected
investors, foreign and domestic, who had discerned the handwriting on the wall and decided to convert
their ruble holdings into hard currency. Thus, the IMF encouraged and paid for the capital flight that
marked the final days before the August collapse.

Throughout the brief period between the 1998 IMF loan and Russia's final economic collapse, the
Russian government bravely insisted that the Ponzi scheme of financing its budget with ever
higher-yielding notes would continue forever. On July 27, Nemtsov declared, "Devaluation will happen
with other governments, not ours."73 The Clinton administration was equally willing to mislead the
investing public. On July 28, Treasury Secretary Rubin wrote to then-House Speaker Newt Gingrich that
the Russian government could now be expected to "finally take the myriad steps needed to put its
finances on a sustainable path. "74 That same day, Stanley Fischer, the IMF's Deputy Managing Director,
sounded an equally optimistic note: "Don't underestimate what's happened," he said of the IMF action.
"Interest rates are down.... The pressure is off the ruble. "75

As they had for nearly five years, the small clique of Clinton administration officials had miscalculated
the effects of their policies and closed their eyes to the consequences. Their tight circle excluded
opposing points of view and became a self-reinforcing mechanism for pursuing failed strategies. Gore
was too willing to believe Chernomyrdin and Kirienko; Rubin, Summers, and Talbott were too willing
to believe Chubais. Convinced that the worst was over and a turnaround was in sight, despite mounting
evidence to the contrary, the Clinton troika was among the last to realize that it would all come to a bitter
end on August 17.

The Final Days

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The Russian stock market continued its plunge in August 1998: on August 19 alone, trading was
suspended twice because of drops of more than 10%.76

Demand for Russia's debt declined dramatically, even as yields soared above 200%.77 Russian banks
began calling on each other for loans-reflecting, in the words of Sergei Aleksashenko, First Deputy
Chief of the Russian Central Bank, "the crisis of liquidity. "78 Some banks stopped allowing panicked
Russians and foreigners to buy dollars with rubles.

In Washington, President Clinton was huddling with his advisers over what to do about his summit with
Yeltsin, scheduled for September. On the one hand, the economic clouds were ominous; on the other
hand, Yeltsin had reassured Clinton on August 14 that there would be no devaluation. 79

Scrambling to avoid a meeting in the midst of a financial crisis, the White House dispatched Treasury's
Lipton to Moscow "to ensure that the show stays on the road for the next three weeks at least," according
to an administration source quoted in the Economist^ That would be just long enough to get through
Clinton's visit and avoid embarrassment. Sidestepping Russia's underlying problems, it would seem, was
the hallmark of administration policy in the final days before Russia's economic collapse.

CHILDREN OF RUSSIA: Two children receive free soup from the Salvation Army at a Moscow railway terminal in
1998. AP Photo/Mikhail Metzel

Over the weekend of August 15-16, a small group of Russian government officials and their advisers
met to consider the situation and their options. Another bailout from the IMF or the United States was
deemed unlikely to win approval in Congress and, in any event, would arrive too late. Their options
came down to seeking a rescheduling of the payment of billions in foreign government and private debts
or a devaluation of the ruble. Either one would be tantamount to default, a declaration of Russian
bankruptcy.

The following Monday, August 17, the Russian government announced a devaluation of the ruble and a

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90-day moratorium on repayment of $40 billion in corporate and bank debt to foreign creditors-coupled
with unilateral "restructuring" of domestic debt scheduled to mature in 1999.81 The Wall Street Journal
reported the next day, "Facing a choice between two economic evils to fight its financial woes, Russia
chose both."82

The Clinton strategy of massive lending to the central government as a substitute for the construction of
a free enterprise system in Russia had proved an error of historic proportions, and the administration
immediately attempted to build a wall between their policy and its consequences. "It was the Russians'
choice," said one administration official.83

Few in Russia accepted this version of events. Many Russians, not surprisingly, blamed the West, the
IMF, and the United States for intentionally leading Russia down the path of ruin.84 The heavy-handed
involvement of Clinton administration officials in Russian economic policy had made America an easy
scapegoat for millions of disgruntled Russians.

What made devaluation and default an especially bitter pill for the Russian people was the knowledge
that many well-connected insiders had escaped its consequences by converting their rubles into hard
currency and thereby avoided the consequences of devaluation. A number of the oligarchs, Duma
deputies, and other officials had anticipated the devaluation or been tipped off to it and converted their
ruble holdings into dollars before the foreign currency window was slammed shut, and then sent their
money overseas before the August 17 devaluation. Given the scarcity of hard currency in Russia at the
time, there is no question that the IMF loan proceeds were used to convert rubles to dollars,
Deutschemarks, and pounds sterling in this way. Treasury Secretary Rubin, testifying before a House
Appropriations Committee subcommittee in March 1999, acknowledged that much of the final $4.8
billion IMF loan distributed to Russia in the summer of 1998 "may have been siphoned off
improperly."85

Following the devaluation, widespread speculation in Russia that IMF lending was being used to bail out
insiders was fueled by the Russian Central Bank's decision to single out a dozen favored banks for
government credits to reestablish their liquidity. The banks included those held by several powerful
oligarchs. To all appearances, while the average Russian was left to fend for himself, the well-connected
oligarch was being rescued by the Central Bank, by the IMF, and ultimately, by U.S. taxpayers.

Dmitri Vasiliev, former chairman of Russia's Federal Security Commission, confirmed that IMF loans
were used to bail out insiders: "The [IMF] money is all spent," he told the Los Angeles Times a month
after the devaluation. "It went to foreigners and Russian speculators, including the Central Bank. They
got payments for their GKOs, converted the rubles into cheap dollars, and took the money out of the
country."86

As Clinton was preparing for his September 1998 trip to Moscow, Prime Minister Kirienko and his team
were fired. Not much earlier, one senior Clinton administration official had called the Kirienko
government "the most cohesive and most united in its commitment to reform ... Russia has had in the
last five years."87 Kirienko's team lasted barely five months, and the Clinton administration was again
without a policy and an interlocutor in Moscow.

For a brief moment, Gore was heartened that his former partner, Viktor Chernomyrdin, might be making
his way back. However, Chernomyrdin's comeback was to be short-lived: the Duma refused to confirm
him. By the fall of 1998, the Clinton administration had no "strategic partners" in the Russian
government, and its policy toward Russia had fallen into disarray.

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 THE CLINTON GENERATION: A Muscovite begs with his dogs next to a Pepsi advertisement, featuring Soviet
leader Nikita Kruschev and President Nixon in 1959, in downtown Moscow, June 3, 2000, just before Clinton
arrived in Moscow for a summit with President Putin. Clinton's reception, not surprisingly after the collapse of
Russia's economy, was icy cold. AP Photo/Mikhail Metzel

The Continuing Fallout

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

Wage and pension arrears have declined significantly, but workers' real income is still only 77% of what
it was before August 1998. The nominal increase in ruble-denominated wages has not kept pace with the
increase in prices. Personal consumption, as a result, dropped 5% in 1999, while retail sales were down
8%. Those Russians living below the official poverty level still total more than 35% of the population.
The official unemployment rate remains above 11%.88

Servicing Russia's foreign debt, now up to $150 billion, is draining resources from the economy.89

Russia's modest economic "turnaround," such as it is, is almost wholly a windfall result of higher world
oil prices, and Russia remains unprepared to capitalize on this opportunity. Gazprom, the giant gas
monopoly, reported in May 2000 that its output would be down this year because of a shortage of funds
to invest in new fields.90 More generally, the continued dependence of Russia's economy on basic
Soviet-era industries such as the export of arms and natural resources~and one major export in
particular, oil-underscores the failure to construct the basics of a free enterprise economy.

Nearly a decade after the end of Communism, the essential task still remains to be undertaken: building
a free enterprise economy on the ashes of a centralized state-run system. But whereas in 1992 there was
public support to see the job through, years of failed economic policy masquerading as "reform," a
crushing burden of debt, and the discrediting of the United States in the eyes of the Russian people have

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made that task far more difficult than anyone could then have imagined.

CHAPTER 9

WEAPONS
PROLIFERATION FEEDS A
CORRUPT AND
CASH-STARVED SYSTEM

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ARMS FOR SALE: One of the few success stories of the Soviet Union was its
development of a powerful military-industrial complex, which survived the
collapse because of its ability to continue to sell weapons and because its
Russian workers were among the most highly-trained in the nation. In the
absence of market development, Russia has depended on international arms
sales to raise much-needed cash. Moscow has shown a willingness to sell some
of its most advanced weapon systems currently in mass production. A number
of these weapons are specifically designed to destroy U.S. systems. Russia's
customers include many nations that threaten U.S. interests. Russia's urgent
need for hard currency has resulted in weapons proliferation that may even run
counter to Russia's long-term strategic interests.

[0]n proliferation, the picture that I drew last year has become even
more stark and worrisome. The missile threat to the United States
from states other than Russia or China is steadily emerging. The
threat to U.S. interests and forces overseas is here and now.

George Tenet, Director of Central Intelligence, February 2, 2000

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The failure of the Clinton administration's economic strategy for Russia has had profound implications
for Russian proliferation of weapons and technology, and therefore for America's supreme national
interests.

Between 1992 and 1999, the Russian economy contracted 25%. Currently, 11.5% of the 73.6 million
working-age citizens are officially unemployed, compared with only 4.8% in 1992. Rampant corruption
has slashed government revenues and diverted government expenditures. The complete collapse of
Russia's economy in 1998 saw industrial and agricultural output drop sharply. Investment in Russia
continues to suffer as capital flight cripples the private sector.

Russia's failure to create a working free enterprise system has stalled conversion of the hypertrophic
military sector of the economy. 1 It has also ensured that, just as in Soviet days, virtually the only
industry in which Russia enjoys a true comparative advantage in global markets is military hardware,
weaponry, and related technologies.

Russia's economic failure has created urgent economic incentives for its military-industrial complex,
individual military units, research facilities, and design bureaus, as well as for the individual officers,
soldiers, bureaucrats, and scientists who comprise these institutions, to sell even extraordinarily sensitive
weapons and technology.

Over time, official Russian policy has conformed to these exigencies. Aided by the collapse of American
popularity in Russia and the discrediting of pro-American politicians as the Clinton administration
economic program failed, militantly anti-American elements in the Russian foreign and security-policy
elites have succeeded in dramatically recasting mainstream Russian views of foreign policy over the last
eight years. 2 Under the rubric of "strengthening multipolarity," the avowed purpose of the new Russian
consensus on foreign policy and national security is to increase the strength of global forces arrayed
against the United States.

This consensus helps allay any concerns that Russian officials, scientists, and businessmen might have
about transferring weapons or military technology to countries such as Iran, Iraq, North Korea, Libya,
and the People's Republic of China. When Russia's national interest is understood to be strengthened by
weakening the United States, the Russian military-industrial complex can do well by doing good,

'Islands of Excellence': The Paradox of Russia's Military

The August 2000 sinking of the Kursk, Russia's most modern submarine, during the Russian Northern
Fleet's largest exercises in a decade has highlighted the paradoxical nature of the Russian military. It is at
once sophisticated and in disrepair. The overall poor conditions in the Russian military-symptoms of the
cash-starved Russian economy-are conducive to both licit and illicit weapons proliferation for hard
currency. At the same time, the maintenance of technological "islands of excellence" in the midst of
generally non-competitive force structures insures that Russia has ample weapons systems and
technology to share with willing arms buyers.

These basic conditions for weapons proliferation are further exacerbated by the "systemic corruption and
criminality that is especially evident at the higher levels of the military and civilian leadership in

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Russia." More than 100 generals and admirals, a deputy minister of defense, and two other top officials
of the Ministry of Defense were under investigation for corruption and embezzlement as of 1997.3
During the brutal war in Chechnya both officers and enlisted men have sold weapons and material to the
Chechens fighting against them; the civilian leadership of the military establishment, including
then-First Deputy Prime Minister Oleg Soskovets, have also been accused of profiting from the
conflict.4

Without question, Russia's military "islands of excellence" exist in troubled waters. Russia has
dramatically reduced its military spending from Soviet levels, starting with the 80% cut in procurement
ordered by Yegor Gaidar in 1992. A recent illustration of the military's cash shortage is the June 2000
report that the local electric company threatened to cut off power to a strategic missile base in southern
Siberia because of $180,000 in unpaid bills.5 The cutoff was avoided when the base's elite commandos,
whose regular mission is to protect the giant SS-18 intercontinental ballistic missiles there, seized four
of the electric company's substations.

Russia's soldiers, whose lifestyle has always been spartan, now suffer from an unprecedented
combination of low pay, poor training, and terrible living conditions:

[T]he Russian military has faced problems feeding its own troops. Sailors have starved to
death, forces stationed in the far north have been gradually withdrawn, and those stationed
in Russia proper have often been told to pick mushrooms or berries to supplement their
diets.... The problem was brought home even more clearly in March 1999 when a young
soldier armed with an automatic weapon broke into a food store. When he was captured, the
soldier confessed that he "was really hungry. "6

It is currently estimated that as many as 1,000 Russian conscripts a year commit suicide.7

These poor conditions, in time, have bred further problems. The State Department reported in 1998 that
the decline in the military's living standards "continues to contribute to the increase in crime (particularly
theft) and corruption in the armed forces."8

Since 1996, communications with operational nuclear weapons units have often been disrupted because
thieves steal the copper and other metals from wires that linked these units to their command centers and
sell them for scrap. And as the Kursk incident has shown, corruption, mismanagement, and the problems
in morale, training, and recruitment that they engender can compromise the effectiveness of even the
most modern systems.

On February 25,1997, shortly before his dismissal, then-Defense Minister Igor Rodionov stated, "What
kind of Defense Minister am I? I am the Minister of Defense of a disintegrating army and a dying
fleet."9

General-purpose forces have been largely neglected. Russia's armed forces procured exactly two combat
aircraft in 1995, versus 581 in 1991.10 Tank procurement has gone from several thousand to several
dozen per year.l 1 According to Russia's Defense Minister Marshal Igor Sergeyev, 54% of Russia's
aircraft and 40% of its anti-aircraft systems, helicopters, armored equipment, and artillery need repairs.
Seventy percent of the navy's ships need major repairs. 12

Yet such statistics belie the more complete picture. Irrespective of its official budget, Russia continues to
devote significant resources to its military establishment, as demonstrated by its sheer size and
infrastructure, as well as expenditures on the war in Chechnya and "peacekeeping" in Moldova,

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Tajikistan, and Georgia. And while it is a mere shadow of the Soviet military, even the diminished
Russian military of today is formidable compared to the weak forces of the nations on Russia's periphery
and of the new NATO states Poland, Hungary, and the Czech Republic. Were Russia to choose to do so,
it is capable of threatening the Partnership for Peace countries of the Baltics, Ukraine, and Southeastern
Europe, the Caucasus, and Central Asia. And while Russia might not be able to win a conventional war
with NATO, it still has the military capability to inflict massive damage on U.S. allies in Europe.

The anomalous Russian pattern is that while the bulk of its military assets are depreciating, it is still
successfully targeting certain areas for investment in 21st century weapons technologies. Thus, following
the May ratification of the START II Treaty by the Russian Duma, President Putin announced that the
treaty's ratification would allow Russia "to channel funds to [the] creation of new armaments ... ."13
These newest armaments will also pose proliferation risks.

The most significant exception to Russia's generally deteriorating military is it nuclear force. Russia's
clear pattern to date has been to focus its limited research and procurement funds on nuclear
weapons--and, disturbingly, on maintaining nuclear war-fighting capabilities. 14

The noted defense analyst Pavel Felgengauer recently wrote that "[fjor the past couple of years ... Russia
was building more ICBMs [intercontinental ballistic missiles] than all other world nuclear powers put
together, but not buying any new conventional arms." 15 As Lt. Gen. Patrick Hughes, Director of the
Defense Intelligence Agency, testified in February 1999: "Despite years of economic crisis and decline,
and extreme reductions in the Russian defense budget, Moscow has mustered the political will and
resources to field and maintain its strategic force. Indicative of this determination, Russia continues to
prioritize strategic force elements—in terms of manpower, training, and other resources—and to invest in
the future by funding at least one new strategic missile, and numerous strategic command, control, and
communications facilities and capabilities." 16

Twenty to thirty of the relatively new and capable SS-25 Topol ICBMs and the SS-27 Topol-M ICBMs,
currently the most technologically-advanced intercontinental ballistic missile deployed in the world, are
being produced each year. Russia is simultaneously retiring larger numbers of older systems, resulting in
a smaller but more modern force. 17

In 1998 the Yeltsin government ordered the development of Russia's next-generation

submarine-launched ballistic missile (SLBM), the Bulava ("Mace"). The Bulava is currently in
development and is believed to be based on the SS-27, signifying a Russian attempt to maximize missile
production by utilizing the economies of scale from deploying substantially similar missiles on land and
at sea. Because the Bulava will not become operational for nearly a decade, Russia has also resumed
production of the SLBM currently in service to keep the current ballistic missile submarine fleet fully
armed. Russia is also designing a new nuclear-capable theater missile. 18

The ratification of START II, which emancipated Russia from the expense of maintaining much of its
older forces, also signaled the start of its renovation of the strategic bomber fleet. In addition to
developing new long-range bombers, the Russian military is also designing precision munitions to
increase their efficacy. 19 The new X-101 long-range air-launched cruise missile may be part of what
military analyst Felgengauer described as a plan "to make a local nuclear war possible in principle, to
enable Russia to deliver 'non-strategic' low-power nuclear strikes to any point in the world, similar to
American cruise missiles and 'smart bombs.'"20

Russia's strategic forces are also maintaining a higher level of readiness than the general military:

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 * In April 2000, the strategic bomber force conducted large-scale military exercises over the
Black and Caspian Seas,21 the second major exercise in as many years.

* In June 1999, Russia conducted its largest military exercise since the collapse of the
Soviet Union, involving some 50,000 troops from five military districts, five naval fleets,
and 23 combined task forces.22

The 1999 exercises, dubbed Zapad 99, marked the first time that American fighters were forced to
intercept Russian bombers, two of which had approached within 60 miles of NATO-ally Iceland--well
within striking distance of the United States.23

Russia is also launching new satellites to counter an erosion in its intelligence capabilities that has left it
strategically "blind" for some three hours of every day.24

Tactical aviation, and electronic and information warfare, have also continued to receive priority in
funding. So has biological weapons research.25 And Russia is expending immense resources on building
mammoth underground facilities apparently intended to function as command-and-control headquarters
for waging nuclear war at locations including Kosvinski and Yamantau Mountain in the Urals.26

Russia has continued producing nuclear-powered submarines (of which the Kursk is an example) as well
as diesel submarines for its own armed forces as well as for export. As Rear Admiral Lowell E. Jacoby,
the Director of Naval Intelligence, advised Congress in April 1999, "Russia continues to produce a wide
range of leading edge undersea warfare technologies for their own use and for export."27

Under construction or development are the Severodvinsk, Russia's first true multi-purpose nuclear
submarine, and the Dolgorukiy nuclear-powered submarine, which in the future will be the mainstay of
Russia's sea-based nuclear weaponry.28 Whereas most U.S. defense planning no longer focuses
primarily on Russian developments, U.S. submarine acquisition and anti-submarine warfare programs
are still driven by Russian activities.29

The long-depressed economic conditions in Russia, miserable pay and living conditions of Russian
troops, pervasive corruption in the Russian military and civilian leadership, a desire to fund Russia's
still-ambitious and expensive conventional and strategic forces, the marketability of much of Russia's
newest military hardware and technology, and a growing hostility to the United States in official Russian
foreign and military policy have all combined to provide strong economic incentives for proliferation of
weaponry and weapons technology by people and institutions ranging from individual soldiers to the
Russian state.

Doomsday Programs: Russia's Weapons of Mass Destruction

When the Soviet Union collapsed in 1991, Russia inherited an immense military-industrial complex, as
well as a huge arsenal and military. Much of this complex was devoted to the development of weapons
of mass destruction.

The new Russian Federation possessed nearly 1,200 metric tons of enriched uranium and 200 tons of
plutonium.30 Although much of this material was kept in the hermetic "nuclear cities" in which Soviet
nuclear experts were confined, a significant amount was available outside these isolated outposts. An

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estimated 2,500 Russian nuclear scientists with direct knowledge of building nuclear weapons were
under-employed or unemployed. Furthermore, these scientists were supported by tens of thousands of
specialists who worked outside the nuclear cities but had extensive involvement with the Soviet nuclear
industry.31

Russia likewise inherited the Soviet chemical weapons program, which encompassed hundreds of
facilities employing tens of thousands of scientists and technicians—the largest and most advanced
chemical weapons production program in the world. In 1993, Russia declared that it possessed 40,000
metric tons of chemical weapons agents stored at seven depots, and declared that it owned 24 former
chemical weapons production facilities.32

The Soviet biological weapons program that Russia inherited was even larger, employing over 65,000
people. The Soviet Ministry of Defense ran four military microbiological facilities. In addition, research
was carried out through a complex of 50 pharmaceutical facilities known as Biopreparat that engaged in
the secret development of biological agents.

The decline in Russian military spending and the general failure of Russia's economy under the Clinton
administration's tutelage gave this immense military-industrial complex the urgent incentive to sell as
much as possible as quickly as possible-often irrespective of the long-term implications for Russia's
own security.

At some former research facilities, such as the State Institute of Organic Chemistry and Technology in
Moscow, fully half of the scientific personnel had been laid off by the fall of 1995, following President
Yeltsin's official termination of the biological weapons program in 1992. Following Yeltsin's action, the
Biopreparat complex experienced funding cuts of 30% and personnel cuts of 50%. According to one
recent report, many Biopreparat institutes cannot even afford to pay the remaining scientists on staff the
meager $100 a month average salary.33 Moreover, security controls on Russia's weapons of mass
destruction program were deteriorating.

To many in the Russian government who sought ways to overcome the desperate financial challenges
facing Russia's government and its population, exporting such hugely valuable contraband seemed to
solve several economic problems. It would generate hard currency; it would utilize existing Russian
assets; and it would put possibly hundreds of thousands of unemployed Russians back to work. For the
many Russian officials increasingly involved in corruption and organized crime, there was yet another
benefit: the opportunity for significant personal wealth.

Such sales also had a programmatic and policy dimension, since the funds they generated could help
support further weapons development. Such critical elements of the military-industrial complex as
aircraft and surface-combatant manufacturing have been left to survive largely by exports. While
Russian arms exports have reached as much as $4.8 billion annually, Russia's armed forces have been
authoritatively informed that they will not receive new weapons until 2005, and must manage with
existing weapons in the interim.34

Such exports could also serve such foreign policy goals as "building multipolarity" at the expense of the
United States, or seeking to build better relations with nations that might otherwise pose problems for
Russia, such as Iran. Some Russian commentators even articulated a policy of Russian arms sales to
anti-American forces as a means both of providing Russia with hard currency and of assuring that U.S.
resources will be consumed in countering the weapons Russia has sold abroad. 3 5

Many Russian weapons-complex employees were vulnerable to the lure of selling expertise and

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equipment for hard currency, irrespective of official Russian policy, as Iran and other rogue nations
seeking to build WMD programs have seen in Russia's economic misery an opportunity to purchase the
highest-quality expertise cheaply.

For all of these reasons, both official and unofficial Russian weapons proliferation has accelerated
dramatically since the first years of the Yeltsin and Clinton administrations. In addition to the weapons
and technology transfers to the People's Republic of China described in Chapter 11, the most
destabilizing manifestations of Russian arms proliferation have been the sale to Iran of technology for
ballistic missiles, nuclear weapons, chemical weapons, and biological weapons; assistance to Iraq's
ballistic missile program, its chemical weapons program, and its oil smuggling operations; and the sale
of conventional arms to Iran, Iraq, Libya, North Korea, and Syria.

Russian Assistance to Iran's Ballistic Missile Program

Following the Iran-Iraq war, Iran sought to improve its missile technology by purchasing No Dong
missiles from North Korea, and reportedly provided assistance to North Korea's missile development
program in return. After difficulties in acquiring No Dong missiles, however, Iran turned to other
countries-including Russia~for assistance in its missile development.36 Iran sought Russian help with
guidance systems, engines, advanced materials, electronics, testing equipment, and other systems it
could not develop on its own.37

Throughout the 1990s, despite repeated pledges by the Yeltsin government given during summits,
Gore-Chernomyrdin Commission meetings, and ministerial-level meetings, Russian private and
government entities continued to provide critical technological assistance to Iran's ballistic missile
programs.

AIDING IRAN'S MISSILE DEVELOPMENT: An Iranian Shahab-3 missile takes part in a parade in Tehran Sept.
25,1998, to mark the 18th anniversary of the outbreak of the war with Iraq. The missile, with an 800-mile range, is
capable of reaching Israel. President Mohammad Khatami addressed crowds at the parade and said Iran was
ready to use force if diplomacy failed to ease the tension with neighboring Afghanistan. Intelligence reports noted
that Iran worked with the Russian Space Agency, the Bauman Institute, Rosvooruzhenie, and other Russian firms
in developing the missile. AP Photo/Mohammad Sayyad

In 1997, evidence surfaced that three Russian entities, including Rosvoorouzhenie (Russia's State
Corporation for Export and Import of Armament and Military Equipment), had signed contracts with
Iran's Shahid Hemmat Industrial Group (SHIG), a government agency within Iran's Defense Industries
Organization in charge of developing Iran's ballistic missile program, to assist the Iranian missile
program by producing, model missiles, software, and a wind tunnel for missile design.

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The Russian scientific and production center Inor also collaborated with Iran's SHIG on several contracts
for the transfer of Russian raw materials for use in producing missiles. In addition, Inor negotiated to sell
Iran high-technology laser equipment, special mirrors, a metal called maraging steel, and
tungsten-coated graphite material—all important components in building missiles.38

U.S. intelligence findings were confirmed when on January 29,1997, the State Department sent a secret
cable to the U.S. Embassy in Moscow describing evidence provided by a delegation of Israeli military
intelligence officials that Russian agencies were assisting Iran in building its Shahab-3 and Shahab-4
missiles.39 The cable reportedly read as follows:

This is shaping up as a serious problem. While we have not seen or analyzed their raw data,
the Israelis seem to have established that:

The Iranians are working on two No Dong derivatives, Shahab-3 (with a 1,250 mm tube,
1,300 to 1,500 kilometer range, and 750 kilogram [re-entry vehicle] RV; and Shahab-4
(larger, more advanced guidance systems, 2,000 kilometer-range and 1,000 kilogram RV).

The Iranians are seeking domestic production.

Iranian defense industry entities have worked with the Bauman Institute in St. Petersburg,
with Rosvooruzhenie, the Russian Space Agency, NPO Trud, Polyus, and other Russian
firms in: Conducting wind tunnel testing of the nose cone, designing the guidance and
propulsion systems and working on a solid-fuel project.

The Israelis have identified [Russian Space Agency Director Yuri] Koptev and
Rosvooruzhenie's aerospace director in connection with the project; they have a copy of the
$7 million contract with NPO Trud (which built the Russian lunar space vehicle).

Great Wall Industries (China) is working on telemetry infrastructure; little information.

A prototype may be ready in two to three years.

The Israelis believe the Russians may try to justify the missiles as research devices. They
have not identified a Russian-Iranian coordinating channel for missile development, nor
implicated any senior figure besides Koptev, possibly suggesting a pattern of freelancing.
The Israelis suspect, but have not established, that the total of relevant contracts in Russia
may not exceed $20 million.40

In testimony before the House International Relations Committee in October 1999, proliferation expert
Kenneth Timmerman testified that top Clinton administration officials were aware of Russian aid to
Iran's missile programs but did little to counter it:

[Deputy Secretary of State Strobe] Talbott's consistent refusal to confront the Russians over
their missile technology transfers to Iran illustrates once again a series of opportunities we
missed to prevent post-Cold War Russia from going down the dark paths where we
encounter her today.

The warnings were visible early on, and they were ignored. Initial information on Russian
assistance to the Shahab missile programs in Iran came from Israeli agents in Russia in 1995

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 and 1996.

The Israelis felt confident enough of their information to present a detailed briefing to Mr.
Talbott in Washington in September or October of 1996. According to one of the Israelis
who took part in the briefing, whom I interviewed in Tel Aviv the following year, Mr.
Talbott told them not to worry: he had the situation with Russia "under control.Ml
agmrrg=z57-

UNFRIENDLY SKIES: In the fall of 1998, Russian arms export agency Rosvooruzhenie and Iraq completed a deal
worth $160 million in military hardware including upgrades of this MiG-29 fighter. These fighters have engaged
NATO pilots over Kosovo and Iraq.

In March 1997, a CIA intelligence report labeled "Secret Specat" reportedly disclosed that then-Iranian
President Ali Akbar Hashemi Rafsanjani was pleased with the growing ties between Iran and Russia, and
that he expected Iran to benefit from Russia's highly-developed missile program. Iran's president stated
that he "considered] obtaining Russian military technology one of Iran's primary foreign policy goals."
Rafsanjani added, "Iran had a budgetary reserve of $10 billion, much of which it is willing to dedicate
towards military purchases from Russia," and he directed Iran's embassy in Moscow "to devote resources
to fulfilling Iranian weapons requirements through purchases from Russia. "42

According to a 1997 report on proliferation, Director of Central Intelligence George Tenet stated:

[In 1997] Russian firms supplied a variety of ballistic missile-related goods and technical
know-how to foreign countries during the reporting period. For example, Iran's success in
gaining technology and materials from Russian companies, combined with recent
indigenous advances, means that Iran could have a medium-range ballistic missile much
sooner than otherwise expected.

During 1997, Russia was an important source of dual-use technology for civilian nuclear
programs in Iran and India. By its very nature, this technology may be of use in the nuclear
weapons programs of these countries.43

Yet the Clinton administration, anxious to present a positive image of Russian-American relations,
continued to accept the commitments from Yeltsin and Chernomyrdin during this period-at the
Clinton-Yeltsin summit in Helsinki in March 1997, at the June 1997 Clinton-Yeltsin summit in Denver,
and at a Gore-Chernomyrdin meeting in 1997-that Russia would halt its missile technology assistance to
Iran.44

In November 1998, the Russian Duma passed a resolution calling for increased military cooperation with
bran. According to press reports based on conversations with intelligence officials, in late January 1998

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the Russian SVR Foreign Intelligence Service and Iran's Ministry of Intelligence and Security
coordinated a visit to Moscow by a group of Iranian missile experts. Vyachaslev Trubnikov, the Russian
foreign spy chief, informed the Iranians that his agency would continue to work with the Iranians if
illegal practices by Iran were stopped. Other reports linked the Russian FSB~the Federal Security
Service, successor to the KGB--to covert Iranian intelligence activities in the missile technology area.45

Nevertheless, the Clinton administration still refused to adjust U.S. policy to the torrent of information
from the U.S. intelligence community and the corroborating evidence from U.S. allies. American policy
was based on the assurances from the administration's small circle of official Russian counterparts.
Objective intelligence reporting was discounted, while information from Russian sources who clearly
stood to be injured by the imposition of sanctions was accepted.

The Clinton administration consistently avoided imposing meaningful sanctions on the export of missile
technology to Iran, despite the authority to do so that it possessed under the Arms Export Control Act,
the Export Administration Act, the Iran-Iraq Arms Nonproliferation Act of 1992, and the Foreign
Assistance Act.

The bipartisan Iran Missile Proliferation Sanctions Act of 1997, which passed the House and Senate with
veto-proof majorities, closed many of the loopholes invoked by the Clinton administration to justify its
refusal to use sanctions. The Act required suspension of U.S. government assistance to foreign entities
(including governmental entities operating as businesses) that assist Iran's ballistic missile program.

President Clinton vetoed the bill on June 23,1998. One month later Iran tested its Shahab-3 missile-ten
years ahead of the U.S. government original Initial Operational Capability (IOC) estimate of one year
earlier, and 18 months ahead of the then-recently revised IOC. By mid-1998, the Iranian ballistic missile
program was one of the most advanced in the world, due to Russian assistance.

The Commission to Assess the Ballistic Missile Threat to the United States (popularly known as the
Rumsfeld Commission) reported to Congress and the president in July 1998 that "[t]he ballistic missile
infrastructure in Iran is now more sophisticated than that of North Korea and has benefited from broad
essential assistance from Russia. "46 Many experts believe that the role Russia played in Iran's
development has been "crucial"~and that without Russian assistance, it would have taken many more
years of research and testing for Iran to test and deploy these missiles.47

Under threat of a congressional override of the veto of the Iran Missile Proliferation Act, Clinton issued
an executive order on July 28,1998, utilizing existing law to ban trade, aid, and procurement from
foreign entities assisting programs for the production of weapons of mass destruction in Iran or
elsewhere. Pursuant to the executive order, the Clinton administration sanctioned seven Russian entities
believed to be assisting Iran's Shahab program.48

At the time, observers questioned why other entities that had engaged in similar activity were not
sanctioned, as well as disputing the efficacy of the "tailored" sanctions that the administration claimed to
be imposing. The executive order allowed the President to reduce or end aid to research and
manufacturing enterprises, but most of the sanctioned firms did not receive any such U.S. aid, or were
associated with the Russian government. And although the executive order also barred these entities
from exporting goods to the United States, this sanction was largely meaningless since there was no U.S.
market for their products and the trade in question was in information and technology rather than
equipment. Moreover, the executive order did nothing to address Russia's export-control system, which
even National Security Advisor Sandy Berger said was necessary when he announced the sanctions.

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As a result, the executive order and attendant sanctions failed to deter Russian proliferation. An
unclassified CIA report issued on February 2,2000, stated that as late as June 1999 Russian entities
"continued to supply a variety of ballistic missile-related goods and technical know-how to Iran."
Moreover, Iran could already deploy a "limited number of the Shahab-3 prototype missiles in an
operational mode during a perceived crisis situation. "49

In testimony before the Senate Intelligence Committee in February 2000, Director of Central Intelligence
George Tenet testified that Iran would "probably" soon possess a ballistic missile capable of reaching the
United States. The impact of Russian assistance was clear: only a year earlier, Tenet had testified that it
would take "many years" for Iran to develop a missile capable of reaching the United States.

On March 1,2000, Congress passed the Iran Missile Nonproliferation Act of 2000, which authorizes
restrictions on U.S. aid to and trade with foreign entities that assist Iran's programs for the production of
weapons of mass destruction. This Act includes a provision conditioning U.S. "extraordinary payments"
to the Russian Space Agency for participation in the International Space Station on the President's
certification that the Russian Space Agency has ended assistance to Iran's missile development
programs.

The Act thus puts teeth into the administration's professed linkage of space and nonproliferation policy,
which at the time of enactment had yet to materialize in fact. If enforced by the Clinton administration,
the provision will lead in the near term to the withholding of $20-25 million in extraordinary payments
to Russia, an amount that could rise to as much as several hundred million dollars more in future
years.50

The Clinton administration's willful blindness to Russian missile proliferation to Iran has already done
immense damage, however. The extensive Russian assistance has allowed Iran to improve significantly
its ballistic missile capability. Iran's Shahab missile series is modeled on the Russian SS-4. The
Shahab-3 ("Meteor") medium-range ballistic missile, which is based on North Korea's No Dong missile,
was reportedly redesigned and improved by Russian experts. Its 800 to 900-mile range and 1,650-lb.
payload give Iran the ability to threaten areas beyond the Middle East. Iran is close to perfecting the
Shahab-4 missile, with a 1,200-mile range and a 2,200-lb. payload.51 And with Russian assistance Iran
is now building a 2,600-mile range "Kosar" missile, based on a Soviet-era SS-5 missile engine;52 this
missile could ultimately form the basis for an Iranian intercontinental ballistic missile.53

Each of these missiles far exceeds the 180-mile range and 1,100-lb. payload limits imposed by the
Missile Technology Control Regime, of which Russia is a member.54

Russian Assistance to Iran's Nuclear Program

Russia also has ignored the Clinton administration's ineffectual objections to its plans to build nuclear
reactors in Iran. Both the Clinton administration and outside experts fear that Iran will use the civilian
reactor program as a cover for a secret nuclear weapons program.

In January 1995, Russia announced an $800 million contract with Iran to complete a nuclear power
facility at Bushehr. The nuclear plant was begun by Siemens during the 1970s, but abandoned after Iran's
1979 revolution. This 1,000 megawatt light-water reactor, which is now very nearly complete, is capable
of producing material for nuclear weapons.55 The Bushehr contract also calls for Russia to deliver

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nuclear fuel for Bushehr's reactors. 56 Approximately 1,000 Russian specialists are currently working at
Bushehr.

DANGER IN SMALL PACKAGES: Defense Secretary William Cohen explains to the nation the destructive power
of even small quantities of biological weapons, Nov. 16,1997. An amount of anthrax equal to this bag of sugar
would kill half of the city of Washington. Russia's expertise in biological weapons is a lure for rogue regimes
including Saddam Hussein's Iraq. AP Photo/This Week, Terry Ashe

Russian Atomic Energy Minister Yevgeny Adamov announced in April 2000 that Russia had agreed to
build up to three additional 1,000 megawatt nuclear reactors in Iran.

In addition to constructing reactors and delivering nuclear fuel, Russia is providing Iranian personnel
with technical know-how. Beginning in early September 1999, more than 300 Iranian specialists
commenced training at Russia's Balakovo nuclear power station.

Moreover, although Russia argues that the Bushehr nuclear facility in Iran will be subject to oversight by
the International Atomic Energy Agency (IAEA), the Bushehr project will immerse Iranian personnel in
nuclear technology, and provide extensive training and technological support from Russian nuclear
experts—providing both massive transfers of information and technology and indispensable cover for
pursuing nuclear weapons activities. Neither concern is addressed by IAEA oversight.

U.S. officials believe Iran is attempting to acquire a nuclear weapons capability by purchasing nuclear
weapons-related material and using nuclear assistance from Russia and others to expand its expertise.
The New York Times reported on January 17,2000, that the Central Intelligence Agency had reason to
believe Iran had purchased critical technology advancing Iran's nuclear program further than previously
thought.57 In August 2000, the CIA confirmed this assessment in an unclassified report to Congress,
stating:

The Russian government's commitment, willingness, and ability to curb proliferation-related

transfers remain uncertain.... Russian businesses continue to be major suppliers of WMD
[weapons of mass destruction] equipment, materials, and technology to Iran. Specifically,
Russia continues to provide Iran with nuclear technology that could be applied to Iran's
weapons program. 5 8

But the Clinton administration has failed to move effectively to end this Russian assistance. Moreover,
congressional attempts to influence Russian behavior by reducing U.S. bilateral aid to the Russian
central government (while maintaining aid in support of grass-roots reform in Russia) have been
undercut by continued unconditional administration support for aid to Russia through the International

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Monetary Fund, the World Bank, and other multilateral institutions.

Iran is seeking to acquire Russian assistance in building other weapons of mass destruction as well. In
December 1998, the New York Times reported that high-ranking Iranian officials were aggressively
pursuing biological and chemical expertise in Russia. In interviews conducted with numerous former
biological weapons experts in Russia and Kazakhstan, more than a dozen stated that they had been
approached by Iranian nationals and offered as much as $5,000 a month (many times more than many
Russian scientists make in a year) for information relating to biological weapons. Two weapons experts
claimed they had been asked specifically to assist Iran in building biological weapons.59

The Russian scientists who had been approached noted that the Iranians showed particular interest in
learning about or acquiring microbes that can be used militarily to destroy or protect crops and genetic
engineering techniques to create highly-resistant germs.

Russian Assistance to Iraq

According to public reports in 1999, Russia has sold valuable missile technology to Iraq in violation of
the United Nations embargo. With the end of the Gulf War, the U.N. Security Council voted to disarm
Iraq of most of its ballistic missile capability. U.N. Security Council Resolution 687 ordered the
destruction of all Iraqi ballistic missiles with a range greater than 150 kilometers. Furthermore, an
embargo was placed on all sales of ballistic missile technology to Iraq by U.N. member states.

The 1999 reports specifically identified three Russian former state-owned Soviet trading
companies-Techmashimport, Vneshtekhnika and Mashinoimportinvest~as having sold Iraq components
for the manufacture of sürface-to-surface missiles; navigation equipment for fighters; and anti-aircraft
missiles, among other items.60 In addition, Russia was reported to have sold Iraq $160 million worth of
military hardware, including upgrades of MiG-29 fighters and air defense systems, in the fall of 1998.61

Three years earlier, in December 1995, Jordan reported seizing 115 Russian-made missile guidance
components allegedly bound for Iraq. The United Nations Special Commission on Iraq (UNSCOM) later
reported that Iraq had in fact procured missile components since 1991, in violation of sanctions, and that
it had covertly developed and tested prohibited missiles. That same month, UNSCOM retrieved from
Iraq's Tigris River prohibited missile guidance systems (accelerometers and gyroscopes) taken from
modern Russian SS-N-18 submarine-launched ballistic missiles with intercontinental range. 62 The
degree to which these transfers were state-sanctioned or were attributable to Russian organized crime or
corruption is unclear, since the Clinton administration never adequately pressed the Russian government
for an explanation or adequately investigated the case.

In 1995, UNSCOM inspectors also uncovered evidence that Russia had agreed to sell Iraq biological
weapons fermentation equipment. Experts believe the equipment, including a 5,000 liter vessel, was
destined for Iraq's Al Hakim facility, the main biological warfare facility of Iraq, which was
subsequently destroyed by U.N. investigators in June 1996.63

The uncertainty of Russian intentions and the inadequacy of its controls over proliferation is illustrated
by the case of General Anatoly Kuntsevich, who after leading the program to circumvent Soviet
commitments under the Chemical Weapons Convention was appointed by Yeltsin to head the Russian
committee charged with dismantling the Soviet biological and chemical weapons complex.64 On April

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7,1994, Yeltsin fired General Kuntsevich after it was disclosed that he had been caught attempting to
sell five tons of VX nerve gas components to Syrian agents presumably acting on behalf of Iraq. All of
the chemical VX precursors to be sold in the transaction were stolen from Russian military facilities.
Furthermore, Kuntsevich allegedly sold another 1,760 pounds of chemicals to unnamed buyers from the
Middle East.65

Similarly, on February 2,2000, U.S. patrol ships leading the Multinational Interdiction Force that
enforces the United Nations' embargo against Iraq boarded and diverted a Russian oil tanker in the
Persian Gulf. It was found to be smuggling Iraqi oil. The Clinton administration, once again anxious to
avoid confronting Russia, neither sanctioned Russia nor even threatened diminution of U.S. financial
support. Instead, the Iraqi naval official on board the tanker was freed; the oil was diverted to Oman and
auctioned off; and the tanker was returned to Russia.

Two months later, in early April 2000, another Russian tanker was found to be carrying Iraqi oil mixed
with Iranian oil. The Clinton administration merely issued a "warning" that future such incidents would
result in the seizure of the cargo. Royal Dutch/Shell, which chartered the tanker, agreed to pay the U.N.
$2 million as a fine, but was allowed to retain the cargo. No sanctions against Russia were even hinted
at.

Russian Exports of Conventional Arms

The continuing failure of the Russian economy has created a nearly irresistible attraction to the hard
capital generated by the export of advanced conventional weapons systems. Since the collapse of
Russia's economy in 1998, Russian earnings based upon the foreign sales of arms have increased by
58.3%, from $2.8 billion to $4.8 billion.66 And Russia is seeking to expand its shipments to new
customers in markets such as Southeast Asia and Latin America. 67

Since the fall of the Soviet Union, the international sale of Russian arms has been conducted through
three state-run organizations that are authorized to export Russian weapon systems abroad:
Rosvooruzhenie, which sells new weapons; Promexport, which sells previously used weapons; and
Rossiiskiye Teknologii, which deals with exporting technical know-how.68 Of the three arms-exporting
organizations, Rosvooruzhenie is the dominant member of the troika.69 In 1999, Rosvooruzhenie was
responsible for 80% of Russian arms sales.70

Through the development of such new markets for its weaponry and the continued maintenance of its
older markets, Russian officials predict annual arms sales of over $5 billion in the near future-a more
than 25% increase from the fiscal 2000 projection, and a more than 75% increase from fiscal 1998.71

Russia, like the United States, France, and other countries, should be expected to compete vigorously in
the international arms market. Russia's sales cause concern, however, because of the sophistication of the
weaponry involved and the nature of many of the customers. Moscow has shown a willingness to sell
some of its most advanced weapon systems currently in mass production. Rosvooruzhenie has sold~or is
in the process of negotiating contracts for the sale of~such weapons systems as:

* Su-27 air-superiority fighters

* Su-30 multi-purpose fighters

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 * MiG-29SMT fighter-bombers

* MiG-31 interceptors

* Mi-17/171 transport helicopters

* Vympel R-77/RW-AE medium range air-to-air missiles

* Igla-1 man-portable surface-to-air missile launchers

* 3M82 Moskit surface-to-surface anti-ship missiles (designed solely to counter the U.S.
Navy's AEGIS system)

* Kh-35 Uran surface-to-surface anti-ship missiles

* T-90 main-battle tanks

In addition, Russia is exporting a multitude of other weapon systems, ranging from diesel attack
submarines to infantry-borne assault weapons. A number of these weapons are specifically designed to
destroy U.S. systems. In other instances-such as sales to both North and South Korea, and to both India
and the People's Republic of China-Russian exports effectively escalate ongoing arms races and are
destabilizing. Sales to Latin America (including sales of advanced aircraft to rival governments with
disputed borders) have similar effects.

AIR EXPORTS: Russia sold 50 Su-27 air-superiority fighter jets (left), 60 more advanced Su-30 MKK jets (right),
and the technology to produce unlimited quantities of both, to the People's Republic of China.

But it is the willingness of Russian officials to export advanced weapons to such "countries of concern"
as Iran, Iraq, Libya, North Korea, and Syria that is most troubling.72 (The Clinton administration's recent
decision to substitute the euphemism "countries of concern" for the accepted term "rogue states" is itself
a telling example of a penchant for elevating rhetoric over substance.) During the Cold War, these
nations were aligned with the Soviet Union, and large parts of their military arsenals are of Soviet origin.

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The 1992 decision by the Yeltsin administration to pursue a relationship with the United States signaled
a re-orientation of Russia away from such rogue states. Within the last three years, however, these
nations have all made significant purchases from Rosvooruzhenie.

Libya and Rosvooruzhenie are currently in negotiations to upgrade, modernize, and maintain the Soviet
technology that comprises the backbone of Libya's armed forces.73 Interfax reports that Russia is also
planning to sell several MiG-31s to Libya.74

Syria recently received a delivery of Su-27 fighters and T-90 main battle tanks, and is being re-armed
with Kornet-E and Metis-M man-portable, anti-tank missile systems. Syria is also negotiating the
purchase of the S-300 anti-aircraft missile system.75

Iran recently took delivery of an order of Russian Mi-171 naval transport helicopters.76 Russia also
recently granted Iran a license to mass-produce the 9M113 Konkurs anti-tank missile.77 In 1997 Russia
shipped its third Kilo-class diesel attack submarine to Iran, completing the contract for the sale of such
submarines that had been negotiated in the early 1990s.78

According to press reports earlier this year, Russia violated the U.N. arms embargo by arranging a $90
million contract between Belarus and Iraq. Under the agreement, Belarus will upgrade Iraqi SA-3
surface-to-air missiles, enhancing their range from 18 to 25 kilometers-thus enabling Iraq to target
American and British aircraft enforcing the no-fly zone. In addition, Belarus will overhaul Iraqi
anti-aircraft guns, train Iraqi air-defense crews, and perform heavy maintenance on Iraqi military aircraft.
The Russian government reportedly decided to arrange future arms deals with Iraq through such
intermediaries after international criticism of a secret $150 million contract which became public.79

K/LO-CLASS: Russia has sold K/to-class attack submarines (above) to India, Iran, and the People's Republic of
China.

The Failure of the Clinton-Gore Proliferation Policy

With Yeltsin's departure, Russia's official position on proliferation has taken a turn for the worse. The
Russian media reported on May 11,2000, that Vladimir Putin had amended Yeltsin's 1992 presidential
decree limiting Russia's nuclear assistance to other countries. Putin's amendments allow sales of nuclear
technologies and materials to countries whose nuclear programs are not fully monitored by the
International Atomic Energy Agency, including Iran and North Korea.80 While the new policy is
nominally limited to "exceptional cases," one Russian Atomic Energy Ministry spokesman noted that it
will "considerably expand" the scope of Russian export of nuclear technologies and materials. 81

Concurrently, Rosvooruzhenie announced in June 2000 its intention to boost arms exports to between
$10 billion and $12 billion over the next several years. In conjunction with that announcement, the

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Russian government declared that Russia would become the second largest exporter of munitions in the
world.82

The growing Russian proliferation of advanced weaponry and technology, especially weapons of mass
destruction, has created significant new risks for U.S. national security.

In spite of evidence that both Russian government agencies and private entities were directly involved in
proliferation to such states as Iran and Iraq, the Clinton administration continued to rely on personal
assurances from its small cadre of contacts in the Russian government that it was not "official Russian
policy" to do so.83 Administration officials-including Vice President Gore and Deputy Secretary of
State Talbott-accepted these assurances despite clear evidence of continued proliferation, rather than
believe, or admit, that proliferation could continue despite the stated opposition of their "partners."

More basically, the failure of the Clinton administration's economic strategy for Russia undermined its
muted efforts to stem proliferation, both by preventing the redeployment of the military-industrial
complex's assets to other uses and by creating strong incentives for those with access to such
assets-ranging from individual soldiers and scientists to ministries and the central government itself-to
sell them. Russian economic distress provided every incentive for scientists used to a privileged
existence in Soviet times to auction their expertise; for organized crime to cash in on Russia's most
valuable illicit export opportunities; and for Russian officials to sell almost anything they could, either
for their own personal gain or to assist the entities they managed. 84

Finally, the increasingly anti-American perspective adopted by the Russian government over the course
of the Clinton administration has promoted a wide range of proliferation activities.

Many of the most dramatic and important cases of proliferation, such as the provision of nuclear and
missile technology to Iran, are the result of all three of these factors-economics, policy, and the absence
of effective countervailing pressure from the Clinton administration.

Narrowly targeted Clinton administration anti-proliferation initiatives have been mere candles in the
winds of Russia's economic storm. The Clinton policy has been utterly ineffective in overcoming the
powerful incentives for Russian proliferation that were created by Russia's economic collapse and by the
Russian government's increasingly hostile outlook toward America. The free ride offered by the Clinton
administration~an arrangement in which aid was guaranteed, intelligence was ignored, and sanctions
were an idle threat-has led to a manifest failure to stem the rising tide of Russian proliferation.

CHAPTER 10

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 FROM FRIENDSHIP TO
COLD PEACE: THE
DECLINE OF U.S.-RUSSIA
RELATIONS DURING THE
1990s

PUTIN IN THE STALINIST CAPITAL: President Putin greets North

Korea's dictator Kim Jong-Il at their July 20,2000, summit in Pyongyang. This
was the first time any Russian or Soviet leader travelled to the Stalinist
state-not even Brezhnev went to North Korea. North Korea has recently
threatened to "plunge the damned U.S. territory into a sea of flame," a threat
more likely to materialize with outside support. In February 2000, Putin and
Kim Jong-Il concluded a Russia-North Korea Treaty of Friendship, reviving
ties scrapped by Yeltsin. Itar-TASS photo/Sergei VelicWdn, Vladimir Rodionov

Russia will strive toward the stable development of relations

with the United States, with a view toward
strategic partnership and, in the future, toward alliance.

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 Foreign Policy Concept of the Russian Federation, January 25,1993

Certain plans relating to establishing new, equitable and mutually

advantageous partnership relations ofRussia with the rest of the
world,
as was assumed in the [1993 Foreign Policy Concept] and in other
documents, have not been justified.

Foreign Policy Concept of the Russian Federation, June 28, 2000

Russia's Enduring Significance

Although Russia is not a superpower with military and political ambitions on every continent as the
Soviet Union was, U.S. relations with Russia remain of supreme national importance. Russia possesses
by far the largest nuclear arsenal in the world, 1 and a military-technological base second only to that of
the United States. Russia possesses vast economic potential, with a large and well-educated population
and a staggering array of natural resources, including more than a third of the world's natural gas
reserves.2

As a permanent member of the U.N. Security Council, Russia retains a veto over the actions of an
organization to which the Clinton administration's multilateralism has often assigned a pivotal role in
international affairs. And Russia profoundly influences vast areas of Europe, the Middle East, and the
Far East-all regions of vital interest to the United States.

Russia matters immensely to American interests on virtually every continent, and especially across the
critical Eurasian landmass that has been the scene of both world wars. As the noted Russia scholar James
Billington, the Librarian of Congress, has written, "[b]oth the greatest opportunity and the greatest
danger for the United States internationally may well still lie in Russia."3 The success of U.S. policy
toward Russia is accordingly of supreme importance to the American people and the world.4

A 'Lost' Russia?
Ever since the Clinton troika's Russia policy began to fail visibly in the mid-1990s, the administration
has responded by emphasizing both the limitations of U.S. influence in Russia and the still uncertain
outcome of Russia's transformation. Secretary of State Albright has made the administration's case
succinctly: "The suggestion made by some that Russia is ours to lose is arrogant; the suggestion that
Russia is lost is simply wrong. "5

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If Russia is not yet "lost," it is indisputably more unstable, more corrupt, more lawless, and vastly more
hostile to the United States than it was when President Clinton and Vice President Gore took office. And
though Russia is certainly not "ours to lose," the United States-particularly at the outset of this
administration—possessed immense influence over a wide range of decisions and events there. President
Clinton inherited an immense reservoir of goodwill and prestige in Russia, making America's
imprimatur quite valuable for Russian politicians and policy makers. In addition, the Clinton
administration possessed—and has not hesitated to use—immense financial leverage over the Russian
government by virtue of the more than $20 billion in U.S. assistance it has provided, and the many
billions of dollars more in international aid it has orchestrated. 6

The aspects of Russia most subject to American influence, and for which the Clinton administration
should therefore be held most strictly accountable, are the prestige within Russia of American values,
and the state of the U.S.-Russian relationship.

DEFENSE COOPERATION: At their June 1992 summit, Presidents Bush and Yeltsin followed up on Yeltsin's
January 1992 suggestion and agreed to work on a global missile defense system. In July 1992, Itar-TASS
published a joint U.S.-Russian statement, which called for "the working out of a legal basis for cooperation,
including new treaties and agreements and possible changes in the existing agreements required for the
implementation of the global antiballistic missile system." The talks went well, and weeks after Clinton's election,
on Nov. 30,1992, Itar-TASS reported that Russia was considering "the necessary changes in the ABM Treaty of
1972 to take account of the spread of ballistic missiles and weapons of mass destruction." Instead of following up
on the proposal, the Clinton administration precipitously broke off the negotiations. It followed up with a February
1993 budget that cut the Bush proposal for missile defense by 40%. AP Photo/Dennis Cook

Russian Perceptions of America Today

The current unfavorable state of U.S.-Russian relations accurately reflects the sea change in Russian
perceptions of the United States that has occurred under the Clinton administration. This change in
Russian perceptions of the United States-more than any particular development in the Russian
government-is the most damaging legacy of the Clinton-Gore Russia policy.

Polling conducted by the State Department's Office of Research has charted a steep, steady decline in
favorable opinion of the United States-from over 70% in 1993 to 65% in 1995 to 54% in 19997 to 37%
in February 2000.8 During this period President Clinton himself has become second in unpopularity
among Russians only to Saddam Hussein.9

James Billington, the Librarian of Congress, testified before the Advisory Group that for the first time,
even ordinary Russians are now working up hostility toward the United States~a phenomenon decades
of Soviet propaganda had been unable to achieve during the Cold War. 10

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These trends are longstanding, and are steadily worsening. Whereas in April 1995, some 61% of
Russians believed that the United States sought world domination (versus 24% who disagreed), by
February 2000 a staggering 85% believed it (compared to just 6% who did not).l 1 The number of
Russians who agreed that the U.S. was using Russia's current weakness to reduce it to a second-rate
power and producer of raw materials climbed from 59% in August 1995 to 71% in April 1997 to 81% in
February 2000.12

When the State Department polled the 75% of Russians who say they follow international affairs to
some degree, more than twice as many expressed an unfavorable view of U.S. foreign policy as
expressed a favorable view (46% vs. 19%). 13

In Russian eyes, America's relations with Russia have also declined relative to many other countries.
When Russians who follow international affairs were asked to evaluate Russia's relations with other
countries as "friendly" or "difficult," 9% judged relations with the People's Republic of China difficult,
and 52% judged them friendly. Some 16% judged relations with Germany difficult, versus 41% friendly;
18% judged relations with Japan difficult, versus 39% friendly. But Russians judged relations with the
United States to be difficult, rather than friendly, by more than two-to-one. Of the nations surveyed, only
Estonia fared worse than the United States, and Estonia's relations with Russia are currently in a
well-publicized crisis. 14

Perhaps most troubling, young people~the 18-35 generation least touched by Soviet-era thinking and the
most open to westernization~now largely share the average Russian's unfavorable perception of
America: in an April 1999 poll, 67% of this age cohort had a negative view of the United States, versus
18% who had a positive view. 15

The extraordinarily favorable view of the United States that most Russians held in 1993 has given way
to a pervasive, largely spontaneous hostility and suspicion. 16 That this should occur during a period of
profound peace between the two countries was, at the outset of the Clinton and Yeltsin administrations,
neither inevitable nor even imaginable.

The sources of this collapse in American prestige have been much debated. Some have attributed it to
NATO enlargement and American efforts to build ballistic missile defense, despite consistent polling
evidence that these issues are largely irrelevant to the vast majority of Russians. Others have attributed it
to the NATO intervention in Kosovo, an event with much greater resonance for ordinary Russians; but in
fact the polling data show that much of the collapse in support for America occurred before Kosovo.

The explanation most strongly supported by polling data and other evidence is that Russian public
opinion was and is overwhelmingly focused on the social and economic situation in Russia, and that the
Clinton administration's embrace of unsuccessful domestic "reforms" and "reformers" disastrously
tarnished the image of the United States. As Paula Dobriansky of the Council on Foreign Relations
recently wrote:

A careful examination of the evolution of U.S.-Russian relations demonstrates that a

long-term negative trend has been underway for years and that the Kosovo conflict, far from
being its sole or even major cause, has merely helped to highlight much more fundamental,
long-term problems.... [M]ore than any other traditional international-related factor, it is the
dismal failure of Russia's economic and political reforms, as perceived by the Russian
people, that has been responsible for the palpable worsening of U.S .-Russian relations. 17

The collapse in American prestige among virtually every segment of Russian society is striking evidence

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of the bankruptcy of the Clinton administration's Russia policy. It represents a disaster of immeasurable
significance for American foreign policy and for the future of America itself. It will render far more
difficult every aspect of U.S. policy toward Russia, including the creation of a more broadly-based
relationship extending beyond the narrow set of official interlocutors favored by the Clinton
administration.

When the United States again seeks to engage a broader cross-section of Russian government and
society~an enterprise endorsed by the vast majority of observers-the diffusion of suspicion and dislike
for America that the Clinton policies over the past eight years have engendered will vastly complicate
those efforts.

The 'Moscow Consensus'

The highly negative perceptions of the United States among ordinary Russians are consistent with the
climate of elite opinion in Russia. Just as the Clinton administration's economic thinking about Russia
coalesced early on into the so-called "Washington Consensus," so too Russian strategic and foreign
policy thinking about the United States has coalesced into a "Moscow Consensus"~a point of view that
largely unites not only Russia's foreign policy and defense establishments, but also Russia's entire
political elite. It is a set of perceptions that commands solid assent from nearly every sector and level of
Russian society.

This "Moscow Consensus" was visible in the Advisory Group's meetings with Russian executive branch
officials and Duma Deputies in Washington and Moscow, in polling of the Russian elite, in general
public opinion polling, and in Russian official and scholarly commentary on international affairs and the
West. 18 As Peter Rodman testified on July 16,1998, (before the further downturn in U.S.-Russian
relations occasioned by U.S. bombing against Iraq and Serbia, and renewed fighting in Chechnya):

It is not just a question of personalities. It is hard to detect significant differences of

perception between [then-Foreign Minister Yevgeny] Primakov and President Boris
Yeltsin-or, indeed, among members of the Russian foreign policy elite.... The guiding
principle of Russian foreign policy today is to preserve Russia's independence and freedom
of action-meaning, in practice, its independence from us. In a "unipolar" world celebrated
by some Americans, Russia sees its prime goal as restoring some "multipolarity" to the
international system-that is, to build counterweights against American dominance. 19

The Moscow Consensus represents the mainstream acceptance of the policy views of Russia's military,
security, and foreign policy establishments, whose highest reaches possess a largely unreconstructed
Soviet-era view of the United States.20 To give only a few examples illustrating this Russian thinking:

* On October 1,1999, the respected, centrist military analyst Lev Volkov gave the
following analysis of American intentions:

[J]ust slightly more than one-tenth of the developed countries use almost 80%
of the world's resources.... Consequently, in the 21st Century, the fiercest of
battles will take place for the possession of the resources the developed
countries so desperately need. Besides this, up to 30% of the world's natural
resources are concentrated in our country. Therefore, the U.S. and the West

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 need a weak, fragmented Russia as a source of inexpensive raw materials. In
this way, we have something to defend and it is clear from whom.21

* Alexei Arbatov, Deputy Chairman of the Duma's Defense Committee and a respected,
well-informed liberal, described the START II debate on May 9,2000:

START II was ratified in Russia by the Russian Parliament not because

Russians think that the threat is lower, not because Russians think that nuclear
weapons are less relevant, nor because the Russian Parliament and public think
that the United States will be a partner for cooperation and security. START II
was primarily ratified because the Russian public and political elite think that
the nuclear threat is great, that the United States is keen on achieving
superiority, and that nuclear weapons are still as relevant as ever for Russian
security and U.S.-Russian relations.... The fear of American nuclear superiority
and the fear of the United States [were] the principal motive for many Members
of Parliament to vote for START 11.22

* A further window into Russian perceptions of American policy is offered by the

extraordinary episode of January 25,1995. At a time of significantly lower tensions in
U.S.-Russian relations, the Russian government nonetheless suspected that a scientific
satellite launch in Norway could be a missile carrying an electromagnetic pulse warhead~a
weapon designed to disable a nation's military command and control, rendering the country
susceptible to a follow-on nuclear first strike.

As a result, the government in Moscow "for the first time in Russian history triggered a
strategic alert of their LOW forces, an emergency nuclear decision conference involving
[President Yeltsin] and other national command authorities, and the activation of their
famous nuclear suitcases. "23 The entire incident was a misreading of the Clinton
administration's intentions so staggering as to suggest the need for a basic reassessment of
the Russian official view of the United States.24

Despite extraordinary budget constraints and economic hardship, the Russian government
has devoted immense resources to the construction of massive underground headquarters
facilities designed to wage and survive nuclear war at such sites as Yamantau and
Kozvinsky Mountains in the Urals. Construction of the Yamantau Mountain facility,
initiated by the Soviet Union during the depths of the Cold War, was accelerated by the
Russian Federation during the 1990s so that, by 1998, it reportedly involved some 20,000
workers. The underground facilities under construction cover a territory as large as the
entire Washington, D.C. area inside the Beltway.

In April 1997 it was publicly reported that the CIA attributed the decision to build and
restore these sites, and four others in the Moscow area, to Prime Minister Viktor
Chernomyrdin. One of the Moscow projects reportedly involved a subway line to President
Yeltsin's dacha 13 miles outside the city25~suggesting that the projects enjoyed the support
not just of the defense establishment but of the civilian leadership as well. The fact that the
Russian civilian and military leadership feels that these facilities are a worthwhile use of
scarce resources shows a concern over the possibility of war with America that is
extraordinarily troubling.26

* During the crisis in U.S.-Iraqi relations in 1998, on the same day that President Yeltsin

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 warned that U.S. missile strikes on Iraq could cause a third world war, the Russian Embassy
demarched the U.S. government to demand a guarantee that the United States would not use
nuclear weapons against Iraq. As Chairman Curt Weldon has written, "the Russian
assumption that the United States was prepared to act so precipitously with nuclear weapons
betrays a paranoia or ignorance of the character of the United States that is alarming in the
Russian nuclear superpower that is supposed to be our strategic partner. "27

* In October 1995 the Russian semi-official Institute of Defense Studies (INOBIS) provided
the following assessment of U.S. policy:

On the whole, it appears the principal mission of U.S. and Western policy with
respect to Russia is to keep it from turning into an economically, politically,
and militarily influential force and to transform post-Soviet space into an
economic and political appendage and raw materials colony of the West.
Because of this, it is the United States and its allies that are the sources of main
external threats to Russia's national security, and they should be considered the
principal potential enemies of the Russian Federation.... The line of the United
States and its allies toward intervening in Russia's internal affairs to impose on
it paths of development in a direction favorable to the West represents the
greatest danger.28

The evolution of Russia's official views of the United States is traceable in the successive iterations of
the state papers defining Russia's foreign policy and defense doctrines. The decline in U.S.-Russian
relations is clearly visible when the 1993 and 2000 versions of the Foreign Policy Concept of the
Russian Federation are compared. In the January 25,1993, version of the Concept, the relationship
between Russia and the United States is discussed at length. Although qualified by expressions of
concern over various aspects of U.S. policy,29 the 1993 Foreign Policy Concept states unequivocally
that:

[R]elying on the existing agreements in the military-political and financial-economic

spheres, Russia will strive toward the stable development of relations with the United
States, with a view toward strategic partnership and, in the future, toward alliance.... In the
sphere of security, the main trait of the new partnership is the transition to cooperation at the
level of military planning and military construction. 30

Concerning U.S.-Russia relations, the 1993 Foreign Policy Concept of the Russian Federation stated
that:

For the foreseeable future, relations with the United States will retain a prominent place on
the scale of Russia's foreign policy priorities, corresponding to the position and weight of
the United States in world affairs. The development of full-fledged relations with the United
States is capable of facilitating the creation of a favorable foreign environment for the
implementation of domestic economic reforms in Russia.31

Eight years later, not a trace of this tone or policy remains. The revised Foreign Policy Concept of the
Russian Federation, approved by President Vladimir Putin on June 28,2000, unmistakably repudiates
the very idea of "partnership" implicit in the 1993 version-and the rhetoric of the Clinton
administration.

Along with certain strengthening of the international positions of the Russian Federation,

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 negative tendencies are in evidence as well. Certain plans relating to establishing new,
equitable and mutually advantageous partnership relations ofRussia with the rest of the
world, as was assumed in the [1993 Foreign Policy Concept] and in other documents, have
not beenjustified.32

The new Foreign Policy Concept of the Russian Federation reflects a completely different view of
American power, listing first among "new challenges and threats to the national interests of Russia":

... a growing trend towards the establishment of a unipolar structure of the world with the
economic and power domination of the United States.... The strategy of unilateral actions
can destabilize the international situation, provoke tensions and the arms race, [and]
aggravate international contradictions, national and religious strife.... Russia shall seek to
achieve a multi-polar system of international relations. ...33

Interspersed between lengthy and comparatively favorable assessments of European34 and Asian35
relations are two cold paragraphs on a Russian-American "strategic partnership" that has been reduced to
mere "necessary interaction":

The Russian Federation is prepared to overcome considerable latter-day difficulties in

relations with the U.S., and to preserve the infrastructure of Russian-American cooperation,
which has been created over almost 10 years. Despite the presence of serious, and in a
number of cases fundamental, differences, Russian-American interaction is the necessary
condition for the amelioration of the international situation and achievement of global
strategic stability.

Above all, this concerns problems of disarmament, arms control, and non-proliferation of
weapons of mass destruction, as well as prevention and settlement of the more dangerous
regional conflicts. It is only through an active dialogue with the U.S. that the issues of
limitation and reduction of strategic nuclear weapons may be resolved. It is in our mutual
interest to maintain regular bilateral contacts at all levels, not allowing pauses in relations
and setback in the negotiating processes on the main political, military, and economic
matters.36

In the revised version, relations with the United States are reduced to the Cold War agenda of security
issues and negotiations-an agenda on which other portions of the document lay out positions largely at
odds with the United States, apparently presaging a reprise of Cold War deadlocks. Likewise
disconcerting is the fact that this passage appears to be aimed at least equally at persuading a dubious
domestic audience of the need for "regular bilateral contact at all levels"~a staggering state of affairs for
a relationship that the Clinton administration built entirely around the personal contacts between Vice
President Gore, Strobe Talbott, Lawrence Summers, and their handful of Russian counterparts.

A similar decline is apparent in comparing Russia's December 1997 Russian Federation National
Security Blueprint with its recently revised version.37 The 1997 document, although approved by
Yeltsin after years of development over a period of sharply increased tension with the United States,
included relatively little that is specific to the United States. Its survey of "Threats to the National
Security of the Russian Federation" was dominated by internal factors, and the discussion of NATO
enlargement (described as creating "the threat of a split in the continent that would be extremely
dangerous") was relatively restrained. It concluded that:

the main [threats] right now and in the foreseeable future do not have a military orientation

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 and are of a predominantly internal nature.... The development of qualitatively new
relations with the world's leading states and the virtual absence of the threat of large-scale
aggression against Russia while its nuclear deterrent potential is preserved make it possible
to redistribute the resources of the state and society to resolve acute domestic problems on a
priority basis.3 8

In foreign policy, it promoted "constructive partnership with the United States, the EU, China, Japan,
India, and other states."39

The revised Russian Federation National Security Concept approved by the Russian National Security
Council on October 5,1999, by contrast, opens with a stark dichotomy between "mutually exclusive
tendencies toward forming a multipolar world and toward establishing the domination of one country or
group of countries in world affairs"~specifically "the domination of developed Western countries in the
international community (with U.S. leadership) calculated for unilateral (including military-force)
solutions to key problems of world politics in circumvention of fundamental rules of international law."

STATESMAN-LIKE ADVICE: Former Secretary of State Henry Kissinger testifies in support of NATO
enlargement before the Senate Foreign Relations Committee Oct. 30,1997. Secretary Kissinger strongly opposed
both the Clinton administration's "Founding Act" and its "Partnership for Peace" program as undermining the
Atlantic Alliance, and testified that the Clinton administration "has embraced the proposition rejected by all its
predecessors over the last 40 years-that NATO is a potential threat to Russia." He dismissed the argument that
the Founding Act was non-binding as one that "may carry weight in law schools [but is] irrelevant to the diplomacy
that will result from an instrument signed by 17 heads of state and ratified by the Russian Duma." AP Photo/W.
Douglas Graham/Congressional Quarterly

The 1999 National Security Concept rejected the earlier view that Russia faced no external military
threat, instead stating that the totality of external threats "can present a threat to Russia's sovereignty and
territorial integrity, including the possibility of direct military aggression against Russia." Of the eight
external threats enumerated, three are clearly related to U.S. policy and another two may refer to it
indirectly.40 Senior Russian officers also made it unambiguous that the source of the "external threat"
was the United States and NATO.41

The decline in U.S.-Russia relations that these doctrines memorialize did not occur overnight, and no

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single factor or event transformed Russia's relationship with the United States. Rather, a whole series of
policy mistakes, often but not exclusively made in Washington, produced the current crisis in U.S.
relations with Russia.

Mishandling NATO Enlargement

Some observers attribute part of the decline in U.S.-Russian relations and the concurrent Sino-Russian
rapprochement to the enlargement of NATO, and from this premise draw the conclusion that NATO
enlargement was a mistake. Little evidence supports either the premise or the conclusion. NATO
enlargement is not a highly salient issue for the Russian general public.42 Russian elite and official
opinion, though hostile to NATO enlargement, has consistently attached greater importance to other
foreign policy issues and, most particularly, to domestic economic and social issues. The flaw in the
Clinton administration's NATO policy, and the principal source of damage to U.S.-Russian relations
attributable to NATO enlargement, was the administration's protracted obstruction of NATO
enlargement.

Initial Clinton administration opposition to NATO enlargement was followed by a belated embrace of a
phased enlargement, to be drawn out over more than a decade. This approach completely missed the
early window of opportunity to comprehensively enlarge NATO without serious or lasting damage to
U.S.-Russian relations. As late as the August 25,1993, summit between President Yeltsin and Polish
President Lech Walesa in Warsaw, the joint statement issued by the leaders expressed Russia's
"understanding" of Poland's desire to accede to NATO. Indeed, Yeltsin subsequently was publicly and
privately criticized for this in Russia, and as a result later suggested joint NATO-Russian security
guarantees for the Central European states.43

The solution to the political problem caused within Russia by NATO enlargement was to localize it in
time, rather than protracting Russia's discomfiture over more than a decade or buying off Russia with
implicit promises of power-sharing that NATO ultimately had no intention of honoring. But key figures
in the Clinton administration were ambivalent towards NATO itself, much less NATO enlargement.

This was especially true of one of the Clinton troika, Strobe Talbott. Even before the end of the Soviet
Union, in 1990, Talbott wrote that "[i]t... is time to think seriously about eventually retiring the North
Atlantic Treaty Organization, with honor, to be sure, but without too much nostalgia.... NATO is at best
a stopgap until something more up-to-date and effective can be devised to take its place. "44

Not surprisingly, given such deep-seeded doubts, the Clinton administration moved with excruciating
slowness-only proposing the generic concept of NATO enlargement after Clinton had been in office for
a full year. At the January 1994 NATO summit, the Clinton administration proposed the NATO
halfway-house Partnership for Peace program (largely to paper over a lack of consensus on the pace and
scope of NATO enlargement itself).45 After a further 12-month delay, at a December 1994 ministerial
meeting, they proposed criteria for NATO admission (but not actual candidates).

Criteria for admission were not formalized until September 20,1995. The proposed admission of new
members by 1999 did not occur until October 22,1996; naming the Czech Republic, Hungary, and
Poland as the American candidates for admission took until June 12,1997 (the nominations were ratified
at NATO's Madrid summit on July 8,1997). The formal admission of the three states to NATO did not
take place until March 12,1999-nearly a decade after the fall of the Berlin Wall.

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The grandiose NATO 50th anniversary summit in Washington on April 23-25,1999, brought no
substantive progress towards further enlarging the alliance, or even better articulating the process and
criteria for membership. On June 30,1999, Defense Secretary William Cohen stated that while NATO's
"door is open," it was "at the top of a steep stairwell."46 The Clinton administration's mantra for NATO
enlargement-that it would be "gradual, deliberate, and transparent"~has translated into a process that
promises to extend well into the 21st century.

Throughout the process, the Clinton administration also repeatedly diluted the effectiveness of NATO's
security guarantee to new member-states and distorted the fundamental structure of the alliance itself in
an attempt to appease the Russian opposition exacerbated by its own delays. Despite lip service to the
proposition that "[a]ll members, regardless of size, strength or location, should be full members of the
Alliance, with equal rights and obligations, "47 on December 10,1996, NATO formally announced that
it had "no intention, no plan, and no reason to deploy nuclear weapons on the territory of new members.

On September 6,1996, Secretary of State Warren Christopher endorsed a French proposal to create a
joint NATO-Russian "charter." On May 27,1997, Russia and NATO, with the Clinton administration's
strong encouragement, agreed to the "Founding Act"~a much different document creating a
NATO-Russia Permanent Joint Council, and codifying the December 1996 nuclear non-deployment
pledge. The Founding Act also added a further pledge that "in the current and foreseeable security
environment," NATO would not station "substantial combat forces" on the territory of new
member-states.48

The Founding Act is a particularly egregious example of the disingenuousness of the Clinton
administration's approach to foreign policy in general, and Russia policy in particular. After having
heightened the difficulty of NATO enlargement by protracting the process through the entirety of
Clinton's and Yeltsin's first terms, and with no end to the process in sight, the administration was bent on
solving the problems its delays had created by securing Russian assent to the first round of NATO
enlargement. Its method of squaring this circle was the Founding Act, a nebulous document designed to
mean different things to Russian, Central European, and NATO audiences.

The Founding Act was signed in May 1997 by seventeen heads of state in a blaze of trademark Clinton
showmanship in the Salle des Fetes of the Elysee Palace. At root, the Founding Act was an attempt to
paper over profound substantive differences, including over such issues as Bosnia and the expanding
crisis in the Balkans. Instead of hammering out substantive agreements, the Clinton administration
created an open-ended negotiating process.

The ambiguity of the Act led President Yeltsin to claim plausibly that it gave Russia a virtual veto over
NATO operations, saying that "[s]hould Russia be against any decision, the decision will not pass. "49
Administration spokesmen from the president down claimed that it gave Russia "a voice, not a veto" in
NATO decision-making and a veto only over joint NATO-Russian actions.50 As Dimitri Simes has
argued:

[Interpretations of the agreement in Washington and Moscow were clearly vastly

different~and each interpretation was bound to cause serious problems. If the Russian
interpretation had been followed, Moscow would have gained a de facto veto over NATO
actions. Conversely, if the Clinton administration's interpretation was followed~as
happened~it was almost inevitable that Russia would feel misled by false promises of a
genuine role in NATO deliberations.51

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The Clinton administration continued its delaying tactics at the 1998 Madrid summit. It vetoed a French
proposal to admit Romania, and an Italian proposal to admit Slovenia, despite the support of most
NATO allies for a broader enlargement. The administration's unwillingness to go forward was
apparently motivated at least in part by fear that admitting Romania and Slovenia in the first round
would increase pressure for admission of the Baltic states in the second round.

Predictably, neither the delaying tactics of the Clinton administration nor the Founding Act appeased
Russia. By late 1996, a resolution opposing NATO enlargement had already passed the Duma by a vote
of 307-0. The subsequent studied ambiguity of the Founding Act led to a fundamental breach between
NATO and Russia within less than two years, as NATO decided to intervene in Kosovo. Russian
expectations of decisional partnership (which the Clinton administration had dishonestly encouraged in
order to finesse its way through the 1997 enlargement round) were abruptly dashed in the 1999 dispute
over Kosovo. Russian disillusionment with the United States was far deeper than if no such ambiguous
promises had ever been tendered in the first place.

It is unclear what strategy the Clinton administration may now develop to reconcile Russia to subsequent
rounds of enlargement, which administration spokesmen describe as "inevitable."

Amputation One Inch at a Time

Protracting NATO enlargement over the course of more than a decade in a perversely counterproductive
effort to assuage Russian official opinion has been justly compared to amputating a limb one inch at a
time, with the goal of diminishing the patient's suffering. As a result of this temporizing, NATO
enlargement became an issue in the 1996 Russian presidential race, and will be a continuing irritant in
U.S.-Russian relations as each cycle of enlargement occurs.

The fundamental flaw in the Clinton administration's approach was the assumption that the issue was
critical to U.S.-Russian relations and, still more, to the fate of Russia's internal reforms. As former
Under Secretary of State Robert Zoellick testified in April 1995:

I am skeptical that the fate of Russia's reform depends on whether NATO expands.... In
addition, given the great uncertainties about Russia's political future, it would be a mistake
to try to fine tune our policies to suit the twists and turns of Russia's internal debates. It
certainly should not be surprising that Yeltsin, Kozyrev and others have toughened their
rhetoric about NATO expansion as the U.S. and others have signaled their uncertainty....
[I]f we back down, the next time the hard-liners have a contest with moderate Russians, the
hard-liners will be able to argue that sternness with the West pays off. 52

NATO Enlargement Without Threatening Russia: What Could Have Been

From the earliest days after the end of the Soviet Union, Republican leaders in both houses of Congress
made NATO enlargement a central foreign policy initiative. Over Clinton administration opposition and
delays, legislation to promote NATO expansion was repeatedly advanced in Congress.53

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These bills in their totality represent a sharp rebuke of the Clinton administration policy of
lengthily-phased enlargement, unequal security treatment for new members, and inclusion of the Joint
Council in alliance decision making. The Clinton administration vigorously opposed most of these
legislative initiatives, although it was unable to prevent a number of them from becoming law.

Congress' approach, unlike the Clinton administration's, has been rooted in the understanding that
NATO enlargement, like the creation of NATO in 1949, is fundamentally defensive in nature. It is a
reaction to the fundamental imbalance of power between Russia and its neighbors, either individually or
in combination—an age-old reality reflected in Romanov dominion over Poland, the Baltic nations,
Finland, Belarus, and Ukraine in the 18th and 19th centuries, and Moscow's sway over the still vaster
imperium of the Soviet Union and Warsaw Pact in the 20th century. This tragic history entitles these
peoples to insurance against the possibility of renewed Russian domination. 54

In addition, just as NATO proved essential to fostering democracy and the rule of law in Germany, Italy,
Portugal, Spain, Greece, and Turkey, so too NATO membership will promote those values and the
stability that flows from them in Central European countries struggling to revive or create free markets
and democracy after decades of Communist autocracy.

And just as NATO membership helped abate the rivalry between France and Germany and contain
disputes between Greece and Turkey, so too NATO membership will help diminish long-standing
animosities between the nations of Central Europe. The mere prospect of NATO membership helped
promote settlement of issues predating World War II between Germany and the Czech Republic, and led
Hungary and Romania to resolve centuries-old territorial disputes. These goals—of independence,
democracy, stability, and reconciliation in Central Europe-are as much in Russia's interest as they are in
America's.

Moreover, the achievement of these goals through NATO enlargement involves no objective threat to
Russia itself55~particularly in light of the Clinton administration's avowal that it has no intention of
pre-positioning nuclear weapons, NATO forces, or military infrastructure in the new members. The
indigenous military capabilities of the Central European new and candidate members, either singly or in
combination, present no objective threat to Russia.56

The Failure of Economic 'Reform' and the Decline of U.S.-Russian Relations

The fundamental cause of worsening U.S.-Russian relations in the early years of the Clinton
administration was the tectonic shift in Russian domestic politics in this period, and the close association
of the United States with individuals and policies that were discredited by it.

Russian faith in democracy, free enterprise, and "reform" suffered hammer blows in the years from 1993
to 1996. This period withstood the shattering confrontation between Yeltsin and the legislature in
October 1993; the electoral success of nationalist extremists like Zhirinovsky in the December 1993
elections to the Duma; the bloody and disastrous first Chechen war beginning in December 1994; the
"loans-for-shares" privatization fiasco in 1995-96, which ordinary Russians perceived as a witches'
sabbath of corruption and theft orchestrated by Washington; the 1995 Duma elections, which returned an
entrenched Communist-led bloc bent on thwarting reform; and the 1996 flood of IMF money into the
hands of Russia's unpopular semibankirshchina--the so-called "Rule of the Seven Bankers" whom
oligarch Boris Berezovsky had said owned half of Russia.57

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Because the United States was inextricably associated with both the "reformers" and their "reforms,"
these events cumulatively had a disastrous effect on the public and elite perception of the United States.
The result was a climate of opinion in which both Communists and "reformers" profited from attacking
the United States, from making common cause with the Communist government of the People's
Republic of China, and from embracing American opponents such as Iran and Iraq. For many Russian
ideologues, these attacks were a matter of conviction; for many embattled "reformers" from Yeltsin on
down, they became a comparatively inexpensive expedient to appease critical public opinion without
tampering with more important domestic priorities-such as the "loans-for-shares" insider privatization
program.58

At critical junctures such as the October 1993 confrontation with parliament, and the run-up to the 1996
presidential election (when Yeltsin reportedly contemplated canceling balloting to prevent his potential
defeat) Yeltsin became far more dependent on the military and security services. He was consequently
far more susceptible to their policy agenda of opposition to the United States-particularly since he was
unable to satisfy their highest priority, increased funding. Just as he did in his relations with the Duma,
Yeltsin was able to use anti-American foreign policy stances as a relatively inexpensive sop to the
"power ministries"—defense, interior, the security services, and atomic energy.

As internal Russian economic, political, and social developments accelerated Moscow's turn away from
Washington and toward U.S. rivals, the Clinton administration clung even more desperately to its habit
of dealing exclusively with the handful of Russian executive branch officials, such as Yeltsin,
Chernomyrdin, and Deputy Prime Minister Anatoly Chubais, who would assure them personally that
everything was going smoothly. This had the effect of inextricably associating the United States and
American values with politicians who were rapidly becoming among the most unpopular figures in
Russia—further worsening America's precipitous fall from favor among both Russian elites and the
Russian public.

Similarly, the Clinton administration continued to link itself with successive flawed reform plans that it
produced in collaboration with its circle of Russian partners. When both the "reformers" and their
"reforms" became discredited and unpopular, it was predictable that their foreign patron, the United
States, would become discredited and unpopular as well.

Kosovo
Operation Allied Force, the 1999 air campaign triggered by the Milosevic government's repugnant
campaign of ethnic cleansing in Kosovo, powerfully reinforced the negative view of the United States
held by Russian public opinion at every level.59 The initially one-sided press coverage of the 89-day
NATO air campaign against Serbia quickly deepened animus towards the West.60 A poll released April
1,1999, reflected 92% Russian public disapproval of the NATO airstrikes;61 in another poll, 65%
believed that NATO was the aggressor.62 Indeed, President Yeltsin's own strident reactions may have
been colored in part by the need to court inflamed public opinion: the main proponents of the
then-pending impeachment proceedings against him in the Duma were nationalists vehemently opposed
to NATO's actions.63

The Russian government was infuriated by the betrayal of its reading of the NATO-Russian Founding
Act. The Clinton administration's willingness to conclude this fundamentally ambiguous agreement in

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1997 was thus proved early on to have been a costly error. Moscow was not only upset by the process of
taking NATO action without Russia's consent. The Russian government also feared that the policy of
NATO military action for reasons other than responding to an attack on NATO, and without U.N.
sponsorship, might be a precedent for future NATO action in Chechnya.

This, too, was an example of the high cost of the Clinton administration's disingenuous statements.
Russia took the Clinton administration's sweeping human rights rhetoric more seriously than did the
administration itself, which had largely ignored Russian atrocities in Chechnya in 1994-96, and would
make no effectual protests later in 1999, when Russian troops began their brutal second assault.

Moscow took drastic steps to underline its displeasure. In March 1999, because of impending NATO
airstrikes in Yugoslavia, then-Prime Minister Primakov abruptly canceled his visit to the United States,
literally turning his airplane around in mid-air en route to a scheduled meeting of the Gore-Primakov
Commission. President Yeltsin subsequently suspended Russian participation in a broad range of
cooperative efforts underway with NATO and NATO member countries, citing "deep outrage" about
NATO's bombing campaign.64 Russia also withdrew control from NATO over its Bosnia peacekeepers,
and placed them under the command of the Russian General Staff.

In April 1999, Duma Speaker Gennady Seleznyov told the press that President Yeltsin had ordered
Russian missiles re-targeted on NATO Europe, rescinding the de-targeting pledge he had made with
great fanfare at the 1997 Paris summit at which the Founding Act was signed. Although Moscow
subsequently denied the reports, Yeltsin himself warned that Russia could not allow NATO ground
forces to invade Serbia, and said that "I told NATO and the Americans and Germans: do not push us into
military action, or there will definitely be a European and possibly a world war. "65

When at the height of the crisis Yeltsin named Viktor Chernomyrdin to help mediate the U.S.-Russia
dispute, Vice President Gore's close personal relationship with his favorite interlocutor proved less than
helpful. Chernomyrdin wrote in the Washington Post that the NATO operations in Kosovo had "set back
[U.S.-Russia relations] by several decades," and compared the air campaign against Milosevic to the
Soviet Union's crushing of the Prague Spring. He concluded by stating that "[t]he world has never in this
decade been so close as now to the brink of nuclear war. "66

Nor were these verbal broadsides a smokescreen to allow Chernomyrdin to adopt a more cooperative
policy than Primakov's, as Clinton and Gore had initially hoped. Gore's friend Chernomyrdin was an
obstructive ally of Milosevic until the final stage of the negotiations, actively colluding with Belgrade to
such a degree that it became necessary to add an additional intermediary, Finnish President Maarti
Ahtisaari, to the negotiations.67

The fundamental differences between the United States and Russia not only over the manner in which
the Kosovo operation was handled, but over whether NATO should have intervened in Kosovo at all,
made a significant cost to the U.S.-Russian relationship unavoidable. But the major factors that inflamed
the situation were entirely avoidable. All that had preceded the Kosovo campaign guaranteed that the
United States had no reservoir of goodwill among the Russian people.

As a result, the Russian public was willing to believe the worst about NATO and the American
government. The spectacular failure of the Clinton troika policies made it politically advantageous for a
wide range of Russian political figures-from Yeltsin to Lebed to Zyuganov~to attack NATO and the
United States, and made it exceptionally risky for any Russian to defend them.

The result of eight years of the Clinton administration's "strategic partnership" with Russia, tens of

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billions of dollars in aid, and high-pressure courtship and flattery by senior U.S. officials from President
Clinton and Vice President Gore on down, is that the United States is losing popularity contests with
Slobodan Milosevic in Russia even today.

The Destabilizing Effects of the Clinton Troika Policy on Russia's Neighbors

Increasingly, throughout the tenure of the Clinton administration, Russia has worked to assert influence
over a number of the former Soviet "Union Republics" in what Russia calls the "near abroad." These
efforts have steadily intensified, and appear to have received a fresh impetus under the new Russian
administration.

Although Russia's legitimate economic and security interests are implicated in its relations with its
neighbors, Russian policies towards them have often suggested that Moscow is not looking for a
relationship of sovereign equality, but is instead seeking to again exert its will over its weaker neighbors.

Russia's new Foreign Policy Concept states that relations with the former republics "should be
structured ... to take into account in a due manner the interests of the Russian Federation, including in
terms of guarantees of rights of Russian compatriots," tens of millions of whom live in the "near
abroad." Russia's Union with Belarus is cited as the model for such relations: "a priority task is to
strengthen the Union of Belarus and Russia as the highest, at this stage, form of integration of two
sovereign states. "68

While Russia's Union with Belarus is consensual,69 at least as far as Belarus' autocratic President
Lukashenka is concerned, renewed Russian activity in other countries has not been as welcome. Ukraine,
for example, finds itself facing renewed economic pressure due to its dependence on Russian gas.70
Despite Ukraine's great strategic importance to the United States the "pronounced russocentrism"71 of
the Clinton team has led to "ignorance of and, worse, indifference toward the other successor states,
notably Ukraine."72

Kazakhstan has also come under increasing economic and political pressure.73 Pavel Borodin~the State
Secretary of the Belarus-Russian Union, a close associate of President Putin, and a central figure in
Swiss criminal investigations of Kremlin financial dealings and money-laundering-predicted during
Putin's April 2000 visit to Minsk that both Ukraine and Kazakhstan, as well as possibly other former
Union Republics, would join the Russia-Belarus Union in the next three to four years.74

In addition, Russia has actively intervened in the internal affairs of Georgia, helping to foment
secessionist violence in Abkhazia and Southern Ossetia, and maintaining Russian "peacekeepers" who
themselves have required OSCE monitors. Moscow has also repeatedly threatened the Baltic states. And
despite recent visits by members of the Clinton administration,75 many of the Central Asian republics
have increasingly turned to Moscow for assistance in dealing with the threat of terrorism and radical
Islamic separatism.76

Rather than tempering Russia's ambitions, the Clinton administration's weak policy has emboldened
Moscow, undercutting the ability of the new independent states to maintain unfettered sovereignty.
Former U.S. Ambassador to Belarus David H. Swartz attested to "Talbott's policy of looking at regional
matters though Russia's prism, as though the [Soviet] Union still existed; of ignoring the other new
states; of conveying unmistakable signals to Moscow that the United States recognized its hegemonic

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'rights' in what Moscow calls its 'near abroad."77

NEW USE FOR OLD ICBMs: Russia's new nuclear doctrine involves heavier reliance on nuclear weapons-and
their first-use-than did the doctrine of the U.S.S.R. Russia is retiring its older ICBMs and, unlike the United States,
developing and building new models to maintain a smaller and more modern force. A Russian army SS-25 "Topol"
(Poplar) ICBM is taken into position during military training near Irkutsk, Siberia, Russia, Apr. 12,1995. AP Photo

Russia's New Nuclear Doctrine

Russia's current nuclear doctrine78 carries enormous risks for both the United States and Russia.
Successive Russian defense doctrines have dramatically lowered the threshold for the use of nuclear
forces.

For example, as early as October 1994, Lt. Gen. G.D. Ivanov, Assistant Defense Minister for Policy,
gave a presentation on Russian nuclear doctrine to an American delegation headed by Assistant
Secretary of Defense Ashton Carter. He outlined a "model of military deterrence" involving four
scenarios, three of which involved potential use of nuclear weapons. Only the first, deterrence of a
potential non-nuclear aggressor, was to be accomplished by conventional deterrence. Nuclear deterrence
was to be employed against not only a potential nuclear aggressor, but also against a non-nuclear
aggressor allied with a nuclear state. Nuclear weapons could also be used against a non-nuclear
aggressor if it was acting together with, or being supported by, a nuclear state.

Indeed, as one observer noted, there is "a tendency today to consider solving the problem of Russia's
immense weakness in conventional arms by introducing low-yield, tactical nuclear weapons in order to
strengthen conventional deterrence. "79

Russia's new nuclear doctrine thus involves heavier reliance on nuclear weapons—and their first
use~than did the doctrine of the U.S.S.R. As General Ivanov has noted:

As you can see, Russia's new military doctrine includes a harsher, stricter component in its
nuclear policy with respect to surrounding countries.... [W]e want every state, including
non-nuclear ones, to consider the possible consequences of initiating aggression against
Russia. ...80

This change of doctrine is especially troubling because Russia's capacity to accurately assess whether it
is being attacked, and to control its strategic forces, is decaying.81 Compounding this problem is the fact
that Russia has adopted a hair-trigger "launch on warning" posture that compresses nuclear decision

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making to a few minutes. As Bruce Blair of the Brookings Institution has testified:

Russia's heavy reliance on this option means that its early warning and nuclear release
procedures require a response time of 15 minutes in total; they allow only three or four
minutes for detecting an attack, and another three or four minutes for top-level decision
making.... It is obvious this is not a safe operational practice... and its [danger] is
compounded by the deterioration of Russia's command-control system and missile attack
early warning network. ...82

Russia's nuclear posture reflects much more than the decay of its technical capabilities, however. Much
of Russia's senior-level officer corps appears to regard the United States with such intense suspicion as
to make an American first-strike seem plausible to them.83 This attitude forms a striking contrast with
the Clinton administration's rosy vision of its relationship with Moscow-particularly given the
increasing influence of the Russian foreign-policy and military establishment's views on mainstream
Russian thinking.

The combination of these factors has created an extraordinarily unstable and dangerous security
environment for the United States and Russia a decade after the end of the Cold War.

Recently, there have been extensive though inconclusive press reports that the Russian government is
reconsidering its military funding priorities.84 There has been a longstanding, multidimensional rivalry
between the conventional forces, championed by the general staff, and the Strategic Rocket Forces
(RVSN), strongly supported by the current Defense Minister, a former commander of the RVSN. It
involves, among other issues, resource allocation issues. The outlines of any final decision remain
unclear.

What is clear, however, is that no reallocation of resources will address the subjective mistrust of
American intentions that produced the 1995 war scare, and led the Russian government to spend
immense resources on the deep-underground facilities at Yamantau Mountain.

The Outmoded ABM Treaty: A Case Study in Policy Failure

The mounting tension over U.S. plans to deploy national and theater missile defenses offers a sobering
case study of the disintegration of U.S.-Russian relations under the Clinton administration, the parallel
movement toward a proto-alliance between Russia and the People's Republic of China, and the
extraordinarily-serious implications of these developments for the supreme national interests of the
United States.

After eight years in office, the Clinton administration made headlines with its abortive quest for a "grand
bargain" with Russia over national missile defense at the Moscow summit in June 2000. The limited
aims of the summit, which nevertheless were not achieved, stand in marked contrast to the far more
desirable "grand bargain" that was within sight when President Clinton took office in January 1993.

In his State of the Union address on January 29,1991, President Bush dramatically recast the Strategic
Defense Initiative away from a large-scale effort to preserve U.S. nuclear retaliatory capabilities against
a Soviet first strike. His proposed GPALS (Global Protection Against Limited Strikes) system reoriented
America's proposed missile defenses toward the far more limited threats of accidental or unauthorized

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launch, or emerging threats from third countries. It therefore dramatically reduced the scope of the
program.

President Bush's proposal responded to and fostered the ongoing sea change in U.S.-Soviet and
U.S.-Russian relations. It also reflected the growing risk of attack by third countries--a risk that had been
dramatized just days before, when Saddam Hussein used Scud ballistic missiles against civilian targets
in Israel and against U.S. forces in Saudi Arabia during Operation Desert Storm.

While President Bush downscaled the scope of the threat against which GPALS would defend, he also
extended the protection intended by the system from U.S. nuclear forces to the whole American
homeland—and also to "our forces overseas and... our friends and allies."85

President Bush worked closely with Senator Sam Nunn and the Democratic Congress to build consensus
for his new approach~a lesson unheeded by the Clinton administration, which has repeatedly sought to
evade or preclude Congressional review of its initiatives. The Bush administration secured Democratic
support for the enactment of the Missile Defense Act of 1991, which made it our national goal to
"deploy an anti-ballistic missile system, including one or an adequate additional number of anti-ballistic
missile sites and space-based sensors, that is capable of providing a highly effective defense of the
United States against limited attacks of ballistic missiles."86 The Act authorized negotiations to
facilitate deployment, and authorized a limited initial deployment of ground-based interceptors
supported by ground- and space-based elements. Though far from ideal, the Missile Defense Act
represented a constructive compromise that transcended prior Democratic opposition to the concept of
ballistic missile defense.

The Russian response was exceptionally promising. President Gorbachev wrote to the G-7 summit
participants in July 1991 to indicate his interest in pursuing some form of missile defense cooperation, a
position surprisingly echoed by the Chief of the Soviet General Staff.87 The accession of Boris Yeltsin
to power led to an even more significant turn of events: Yeltsin's January 1992 U.N. speech urging that
"the time has come to consider creating a global defense system for the world community. It could be
based on a reorientation of the United States Strategic Defense Initiative, to make use of high
technologies developed in Russia's defense complex."88

Yeltsin's Global Protection System (GPS) proposal was discussed at the June 1992 Camp David summit
of the two Presidents. That summit gave rise to the so-called Ross-Mamedov negotiations seeking
cooperation on early warning, defense technology, non-proliferation, and the legal regime necessary to
under-gird the GPS~including important amendments to the 1972 Anti-Ballistic Missile Treaty.

The Ross-Mamedov group held two highly promising negotiating sessions before being abruptly and
unilaterally suspended by the incoming Clinton administration, which subsequently ordered the U.S.
delegation to the Standing Consultative Committee to withdraw the ABM Treaty amendments that had
been proposed by President Bush.

As President Clinton's former CIA Director James Woolsey wrote recently:

In early 1993, the administration could have chosen to continue some promising
negotiations~the Ross-Mamedov talks-which were, at that point, only one year old....
Negotiators were beginning to discuss an approach that would leave research and
development unconstrained, deploy over 1,000 interceptors at multiple sites, and place a
time limit on the duration of the ABM Treaty, to allow future deployment of space-based
interceptors. But the new Clinton administration canceled the talks and took the position

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 that the ABM Treaty was the "cornerstone of strategic stability" between the U.S. and
Russia.89

The abrupt Clinton action shocked the Russian government, and gave rise to lasting, deep-seeded
suspicions of U.S. strategic intention and good faith.90

Although the Clinton administration's actions offended Moscow, they were actually aimed at a different
enemy: the signature Reagan-Bush emphasis on strategic defense. The new administration was
determined to bury the late-20th century version of the Reagan Strategic Defense Initiative they had for
so long derided as "Star Wars."

On May 13,1993, Defense Secretary Les Aspin, in announcing a sweeping downgrading of the entire
strategic defense program within the Defense Department, proclaimed "the end of the Star Wars era. "91
The new Clinton Defense Department had by then already announced that it was making national missile
defense a lower priority than theater missile defense, transforming the former from an acquisition
program to a "technology readiness program"~its status until the final months of the first Clinton
term.92

Notwithstanding President Yeltsin's personal involvement in the missile defense proposal, the Clinton
administration stridently asserted that missile defense would do long-term damage to U.S.-Russian
relations. Over time, Russian officials obligingly took to substantiating that claim, and Russian
objections have themselves grown steadily more strident.93

But as with NATO enlargement, there is little evidence to suggest that the Russian public is concerned
about the issue. The State Department's own Office of Research reported on the basis of opinion
sampling as recently as February 2000, after years of heated official controversy: "An overwhelming
majority of Russians have heard or read little (31%) or nothing (55%) about American proposals to
modify the ABM Treaty to permit the U.S. to install a limited missile defense. Only 5 percent have heard
or read at least a fair amount about it."94

On the defensive after Republicans swept the 1994 legislative elections on a platform endorsing
vigorous pursuit of a national missile defense, the Clinton administration vetoed the Missile Defense Act
of 1995~part of the Contract With America~and sought to make its case for delay. To this end, the
administration produced the now-notorious National Intelligence Estimate, "Emerging Missile Threats to
North America During the Next 15 Years." The report predicted that "no country, other than the major
declared nuclear powers, will develop or otherwise acquire a ballistic missile in the next fifteen years
that could threaten the contiguous 48 states and Canada." The report particularly deprecated the
possibility of North Korea developing a "longer range operational ICBM."95

The National Intelligence Estimate was immediately subjected to a firestorm of criticism for
downplaying the potential impact of outside assistance-including direct sales of missiles~to regimes
developing ballistic missiles. It was similarly criticized for minimizing the impact of space launch
vehicle development on missile proliferation, and for excluding missile threats to Alaska and Hawaii
from the category of threats to the United States. Not only was the report promptly controverted by the
General Accounting Office,96 it was authoritatively debunked in the July 15,1998, report of the
bipartisan Rumsfeld Commission.

The Rumsfeld Commission had been chartered by Congress to consider the same issues covered in the
National Intelligence Estimate. It concluded that the United States "might have little or no warning
before operational deployment" of a ballistic missile by a hostile Third World country.97 On August 31,

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1998, just a month and a half after the Rumsfeld Commission's report, North Korea fired a three-stage
rocket over Japan, ending as conclusively as possible this phase of the debate.

The Clinton administration had, however, managed to buy three years' delay in the debate over
deployment of a national missile defense. In the interval, President Clinton secured the 1997
Russian-American protocols to the ABM Treaty, which were intended to render the creation of a robust
theater missile defense or national missile defense both practically and legally impossible. First, the
Clinton administration significantly broadened the coverage of the ABM Treaty by "insisting]," as
former Clinton CIA Director Woolsey put it, that "Russia, Ukraine, Belarus, and Kazakhstan [were] the
four ABM Treaty successors to the USSR."

[T]he administration and the Russians have joined forces against the U.S. Senate.... Since
the execrable [Lukashenka] regime in Belarus is the corrupt partner of the most
unreconstructed parts of the old Soviet military-industrial complex, it (and they) would have
a veto over any ABM Treaty amendments.98

In early 1996, shortly after the issuance of its National Intelligence Estimate, the Defense Department
announced that it would not be able to meet the operational dates mandated by Congress for two
promising theater missile defense systems, Navy Upper Tier and theater high-altitude area defense. And
in 1997, a further protocol on "demarcation" to limit the effectiveness of any theater missile defense
system was signed by Russia at the Clinton administration's urgent insistence. It lobotomized some of
the most promising theater missile defense technologies to ensure that they could not assist in a national
missile defense.

The protocols set the now-familiar pattern of Clinton administration policy: attempting to curry favor
with Russia by delaying deployment of American missile defenses and eviscerating their effectiveness.
As the next step in this process, the Clinton administration let it be known that at the June 2000 Moscow
summit with Putin the president would seek a "grand bargain": a START III agreement drastically
cutting U.S. and Russian warheads, and a U.S.-Russian agreement to amend the ABM Treaty to permit
only a very limited U.S. national missile defense while continuing to bar more promising forms of
missile defenses.

The President and Vice President Gore thereby sought to achieve both their policy goals and their
political goals. From a policy standpoint they would perpetuate the obsolete ABM Treaty, seek security
through new arms control agreements, and outlaw precisely the types of missile defenses that Congress
has pursued since 1994. From a political standpoint, they could expect a spectacular signing ceremony in
Moscow, and a subsequent patriotic Rose Garden ceremony announcing that a single-site national
missile defense system would be built by a date certain on American soil. Both of these ceremonies
would come in time for the November 2000 election. As the Washington Post reported on March 30,
2000:

Sen. Joseph Biden, ranking Democrat on the Foreign Relations Committee, said yesterday
that President Clinton "is absolutely going full-bore" to reach an agreement with Russia on
modifying the ABM Treaty so the United States can go ahead with a limited missile defense
system. Clinton's plan, Biden told reporters, "is to get the limited system locked down in a
deal with Putin" in order to block Republicans from pushing forward with a broader,
full-scale, national ABM system. 99

Though it may have been brilliantly manipulative in the realm of domestic politics, the administration
proposal was hopelessly flawed from the perspective of national security. Former Clinton CIA Director

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James Woolsey recently called it:

a school-uniform program for national defense: it does almost nothing to deal with the basic
problem, but it may at least get the president some credit for trying. But unlike school
uniforms, which at least don't undercut the cause of education, this approach to missile
defense does undercut its ostensible goal by impeding our efforts to deal with our growing
vulnerability to rogue-state missiles.... [T]he administration has purposely designed
vulnerabilities into its own system in order to assure the Russians that they can penetrate it
with ease. 100

But the rot in U.S. relations with Russia was by then considerably too far along for Moscow to accept
the Clinton proposal, however bad a bargain it was for the United States. At the end of eight years of a
Clinton policy explicitly designed to cater to Russian official and popular opinion, the administration
had the support of neither. Tellingly, the PRC and Russia had already cooperated in sponsoring an
overwhelmingly successful U.N. General Assembly Resolution calling for preservation of the ABM
Treaty, and implicitly criticizing U.S. efforts to amend it. 101

The striking suspicion of American motives held by officials at the highest levels of the Russian .
government was graphically displayed in a June 23,2000, interview given by Russian Defense Minister
Marshal Igor Sergeyev. Sergeyev asserted that:

[T]he true reasons for deploying the U.S. National Missile Defense do not lie in imaginary
threats from certain pariah countries. Apparently, some people in the United States are in
the grip of the temptation to acquire strategic dominance by means of increasing the
technological gulf between them and the rest of the world and creating exceptional
conditions of invulnerability, that is, implementing the forgotten doctrine of Fortress
America.

At the same time the possibility is not ruled out that some people want to drag our country
into a new arms race so as to retard Russia's economic development.

Furthermore, in my opinion some people in the United States are under the illusion that by
deploying an NMD system capable of intercepting a few hundred strategic missile warheads
and reducing the number of warheads and delivery vehicles as a result of the accords under
START III and subsequent treaties, it is possible to acquire the potential to destroy Russia's
strategic nuclear potential as a result of a pre-emptive strike and the interception of those
Russian missiles and warheads that would remain for a retaliatory strike....

[W]e regard the deployment of NMD as only the first step toward the future emergence of a
multifunctional global system for combating all types of... targets. This comprehensive
defense system will be directed first and foremost against the deterrent potential of the
Russian Federation and the People's Republic of China. Russian Defense Ministry experts
are in no doubt about this. 102

At the June 2000 Moscow Summit, President Putin signed a Joint Statement of Principles with President
Clinton which acknowledged that the international community faces "a dangerous and growing threat of
proliferation of weapons of mass destruction and their means of delivery, including missiles and missile
technologies." 103 But as with other ambiguous Clinton administration statements, Russia inferred a
vastly different meaning from these words. Just one week after the Joint Statement of Principles was
issued, President Putin told the German newspaper Welt am Sonntag that "we are now convinced that the

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missile threat from so-called 'problem countries' in the Middle East or in the Asian region, to which the
United States refers, does fundamentally not exist, neither today nor in the foreseeable future. "104

Throughout his subsequent European trip, Putin attempted to use national missile defense and the ABM
Treaty debate to drive wedges between the U.S. and NATO Europe, reviving Soviet-era diplomatic
tactics little seen since the Cold War.

Colonel-General Valery Manilov, the Russian Deputy Chief of Staff, likewise flatly asserted on June 23,
2000, that "in the foreseeable future, 10 or 15 years, there is no threat to the United States from North
Korea, or from Iran or Iraq."105 On June 30,2000, Maj. Gen. Ivashov, head of the Ministry of Defense's
Department of International Cooperation, wrote in the official armed forces journal Krasnaya Zvezda
[Red Star] that American concerns about rogue states' missile capabilities were "fairy tales," based on an
analysis of their technological capabilities that ignored their likely motivations. 106 And Foreign
Minister Ivanov wrote in Foreign Affairs that "none of the 'problem states,' as they are now referred to in
the West, are likely to acquire missiles capable of reaching the United States in the foreseeable
future."107

Russia's revised Foreign Policy Concept, approved by President Putin on June 28,2000, states flatly
that:

Russia shall seek preservation and observance of the 1972 Treaty on the Limitation of
Anti-Ballistic Missile Systems-the cornerstone of strategic stability. The implementation of
the plans of the United States to create a national missile defense system will inevitably
compel the Russian Federation to adopt adequate measures for maintaining its national
security at a proper level. 108

Most strikingly, the Joint Statements issued by President Jiang Zemin of the People's Republic of China
and President Putin during the July 17-19,2000, summit in Beijing categorically repudiate the idea that
America is facing a ballistic missile threat. The statements bluntly threaten a return to a Cold War if the
United States deploys a national missile defense. The security documents issued at this summit are the
most explicitly anti-American to date, and represent an across-the-board repudiation of American
positions:

The 1972 ABM Treaty remains the cornerstone of global strategic stability and international
security.... It is of vital importance to maintain and strictly observe ABM.... China and
Russia believe that the nature of NMD [national missile defense] is to seek unilateral
military and security advantages, which will pose the most grave adverse consequences not
only to the national security of Russia, China, and other countries, but also to the security of
the United States itself and international strategic stability....

The damage wrought by ABM will trigger a new arms race and lead to an about-face in the
positive trend that appeared in world politics after the end of the Cold War.... Analysis of
the international situation shows that the demand of a certain nation to amend ABM on the
pretext of missile threat is totally unjustified. The proposal to revise ABM is actually a ruse
to cover its attempt to violate ABM. 109

In addition, the summit's Joint Statement endorses Beijing's opposition to theater missile defense for
Taiwan, and for Northeast Asia as well. And it takes pains to distinguish Moscow's proposal for a
Russian-European cooperative theater missile defense system. The Joint Statement thereby finesses
Beijing's concern that the Russian theater missile defense proposal could be broadened to embrace

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defense against the PRC's missile forces, and reinforces the impression that the Russian proposal was
more an anti-American wedge-driving exercise than a constructive effort to reach a compromise on the
ballistic missile threat. In the words of the joint Russia-PRC statement:

A non-strategic missile defense program and international cooperation in such areas, which
is not prohibited by ABM, should not undermine security interests of other countries, not
lead to the establishment of any closed military or political bloc, or threaten global and
regional stability and security. China and Russia are deeply concerned that a certain country
in the Asia-Pacific region might deploy any such non-strategic missile defense system, and
steadfastly oppose this.

The incorporation of Taiwan into any foreign missile defense system is unacceptable....

China and Russia call on the international community to heed continuously the activities of
a certain country to develop a missile defense system, which is detrimental to global
strategic balance and stability, and to do what is necessary to prevent such a dangerous
situation from continuing....

Based on the strategic partnership featured by equality and trust, China and Russia will
continue their close cooperation on these issues. 110

President Putin's July 2000 summit with North Korean dictator Kim Jong-Il revealed a similar hostility
to American policy and interests in the area of missile defense. The "Democratic People's Republic of
Korea-Russia Joint Declaration" issued at the Pyongyang summit recites "the DPRK and Russia view
that it is totally groundless ... that the so-called missile threat from some countries is used as an excuse to
justify the plan to amend the 1972 ABM Treaty," which is described as "a cornerstone to strategic
stability and a basis for further reducing strategic offensive weapons." Both governments likewise stated
that "deploying a bloc-style closed Theater Missile Defense system in Asia and the Pacific could
seriously destroy regional stability and security." 111

Most controversially, Putin and Kim Jong-Il separately broached a scheme that would in essence create
an "Agreed Framework" for North Korea's missile program-embarrassingly for the Clinton
administration, a replica of the 1994 arrangement it brokered whereby the United States, South Korea,
and Japan would in essence bribe the North Korean dictatorship to suspend its nuclear program.
Pursuant to this agreement, the North Korean dictatorship, arguably the worst human rights violator on
earth, has become the largest recipient of U.S. aid in East Asia~and continues its program of nuclear and
missile development.

Although Russian officials have claimed that under their proposal North Korea might be forced to use
launch facilities and rockets in third countries, the Kim Jong-Il government has refused to repeat this
reassurance. 112 Moreover, the notion that the North Korean dictatorship is genuinely interested in
peaceful scientific activities in outer space, or that such a desperately poor government should be
pursuing such an expensive discretionary expense, is grotesque. The Clinton administration, however,
has accepted such sophistries from North Korea before, as illustrated by its proposal of the 1994 Agreed
Framework based on the premise that North Korea was building nuclear reactors only to generate
electricity.

Even an offer by Pyongyang for an "Agreed Framework" to forbear in its pursuit of missile
developments would not necessarily include a promise not to sell missiles and missile technology
abroad. Given Pyongyang's propensity to demand payment for the same concessions repeatedly, this is

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hardly a hypothetical risk. 113 Yet despite the manifest implausibility of the offer from Pyongyang and
Moscow, the Clinton administration has allowed itself to be put on the defensive internationally by the
initiative-until Kim Jong-Il similarly embarrassed Putin by claiming that his offer was only meant as a
joke. 114

In almost all material respects, the Clinton administration's bungling of U.S. missile defense deployment
parallels its bungling of NATO enlargement. In each case, the Clinton administration let slip the best
opportunity to cement U.S.-Russian agreement on a major initiative. In the case of both NATO
enlargement and national missile defense, subsequent events drove the administration to endorse the
policy belatedly and half-heartedly. In both cases, temporizing and delaying hardened rather than
mitigated Russian opposition. And in both cases, the administration's policy secured the worst possible
outcome: it severely compromised the potential benefits to the United States, while ensuring that the
issue would indefinitely remain an irritant in U.S.-Russia relations.

Ersatz Missile Defense: The Clinton "Detargeting Agreement"

The Clinton administration's superficial approach to missile defense is perfectly illustrated by its
celebrated "Detargeting Agreement" with Russia.

In January 1994, Presidents Clinton and Yeltsin signed a Detargeting Agreement that Clinton hailed as
reducing the nuclear threat to America by ensuring that no Russian missile was aimed at a U.S.
target. 115 Subsequently, on more than 147 separate occasions, President Clinton, Vice President Gore,
members of the cabinet, and other senior administration officials have touted the agreement as a boon for
U.S. national security. 116 For example, on August 26,1996, in a speech in Toledo, Ohio, the president
proclaimed that"... for the first time since the dawn of the nuclear age, on this night, this beautiful night,
there is not a single nuclear missile pointed at a child in the United States of America. "117

The emptiness of the Clinton administration's rhetoric was made abundantly clear in hearings held by the
House National Security Committee in 1997. At a hearing of the Military Research and Development
Subcommittee, Dr. Bruce Blair, a Brookings Institution expert on nuclear security policy, testified of the
detargeting agreement and associated Russian and American actions:

Neither removed the wartime aim points from [Russian] missiles portfolios of
preprogrammed targets. Neither lengthened the amount of time needed to initiate a
deliberate missile strike. And the risk and consequences of an accidental or unauthorized
launch were not significantly affected by their pledge [to detarget].l 18

Because the detargeting agreement contains no verification provisions, there is to this day no reliable
evidence that the Russian nuclear missiles were ever detargeted.l 19

Even assuming that the detargeting has been carried out, the benefits for U.S. national security are
minimal. First, the Russian General Staff has publicly stated that it would take at most a few minutes to
retarget the missiles on their previous targets. 120 Under the detargeting agreement Russian missiles are
to be set on a "zero flight plan;" however, because the missiles can store multiple flight plans, and the
Russian military can quickly switch between these flight plans, the detargeting presents little impediment
to a deliberate launch. 121

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The Clinton administration has also argued that while a deliberate launch would not be impeded, the
danger from an accidental or unauthorized launch is reduced by detargeting. However, in the event of an
accidental or unauthorized launch, a Russian missile set on a "zero flight plan" would snap back to its
wartime flight path and strike one of the real target points stored in the missile's database. Conversely,
American missiles that have been detargeted would fall into the sea in the event of accidental or
unauthorized launch. 122

The Russian government has been forthright about the ephemeral benefits of the detargeting agreement.
In a 1995 interview, a senior adviser in the Ministry of Defense said that, "When it was decided to
detarget missiles, the decision was mostly of a political, propaganda character. "123

Rather than being honest with the American people, the Clinton administration has used the detargeting
agreement for just such a "political, propaganda" purpose in an effort to distract attention from the
absence of a more reliable missile defense for the United States.

Clinton's Rootless Russia Policy

One of the standard criticisms of the Clinton administration's Russia policy is that it has failed to
cultivate a broad range of support within Russia. It has focused on Moscow in preference to the regions,
on government in preference to private actors, within government on the executive branch in preference
to the legislature, and within the executive branch on a handful of individuals in preference to a broader
spectrum of officials and bodies. This lazy diplomatic shortcut has left American policy and prestige in
Russia a hostage to the reputation, honesty, and ability of as few as five or six Russian
officials—Chubais, Gaidar, Chernomyrdin, Yeltsin, and a handful of others.

Less often noted is the parallel to the Clinton administration's approach to pursuing its policies in the
U.S. Congress. Its tactics at home have similarly produced a narrowly based policy bereft of public and
congressional understanding and support. At home, as well as in Russia, the administration eschewed
working with the leaders of the legislative branch and doing the hard work of either cultivating support
or compromising differences. As a result, the administration's policies have won understanding and
support in neither party.

The Clinton approach at its most self-defeating was on display in the negotiation of the 1997 New York
Protocols to the ABM Treaty, and the ensuing refusal to submit them to the Senate for ratification. The
Protocols effectively represented a collaboration by the American executive branch with foreign
governments—including the contemptible Lukashenka regime ruling Belarus—against the American
legislative branch.

The president and vice president were well aware that the demarcation and multilateralization protocols
were utterly unacceptable to Congress in general and to the Senate in particular. Instead of seeking either
to persuade the Congress or to reach an honorable accommodation of the differences, the administration
collaborated with foreign governments to circumvent the American legislature and create "facts on the
ground" that would make it impossible for Congress to execute its constitutional role.

The Russian government obliged this year. When the State Duma conditioned its ratification of START
II on Senate ratification of the 1997 Protocols, it completed the work of the Clinton administration,
which had deliberately failed to submit the 1997 Protocols to the Senate for its advice and consent for

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three years. When Under Secretary of State Pickering testified before the Speaker's Advisory Group on
May 10,2000, he said that it was "inopportune" to submit the protocols to the Senate, because they were
integrally related to START III and issues of national missile defense. He gave no explanation of why it
was "opportune" for the President to sign the protocols, but not for the Senate to have the opportunity to
ratify them.

By acquiescing—indeed, encouraging—the Russian Duma's linking of START II to the protocols, the

Clinton administration has jeopardized the historic reductions in offensive nuclear forces that President
Bush had achieved in cooperation with a Democratic Congress-all in the interest of coercing Congress
to abdicate its long-held views on missile defense.

The Clinton administration's defiance of the Senate's constitutional role is not unique to this episode, or
even its Russia policy generally. 124 From the beginning of the Clinton administration, consultation with
Congress on Russia policy has consisted of little more than the annual budget presentation. Requests by
the House International Relations Committee for documents bearing directly on the failure of the Clinton
administration Russia policy have gone unanswered; senior administration policy makers such as Strobe
Talbott have routinely been "unavailable" to the committees of jurisdiction. Talbott refused to meet with
the leadership of the six committees of jurisdiction that comprise this Speaker's Advisory Group on
Russia. 125

In July 2000, the Clinton administration ignored strenuous objections by the Senate and House
committees of jurisdiction and leadership to its policy on rescheduling Russian debt. 126 As a result, it
was strongly rebuked on July 19,2000, by an overwhelming 275-146 vote for a resolution approving a
bar on such restructuring until the President certifies an end to Russian use of a spy facility at Lourdes,
Cuba. The passage by enormous bipartisan majorities of successive Russia-Iran missile proliferation
bills in the face of veto threats similarly underscores the administration's credibility gap. 127

In the United States as in Russia, the self-defeating nature of the Clinton administration policy process
has not dissuaded the administration from pursuing it to the end: the last major policy gambit of the
administration, the so-called "grand bargain" compromise with Russia that the President sought to unveil
at the Moscow summit, was rejected by the Russian government in part because it was clear that Clinton
and Gore had done nothing to secure congressional support for it.

Conclusion: A Cold Peace

Russian-American relations now bear a troubling resemblance to the pre-perestroika Cold War. In
response to American proposals to amend the ABM Treaty, the Russian government has now announced
that if the United States does not accede to its position, it will withdraw not only from strategic arms
agreements but also from the 1987 Intermediate-Range Nuclear Forces (INF) Treaty, which banned
intermediate-range missiles in Europe. Clinton's policy has brought U.S.-Russia relations full circle,
returning to the last and most heated Soviet-American controversy of the Cold War.

In the meantime, the Russian government seeks to weaken ties between the United States and NATO
Europe, reviving Soviet-era proposals to substitute a pan-European collective security structure for the
current alliance-based security system. And Moscow has threatened to deploy multiple warheads on
Topol intercontinental ballistic missiles in violation of START II as part of its "asymmetrical" response
to a U.S. withdrawal from the ABM Treaty. 128

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Russia is continuing and possibly intensifying the proliferation that has made a U.S. national missile
defense essential. As recently as June 2000, just weeks before President Putin's visit to Pyongyang with
its ostensible purpose of ending North Korea's missile program, missile component companies in Russia
and Uzbekistan were reportedly collaborating to sell North Korea a special aluminum alloy, laser
gyroscopes used in missile guidance, and connectors and relays used in missile electronics. 129

The Russian government is accelerating its rapprochement with the rogue's gallery of former client states
that the Soviet Union supported during the Cold War~not only reviving the Soviet intelligence
relationship with Castro based on the listening post at Lourdes, Cuba, but also working with Beijing to
renew both political and military ties with the pariah regimes in Iraq, 130 North Korea, and Libya,131
and cultivating the Milosevic dictatorship in Belgrade. A more troubling contrast to the atmosphere of
the early 1990s could hardly be imagined.

CHAPTER 11

THE ENEMY OF MY
ENEMY IS MY
FRIEND': RUSSIA
EMERGES AS A
STATEGIC PARTNER
OF THE PEOPLE'S
REPUBLIC OF CHINA

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A REAL 'STRATEGIC PARTNERSHIP': Russian President Vladimir Putin
(left) and Chinese President Jiang Zemin toast each other in Beijing's Great
Hall of the People, July 18, 2000. Although the Clinton administration has long
boasted of its "strategic partnership" with Russia, the Russian government
unmistakably disavowed any such relationship in its authoritative Foreign
Policy Concept, approved by President Putin in June 2000. The Foreign Policy
Concept flatly states that "certain plans relating to establishing new, equitable,
and mutually advantageous partnership relations of Russia with the rest of the
world"-plans embodied in the 1993 version of the Concept approved as
President Clinton was taking office-"have not been justified." To challenge
America's dominance, Russia today cultivates its strategic partnership with the
People's Republic of China-a partnership explicitly targeting American policies
and interests around the globe, and founded on increasing both the PRC's and
Russia's military capabilities against the United States. This is in stark contrast
to Russia's explicitly seeking an alliance and missile defense cooperation with
Washington in 1992. APPhoto/Greg Baker

American foreign policy in the 1990s pursued

one foreign policy toward Russia and another
toward China; neither has been considered in
light of the other, and neither has proven
successful.

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 Through most of the past seven years, the
Clinton administration has seemed almost bent
on creating an anti-American community of
interest between Moscow and Beijing.

Charles Hill, Blundering Toward a Second Cold War?

Although the Clinton administration has long boasted of its "strategic partnership" with Russia, the
Russian government unmistakably disavowed any such relationship in its authoritative Foreign Policy
Concept, approved by President Putin in June 2000. The Foreign Policy Concept flatly states that
"certain plans relating to establishing new, equitable, and mutually advantageous partnership relations of
Russia with the rest of the world"~plans embodied in the 1993 version of the Concept approved as
President Clinton was taking office~"have not been justified."

Instead, the June 2000 Concept lists first among the threats to Russia "a growing trend towards the
establishment of a unipolar structure of the world with the economic and power domination of the
United States." To challenge America's dominance, Russia today cultivates its strategic partnership with
the People's Republic of China-a partnership explicitly targeting American policies and interests around
the globe, and founded on increasing both the PRC's and Russia's military capabilities against the United
States. This is in stark contrast to Russia's explicitly seeking an alliance and missile defense cooperation
with Washington in 1992.

Russia and the PRC have rapidly increased the level of their cooperation in opposing American plans for
national and theater missile defense, NATO enlargement, U.S. security cooperation with Taiwan, and
U.S. opposition to the North Korean missile program.

Even more troubling is the dramatically-increasing scale and sophistication of Russian arms and
technology transfers to the PRC: Sovremenny-class destroyers equipped with Moskit surface-to-surface
missiles, state-of-the-art weapons systems specifically designed to destroy U.S. aircraft carriers;
ultra-quiet Kilo-c\s&s diesel submarines; Su-30 long-range attack aircraft and MiG-31 long-range
fighter-interceptors; AWACS radar systems; T-80U tanks; state-of-the-art Russian surface-to-air
missiles; and rocket engines, as well as many other weapons systems and technologies. Negotiations are
reportedly underway for still more sophisticated weapons systems and technology. There are also reports
of far-reaching Russian military commitments to the PRC in the event of hostilities over Taiwan.

After over $20 billion in U.S. assistance and eight years of mismanagement by the Clinton
administration, the U.S.-Russian relationship is in tatters, characterized by deep and growing hostility
and divergent perceptions of international realities and intentions. The Sino-Russian relationship, by
contrast, has grown steadily stronger, and has steadily assumed a more overtly anti-American aspect.

Because of Russia's current and future importance, the consequences of this failure are difficult to
overstate. They almost certainly exceed the consequences of the American defeat in Vietnam, and the
fall of the pro-American government in Iran. To find a foreign policy failure of comparable scope and

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significance, it would be necessary to imagine that after eight years of American effort and billions of
dollars of Marshall Plan aid, public opinion in Western Europe had become solidly anti-American, and
Western European governments were vigorously collaborating in a "strategic partnership" directed
against the United States.

First Principles
Relations between Russia and the People's Republic of China and the triangular relationship those
countries share with the United States are a critical element in U.S.-Russia policy.

Consolidation of a monolithic Sino-Soviet alliance after Mao Zedong's victory in 1949 was regarded in
the United States as one of the gravest strategic reverses ever suffered by the United States, and was
directly responsible for the Korean War. Dissolution of the Sino-Soviet alliance bought invaluable
breathing room for freedom in Asia and Europe during the 1960s. Particularly after President Nixon's
opening to China in 1970, the United States made it a priority to prevent Sino-Soviet strategic
collaboration against the West throughout the remainder of the Cold War. America's success in the
1970s and 1980s in restoring a strategic equilibrium in Eurasia through such "triangular diplomacy" was
an historic triumph for the United States.

In light of current Russian suspicions about American policy, it is crucial to specify that even at the
height of the Cold War this policy was defensive in nature: neither the United States nor its allies desired
to dominate Eurasia, either directly or by fostering hostility between the Soviet Union and the PRC on
the principle of divide and conquer. Neither has America, then or now, maintained any territorial claims
on Russia or China. Rather, long-standing U.S. policy has been designed to prevent any great power
from dominating Eurasia, either alone or in combination. As former Secretary of State Henry Kissinger
has written:

Geopolitically, America is an island off the shores of the large landmass of Eurasia, whose
resources and population far exceed those of the United States. The domination by a single
power of either of Eurasia's two principal spheres—Europe or Asia—remains a good
definition of strategic danger for America, Cold War or no Cold War.l

The consistency of this approach can be seen in American policy during the mid-20th century Chinese
civil war, when the United States sought to avert the victory of Chinese Communists at that time closely
allied with the Soviet Union; in American policy before and during the Second World War, when the
United States fought to prevent Axis domination of Eurasia; and as far back as America's Far Eastern
policy at the close of the 19th century, when the United States sought to preserve Chinese territorial
integrity and forestall the efforts of any of the great powers to dominate China either economically or
politically.2

In the 21st century, in the aftermath of the Cold War, the United States continues to have a strong
interest in cordial relations between Russia and China. War between those great powers would affect
critical American allies throughout the Asia-Pacific region, tens of thousands of U.S. troops in the
region, and global security and prosperity. Even continued military tension between them would divert
the energies of both societies away from economic modernization, and would strengthen the most
retrograde political forces in each country.3

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The end of the Cold War and the dissolution of the Soviet Union fundamentally altered the dynamic of
both NATO's and China's relations with Moscow, by ending the direct Soviet military threat to both. But
it did not alter the critical imperative of preventing great power dominance over Eurasia, particularly if
such dominance is exerted in the form of a strategic partnership directed against American interests.

In pursuing such a policy the United States enjoys several inherent advantages, including more extensive
economic and cultural ties with Russia and China than either of those nations shares with the other.
Moreover, although the United States projects its power in both the Pacific and Europe, it is not a
territorial sovereign anywhere on the Eurasian landmass. America has thereby avoided territorial
conflicts such as the centuries-old disputes between Moscow and Beijing that have frequently arisen
along their 2,200-mile border.

To these natural advantages must be added the extraordinarily favorable strategic environment in East
Asia that the Clinton administration inherited in January 1993. There existed a genuine detente between
Russia and the People's Republic of China that plainly did not extend to military or strategic cooperation
against the United States, or its friends and allies. The acute military tension between the Soviet Union
and the PRC, which at its height had led to military clashes along the Ussuri River and the Xinjiang
frontier in 1969, and large-scale Soviet military exercises along the PRC's northern border during the
1979 conflict between China and Soviet client Vietnam, had ended. The new Russian Federation had
largely removed the offensive military threat that the Soviet Union had posed to the PRC, and that had
overshadowed the relationship since the Sino-Soviet split in 1960.4

The easing of military tensions between the two countries had begun even before Russia's independence.
In 1987, Gorbachev announced a five-year phase-out of the Soviet military presence in Mongolia, which
had long been regarded by the PRC government as acutely threatening. In April 1988, the Geneva
Accords provided for withdrawal of Soviet troops from Afghanistan by 1989, relieving a source of
anxiety beyond the PRC's northwestern border. In December 1988, Gorbachev announced at the U.N. a
reduction in Soviet conventional forces of 500,000 troops, including 120,000 troops deployed against the
PRC. Between 1989 and December 1992, eight rounds of force-reduction talks led to an agreement to
reduce troops and offensive weaponry in a zone extending 60 miles on either side of the border.

Agreements in May 1991 and September 1994 delineated virtually the entire Sino-Russian border. A
Joint Declaration signed during Yeltsin's December 1992 visit to Beijing, renouncing the use offeree
against each other, and foreswearing any "military and political alliances directed against the other party,
or... detrimental to the state sovereignty and security interests of the other party,"5 formally normalized
the cross-border relationship.

Russian arms sales to the PRC, which began with the June 1990 Moscow visit of Gen. Liu Huaqing,
Vice Chairman of the PRC's Central Military Commission, were strictly limited by Russia's concerns
over enhancing the PRC's military posture vis-ä-vis Russia itself. In 1992, Russian arms sales contracts
with the PRC were less than $2 billion.6 Despite President Yeltsin's claim at the December 1992 Beijing
summit that Russia would sell the PRC "the most sophisticated armaments and weapons,"7 Russian
arms sales to the PRC during this period were subject to comparatively strict qualitative controls. The
sales appear to have been predominantly motivated by economic rather than strategic considerations, and
were part of a broader effort to transform the former Soviet Union's unprofitable, policy-based arms
transfer program into a profitable, economically-motivated element of Russian trade.

By the end of this process, in December 1992, the triangular Washington-Beijing-Moscow relationship
was as favorable to the United States, the West, and international peace and security as it ever has been.
Cordial, normalized relations between Moscow and Beijing had been established for the first time in

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three decades, but not at the expense of the United States or its allies and friends.

Indeed, Moscow clearly sought much closer military and political ties with the West than with the PRC,
as outlined in Chapter 2.8 The PRC's support for the August 1991 coup against Gorbachev, contrasted
with American opposition to the plotters, remained a vivid memory in Moscow for several years.

The Inverted Triangle: The Advent of Sino-Russian Cooperation Against the United
States

By 1999, U.S. relations with both Moscow and Beijing had changed dramatically, reaching their lowest
point in many years. 9 In both capitals thousands of people took part in violent anti-American
demonstrations in front of the respective U.S. Embassies~a poignant contrast with events a few years
before, when thousands of Russians had paraded through Moscow with American flags, and tens of
thousands of residents of Beijing had gathered in Tiananmen Square around the American-inspired
statue of the Goddess of Democracy.

The contrast between the excitement and enthusiasm with which a joint session of Congress greeted
President Yeltsin in June 17,1992, and the indifference and hostility shown by the Duma toward
President Clinton on June 5,2000, is similarly dramatic. This was the scene in Washington on June 17,
1992:

Yeltsin's ringing denunciation of communism and call for U.S. assistance in rebuilding
Russia's shattered economy drew one of the most enthusiastic responses ever seen in
Congress for a foreign leader. Billed in advance as the political highlight of the first formal
U.S.-Russian summit since the collapse of communism, the speech was interrupted by nine
standing ovations and chants of "Boris, Boris" from the packed House chamber. 10

Eight years later almost to the day, Clinton was in Moscow to address the Duma. He was received with a
mixture of indifference, hostility, and contempt:

When Mr. Clinton addressed the Duma... only about one-third of the legislators bothered to
show up. The rest of the audience was composed of staffers and others dragooned into
fillingtheseats.il

Most of the applause for Clinton's speech came from the large entourage of American officials who
followed the president into the chamber, to the chagrin of the Russian audience. Both inside and outside
the chamber, the president was jeered and insulted. 12

A few weeks later, President Putin was warmly received in Beijing, reviewing goose-stepping soldiers of
the People's Liberation Army in the square where the Goddess of Democracy had once stood.

1993-95: From Sino-Russian Detente to 'Partnership'

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 China is the most important state for us.

President Yeltsin, remarks at a foreign policy meeting in the Kremlin, June 1995 13

Russia's turn toward the PRC, like its growing hostility toward Washington, was rooted in the setbacks
experienced by American-sponsored "reforms " and "reformers" during this period. The progressive
discrediting of the Clinton administration economic policies invested the "Chinese model of
development" and the PRC leadership with new prestige. As early as December 1992, Yeltsin himself
had praised "the Chinese tactic of reform" during his visit to Beijing, 14 and this sort of praise became
steadily louder and more ubiquitous as Russia's economic turmoil showed no sign of ending.

Just as Russian "westernizers" who favored domestic reform tended toward a relatively pro-Western
foreign policy, so too the opponents of democracy and free enterprise at home tended to favor an
orientation toward American rivals or enemies abroad. The most powerful of these by far was the
Communist government in Beijing. 15

Several witnesses who testified before the Advisory Group observed another factor that encouraged
Moscow's turn toward Beijing: the perception among the Russian elite that while the PRC had adopted a
far more anti-American foreign policy than Russia, it was benefiting from far greater trade and
investment. This perception intensified after the Clinton administration's well-publicized 1994 decision
to reverse its earlier linkage of trade and human rights. Thereafter, many Russians believed, the Clinton
administration directed more high-level attention to the PRC, accorded it priority over Russia in trade
negotiations and admission to the World Trade Organization, and steadily increased the disparity in
American economic ties.

The perceived contrast between America's aggressive economic engagement with the PRC and its virtual
disengagement from Russia strengthened those in Russia~and in the PRC~who argued that a harder line
against the United States in the foreign policy and security spheres does not hurt in the sphere of
economics and trade, and possibly might help. 16

Finally, the protracted failure of the Russian economy made foreign sales of weapons and military
technology increasingly vital for a whole range of actors—from the Russian government as a whole, the
armed forces, and the military-industrial complex down to individual ministries, industries, factories,
military units, and research institutions, and even to individual bureaucrats, company officials, officers,
soldiers, and scientists. The PRC~"one of the most solvent nations in the world," as Yeltsin remarked at
the December 1992 Sino-Russian summit in Beijingl7~was a potential key customer for these highly
motivated sellers. 18

The change in tone of Sino-Russian relations was apparent even before the September 1994
Moscow summit between Yeltsin and Jiang. 19 The Sino-Russian Joint Statement issued
there described the relationship between Russia and the PRC as "a constructive partnership."
The same statement pledged opposition to "hegemony, power politics, and the establishment
of antagonistic political, military, and economic blocs"~a thinly veiled reference to the
United States that would become steadily more strident at each successive Sino-Russian
meeting.

By the May 1995 summit meeting, President Jiang would announce that Russia and the PRC had
"decided to establish and develop a constructive Sino-Russian partnership that would strategically gear

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us toward the next century. "20 From then on, the formulation "strategic partnership" would be used to
describe the relationship.

1996-98: Solidifying the Russian-PRC 'Strategic Partnership'

[TJhe communique [issued by Yeltsin and Jiang in Shanghai in April

1996] represents nothing less than a declaration of independence by
both Moscow and Beijing from the strategic triangle that had
evolved in the two decades since Richard Nixon's opening to China.
A basic premise ofthat triangle was that the United States place
itself closer to both Beijing and Moscow than either was to the
other, achieving a strong bargaining position vis-a-vis each. This
new Shanghai communique symbolizes the demise of that process
and a deliberate effort by both China and Russia to reduce
America's options in Asia.

Former Secretary of State Henry Kissinger, May 14,1996 21

There is no such pair in the world.

President Yeltsin, remarks on Sino-Russian relations at the April 1996 Beijing summit 22

The transition between a limited Sino-Russian detente and the new "strategic partnership" reached a
critical juncture in 1996-98, when a number of factors emerged to crystallize a far-reaching change in
Moscow's relations with Beijing and Washington. Beijing viewed the replacement of Russian Foreign
Minister Andrei Kozyrev by the veteran Communist diplomat Yevgeny Primakov in 1996 as a
repudiation of Russia's heretofore "bankrupt pro-Western foreign policy. "23

Chinese and Russian officials ostentatiously paraded the new understanding between Beijing and
Moscow at their summit meetings during those years. At the September 1994 summit in Russia, Jiang
Zemin had cautiously stated that "[njeither confrontation nor alliance corresponds to the fundamental
interests of the two peoples."24 But by the April 1996 summit in Beijing, Russia and the PRC pledged
"their resolve to develop a strategic partnership of equality, mutual confidence and mutual coordination
toward the 21st century. "25

Ironically, the initiative for this characterization came not from the PRC, although the U.S. and the PRC
had just endured the March 1996 military confrontation in the Taiwan Strait. Instead, it was the result of
the personal initiative of the Clinton administration's partner President Yeltsin~a striking example of the
failure of the Clinton troika to capitalize on their personal relationships with the Yeltsin administration,
especially given the strenuous efforts the Clinton administration was then making for his re-election.26

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At the April 1996 summit, Russia and the PRC also institutionalized semiannual summit meetings,
created a new Moscow-Beijing hotline, and pledged to further develop both military exchanges and
"cooperation on military technology." While approvingly noting a supposed trend toward a "multipolar"
world, the Joint Communique also acidly cited the continuation of "[h]egemonism, power politics, and
repeated imposition of pressures on other countries," as well as "new manifestations of bloc
politics"27--points repeated and embellished in subsequent Sino-Russian statements and documents.

In November 1996, Russian Foreign Minister Primakov stated unequivocally that "[t]he stronger China
becomes, the more peace and stability in the region will benefit. "28

Their Own Gore-Chemomyrdin Commission

During Premier Li Peng's visit to Moscow from December 26-28,1996, Russia and the PRC held the
first meeting of their own version of the Gore-Chernomyrdin Commission, complete with standing
subcommittees devoted to transportation, energy, trade, and economic and scientific eooperation.29 By
elaborately duplicating the Gore-Chernomyrdin structure for its relationship with the PRC, the Russian
government went out of its way to erase the notion that Washington was its preferred interlocutor. The
inaugural meeting of the Commission committed both sides to a highly ambitious~and ultimately
unrealistic-target of $20 billion in trade by 2000.

An extremely public demonstration of the change in Sino-Russian relations played out over the winter of
1996-97. The Russian Defense Minister, Igor Rodionov, who had included the PRC among potentially
threatening countries during a military conference of the Commonwealth of Independent States on
Christmas Day in 1996,30 was rebuked publicly by both the Russian Foreign Ministry and President
Yeltsin's spokesman. In January 1997, Rodionov sent an official message to the Russian armed forces
praising Sino-Russian relations, and disavowing his earlier statement. 31

At the April 1997 Moscow summit, both presidents went to the unusual length of publishing a
"Russian-Chinese Joint Declaration on a Multipolar World and the Formation of a New International
Order." It reaffirmed that Russian-Chinese relations aimed at "strategic cooperation."32 Although the
references to the United States and NATO are characteristically opaque, the declaration is a concise brief
against what Moscow and Beijing conceived of as American policy.

Such an explicit itemization of Russian criticisms of the United States should have been viewed as a
striking development in a year when the "Dream Team" of westernizing reformers was in power in
Moscow,33 and just one month before Russia and NATO signed the "Founding Act" in Paris.34 But
neither the Clinton troika nor the administration as a whole seemed capable of adjusting their policies to
fit the rapidly changing situation.

By the time Clinton met Yeltsin at the funereal September 1998 summit, immediately in the wake of
Russia's complete economic collapse, the would-be American "strategic partnership" with Moscow had
become a hollowed-out shell. The thorough discrediting of the U.S.-inspired Russian economic
"reforms" and the now-fundamental U.S.-Russian disagreements over virtually the entire spectrum of
major foreign policy issues-Iraq, Iran, the Balkans, and NATO-had left the relationship in tatters.
Though the summit documents and statements continued ritually to allude to a Russian-American
"partnership,"35 they were unable to paper over explicit disagreements on these topics.36 The
disagreements went unresolved, and had no analogues in the burgeoning Sino-Russian partnership.

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1999-2000: 'A New Stage of Development' in the Strategic Partnership
Worse was to follow. As NATO military intervention in Kosovo in 1999 sparked a free-fall in U.S.
relations with both Russia and the PRC, Russian and Chinese threats and denunciations of the United
States that were unprecedented since the Cold War37 were surpassed only by weapons transfers of
extraordinary scope and sensitivity from Russia to the PRC.

At the end of NATO negotiations with Milosevic-though not before-Russia cooperated to some extent
with NATO. 38 Nonetheless, neither Yeltsin nor Russia's foreign and defense policy makers were
prepared to forget Kosovo. Instead, they appear to have concluded that Russia could more safely and
appropriately respond half a world away, by strengthening the security relationship with Beijing. The
PRC government, outraged by NATO's accidental bombing of Beijing's Embassy in Belgrade, was also
thoroughly willing to deepen the "strategic partnership."

During a lengthy visit to Russia in June 1999, General Zhang Wannian, Deputy Chairman of the PRC's
Central Military Commission, spoke by telephone with the ailing President Yeltsin and met in Moscow
with Prime Minister Stepashin, Defense Minister Sergeyev, and then-FSB head and Security Council
Secretary Vladimir Putin. Stepashin told Zhang that his father had been a Soviet military adviser in the
PRC: "My father served with the navy and helped build China's armed forces. Now, meeting you, I feel I
am continuing my father's cause." Putin told Zhang, "Highest-level ties are developing very fruitfully....
Russia's and China's interests in the present international circumstances largely coincide."39

Gen. Zhang was given unprecedented access to Russian military facilities. He visited air force and air
defense command posts, a Strategic Rocket Forces installation near Novosibirsk, the Pacific Fleet's
commanders at Vladivostok, and the commanders of the Far Eastern Military District at Khabarovsk. A
Russian Defense Ministry spokesman told the press that during Gen. Zhang's visit to Novosibirsk, he
was shown a Topol SS-25 intercontinental ballistic missile and given an explanation of its potential for
overcoming the defenses of a "potential foe. "40

At Vladivostok, Gen. Zhang told the press that Russo-Chinese "military-technical cooperation has the
best prospects" among Sino-Russian initiatives. The upcoming summit in the fall, he said, would
probably further strengthen such bilateral relations.41

Gen. Zhang's prediction was amply justified. The PRC-Russia summit in the Kyrgyz capital of Bishkek
in August 1999, which also included the Central Asian republics of Kazakhstan, Tajikistan and
Kyrgyzstan, was a debacle for United States relations with both the PRC and Russia. Going far beyond
earlier formulations, Yeltsin bluntly told the press, "I am in fighting form, ready for battle, especially
with Westerners.... The current summit is taking place in conditions of an aggravated international
situation. Some nations are trying to build a world that would be convenient only for them, ignoring that
the world is multi-polar." 42

Yeltsin and Russia were once again more assertive in denouncing American policy than the PRC
itself~a further striking example of the failure of the Clinton administration's reliance on a personal
relationship with Yeltsin.43

At the same time, the Sino-Russian commission for economic cooperation, headed by Deputy Premier

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Ilya Klebanov, the point-man for Russia's military-industrial complex, was proving itself considerably
more potent than the Gore-Stepashin Commission. It was busy preparing a cornucopia of Russian
weapons sales for the planned Russian visit to Beijing to meet with Zhu Rongji, Li Peng, and Zhang
Wannian.

The Russian delegation included Alexei Ogaryev, head of the Rosvooruzhenie arms-export monopoly,
and Yuri Koptev, the head of the Russian Space Agency. President Jiang, newly returned from the
Bishkek summit, met the delegation on the final day of their visit. According to Deputy Premier
Klebanov, the Russian delegation brought "several new, very serious suggestions, including on military
and technological cooperation... Russia and China are strategic partners."44

Col. Gen. Leonid Ivashov, the head of the Defense Ministry's International Cooperation Department and
an outspoken critic of Washington and NATO, promised the press that" [military cooperation between
our two countries will considerably expand in all aspects soon. "45

Ivashov was as good as his word. Press accounts reported that Presidents Yeltsin and Jiang had already
agreed on a $1 billion purchase of at least two Akula-dass nuclear-powered attack submarines at the
Bishkek Summit.46 In Beijing, a $2 billion contract to purchase Su-30MKK long-range fighters was
announced.47 At the last Yeltsin-Jiang summit in Beijing in December 1999, the two presidents repeated
a litany of anti-American charges, and hailed the "coordination" of their foreign policies in opposition to
the American government.48 By the end of 1999, CIA Director Tenet was reportedly ordering a "crash
effort" to assess Sino-Russian ties.49

These developments continued in 2000 under the incoming Putin administration. The large Russian
delegation to the July 2000 Beijing summit was a who's who of the Russian military-industrial complex.
It included Defense Minister Sergeyev; Foreign Minister Ivanov; Rosvooruzhenie chief Ogaryev;
Atomic Energy Minister Yevgeny Adamov; and Deputy Premier Klebanov, the government lead for
arms sales. The collective presence of such powerful figures was eloquent testimony to the pervasive
military orientation of the Sino-Russian partnership.50

The "Beijing Declaration by the People's Republic of China and the Russian Federation" issued at that
summit is uncompromising in tone:

China and Russia support in the international arena forces of peace, stability, development,
and cooperation, defy hegemonism, power politics and group politics, and oppose attempts
to amend the basic principles of international law, to threaten others by force or to interfere
in other countries' internal affairs....

The further and comprehensive development of economic, trade, scientific and

technological, and military-related technological cooperation between China and Russia is
vital for the expansion of the Sino-Russian strategic partnership of cooperation based on
equality and trust. 51

The July 2000 Sino-Russian summit in Beijing represented, in the words of President Jiang, "a new stage
of development" in the strategic partnership between Moscow and Beijing.52 It marked the evolution of
the Russian-PRC relationship into an explicitly anti-American political and military compact. The
summit dispelled rumors that Russia was planning to curtail military technology transfers to the PRC,53
just as it went far toward allaying Beijing's uncertainly over the Russian proposal for cooperation with
NATO on theater missile defense research and deployment by making clear that the proposal was not
intended to protect either the United States or Northeast Asia. And the summit made explicit that the

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core of the Russo-Chinese strategic partnership was now opposition to American interests around the
world.
Ill Ü- u
..•«1*111

THE TIES THAT BIND: President Putin, right, introduced President Jiang, center, to Russian Defense Minister
Igor Sergeyev during a welcoming ceremony in Beijing's Tiananmen Square, July 18, 2000. The two leaders
discussed increasing military cooperation and their mutual opposition to U.S. proposals for an anti-missile
defense. AP Photo/Sergei Karpukhin, POOL

As with the deterioration in U.S.-Russian relations, the strengthening of the Sino-Russian relationship
from 1993 to the present is clearly traceable in the Russian and PRC foreign policy and security
doctrines. The January 1993 Foreign Policy Concept of the Russian Federation discussion of Asia began
with the United States:

For Russia, the time has become objectively ripe for close cooperation with the United
States in the Asia-Pacific region, with whom we are today brought together by adherence to
singular democratic values and an unconditional interest in stability in the region. It would
be expedient for us to share responsibility with the United States for the provision of
security in the Asia-Pacific region, to become strategic partners here. For these purposes, we
should reorient our military potential in the direction of ensuring regional stability and
creating reliable guarantees of common security together with the United States.54

The immediately following section on the PRC, by contrast, posited much more distant relations:

A realistic transformation of the nature of relations with China must consider the differences
in ideology and the socio-political systems of the two countries, and must also proceed from
the principle of no alternative for Russia other than good neighborly intensive and
substantial relations with it. In the past, confrontation with the PRC cost the U.S.S.R. (as
well as China) much too dearly, and was one of the main reasons for our alienation from the
region.55

Notably, the 1993 Concept stated that "[i]n spheres of military-technical cooperation, we should measure
our commercial interests against the task of maintaining stability in the region and not permitting the

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re-creation of a situation from the cold war times, when the United States armed Taiwan, while we
armed Communist China. "56

By contrast, the revised Foreign Policy Concept of the Russian Federation issued in June 2000 states
that:

The concurrence of the fundamental approaches of Russia and the PRC to the key issues of
world politics is one of the basic mainstays of regional and global stability. Russia seeks to
develop mutually advantageous cooperation with China in all areas. The main task is, as
before, bringing the scale of economic interaction in conformity with the level of political
relations.57

Russian foreign and security policy doctrine is now virtually coextensive with that of the People's
Republic of China. The PRC's July 1998 White Paper on China's National Defense stated that

hegemonism and power politics [Moscow's and Beijing's code words for U.S. policy]
remain the main source of threats to world peace and stability; Cold War mentality and its
influence still have a certain currency, and the enlargement of military blocs and the
strengthening of military alliances have added factors of instability to international security;
some countries, by relying on their military advantages, pose military threats to other
countries, even resorting to armed intervention. 5 8

As in the Russian documents, the immediacy and malevolence of the American threat is even more
dramatically portrayed by the PRC in 2000. The PRC Foreign Ministry's formal presentations depict a
much more threatening international environment, animated by the United States. "China's View on the
Development of Multi-polarity" bemoans that while the international situation on the whole has become
more relaxed since the end of the Cold War, nonetheless

over a period of time, world forces have become increasingly out of balance, hegemonism
and power politics have further developed, and regional crises have occurred frequently.
This shows that the move toward multi-polarization of the world is a tortuous and long
process. At present, by virtue of its economic, technological, and military advantages, an
individual country is pursuing a new "gunboat policy" in contravention of the United
Nations Charter.59

Thus, the practice and doctrine of both PRC and Russian foreign and security policy are increasingly
converging. Whereas Russia accorded a privileged position to the United States in 1992, it has now
reversed field. From practical and doctrinal equidistance by the mid-1990s (symbolized by the creation
of a mirror-image Sino-Russian joint commission to counterbalance the Gore-Chernomyrdin
Commission), Russian practice and theory by 2000 unquestionably had established a privileged
relationship with the PRC, and had adopted the PRC's view of the United States as a threat.60

As disturbing as these developments are for U.S. national interests and security, there have been
persistent reports of much more far-reaching covert cooperation and agreements between the PRC and
Russia. According to the Washington Post in February 2000, "Western experts and Asian diplomats say
that over the last year, and especially since the Kosovo war last spring, Moscow's security ties have
surpassed the simple cash-for-weapons transactions that characterized the relationship for years and are
evolving into something more complex and potentially far-reaching. "61

In testimony before the House Armed Services Committee on July 19,2000, Prof. Stephen Blank of the

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U.S. Army War College surveyed reports beginning in 1995 and extending through 2000 of explicit
Russian solicitations of a formal military-political alliance with the PRC, together with more recent
reports that the PRC is warming to such proposals. According to Prof. Blank,

on July 12,2000 at least two Chinese language sources, one from New York, reporting from
Taipei, and another from Hong Kong, as well as the Singapore Straits Times, stated that
President [Putin] told President Jiang Zemin at the July 5 Dushanbe Summit of the
Shanghai Five... that in the event of a war with Taiwan, should the U.S. Seventh Fleet sail
to Taiwan's rescue, he had ordered Russia's Pacific Fleet... to block our forces from getting
to Taiwan.62

Prof. Blank further noted there was substantial additional evidence that conflicts with such reports.63 He
summarized that:

while it would be rash to conclude that an alliance in the classical sense is on until we have
further confirmation, these reports should ring alarm bells in the White House, intelligence
community, and the Pentagon. 64

Today, Russia and the PRC coordinate their policies across the spectrum of sensitive foreign policy and
security issues. Both vehemently oppose U.S. national and theater missile defense programs, and U.S.
efforts to amend the 1972 Anti-Ballistic Missile Treaty. Both oppose NATO expansion, despite the
evident lack of a PRC national-security interest in Central Europe. Both bitterly denounce the sanctions
and U.S. use offeree against Iraq. Both oppose NATO policy in Kosovo. Both reject any outside
scrutiny of their human rights abuses in Chechnya, Xinjiang, and Tibet. Moscow supports Beijing's
position on Taiwan, and Beijing supports Russia's war in Chechnya.

After eight years of Clinton policies designed to woo both Moscow and Beijing, the United States is the
odd man out.

Arms Sales: The 'Glue' of the Sino-Russian Partnership

From its inception, the new Sino-Russian partnership has been built on Russian transfers of arms and
military technology to the PRC~transfers seen by Russia as serving both economic and political goals.65
Steady increases in the size and quality of these transfers have accompanied and enabled each
improvement in the "strategic partnership":

In 1991 -96 Russia sold China an estimated $ 1 billion a year worth of weapons and related
technologies. That figure doubled to $2 billion a year by 1997.... In 1999 the two
governments doubled that military assistance package for a second time. Thus there is now a
five-year program through 2004 of $20 billion worth of such transfers....

Every year 8-12 military delegations of various services will conduct mutual visits to the
other country to promote bilateral military ties. Every year 1,200-2,000 Chinese military
students will study in Russian military academies. Both governments' armed forces will
conduct joint exercises at an appropriate time....

A mechanism for the exchange of military intelligence will be established and there will be

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 a mechanism for cooperation in the manufacture of naval, air, and air defense weapons. And
given the scope of other exchanges in technology and know-how it would seem that still
more cooperation is in the offlng.66

Sales of increasingly advanced armaments remain, as one senior People's Liberation Army official at the
PRC's Moscow Embassy recently stated, "the glue" binding bilateral Sino-Russian relations.67 The
sharp increase in the quantity of Russian weapons and technology transfers has accompanied a
progressive easing of qualitative restrictions on Russian exports to the PRC of weapons that most
threaten the United States.

Military Aircraft

In 1992 Russia began delivering Su-27 air superiority fighters to the PRC. By 1994 it reportedly agreed
to sell the PRC the Su-30MKK long-range attack variant of the Su-27, capable of carrying twice as much
armament. The Su-30MKK is capable of carrying the most advanced Russian short- and medium-range
air-to-air missiles. It has also been reported that the PRC will be acquiring the newly-developed Su-32
tactical bomber once it is made available for export in 2002.68

By Yeltsin's April 1996 Beijing summit, Russia and the PRC had reached a licensing agreement for PRC
production of the Su-27.69 Such licensing agreements transfer far more technological capability than
off-the-shelf weapons sales.

Beijing has also reportedly ordered Tu-22M Backfire bombers70~long-range supersonic strategic
bombers capable of performing precision anti-ship missions, as well as conventional and nuclear strikes.
The Backfire's potential use as an intercontinental bomber made it the subject of rancorous arms-control
negotiations between the U.S. and the U.S.S.R. Its capabilities against U.S. carrier battle groups would
arguably be of still greater interest to the PRC.71

The PRC is also reportedly negotiating to acquire Su-37 long-range attack aircraft-arguably the world's
most capable jet fighter.72

In 1997 the PRC acquired the license to produce MiG-31 long-range fighter-interceptors—the most
capable Russian interceptor, and the first with an effective look down-shoot down capability.73

The PRC is seeking to acquire an AWACS radar system from Russia in the wake of Israel's withdrawal
from a planned sale. It has already acquired Ilyushin 11-76 transport aircraft suitable for carrying the
AWACS system.74

In late 1997, the Russian firm Phazotron contracted to provide the PRC with improved Zhuk radars for
the PRC's new F-8II fighter, and for the Chengdu J-10 fighter.75

Warships

During then-Premier Li Peng's December 1996 visit to Moscow, the PLA Navy ordered two
Sovremenny-class destroyers equipped with Moskit ("Mosquito") SS-N-22 surface-to-surface missiles.
These are weapons specifically designed to destroy U.S. aircraft carriers and their AEGIS escort vessels.

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The sale represented "the first export of several state-of-the-art Russian weapons systems, including not
only the ship but also the supersonic Moskit anti-ship missile... new electronic warfare systems and
other naval technology."76 According to Jane's Intelligence Review:

The Sovremennys will also provide the [PLA Navy] with its first viable medium range
air-defense system in the form of the Mach 3 SA-N-7, which has a 25 km range. The new
warships also have a strong anti-submarine armament, including a bow-mounted sonar,
torpedo tubes, rocket launchers and a Russian Ka-28 'Helix' helicopter.77

The PRC's purchase of this anti-U.S. carrier weapons system followed U.S. deployment of two aircraft
carrier task forces to the Taiwan Strait during the missile firings that Beijing ordered during Taiwan's
1996 presidential elections. The first of the Russian-built destroyers, the Hangzhou, arrived in the PRC
in February 2000; the second is expected to arrive in November 2000.78

In March 2000, Russian Deputy Prime Minister Ilya Klebanov announced that "China is interested in
buying not two but a larger number of Russian destroyers equipped with Moskit missiles."79 The
acquisition of these vessels and their missile systems provides a "vital upgrade" to the PLA Navy in its
continuing effort to erode the U.S. Navy's ability to assist Taiwan:

This class of destroyer is equipped with modern, well-proven Russian weapons and sensors
and has been successful in Russian service.... The new missiles pose a potential threat both
to Taiwan's recently modernized navy and to any U.S. carrier battle groups that may be
deployed to the Taiwan Straits.... The addition of the Sovremenny destroyers to the Chinese
order of battle should substantially reduce the nation's susceptibility to such defense
diplomacy.... The Sovremenny destroyers represent a quantum leap in [PLA Navy]
capabilities. ...80

In a July 2000 hearing on the PRC's military capabilities, the House Armed Services Committee was
informed that "American military sources have stated that the Moskit is possibly the most lethal
anti-ship weapon in the world, and that the U.S. Navy has nothing that can stop it."81

DESIGNED TO DESTROY U.S. CARRIERS: During then-Premier Li Peng's December 1996 visit to Moscow, the
PRC Navy ordered two Sovremenny-class destroyers equipped with Moskit ("Mosquito") SS-N-22
surface-to-surface missiles-weapons specifically designed to destroy U.S. aircraft carriers and their AEGIS escort
vessels.

Submarines

Russia has sold the PLA Navy four Kilo-dass submarines, with deliveries beginning in early 1995. The

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Director of Naval Intelligence testified in April 1999: "The last two diesel submarines ordered from
Russia were upgraded variants of the Kilo design. This variant is one of the quietest diesel submarines in
the world and was previously only seen in service with the Russian Navy. "82 The PRC reportedly
intends to obtain licensing rights for construction of Kilo-class submarines, as well.83

The Defense Department's Annual Report on the Military Power of the People's Republic of China for
2000 notes that this acquisition "reportedly has provided the [PLA Navy] with access to technology in
quieting and sonar development, as well as weapons systems." The Annual Report further notes that the
PRC's most advanced indigenously-built diesel attack submarine, the SONG, reportedly incorporates
technologies acquired from both Russia and Western countries, and that "Beijing's next-generation
nuclear submarine programs are expected to reflect a significant amount of Russian influence. "84

Russia reportedly is also prepared to sell the PRC a conventionally-armed version of its Shkval-E
weapon, designed to protect Russian ballistic missile submarines. 85

Armor

Russia approved the sale of 50 T-72 main battle tanks to the PRC's People's Liberation Army in 1992.
By 1995 it had agreed to upgrade the PLA to T-80U tanks, and by 1999 Russia was discussing the sale
of T-90C tanks.86

FROM RUSSIA TO THE PRC: Russia's 50-ton T-90 Main Battle Tank is the most advanced armor unit deployed
by the Russian Army. Russia approved sales of 50 T-72 Main Battle Tanks to the PRC's People's Liberation Army
in 1992, in 1995 it approved orders for T-80U tanks, and by 1999 Russia was discussing selling T-90C tanks to the
PRC.

Beyond-Visual-Range Air-to-Air Missiles

It has been reported that in the near future the PRC will begin receiving shipments of the Vympel R-77
medium-range air-to-air missile, dubbed the "AMRAAMSKI" because of its similarity in capabilities to
the American AIM-120 AMRAAM. The R-77's estimated range of approximately 55 miles makes it a
fully functional beyond-visual-range air-to-air missile. This missile is useful in attacking existing U.S.
fighters such as the F-16 and F-15, and will challenge the superiority of even newer U.S. aircraft such as
the F-22 and F/A-18E/F. According to one analyst, the result of the PLA's acquisition of Vympel R-77
missiles is that "[t]he Chinese air force will pose a greater threat to Taiwan after its acquisition of one of

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the best [air-to-air-missiles] in the world." 87

Surface-to-Air Missiles

According to the Defense Department's Annual Report for 2000, in recent years the PRC has embarked
on an aggressive program to procure state-of-the-art Russian surface-to-air missile systems and related
technologies. To date, limited numbers of Russia's SA-10b, the SA-10c, and SA-15 SAMs have been
sold to the PRC.88

Intercontinental Ballistic Missiles

Either or both of the PRC's two new land-mobile ICBMs, the DF-31 and DF-41, "maybe armed with
multiple independently targetable warheads (MIRVs) based on technology provided by Russia and
illicitly acquired from the United States. "89 In 1995 the Russian Ministry of Defense violated the
Missile Technology Control Regime by selling upper-stage rocket engines to the PRC.90 It has been
reported that in 1995, Russia was preparing to sell heavy SS-18 "Satan" ICBMs to the PRC.91

Russia and the PRC are reportedly close to agreement on joint use of Russia's GLONASS satellite-based
global positioning system. This would aid the PRC military in targeting its rockets and air-to-air
missiles.92

Russia and the PRC are also exploring the possibility of cooperating on a ballistic missile defense~an
ironic form of collaboration, given the two nations' outspoken opposition to U.S. missile defense
efforts.93

Military Technology

In addition to arms transfers and licensing agreements, Russia has transferred significant defense
technology and know-how to the PRC:

Perhaps more serious than Russia's sale of military hardware to China is the transfer of
production technologies. China and Russia signed a memorandum on defense technology
cooperation in 1996 in which Russia agreed to assist China's development of new weapons
systems....

China has also attracted a significant number... of Russian scientists to work in China's
defense industry. These elements of China's military relationship have long-term
implications for China's overall military modernization program in that they may facilitate a
comprehensive upgrading of Chinese defense research, development, and production
capabilities.94

The PRC's arms acquisitions from Russia have multiple rationales:

First, they are endeavoring to fill pressing near-term military needs. Second, and perhaps

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 more importantly, however, they are attempting to acquire advanced military and
military-related know-how. The foreign purchases also represent hedges against the failure
of indigenous development programs.95

The Clinton Administration 'Welcomes' Russian-PRC Military Cooperation

Necessarily attempting to put the best face on the unraveling of its Russia policy, the Clinton
administration has affected to be unconcerned by the Sino-Russian strategic partnership, or the arms
sales that have undergirded it. Indeed, in May 1998, Walter B. Slocombe, Under Secretary of Defense
for Policy, went so far as to say that, "far from seeing a threat to U.S. interests ... we welcome it, as a
step toward Russia being a constructive partner in the region. "96

In July 1998, Ambassador Stephen Sestanovich stated that "[f]o date, Russian arms sales to China have
not significantly improved China's military capabilities." Notwithstanding the PRC's well-known hard
currency reserves, Sestanovich further opined that it "is far from clear that China will be willing or able
to pay for significant quantities of additional weaponry. "97

When asked if the Clinton administration shared our East Asian allies' concern that the PRC-Russian
strategic partnership was a threat to peace and stability, he replied:

[N]o, we do not share that assessment, but agree that we must remain watchful. Both Russia
and China have explicitly declared that their improved relationship is not directed against
the U.S. The U.S. supports the warming in relations between Beijing and Moscow.98

Likewise, when asked In February 2000 about the implications for U.S. security of Russian arms sales to
the PRC, and whether the U.S. has yet expressed any opposition to them to Moscow, Secretary of State
Albright evaded both inquiries in her reply for the record:

While China's purchase of two guided missile destroyers will clearly improve its naval
capabilities, the Department of Defense has indicated that it does not pose a significant
military threat to the U.S. military posture in Asia and that it will not fundamentally alter the
regional balance of power. The United States maintains an active dialogue with Russia on
the issue of arms sales, reflecting our concern about proliferation and regional security.99

The Clinton administration's seeming nonchalance belies a far more serious set of concerns beneath the
surface. In their totality, Russian sales of arms and technology to the PRC now account for more than
90% of the PRC's military imports. 100 As House Armed Services Committee Chairman Floyd Spence
recently reported, "[w]eapons purchases from Russia have given China, for the first time, power
projection capabilities that can be expected to pose new challenges to U.S. forces operating in the China
Seas."101 Sherman Garnett, former Principal Deputy Assistant Secretary of Defense for Russia,
Ukraine, and Eurasia, testified in March 1999:

China's military modernization requires substantial improvements in its air force, command,
control and communications, naval power projection, and space technology. Russia has
accommodated or appears willing to accommodate China in all these areas.... These
sales~and the broader defense and technology cooperation that are linked to them-could
over time help to alter regional military balances in areas of vital U.S. interest in East and

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 Southeast Asia or the Taiwan Strait. 102

The sale of increasingly sophisticated Russian weaponry and technology to the PRC, and the
establishment of close security cooperation between Beijing and Moscow, calls into question the
fundamental prediction undergirding much Clinton administration security planning: that the United
States will face no peer competitor in the military field during the next two decades. 103 Any truly
thoroughgoing combination of Russian and PRC technology and resources would surely produce a peer
competitor for the United States more quickly than is otherwise commonly supposed.

Nor are the national security consequences to the United States limited to the military posture of the
PRC or Russia. Because of the PRC's track record as a significant weapons proliferator, these Russian
exports can be expected to have a cascading effect in other regions of vital importance to the United
States:

China is not simply an importer of arms, it is a major exporter of arms and missile
technology.... China is a particularly important supplier to Iran and has been a major
supplier to Iraq in the past. Any Russian transfers of advanced military technology are likely
to eventually pass on to potentially hostile states once China absorbs them and begins to
produce similar equipment or weapons. 104

An Unnatural Alliance
It is a striking indictment of the Clinton administration's policies that the Sino-Russian strategic
partnership could have taken such deep root during the last eight years despite the latent contradictions
inherent in it. Both Beijing and Moscow have each had to pay a significant price for their strategic
partnership, which remains narrowly based on weapons transfers and self-defeating antagonism towards
the United States.

Russia and the PRC have both been disappointed in their expectations for a broadly-based economic
relationship. Although in 1996 both nations set a goal of $20 billion in bilateral trade by 2000, trade
levels have stagnated at around $6 billion annually. 105 Moreover, they remain overwhelmingly focused
on PRC purchases of weapons and nuclear power technology. Sino-Russian trade overall fell in 1997
and 1998, and has yet to reach its exceptionally modest level of 1993.106

Initial Russian hopes that flourishing transborder trade with the PRC would assuage the economic crisis
in the Russian Far East-arguably deeper even than the other depressed areas within Russia-were dashed
by a host of factors, including the inherent limitations of barter trade, high customs duties, corruption,
burdensome regulation on both sides of the border, and Russian complaints about the quality of Chinese
exports. 107 Beijing and Moscow have already de-emphasized transborder trade and looked instead to
improved political relations between the two national governments to expand the economic basis for the
emerging partnership.

These hopes also remain unfulfilled. In 1997, Sino-Russian trade represented only 2% of the PRC's total
trade. In that year, Russia ranked just eighth among the PRC's trading partners. Russia's total trade with
the PRC was barely a tenth of Japan's, and less than a sixth ofthat with Hong Kong and the United
States. 108

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:; !**«::■-.:;*• *i*:

Even in the Russian Far East, the PRC has failed to become a predominant factor in Russian commerce.
The United States remains the largest investor in the Russian Far East~a far larger investor than the
PRC, whose own vast appetite for capital limits drastically its capacity for foreign investment. South
Korea, not the PRC, is the leading exporter to the Maritime Province; Japan, not the PRC, is the leading
importer of Maritime Province products. 109

Russia's June 28,2000, Foreign Policy Concept states that "[t]he main task [in Russian relations with
the PRC] is, as before, bringing the scale of economic interaction in conformity with the level of
political relations." There is little reason to think that either party will accomplish this "main task":

China wants airplanes from Boeing or Airbus, not Tupolev; it has sought joint ventures with
Audi and General Motors, not Lada.... The hoped-for benefits to Russian industry from
[economic ties with the PRC] have not materialized....

Corruption and rent-seeking have made many rich but seldom have made the enterprises or
their workers better off. Although widespread benefits are usually touted when deals are
signed-proceeds from Russian-Chinese arms sales in late summer 1997 were designated to
pay the salary arrears of Russian officers-little seems to trickle down beyond the senior
enterprise and government officials who are the prime beneficiaries of such deals. 110

Despite much talk of the "complementarity" of the two economies, "Russia cannot provide
China with what it needs for the modernization of its economy. It cannot provide large scale
investment, because such investment is desperately needed inside Russia itself.... China,
which has had a great influx of foreign investment, is itself reluctant to invest in Russia....
Financially, economically, and technologically, both countries still depend more on the
West than on each other."Ill

The key element in Russia's economic relations with the PRC~its weapons sales, licensing
agreements, and technology transfers-are ultimately self-defeating not only on commercial
but also strategic terms. Not only are Russia's weapons transfers to the PRC significantly
improving the military capabilities of an unpredictable neighboring power, but over time
Russia's technology transfers will erode both the PRC and the international market for
further arms sales, as the PRC strengthens its domestic military-technological capabilities,
reduces its dependence on Russian imports, and itself becomes a competitor of Russia's in
the international arms trade.

Despite the muting of official Russian concern over its potential military, economic, and
political rivalry with the PRC, Russian foreign and defense policy planners foresee not only
growing PRC interest in the energy resources of the former Soviet republics of Central
Asial 12—which Russia regards as a vital sphere of influence—but also the potential for PRC
intervention in that region, should declining Russian power or destabilization of the current
secular regimes cause this region to become a source of support for ethnic or Islamist
separatists in Xinjiang. 113 Moreover, the PRC policy of expanding economic links with
Central Asia "is effectively undermining Russia's influence there. The reality of the Chinese
economic boom and the Russian economic bust is causing a shift in the economic
orientation of sections of the Central Asian region from the north to the east."l 14

The imbalance of power between the PRC and Russia in the Russian Far East, a region comprising over
one-third of the Russian Federation's territory but containing only 5.1% of its population, will eventually
require Russia to seek better ties with not only the United States but Japan, South Korea, and other East

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Asian states. As one observer has written,

Russia is an Asian power geographically, militarily, and politically—but not

demographically or economically.... Siberia and the Russian Far East produce more than
90% of the country's oil and gas, all the diamonds, and a great share of other important
natural resources ... [yet only] 7.5 million of the nearly 150 million Russian citizens live in
the Russian Far East.... In 1990-92, for perhaps the first time since Russia annexed the
region in the nineteenth century, there was a net out-migration of more than 225,000.
Moreover, the rate of out-migration was increasing. 115

And although Beijing has, at least temporarily, put on ice its far-reaching potential claims to vast tracts
of the Russian Far East wrested from Qing China during the past 250 years by "unequal treaties," this
vast expanse could theoretically be claimed by the PRC to be as much an irredenta as the island of
Taiwan.

While the emerging causes of friction between Russia and the PRC are based on long-standing
differences, the causes of the current friction between Russia and the United States are not. A U.S.
national missile defense does not begin to threaten Russia's deterrent forces. Kosovo and Bosnia are, in
fact, tangential to both Russian and American strategic and economic interests. NATO enlargement does
not threaten Russia and is not designed to exclude it from Europe. Nor does the United States seek to
exclude Russia economically, politically, or militarily from Central Asia or the Caucasus.

The United States has a profound national security interest in Russia's becoming economically strong,
free, and democratic. If Russia were to succeed in moving decisively from its Communist past to a free
enterprise system, its future relationship with the United States could well mirror that of Japan,
Germany, France, or England.

But Russia's current flirtation with the PRC's heavily statist economy, to the exclusion of opportunities
with the United States, is destined to delay indefinitely its progress toward that goal. The current
"strategic partnership" with the PRC, designed for joint confrontation and competition with the United
States, is indeed an unnatural alliance that will only further delay Russia's economic transformation and
further test the patience of the long-suffering Russian people.

Nearly a decade after the end of the Soviet Union, the task ahead for Russia remains the same. But her
estrangement from the American model of freedom has taken Russian on a destructive detour of
unknown duration and uncertain destination.

The Future: 'A Strategic Partnership for the Twenty-First Century'?

[TJhis [Sino-Russian] relationship has reached a mature stage of

strategic military-political coordination, if not alliance, mainly
directed against U.S. policies and interests.

Professor Stephen J. Blank, U.S. Army War Collegel 16

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The coin of "strategic partnership" has been badly debased in recent years. During the same period in
which Russia and the PRC were flaunting their "strategic partnership," President Clinton and Vice
President Gore were using the same term to describe U.S. relations with both of those countries. 117 As
Peter Rodman has testified: "The Clinton Administration still speaks glowingly of its 'strategic
partnership' with a democratic Russia. Yet, for Russia, 'strategic partnership' is the phrase used for its
ties with Iran and China-which happen to be America's most serious strategic problems. "118

The Clinton administration's mismanagement of U.S. relations with Russia has led to a growing military
and political relationship between Russia and the PRC that is meant to seriously challenge the United
States, our allies, and existing security arrangements in the Pacific. Two significant factors, moreover,
are currently strengthening the "partnership." Russia's continued economic disarray and the financial
crisis in the Russian military-industrial complex remain powerful motives for arms sales and
proliferation activities. Second, largely for this reason, the "Moscow Consensus" on foreign policy
appears to be firmly in place, with the result that the Russian domestic political premium on
demonstrating distance from Washington is even greater now than in the past.

It is not only deeply ironic but tragic that this state of affairs follows $112.2 billion in Western assistance
to Russia. After eight years of a Clinton administration policy that has yet to place highest priority on the
basic steps needed to create a free enterprise economy in Russia, the U.S.-Russia relationship is in ruins,
characterized by deep and growing hostility and divergent perceptions of international realities and
intentions.

CHAPTER 12

DESPITE YEARS OF
POLICY FAILURE, A
BRIGHT RUSSIAN
FUTURE IS STILL
POSSIBLE
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 A SPIRITUAL GATHERING: Russian Orthodox Patriarch Alexei II took
part in a service marking the 10th anniversary of his installation inside Christ
the Savior Cathedral, in Moscow, June 10,2000. The giant cathedral, which
Josef Stalin had torn down and turned into a swimming pool, was restored in
1997. Seventy bishops, 400 priests and deacons, and thousands of believers
sang at the anniversary ceremony, which was covered by all of Russia's major
television channels and newspapers and marked with an official statement by
President Putin highlighting the importance of the Orthodox Church to Russian
society. "The Russian Orthodox Church," Putin said, "plays a colossal role in
the spiritual gathering of Russian lands after years of unbelief, moral downfall
and theomachy." Today, after the battle against the false gods of Communism
was won, a bright future is finally possible for Russia, AP Photo

It is my fervent hope that the two of us can

begin a process which our successors and our
people can continue-facing our differences
frankly and openly and beginning to narrow
and resolve them; communicating effectively so
that our actions and intentions are not

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"";.':"*'■ '•'■* ~\yi* -

misunderstood; and eliminating the barriers

between us and cooperating wherever possible
for the greater good of all.

President Ronald Reagan, November 14,1985, on the eve of his first meeting
with Mikhail Gorbachev in Geneva

Seeds of Hope

Nearly a decade after the fall of the Soviet Union it is easily forgotten that for most of the 20th century,
America stood toe-to-toe with a Communist enemy armed with tens of thousands of nuclear weapons,
which had killed at least 20 million of its own citizens and sought to spread its anti-democratic system of
state control of the individual across the planet.

The end of the Soviet Union on Christmas Day 1991 was as profound a victory as the West had achieved
against Imperial Japan and Nazi Germany in World War II. Just as Germany and Japan were guided
through skillful execution of U.S. policy to their current status as free enterprise democracies and strong
U.S. allies, so too did our victory in the Cold War offer the prospect that the Russian Federation would
achieve its people's new dream of freedom, democracy, demilitarization of the economy, and alliance
with the United States.

The 1990s did not witness such a transformation of Russia. Instead of capitalizing on America's most
significant foreign policy opportunity since World War II, the policies of the Clinton
administration-focused on strengthening the Russian central government rather than deconstructing the
state and building from scratch a free enterprise system—contributed to the profound injury of Russia and
her people.

During the last decade, Russia endured the rise of organized crime, oligarchy, and corruption. By 1998,
Russia's economy had collapsed-the culmination of years of deterioration as Soviet central planning was
replaced with neither market competition nor even government-enforced civil order. The consequent
pathologies—from domestic social ills, to increasing weapons proliferation for hard currency, to a foreign
policy marked by a deepening estrangement from the pro-American outlook of the early Yeltsin
period—are the legacy of the post-Cold War era thus far.

The task ahead for Russia in 2000 is essentially the same as it was in 1992. Indeed, as Michael Dobbs
reported in the Washington Post in August 2000, "most people are worse off than they were in 1991." 1
Since so little progress has been made toward putting in place the building blocks of a democratic free
enterprise system, one that serves the people and not the corrupt few, that work must now begin in
earnest. But whereas conditions in Russia in 1992 were eminently hospitable to such an undertaking, the
ensuing years of policy failure have squandered that advantage. Now, with so many Russians having
soured on "reform," the necessary work will be much more difficult.

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

216 of286
collapse of 1998, while devastating, has given way to a determined effort to dig out from beneath the
rubble and start afresh. The hostility engendered by the statist, incoherent, and clumsily-administered
Clinton administration foreign policy need not create an enduring cold peace.

The seeds of hope sown in the Russian soil in 1991 have not yet blossomed into a vibrant, prosperous,
free society, but they have withstood the crony capitalism and outright corruption of Chernomyrdin and
Chubais and the deluge of Clinton administration-orchestrated debt that was wasted by the Russian
government. Hope that was not crushed by Stalin's purges, the KGB, and the epic human misery of the
longest failed social experiment in human history is not easily extinguished. If nurtured, the still-living
seeds of hope can and will produce a bright Russian future.

Russia's Slow Economic Recovery Since the Crash of 1998

Russia's total economic collapse in 1998 inflicted pain, suffering, and disruption on millions of
Russians. It is a testament to the storied Russian character that Russia has survived, and is fighting back.
If given a chance, freedom can yet succeed in making Russia prosperous.

The collapse of 1998 gave evidence that reliance on the state had been broken. For the most part,
Russians were forced to survive on their own; few looked to the state for help. "No one I know expects
anything from the government or any other authorities," writer Tatyana Tolstaya matter-of-factly stated.
"People try to survive without the government as much as possible. "2

This view was confirmed by a survey of Russians carried out at the end of September 1998, in the depths
of the economic crisis. Of those polled, 61% said that they were relying on themselves to get through the
crisis, while 14% were depending on families, neighbors, and friends. Only 12% said they had turned to
the state for aid. Asked what will enable them to live through Russia's economic collapse, none
mentioned the state. 3

"The August crisis was a great economic shock, but the psychological shock was even stronger," pollster
Yuri Levada noted. "But after several months, the country began to calm down. "4 The rise in world
energy prices provided a needed respite for Russia to begin its gradual economic reconstruction in 1999.

Virtually all of Russia's major economic indices improved modestly in 1999. This is not surprising, of
course, given the exceptionally low 1998 base from which percentage "improvements" were measured.
Nevertheless, according to official Russian government statistics, the economy grew 3.2% in 1999;
industrial production rose 8.1%; and inflation was lower than expected at 36.5%.5

The slow economic progress that began in 1999 has gained some momentum in 2000. The Russian
government reported in July 2000 that the economy was growing at an annual rate of 7.3% during the
first six months,6 while industrial output from January to June rose 8.6%.7 Unemployment, which had
been as high as 13% of the workforce after the 1998 economic collapse, fell slightly to 11.7% by the end
of 1999. 8 By June 2000, it remained at 11.5% of the 73.6 million citizens of working age. 9

Inflation after the first six months of 2000 had further improved and was expected to fall to 20% for the
year.

The surge in oil prices has meant a major windfall in export earnings for Russian energy companies.

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Russian oil and gas exports now account for more than half of all federal tax receipts. 10 Fueled by
strong energy exports, Russia's trade surplus reached $27 billion for the first five months of this year. 11

The resuscitation of Russia's economy and the rising export earnings have increased the government's
tax revenue and boosted the Russian Central Bank's reserves to a post-crash high of $23.2 billion in
August 2000.12

Promising Tax Reform

The Russian government is using the breathing room created by high oil prices and import substitution
to implement much-needed tax simplification and government spending reductions.

After President Boris Yeltsin's December 1999 resignation, Russia's Center for Strategic Research was
tasked with drafting an economic reform program for the incoming Putin government. Headed by
German Gref, whom Putin subsequently appointed Russia's Minister for Economic Development and
Trade, the Center released its report in June 2000. It emphasized:

* Reducing government spending

* Balancing the state's budget

* Eliminating many state subsidies

* Implementing a 13% flat income tax

* Reducing turnover taxes on business

The 13% flat income tax, in particular, has gained popular support in part because it is seen as a way to
eliminate tax evasion by wealthier Russians. The flat tax passed the State Duma overwhelmingly on July
19,2000, and it passed the Federation Council with an unexpectedly strong vote of 115 to 23 seven days
later. 13 Vladimir Putin signed the flat tax into law on August 7,2000, calling it, "the most important
event in the country's life." 14

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 Russians callously optimistic
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people with higher education (4234^ and rest
dsneof bigeitiÄs <52m.
Released by Ihe Publk: OpSnian socfebgfc
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The turnover tax, which is a major source of revenue for, as well as abuse by, the regional governors,
was reduced from 4% to 1%. The Russian central government had hoped to abolish this tax on business
revenues; but facing strong opposition from the governors, the Putin government settled for a 75%
reduction in rates.

Both the flat tax and the deep cut in the turnover tax are designed to simplify the tax code, spur foreign
and domestic investment, reduce capital flight, and encourage higher tax compliance. "I believe that
these measures will encourage the return of some money that left the country as capital flight, not
criminal money, but money that went because of high taxes," Russian Prime Minister Kasyanov said. 15

Capital flight, the estimates for which range from $150 billion to $500 billion over the past decade, has
also recently dropped to $300 million per month. 16 Growing repatriation of Russian capital, the signs of
which have been evident for several months, is essential if Russian investment is to improve over the
long term. Relief from an onerous tax system, greater transparency, and legal guarantees against
expropriation will remove much of the incentive for Russians to send their cash abroad to safer havens.

To encourage the growth of the entrepreneurial sector, Putin has established an Entrepreneurial Council
to coordinate ties between Russia's executive agencies and businesses. The Council, which is chaired by
Prime Minister Kasyanov, will work with its counterpart in the Duma to improve the laws affecting
small businesses. 17

Small and medium business in Russia produce just 12% of Russia's gross domestic product, compared to
70% in European economies. Entrepreneurs remain bogged down in taxes and red tape and are starved
for cash due to the unwillingness of local banks to provide inexpensive loans for longer than two years.
The Putin government views small business as key to raising living standards, creating wealth, and
increasing employment in a short period of time. 18

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A Wired Russia

Like all other countries, Russia must utilize information technology if it is to succeed in the 21st century.
In his State of the State address, President Putin noted: "Countries like Russia have to think hard about
how they're going to get the investment to allow people to become part of the global, information
economy."

While estimates put the number of Russian Internet connections at 1.9 million, many of those are
multi-user sites hosted by universities and civic organizations. According to a U.S. market research firm,
the number of Russians going online has increased 32% in the first quarter of 2000 alone. This same
firm predicted in June 2000 that Internet users in Russia will reach 6.6 million by the end of the year,
while another study estimated that 11 million Russians would have access by then. 19

Russia's nascent use of credit cards and its limited banking system make business-to-customer
e-commerce a difficult proposition in the near term. And Russia's ability to enjoy the benefits of
information technology will be severely compromised if Russians lack confidence in its security and
privacy-issues directly implicated by reports that the Russian government plans to closely monitor
electronic communications.20 But Russians' growing enthusiasm for the Internet may help overcome
these obstacles.

WIRED RUSSIA: Moscow student Maksim Gusev uses the Internet in Moscow's Internet Chevignon cafe to ask
then-Russian President Boris Yeltsin questions on May 12,1998. MSNBC organized Yeltsin's Internet debut. The
Internet and Internet access are growing in Russia, facilitating international trade and promising economic growth.
AP Photo/Mikhail Metzel

Foreign Investors Tentatively Consider a Return to Russia

In a sign that foreign investors are starting to return to Russia, foreign investment is slowly returning to
pre-August 1998 levels.21 More than $10 billion in foreign capital has gone into Russia during the first
five months of 2000-twice as much as during all of 1999.22 According to official figures, foreign direct
investment in 1999 totaled only $4.26 billion,23 although that was 250% higher than the extraordinarily
depressed 1998 figure.

In 1999, foreign direct investment in Russia amounted to $61 per capita; by comparison, the per capita
figures for Poland and the Czech Republic were $389 and $967, respectively.24 But foreign direct
investment in Russia for the first quarter of 2000 rose to $2.4 billion, 57% higher than for the same
period the year before. The trend, at least, is favorable.

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Portfolio investment, more so than foreign direct investment, has remained extremely low-$31 million
in 1999 compared to $3.3 billion in 1997.25 This is reflected in the continued depression of the Russian
stock market, compared to its levels before the 1998 economic collapse.

According to a May 2000 report by the Bank for International Settlements, international banks continued
to lower their exposure to Russia in the second half of 1999 to their lowest point since the end of
1994~unsurprising, given Russia's extremely poor record of servicing debt owed to the London Club of
commercial debtors. American banks, according to the report, reduced their exposure from $7.78 billion
in mid-1998 to $1.68 billion by the end of last year.26 But others are making up at least a small part of
this loss:

* A Western syndicate of banks in August 2000 announced a $50 million loan to oil
conglomerate Yukos, the first such private loan since the August 1998 collapse.

* The European Bank for Reconstruction and Development in May announced a $150
million three-year loan for oil giant Lukoil.

* The U.S.-Russia Investment Fund in June announced plans for at least $150 million in
investments in Russia over the next 18 months, with the option of investing more if the
Russian economy improves.

* Ford Motor Company recently started construction of a $150 million plant near St.
Petersburg.

* In early June, Royal Dutch/Shell bought from Marathon Oil a 37.5% stake in a Far East
oil and gas exploration project, Sakhalin 2, in a deal worth an estimated $350 million.

Meanwhile, Russia continues to maintain a positive balance of trade, helping to replenish its weakened
foreign currency reserves. The European Union is now Russia's largest trading partner.

The United States continues to be the largest foreign direct investor in Russia.27

A New Generation
The younger generation in Russia—less influenced by the legacy of Soviet Communism than its
parents—has a positive attitude about what Russia could become, as well as the desire and initiative to
obtain the skills required for the 21st century economy.

Perhaps most important for Russia's future is that young Russians are significantly more supportive of
democracy than their older countrymen. In a recent public opinion poll, fully two-thirds of young
respondents favored "West-European-style democracy" for Russia.28 While support for democracy
among some Russians has eroded somewhat over the last few years, the strongest support for basic
democratic rights is among youth.

While older Russians debate whether Russia's future is in the West or East, the younger generation more
clearly sees Russia's future with a Western orientation. Importantly, they are "less inclined to pine for the
Soviet Union" than their older counterparts,29 and those young people who do view the disintegration of

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9Jjg??SEi3

the U.S.S.R. negatively are focused on narrow, practical issues such as the difficulties involved in
traveling between the new independent states of the former Soviet Union. 30

Young Russians also display an entrepreneurial spirit unknown to previous generations. Remarkably,
three-quarters of 18-29 year-olds believe that it is important, "to achieve success with a business of their
own. "31 This energy and vigor can transform Russian society and Russia's economic future, if it is not
indefinitely stifled by current government impediments to the market.

Three-fifths of Russians under the age of 30, according to a 1996 study, favored allowing foreign
businesses to operate in Russia.32 More generally, younger Russians are also more likely to endorse
Russia's integration into the international community.33

Younger Russians overwhelmingly are more interested in seeing their country become economically
prosperous than in seeing it become militarily strong. A 1998 survey by the U.S. Information Agency
found that young people favored Russia becoming, "a prosperous country in which people live well,"
over "a great military power respected by other nations," by a margin of 80% to 15%.34 Even among
young people in the military, 65% chose prosperity over great power status.35

These encouraging signs suggest that Russia's rising generation is unlikely to support a return to the
Soviet Union's state-controlled and excessively militarized economy~or the repressive domestic policies
and threatening foreign policy behavior that accompanied it.

A Rebirth of Faith
While public confidence in many institutions is low, the Russian Orthodox Church enjoys greater
support than any other institution. Sixty-three percent of Russians expressed confidence in the Orthodox
Church.36 As a result, the Russian Patriarch, Alexei II, has become one of the country's most influential
public figures.

Religious faith has sharply increased since the collapse of the Soviet Union. As one sociologist noted,
"in a remarkably brief period of time, Russia has become one of the most God-believing countries in
Europe."37

Between 1991 and 1998, those willing to tell pollsters they held a belief in the existence of God
increased by one-third, from 45% to 60%.38 One-quarter of Russians surveyed responded that they had
not believed in God previously, but had changed their minds since the fall of Communism. (The
respondents who had changed their views were concentrated among the young and the educated.) 39 At
the same time, the number of Russians identifying themselves as Orthodox believers nearly doubled,
from 30% to 58%.40

Religious belief now plays an increasingly prominent role in Russian public life. In fact, in the campaign
preceding Russia's 1999 Duma election, even Communist leader Gennady Zyuganov appealed for the
support of Orthodox voters.41 That the leader of the successor to the militantly atheist Communist Party
of the Soviet Union would make such an appeal demonstrates how profoundly Russian society has in
fact been transformed.

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 REBIRTH OF FAITH: The Kursk tragedy tested Russian believers and left the nation grief-stricken. Here, sailors
Denis Kopylov, Maxim Yegorov, Alexander Avronyonok (left to right), light candles in a Moscow church for the
fallen sailors, Aug. 23, 2000. AP Photo/Mikhail Metzel

Russian President Vladimir Putin has professed his own Orthodox faith and has strongly endorsed the
role of the Orthodox Church in Russian life. For example, Putin attended an Orthodox service conducted
by the Patriarch in the Kremlin's Annunciation Cathedral immediately following his inauguration.42
And on the tenth anniversary of the election of Alexei II as Russia's Patriarch, Putin sent the following
message: "The Russian Orthodox Church plays a colossal role in the spiritual gathering of Russian lands
after years of unbelief, moral downfall and theomachy."43

Churches long in disrepair or completely demolished by the Soviet state have been restored, and in many
instances reconstructed from the ground up. The most celebrated restoration is the rebuilding of the
Cathedral of Christ the Savior, destroyed under Stalin, on the banks of the Moscow River. There are
many examples of individuals privately raising the funds needed to rebuild or restore churches damaged
under Communist rule. In Red Square, a church that had been destroyed to make room for public toilets
and kiosks has been reconstructed to its former glory with private funds raised from Muscovites. Some
of the original bricks, faithfully kept by believers for years, were used in the reconstruction.

Charitable giving is rising in Russia, to the benefit of both organized religion and private civic and social
organizations. The extremely limited resources of most Russians, coupled with the past expectations that
the government would provide, make even such modest growth in charitable giving as Russia has
witnessed impressive. Charitable giving is continuing even though corrupt officials and organized crime
groups have embezzled donated funds and sought to abuse the special tax treatment and duty-free status
enjoyed by many Russian charities in order to import duty-free cigarettes and alcohol. In the aftermath of
the Kursk disaster, Russians ranging from oligarchs and oil companies to ordinary citizens have donated
funds for the crewmembers' families, despite fears that the funds might be misused.44 The goodwill of
ordinary citizens seems inexhaustible.

Russia's Growing Habit of Civic Involvement

During the 74-year existence of the Soviet Union, social organizations existed only with the approval
and funding of the Communist Party. Even where such organizations professed goals of promoting
human rights, press freedom, or social justice, they were mere fronts for a party unalterably opposed to
such aspirations.

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Despite this legacy of exclusion from civic life, a number of genuinely private groups have been founded
in recent years. The number of human rights organizations has grown from fifty in 1996 to over 1,200 in
1999.45 According to the U.S. Agency for International Development (USAID), there are approximately
65,000 active civic and social groups of all kinds in Russia.

Many of these new Russian civic groups have received modest funding support from the United States,
which has contributed to more than 13,500 civic activists. The Eurasia Foundation, the International
Republican Institute, and the National Democratic Institute for International Affairs, working through
US AID and the National Endowment for Democracy, have contributed in this area.

There are signs that privately-organized civic activism is taking root in the new Russia. For example,
more than 60 Russian environmental organizations sent a letter to World Bank President James
Wolfensohn calling on the World Bank to cease lending to Russia. The cutoff was urged in protest of
President Putin's May 19 decree abolishing the State Committees on Environment and Forestry and
transferring the two committees' responsibilities to the Ministry for Natural Resources-which is also
responsible for mining and exploiting Russia's oil, gas, and mineral wealth. Among those signing were
environmentalist Alexei Yablokov and Aleksander Nikitin, the former navy officer who had been
imprisoned after revealing the extent of the Russian navy's harmful nuclear pollution.46

Russians are now accustomed to such elements of civic life as participating in talk radio and debating
domestic and foreign policy openly in the public square. There is a new sense of individual responsibility
for civic life. The habits of participatory democracy and community-based social action are increasingly
well learned.

A Well-Trained Workforce
The Soviet Union's education system was notoriously ideological. It indoctrinated students in
Communist ideology and used the classroom as a tool of state control over the population. Yet precisely
because so much was banned from Soviet classrooms, Russians received a healthy dose of such
politically "safe" subjects as mathematics, physics, chemistry, and engineering. Likewise, training in
classics, ancient history, languages, and geography was politically acceptable under Communism.

A silver lining to the Soviet state's lack of academic freedom was thus its success in training scientists
and specialists. The high level of education and skills in these areas among much of the Russian
workforce is an asset that Russia still possesses intact.

But while Russia still excels at teaching applied sciences, the complete collapse of the Russian economy
in 1998, and the rocky years of the 1990s that preceded it, took a drastic toll on the Russian education
system. There has been an overall decline in quality due to cutoffs of state funding. Russian
schools--virtually all state-run-in recent years have been incapable of supporting their own operation.
Some 500 Russian schools closed in 1999 alone.47 "Some teachers complain of not being paid for
months at a time,"48 and often many teachers work while still owed back salary from the previous
academic year.

Russia's technically educated workforce is thus not being replenished. Improving Russian education to
train a 21st century workforce will require not only building on the strength of its technical and scientific
education in the past, but also unlocking the potential of a new academic freedom that was born with the

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end of Communism. To the extent that the economy recovers, the government will also be able to
provide greater funding to the education system.

Just as importantly, Russia has the potential to develop its fledgling private education system—only 0.5%
of Russia's 70,0000 schools were private in 1992-into an alternative means of training its workforce,
particularly in the areas of trade schools, technical institutes, and higher education.

Despite her government's desperate fiscal straits, Russia remains a technologically advanced nation with
many leading scientists and engineers, a superb educational ethic, and a broadly talented workforce.
Whether these assets can be deployed productively in the private sector, for the benefit of all of Russia's
146 million people, is a challenge that still lies ahead for Russia's leaders.

Culture

Russia has a rich culture which ties its people together and is universally admired. Russian masters such
as Pushkin, Gogol, Dostoevsky, Chekhov, Turgenev, Goncharov, and Tolstoy have provided a "common
language" of reference for Russians and a fascinating insight into Russia for the world. While the long
period of Soviet censorship stifled Russia's creativity (so that the emergence of long-suppressed works
by such writers as Bulgakov, Pasternak, and Solzhenitsyn was the exception), the nation's extraordinarily
rich pre-Communist literary tradition is an asset that has only appreciated with each passing year.

Russian ballet, music, and opera are world-renowned. Great Russian composers such as Shostakovich,
Tchaikovsky, Moussorgsky and Glinka have combined folk music with the European classical tradition
for uniquely Russian operas that not only survived Communism but are currently providing an ageless
foundation for 21st century artists to build upon. Russian music and theater are today valued and enjoyed
as much as they have ever been in Russian history. Regional theaters in cities such as Perm and
Novosibirsk are training grounds for the dancers who go on to the Bolshoi.

Russian art is likewise a great source of pride, from Rublev in the 15th century and Ushakovin in the
17th to the more contemporary works of such artists as Kandinsky and Korovin and the work of jeweler
Faberge. This heritage, too, is one of the new Russia's appreciated assets.

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A BOWL OF CHERRIES: People put flowers at a newly opened monument to Anton Chekhov outside Moscow's
Art Theater on the theater's 100th anniversary. The theater, which catapulted Chekhov and Konstantin
Stanislavsky onto the world stage, turns 102 years old on Oct. 26, 2000. It gained widespread acclaim after the
success of one of its first plays, Chekhov's 'The Seagull," in 1898, and went on to become one of the century's
most influential theaters. AP Photo/ Alexander Zemlianichenko

Despite a Decade of Frustration, Russians Still Support Democracy

The election of Vladimir Putin to the Russian presidency is widely attributed to the public longing for
order after a decade of chaos. A widely-quoted public opinion survey taken prior to the March 2000
presidential election showed that approximately one-third of Russians were willing to sacrifice some
freedom to gain order.49 But despite the unmistakable public clamor for a crackdown on crime and
corruption, a majority of Russians are not prepared to give up their most cherished and hard-won
liberties.

Russians are indeed strongly committed to their new civil and political liberties. An August 1999 U.S.
government survey found that 73% of respondents opposed loosening restrictions on police and security
forces, 66% opposed banning meetings and demonstrations, 62% opposed canceling elections, and 53%
opposed media censorship. Significantly, these views were expressed when Russians were asked if the
above steps were permissible "to establish strict order in Russia."50

Three-fifths of those polled in a recent survey expressed the view that the state "should not interfere in
their private life. "51

Support for Communism and for Russia's Communist Party continues to decline. Thus, for example,
Communist Party leader Gennady Zyuganov received two million fewer votes in Russia's 2000
presidential election than he received in the first round of the 1996 election.52 Russia's Communist Party
does not have a bright future, with the most support for Soviet-style socialism evidenced among those
over 55.53

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Evolving Political System

Seeds of hope exist within Russia's evolving political system as well. A majority of Russians have come
to see elections as an essential component of political life. Moreover, as Russians have become more
experienced voters, they have been increasingly unwilling to "waste" their votes on small parties that do
not achieve significant representation in the parliament.54 Extremist parties have either adjusted their
platforms or suffered marginalization and in some cases extinction. 5 5

Russia's political system has also stabilized in the wake of Russia's recent parliamentary and presidential
elections. Relations between the executive and legislative branches, always strained under Yeltsin, have
improved to some degree. President Yeltsin appeared before the Duma rarely-usually to urge the Duma
to approve his choice of Prime Minister or approve the budget--and was often critical, accusing the
Duma of "political anarchy" when it challenged his authority.56 President Putin has had significantly
greater success to date in working with the legislature to achieve key goals.

A BRIGHT DAY: A troupe of young dancers from Siberia visit St. Basil's, on a warm Saturday, June 4, 2000-the
day President Clinton met nearby in the Kremlin with Russia's newly-elected President. The girls are part of an
ensemble called "Mechta" ("dream"), from the city of Omsk, and had been performing in Moscow. The younger
generation in Russia-less influenced by the legacy of Soviet Communism than its parents-has a positive attitude
about what Russia could become and are "less inclined to pine for the Soviet Union" than older generations. AP
Photo/J. Scott Applewhite

The government's new support in the parliament~and a more general political realignment in the
Duma-have also significantly improved the prospects for the passage of long-needed legislation to
repeal Soviet-era controls and subsidies and establish more sturdy protections for private property rights.
Thus far, Putin and his government have been able to muster what Russian observers call a "dynamic
majority" in the Duma to pass government-sponsored bills, notably including a 13% flat income tax in
July 2000.

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Deep concerns remain over Russia's future direction. The U.S. Congress has already expressed strong
opposition to Russian government attacks on press freedoms, and there are serious questions about the
government's commitment to civil and political liberties-particularly in light of the extraordinary
brutality of the war it has pursued in Chechnya. But whatever the government's policies may become,
there can be little doubt that Russia's people have not given up their support for democracy and
individual liberty. If Russia eventually succeeds in becoming a free enterprise democracy, this, too, will
be one of the important reasons.

Conclusion
In the most narrow sense, Secretary of State Madeleine Albright is correct in stating that Russia is not
America's to win or lose. Russia is a great nation, and must determine her own course. If it is to make a
successful transition from nearly a century of Communism to a free enterprise democracy built upon
individual decision making and individual rights, it will be because of Russians' initiative and
determination to do so.

Yet Albright's comment seems to imply that America should wash its hands of responsibility for Russia's
course. In that, she is profoundly wrong. Why should Russia not be able to look to the United States for
advice and assistance in constructing a free enterprise economy? The complete domination of every
sphere of economic life by the Soviet state and the Communist Party had a profound impact on the
Russian experience. No living Russian who did not escape the Soviet police state had any experience
with an economic life based on the sanctity of private property, private contract, and private initiative.

As the world's only remaining superpower at the conclusion of the Cold War, and the leading free
enterprise democracy on earth, the United States offered the quintessential model for Russia's future, if
Russia chose freedom. It was then, and is now, America's opportunity—if not our duty—to respond.

Never have so many millions of people had so much to gain so quickly as did the citizens of the Russian
Federation in December 1991. Russia's obvious and plentiful national assets-from its people, to its rich
culture, to its expansive territory, to its natural resources-had been forcibly rendered unproductive by
Soviet Communism. The sudden destruction ofthat perverse system, as if by a lightning bolt, had
literally set Russia free.

Despite the fact that neither the Russian government nor the United States has responded adequately to
this historic opportunity, the new freedom that individual Russians enjoy has been increasingly
consequential throughout this decade. Whereas individual initiative was stifled in the Soviet Union, it is
alive and growing in today's Russia. Spirituality was stamped out by the Communist Party, but is
thriving today. And while the most basic tools for the individual creation of small businesses are not yet
at hand, millions of young people have made it clear that starting one's own business is the new "Russian
dream."

America and Russia have lost a decade. The growing estrangement of Russia from the United States, the
incipient hostility to American interests reflected in Russia's foreign policy, and the telltale signs of
authoritarianism in the post-Yeltsin era provide ample evidence that the world is a more dangerous place
because U.S. foreign policy was weak, and did not lead. But it is not too late for the United States to stop
impeding and start assisting the transition from Communism to free markets, from authoritarianism to

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

RECOMMENDATIONS

The Advisory Group's recommendations for U.S.-Russia policy proceed from ten principles:

* Russia's immense economic potential as a trading partner, its ability to influence Europe,
the Middle East, South and Central Asia, and the Far East, its military importance as a
friend rather than a foe, and the fundamental commonality of Russian and American
interests make the U.S.-Russia relationship of continued central importance in U.S. foreign
policy. Russia's importance in the world is multidimensional, and is not confined to its
current or potential military power.

* The United States, our friends and allies, and the world are more threatened today by
Russian economic, political, and social weaknesses than by Russian strength. Virtually
every major problem in U.S.-Russia relations is directly or indirectly traceable to Russia's
failure to complete a successful transition from Communism to free enterprise, and from a
Soviet police state to a stable, securely democratic, and free society. U.S. policy should
never seek to prolong or exploit Russia's weakness, but should seek to empower Russia to
build upon her strengths.

* The unprecedented, across-the-board deterioration in Russian perceptions of the United

States and of democracy and free enterprise during the past eight years represents a United
States foreign policy disaster of the first magnitude. Unmitigated, the implications could be
comparable to the collapse of democratic values in interwar Germany, or the early and
mid-20th century triumph of Communist dictatorships in Russia, China, and Central
Europe.

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* It is a vital interest of the United States to revive the strong relationship with the
newly-independent Russian Federation that existed in 1992. Despite the extent of the
damage U.S.-Russia relations have suffered during the intervening years, the United States
must not perceive this damage as irreversible, nor that the current impasse in relations with
Russia is intractable, nor that Russia's negative perceptions of the United States, democracy,
and free enterprise are immutable.

* A stable, secure, democratic, and prosperous Russia is a vital American interest.

Therefore, essential elements of rebuilding the U.S. relationship with Russia are an
immediate focus upon the creation of the legal foundation for a free enterprise economy
premised upon private economic decision making and the creation of intermediary financial
institutions that serve the people of Russia rather than a corrupt elite. The counterproductive
nature of American economic advice and aid in the past--in particular, support for massive,
virtually unconditional subsidies to the Russian central government-should cause the
United States to rethink the economic strategies it has promoted, not to abandon efforts to
help Russia build a strong and free economy. These efforts must, however, be pursued in a
different spirit. The Clinton administration's attempts to macromanage Russia's economy
have harmed Russia and U.S.-Russia relations, just as Russian maintenance of Soviet-era
controls on the economy have done. American policy must proceed from the premise that
individual Russians~not the Russian government, or the U.S. government-must create their
own economic future.

* U.S. friendship with Russia requires a clear articulation of American interests, values, and
policies. It requires that the U.S. government speak frankly when and if Russia engages in
activities harmful to America's national interests. This does not require hectoring or seeking
unilateral advantage, and does not preclude acceptable compromises of honest differences.
It does preclude the Clinton administration's lack of directness concerning such serious
bilateral disputes as weapons proliferation to Iran, a U.S. defense against ballistic missiles,
the war in Kosovo, the war in Chechnya, or NATO enlargement. By protracting negotiations
over such fundamental issues and by failing to proceed with the execution of American
priorities (as, for example, in its dragging out of NATO enlargement over more than the
entirety of two presidential terms), the Clinton administration raised false hopes in Moscow,
damaged American credibility, and significantly strengthened Russian hostility. An honest
acceptance of such differences would have been healthier for U.S.-Russian relations.
Honesty and forthrightness are far better long-term guarantees of friendship than
disingenuous temporizing.

* It is vital that the U.S. government avoid exaggeration of success and concealment of
failure in U.S.-Russia relations. Such practices have been a hallmark of U.S. Russia policy
during the 1990s. Misleading the American people-for example, about the empty
"detargeting" agreement that President Clinton and Vice President Gore trumpeted to the
public-ultimately engenders cynicism and undermines the necessary base of American
public support for stronger U.S.-Russian relations.

* Building a successful Russia policy requires the full attention and active direction of the
President of the United States. President Clinton failed to make the reconstruction of Russia
at the end of the Cold War his priority. He failed to devote sufficient time and sustained
attention to formulating a Russia policy. He failed to promote the Russia policy of his
subordinates to the Congress, to the American people, and to others within his own

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 executive branch. Each failure made the U.S. policy-making process less disciplined and
less focused. These failures contributed directly to economic and foreign policy debacles in
Russia. The President must lead.

* The United States must build a broad base for its policy in Russia, extending beyond
relationships among a handful of executive branch officials to a broad spectrum of
government officials, factions of the State Duma, regional governors, legislators and
political leaders, and, most importantly, Russian private citizens and private-sector
organizations interested in developing not oligarchy but free enterprise.

* The United States and Russia share equal responsibility for our future relations. The
Russian government should be expected to forthrightly advance the Russian national
interest. But as we seek close relations with Russia we must do so on the basis of American
values and international norms such as respect for sovereignty and the inviolability of
national borders. A willingness to accept America's legitimate interests as a basis for a
bilateral relationship based on mutual advantage remains an essential ingredient of
successful U.S.-Russian relations.

With these principles in mind, the Advisory Group recommends:

1. Engage Russians across the political spectrum.

During the Clinton administration, a small group of American and Russian executive branch officials
dominated the U.S.-Russia relationship. The Advisory Group recommends that the next administration
undertake a much broader engagement across the Russian political spectrum and institutions of
government. This engagement would extend to the full range of relevant executive branch decision
makers and the main factions in the Duma, and also include the regional governors, regional legislatures,
mayors, and other local government officials. The range of American interlocutors for Russia should
also be expanded beyond the U.S. executive branch. The Advisory Group recommends the creation of
institutional relationships and opportunities for increased communication and cooperation at all levels of
government. The existing Duma-Congress Study Group is a model for creating institutional relationships
between American and Russian governors, mayors, and legislators.

Of even greater importance, however, is an expansion of the U.S. government's engagement beyond the
political sphere to the private sector, including the business community, non-governmental
organizations, the academy, think tanks, the clergy, and rural and agricultural sectors in all regions of the
Russian Federation.

The broader and deeper engagement these initiatives would promote is a prerequisite for U.S. policy
makers to maintain perspective on events in Russia, and will give a wider range of Russians a direct
account of U.S. policy and motivations.

2. Give priority to private, not government, solutions.

The most basic failing of U.S. policy during the Clinton and Yeltsin administrations was the emphasis
on strengthening the Russian central government, instead of focusing on the essential task of limiting the

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role of the state in Russia and constructing the basis for a free enterprise system in which private
individuals order economic affairs. The United States should redirect its efforts into assisting Russia to
identify laws and regulations that continue to place the state in a central economic role in Russia, and to
replace them with laws to fully legalize: private property; limited-liability private partnerships and
corporations for the pursuit of commercial and agricultural enterprises of all types; private insurance;
private intellectual property; private commercial, investment, and merchant banks; and private capital
markets. This project should be undertaken in cooperation with the Duma, the executive branch, and
regional executive and legislative branches-and should be pursued with more urgency than has thus far
been the case.

Russia's private sector will not flourish, and foreign money will not be invested in sufficient quantity,
until a world-class banking system, which pays and charges free-market interest rates and otherwise
conforms to international norms of commercial behavior, is established, and until domestic and foreign
investors enjoy reliable legal protections. The United States should stand ready to assist in the creation
of such banking legislation to the extent requested by Russia or Russians.

The United States should assist in the further development of a uniform commercial code in the Russian
parliament and each of Russia's 89 regional legislatures. Such a code remains necessary to provide a
basic set of rules that can be relied upon by any person who wishes to participate in the Russian
marketplace.

3. Engage the Russian people, not just the Russian government.

U.S. relations with Russia should be more broadly based than institutional relations among
governmental bodies. The Advisory Group endorses expansion of existing people-to-people exchange
programs such as the Library of Congress1 Russian Leadership Program and the Center for Citizen
Initiatives program, as well as programs run by the State Department such as the Fulbright Program, the
Internet Access and Training Program, the Russian-U.S. Young Leadership Program, and the
International Visitors Program. Such programs give individual Russians the opportunity to observe
American democracy and the market economy, while helping Americans better understand the
opportunities and challenges in Russia, and allowing both host and guest to share experience and
expertise. Such programs are particularly valuable to the extent that they promote contacts with Russians
living outside of the capital. The Advisory Group particularly endorses an expansion of the number of
Russian exchange students at American universities, especially where the exchange programs assist
students studying economics, business, marketing, and agriculture.

4. Enlist the support of the U.S. private sector for the establishment of a cooperative surveying
and titling project in each of Russia's 89 regions on a far more urgent basis than has thus far been
undertaken.

The enactment of sturdy legal protections for private property, privately-made contracts, and commercial
transactions is a fundamental prerequisite to the development of free enterprise in Russia.
Entrepreneurial activity and the growth of competitors to the "privatized" monopolies will be severely
stunted without the capital that private property rights will make available to the Russian economy.

The availability of marketable title to privately-owned real estate is an essential~and still

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missing—ingredient of the free enterprise system that Russia seeks to develop. Russia's land is a source
of enormous potential wealth, both as security for commercial lending and as a valuable asset in its own
right for the development of Russian housing, agriculture, commerce, and recreation. To permit Russia's
citizenry to tap this existing source of wealth, a nationwide effort must be undertaken to precisely
describe the boundaries and ownership history of all potentially marketable state-owned and
privately-owned land in Russia—and to do so on a far more accelerated basis than has been considered
feasible in recent years.

The legal descriptions of surveyed property and the complete record of its ownership, including all
legally valid claims, liens, and rights of others besides the recorded landowner, should be published on
the Internet, as well as stored in publicly-accessible land title registries within each region. The project
should draw upon the expertise of American surveyors, cartographers, abstracters, title insurers, and
other real estate, civil engineering, and land title professionals, and should have as its objective the
establishment of the basis for a flourishing competitive market in private title insurance and real estate
services throughout Russia by 2005.

5. Make U.S.-Russia relations a presidential responsibility of first importance.

The Advisory Group recommends that the next president and secretary of state take direct responsibility
for U.S. relations with Russia, instead of diminishing their importance by delegating plenary
responsibility to subordinates. The Advisory Group further recommends that the focus on summits be
replaced with regular and frequent interactions similar to the relationships the U.S. maintains with its
G-7 partners. This will broaden the scope of U.S.-Russia relations beyond the obvious issues where the
two countries have diverging views, as well as promoting reasonable compromises that serve American
interests on such issues.

6. Place greater reliance on available sources of U.S. intelligence and analytic capability regarding
Russia.

During the Clinton administration, information developed by the U.S. government, either by the
intelligence community or by the American Embassy in Moscow, was routinely disregarded if it clashed
with the administration's policy views or political interests. The Advisory Group recommends that the
next administration not only give more attention to reporting on the effects of its policies, but also
strengthen intelligence and analytic capabilities. The deconstruction of a large part of the intelligence
community's analysis and collection capability on Russia has proven to be a serious mistake. Russia's
enormous strategic importance requires that it receive the most thorough attention and analysis.
Congress should direct, through the intelligence oversight committees of the House and Senate,
additional resources to rebuild our Russia-related intelligence capabilities-not to Cold War levels, but to
levels reflecting Russia's relative importance.

The United States government should also give appropriate weight to the observations of Americans in
Russia-including U.S. Embassy personnel, members of the intelligence community, U.S.
correspondents writing from Russia, and private individuals~to provide for more thoughtful analysis of
facts, trends, political developments, and financial, academic, and social information concerning Russia.

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7. Consolidate U.S. assistance programs.

The Advisory Group, recognizing that the Clinton administration's macroeconomic assistance for Russia
has failed, recommends the consolidation of U.S. assistance into a few core projects that will accelerate
Russia's transition to free enterprise, including exchanges, training and compensation for judicial branch
officials, enactment of legislation to establish enforceable property rights and a commercial code, and
privately-owned housing, and building on regional initiatives started under the Freedom Support Act.
Such aid should be properly directed whenever possible toward the regions, rather than Moscow, and
should be focused on the creation of a broad-based Russian middle class.

8. Improve humanitarian assistance for Russia's health problems.

In light of the deepening health challenges following Russia's 1998 economic collapse, the Advisory
Group recommends that the United States consider ways to improve the effectiveness of the
pharmaceutical, medical, and health-care assistance provided to Russia, taking particular care to do no
further harm to the only long-term solution to such challenges~the inclusion of these sectors in a
growing market economy.

9. Protect the Russian people from further governmental abuse of IMF lending.

The Russian government's dangerous accumulation of debt via the International Monetary Fund and
other international lenders, and the misapplication ofthat money through corruption within and without
the Russian government, contributed to the total collapse of Russia's economy in 1998. It has also
created a heavy burden of debt. The Advisory Group notes that for these reasons many reform-minded
Russian officials have strongly advocated an end to further borrowing from the IMF.

The Advisory Group recommends that the United States condition any further support in the IMF of new
Russian sovereign borrowing, and through its participation in the IMF Board of Governors work to
condition any such lending to Russia (whether for refinancing of existing Russian debt or the extension
of any new credit), on the enactment of legal reforms needed to establish a free enterprise economy in
Russia, and to stem capital flight and money laundering. Among the other conditions that should be
sought are an end to Russian barriers to international trade and cooperation with U.S. and other law
enforcement authorities in combatting money laundering.

In addition, in evaluating its support for lending by the IMF and other international financial institutions,
the U.S. should insist on Russian cooperation in efforts to curtail the use of off-shore havens for
"hot-money" transfers, and to identify and prosecute money laundering schemes. Such cooperation in
rooting out money laundering would do much to reduce capital flight and instill foreign and domestic
confidence in Russian financial institutions.

Any such lending agreement should itemize with specificity the proposed use of any loan proceeds,
which should not include the financing of operating deficits of the Russian central government,
subsidization of state-owned or private industry, or investment in state-owned or commercial projects. It
should also include effective accounting and monitoring controls.

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Finally, in considering whether to support such further lending the United States should assess Russia's
progress towards seeking a political solution to the war in Chechnya, an end to Russian subsidies and
loans to Serbia, Belarus, and Cuba, and the cessation of exports of potentially destabilizing weapons to
countries of concern.

10. Consider only conditional rescheduling of Russia's inherited Soviet-era debt.

The Advisory Group recommends, in light of Russia's existing foreign reserves, that the United States
oppose outright debt forgiveness for Russia, but offer support for conditionally rescheduling that portion
of Russia's external debt incurred by the Soviet Union before 1992. Because the bulk of Russia's debt is
owed to governments other than the United States, the Advisory Group specifically recommends that the
United States not exert pressure upon other allied governments to agree to debt rescheduling, and further
recommends that to the extent rescheduling is considered, the United States suggest meaningful and
enforceable conditions, which should include a political solution to the war in Chechnya; an end to
Russian subsidies and loans to Serbia, Belarus, and Cuba; the cessation of exports of potentially
destabilizing weapons to countries of concern; an end to Russian barriers to international trade; and
cooperation with U.S. and other law enforcement authorities in combatting money laundering.

11. Work to combat the spread of Russian crime abroad, and its influx into the United States.

The Clinton administration has failed to adequately respond to requests for assistance from international
prosecutions of money laundering activities connected to Russia. The Advisory Group recommends that
to combat the spread of crime from Russia the U.S. government improve cooperation with honest
foreign law enforcement.

12. Repeal Cold War-era laws that impede relations with Russia.

The Advisory Group recommends that the committees of jurisdiction in the U.S. Congress carefully
examine all aspects of the current statutory framework governing U.S. relations with Russia with the
intention of removing outdated Cold War-era restrictions on full and normal U.S.-Russian relations.
Much work in this area was accomplished by the 1993 Friendship Act, which sought to remove many of
the legal impediments to normal relations with Russia. Congress should complete the process by
re-examining remaining provisions imposed during the Cold War.

13. Promote Russia's integration into the world economy.

The Advisory Group recommends that the United States promote Russia's integration into the world
economy. Today, many Russian policies directly or indirectly discourage foreign investment and
international trade. The United States should encourage Russia to adopt and enforce laws and policies
that will allow Russia to enjoy the benefits of participation in the international marketplace. The United
States should work with Russia for the adoption and enforcement of laws and policies that would enable
Russia to accede to the World Trade Organization under appropriate commercial terms.

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"'i^'^-'-f^'-.^^'-■

14. Review the status of human rights in Russia.

The Advisory Group recommends in light of developments in Chechnya, as well as questions concerning
the state of press, political, and religious freedoms in Russia, that Congress and the executive branch
conduct a comprehensive review of the status of human rights and democracy in Russia (including in
particular the treatment of minorities and religious freedom), building on the work of the U.S.
Commission on International Religious Freedom, the Advisory Committee on Religious Freedom
Abroad, the Annual Report on International Religious Freedom called for by the International Religious
Freedom Act of 1998, and the State Department's annual country report on human rights.

15. Forthrightly defend America's interests.

The Clinton administration has delayed and undercut vital national security initiatives, including a U.S.
national missile defense, in a failed attempt to palliate the Russian government's opposition. These
efforts have damaged America's national interest without diminishing-indeed, while actually
increasing-Russian opposition. The next President should seek to negotiate a new security framework
with Russia that allows the United States to defend itself effectively against the threat of ballistic missile
attack. Previous agreements with the Soviet Union during the Cold War were negotiated in a bipolar
strategic environment that no longer exists. The global proliferation of ballistic missiles and weapons of
mass destruction necessitates a rethinking of this Cold War security paradigm. The United States should
take all necessary actions to ensure that Americans and our allies and friends around the world are
defended against this real and growing ballistic missile threat. To the maximum extent possible, this
should be done cooperatively with Russia, in a way that makes clear that such defenses are not intended
to secure unilateral advantage or to threaten Russia. However, U.S. policy should be clear and clearly
articulated: the United States will not allow its people to be held hostage to the threat of ballistic missile
attack.

The United States should forthrightly support continued enlargement of NATO, and should not mislead
the Russian government through repetition of the Clinton administration's disingenuous promises of
either an explicit or tacit veto over any nation's accession to the alliance, or of alliance activities. NATO
and NATO enlargement promote stability and democracy, strengthen international peace, and do not
threaten the legitimate interests of Russia or any other country. The United States should also strongly
support the independence of the Baltic states, Ukraine, and the other nations that became independent at
the fall of the Soviet Union. Their continued full independence and sovereignty are vital to international
peace and security and a key goal of the United States.

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 NOTES
Chapter 1
1 Craig Whitney, "Gorbachev Predicts an Accord on Budget," N.Y. TIMES, Jan. 4,1991, p. A6.

2 Andrei Orlov, "Soviet Parliament Discusses Federal Budget," TASS, January 11,1991.

3 Andrew Katell, "Yeltsin Calls for Ligachev's Resignation," Associated Press, May 30,1988.

4 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA (New York: Random House, 1994), p. 36.

5 In January 1990, to check the growing nationalist movement in Azerbaijan, Gorbachev sent a large contingent of Soviet
troops to Baku. The Soviet Army killed 134 people and wounded more than 600. Today, the people of Azerbaijan remember
this as "Black January."

6 In Tbilisi, on April 10,1989, Soviet troops killed 20 Georgians, and injured more than 200, as they attempted to disperse
thousands of nationalist demonstrators. These events are remembered today in Georgia as the "Tbilisi Massacre."

7 DAVID REMNICK, LENINS TOMB (New York: Vintage, 1994), p. 388.

8 Id. at p. 389. Remnick reported that word of Bloody Sunday got back to Moscow not via the primary Moscow media
outlets, but through Radio Liberty and the BBC. See also Cathy Young, "Soviet Democrats Aren't Backing Down,"
NEWSDAY, Feb. 5, 1991, p. 37.

9 JUDY SHELTON, THE COMING SOVIET COLLAPSE (New York: Free Press, 1989).

10 See Sergei Roy, "The Economics of Suicide," MOSCOW NEWS, Sept. 22,1999, p. 36.

11 Associated Press, Feb. 9,1991.

12 Id.

13 John-Thor Dahlburg, "West is also Likely to Ignore Lithuania Vote," LA. TIMES, Feb. 11,1991, p. A4.

14 Chairman of the Council of Nationalities of the U.S.S.R. Supreme Soviet Rafik Nishanov explained the referendum this
way in an interview a few days before the vote: "The main purpose of the forthcoming Referendum is to give every Soviet
man and woman a chance to express his attitude to the Union of Soviet Socialist Republics, to say 'yes' or 'no' to our new
homeland~the renovated federation of equal sovereign republics, where the rights and freedoms of all nationalities will be
fully guaranteed." Official Kremlin International News Broadcast/PRAVDA, Mar. 13,1991, via Federal Information Systems
Corp./NEXIS.

15 Esther B. Fein, "Russians' Big Worry: New Sales Tax," N.Y. TIMES, Mar. 18,1991, p. A10.

16 M

17 Associated Press, Apr. 29,1991.

18 Elizabeth Shogren, "Soviet Georgia Declares its Independence," LA. TIMES, Apr. 10,1991, p. A8.

19 Id.

20 Id. See also "Statement by Georgian Commission on Deaths in Tbilisi Rally," in which the commission concluded that the
massacre "was a punitive operation amounting to well organized slaughter of innocent people. It was carried out with
particular brutality and involved the use of banned chemicals. It bore the hallmarks of an international crime and, specifically,

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*-V9|^^-fr*-'^

of a crime against humanity."

21 Elizabeth Shogren, "Soviet Georgia Declares its Independence," L.A. TIMES, Apr. 10,1991, p. A8. A year earlier, on
April 3,1990, Gorbachev had nullified Article 72 of the 1977 "Brezhnev" constitution, which purported to grant the republics
the right freely to secede from the Soviet Union. See text of 2,700-word law in PRAVDA, Apr. 7,1990; see Brian Crozier,
"Soviet constitution," Letter to the Editor, THE TIMES (LONDON), Mar. 15,1993. Instead, Gorbachev set out an
impossibly bureaucratic procedure for secession-a process so tortuous it was never commenced by any of the seceding
republics except Armenia.

22 Francis X. Clines, "Ukrainians Declare Republic Sovereign Inside Soviet System," N.Y. TIMES, July 17,1990, p. Al.

23 Serge Schmemann, "Gorbachev Agrees, Sort of, to Negotiate the State of the Union," N.Y. TIMES, Apr. 28,1991, p. A6.

24 "The Soviet Economy on the Brink," ECONOMIST, Mar. 16,1991, p. 72.

25 Id.

26 Patricia Lee Dorff, ed., "Chronology 1991: The Soviet Union and Eastern Europe," FOREIGN AFFAIRS, 1991/1992
AMERICA AND THE WORLD.

27 Stephen Sestanovich, "Fiddler on the Roof: Gorbachev's Balancing Act," NEW REPUBLIC, May 27,1991, p.19.

28 Thorn Shanker, "Soviets to Send Some Supplies to Lithuania," CHI. TRIB., June 14,1990, p. Al.

29 Ann Imse, "Gorbachev Proposes Union of Sovereign States," Associated Press, June 13,1990.

30 IZVESTIYA, Aug. 13, 1990.

31 Editorial, "Baltic Breakthrough," ORANGE COUNTY REGISTER, June 14,1990, p. BIO.

32 Alison Mitchell, "Yeltsin's Sweeping Victory; City Voters Stick it to 'Leningrad,'" NEWSDAY, June 14,1991, p. 7.

33 Thorn Shanker, "Old Russian City Switches Heroes and Its Name," CHI. TRIB., June 14,1991, p. 24.

34 Patricia Lee Dorff, ed., "Chronology 1991: The Soviet Union and Eastern Europe," FOREIGN AFFAIRS, 1991/1992
AMERICA AND THE WORLD.

35 Carey Goldberg, "Soviet Officials Accused of Capitalizing on Bargain Country Homes," L.A. TIMES, July 15,1991, p. 4.

36 Id.

37 Amy Borrus and Rose Brady, "The Soviets are Looking to Swap Reforms for Aid. Again," BUS. WEEK, June 3,1991, p.
30.

38 John Lloyd and Lionel Barber, "The Moscow Summit: Bush Stresses need to Unleash Business Spirit," FINANCIAL
TIMES (London), July 31,1991, p. 13.

39 Id.

40 IZVESTIYA, July 11,1991 (BBC translation).

41 Id.

42 See infra Chapter 3.

43 Andrew Rosenthal, "The Soviet Crisis, Bush Gamble: Coup Can Be Reversed," N.Y. TIMES, Aug. 21, 1991, p. All.

44 MIKHAIL GORBACHEV, MEMOIRS (New York: Doubleday, 1995), p. 656.

45 Of course, such a step would also make the post of union president obsolete, completing the political destruction of

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Gorbachev.

46 Alison Mitchell, "Yeltsin Abandons Union: Russian leader proposes commonwealth, undercuts Gorbachev," NY. TIMES,
Dec. 8,1991, p. A7.

47 The Commonwealth of Independent States was created by the leaders of the three Slavic Republics (President Boris
Yeltsin, Ukrainian President Leonid Kravchuk, and Byelorussian Parliamentary Speaker Stanislav Shuskevitch) in Viskuoi, a
hunting lodge near the Polish-Belarus border. The joint communique committed the leaders to "unified control over the Soviet
Union's 27,000 nuclear warheads."

48 The Intelligence Community, and particularly the CIA, have been unfairly criticized for allegedly failing to predict the fall
of the Soviet Empire and the rise of Russia. In fact, a 1985 National Intelligence Estimate stated:

The U.S.S.R. is afflicted with a complex of domestic maladies that seriously worsened in the late 1970s and
early 1980s. Their alleviation is one of the most significant and difficult challenges facing the Gorbachev
regime....

Over the next five years, and for the foreseeable future, the troubles of the society will not present a challenge
to the system of political control that guarantees Kremlin rule, nor will they threaten the economy with
collapse. But, during the rest of the 1980s and well beyond, the domestic affairs of the U.S.S.R. will be
dominated by the efforts of the regime to grapple with these manifold problems....

The underlying cause of most of these problems is the repressive nature of a political system that discourages
initiative throughout the society on which economic and social progress depend, and that limits the private
freedom Soviet citizens desire. ...

Gorbachev has achieved an upswing in the mood of the Soviet elite and populace. But the prospects for his
strategy over the next five years are mixed at best....

Bruce D. Berkowitz and Jeffrey T. Richelson, "The CIA Vindicated: The Soviet Collapse was Predicted,"
NAT'L INTEREST, Fall 1995. As the collapse approached, the CIA assessment became so grave that in
September 1989 the Bush administration appointed a secret contingency planning group chaired by director of
Soviet Affairs Condoleezza Rice to deal with the failure of Gorbachev's government. Cf. Vice President Al
Gore's reaction to intelligence data, Chapter 6, infra.

49 President Reagan always considered the triumph of freedom to be inevitable:

I have discussed on other occasions the elements of Western policies toward the Soviet Union to safeguard our
interests and protect the peace. What I am describing now is a plea and a hope for the long term~the march of
freedom and democracy which will leave Marxism-Leninism on the ash heap of history as it has left other
tyrannies which stifle the freedom and muzzle the self-expression of the people.

Address to the Members of Parliament, London, June 8,1982.

In a speech that today reads as prophetic, President Reagan also emphasized the economic problems faced by
the Soviet Union and what he viewed as a mission "to preserve freedom as well as peace."

50 See, e.g., Strobe Talbott, "Rethinking The Red Menace," TIME, Jan. 1,1990, p.66 ("The doves in the Great
Debate of the past 40 years were right all along"); Talbott, "Brezhnev's Legacy," TIME, Nov. 22,1982, p. 31.
In the same article Talbott derided at length a whole succession of American administrations of both parties for
attempting to influence the composition and attitudes of the leadership in Moscow~an ironic criticism in light
of Talbott's unprecedented involvement in Russian internal politics during the Clinton administration.

Chapter 2
1 Within the flourishing Soviet black market, American-made jeans, cigarettes, and other Western products commanded the
highest prices on the streets of Moscow and other Soviet cities. By the end of the 1980s, the Soviet Union was quietly~and

239 of 286
illegally-undergoing a consumer revolution as the demand for and acquisition of Western products became widespread.

2 The widespread need to commit "economic crimes"~offenses that would not be crimes in a market economy-had the
unfortunate effect of diminishing respect for the rule of legitimate law even after Russia abandoned Communism.

3 NICOLAI N. PETRO, RUSSIAN FOREIGN POLICY (New York: Longman, 1997) p. 131.

4 European Bank for Reconstruction and Development, Transition Report Update, p. 75.

5 In fact, the use of the ruble by several of the new nations of the former Soviet Union left Russia with little practical control
over its money supply. It was not until November 1992 that Ukraine introduced its own currency. Other nations followed suit
over the next few months, but the damage was done.

6 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY (Seattle: Univ. Wash. Press, 1999).

7 ROSE BRADY, KAPITALIZM (New Haven: Yale Univ. Press, 1999), pp. 29-30, 36-37.

8 In January 1991, the Russian Supreme Soviet proposed a question on a national referendum for a directly elected
presidency. In March, Russians voted for constitutional reform, and on April 24 the Russian Supreme Soviet approved a new
law on the Presidency. Yeltsin was subsequently elected President.

9 Mary Dejevsky, "Yeltsin Gets Free Hand for Reforms," THE TIMES (London), Nov. 2,1991. Yeltsin was given additional
power to appoint governors in the oblasts and issue decrees that could override existing laws and reorganize the government
without going through parliament.

10 See Thomas Ginsberg, "New Russian Prime Minister Will Soften Reforms," Associated Press, Dec. 14,1992; WHO'S
WHO IN RUSSIA AND THE CIS REPUBLICS, Vladimir Morozov, ed. (New York: Henry Holt and Co., 1995), p. 54. The
centrist Civic Union faction, composed of Arkadii Volsk/s Union of Industrialists and Entrepreneurs, Vice President
Alexander Rutskoi's People's Party of Free Russia, and Nikolai Travkin's Democratic Party of Russia, played a key role in
Chernomyrdin's appointment.

11 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA, Catherine A. Fitzpatrick, trans. (New York: Times Books, 1994),
pp. 197-201. "Gaidar had no chance of being approved by the Congress, so, given the reality of the situation, I settled on
Viktor Chernomyrdin. Once again, he seemed to be a compromise figure ... I was dictated-let's face it-by regrettable
necessity." Id. at 200.

12 See infra, Chapter 5.

13 See Thomas Ginsberg, "New Russian Prime Minister Will Soften Reforms," Associated Press, December 14,1992;
WHO'S WHO IN RUSSIA AND THE CIS REPUBLICS, Vladimir Morozov, ed. (New York: Henry Holt and Co., 1995.), p.
54; APS Review Oil Market Trends, "From Privatisation to Restructuring the Petroleum Sector to Gazprom," Aug. 7,2000
(available on NEXIS).

14 Id.

15 Karen LaFollette, "Soft Assistance for Russian Hard Reform," The Institute for Political Economy, 1993.

16 Alexander Rahr, "The First Year of Russian Independence," RFE/RL Research Report, Jan. 1,1993, p. 54.

17 HUMAN RIGHTS COUNTRY PRACTICES (Washington, DC: Department of State, Jan. 1993), p. 884.

18 FREEDOM IN THE WORLD-1992-1993 (New York: Freedom House, 1993), p. 428.

19 HUMAN RIGHTS COUNTRY PRACTICES, pp. 889, 890.

20 Id, p. 888.

21 FREEDOM IN THE WORLD-1992-1993, p. 428.

22 HUMAN RIGHTS COUNTRY PRACTICES, p. 885.

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23 FREEDOM IN THE WORLD--1992-1993, p. 428. Ironically, the fact that the Russian Federation permits complete
freedom of emigration has never been recognized in U.S. law. The 1974 Jackson-Vanik amendment, which imposed special
scrutiny on Soviet emigration policy, still applies to Russia.

24Rahr,M,p.51.

25 Testimony of Boris Fyodorov, Joint Meeting of the Speaker's Advisory Group on Russia and the House Policy Committee,
July 12,2000. To prevent gaps in legal regulation during the transition period, Russia relies on Soviet-era legislation. Soviet
laws and regulations are applicable when Russian domestic law is silent and Soviet law does not conflict with other existing
Russian law. These Soviet acts are considered transitional and are in force only until the Russian Parliament enacts
replacement legislation. The application of Soviet legislation on Russian territory is governed by the 1990 Law on the
Application of Acts and Organs of the U.S.S.R. on the Territory of the R.S.F.S.R. (Russian Soviet Federal Socialist Republic)
and the Supreme Soviet's decree ratifying the Agreement on the Creation of the Commonwealth of Independent States.
According to these enactments, Soviet laws apply only if they do not contradict the legislative acts of the Russian Federation
adopted after June 12,1990, when Russia proclaimed its independence. The 1993 Constitution adopted the same approach. In
the area of land use alone, several Soviet-era laws are partially or fully enforced.

26 James Billington's works on Russia include: THE FACE OF RUSSIA: ANGUISH, ASPIRATION, AND
ACHIEVEMENT IN RUSSIAN CULTURE (1998); RUSSIA TRANSFORMED: BREAKTHROUGH TO HOPE:
MOSCOW, AUGUST 1991 (1992); and THE ICON AND THE AXE: AN INTERPRETIVE HISTORY OF RUSSIA (1970).

27 James Billington, Remarks to the Speaker's Advisory Group on Russia in Executive Session, June 14,2000.

28 See, e.g., Larry Rickman, "Russia Plans to Remove Remaining Price Subsidies," Associated Press, Feb. 27,1992; Howard
Witt, "New Face of Russia: A Year after Coup, Ordinary Citizens Adapt to Change," CHI. TRIB., Aug. 16, 1992, p. Cl.

29 For example, in the poll reported in Itar-TASS News Digest, July 24,1992, good relations with the United States, were
second only to Russian ties with other countries of the former U.S.S.R., where some 25 million ethnic Russians resided.

30 '"Santa Barbara' Receives Rave Reviews in Russia," PR Newswire, Feb. 21,1992.

31 "Moscow Days and Nights; Clash of Cultures," MACLEANS, Feb. 15,1993, p. 28.

32 See, e.g., DAVID REMNICK, RESURRECTION: THE STRUGGLE FOR A NEW RUSSIA (New York: Random House,
1997), pp. 44-45.

33 "Summit at the U.N.; Excerpts from Speeches by Leaders of Permanent Members of U.N. Council," N.Y. TIMES, Feb. 1,
1992, p. A5.

34 Although President Bush signed the START II treaty less than one month before the inauguration of President-elect
Clinton, Gov. Clinton was fully briefed on the agreement and "encouraged" the Bush administration to sign the treaty. Gov.
Clinton also said that he was "fully supportive" of efforts to sign the agreement before he entered office. See Elaine Sciolino,
"U.S. and Russia Agree on Atomic Arms Pact Slashing Arsenals and the Risk of Attack," N.Y. TIMES, Dec. 30,1992, p. Al.
President Clinton's efforts to reach arms control agreements lacking such broad bipartisan support before he leaves office are
described in Chapter 10 infra.

35 Serge Schmemann, "Summit in Moscow," N.Y. TIMES, Jan. 4,1993, p. Al.

36 Michael Dobbs and Don Oberdorfer, "Yeltsin Appeals for American Aid," WASH. POST, June 18,1992, p. Al.

37 "Russian Federation President Boris Yeltsin Addresses Joint Meeting of U.S. Congress," Federal News Service, June 17,
1992.

38 This important Russian-American initiative's promising beginnings, and the Clinton administration's subsequent unilateral
decision to cancel it, are described in Chapter 10 infra.

39 "Russian Military Drastically Gearing Down," CNN, June 17,1992.

40 Id.

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41 See Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?," CRS Report for Congress, Sept.
4,1997, p.ll.

42 Roman Zadunayskiy, "Parliament Adopts Law on Defense," Itar-TASS, June 26,1992.

43 Captain O. Odnokolenko, "Parliamentary Hearing on Draft Law on Defense," KRASNAYA ZVEZDA, May 14,1992.

44 Guy Chazan, "Russian defense conversion program hits snags," UPI, Feb. 6,1992.

45 Gennady Talalayev, "President Yeltsin Meets Managers of Defense Enterprises," Itar-TASS, May 13,1992.

46 "Russian Defense Ministry to Sell Off Unwanted Military Property," Itar-TASS, Nov. 30,1992.

47 S. Ostanin, "Russian Defense Collegium Discusses Military Procurement Problems," Itar-TASS, Aug. 1, 1992.

48 Vladlas Burbulis, "Russian Troop Withdrawal from Lithuania as Scheduled," Itar-TASS, Oct. 13,1992. Western
assistance, in particular a large German aid program, was launched to assist the repatriation of Russian troops.

49 Andrei Naryshkin, "Yeltsin Meets Top Military Brass," Itar-TASS, Nov. 23,1992.

50 See infra Chapters 9-11.

51 U.S. Policy Towards Russia, Part I: Warnings and Dissent: Hearing Before the House Committee on International
Relations, 106th Cong. (1999).

52 As the most prominent reformer of the time, Yegor Gaidar, himself acknowledged: "The initial response of Western
political and financial elites toward Russian economic reform was very wary and cool.... [A]s far as the reforms already
begun were concerned, Western thought was that over the past few years there had already been a great deal of talk, and a
dozen or so official programs, so how did they know that this wasn't just more of the same? Better to wait and see." DAYS
OF DEFEAT AND VICTORY, pp. 141-42.

53 "Address to the Nation on Reducing United States and Soviet Nuclear Weapons," Bush Presidential Library online
collection, http://www.bushlibrary.tamu.edu/papers/1991/91092704.html.

54 Freedom for Russia and Emerging Democracies and Open Markets Support Act of 1992, P.L. 102-511, Oct. 24,1992.

55 U.S. Policy Towards Russia, Part I: Warnings and Dissent: Hearing Before the House Committee on International
Relations, 106th Cong. (1999), p. 60.

56 The Clinton administration has not lived up to this example of bipartisanship and willingness to engage Congress.
Notwithstanding the fact that this examination of U.S.-Russia policy was commissioned by the Speaker of the House of
Representatives-the third-ranking constitutional officer—and performed by the Chairmen of five standing committees of the
Congress, Strobe Talbott, the administration "coordinator" for Russia policy, has refused even to respond to invitations to
discuss the policy informally with the House leadership. To his credit, Secretary of the Treasury Lawrence Summers did meet
with the Speaker's Advisory Group.

57 Curt Tarnoff, "U.S. Assistance to the Soviet Union and Its Successor States 1991-1998: A History of Administration and
Congressional Action," CRS Report for Congress, Apr. 16,1999.

58P.L. 102-511, Sees. 101,102.

Chapter 3
1 See generally STEPHANE CORTOIS, NICOLAS WERTH, JEAN-LOUIS PANNE, ANDRZEJ PACZKOWSKI, KAREL
BARTOSEK, JEAN-LOUIS MARGOLIN, THE BLACK BOOK OF COMMUNISM, trans. Jonathan Murphy and Mark
Kramer (Cambridge: Harvard Univ. Press, 1999), p. 4.

242 of 286
2 MICHAEL BERSTAN & MICHAEL RABUSHKA, FIXING RUSSIA'S BANKS: A PROPOSAL FOR GROWTH
(Stanford: Hoover Institution Press, 1998), p. 7.

3 Nina L. Khrushcheva, "Cultural Contradicts of Post-Communism: Why Liberal Reforms Did Not Succeed in Russia," paper
prepared for the Council on Foreign Relations, Working Group on Development, Trade and International Finance.

4 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY (Seattle: Univ. Wash. Press, 1999), p. 273.

5 Merton J. Peck & Thomas J. Richardson, eds., WHAT IS TO BE DONE? PROPOSALS FOR THE SOVIET
TRANSITION TO THE MARKET (New Haven: Yale University Press, 1991), p. 152.

6 European Bank for Reconstruction and Development, Transition Report 1999: Tens years of Transition, p. 110.

7 Letter Report from the General Accounting Office, 803-95, GAO-NSIAD-95-156. This is from an assessment of the Urban
Institute's efforts to promote housing policy reform in Russia.

8 Id.

9 Paul H. Rubin, "Growing a Legal System in the Post-Communist Economies," CORNELL INTERNATIONAL LAW
JOURNAL, Winter 1994.

10 "Built on Sand," THE ECONOMIST, June 3, 2000, p. 19.

11 Louis Uchitelle, "The Art of a Russian Deal: Ad-Libbing Contract Law," N.Y. TIMES, Jan. 17,1992, p. Al.

12 Lyudmila Yermakova, "Market Economy Cannot Develop Without Court of Arbitration," Itar-TASS, Dec. 29,1992.

13 John I. Huhs and Ramaz A. Beridze, "Dispute Resolution in Russia," AMERICAN LAWYER, Nov. 1992.

14 Id.

15 Louis Uchitelle, "The Art of a Russian Deal: Ad-Libbing Contract Law," N.Y. TIMES, Jan. 17,1992, p. Al.

16 Paul Klebnikov, "A Market Grows in Russia," FORBES, June 8,1992, p. 78.

17 Vladimir Gubarev, "How to get your money back from con men," MOSCOW NEWS, Oct. 18,1992. This article covers
attempts by Russian businesses to reclaim funds lost to dishonest American and Western firms. See infra Chapter 7, for
further discussion of Russian organized crime.

18 Duncan Robinson, "Weak Russian Contract Enforcement Takes Toll on Companies from US," JOURNAL OF
COMMERCE, July 31,1992, p. 4A. At least one American law firm advised its clients that they would be "naked" in Russia's
legal system and should try to establish their own dispute resolution mechanisms.

19 In the last years of the Soviet Union, the monolithic Gosbank spawned a handful of specialized banks, including
Pomstriobank, Zhilstosbank, Agrobank, Vneshekombank, and Sberbank.

20 MICHAEL BERSTAN & MICHAEL RABUSHKA, FIXING RUSSIA'S BANKS: A PROPOSAL FOR GROWTH,
(Stanford: Hoover Institution Press, 1998).

21 Elizabeth Neuffer, "Capitalism takes hold in Russia," BOSTON GLOBE, Jan. 3,1992, p. 1.

22 Jose Pirlera, "Russia Unbound: A Report from Moscow," May 2000.

23 Michael McFaul, "Russia Needs True Reform, Not Higher Taxes," WALL ST. J., Aug. 4,1998, p. A13.

24 "Presidential Decree on Bankruptcy," BBC Summary of World Broadcasts, June 29,1992.

25 "Yeltsin Issues Various Decrees, on Bankrupt Enterprises and Other Issues," RUSSIA AND COMMONWEALTH
BUSINESS LAW REPORT., Vol. 3, No. 5, June 26,1992.

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26 "Two Steps from Bankruptcy," OFFICIAL KREMLIN INTERNATIONAL NEWS BROADCAST, Federal Information
Systems Corporation, Dec. 4, 1992. This admission was made by L. Paidiev, the chief of the Russian Economics Ministry
department in charge of providing assistance (subsidies) to troubled enterprises.

27 Id.

28 Sen. Bob Packwood and James Carter, "Time is Ripe for US-Russia Free Trade," J. OF COM., Mar. 2, 1998, p. 7A.

Chapter 4
1 Acceptance Speech, New York City, July 16,1992.

2 Acceptance Speech, New York City, July 16,1992.

3 "A New Covenant for American Security," remarks at Georgetown University, Washington, D.C., Dec. 12,1991.

4 Robert Bartley, "How Gore Lost Russia," WALL ST. J., Aug. 21,2000, A19.

5 Bruce W. Nelan, "The No-Guts, No-Glory Guys," TIME, Nov. 22,1993, p. 48.

6 See text box, infra.

7 Elaine Sciolino, "Who'll Win Russia?", N.Y. TIMES, May 19,1996, p. 1.

8 Thomas L. Friedman and Elaine Sciolino, "Clinton and Foreign Issues: Spasms of Attention," N.Y. TIMES, Mar. 22,1993,
p. A3.

9 Ann Devroy and Ruth Marcus, "President Clinton's First 100 Days; Ambitious Agenda and Interruptions Frustrate Efforts to
Maintain Focus," WASH. POST, Apr. 29,1993, p. Al.

10 President Clinton in a June 5,2000, speech to the Russian Duma cited the fact that he has visited Russia during his two
terms more frequently than any other president as evidence of his personal commitment to Russia policy making~an example
of the substitution of form for substance that typified the administration's entire approach to Russia. In similar fashion, the
Gore-Chernomyrdin Commission-to which the president handed over so much responsibility-produced a vast bureaucracy
and voluminous reports, but little in the way of substantive results.

11 See infra Chapter 5.

12 According to legend, Prince Potemkin, the favorite of Catherine the Great, had sham villages erected along the route of
one of her journeys to give the Czarina a delusive impression of the prosperity of her realm. It has been proverbial for more
than two centuries.

13 Ceci Connolly, "Gore Labels GOP Drug Plan a Facade," WASH. POST, July 4,2000, p. A6.

14 Bill Sammon, "Occidental Deal Benefits Gores; Sale of Federal Oil Field Boosts Family Fortune," WASH. TIMES, June
26,2000, p. Al; "Gore, Hitting Bush for Oil Ties, is Knee Deep in His Own Crude; Owns $500,000 of Occidental," WASH.
TIMES, June 23, 2000, p. Al; Patrick Cockburn, "Al Gore's Family Linked to Corrupt Oilman; Why the Vice President
Knows So Much About Russia: Tycoon Armand Hammer Had the Politician's Father 'In His Back Pocket,'" THE
INDEPENDENT (London), May 21, 2000, p. 21 ("The American press missed the point over the Gore-Chernomyrdin
scandal," a diplomat in Moscow said last week. "Gore had access to the Soviet and then the Russian leadership long before he
met Chernomyrdin because of his father's links to Hammer and Hammer's high-level contacts in the Soviet Union.");
Alexander Cockburn, "Al Gore's Teapot Dome: Occidental Petroleum acquires large portion of Elk Hills," THE NATION,
July 17,2000, p. 10 ("Normally, the Department of Energy would have been responsible for examining whether the sale of
this important national asset was in the best interests of the country. But the DOE was absolved from this task. Instead, Gore
arranged for the consulting firm ICF Kaiser International to assess the sale. The chairman of ICF Kaiser was none other than
master-fixer Tony Coelho, friend of Al and for a time overseer of the Gore presidential campaign. ICF Kaiser duly delivered a

244 of 286
wholehearted and unqualified certification of the deal.").

15 Bruce Stokes, "Treasury Undersecretary Lawrence Summers on..." NAT'L J., Feb. 26,1994, p. 470.

16 Ambassador-at-Large, Special Adviser to the Secretary of State for the New Independent States.

17 Thomas L. Friedman and Elaine Sciolino, "Clinton and Foreign Issues: Spasms of Attention," N.Y. TIMES, Mar. 22,
1993, p. A3.

18 Talbott has been described in the press as "chronically disorganized." Steven Erlanger, "Russia Vote Is a Testing Time for
a Key Friend of Clinton's," N.Y. TIMES, June 8,1996, p. Al. See also Margaret Carlson, CNN's Capital Gang, Jan. 1,1994.

19 Strobe Talbott, Hearing of the Senate Foreign Relations Committee on the Nomination of Strobe Talbott to be
Ambassador-at-Large and Special Adviser to the Secretary of State on the Commonwealth of Independent States, Mar. 23,
1993.

20 See infra Chapter 5.

21 As Russia scholar Dimitri Simes told the New York Times in 1996, "I think [Talbott's] self-confidence was a little
misplaced ... And the combination of his know-it-all phenomenon and his closeness to the President and his bureaucratic skills
undermined the normal analytic process of policy making." Steven Erlanger, "Russia Vote Is a Testing Time for a Key Friend
of Clinton's," N.Y. TIMES, June 8,1996, p. Al. See also testimony of David H. Swartz, former Ambassador to Belarus under
the Bush and Clinton administrations, before the House International Relations Committee, "U.S. Policy Towards Russia, Part
I: Warnings and Dissent," Oct. 6,1999, pp. 63-64 ("In my experience, Talbott always knew best... refuting, rebutting,
rejecting, or simply ignoring advice from his ambassadors in the field and other assistants.").

22 Meeting between Summers and the Speaker's Advisory Group, June 28,2000.

23 Statement to the Speaker's Advisory Group on Russia by Thomas Graham, June 7,2000. On Summers and Chubais, see
also JANINE WEDEL, COLLISION AND COLLUSION: THE STRANGE CASE OF WESTERN AID TO EASTERN
EUROPE 1989-1998 (New York: St. Martin's Press, 1998), pp. 124-127.

24 Peter Reddaway, "Questions about Russia's 'Dream Team'," CSIS POST-SOVIET PROSPECTS, Vol. V, No. 5, Sept.
1997.

25 General Accounting Office, "Harvard Institute for International Development's Work in Russia and Ukraine,"
GAO/NSIAD-97-27, Nov. 27,1997, p. 4.

26 JANINE WEDEL, COLLISION AND COLLUSION: THE STRANGE CASE OF WESTERN AID TO EASTERN
EUROPE 1989-1998 (New York: St. Martin's Press, 1998), pp. 127-128. See also Michael Dobbs and Paul Blustein, "Lost
Illusions About Russia; U.S. Backers of IU-Fated Reforms Now Portrayed as Naive," WASH. POST, Sept. 12,1999, p. Al;
"Tainted Transactions: An Exchange," NAT'L INTEREST, Summer 2000 (comments by Jeffrey Sachs, Anders Aslund,
Marek Dabrowski, Peter Reddaway, Igor Aristov, Wayne Merry, Michael Hudson, David Ellerman, Steven Rosefielde, and
Janine Wedel).

27 Remarks by Deputy Treasury Secretary Lawrence Summers at the U.S.-Russia Business Council Conference, Federal
News Service, Apr. 1,1997.

28 Michael Dobbs and Paul Blustein, "Lost Illusions about Russia; U.S. Backers of IU-Fated Reforms Now Portrayed as
Naive," WASH. POST, Sept. 12,1999, p. Al.

29 See, e.g., Peter Baker, "Clinton Treads Careful Path Through Unsettled Moscow," WASH. POST, Sept. 2,1998, p. A27;
John M. Broder, "Summit in Moscow: The Overview; Clinton Tells Moscow Crowd That Future Won't Be Easy," N.Y.
TIMES, Sept. 2,1998, p. Al.

Chechnya Section
1 Maureen Greenwood, Amnesty International USA, "Increased Level of Torture in the Russian Republic of Chechnya,"

245 of 286
testimony before the Commission on Security and Cooperation in Europe, June 21, 2000.

2 JimNichol, "Chechnya Conflict: Recent Developments," CRS Report for Congress, May 3,2000.

3 Steven Erlanger, "Christopher, Visiting Russia Hints at Support for Yeltsin," N.Y. TIMES, Mar. 23,1996, p. A4; Michael
S. Lelyveld, "U.S. Downplays Russia's Misdeeds, Experts Say," J. OF COM., Mar. 28,1996, p. Al ("In an hour long meeting
with Mr. Yeltsin this morning, Mr. Christopher stressed the positive, workmanlike, constructive side of the United
States-Russian relationship, his aides say, and touched not at all on major sore points, like ... the ongoing warfare in
Chechnya.").

4 David Hoffman, "Clinton, Yeltsin Gloss Over Chechen War; Russian Leaders Denies Fighting Continues Despite Rising
Death Toll," WASH. POST, Apr. 22,1996, p. Al.

5 Elaine Sciolino, "Who'll Win Russia? For America, Uncertainty Drops the Riddle," N.Y. TIMES, May 19, 1996, p. 1.

6 See generally Rajan Menon and Graham Fuller, "Russia's Ruinous Chechen War," FOREIGN AFFAIRS, March/April
2000, pp. 32-44.

7 David Hoffman, "Russian Premier Pins Bombing on Chechens," WASH. POST., Sept. 16,1999, p. A26.

8 Yabloko originally supported the war but called for negotiations~on tough terms-shortly before the election. Clinton
administration troika ally Anatoly Chubais called Yavlinsky a traitor for suggesting the time had come for talks. Yabloko lost
a number of seats in the new Duma because of its "soft" stance on the Russian intervention.

9 Dmitri Trenin, "Chechnya: Effects of the War and Prospects for Peace," Carnegie Moscow Center.

10 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12,2000.

11 Bill Clinton, "Remembering Yeltsin," TIME, Jan. 1,2000.

12 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12, 2000.

13 TIME (int'l ed.), Jan. 17,2000.

14 Testimony before the European Affairs Subcommittee of the Senate Foreign Relations Committee, Apr. 12, 2000.

15 Gore has made at least one incoherent statement Moscow could interpret as approval for a wider war, applying the term
"rogue state," which has since been banished from the Clinton administration's lexicon, to the region surrounding Chechnya:
"I took on the task of leading our effort to work with Russia~not because it was politically popular, but because it was right
for America's security, and right for the spread of democracy around the world." Vice President Al Gore, Boston, Mass., Apr.
30,2000. "And in the talks that we have been having with them, there are signs of an increasing recognition within Russia that
the threats that they face on their southern border from extremist groups, from the potential emergence of rogue states in the
area to their south they have all the conflict they're trying to deal with in the region now that's produced a new awareness on
their part that they might have something to gain from allowing a limited system." LATE EDITION WITH WOLF BLITZER,
CNN, Apr. 30,2000.

Chapter 4 continued
30 Testimony of Dimitri Simes, President of the Nixon Center, before the Speaker's Advisory Group on Russia, Apr. 13,
2000.

31 Testimony of Strobe Talbott before the House Appropriations Committee, Apr. 19,1993.

32 Testimony of Strobe Talbott before the House Foreign Affairs Committee, Oct. 6,1993.

33 BORIS YELTSIN, THE STRUGGLE FOR RUSSIA (New York: Random House, 1994), p. 255 ("Formally, the president
was violating the Constitution, going the route of antidemocratic measures, and dispersing the parliament-all for the sake of
establishing democracy and the rule of law in the country. The parliament was defending the Constitution~in order to

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overthrow the lawfully elected president and establish total Soviet rule."). See also id., p. 242.

34 "Brief on Upcoming Exchange Conference to Promote Trade between the U.S. and the Newly Independent States,"
Federal News Service, Oct. 13,1993 (emphasis added).

35 Dimitri K. Simes and Paul J. Saunders, "The Icon and the Hacks," NAT'L REVIEW, Oct. 12,1998, p. 44.

36 Indeed, administration favorite Anatoly Chubais branded Yavlinsky a "traitor" in the fall of 1999 for suggesting that
negotiations with Chechen leaders could be appropriate.

37 See, e.g., Natalia Dinello, "Bankers' Wars in Russia: Trophies and Wounds," POST-SOVIET PROSPECTS, Vol. VI, No.
1, Feb. 1998, p. 3.

38 Id., p. 4.

39 Leonid Bershidsky, "Loans for Shares Unraveling," MOSCOW TIMES, Feb. 3, 1996. See also Stephanie Simon, "Russia's
Lofty Plan to Privatize State Companies is Near Collapse; Auctions: Some Firms Have Been Sold, But Critics Say Politics,
Ineptitude Have Kept Many Choice Holdings Off the Block," L.A. TIMES, Dec. 8,1995, p. Dl.

40 Matt Bivens, "Laundering Yeltsin: How US Hypocrisy Feeds Russian Corruption," THE NATION, vol. 269, no. 10, Oct.
4,1999, p. 11.

41 Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, p. 21.

42 Id., p. 20.

43 Jonas Bernstein, "Loans-for-Shares Nets $1 Billion," MOSCOW TIMES, Dec. 30,1995.

44 FRONTLINE, Public Broadcasting Service, May 9,2000.

45 Id.

46 Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, p. 20. In one case, for example,
Menatep Bank reportedly received a "strange deposit" of $50 million from Russia's Finance Ministry that was essential to its
bid to acquire Sibneft. See Jonas Bernstein, "Loans-for-Shares Nets $1 Billion," MOSCOW TIMES, Dec. 30,1995.

47 Although the system of "authorized banks" was eventually scrapped, it had a profound impact on the structure of Russia's
banking system.

48 FRONTLINE, Public Broadcasting Service, May 9, 2000.

49 Testimony of Secretary Summers before the Speaker's Advisory Group on Russia, June 28, 2000.

50 See, e.g., Lee S. Wolosky, "Putin's Plutocrat Problem," FOREIGN AFFAIRS, vol. 79, no. 2, pp. 22-24.

51 DIMITRI K. SIMES, AFTER THE COLLAPSE: RUSSIA SEEKS ITS PLACE AS A GREAT POWER (New York:
Simon & Schuster, 1999), pp. 171-72; John Lloyd, "The Russian Devolution," N.Y. TIMES, Aug. 15,1999.

52 FRONTLINE, Public Broadcasting Service, May 9, 2000.

53 Lee Hockstader and David Hoffman, "Yeltsin Campaign Rose From Tears to Triumph; Money, Advertising Turned
Fortunes Around," WASH. POST, July 7,1996, p. Al.

54 David Hoffman, "Yeltsin Dismisses 3 Hard-Line Aides From Key Positions," WASH. POST, June 21,1996, p. Al.

55 STEPHEN WHITE, RUSSIA'S NEW POLITICS: THE MANAGEMENT OF A POSTCOMMUNIST SOCIETY (New
York: Cambridge University Press, 2000) p. 97; "International Observer Mission: Election of President of the Russian
Federation 16th June 1996 and 3rd July 1996 Report on the Election," OSCE/ODIHR.

56 In addition to the suspected use of IMF funds as a piggy bank for the Yeltsin campaign, the OSCE documented several

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examples of election irregularities, including Yeltsin supporters accosting citizens as they entered the voting booths and
sometimes even entering the voting booths and emerging with multiple ballots. "Final Statement of the OSCE/ODIHR
Observer Mission-First Round of Voting," Organization for Security and Cooperation in Europe, June 18,1996.

57 This ostrich-like approach to inconvenient possibilities often went to remarkable lengths. In January 1996, when observers
in Congress and the executive branch were deeply concerned about the possibility of a Communist victory in the upcoming
Russian presidential elections, "Deputy Secretary of State Strobe Talbott's first draft of a major analysis of Russia policy last
January omitted any discussion of what to expect if the Communists won. Only after colleagues drew the omission to Mr.
Talbott's attention did he insert a 'what if section in the final version." Elaine Sciolino, "Who'll Win Russia? For America,
Uncertainty Drops the Riddle," N.Y. TIMES MAGAZINE, May 19,1996, p. 4. The point, of course, is not that the Clinton
administration should have been indifferent to the outcome once the election became a choice between Yeltsin and the
Communists, but that the administration habitually failed to consider negative contingencies in Russia-some of which failed
to arise, like a Communist victory in 1996, while others, like dishonesty among the administration's Russian "partners," came
to haunt U.S.-Russian relations.

58 Janine R. Wedel, "Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin," NAT'L INTEREST, Spring 2000.

59 Even now, the Clinton administration continues to promote the number of privatizations rather than the results: "Tens of
thousands of state-owned enterprises have been privatized and more than 900,000 small businesses have been established,
contributing to Russia's recent economic rebound." Leon Fuerth, "Russia's Future: Progress, Prospects, and U.S. Policy,"
remarks to the Woodrow Wilson International Center for Scholars, July 25, 2000. The issue is not that enterprises were
transferred from the state-it is to whom and into what conditions they were transferred-and the effect those transfers had on
future economic growth. With respect to small business, many are of course formed by entrepreneurial Russians who have
been thrown out of work, and 900,000 in a nation of 146 million is not particularly impressive. Finally, the primary cause of
recent economic good news in Russia is higher oil prices. Russia's much more valuable human resources remain sadly
underutilized.

60 Testimony of Lawrence Summers before the Senate Banking, Housing, and Urban Affairs Committee, Feb. 8,1994.

61 Fiscal Year 1995, "USAID/Russia: An Overview of Program and Objectives."

62 Testimony of Strobe Talbott before the Senate Foreign Relations Committee, Mar. 23,1994.

63 Boris Fyodorov, "Killing with Kindness: No More 'Help' for Russia, Please," EUROPEAN WALL ST. J., June 8,2000.

Financial Aid Chart

1 This is the amount of cumulative expenditures for activities carried out by the Departments of Defense ($790 million),
Agriculture ($2.42 billion), and Energy ($584 million), and other smaller agencies. The amount budgeted for non-FREEDOM
Support Act activities for Russia is $5.17 billion, and the amount obligated is $4.54 billion.

2 The United States contributes 18.25% of the IMF's total quotas (about $35 billion), the largest contribution of any country.

3 Includes FREEDOM Support Act funds only. This is the amount of cumulative expenditures for Freedom Support Act
Funds. The amount budgeted for Russia is $2.49 billion, and the amount obligated is $2.44 billion.

4 Includes lending through July 1999, done through the International Bank for Reconstruction and Development (IBRD) and
International Development Association (IDA), both part of the World Bank. More than $11 billion has been approved but
only $6.6 billion has been disbursed~$2 billion for investment loans and $4.6 billion for adjustment loans. Calculated based
on a U.S. share of 16%.

5 The U.S. has a 10% share in the European Bank for Reconstruction and Development and is the largest single shareholder.

Chapter 4 continued

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64 YEGOR GAIDAR, DAYS OF DEFEAT AND VICTORY, (Seattle, Wash.: Univ. Wash. Press: 1999), p. 143.

65 See supra Chapter 3.

66 Joseph Stiglitz, "The Insider," NEW REPUBLIC, Apr. 17,2000, p. 56.

Chapter 5
1 Joint Statement by President Clinton and President Yeltsin at the Vancouver Summit, Apr. 4,1993.

2 Id.

3 Remarks by Leon Fuerth at the Foreign Press Center, Dec. 22,1993.

4 The White House, "Facts on the U.S.-Russia Joint Commission on Economic and Technological Cooperation," July 27,
1999.

5 Testimony of Thomas Graham, Jr., before the Senate Foreign Relations Committee, Sept. 30,1999.

6 Thomas W. Lippman, "An Obscure Force in National Security Edges Into Limelight," WASH. POST, June 16, 1998, p.
A19.

lid.

8 E. Wayne Merry, "Gore Should Own Up to His Part in Russian Mess," NEWSDAY, Sept. 8,1999, p. A40.

9 Testimony of Thomas Graham, Jr., before the Senate Foreign Relations Committee, Sept. 30, 1999.

10 The Gore-Primakov Commission's one plenary session was dramatically cancelled by Prime Minster Primakov, who
ordered his airplane to turn back to Russia in midflight to signal his objection to Western policy in Kosovo. See Chapter 10
infra. The most recent Russian prime ministers, Putin and Kasyanov, have apparently chosen to downplay the Commission,
which has not met this year.

11 The White House, "Joint Report of 10th GCC Meeting," Mar. 11,1998.

12 Mariya Bogatykh, "Gore-Kiriyenko Talks Break with Past," MOSCOW SEGODNYA via FBIS Translation, July 24,
1998, p. 5.

13 E. Wayne Merry, "Gore Should Own Up to His Part in Russian Mess," NEWSDAY, Sept. 8,1999, p. A40.

14 Id.

15 Fritz Ermath, "Seeing Russia Plain," NAT'L INTEREST, Spring 1999, p. 5.

16 Remarks by Vice President Gore at press conference, Dec. 16,1993.

17 Marcia Smith, "Space Stations," CRS Report to Congress, July 12,2000, p. 9.

18 Id.

19 Testimony of Joe Rothenberg, NASA Associate Administrator for Human Spaceflight, before the House Science
Committee, Mar. 19,1998.

20 Johnson Space Center, Briefing on the International Space Station for Congressional Staffers, Feb. 19,1999.

21 The appropriations bills for FY 2001 include no funds for further payments to Russia.

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22 Remarks by Vice President Gore at a press conference with Russian Prime Minister Chernomyrdin, Jan. 30,1996.

23 David Hoffman, "Russians Go From Atoms to Low-Tech; Nuclear Scientists Push New Consumer Goods," WASH.
POST, Oct. 25,1995, p. A21.

24 House Committee on International Relations, Report on the Iran Missile Proliferation Sanctions Act of 1997 (H. Rept.
105-375), p. 5.

25 See infra Chapter 9 for a more complete discussion of the extent of Russian proliferation during the Clinton and Yeltsin
administrations.

26 Remarks by Vice President Gore and Prime Minister Chernomyrdin at a press conference, Feb. 7,1997.

27 The Additional Views were signed by the ranking Democrat on the Committee, Lee Hamilton, and by Sam Gejdenson,
Bob Clement, Tom Lantos, Gary Ackerman, Eni Faleomavaega, Pat Danner, and Howard Berman. See House International
Relations Committee, Report on the Iran Missile Proliferation Sanctions Act of 1997, p. 14.

28 Bill Gertz, "Gore Raises Sale to Iran with Chernomyrdin," WASH. TIMES, Feb. 13,1997, p. A10.

29 Report on the Iran Missile Proliferation Sanctions Act of 1997, pp. 4-6.

30 William J. Clinton, "Message to the House of Representatives Returning Without Approval the 'Iran Missile Proliferation
Sanctions Act of 1998,'" June 29,1998.

31 Bill Gertz, "Russia, China Aid Iran's Missile Program," WASH. TIMES, Sept. 10,1997, p. Al.

32 Joint Statement of the Co-Chairmen of the U.S.-Russian Joint Commission on Economic and Technological Cooperation,
July 27,1999.

33 Director of Central Intelligence, Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons
of Mass Destruction and Advanced Conventional Munitions, 1 January-30 June 1999, released Feb. 2000.

Chapter 6
1 John Lloyd, "The Russian Devolution," N.Y. TIMES MAGAZINE, Aug. 15,1999, p. 34.

2 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, NOV. 23,1998, p. A8.

3 Paul Starobin, "Moscow Mirage," NAT'L JOUR., vol. 31, no. 16, Apr. 17,1999, p. 1034.

4 David Ignatius, "Russian Crapshoot," WASH. POST, Sept. 1,1999, p. A23.

5 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23,1998, p. A8.

6 David Ignatius, "Russian Crapshoot," WASH. POST, Sept. 1,1999, p. A23.

7 Julia Rubin, "Gore Backs Chernomyrdin at Start Of Moscow Visit," Associated Press, June 28,1995.

8 Peter Reddaway, "Better Than Whitewater: Scandal Dogs Russia's Rising Star," WASH. POST, Aug. 20,1995, p. C3. See
also Reddaway, "Is Chernomyrdin a Crook?", POST-SOVIET PROSPECTS, Vol. Ill, No. 8, August 1995 (describing the
"avalanche of public, high-level charges that Prime Minister Viktor Chernomyrdin has 'robbed Russia' to make himself a
billionaire").

9 Reddaway, supra, POST-SOVIET PROSPECTS, Vol. Ill, No. 8, August 1995.

10 Steven Erlanger, "A Corrupt Tide in Russia From State-Business Ties," N.Y. TIMES, July 3,1995, p. Al.

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11 Thomas Pickering, "How Russia Is Ruled: The Political And Economic Lobbies," March 1995. Pickering's cable was
intended to describe how "Russia [is] ruled by an oligarchy of economic and bureaucratic pressure groups ... able to [put]
pressure directly on the political elite."

12 Fred Hiatt, "Political Elites Vie for Power In Russian Quasi-Democracy; Transition From Communism at Stake," WASH.
POST, Mar. 26,1995, p. Al. The $30 billion figure is in Anders Aslund, "Russia's Sleaze Sector," N.Y. TIMES, July 11,
1995, p. A19.

13 LILIA SHEVTSOVA, YELTSIN'S RUSSIA (Washington: Carnegie Endowment, 1999), p. 141.

14 VALERY STRELETSKY, MRAKOBESIYE (Moscow: Detektiv-Press, 1998), p. 15.

15 Id.

16 See David Filipov, "A real gem of a scandal: Russian magnate may have stolen millions in jewels," BOSTON GLOBE,
June 27,1998, p.A2; Alexander Shashkov, "Ex-Premier Chernomyrdin questioned in court over diamond deal," Itar-TASS,
May 26, 2000.

17 Oleg Lurye, "Switzerland as the Mirror of the Kremlin-A Look at the Top People in Government From the Perspective of
Lake Geneva; An Exclusive Interview with High-Ranking Officials of the Swiss Police and Prosecutor's Office by a Novaya
Gazeta Correspondent," Novaya Gazeta (Electronic Version, in Russian), No. 25, June 26 to July 2,2000, p. 6.

18 Bruce D. Berkowitz and Jeffrey T. Richelson, "The CIA Vindicated: The Soviet Collapse was Predicted," NAT'L
INTEREST, Fall 1995.

19 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23, 1998, p. A8.

20 David Ignatius, "Who Robbed Russia? Did Al Gore know about the massive lootings?" WASH. POST, Aug. 25,1999, p.
Al 7.

21 Christopher Marquis, "Clinton administration unveils plan to combat money laundering," Knight Ridder/Tribune News
Service, Sept. 23,1999.

22 Fritz Ermarth, "Seeing Russia Plain," NAT'L INTEREST, Spring 1999, No. 55, p. 12. Ermarth, who retired from the CIA
in 1998, has served as Chairman of the National Intelligence Council and in a variety of other senior government posts.

23 "Conceptual Provisions of a Strategy for Countering the Main External Threats to Russian Federation National Security,"
INOBIS, Moscow Institute of Defense Studies, October 1995, pp. 4-5.

24 Interview of Al Gore by Tim Russert, MEET THE PRESS, July 16,2000 (Emphasis added).

25 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23,1998, p. A8.

26 James Risen, "CIA Denies That It Withheld Reports on Russian Corruption," N.Y. TIMES, Nov. 25, 1999, p. A6.

27 James Risen, "Gore Rejected CIA Evidence of Russian Corruption," N.Y. TIMES, Nov. 23,1998, p. A8.

28 Id.

29 Interview of Al Gore by Tim Russert, MEET THE PRESS, July 16, 2000. Gore continued:

I think that in his dealings with our country, he proved to be a person whose word was worthy of respect, and
we accomplished a great deal with Chernomyrdin. In fact, right here at the Naval Observatory, I talked with
him personally and worked out the provisions by which the war in Kosovo was ended, and he played a major
role in that. And you know, Russia is now-for all of its many problems, the question there is not whether or
not to return to communism, the question on the table in Russia is: How fast are they going to move forward
with the reforms? They now have a privatized market. They have more private ownership in their economy
than many countries in Western Europe. They have a democracy. ...

Gore's attribution to Chernomyrdin of credit for Russian democracy and the absence of a Communist

251 of 286
 comeback in Russia is grossly exaggerated. For Chernomyrdin's unhelpful role in mediating the end of the
Kosovo conflict, see Chapter 10 infra.

30 David Hoffman, "Russia Was Lab For Theories on Foreign Policy," WASH. POST, June 4,2000, p. A9.

31 Peter Reddaway, "Better Than Whitewater: Scandal Dogs Russia's Rising Star," WASH. POST, Aug. 20,1995, p. C3.

32 David Hoffman, "Russia Was Lab for Theories on Foreign Policy," WASH. POST, June 4,2000, p. A9.

33 For the Gore-Chernomyrdin Commission's work product, see Chapter 5 supra.

34 In February 1999, Vice President Gore gave a speech on the self-evident evils of corruption in which he appropriated
without attribution the words of Edmund Burke ("Corruption has so frequently triumphed in our world because good men and
women did nothing") while proposing no more specific plan of action than further discussions and meetings. The patent irony
of his notorious association with some of the most corrupt figures in Russia spoke more eloquently even then Burke's famous
words on this occasion. Closing remarks of Vice President Al Gore at the Global Forum on Fighting Corruption, Washington,
D.C.,Feb.26,1999.

35 For further problems with the Commission see Chapter 5 supra.

36 Testimony of Wayne Merry, Director, the Atlantic Council of the United States, before the Senate Foreign Relations
Committee, on "Corruption in Russia," Sept. 23,1999.

37 FRONTLINE, Public Broadcasting Service, May 9,2000

38 Id.

39 Id.

40 Robert Kaiser, "Pumping Up the Problem; Has Investing in the Yeltsin Machine Put America's Relationship With Russia
at Risk?" WASH. POST, Aug. 15,1999, p. Bl.

41 Thomas Graham, Statement to the Speaker's Advisory Group on Russia, June 7,2000.

42 Stephanie Nebehay, "Swiss want U.S., Russian help in laundering probe," Reuters, June 9,2000.

43 Paul Starobin, "Moscow Mirage," NAT'L JOURNAL, Vol. 31, No. 16, Apr. 17,1999, p. 1034.

Chapter 7
1 Aaron Lukas, Gary Dempsey, "Mafia Capitalism or Red Legacy in Russia?", CATO Institute, Mar. 4, 2000, p. 4.

2 Id., p. 4.

3 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT (Washington, D.C.: Center for
Strategic and International Studies, 1997), p. 3.

4 Christian Caryl, Anne Nivat, "Reality is Virtually Horrible," U.S. NEWS & WORLD REPORT, Nov. 8,1999, p. 60;
Nikolai Styazhkin, "Five Policemen Sentenced in Budennovsk Hostage-Taking Drama," Itar-TASS, July 15,1996.

5 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT (Washington, D.C.: Center for
Strategic and International Studies, 1997), p. 20.

6 "institutional economics literature and extensive empirical analysis ... show that the structure and activities of organized
criminal groups are significantly shaped by the state." Curtis J. Milhaupt and Mark D. West, "The Dark Side of Private
Ordering: An Institutional and Empirical Analysis of Organized Crime," 67 U. CHI. L. REV. 41, Winter 2000.

252 of 286
7 Francis T. Miko, "International Crime: Russian Organized Crime's Role and U.S. Interests," CRS Report to Congress, Oct.
30,1998.

8 RUSSIAN ORGANIZED CRIME (Washington, DC: Center for Strategic and International Studies, 1997), p. 2.

9 Interfax, June 23, 2000.

10 Paul J. Saunders, Testimony before the House Committee on Banking and Financial Services, U.S. House of
Representatives, Sept. 15,1998.

11 "300,000 Economic Crimes Uncovered Last Year," Itar-TASS, Feb. 10,2000.

12 "Business Law Review," Interfax, Apr. 4, 2000 Volume S, FBIS CEP20000404000276.

13 "300,000 Economic Crimes Uncovered Last Year," Itar-TASS, Feb. 10,2000.

14 "Top Russian Police Officer Gives Organized Crime Figures," Foreign Broadcast Information Service, RIA-VESTI, June
7,2000, FBIS-SOV-2000-0607-000085; "Russian Interior Ministry: 95 Criminal Communities Acting in Russia," Interfax,
June 8,2000, Foreign Broadcast Information Service, FBIS-SOV-2000- 0608-000127.

15 "Top Russian Police Officer Gives Organized Crime Figures," RIA-VESTI, June 7,2000, Foreign Broadcast Information
Service, FBIS-SOV-2000-0607-000085. The editor-in-chief of the information agency for the International Association for
Combating Drug Addiction and Drug Trafficking, Vladimir Shashkov, reported that 40,000 firms in Russia "controlled by
organized crime groupings" were "laundering narco-money." Interfax, June 23,2000.

16 "Russia's Criminals Go Global," JANE'S INTELLIGENCE REVIEW, Mar. 2000, p. 10.

17 Pat Milton, "Russian mob seeks money and power in America and overseas," Associated Press, June 18,2000. Such
groups have also been compared to parasites:

But the problem in Russia today is that organized crime is well on the way to becoming a major, perhaps in
time a dominating, factor in the Russian polity. An example from the world of biology may help make the
point. In the early stages of its growth on a host tree in the rain forest, the strangler fig looks like many other
parasitical vines. But the strangler fig's tendrils ... grow stronger and slowly more and more vines work then-
way down the tree, join one another, and become a circular shell, an outer trunk that completely surrounds the
tree. The tree inside begins to die, and in the final stages what was once a healthy host tree with a few vines on
it becomes nothing but the rotten core of a new strangler fig tree. The parasite replaces its host.... There are
definitely more than just a few organized crime tendrils on the Russian tree.

R. James Woolsey, former Director of Central Intelligence, testimony before the House National Security
Committee, hearing on "Challenges Posed by Russia to United States National Security Interests, June 13,
1996, p. 18. "Banking, the extractive industries, exporting oil, gas, timber, and other natural resources, and
many manufacturing enterprises are thoroughly penetrated by organized crime. Even more troubling, so are
important parts of the security services, the military, and other parts of the government." Id.

18 "Challenges Posed by Russia to United States National Security Interests," June 13,1996, H.N.S.C. No. 104-40, p. 31.
(The Committee was the Committee on National Security during the 104th Congress.)

19 Id, pp. 32-33.

20 Svyatoslav Timchenko, "Land of Brazen Killers; 17 contract Killings in St. Petersburg Since the Beginning of the Year but
Not One of Them Has Yet been Solved," MOSCOW NEZAVISIMAYA GAZETA, May 6,2000; "Commercial Banker Shot
Dead in Contract Killing," Itar-TASS, June 14,2000; EKHO MOSKVY RADIO, June 16, 2000; MOSCOW
KOMMERSANT, May 23,2000; Gregory Feifer, "Uralmash Director Killed in Sverdlovsk," MOSCOW TIMES, July 11,
2000.

21 Daniel Williams, "Fees for Eternity: The Long Arm of Organized Crime Reaches Deeply in St. Petersburg's Cemeteries,"
WASH. POST, May 28,2000, p. A20.

22 Svyatoslav Timchenko, "Land of Brazen Killers; 17 contract Killings in St. Petersburg Since the Beginning of the Year but

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Not One of Them Has Yet been Solved," MOSCOW NEZAVISIMAYA GAZETA, May 6,2000; "Commercial Banker Shot
Dead in Contract Killing," Itar-TASS, June 14,2000; EKHO MOSKVY RADIO, June 16,2000; MOSCOW
KOMMERSANT, May 23,2000; Gregory Feifer, "Uralmash Director Killed in Sverdlovsk," MOSCOW TIMES, July 11,
2000; "Being a journalist in Russia is really risky," Agence France Presse, July 30,2000; Russia Today, July 31,2000, citing
BBC Monitoring of Itar-TASS report.

23 See supra, Chapter 4.

24 Janine Wedel, "Tainted Transactions: Harvard, the Chubais Clan and Russia's Ruin," NAT'L INTEREST, Spring 2000,
citing U.S. General Accounting Office, "Foreign Assistance: Harvard Institute for International Development's Work in
Russia and Ukraine" (Washington, DC: GAO, Nov. 1996), p. 60; Russian Privatization Center 1994 Annual Report, pp. 5, 24;
interview with and documents provided by Veniamin Sokolov (auditor at the Chamber of Accounts of the Russian
Federation), May 31,1998; Veniamin Sokolov, talk at American University, June 2, 1998.

25 R. James Woolsey, testimony before the House National Security Committee, hearing on "Challenges Posed by Russia to
United States National Security Interests," June 13,1996, p. 18 ("If an American businessman meets with a nattily-dressed
and articulate Russian who claims that he is with an international trading and banking firm in Moscow and he would like to
discuss a joint venture covering, say, the export of Russian oil, such an individual may be what he says he is. Or he may be a
Russian intelligence officer operating under commercial cover. Or he may be an important member of a Russian organized
crime group. But the really interesting point is that there is a reasonable chance that he is all three~and that none of those
three institutions sees any problem with such an arrangement.")

26 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1997), p. 3.

27 Lee S. Wolosky, "Putin's Plutocrat Problem," FOR. AFFAIRS, Mar./Apr. 2000, p. 18.

28 The ownership of Gazprom remains a mystery to the press today. "Many analysts~and at least one official inquiry-believe
that Itera [International Energy Corporation, with offices in Jacksonville, Florida] and these other companies in Gazprom's
close orbit are owned by Gazprom's management or their relatives." Charles Clover, "Gazprom's sweetheart reaps Arctic
Russia's riches: A company of uncertain ownership has been very well treated by the gas monopoly," FIN. TIMES, Aug. 11,
2000, p. 3. See also David Hoffman, "Itera: Mystery Player in Russia's Natural Gas Market," WASH. POST, May 21,2000,
p. HI. While it is generally accepted by analysts that Chernomyrdin became extremely wealthy thanks to his Gazprom
connections, the Russian energy industry does not appreciate such publicity. In April 1997, Izvestia republished a Le Monde
report that Chernomyrdin had amassed a personal fortune of $5 billion in connection with "privatization." In an example of
the extraordinary ties between the energy and media sectors in Russia, after Izvestia's publication of this report, the petroleum
giant Lukoil, a major Izvestia shareholder, "promptly called an extraordinary shareholders meeting, took a majority on the
newspaper's board, and sacked its top editors." Andrew McChesney, "Paper Says Lukoil Menaced Reporter," MOSCOW
TIMES, Feb. 1,2000; Daniel Williams, '"Citizen Kane' on Pushkin Square: Rough Politics, Secret Deals End in Corporate
Coup at Russia's Izvestia Newspaper and De Facto Dismissal of Longtime Editor," L.A. TIMES, July 13,1997. Former
Russian Finance Minister Boris Fyodorov had written in Izvestia May 26,1995 that Chernomyrdin had acquired 1% of the
stock in Gazprom, a company that could be worth $700 billion. See Peter Reddaway, "Is Chernomyrdin a Crook?"
POST-SOVIET PROSPECTS, Vol. Ill, No. 8, August 1995, at http://www.csis.org/ruseura/psp/pspiii8.html (Reddaway was
the director of the Kennan Institute for Advance Russian Studies; a shorter version of the paper was published in the
Washington Post, Aug. 20,1995.). See Chapter 6 supra.

29 "American University Transnational Crime and Corruption Center's Organized Crime Watch," Vol. 1, No. 3, Mar./Apr.
1999, pp. 21-22.

30 Id. pp. 22-23.

31 "In 1991 we did fight the Persian Gulf War. We did win. And now gas prices are very high, highest they have been. And I
think the reason they're high now is because we more or less asked OPEC to raise oil prices in hopes of helping Russia be able
to sell its oil on the international market, make more foreign exchange and be able to develop its economy." Bill Bradley,
debate with Vice President Al Gore, Mar. 1,2000.

32 Andrew Hamilton, "How the White House Helped Pump Up the Price," WASH. POST, Apr. 30, 2000, p. B3.

33 Marc Lacey and David E. Sänger, "The President's News Conference: Clinton Moves to Give Northeast Aid With Fuel
Oil," N.Y. TIMES, Feb. 17,2000, p. A20.

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34 Paul J. Saunders, testimony before the House Committee on Banking and Financial Services, Sept. 15,1998; Clifford G.
Gaddy & Barry W. Ickes, "Russia's Virtual Economy," FOR. AFFAIRS, Sept/Oct. 1998.

35 Saunders, Id.

37 "In 20 regions, wage and pension payments are more than three months behind schedule, and in 27 more arrears are
continuing to mount. Only 5 of Russia's 89 regions have no wage and pension debts: St. Petersburg, Moscow, Krasnodar,
Yamal-Nenets, and Taimyr." "Economy: Wage Debts Decline," RUSSIAN BUSINESS NEWS UPDATE, JOSH ZANDER
FINANCIAL AND MANAGEMENT CONSULTING SERVICES, Apr. 1,1999.

38 Included in this are teachers, state hospital doctors, city service providers, and others.

39 "MP Says Capital Flight Losses $20 Billion Monthly," INTERFAX, May 24, 2000, Foreign Broadcast Information
Service, FBIS-SOV-2000-0524.

40 Foreign direct investment in Russia between 1993 and 1999 totals $17.73 billion, according to the BISNIS web site of the
Department of Commerce (http://www.bisnis.gov). Capital flight also exceeds Russia's total foreign debt ($178 billion
according to the World Bank's web site, http://www.worldbank.org).

41 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1997) p. 4.

42 Id. p. 16.

43 Paul J. Saunders, testimony Before the Committee on Banking and Financial Services, United States House of
Representatives, Sept. 15,1998.

44 "American University Transnational Crime and Corruption Center's Organized Crime Watch," vol. 1, no. 3, MarVApr.
1999, pp. 25-27; "Deputies to the Federation Council and Deputies to the State Duma shall possess immunity throughout their
term in office," Russian Federation Constitution, chap. 5, art. 98.

45 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1999) p. 5.

46 Stefan Leader, David Wiencek, "Drug money: The Fuel for Global Terrorism," JANE'S INTELLIGENCE REVIEW, Feb.
1,2000.

47 Columbia is now the world's largest cocaine producer with over 100,000 hectares of land under coca cultivation, up from
25,000 hectares in 1994.

48 Douglas Farah, "Colombian Rebels Tap E. Europe for Arms; Guerrillas' Firepower Superior to Army's," WASH. POST,
Nov. 4,1999, p. Al.

49 Thomson Adam, '"Mafia links' boost Colombia cocaine exports," FIN. TIMES, Nov. 29,1999, p. 5, quoting Colombia's
police intelligence director, Col. Oscar Naranjo.

50 See infra, Chapter 9.

51 Thomson Adam, "Mafia Links Boost Colombia Cocaine Exports," FIN. TIMES, Nov. 29,1999, p. 5.

52 Douglas Farah, "Colombian Rebels Tap E. Europe for Arms; Guerrillas' Firepower Superior to Army's," WASH. POST,
November 4,1999, p. Al. Thomson Adam, "Mafia Links Boost Colombia Cocaine Exports," FIN. TIMES, Nov. 29,1999, p.
5.

53 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1997) p. 6.

54 Id.

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55 Id. In Prague on May 11, 2000, Freeh announced plans to open an FBI office there, accepting a 1994 offer from Vaclav
Havel. Czech police, and those from 25 other nations, have attended an FBI training center in Budapest that has been open for
five years. "FBI to open office in Czech capital," Czech news agency CTK via BBC WORLDWIDE MONITORING, May
12, 2000. While the FBI has 38 offices around the world in which agents are assigned to U.S. embassies, it announced the
opening of its first permanent office abroad in Budapest in February to concentrate on Russian organized crime. "FBI to open
its first office abroad in Hungary," Associated Press, Feb. 22,2000.

56 "Yavlinsky on Russian Economic Data, Political Corruption," INTERFAX, Sept. 21,1997, Foreign Broadcast Information
Service, FBIS-SOV-97-264.

57 "Prospects for the Russian Economy," presentation by Yevgeny Yasin at the Nixon Center, Sept. 13,1999.

58 Deputy Secretary Strobe Talbott, testimony before the House International Relations Committee, Oct. 19, 1999.

59 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1999) p. 12,13-14.

60 Michael Dobbs and Paul Blustein, "Lost Illusions About Russia; U.S. Backers of Ill-Fated Reforms Now Portrayed as
Naive," WASH. POST, Sept. 12,1999, p. Al.

61 "American University Transnational Crime and Corruption Center's Organized Crime Watch," Vol. 1, No. 3, (Mar./Apr.
1999) pp. 21-22.

62 Study by the All-Russia Center for the Study of Public Opinion, Apr. 14-17,2000, results posted on www.polit.ru, Apr.
21,2000.

63 Aaron Lukas and Gary Dempsey, "Mafia Capitalism or Red Legacy in Russia?", CATO Institute, Mar. 4, 2000, p. 3. See
also CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1997) p. 20 ("The perception of a state in chaos has fueled... the yearning of many
Russians-especially the older generation~for a return to ... authoritarian and paternalistic forms of governance .... This
desire, attributable in large part although not exclusively to the surge of [Organized Crime], may yet impel the Russian people
to surrender their new political freedom and opt for a return to the familiar authoritarian institutions of the past.").

64 "Money would go into the central bank; a hundred million dollars would go in, and the Russian Mob would walk out with
$105 million." Robert Friedman, NATIONAL PUBLIC RADIO, May 3, 2000.

65 "Most Russians Not Confident of Police Protection," Itar-TASS, June 7, 2000, Foreign Broadcast Information Service,
FBIS- 2000-0607.

Chapter 8
1 Remarks by Lawrence Summers at a U.S.-Russia Business Council Conference, Apr. 1,1997. While Kirienko was not
well-known, it did not take the Clinton administration long to get behind him. "This is a good news day for Russia and for the
United States," President Clinton said in response to his confirmation as Prime Minister. "We have a high opinion of
[Kirienko]." David Hoffman, "Third Vote Confirms Kirienko as new Russian Premier," WASH. POST, Apr. 25,1998, p. Al.
What the President failed to realize, however, was that Yeltsin's threat to dissolve the Duma if it did not confirm Kirienko
fatally undermined the new Russian government's relations with the parliament, making it impossible to pass the very reforms
being advocated. Even after the consequences of Yeltsin's threat became clear, U.S. officials remained outwardly optimistic,
as evidenced by Secretary Rubin's correspondence with the U.S. Congress and elsewhere. Kirienko was ousted barely five
months later.

2 Paul Blustein, "IMF Battens Down For More 111 Wind," WASH. POST, July 29,1998, p. A16.

3 Sharon LaFraniere, "Russian Bailout Fails To Ease Market Fears," WASH. POST, July 28,1998, p. Al.

4 Celestine Bohlen, "Ruble's Crash Sets Off Boom in Survival Strategies," N.Y. TIMES, Aug. 30, 1998, p. Al.

256 of 286
5 Celestine Bohlen, "As Ruble Crashes, Hangover Hurts a Lot," N.Y. TIMES, Sept. 9,1998. p. A12.

6 Michael Gordon, "Russia's Communists Add to Pressure on Yeltsin," N.Y. TIMES, Sept. 10,1998, p. Al.

7 Alan Philips, "Stoic Russians watch savings disappear again as the rouble [sic] plunges to new lows," DAILY
TELEGRAPH, Sept. 5,1998, p. 13.

8 Boris Aliabyev, "Searching for ATM Cash a New Pastime," MOSCOW TIMES, Aug. 21,1998.

9 KOMMERSANT DAILY, Sept. 3, 1998.

10 ECONOMIC REPORT OF THE PRESIDENT (Washington, D.C.: 2000), p. 364.

11 European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

12 Non-payment of wages spread throughout the entire population, much of which had already seen wages withheld. Many
doctors, teachers, and factory workers had gone unpaid for months prior to the August 1998 crash. Celestine Bohlen, "Ruble
Down, Prices Up: A Russian City Flinches," N.Y. TIMES, Aug. 23,1998, p. A3.

13 Peter Boone and Simon Johnson, "Russia After Yeltsin: Economic Alternatives: Boom or Bust or Both," paper prepared
for "Russia Post Yeltsin," Wye River Conference, Aug. 19-20,1999.

14 GOSKOMSTAT, Sotsialno-Ekonomicheskoye Polozhenie Rossiii.

15 BISNIS, Department of Commerce,

www.bisnis.doc.gov/bisnis/country/000225russiaovw-partl.htm.

16 Michael Wines, "As Ruble Falls, Moscow Unravels Faster and Faster," N.Y. TIMES, Sept. 4,1998, p. A4.

17 "1999 Country Reports on Economic Policy and Trade Practices," Bureau of Economic and Business Affairs, U.S.
Department of State, March 2000; Peter Boone and Simon Johnson, "Russia After Yeltsin: Economic Alternatives: Boom or
Bust or Both" Paper prepared for "Russia Post Yeltsin," Wye River Conference, Aug. 19-20,1999.

18 "Trading on Russian stock market is suspended," AGENCE FRANCE PRESSE, Sept. 17,1998.

19 European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

20 Christia Freeland, "How Bad Can It Get?," FIN. TIMES, Sept. 2,1998, p. 14.

21 Christia Freeland, "Rouble [sic] plunges to 13.46 against dollar," FIN. TIMES, Sept. 4,1998, p. 1.

22 Timothy O'Brien, "As Banks Falter, Russians Search for their Savings," N.Y. TIMES, Sept. 6,1998, p. A6.

23 Mark Whitehouse, Betsy McKay, Bob Davis and Steve Liseman, "Bear Tracks: In a Financial Gamble, Russia Lets Ruble
Fall, Stalls Debt Repayment," WALL ST. J., Aug. 18,1998, p. Al.

24 Michael Gordon, "As Ruble Withers, Russians Survive on Barter," N.Y. TIMES, Sept. 6,1998, p. A6.

25 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF CURRENT EVENTS,
Sept./Oct. 1998.

26 Celestine Bohlen, "Ruble Down, Prices Up: A Russian City Flinches," N.Y. TIMES, Aug. 23,1998, p. A3.

27 Richard Paddock, "Russia Shelves Rhetoric to Accept U.S. Food Aid," LA. TIMES, Dec. 24,1998, p. Al.

28 Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW TIMES, Jan. 26,2000.

29 Daniel Williams, "Russian Crisis Sapping Health Care System," WASH. POST, Sept. 10,1998, p. A26.

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30 The population fell 0.02% in 1992, 0.2% in 1993,0.04% in 1994, 0.2% in 1995, and 0.3% in 1996,1997, and 1998, and
another of 0.5% in 1999. Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW TIMES, Jan. 26,2000.

31 CIA World Fact Book, 1999.

32 Murray Feshback, "A Sick and Shrinking Nation," WASH. POST, Oct. 24,1999, p. B7.

33 Murray Feshback, "Drink, disease and depression eat away at Russian population," AGENCE FRANCE PRESSE, Feb. 22,
2000, p. B7.

34 CIA World Fact Book, 1999.

35 FRONTLINE, Public Broadcasting Service, May 9,2000.

36 Oksana Yablokova, "Population Takes Biggest Plunge Yet," MOSCOW TIMES, Jan. 26,2000.

37 Id.

38 Murray Feshback, "An AIDS Catastrophe," MOSCOW TIMES, Jan. 14,2000.

39 Political Risk Services, "Report on Russian Social Conditions," May 1,2000.

40 Lee Hockstader, "IMF, Russia Set Loan for $10 Billion," WASH. POST, Feb. 23, 1996, p. Al.

41 Michael Gordon, "Russia and IMF Agree on a Loan for $10.2 Billion," N.Y. TIMES, Feb. 23,1996, p. Al.

42 "Approach Used to Monitor Conditions for Financial Assistance," General Accounting Office Report to Congress, June
1999 (GGD/NSIAD-99-168), pp. 144-145.

43 Id.

A4 See, for example, "To Buy a Russian Election," WASH. TIMES, Mar. 28,1996, p. Al8; "No IMF Loans to Russia,"
Executive Memorandum, The Heritage Foundation, Feb. 16,1996; Charles Krauthammer, "It's Their Economy, Stupid,"
WASH. POST, Feb. 8,1996, p. A21.

45 Secretary Summers testified before the Speaker's Advisory Group that the Clinton administration consistently urged Russia
to increase revenues. Meeting with the Speaker's Advisory Group on Russia, June 28,2000.

46 According to EBRD statistics, the budget deficit as a percent of GDP was 8.6% in 1996,7.6% in 1997, and 8.0% in 1998.
European Bank for Reconstruction and Development, Transition Report 1999, p. 75.

47 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF CURRENT EVENTS,
Sept./Oct. 1998.

48 Id.

49 Id.

50 Id.

51 Id.

52 Id.

53 Peter Rutland, "Western Policy and the Failure of the Economic Transition in Russia," Jamestown Foundation Conference
Paper, June 1999, p. 9. "Russia Sets 80% Limit for Wednesday GKO Primary Yields," Interfax, July 8,1998. The 100% rate
was in secondary trading. Yields reached 50% at the end of May. "GKO Yield Curve," Capital Markets Russia, May 28,
1998.

54 Id.

258 of 286
55 Peter Rutland, "Western Policy and the Failure of the Economic Transition in Russia," Jamestown Foundation Conference
Paper, June 1999, p. 9.

56 Former Treasury Secretary Robert Rubin, testimony before the House Appropriations Committee, Subcommittee on
Foreign Operations, Mar. 18,1999.

57 Martin Crutsinger, "U.S. Hopeful Russia Will Get Loans," Associated Press, May 27,1998.

58 Treasury Secretary Lawrence Summers, meeting with the Speaker's Advisory Group on Russia, June 28,2000.

59 Remarks by John Odling-Smee at a press conference, July 13,1998.

60 Press Briefing by Mike McCurry, July 13,1998.

61 Clifford Gaddy and Barry Ickes, "What Went Wrong: Russia's Virtual Economy," ANALYSIS OF CURRENT EVENTS,
Sept./Oct. 1999.

62 Michael Gordon and David Sanger, "The Bailout of the Kremlin: How U.S. Pressed the I.M.F.," N.Y. TIMES, July 17,
1998, p. Al.

63 Id.

64 Statement by the President of the United States, May 31,1998.

65 "Russian Government Officially Cancelled Auction for Sale of Rosneft," KOMMERSANT DAILY, Nov. 5, 1998, p. 7.

66 Memorandum of the Government of the Russian Federation and the Central Bank of the Russian Federation on Economic
and Financial Stabilization Policies at

http://www.imf.org/external/country/RUS/index.htm.

67 Statement by the President of the United States, May 31,1998.

68 Patrice Hill, "Russia loses $800 million from IMF," WASH. TIMES, July 21,1998, p. Al.

69 "More records fall as Russia surges," FIN. TIMES, July 15,1998, p. 50.

70 John Thornhill and Jeremy Grant, "Russian markets hit by austerity package doubts," FIN. TIMES, July 28, 1998, p. 1.

71 "More records fall as Russia surges," FIN. TIMES, July 15,1998, p. 50

72 "Yeltsin sacks security chief and orders Gazprom sell-off," FIN. TIMES, July 27,1998, p. 1.

73 Michael Wines, "Foreign Investors Need Good News, Top Russian Official Says," N.Y. TIMES, July 29, 1998, p. A2.

74 Letter from Treasury Secretary Robert Rubin to Speaker of the House Newt Gingrich, July 28,1998.

75 Paul Blustein, "IMF Battens Down For More 111 Wind," WASH. POST, July 29,1998, p. A16.

76 "Russia's Tumble Continues," Reuters, Aug. 19,1998.

77 Paul Blustein, "Rescue Of Russian Economy Failing; Experts Predict New Bailout Effort," WASH. POST, July 14,1998,
p. Al.

78 Daniel Williams, "Russian Banks Stop Loans to One Another," WASH. POST, Aug. 13,1998, p. A23.

79 Art Pine, "Pressure is Mounting for Russian Reforms," LA. TIMES, Aug. 15,1998, p. A8.

80 "The next Russian bail-out," THE ECONOMIST, Aug. 15,1998, p. 60.

259 of 286
81 Celestine Bohlen, "Russia Acts to Fix Shrinking Finances," N.Y. TIMES, Aug. 18,1998, p. Al.

82 Mark Whitehouse, Betsy McKay, Bob Davis, and Steve Liseman, "Bear Tracks: In a Financial Gamble, Russia Lets Ruble
Fall, Stalls Debt Repayment," WALL ST. J., Aug. 18,1998, p. Al.

83 Sylvia Nasar, "Denied Western Funds, Russia Makes Its Choices," N.Y. TIMES, Aug. 18,1998, p. A8.

84 The Russian government's revised Foreign Policy Concept, approved by President Putin on June 28, 2000, appears to
reflect a distinctly jaundiced view of "[globalization of the world economy", which is described as bringing not only
"additional possibilities for socio-economic progress" but also "new dangers, especially for economically weak states, and
increase[d]... probability of large-scale financial and economic crises." The Concept continues, "There is a growing risk of
dependence of the economic system and information environment of the Russian Federation on outside impact." The growing
role of international economic and political institutions like 'Group of Eight,' the IMF, the World Bank, and others" is
described immediately thereafter.

85 Testimony of Robert Rubin before the House Appropriations Committee, Subcommittee on Foreign Operations, Mar. 18,
1999.

86 Richard Paddock, "Russia Plays Loose with IMF Billions," LA. TIMES, Sept. 24,1998, p. Al.

87 David Kramer, "It may be the summit of embarrassment," BOSTON GLOBE, Aug. 30,1998, p. E2.

88 GOSKOMSTAT, Sotsialno-Ekonomicheskoye Polozhenie Rossiii, March 2000, in Jamestown Foundation "Monitor

Report," June 20,2000.

89 Stefan Wagstyl, "Further reform needed to consolidate gains," FIN. TIMES, May 10, 2000, p. II

90 Guy Chazan and Jeanne Whalen, "Russia's Miniboom May be Sustainable," WALL ST. J., May 17,2000, p. A23.

Chapter 9
1 Indeed, the defense and military-industrial sectors have been excluded from Russian privatization plans almost from the
outset.

2 See Chapter 10 infra.

3 CSIS, RUSSIAN ORGANIZED CRIME: GLOBAL ORGANIZED CRIME PROJECT, (Washington, D.C.: Center for
Strategic and International Studies, 1997) pp. 32, 1.

4 Id. at 32,1. After the 1996 agreement ending the first Chechen war, the Yeltsin government promised funds for the
reconstruction of Chechnya and established a Commission for the Restoration of the Chechen Economy under chairmanship
of Soskovets, whom Fortune magazine called "the most powerful man under Yeltsin until mid-1996." FORTUNE, June 12,
2000. The reconstruction money-16.2 trillion rubles in reconstruction funds, and an additional one billion dollars in foreign
loans that Yeltsin's decree also dedicated to this purpose-was "plundered by Soskovets and his allies." The citizens of
Chechnya never saw any reconstruction; electricity, water, and heating fuel were never restored, and housing destroyed or
damaged during the war was never reconstructed. "Nowhere has the level of corruption been more scandalous." John B.
Dunlop, "Sifting through the Rubble of the Yeltsin Years," paper presented at Jamestown Foundation Conference "Russia:
What Went Wrong? Which Way Now?", June 9-10,2000.

5 Maura Reynolds, "Commandos Show Who's Got Power," LA. TIMES, June 28,2000, p. A8. Once before, in September
1995, troops forced two electricity substations to restore power to a nuclear submarine base in the northern Kola Peninsula,
where electricity had been cut off because of unpaid bills. Id. See also Pavel Felgengauer, "Budget Fray Begins to Boil,"
MOSCOW TIMES, June 29,2000 ("Several years ago the power supply of the huge underground command center of the
Strategic Missile Forces west of Moscow was also cut off; the military was forced to activate emergency power generators.")
See Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, pp. 573-86
(By 1998 only 30% of Russia's weapons were modern, versus 60-80% for NATO; on current trends, by 2005 only 5-7% of

260 of 286
Russian weapons will be new); Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS
Report for Congress, Sept. 4, 1997, pp. 2-3 ("A clear consensus has emerged among specialists ... that Russian conventional
military capabilities have been degraded to such an extent that the armed forces face the possibility of collapse or implosion if
present trends continue much longer... Russian expert assessments of the Russian military tend to be even more negative than
American assessments." (Footnotes omitted.)).

6 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, p. 576
(footnotes omitted). "In October 1998 ... a major and a lieutenant colonel committed suicide in Moscow. An investigation
revealed that their families were starving and both officers knew that if they committed suicide their families would get their
death benefits." Id. p. 577-78 (footnote omitted). In mid-1998,110,000 soldiers and 160,000 discharged servicemen were
without housing. Id. p. 579.

7 "In Russia, a Big Effort to Evade the Draft," Scripps Howard News Service, May 24,2000, citing the Russian Soldiers'
Mothers' Committee.

8 State Department Annual Report on Military Expenditures, 1998.

9 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4,
1997, p. 4. Regarding the "dying fleet," for example, the subsequent fate of the Kursk, which may have been doomed by the
inadequate training and infrequent exercises of the Northern Fleet, is not the only example. The first two Sovremenny-class
destroyers purchased by the PRC's People's Liberation Army Navy (PLAN) were originally laid down for the Russian Navy
but instead were sold. Trevor Hollingsbee, "Sovremenny delivery will give PLAN a bigger sabre to rattle over Taiwan,"
JANE'S INTELLIGENCE REVIEW, Jan. 1,2000.

10 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOTRAKIZATSrYA, Fall 1999, p. 574
(footnotes omitted).

11 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4,
1997, p. 8.

12 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, p. 574
(footnotes omitted).

13 Nikolai Novichkov, "Russia Expands Strategic Bomber Fleet on Completion of START II Ratification," JANE'S
DEFENSE WEEKLY, May 17, 2000.

14 An ongoing dispute among senior officers in the Russian military involving a number of issues, including to some extent
allocation of resources, has received widespread attention recently in the Russian and foreign press. David Hoffman, "Russian
Defense Chief Vetoes Cuts to Rocket Forces," WASH. POST, July 14,2000, p. A16. See Chapter 10 infra.

15 Pavel Felgengauer, "Both Sides of Battle Right," MOSCOW TIMES, July 20,2000.

16 Lt. Gen. Patrick Hughes, USA, Director, DIA, testimony before the Senate Armed Services Committee, Feb. 3,1999.

17 Pavel Felgengauer, "Both Sides of Battle Right," MOSCOW TIMES, July 20,2000.

18 Nikolai Sokov, "Russia~A Conflict of Strategic Interests," JANE'S DEFENSE WEEKLY, Aug. 2,2000.

19 Id.

20 Pavel Felgengauer, "Limited Nuclear War? Why Not," DEFENSE AND SECURITY, May 6,1999, p. 1.

21 Nikolai Novichkov, "Russia Expands Strategic Bomber Fleet on Completion of START II Ratification," JANE'S
DEFENSE WEEKLY, May 17, 2000.

22 Igor Khripunov, "Last Leg of Triad; Russia's Strategic Rocket Force," BULLETIN OF ATOMIC SCIENTISTS, July 1,
2000, p. 58.

23 Dana Priest, "Russian Bombers Make Iceland Foray; U.S. Jets Intercept 2 Planes Near NATO Ally; Moscow Defends
Exercises," WASH. POST, July 1,1999, p. Al.

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24 Id.

25 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4,
1997, p. 17.

26 Richard Staar, "The Bear Sharpens its Claws," HOOVER DIGEST 1997, No. 4. For a more extended discussion of the
implications of these facilities see Chapter 10 infra.

27 Rear Admiral L.E. Jacoby, Director of Naval Intelligence, statement before the Seapower Subcommittee of the Senate
Armed Services Committee on "Submarine Warfare in the 21st Century," Apr. 13, 1999.

28 7c?.

29 Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress, Sept. 4,
1997, p. 8.

30 "Nuclear Nonproliferation: Status of U.S. Efforts to Improve Nuclear Material Controls in Newly Independent States,"
GAO/NSIAD/RCED-86-89, Mar. 8,1996.

31 "Idled Arms Experts in Russia pose Threat; Many Take Talents to Developing States," WASH. POST, Dec. 28,1998, p.
Al.

32 Jonathan B. Tucker and Kathleen M. Vogel, "Preventing the proliferation of Chemical and Biological Weapon Materials
and Know-How," NONPROLIFERATION REVIEW, Spring 2000, p. 88.

33 Id.

34 Dale Herspring, "The Russian Military Faces Creeping Disintegration," DEMOKRATIZATSIYA, Fall 1999, p. 575
(footnote omitted).

35 Pavel Felgengauer, "Defense Dossier: The Arms Bazaar Beckons," MOSCOW TIMES, September 24,1998 ("Russia
could cancel the 1995 memorandum that effectively stopped the signing of new arms contracts with Iran. Russia could begin
totally unrestricted sales of the most advanced weapons to the Middle East. This would bring in much-needed money and
create jobs in Russia depressed defense industry.").

36 Stuart Goldman, Kenneth Katzman, Robert Shuey, and Carl E. Behrens, "Russian Missile Technology and Nuclear
Reactor Transfers to Iran," CRS Report for Congress, Dec. 14,1998, p. 3.

37 Id.

38 Bill Gertz, "Russia Disregards Pledge to Curb Iran Missile Output; Tehran, Moscow Sign Pacts for Additional Support,"
WASH. TIMES, May 22,1997, p. A3.

39 BILL GERTZ, BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

40 Id.

41 Kenneth Timmerman, "The Russian Missiles We Could Have Stopped," testimony before House Committee on
International Relations, Oct. 6,1999.

42 BILL GERTZ, BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

43 Report of Proliferation-Related Acquisition in 1997, submitted to Congress by the Director of Central Intelligence.

44 BILL GERTZ , BETRAYAL (Washington, D.C.: Regnery, 1999), p. 173.

45 Bill Gertz, "Russian says U.S. staged missile sting; Berger discloses evidence of continuing sales to Iran," WASH.
TIMES, June 23,1998, p. Al.

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46 Executive Summary of the Report of the Commission to Assess the Ballistic Missile Threat to the United States, July 15,
1998.

47 George Tenet, Director of Central Intelligence, testimony before the Senate Armed Services Committee, hearing on
"Threats to National Security," Feb. 2,1999.

48 The entities sanctioned were INOR Scientific Center, Grafit, Polyus Scientific Production Associates, Glavkosmos, the
MOSO company, Baltic State Technical University, and Europalace 2000. On Januaryl2,1999, the Administration
sanctioned three additional Russian entities believed to be assisting Iran's missile and nuclear programs. The three entities
sanctioned were NIKIET (Scientific Research and Design Institute of Power Technology), the D. Mendeleyev University of
Chemical Technology, and the Moscow Aviation Institute.

49 CIA Nonproliferation Center, Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of
Mass Destruction and Advanced Conventional Munitions, Feb. 2,2000. The subsequent CIA report on WMD proliferation
during the latter half of 1999, released on August 9,2000, confirmed that during that period "[ejntities in Russia, North
Korea, and China continue to supply the largest amount of ballistic missile-related goods, technology, and expertise to Iran."
CIA Nonproliferation Center, Unclassified Report to Congress on the Acquisition of Technology Related to Weapons of
Mass Destruction (WMD) and Advanced Conventional Munitions, 1 July-31 December 1999," Aug. 9,2000.

50 Kenneth Katzman, "IB93033: Iran: Current Developments and U.S. Policy," CRS Report for Congress, May 5, 2000.

51 Bill Gertz, "Russia, China Aid Iran's Missile Program," WASH. TIMES, Sept. 10,1997, p. Al. The consensus of Western
experts is that the missile has only military purposes. "Iran Missile for Military, Not Civilian Use-Jane's," Reuters, Feb. 16,
1999.

52 Kenneth Timmerman, "The Russian Missiles We Could Have Stopped," testimony before House Committee on
International Relations, Oct. 6,1999.

53 Audrey Hudson, "Analyst fears U.S. helps Iran develop missile via Moscow," WASH. TIMES, July 14, 1999, p. A10.

54 In 1987, at the request of the United States, the G-7 nations established the Missile Technology Control Regime (MTCR).
The MTCR is an informal arrangement consisting of guidelines for the transfer of sensitive missile technology, including an
annex of controlled items. Member nations agree to adopt the guidelines as national policy and agree to control missile and
technology transfers through export controls. Thirty-two nations are members of the MTCR. Russia joined the MTCR on
Aug. 8,1995.

55 Kenneth Katzman, "Iran: Current Developments and U.S. Policy," CRS Report for Congress, May 5,2000.

56 "Ministry Plans to Build Reactors for Iran, India," B.B.C. SUMMARY OF WORLD BROADCASTS, April 14,2000,
translation of IZVESTIYA, Apr. 4,2000.

57 James Risen, Judith Miller, "C.I.A. tells Clinton an Iranian A-Bomb Can't be Ruled Out," N.Y. TIMES, Jan. 17, 2000, p.
Al.

58 Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and
Advanced Conventional Munitions 1 July Through 31 Dec. 1999, p. 10.

59 Judith Miller, William J. Broad, "The Germ Warriors, A Special Report. Iranians, Bioweapons in Mind, Lure Needy
Ex-Soviet Scientists," N.Y. TIMES, Dec. 8,1998, p. Al.

60 Ed Blanche, "War of attrition as Iraq absorbs the ongoing US punishment," JANE'S INTELLIGENCE REVIEW, June 1,
1999.

61 Jamie Dettmer, "Russians said to sell missiles to Saddam; Arms deals would flout U.N. embargo," WASH. TIMES, Feb.
22,1999, p. Al.

62 Kenneth Katzman, "Iraqi Compliance with Cease-Fire Agreements," CRS Report for Congress, May 10,2000.

63 R. Jeffrey Smith, "Did Russia Sell Iraq Germ Warfare Equipment? Document Seized by U.N. Inspectors Indicates Illicit
Deal," WASH. POST, February 12,1998, p. Al.

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jP^S^SPRSW^P?^^

64 TOM MANGOLD AND JEFF GOLDBERG, PLAGUE WARS (St. Martins Press, New York: Feb. 2000), p. 162.

65 Id, p. 209; Sonni Efron, "Russia Investigates Alleged Chemical Arms Smuggling," L.A. TIMES, Oct. 25,1995, p. A4.

66 Steven Lee Myers, "Led By U.S., Arms Sales Surge Globally," N.Y. TIMES, Aug. 21,2000, p. A9.

67 "Is Vladimir Putin the Salesman with a Hidden Agenda?" JANE'S DEFENCE INDUSTRY, May 1,2000 ("[Thirty-two
percent] of Russia's arms exports go to Iran, Algeria, Greece, the United Arab Emirates and Vietnam. Russia is also
revitalising exports to dormant countries such as Malaysia, Libya, Syria, and Ethiopia. It is attempting to break away from its
traditional spheres of influence by negotiating contracts with Brazil, Columbia, Greece, Kuwait, and Turkey... Russia has
also signed military-technical collaboration deals with Bangladesh, Malaysia, Singapore, Sri Lanka, and Ukraine.").

68 Judith Matloff, "Russia Cranks Up Arm Production, Sales," CHRSTN. SCI. MONITOR, Dec. 29,1999, p. 1.

69 The Russian arms export firms Promexport and Rossiiskiye Teknologii were merged pursuant to a Presidential Decree in
April 2000.

70 "Is Vladimir Putin the Salesman with a Hidden Agenda?" JANE'S DEFENCE INDUSTRY, May 1,2000.

71 Id.

72 For Russian arms and technology transfers to the PRC, see Chapter 11 infra.

73 Judith Matloff, "Russia Cranks Up Arm Production, Sales," CHRISTIAN SCI. MONITOR, Dec. 29,1999, p. 1.

74 Simon Saradzhyan, "Countries Race for Russian Weapons," ST. PETERSBURG TIMES, July 9, 1999.

75 "Russia Resumes Arms Sales to Syria," BBC translation of VREMYA NOVOSTEY, Apr. 14, 2000.

76 "Is Vladimir Putin the salesman with a hidden agenda?," JANE'S DEFENCE INDUSTRY, May 1,2000.

77 "Konkurs Licensed Production Approved," INFORMATION ACCESS CO., May 5,2000.

78 "Russian Arms Sales in 1997," MOSCOW TIMES, Nov. 17,1998.

79 Douglas Davis, "Russia to upgrade Iraqi air-defense system," JERUSALEM POST, Apr. 17,2000.

80 Mikhail Kozyrev, "Act On Proliferation," KOMMERSANT DAILY, Russian Press Digest, RUSSICA Information Inc.,
RusData DiaLine, May 11,2000, p. 1.

81 Id.

82 "Russia's Leading Arms Trader's Orders to Hit 12 Billion Dollars," Agence France Presse, June 23,2000.

83 Steven Erlanger, "U.S. Telling Russia to Bar Aid to Iran by Arms Experts," WASH. POST, Aug. 22,1997, p. Al.

84 David Hoffman, "Idled Arms Experts in Russia Post Threat; Many Take Talents to Developing States," WASH. POST,
Dec. 28,1998, p. Al.

Chapter 10
1 Russia has been conservatively estimated to possess 21,980 of the world's 33,600 nuclear warheads, some 65% of the global
total. The United States possesses less than half of the Russian total. ("Non-Proliferation Project: Nuclear
Numbers-Worldwide Nuclear Weapons Stockpile," the Carnegie Endowment, Aug. 21,2000.
http://www.ceip.org/files/projects/npp/NuclearNumbers/index.htm)

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2 "World Crude Oil and Natural Gas Reserves, January 1,1999," U.S. Department of Energy's Energy Information Agency,
posted at http://www.eia.doe.gov/oil^as/petrolexmi/info_glance/resoiirces.html.

3 James Billington, "Russia: Between a Dream and a Nightmare," N.Y. TIMES, June 1,1998, p. A31.

4 Three-quarters of the American public believe that productive relations with Russia consistent with the national interest are
a vital interest of the United States. Chicago Council on Foreign Relations, "America's National Interests," July 2000.

5 Secretary of State Madeleine Albright, address to the Carnegie Endowment for International Peace, Sept. 16,1999.

6 See supra, Chapter 4.

7 Anatoly Shub, "Many Russians Still Admire America, but More and More Disapprove of U.S. Foreign Policies," USIA
Office of Research and Media Reaction Opinion Analysis, M-31-99, Mar. 23,1999, p.2.

8 "Opinion Analysis: Russians' Mistrust of the U.S. At New High," Department of State Office of Research, March 14, 2000,
p. 1 (among the 75% of Russians surveyed who claim to follow international affairs).

9 Anatoly Shub, "Many Russians Still Admire America, but More and More Disapprove of U.S. Foreign Policies," USIA
Office of Research and Media Reaction Opinion Analysis, M-31-99, Mar. 23,1999, p. 2.

10 Presentation of Hon. James Billington, Librarian of Congress, before the Speaker's Advisory Group on Russia, June 14,
2000.

11 "Opinion Analysis: Russians' Mistrust of the U.S. At New High," Department of State Office of Research, Mar. 14, 2000,
p.l.

12 Id.

13 Id. at 2.

14 Id. at 4.

15 Michael McFaul, "Russia's Many Foreign Policies," DEMOKRATIZATSIYA, Summer 1999, p. 405. This polling
occurred during U.S.-Russian tensions over Kosovo.

16 Paul Goble, Communications Division Director, RFE/RL, testimony before the House International Relations Committee,
hearing on "the U.S. and Russia: Assessing the Relationship," July 16,1998, p. 115 ("As those of you who traveled to Russia
during Soviet times will certainly recall, ordinary Russians were remarkably pro-American and pro-Western.... That attitude,
unfortunately, is changing and changing fast. Ever more Russians according to polls and anecdotal evidence now believe that
the American people and the American government somehow want them to suffer in the aftermath of the collapse of the
Soviet Union.... To the extent that Russia becomes a more democratic or at least more participatory political system, such
attitudes are likely to condition the policies not only of the current Russian government but even more the future ones.").

17 Paula J. Dobriansky, "Russian Foreign Policy: Promise or Peril?", WASHINGTON QUARTERLY, Winter 2000, pp.
135-36.

18 Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military Development," IN CHINA'S
SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY DEVELOPMENT,
Jonathan Pollack and Richard Yang, eds., (Santa Monica, Cal: RAND, 1998) p. 78 ("Since Russia cannot compete as before
on equal terms with the USA for world supremacy, it promotes multipolarity in international relations. This policy for its part
requires a balanced approach to various blocs and countries, disregarding their ideological colors, unlike in 1991-92 when
Moscow tried to join the West in spreading the democratic gospel around the globe. Helping to move the world toward
multipolarity constitutes the essence of current Russian strategy in the world. The Russian ruling elite believes that
international relations will be much smoother and satisfactory if instead of American hegemony calling the shots, a number of
power centers assert their power and influence.").

19 Statement of Peter W. Rodman, Director of National Security Programs at the Nixon Center for Peace and Freedom,
before the House International Relations Committee, Hearing on "The U.S. and Russia: Assessing the Relationship," July 16,
1998 (citing Primakov's September 1996 address to the U.N. General Assembly deploring "tendency to establish a unipolar

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world" as "unacceptable to the overwhelming majority of the international community.").

20 "Russian Military at a Loss for Friends But Old Standbys Tend to Remain Foes," Office of Research, Department of State,
Aug. 2,2000. ("Among foreign threats, the United States is preeminent. Not only is the U.S. seen as harboring hegemonistic
ambitions but - as the driving force behind NATO and its eastward expansion - the Americans [are believed to] pose a more
concrete problem practically on the Russian' doorstep." See also Prof. Stephen Blank, U.S. Army War College, "The State of
Russian Foreign Policy and U.S. Policy Towards Russia," The Heritage Lectures, Apr. 6,1998 ("Russian military thinking
has retained the Soviet 'us vs. them' approach and the most sterile forms of correlation-of-forces theory... The failure to
demilitarize the political process and the environment within which security policy is formulated and executed has had a
decisive and lasting significance for foreign policy."). Military attitudes at lower levels of the officer corps are less
problematic. Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for Congress,
Sept. 4, 1997 pp. 29-30 (survey results reflect majority support for democracy, non-support for authoritarianism and forcible
restoration of the U.S.S.R.). See also Leon Aron, "Russia's New Foreign Policy," American Enterprise Institute, Spring 1998,
p. 9 ("[T]he Ministry of Foreign Affairs and the Russian diplomatic corps [are] perhaps the most authentic and recalcitrant
relic of the Soviet past among Russian institutions, a class whose fall from the pinnacle of Soviet society in terms of material
stature and prestige can be compared only with that of the military."); Paula Dobriansky, "Russian Foreign Policy: Promise or
Peril?", WASHINGTON QUARTERLY, Winter 2000, p. 138 ("While foreign policy-related concerns are limited to a fairly
small segment of the Russian elite, these individuals appear to exhibit a growing sense of anti-Western and anti-American
sentiments. Even a casual perusal of the Russian media illustrates a profoundly disturbing phenomenon: Russian
commentators, both pro-Communist and pro-government, are hostile to U.S. goals and policies."); Ariel Cohen, "What Kind
of Relationship? What Kind of Russia?", "The State of Russian Foreign Policy and U.S. Policy Toward Russia," the Heritage
Foundation, April 6,1998 ("[T]he Defense Ministry, the military, the security services, and the foreign policy apparatus
remain untouched, almost pristine in their Soviet mindset."). The Russian military has also become increasingly politicized
over the last decade. Stuart Goldman, "Russian Conventional Armed Forces: On the Verge of Collapse?", CRS Report for
Congress, Sept. 4,1997, p. 27. Examples include refusals to obey presidential directives in the first Chechen conflict and
possibly the seizure of Pristina airport during the Kosovo conflict, which some observers believe occurred without Yeltsin's
involvement.

21 Lev Volkov, "Critical decisions: The START II and START III Treaties Do Not Resolve Problems of Strategic Stability,"
NEZAVISIMOYE VOYENNOYE OBOZRENIYE, Oct. 1,1999

22 Alexei Arbatov, "Arbatov on U.S.-Russian Arms Reduction," Carnegie Endowment Non-Proliferation Project, May 18,
2000.

23 Bruce G. Blair, Senior Fellow, Brookings Institution, testimony before the House National Security Committee's military
research and development subcommittee on Russian Missile Detargeting and Nuclear Doctrine, March 12,1997.

24 PETER V. PRY, WAR SCARE: RUSSIA AND AMERICA ON THE NUCLEAR BRINK (Westport, Conn.: Praeger
1999). For more on Russian military views of American aggressiveness, see also Maj. Gen. (ret.) V.A. Ryaboshapko,
"Nuclear Conditions: Conditions of Possible Resort to Nuclear Weapons" (East View) p. 11 ("In light of the latest events in
the Balkans, it is growing more and more evident that the U.S. and NATO military and political leaders rely on solving
international problems by force. Talk about necessity of solving these problems by peaceful methods is only a cover, and the
diplomats' work becomes only a deceptive maneuver. And as today negative global public attitude to the Serbs and Serbia has
been formed, tomorrow the same can be done to Russia, in case it will take an active stance in defending its interests."). Gen.
Ryaboshapko outlined a variety of factors that, at least until 2005, "create a need for substantially wider range of factors that
lead to use of NW [nuclear weapons]," including NATO enlargement, weaker Russian conventional forces, and weaker
Russian capability to detect aggressive preparations. Id. at 12. He emphasized the hair-trigger nature of nuclear decision
making that Russian strategists believe they now confront: "[I]t is necessary to draft a well-founded decision [on using nuclear
weapons] beforehand, so that it could be realized in most short time and could not be discovered by technical intelligence."
Id.

25 Although the United States has allowed senior Russian officers and officials access to such sensitive facilities as NORAD
headquarters at Cheyenne Mountain and STRATCOM headquarters in Omaha, the Russian government has refused repeated
requests to provide access to Yamantau Mountain, including a Sense of Congress resolution that the House of Representatives
unanimously passed in 1998 and a reported inquiry from the President at the April 1996 Moscow summit. See David Hoffman
and John F. Harris, "Clinton, Yeltsin Gloss over Chechen War," WASH. POST, Apr. 22,1996. See also Michael R. Gordon,
"Despite Cold War's End, Russia Keeps Building a Secret Complex," N.Y. TIMES, Apr. 16,1996 (American officials say
facility "involves a major investment of resources" and "is as big as the Washington area inside the Beltway"); John
Omicinski, "Underground Bunker in Russia Called Concern by U.S. General," Gannett News Service, Mar. 31,1998
(STRATCOM commander Habiger says 20,000 workers involved in construction at Yamantau). Other command-and-control

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facilities built or upgraded include bunkers for Russian leaders at Voronovo and Sharapovo, both near Moscow, the latter
connected to Moscow by a special subway route. See Bill Gertz, "Moscow builds bunkers against nuclear attack," WASH.
TIMES, Apr. 1,1997.

26 By contrast, the ballistic missile defenses advocated by the United States are not prompted by a fear of intentional Russian
attack and are incapable of protecting against it.

27 Statement of Hon. Curt Weldon, Chairman, Research and Development Subcommittee, House Armed Services Committee,
before the Conference on Assured Strategic Command and Control, National Defense University, Apr. 7-8, 1998. The
combination of this extraordinary level of suspicion with Russia's new strategic doctrine of greater reliance on nuclear forces,
including possible first use; the "disorganization and poor morale ... endemic to much of the [Russian] armed forces, [which]
has to some degree reached the Strategic Rocket Forces;" and "the gaps in early warning that the Russians now have" produce
in combination incalculable risks for the United States. "It is very troubling to contemplate what might happen if some
combination of factors produced a belief on the part of senior Russian leaders that they were under attack." Testimony of R.
James Woolsey, former Director of Central Intelligence, before the House Armed Services Committee, hearing on "Threats to
United States National Security," Feb. 12,1998, p. 53.

28 "Conceptual Provisions of a Strategy for Countering the Main External Threats to Russian Federation National Unity"
INOBIS (Moscow: Institute of Defense Studies, 1995) p. 2. The study attributed to the "West" an "attempt to cut Russia off
from the Transcaucasus by encouraging separatism in the North Caucasus, above all in Chechnya." Id. at 6. NATO
enlargement "is seen as an attempt to isolate Russia and ultimately oust it from Europe ... [W]e are dealing with a resumption
of German expansion in the eastern and southeastern directions twice interrupted in this century...". Id. According to this
study, a disparity between Russian and American nuclear forces anticipated under START II "will be perceived in the West as
grounds to regard Russia as a second-rate nuclear power, which the only remaining nuclear superpower, the United States,
will be able to subject to nuclear blackmail for purposes of dictating its will." Id. at 8. The study also advocated Russian
military occupation of the Baltic republics in the event of their accession to NATO, a course that it deemed safe because "no
one in the West plans to fight Russia over the Baltic"~an argument that casts an interesting light on claims that Baltic
accession to NATO threatens Russian national security. Id. at 11-13. A further INOBIS study, "Army Reform and Security,"
published in February 1996 and translated by the Heritage Foundation, explicitly rejects the 1993 military doctrine's thesis
that Russia had no external enemies, adding: "Currently, Russia's basic probable enemies remain the United States and the
NATO countries.... [American] orientation toward a [nuclear] first strike not only has not disappeared but has actually
increased." By contrast, "it is not practical to view Iran and Russia as probable enemies of Russia, at least in the near future,
because there are no objective causes for confrontation between the Russian Federation and those countries." The document
notes the "increased demands for combat readiness in the strategic nuclear forces." See Valery Dementyev and Anton
Surikov, "Army Reform and Security," Institute for Defense Research (INOBIS), Moscow, February 1996, translated in Ariel
Cohen, "Russian Hardliners' Military Doctrine: In Their Own Words," Heritage Foundation, May 30,1996, pp. 3,4, 7.

29 Even in 1993, these included "efforts by right-wing conservative circles in the United States to ensure for themselves
unilateral advantages in the process of disarmament, and to achieve a review of the ABM Treaty on their conditions," and the
possibility that the U.S. would, "under the guise of mediation and peacemaking efforts ... take Russia's place in the countries
of its traditional influence...." 1993 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, Jan. 25,1993, pp.
8-9.

30 Id. at 5 (emphasis added).

31 Id. ("Of course, there are forces in the United States that skeptically evaluate the possibility of a Russian-American
partnership. However, the prevailing tendency, which rests on the two-party principle [i.e., enjoys bipartisan support], is the
line towards increased cooperation with Russia.") See also id. at 6-7 (references to "increasing mutual understanding, trust,
and partnership with the leading countries of the world, including interaction with the Western defense structures;" dialogue
on military doctrine with Russia's "main partners, primarily the United States, based on the task of consolidating on a
functional level the attained understanding that they no longer view each other as military enemies;" and "coordinating and
realizing plans of cooperation... with NATO and the North Atlantic Cooperation Council, increasing contacts on a bilateral
and multilateral basis, interacting with NATO agencies on matters of strengthening peace and security by means of
developing political contacts, military ties, exchange visits, conducting joint maneuvers, exchange of experience, and
interaction in the settling of crisis situations.")

32 2000 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, June 28,2000 (emphasis added).

33 Id.

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34 Id. "Relations with European states is [sic] Russia's traditional foreign policy priority.... an important resource for Russia's
defense of its national interests in European and world affairs. And for the stabilization and growth of the Russian economy."

35 Id. "Asia enjoys a steadily growing importance in the context of the entire foreign policy of the Russian Federation,
something which is due to Russia's direct affinity with this dynamically developing region and the need for an economic
upturn in Siberia and the Far East."

36 Id.

37 The 1997 document was itself a revision of a provisional 1993 military doctrine, which also concluded that the threat of
direct foreign military aggression against Russia was slight. (Stuart Goldman, "Russian Conventional Armed Forces: On the
Verge of Collapse?", CRS Report for Congress, Sept. 4,1997, p. 45.)

38 "Russian Federation National Security Blueprint," ROSSrYSKAYA GAZETA,, Dec. 26,1997.

39 Id.

40 "National Security Concept", NEZAVISIMOYE VOYENNOYE OBOZRENIYE, Nov. 26,1999 (Downgrading the
United Nations; weakening Russia's influence in the world; "a strengthening of military-political blocs and alliances, and
above all NATO eastward expansion"; the possibility of foreign military bases or forces in immediate proximity to Russia's
borders; and a strengthening of centrifugal forces in the CIS.).

41 See, e.g., G.D. Bakshi, "The War in Chechnya," STRATEGIC ANALYSIS, August 2000, Vol. XXTV, No. 5.

42 For example, polling conducted by USIA's Office of Research and Media Reaction in the Spring of 1996 in four key
Russian regions-the Moscow, St. Petersburg, Ekaterinburg, and Vladivostok metropolitan areas-revealed that NATO
enlargement was essentially irrelevant to the Russian general public: "Half the people in Ekaterinburg, and one-third in each
of the other regions, say they know nothing about proposals to expand NATO eastward. Those who do know something are
more inclined not to worry, or to favor some compromise, than to support creation of a military counter-bloc." And "in April
1996 many more said that Russia's participation in the [NATO] Partnership [for Peace] strengthened the country's security
than said that it weakened it (42% to 9%).... Among the elite, the pattern was similar: 45% thought that Russia's participation
in the Partnership enhanced Russia's security, while 12% thought that it weakened its security." See Richard B. Dobson, "Is
Russia Turning the Corner?: Changing Russian Public Opinion, 1991-1996 (USIA Office of Research and Media Reaction
September 1996) p. 23. More recent polling after Kosovo shows that the elite in Russia consider NATO a tool of U.S. foreign
policy (92%), leading 50% to see NATO as a threat. "Russian Elite Aware of Kosovo Complexities, But Still Vexed by
U.S./NATO Intervention," Office of Research, Department of State, Nov. 18,1999. While an August 2000 poll shows NATO
enlargement and "U.S. geopolitical ambitions" top the list of foreign threats perceived by both the Russian military and the
Russian elite ("Russian Military at a Loss for Friends But Old Standbys Tend to Remain Foes," Office of Research,
Department of State, Aug. 2, 2000.), for the general public 35-40% continue to have no knowledge or opinion on NATO
enlargement. This lack of broad public interest led the State Department to drop the question from its polling.

43 GERALD B. SOLOMON, CSIS: THE NATO ENLARGEMENT DEBATE, 1990-1997, (Westport, Conn.: Praeger,
1998), pp. 23-24.

44 Strobe Talbott, "Rethinking the Red Menace," TIME, Jan. 1, 1990 (in an article naming Gorbachev "Man of the Decade").

45 Like the 1997 Founding Act, the Partnership for Peace, at least as conceived by the Clinton administration, was a
compromise designed to delay the resolution of conflicting Russian and Western views of NATO and the future of Central
Europe. See, e.g., Henry Kissinger, "Be realistic about Russia," WASH. POST, Jan. 25,1994 ("[I]f the Partnership for Peace
is designed to propitiate Russia, it cannot also serve as a way station into NATO, especially as the administration has
embraced the proposition rejected by all its predecessors over the last 40 years-that NATO is a potential threat to Russia.");
see also Sen. Richard Lugar, "European Security Revisited," Washington D.C. June 28,1994, quoted in GERALD B.
SOLOMON, CSIS: THE NATO ENLARGEMENT DEBATE, 1990-1997 (Westport, Conn.: Praeger, 1998), p. 49 (calling
PFP a "policy for postponement"). The Clinton administration, reportedly at the behest of Strobe Talbott, see id. at pp. 28-29,
33, preferred to elaborate the "Partnership for Peace" program as a means to defer the question of NATO enlargement and
preserve the primacy of Russia in administration policy.

46 "NATO: Congress Addresses Expansion of the Alliance," CRS Report for Congress, May 24,1999, p. 3.

47 "United States Security Strategy for Europe and NATO," Office of International Security Affairs, U.S. Department of

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Defense, June 1995.

48 Founding Act on Mutual Relations, Cooperation, and Security between NATO and the Russian Federation, May 27,1997.

49 Richard C. Paddock, John-Thor Dahlburg, "NATO, Russia OK Pact Creating Joint Council; Diplomacy: Accord Would
Smooth Alliance's Planned Eastward Expansion. Interpretations of Agreement Conflict," L.A. TIMES, May 15, 1997, p. Al.

50 Letter of President Clinton to Chairman Floyd Spence, July 3,1997 ("The Founding Act contained language explicitly
underscoring NATO's right to act independently~in any way, on any issue.... We also made clear to the Russians throughout
the negotiating process that nothing in the Founding Act would provide them a means to influence in any manner NATO's
internal decisions-including those the Alliance is preparing to make regarding enlargement.") The Senate was sufficiently
concerned to attach to the resolution consenting to the admission to NATO of the Czech Republic, Hungary, and Poland the
requirement that the President certify that the Founding Act does not, inter alia, give Russia a veto over NATO decision
making. Former Secretary of State Kissinger, in a vehement attack on the Founding Act written shortly after it was signed,
noted that it had already occasioned disputes with Russia over whether it was binding and whether it gave Russia a veto, and
concluded that "Yeltsin's interpretation appears accurate;" he dismissed the argument that the Founding Act was non-binding
as one that "may carry weight in law schools [but is] irrelevant to the diplomacy that will result from an instrument signed by
17 heads of state and ratified by the Russian Duma." Henry Kissinger," The Dilution of NATO," WASH. POST, June 8,
1997.

51 Dimitri K. Simes, "Western Policies: What Went Right, What Went Wrong, What Could Have Been Done Differently,"
conference paper, Jamestown Foundation, June 1999.

52 Robert Zoellick, testimony before the Senate Foreign Relations Committee, Apr. 27,1995.

53 Among these bills are:

* Rep. Ben Gilman's NATO Expansion Act of 1994, which authorized transition assistance to facilitate the
integration into NATO of the Czech Republic, Hungary, Poland, and Slovakia and other candidates for
membership.

* Rep. Henry Hyde's NATO Revitalization Act of 1994, calling on NATO to establish benchmarks and a
timetable for admission to the Atlantic Alliance.

* The NATO Participation Act of 1994, sponsored by Rep. Ben Gilman, Republican Sen. Hank Brown, and
Democratic Sen. Paul Simon, authorizing transfer of defense equipment to the Czech Republic, Hungary, and
Poland.

* The Contract With America's NATO Expansion Act, which endorsed NATO enlargement in Central Europe
by no later than 1999.

* The NATO Enlargement Facilitation Act of 1996, providing $60 million in assistance to facilitate integration
of the Czech Republic, Hungary, Poland, and Slovenia into NATO, and authorizing the President to designate
other countries for assistance.

* The European Security Act of 1997, affirming that NATO enlargement would confer equal rights on new
members, that non-members could not veto or delay membership decisions.

* The Senate's 1998 Resolution of Ratification approving accession of the Czech Republic, Hungary, and
Poland to NATO, which reiterates that the North Atlantic Council is the "supreme decision-making body of
NATO," and that its decisions are not subject to review by the NATO-Russian Permanent Joint Council or any
other non-member state or organization. (The Resolution also included an amendment by Republican Sen.
John Kyi calling on the aa^ministration to negotiate a NATO Strategic Concept and citing as a threat to NATO,
inter alia, a revived "hegemonic power" and rogue nations seeking weapons of mass destruction.)

54 Russia's longstanding and increasing pressure on the states on its periphery provides further justification for NATO
enlargement.

55 Significantly, as early as July 1990, in the London Summit Declaration, NATO declared that the then-Soviet Union was no
longer an "enemy" of the Alliance and announced a new program for cooperation open to all former Warsaw Pact states.

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Consistent with this threat perception, U.S. conventional forces in Europe have declined by almost two-thirds since the Cold
War, from over 300,000 to some 100,000-a decline more than matched by our European allies. In sum, from 1990-96,
"NATO defense budgets collectively declined 15%, land forces 50%, naval forces 40%, and air forces 30%, prompting some
observers to question whether NATO forces could defend Poland, Hungary, and the Czech Republic in the event of a
conflict." Paul Gallis, "NATO: Congress Addresses Expansion of the Alliance," CRS Report for Congress, May 24,1999, p.
8. The United States has only a few nuclear gravity bombs in Europe at this time. Id. p. 7. Significantly, Russian official
opinion has been particularly opposed to the accession of the Baltic States to NATO, notwithstanding their precarious
strategic position vis-a-vis Russia. See id. p. 9 ("The Baltic states, hinged against Russian territory, are in the view of many
NATO military officials, in a starkly more disadvantageous strategic position.").

56 The fact that the pledge is contained in a non-binding document and is couched in terms of NATO's unilateral intention
does not diminish the political impact of the pledge, as Secretary Kissinger has pointed out. Henry Kissinger, "The Dilution of
NATO," WASH. POST, June 8,1997.

57 See supra Chapter 4.

58 See supra Chapter 4.

59 Russian military circles and the foreign policy establishment had long been concerned by NATO enlargement (a concern
no doubt exacerbated by the grandiose 50th anniversary celebration held in Washington during Kosovo military operations on
April 23-25,1999), and had been increasingly outraged by Western intervention in Bosnia in 1995 and by Operation Desert
Fox, the December 1998 air campaign waged against erstwhile Soviet client Saddam Hussein. In addition to seeking
assurances that Washington was not planning on using nuclear weapons against Iraq as part of Operation Desert Fox, see text
and note supra, General Kornukov, Commander-in-Chief of the strategic air force, put his nuclear bombers on alert during the
operation against Iraq.

60 Vladimir Brovkin, "Discourse on NATO in Russia during the Kosovo War," DEMOKRATIZATSIYA, Fall 1999 ("What
was most striking in spring 1999 was the unanimity with which Russians from various walks of life and political parties
condemned the NATO bombing.... A great discovery for Western observers was that the Russian media, who were
supposedly free and fair, were completely one-sided in coverage of Kosovo events. News media essentially reproduced
Serbian propaganda and footage.").

61 Jim Nichol, "Kosovo Conflict: Russian Responses and Implications for the United States," CRS Report, June 2, 1999; see
also Paul E. Gallis, "Kosovo: Lessons Learned from Operation Allied Force" CRS Report for Congress, Nov. 11, 1999,
pp.12-13.

62 Michael McFaul, "Russia's Many Foreign Policies," DEMOKRATIZATSIYA, Summer 1999, p. 405. (citation omitted).
"Anti-American sentiment in Russia ... is nothing new. What is new about this crisis, however, is both the degree of consensus
and the new composition of the anti-American chorus. Traditionally, Russia's foreign policy elite rant about U.S. hegemony,
and Russian grandmothers show up at anti-American demonstrations. At the beginning öf the Kosovo conflict, however, it
was young people throwing beer bottles at the U.S. embassy in Moscow and organizing university teach-ins." Id. p. 405.

63 Subsequent polling, however, reinforces the view that the Russian general public's harsh opinion of the United States
traces back to American economic policy rather than Kosovo: in another survey Russians gave US economic assistance as the
reason for a negative attitude towards the U.S. more than U.S. military action against Serbia. "Russians' Mistrust of the U.S.
At New High," Office of Research, Department of State, Mar. 14,2000.

64 Marcus Warren, "Yeltsin outraged at air strikes," ELECTRONIC TELEGRAPH, Mar. 25,1999.

65 Christopher Lockwood, Ben Aris, and Philip Smucker, "Don't push us too far, says Yeltsin," ELECTRONIC
TELEGRAPH, Apr. 10,1999.

66 Viktor Chernomyrdin, "Impossible to talk peace with bombs falling," WASH. POST, May 27,1999, p. A39. Throughout
this period, Clinton, Gore, and Talbott were meeting intensively with Chernomyrdin in Washington and Moscow. See Jim
Nichol, "Kosovo Conflict: Russian Responses and Implications for the United States," CRS Report for Congress, June 2,
1999, p. 5.

67 Paul E. Gallis, "Kosovo: Lessons Learned from Operation Allied Force," CRS Report for Congress, Nov. 11,1999, p. 13.
Russia ultimately proved willing to recede from its demand for a separate sector of occupation and accept a unified
peacekeeping command in Kosovo. At a superficial level, differences with the West were patched up at the "G-8" summit in

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Cologne, where Yeltsin stated that he was "among friends" and that "we need to make up after a fight." Yelena Tregubova,
"Yeltsin Liked To Make Peace After Fight," KOMMERSANT-DAILY, June 22,1999, pp. 1-3.

68 2000 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, June 28,2000.

69 Yeltsin and Lukashenka signed the "Charter of the Union of Belarus and Russia" on May 23,1997. On December 25,
1998, Yeltsin and Lukashenka signed a further unification treaty on equal rights for citizens, equal conditions for economic
entities, and a declaration that commits the two countries to further steps of unification, including supranational governing
bodies, a single currency, and a unified budget.

70 John B. Dunlop, "Reintegrating 'Post-Soviet Space,'" JOURNAL OF DEMOCRACY, Vol. 11, No.3, July 2000

71 Testimony of Ambassador David H. Swartz, Retired Senior Foreign Service Officer, "U.S. Policy Toward Russia," before
the House International Relations Committee, October 6,1999.

72 Id.

73 Id. at. 43-44.

74 Mat 40.

75 Secretary of State Madeleine Albright, Director of Central Intelligence George Tenet, and FBI Director Louis Freeh all
traveled separately to Central Asia in the spring of 2000.

76 See, e.g., Grigory Nekhoroshev, "Russia, China and Central Asian Countries Continue to Draw Closer to Each Other,"
NEZAVISIMAYA GAZETA, July 6,2000.

77 Testimony of Ambassador David H. Swartz, Retired Senior Foreign Service Officer, "U.S. Policy Toward Russia," before
the House International Relations Committee, October 6, 1999

78 See "Islands of Excellence: The Paradox of Russia's Military," in Chapter 9 supra.

79 Robert Legvold, testimony before the Senate Foreign Relations Committee on "Corruption in Russia," Sept. 23,1999.

80 Lt. Gen. G.D. Ivanov, "Main Points of a Presentation... [on] Russia's Nuclear Doctrine," October 1994.

81 See "Islands of Excellence: The Paradox of Russia's Military," in Chapter 9, supra.

82 Bruce G. Blair, Senior Fellow, Brookings Institution, testimony before the House National Security Committee's military
research and development subcommittee on "Russian Missile Detargeting and Nuclear Doctrine," March 12,1997.

83 Episodes like the 1995 "war scare" and the demarche during Operation Desert Fox, as well as the vast efforts underway to
build facilities designed to survive nuclear war at sites like Yamantau and Kozvinsky Mountains, reflect this fact. This
continuing distrust is reflected in the Russian Navy's reaction to the loss of the Kursk, as well.

84 Richard Staar, "A Tsar Is Born," HOOVER DIGEST 2000 No. 3 (Current ratio of 80% of defense funds for strategic
missile forces to drop to 30%, with balance for state-of-the-art conventional forces).

85 President Bush, Address Before a Joint Session of the Congress on the State of the Union, January 29,1991.

86 H.R. 2100; 102nd Cong., 1st Sess. §1 (1991), pp. 30-34.

87 Dr. Keith Payne and Dr. Andrei Kortunov, "The Character of the Problem," "COLD PEACE" OR COOPERATION? THE
POTENTIAL FOR U.S.-RUSSIAN ACCOMMODATION ON MISSILE DEFENSE AND THE ABM TREATY, National
Institute for Public Policy, January 22,1997, p. 26.

88 Id.

89 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW, June 19, 2000.
The Russian government has been using this formulation ever since. See, e.g., Igor Ivanov, Foreign Minister, Russian

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Federation, "The Missile Defense Mistake: Undermining Strategic Stability and the ABM Treaty," FOREIGN AFFAIRS,
Vol. 79, No. 5, Sept/Oct. 2000.

90 Dr. Keith Payne and Dr. Andrei Kortunov, "The Character of the Problem," "COLD PEACE" OR COOPERATION? THE
POTENTIAL FOR U.S.-RUSSIAN ACCOMMODATION ON MISSILE DEFENSE AND THE ABM TREATY, National
Institute for Public Policy, January 22,1997, pp. 26-27; Dr. Keith Payne and Willis Stanley, "Alternative Futures," Id. at
72-74; Dr. Andrei Kortunov and Dr. Andrei Shoumikhin, "Expanding the Potential for Russian-American Accommodation
and Cooperation," Id. at 86-87; testimony of Dr. Andrei Shoumikhin, Washington Director, Moscow Public Science
Foundation, before the House Armed Services Committee, September 1996.

91 Defense Secretary Aspin, Defense Department Briefing, Federal News Service, May 13,1993.

92 Testimony of Gen. Malcolm O'Neill, Acting Director of the SDIO, before the Senate Appropriations Committee Defense
Subcommittee regarding FY 1994 SDIO programs, May 4,1993.

93 See, e.g., Igor Ivanov, Foreign Minister, Russian Federation, "The Missile Defense Mistake: Undermining Strategic
Stability and the ABM Treaty," FOREIGN AFFAIRS, Vol. 79, No. 5, Sept./Oct. 2000 ("Is such a system worth serious
deterioration in Russia-U.S. relations, global strategic stability, and, ultimately, U.S. security?").

94 Department of State Office of Research, Opinion Analysis: Russians' Mistrust of the U.S. At New High (March 14,2000),
p.4.

95 Bill Gertz, "Intelligence report warns of missile launches against U.S.," WASH. TIMES, May 14,1996, p. A3.

96 "Foreign Missile Threats: Analytic Soundness of Certain National Intelligence Estimates," General Accounting Office,
GAO/NSIAD-96-225, August 1996.

97 Report of the Commission to Assess the Ballistic Missile Threat to the United States, July 15, 1998.

98 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW, June 19, 2000.

99 Mary McGory, "Out to Lunch," WASH. POST, Mar. 30, 2000, p. A3.

100 R. James Woolsey, "The Way to Missile Defense: Dealing with Russia and Ourselves," NAT'L REVIEW, June 19,2000.

101 At the most recent Shanghai Five summit in Dushanbe, Tajikistan, on July 5,2000, the assembled heads of state noted
that "the 1972 Anti-Ballistic Missile (ABM) Treaty must be unconditionally maintained and strictly respected," and that "the
Asia-Pacific region will see its stability and security destroyed by an eventual deployment of the theater missile defense
(TMD) system, which will lead to an escalation of the arms race." They explicitly opposed TMD for Taiwan. "Shanghai Five
Nations Sign Joint Statement," PEOPLE'S DAILY, July 6,2000. See also Sharon LaFraniere, "Missile Shield Under Attack,"
WASH. POST, July 6,2000, p. A14.

102 Interview with Marshal Sergeyev in "Sergeyev Warns of Danger to Strategic Stability from U.S. NMD,"
NEZAVISIMAYA GAZETA, June 22,2000, pp.1, 6. See also Judith Ingram, "Russia Rejects U.S. Missile Assurances,"
WASH. POST, June 23,2000.

103 "[The two Presidents] agree that the international community faces a dangerous and growing threat of proliferation of
weapons of mass destruction and their means of delivery, including missiles and missile technologies, and stress their desire
to reverse that process.... They agree that this new threat represents a potentially significant change in the strategic situation
and international security environment." Paras. 6 and 7, Joint Statement by the Presidents of the United States of America and
the Russian Federation on Principles of Strategic Stability, June 4, 2000. In Para. 8, the Joint Statement refers to "this
emerging threat to security." Id.

104 WELT AM SONNTAG, June 11,2000, pp. 2-3.

105 "New Russia-U.S. Arms Talks Set for Saturday," RUSSIA TODAY, June 23,2000. See afao,"Russia: No Progress in
ABM Talks," WASH. POST, June 14,2000. (Quoting Gen. Leonid Ivashov, head of the Ministry of Defense Department of
International Cooperation, as accusing the United States of "demoniz[ing]" North Korea and stating, "We evaluate the threats,
the true missile threat, to the United States, as being nil.")

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106 David Hoffinan, "Russian Generals Diverge from Putin-Clinton Stance on Missile Threat," WASH. POST, June 30,
2000, A27. Gen. Ivashov attributed Iran's interest in acquiring missiles to "the wish to create a counterbalance to deployment
of missiles by neighbors-Israel above all~and to the presence and constant involvement of American military personnel in
the Persian Gulf." Id.

107 Igor Ivanov, Foreign Minister, Russian Federation, "The Missile Defense Mistake: Undermining Strategic Stability and
the ABM Treaty," FOREIGN AFFAIRS, Vol. 79, No. 5, Sept./Oct. 2000.

108 2000 Foreign Policy Concept of the Russian Federation, July 28,2000.

109 Joint Statement on the ABM Issue by the Presidents of the People's Republic of China and the Russian Federation, July
18,2000.

110M

111 "Democratic People's Republic of Korea-Russia Joint Declaration," Pyongyang Korean Central Broadcasting Station,
July 20, 2000. On the issue of relations between the two Korean governments, Moscow and Pyongyang announced that they
would not "permit outside interference in this process," i.e., possibly that the four-party negotiations involving both Koreas,
the PRC, and the U.S. should be replaced by purely bilateral intra-Korean negotiations excluding the United States. The two
governments promise full consultation in the event of threat of invasion or threats to peace and security. By jointly promising
not "to participate in any kind of action, measure or alliance ... opposed to the stability of the other's sovereignty,
independence, and territory," Russia could possibly be promising not to participate in any multilateral sanctions against North
Korea, no matter what the North Korean action that provoked them and notwithstanding the authority imposing them. Indeed,
Russia may be committing to veto any action against North Korea by the U.N. Security Council, the only body that Russia
deems competent to authorize such action. The summit was preceded in February 2000 by conclusion of a new Russian-North
Korean Treaty of Friendship to replace the Soviet-era alliance scrapped by Yeltsin.

112 Cf. Michael Richardson, "Russia Assures U.S. on North Korea Missile Program," INTERNATIONAL HERALD
TRIBUNE, July 28, 2000, with Doug Struck, "North Korean Missile Stance Unclear," WASH. POST, July 29, 2000 (North
Korean Foreign Minister tells Secretary of State Albright in Bangkok that he "declined to provide further clarification."). As
the House Select Committee on U.S. National Security and Military/Commercial Concerns with the People's Republic of
China documented in great detail in 1999, the process of integrating satellites and launch rockets provides extensive
opportunities for transfer of militarily significant technical expertise.

113 For example, Pyongyang had already promised the United States at a September 1999 meeting in Berlin to impose a
moratorium on launches as long as North Korea felt that bilateral negotiations over the launches were proceeding
satisfactorily. Similarly, the Clinton administration initially claimed that the 1994 Agreed Framework froze the DPRK nuclear
program in its entirety, only to subsequently discover that its incompetent negotiation had secured only a freeze on nuclear
activities at two locations.

114 "Just Kidding in Korea," WASH. POST, Aug. 16,2000.

115 Press Conference by President Clinton and President Yeltsin, Jan. 14,1994.

116 Testimony of J. Michael Waller before the House Armed Services Committee Subcommittee on Military Research and
Development, Mar. 13,1997.

117 Remarks by the President to the People of the Toledo Area, Aug. 26,1996. This statement and the many others like it by
the Clinton administration fail to account for the missiles from the People's Republic of China that are still aimed at the
United States. The PRC rejected a Clinton proposal for a similar missile detargeting agreement.

118 Testimony of Bruce G. Blair before the House Armed Services Committee Subcommittee on Military Research and
Development, Mar. 13, 1997.

119 In a July 1,1996, letter to the House National Security Committee, then-Secretary of Defense Perry wrote that, "There
are no procedures to verify detargeting."

120 "Don't Count Them Out; Russia Continues to Prepare for War by Upgrading Missile Systems, as Does the United States,"
60 Minutes, June 18,1995.

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121 Testimony of Brace G. Blair before the House Armed Services Committee Subcommittee on Military Research and
Development, Mar. 13,1997.

122 Id.

123 "Russian Expert Comments on Retargeting Problem," Itar-TASS, March 10,1995.

124 The administration's refusal to submit the Kyoto agreement to the Senate, its duplicitous concealment from Congress of
the so-called "Iran-Bosnia affair," and its humiliating defeat in the Comprehensive Test Ban Treaty vote are all similar
examples of a foreign policy process that is at once fundamentally dishonest and self-defeating.

125 Deputy Secretary Talbott failed to respond to repeated oral and written requests for testimony by the Speaker's Advisory
Group, which comprises inter alia eight committee and subcommittee chairmen with jurisdiction over Russia policy.

126 Letter to President Clinton of Senate Majority Leader Trent Lott, Chairmen Jesse Helms, Senate Foreign Relations
Committee, John Warner, Senate Armed Services Committee, and Mitch McConnell, Senate Appropriations Committee
Foreign Operations Subcommittee, July 18,2000.

127 Indeed, the Democratic Views in the International Relations Committee's report on the Iran Missile Proliferation
Sanctions Act of 1997 criticized the administration's "weak" consultation process and unwillingness to provide detailed,
timely information from the Executive branch...." "Iran Missile Proliferation Sanctions Act of 1997," Report of the
Committee on International Relations, H.R. Rept. No. 105-375,105th Cong., 1st Sess. Pg. 14 (1997).

128 Simon Saradzhyan, "U.S. NMD Effort Fueling Russia's New Missile Plan," DEFENSE NEWS, July 10,2000.

129 Bill Gertz, "Russia sells missile technology to North Korea," WASH. TIMES, June 30,2000, p. Al.

130 See Chapter 9 supra.

131 Russia recently announced that President Putin will visit Libya. Charles Clover, "Putin to visit Libya," FINANCIAL
TIMES, July 31, 2000.

Chapter 11
1 HENRY KISSINGER, DIPLOMACY (New York: Simon and Schuster, 1994), p. 812. See also James Billington, "Russia:
Between a Dream and a Nightmare," N.Y. TIMES, June 17,1998, p. A31 ("America has fought five wars in this century-all
basically to prevent authoritarian power from gaining control of Eurasia.").

2 More distantly, our policy represents a continuation of the historic Anglo-American opposition to hegemonic dominance by
any great power—a policy dating back to British policy toward Louis XTV and Napoleon. At least since the era of the
Napoleonic Wars, critics of this British or American policy have themselves denounced it as a screen for hegemonic
ambitions. Current criticism of U.S. "hegemonism" faithfully echoes this argument.

3 As Kissinger wrote in describing the opening to China, "We did not consider our opening to China as inherently anti-Soviet.
... We moved toward China... to shape a global equilibrium. It was not to collude against the Soviet Union but to give us a
balancing position to use for constructive ends—to give each Communist power a stake in better relations with us. Such an
equilibrium could assure stability among the major powers, and even eventual cooperation, in the Seventies and Eighties."
HENRY KISSINGER, WHITE HOUSE YEARS, (Boston: Little, Brown and Company, 1979), pp. 191-192. "The prospect
of military conflict along the Sino-Soviet border faced us with nightmarish choices." Id. at 693-94. "Triangular diplomacy...
could not be a crude attempt to play off China against the Soviet Union.... To the extent that we tried to aggravate rivalry we
would lose in other ways.... Any attempt to manipulate Peking might drive China into detaching itself from us, perhaps to
re-examine its options with the Soviet Union, to gain control of its own destiny. Equally, any move by us to play the Chinese
card might tempt the Soviets to end their nightmare of hostile powers on two fronts by striking out in one direction before it
was too late.... Equilibrium was the name of the game." Id. at 763-64.

4 The most acute phase of Sino-Soviet military tension had ended by 1982, when the U.S.S.R. attempted a limited
rapprochement with Beijing as its relations with NATO worsened.

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5 Stuart D. Goldman and Robert Sutter, "Russian-Chinese Cooperation: Prospects and Implications", CRS Report for
Congress, Jan. 27, 1997.

6 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: RUSSIAN ARMS
TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), p. 71. Even that modest level,
however, made Russia the PRC's leading arms supplier, reflecting the efficacy of Western nations' export controls and the
PRC's tendency during this period not to use hard currency to purchase significant Western weapons systems.

7 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19,1992, p. Al.

8 For a Chinese comparison of Russia's ties to the West and the PRC in this period, Li Jingie, "From Good Neighbors to
Strategic Partners," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA,
Sherman Garnett, ed., (Washington, D.C.: Carnegie Endowment for International Peace, 2000) p. 73 ("The great
transformation in Eastern Europe, the one-by-one fall of communist parties, and the subsequent breakup of the Soviet Union
did, in fact, interrupt relations with China. At first, the new Russian leadership ranked China behind Japan, India, and South
Korea in its Asian foreign policy priorities. The democratic faction still rebuked China on human rights and democracy
questions, from time to time. Under these circumstances, many Chinese political leaders and analysts estimated that the
international situation had become extremely serious, worrying that a united West joined by the new Russia might be able to
concentrate pressure on China as the only remaining socialist power.") Li is director of the Institute of East European,
Russian, and Central Asian Studies of the Chinese Academy of Sciences.

9 As Dmitri Simes stated, "[I]n recent years we have seen Russia and China consistently maintain far closer relations than
either of them has with the United States. This is the first time since thirty years ago, before the era of President Richard
Nixon, that this could be said." Martin Sieff, "Russia-China summit aims at U.S. policy," UPI, August 24,1999.

10 Michael Dobbs and Don Oberdorfer, "Yeltsin Appeals For American Aid; Reforms Must Succeed,1 Hill Told," WASH.
POST, June 18,1992, p. Al.

11 Jim Hoagland, '"We Should Be Building Trust' With the New Russia," WASH. POST, June 29,2000, p. A31.

12 Elaine Sciolino, "In Speech to Russian Duma, Clinton Urges Careful Policy Choices," NY. TIMES, June 2, 2000, p. Al.

13 Yeltsin continued:

It is a neighbor, with whom we share the longest border in the world and with whom we are destined to live and work side by
side forever. On the success of our cooperation with China depends Russia's future. Relations with China are extremely
important to us in global politics as well. If we can rely on the Chinese shoulder in our relations with the West, the West will
be more considerate to Russia.

Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military development," IN CHINA'S SHADOW:
REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY DEVELOPMENT, Jonathan Pollack
and Richard Yang, eds., (Santa Monica, Cal: RAND, 1998), p. 80 (footnote omitted).

14 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19,1992, p. Al.

15 Yevgeny Bazhanov, "Russian Perspectives on China's Foreign Policy and Military Development," IN CHINA'S
SHADOW: REGIONAL PERSPECTIVES ON CHINESE FOREIGN POLICY AND MILITARY DEVELOPMENT,
Jonathan Pollack and Richard Yang, eds., (Santa Monica, Calif.: RAND, 1998), pp. 70,71-73. These generalizations are
subject to numerous exceptions. "Westernizers" and "reformers" often proved to be enthusiastic proponents of
"multipolarity," or at least opportunistic enough to truckle to anti-American opinion; some extreme nationalists were even
more paranoid about a Chinese inundation of Siberia than they were about a NATO invasion of Russia.

16 In this regard, the failure of Russian reforms has had a highly-significant opportunity cost in the PRC, as well, by
discrediting what the PRC leadership characterizes as the "Western model" of reform. The PRC leadership remains acutely
aware that one of the key triggers for the Tiananmen demonstrations was the Chinese public's awareness of the reform process
in the U.S.S.R., and in particular the visit of then-Soviet President Mikhail Gorbachev to Beijing. Had subsequent Russian
reforms succeeded, they would have powerfully reinforced pro-reform opinion in the PRC.

17 Lena Sun, "Russia, China Set Closest Ties in Years," WASH. POST, Dec. 19,1992, p. Al.

275 of 286
18 The number of individual actors involved and the weakness of central controls in Russia make it hazardous to assume a
coherent policy making apparatus with a consistent policy. See Stephen Blank, "Russia's clearance sale," JANE'S
INTELLIGENCE REVIEW, Nov. 1,1997.

19 Jennifer Anderson, "The Limits of Sino-Russian Strategic Partnership," (Adelphi Paper 315), The International Institute
for Strategic Studies 1997, p. 20 ("In late May 1994, Jiang informed Chernomyrdin that China was 'willing to join Russia in
raising Sino-Russian relations to a new level,' and set the date for his first visit to Russia since the collapse of the Soviet
Union.").

20 "Sino-Russian Joint Statement," Xinhua, Sept. 3,1994; see also "Jiang, Yeltsin on Ties," Xinhua, May 8,1995 (Remarks
of President Jiang). At a time when Russian military doctrine was broadly lowering the threshold for first use of nuclear
forces, Russia and the PRC agreed to adopt a no-first-use nuclear doctrine and a detargeting agreement.

21 Henry Kissinger, "Moscow and Beijing: A Declaration of Independence," WASH. POST, May 14, 1996, p. A15.

22 Quoted in Peter W. Rodman, testimony before the House International Relations Committee, Hearing on "The U.S. and
Russia: Assessing the Relationship," July 16, 1998, p. 93 (footnote omitted).

23 Li Jingjie, "From Good Neighbors to Strategic Partners," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA

RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed., (Washington DC: Carnegie Endowment for International
Peace, 2000), p. 86. See also Jennifer Anderson, "The Limits of Sino-Russian Strategic Partnership," (Adelphi Paper 315),
The International Institute for Strategic Studies 1997, p. 22 ("Under Primakov, the Russian Foreign Ministry officially
claimed the priority status of the relationship with Beijing; Chernomyrdin promoted the interests of the industrial, energy and
arms sectors trading with China.").

24 Id. at 82. Similarly, whereas the Russian Foreign Ministry ranked the PRC sixth among Russian concerns in 1993 (after the
CIS, arms control and international security, economic reform, and relations with the U.S. and Europe), by 1996 Foreign
Minister Primakov ranked the PRC third, after the CIS and Eastern Europe. Alexander Lukin, "Russia's Image of China and
Russian-Chinese Relations," EAST ASIA: AN INT'L QUARTERLY, vol. 17, no. 1, Spring 1999.

25 Sino-Russian Joint Communique, signed in Beijing by Chinese President Jiang Zemin and Russian President Boris Yeltsin,
April 25,1996.

26 Jennifer Anderson, "The Limits of Sino-Russian Strategic Partnership," (Adelphi Paper 315), The International Institute
for Strategic Studies, 1997, p. 21 ("[J]ust 24 hours before the meeting, Yeltsin telephoned Jiang from his stop-over in
Khabarovsk, formally proposing that the two establish a 'strategic partnership for the twenty-first century". Jiang immediately
accepted the proposal."); see also Li Jingjie, ""From Good Neighbors to Strategic Partners," RAPPROCHEMENT OR
RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington DC: Carnegie
Endowment for International Peace, 2000), p. 88; Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE
REVIEW, Nov. 1,1997.

27 Id.

28 Peter W. Rodman, testimony before the House International Relations Committee, hearing on "the U.S. and Russia:
Assessing the Relationship," July 16,1998, p. 95 (footnote omitted). During Yeltsin's April 1996 visit to the PRC he and
President Jiang also met in Shanghai with the Presidents of three Central Asian republics, Kazakhstan, Kyrgyzstan, and
Tajikistan, established the so-called "Shanghai-Five" group. Creation of this grouping, which agreed to conduct periodic
summits, reflects common Sino-Russian concerns over the potential dangers of ethnically or religiously-based separatism
across the expanse of central Eurasia, reflecting Beijing's concerns over Tibet and Xinjiang and Russia's concerns over unrest
in the Caucasus and Central Asia. These concerns are shared to differing degrees by the Central Asian governments
themselves. These concerns have intensified for all parties recently. The second Chechen conflict has heightened Russian and
Central Asian sensitivity to perceived "Islamist" threats, and intensified Uighur separatist violence~not just in Xinjiang but in
Beijing also. See Mark Buries, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS (Santa
Monica, Calif.: RAND, 1999), pp. 9-10. At the most recent Shanghai Five summit in Dushanbe, Tajikistan on July 5,2000,
President Jiang called for the member-states to "cooperate in the security field at a deeper level and take joint actions to crack
down on the activities of all brands of separatist, terrorist, and extremist forces." '"Shanghai Five' Summit Successfully Ends
in Dushanbe," Xinhua Domestic Service, July 5,2000. In addition, the Shanghai Five signed Five-Party Military Agreements
in 1996 and 1997 that significantly demilitarized the former Sino-Soviet border, and were complementary to the Sino-Russian
border agreements.

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29 Joint Sino-Russian Communique issued during PRC premier Li Peng's visit to Moscow of late December 1996, Xinhua,
Dec. 26-28,1996 (FBIS-CHI-96-251).

30 "Rodionov Identifies 'Sources of Military Danger,'" Interfax News Agency, Dec. 25,1996.

31 Peter W. Rodman, testimony before the House International Relations Committee, hearing on "The U.S. and Russia:
Assessing the Relationship," July 16,1998, pp. 96-97; Grigory Arslanov, "Russian Defense Minister Hails China Strategic
Partnership," Itar-TASS, Apr. 15,1997.

32 By contrast, the much less elaborate Joint Statement issued by Presidents Jiang and Clinton during the October 29,1997
summit in Beijing announced the two Presidents' "determinfation] to build a constructive strategic partnership ... through
increasing cooperation to meet international challenges and promote peace and development in the world."

33 See Chapter 8 supra.

34 See "Yeltsin, China's Jiang Call for a 'Multipolar' World," ROSSIISKIYE VESTI, April 25,1997. The Joint Declaration
stated that "[n]o one country should strive for hegemony, conduct a foreign policy from a position of strength, or monopolize
international affairs;" it opposed "attempts to expand and strengthen military blocs, since this trend may pose a threat to the
security of individual countries and cause tension on a regional and global scale"-a swipe at both NATO enlargement and the
nexus of bilateral U.S. security ties in the Western Pacific. It espoused settlement of international differences "without using
force or threatening to use it," and affirmed that the U.N.'s role "cannot be supplanted by any other international
organization"~a pointed jibe at American military interventions in various contexts unsanctioned by U.N. mandates. It omits
even pro-forma references to such U.S. desiderata as weapons proliferation or human rights. Id.

35 See, e.g., Joint Statement on Common Security Challenges at the Threshold of the Twenty-First Century, September 2,
1998; Kremlin press conference by President Clinton and President Yeltsin, Sept. 2,1998.

36 Id. (Yeltsin reference to disagreements over Iraq, Kosovo, NATO).

37 Foreign Minister Ivanov called the NATO bombing the worst aggression in Europe since World War II, and called for war
crimes trials for the NATO leaders who had instigated airstrike "genocide." Id. Senior Russian officers were less restrained,
and did not confine themselves to rhetoric: General Kvashnin, the Chief of the Russian General Staff, publicly volunteered to
lead a division, while General Kortunov, the commander-in-chief of the strategic air force, conducted an exercise simulating a
nuclear war over the Balkans. Russia sent a naval presence to the area and provided intelligence support to Milosevic. The
major Russian initiative in Yugoslavia itself—the surprise deployment of Russian paratroopers to Pristina airport-remains of
uncertain provenance, although Yeltsin quickly disavowed it and abandoned the General Staffs related efforts to secure an
independent Russian peacekeeping zone in Kosovo. See Michael McFaul, "Russia's Many Foreign Policies,"
DEMOKRATIZATSIYA, Summer 1999, pp. 406-7. (citation omitted); see also Paul E. Gallis, "Kosovo: Lessons Learned
from Operation Allied Force," CRS Report for Congress, Nov. 11, 1999, p. 13.

38 Yeltsin's political maneuvering during this period, which included appointing Viktor Chernomyrdin as special mediator in
mid-April and replacing Primakov as prime minister in mid-May, have given rise to speculation concerning the extent to
which he was leading, following, or attempting to undercut both popular and official Russian opposition to NATO's Kosovo
operations.

39 "Russian PM seeks closer strategic ties with China," Reuters, June 10,1999.

40 Mikhail Shevtsov, "China's general visits Russian missile division," Itar-TASS, June 12,1999.

41 "Chinese military official speaks of rapprochement with Russia," Interfax News Agency, June 13,1999.

42 There is some implication that his reference was both to the West and to "westernizers" within Russia.

43 Ben Aris and David Rennie, "Yeltsin presses for anti-NATO alliance with the Chinese," Electronic Telegraph, Aug. 26,
1999. Foreign Minister Igor Ivanov elaborated on Yeltsin's comment: "You need to understand this as a fight for the future
world order, but we are not indifferent to what happened in the Balkans and the Persian Gulf and other situations that threaten
stability." "Russian, Chinese Presidents discuss 'strategic partnership,'" Agence France Presse, Aug. 25,1999.

44 "Premier of State Council of China hails Russo-Chinese ties," Itar-TASS, Aug. 24,1999.

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45 Michael Walker, "Russia, China plug a 'multipolar' world," THE STRAITS TIMES, Sept. 1,1999.

46 Oliver August, "China increases nuclear threat," LONDON TIMES, Sept. 2,1999; Simon Saradzhyan, "Russia ponders
selling nuclear submarines to China," DEFENSE NEWS, Sept. 27,1999 (reporting that Primakov approved Akula sale in
April 1999, and that the submarines would be able to attack carrier battle groups in the open sea).

47 Michael Walker, "Russia, China plug a multipolar' world," THE STRAITS TIMES, Sept. 1, 1999; "China to get first
SU-30MKKs," JANE'S DEFENCE WEEKLY, July 26,2000.

48 Joint Communique, Dec. 10,1999.

49 Bill Gertz and Rowan Scarborough, "Inside the Ring," WASH. TIMES, Sept. 3, 1999, p. A6.

50 "Sino-Russian summit begins," FINANCIAL TIMES, July 18,2000. Apparently rumors that Moscow was considering
curtailing transfers of military technology because of fears that they would undercut sales of off-the-shelf Russian weaponry
are unfounded. See "Russia Rethinking Scope of Arms Sales to China?", JAMESTOWN MONITOR, Vol. 6, Issue 52, Mar.
14,2000.

51 Beijing Declaration by the People's Republic of China and the Russian Federation, July 18,2000. The Declaration
reaffirms all previous Sino-Russian political documents and promises further preparations for a formal China-Russia treaty of
friendship and cooperation. Id.

52 "Jiang Hails Summit with Putin," SOUTH CHINA MORNING POST, July 18,2000.

53 "Russia Rethinking Scope of Arms Sales to China?", JAMESTOWN MONITOR, Vol. 6, Issue 52, Mar. 14,2000.,

54 FOREIGN POLICY CONCEPT OF THE RUSSIAN FEDERATION, Mar. 25,1993. The 1993 Concept expressly
disclaimed suspicion of Western designs on the CIS, stating that "[t]he leading democratic states of the world are interested in
ensuring stability in the geopolitical space of the former U.S.S.R., and recognize the role of Russia and its policy in
supporting such stability."

55 Id. at 13. The Concept noted that good relations with the PRC would facilitate implementation of internal reforms and
ensure that "third countries are not tempted to use it against Russia, just as China is not tempted to play the "Russian card' in
its relations with other countries."

56 Id.

57 Id.

58 "China Issues Defense White Paper," Xinhua News Agency, July 27,1998. The 1998 PRC White Paper nonetheless
concluded that "[p]eace and development are the major themes of the present era" and "[i]n general the present international
security situation has continued to trend toward relaxation." This note of somewhat forced optimism has largely vanished
from the PRC's official formulations today. See infra.

59 Ministry of Foreign Affairs of the PRC, "China's View on the Development of Multi-polarity." This document concludes
more optimistically that hegemonism "is against the tide of history and is doomed to failure." It too nevertheless concludes
that "overall the general trend of the international situation [is] moving toward relaxation, and any attempt aimed at setting up
a single pole in the world is doomed to failure." Id. The tension in these documents between acknowledging current and, on
the evidence of Desert Fox and Kosovo, possibly growing American military power and predicting the coming demise of
hegemonism reflects a continuing debate within the PRC's foreign policy establishment about the pace of the multipolar trend.
See generally MICHAEL PILLSBURY, CHINA DEBATES THE FUTURE SECURITY ENVIRONMENT (Washington,
D.C.: National Defense University Press, 2000) pp. 3-62.

60 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony before the
House Armed Services Committee hearing on "Military Capabilities of the People's Republic of China," July 19, 2000, p. 6
("Both partners embrace positions on major issues of today's national security agenda in direct opposition to the United States
and its allies in the U.N. and are particularly active in doing so across Central, South, and East Asia. Their partnership
comprises economic, political, ideological, and military dimensions, and in each of these dimensions of the partnership
Beijing and Moscow are forming closer and deeper bonds despite difficulties, and ever more openly voice the partnership's

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overt anti-American character.").

61 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb.
10,2000, p. A17. See, e.g., Wen Jen, "China and Russia to Jointly Hold Military Exercises," HONG KONG TAI YANG
PAO, Aug. 7,2000 (asserting that Russia and the PRC had agreed during a July 27,2000, hotline discussion to expedite
conclusion of a treaty of friendship and cooperation, cooperate in developing a new generation of aircraft and high-technology
weapons, expand military exchanges, conduct joint military exercises, and purchase $15 billion in advanced military
equipment).

62 Stephen J. Blank, U.S. Army War College, testimony before the House Armed Services Committee on "New Strategic
Trends in Russo-Chinese Relations," July 19,2000, pp. 4-6 and notes 11-18.

63 Blank testified:

At least since 1995 Russian leaders-Defense Minister Pavel Grachev in 1995, according to U.S. intelligence analysts, the
Russian government in 1998, Vladimir Putin in 1999-have regularly asked China for a military-political alliance.... The
Russian media has often talked of an alliance and German diplomats in Moscow believed it was possible by 1996.... Publicly
China continues to reject these requests.

Id.

Professor Blank notes that there is also a substantial body of evidence that conflicts with these reports.

64 Mat 6.

65 The consensus view of policy makers in Moscow is that arms sales to the PRC serve both economic and policy interests,
and that the point of potential conflict between those interests has not yet been reached. Yevgeny Bazhanov, Vice President of
the Russian Diplomatic Academy and Director of the Foreign Ministry's Institute of Contemporary International Studies,
wrote in August 1997 that Russian arms sales to the PRC are "profitable not only economically, but politically as well, [since]
they tie Russia and China to each other and help build our mutual confidence." Yevgeny Bazhanov, "Russian Perspectives on
China's Foreign Policy and Military Development," IN CHINA'S SHADOW: REGIONAL PERSPECTIVES ON CHINESE
FOREIGN POLICY AND MILITARY DEVELOPMENT, Jonathan Pollack and Richard Yang, eds., (Santa Monica, Calif.:
RAND, 1998), p. 81 (footnote omitted). See also Sherman W. Garnett, Senior Associate, Carnegie Endowment, testimony
before the House International Relations Committee, hearing on "Russian Foreign Policy: Proliferation to Rogue Regimes,"
Mar. 25,1999, p. 59 ("Sino-Russian arms and defense technology sales are driven by several different factors. There is
obviously an ideological element in the Sino-Russian relationship as a whole.... Russia's desperate economic condition
provides additional incentive for arms sales.... Greed is a considerable stimulus for much of Russian behavior in the arms and
technology area. Industrialists, middlemen and even the regulators make money.... [And] public gains are frequently cited to
generate further support for the sales. Arms sales are seen, rightly or wrongly, as a critical element in the survival of the
Russian military industrial base.")

66 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony before the
House Armed Services Committee hearing on "Military Capabilities of the People's Republic of China," July 19, 2000, p.7
(footnote omitted). As Professor Blank further testified, these dollar figures include only official transfers and omit not only
"what we know to be large-scale military-technological transfers in the so-called gray and black market" but also "the large
number of human exchanges either through the internet or through Russian scientists in China or Chinese scientists in Russia
who are working to upgrade Chinese capabilities." Id.

67 Sherman Garnett, Senior Associate, Carnegie Endowment, testimony before the House International Relations Committee,
hearing on "Russian Foreign Policy: Proliferation to Rogue Regimes," Mar. 25,1999, p. 58.

68 Piotr Butowski, "Show Report-Farnborough," JANE'S DEFENCE WEEKLY, Aug. 9, 2000.

69 The 1996 decision to license Su-27 production is an interesting example of the interplay of the differing institutional
interests at play in Russian proliferation of advanced weaponry: reportedly the license was transferred by the Sukhoi Design
Bureau "without official authorisation or knowledge," in order to generate funds for development of the Bureau's Su-37
fighter; "Moscow had to accept this deal, as retraction would have angered China and undermined a crucial pillar of its Asian
and overall foreign policy." See Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997.

70 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: RUSSIAN ARMS

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TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), pp. 75-76. See also "Russia to Send
China First Su-30MKK Fighters by End of 2000," Itar-TASS, My 6, 2000; Paul Beaver, "China acquires more arms
technology," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997 (PRC production license for Su-27s worth $1.5 billion over
10 years).

71 Richard D. Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," James R. Lilley
and David Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), p. 147.

72 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb.
10,2000, p. Al 7. Only one model of the Su-37 currently exists, though it is currently being advertised in a Rosvooruzhenie
catalog. Because of the Su-37's advanced capabilities and the Tu-22M's strategic functions, if the reports concerning them are
correct they would represent both the collapse of any qualitative restrictions on Russian sales of military aircraft to the PRC
and a willingness to suffer extremely severe repercussions in relations with other Asia-Pacific powers. See, e.g., Richard D.
Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," James R. Lilley and David
Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), p. 147 (sale of Tu-22M
would "likely result in a political firestorm for Russia in Asia").

73 Stephen Blank, "Russia's clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997.

74 Sam Greene, "Russia Reaping Rewards from Lucrative Arms Sales to China," RUSSIA TODAY, July 18,2000.

75 "Recent Developments in a Flourishing Arms Trade," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997.

76 Steven J. Zaloga, "Sovremenny: the instrument of Eastern power projection," JANE'S INTELLIGENCE REVIEW,
December 1,1997. In 1998, Russia announced that it would sell the PRC a version of the Moskit adapted for launch from
both the PRC's Su-27s and Su-30MKKs. Michael Waller, "Will Gore's Slips Sink U.S. Ships?", INSIGHT, May 15,2000, pp.
22-24.

77 Trevor Hollingsbee, "Sovremenny delivery will give PLAN a bigger sabre to rattle over Taiwan," JANE'S
INTELLIGENCE REVIEW, Jan. 1,2000.

78 "China to Receive Second Russian Destroyer in November 2000," Novosti News Agency, July 10,2000.

79 J. Michael Waller, "Will Gore's Slips Sink U.S. Ships?", INSIGHT, May 15,2000, pp. 22-24.

80 Trevor Hollingsbee, "Sovremenny delivery will give PLAN a bigger sabre to rattle over Taiwan," JANE'S
INTELLIGENCE REVIEW, Jan. 1,2000. The author notes, however, that the destroyers' crews "must successfully negotiate
a steep learning curve if they are to be deployed effectively."

81 June Teufel Dreyer, University of Miami, testimony before the House Armed Services Committee hearing on "Military
Capabilities of the People's Republic of China," July 19, 2000. See also John Pomfret, "Russians Help China Modernize its
Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb. 10,2000, p. A17 ("The U.S. military has yet to come
up with a viable deterrent to the [Moskit] missile....").

82 Rear Admiral L.E. Jacoby, Director of Naval Intelligence, statement before the Seapower Subcommittee of the Senate
Armed Services Committee on "Submarine Warfare in the 21st Century," Apr. 13,1999. Wake-homing torpedoes are
exported with all Russian Kilo-class submarines. Id.

83 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: RUSSIAN ARMS
TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), p. 79.

84 U.S. Department of Defense, Annual Report on the Military Power of the PRC, June 2000, p. 16. See also Richard D.
Fisher, Jr., "Foreign Arms Acquisition and PLA Modernization," James R. Lilley and David Shambaugh, eds., CHINA'S
MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), pp. 102-3.

85 John Downing, "How Shkval ensured Soviet SSBN survivability," JANE'S INTELLIGENCE REVIEW, Nov. 2,1999.
Unconfirmed press reports have stated that Yeltsin and Jiang agreed at the August 1999 Bishkek summit on a $1 billion
purchase of two top-of-the-line Typhoon-class ballistic missile submarines, as well as at least two Akula-class
nuclear-powered attack submarines. See, e.g., Oliver August, "China increases nuclear threat," LONDON TIMES, Sept. 2,
1999; Simon Saradzhyan, "Russia ponders selling nuclear submarines to China," DEFENSE NEWS, Sept. 27,1999

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(reporting that Primakov approved Akula sale in April 1999, and that the submarines would be able to attack carrier battle
groups in the open sea). Russian sale of the Typhoon SSBN seems unlikely.

86 ALEXANDER A. SERGOUNIN, SERGEI V. SUBBOTIN, SIPRI RESEARCH REPORT NO. 15: RUSSIAN ARMS
TRANSFERS TO EAST ASIA IN THE 1990S (Oxford: Oxford University Press, 1999), pp. 72-3; Stephen Blank, "Russia's
clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997.

87 Richard D. Fisher, Jr., "Gallery of Known and Possible Future Foreign Military Acquisitions by China," James R. Lilley
and David Shambaugh, eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), p.160. See also
Fisher, "Foreign Arms Acquisition and PLA Modernization," in id., p. 99. See also Brian Hsu, "Increased Threat," THE
TAIPEI TIMES, May 10,2000.

88 U.S. Department of Defense, Annual Report on the Military Power of the PRC, June 2000, p. 15. The Annual Report
states that diese systems "provide only a rudimentary, limited defense against aircraft and cruise missiles." Id.

89 Chairman Floyd Spence, House Armed Services Committee, "China in the Ascendancy: A Growing Threat to U.S.
Security?", NATIONAL SECURITY REPORT, May 2000, p. 3. See also Stephen Blank, "Russia as Rogue Proliferator,"
ORBIs, vol. 44, Winter 2000 p. 97 ("Russia has sold the SS-18 and SS-19 control and guidance systems to China for its
DF-31 and DF-41 missiles.... Whole factories were transferred to China to make parts for the Topol-M (SS-27) mobile
ICBM.... Russia also sold China mobile, multiple-warhead, high-accuracy solid and liquid propellant technology to increase
Chinese ICBMs' accuracy") (citations omitted).

90 James Lilley, former Ambassador to the PRC, testimony before the Senate Governmental Affairs Committee
Subcommittee on International Security hearing on "China and "Proliferation," Apr. 10,1997; Stephen Blank, "Russia's
clearance sale," JANE'S INTELLIGENCE REVIEW, Nov. 1,1997.

91 Christoph Bluth, "Russia and China consolidate their new strategic partnership," JANE'S INTELLIGENCE REVIEW,
Aug. 1, 1998. For a detailed discussion of PRC acquisitions from Russia and other suppliers, see Richard D. Fisher, Jr.,
"Gallery of Known and Possible Future Foreign Military Acquisitions by China," James R. Lilley and David Shambaugh,
eds., CHINA'S MILITARY FACES THE FUTURE, (New York: M.E. Sharpe, 1999), pp. 85 et seq.

92 John Pomfret, "Russians Help China Modernize its Arsenal; New Military Ties Raise U.S. Concerns," WASH. POST, Feb.
10,2000, p. A17.

93 Id.

94 MARK BURLES, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS, (Santa Monica,
Calif.: RAND, 1999), p. 36 (footnotes omitted); see also John Pomfret, "Russians Help China Modernize its Arsenal; New
Military Ties Raise U.S. Concerns," WASH. POST, Feb. 10,2000, p. A17 ("Asian officials ... say that as many as 2,000
Russian technicians are employed by Chinese research institutes working on laser technology; the miniaturization of nuclear
weapons; cruise missiles; space-based weaponry; and nuclear submarines."); Stephen Blank, "Russia's clearance sale,"
JANE'S INTELLIGENCE REVIEW, Nov. 1,1997:

More recently the Russian media reported that China's Military-Technical Co-operation Co-ordinating Centre
invites Russian weapons designers and other specialists to China for preliminary talks. Russian scientists give
mainly 'secret' lectures on Russian defense exports. Chinese sources report that the information they receive
saves around 15-20 years of research and development and hundreds of millions of dollars ... Hundreds of
Chinese technicians work at Russian defense plants and many Russian plants work exclusively for the Chinese
market or Chinese owners. Chinese delegations of highly-skilled specialists wander around Russian defense
plants and negotiate contracts. They see practically everything so that these factories might win orders.

Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology Transfers," Center for
Strategic and International Studies, April 5,1999, pp. 13,27 ("The most critical transfers of technology may
take the form of'invisible' sales of designs, industrial techniques, specialized production equipment, and
advisory services. These ... may be proportionally more damaging than conventional weapons transfers.... [I]t
is important to note that China may have far more access to Russian technology than is apparent from major
arms buys or than Russia intends.").

95 "China's Military Modernization," in Zalmay Khalilzad, et al, THE UNITED STATES AND A RISING CHINA:
STRATEGIC AND MILITARY IMPLICATIONS, (Santa Monica, Calif.: RAND, 1999), p. 49.

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96 Under Secretary Walter B. Slocombe, testimony before the House International Relations Committee Subcommittee on
Asia and the Pacific, May 11,1998.

97 Ambassador Stephen Sestanovich, response to questions for the record, in House International relations Committee,
Hearings on "The U.S. and Russia: Assessing the Relationship," July 16,1998, pp. 158-59.

98 Id.

99 Secretary of State Madeleine Albright, response to questions for the record, U.S. Senate Committee on Foreign Relations,
Feb. 2,2000.

100 Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology Transfers," Center for Strategic
and International Studies, Apr. 5,1999, p. 22.

101 Chairman Floyd Spence, "China in the Ascendancy: A Growing Threat to U.S. Security?", House Armed Services
Committee, National Security Report, May 2000, p. 3.

102 Sherman Garnett, testimony before the House International Relations Committee, hearing on "Russian Foreign Policy:
Proliferation to Rogue Regimes," Mar. 25,1999, p. 58.

103 Testimony of DIA Director Lt. Gen. Patrick Hughes before the Senate Armed Services Committee, Feb. 2,1999
("Assuming we retain the capability and will to remain engaged worldwide, no other state~or any likely coalition or group of
states-has the wherewithal to usurp the U.S. position within the next 15-20 years. The most significant potential
competitors-including Russia and China-all have fewer advantages and more problems. This is especially true in the military
arena.").

104 Anthony H. Cordesman, "The Strategic Impact Of Russian Arms Sales and Technology Transfers," Center for Strategic
and International Studies, Apr. 5,1999, p. 22. Cordesman is, on balance, a skeptic of the impact of the past Russian transfers
on the PRC's capabilities, but he concludes that "[t]he past... is not necessarily the prelude to the future. Some Russian
technology transfers are already important, and Russia could provide China with a wide variety of far more advanced
weapons that could dramatically increase its warfighting capabilities against the U.S. or its allies." Id. at 25.

105 Craig Smith, "Putin Visits China in Hope of Strengthening a Strategic Axis," NEW YORK TIMES, July 18,2000, p.
All.

106 Sino-Russian trade went from $3.9 billion in 1991 to $5.8 billion in 1992, and peaked at $7.68 billion in 1993.
Thereafter, it fell to $5.1 billion in 1994, $5.5 billion in 1995, $7.2 billion in 1996 (the year when Yeltsin and Jiang pledged
that Sino-Russian trade would reach $20 billion by 2000), $6.12 billion, and $5.48 billion in 1998. See Elizabeth Wishnick,
"Chinese Perspectives on Cross-Border Relations," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS
IN A CHANGING ASIA, Sherman Garnett, ed., (Washington, D.C.: Carnegie Endowment for International Peace, 2000), pp.
235-36

107 The PRC's northeastern rustbelt, which had banked on developing economic ties with Russia to redress its own relative
underdevelopment vis-ä-vis the booming south, was particularly hard-hit: Heilongjiang's trade with Russia fell by 7.2% in the
second half of 1993 and by 56% in the first half of 1994. "In Heihe and other cities, stores were boarded up, streets deserted,
and thousands of firms driven out of business. The brain drain to South China from Harbin and other intellectual and
industrial centers continued." Gilbert Rozman, "Turning Fortresses into Free trade Zones," RAPPROCHEMENT OR
RIVALRY?: RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie
Endowment for International Peace, 2000), p. 189.

108 Russia's trade with the PRC was a fourth of South Korea's, less than a third of Taiwan's, and less than half of Germany's.
Mark Buries, CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS (Santa Monica, Calif:
RAND, 1999), pp. 19,21.

109 See Elizabeth Wishnick, "Chinese Perspectives on Cross-Border Relations," RAPPROCHEMENT OR RTVALRY?:
RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment
for International Peace, 2000), pp. 249,256, n. 92.

110 Sherman Garnett, "Limited Partnership," RAPPROCHEMENT OR RIVALRY?: RUSSIA-CHINA RELATIONS IN A

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CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment for International Peace, 2000), p. 10.

111 Alexei D. Voskressenski, "Russia's Evolving Grand Strategy toward China, in Garnett, id., at 133 ("Economics plays the
largest role [in limiting the relationship].). Voskressenski is deputy head of the Russia-China Center of the Institute of Far
Eastern Studies in Moscow.

112 The PRC, which became a net importer of oil in 1993, may need to import as much as 3.6 million barrels of oil a day by
2010, and in 1997 the PRC signed contracts on oil and pipeline projects in Kazakhstan worth $9.6 billion. Of course, the PRC
is also eager to develop energy and pipeline projects in Russia itself, and in 1997 also signed a contract reportedly worth $8
billion-10 billion to develop a natural gas field near Lake Baikal and an associated pipeline to the PRC. Mark Buries,
CHINESE POLICY TOWARD RUSSIA AND THE CENTRAL ASIAN REPUBLICS (Santa Monica, Calif.: RAND, 1999),
pp. 24-25.

113 See, e.g., Dmitri Trenin, "The China Factor: Challenge and Chance for Russia," RAPPROCHEMENT OR RIVALRY?:
RUSSIA-CHINA RELATIONS IN A CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment
for International Peace, 2000), p. 57:

Moscow analysts now foresee the possibility of a Russian-Chinese clash in Central Asia and propose that
territorial integrity of the CIS countries be ensured with the help of the Russian nuclear umbrella.... Russia
will try to close its eyes to the internal conflict in Xinjiang, but this effort will become more difficult if Beijing,
frustrated in its attempts to counter Turkic and Muslim separatism, attempts direct interference in the territories
of Central Asian countries, which Russia considers to be the zone of its vital interests.

For now Beijing is content to let Russia act as its gendarme in the region against ethnic and religious
separatism.

114 Mark Buries, CHINESE POLICY TOWARDS RUSSIA AND THE CENTRAL ASIAN REPUBLICS (Santa Monica,
Calif: RAND, 1999), pp. 46-47. On July 21,2000, Putin told a conference on Far Eastern development in Blagoveschensk
that "[I]f we don't make a real effort to develop Russia's Far East, then in the next few decades the Russian population will be
speaking mainly Japanese, Chinese, and Korean." "Putin Warns of Losing Far Eastern Region to the Orient," RUSSIA
TODAY, July 21,2000.

115 Sherman Garnett, "Limited Partnership," RAPPROCHEMENT OR RIVALRY? RUSSA-CHINA RELATIONS IN A

CHANGING ASIA, Sherman Garnett, ed. (Washington, D.C.: Carnegie Endowment for International Peace, 2000), p. 19.

116 Stephen J. Blank, U.S. Army War College, "New Strategic Trends in Russo-Chinese Relations," testimony before the
House Armed Services Committee hearing on "Military Capabilities of the People's Republic of China," July 19,2000, p. 13.
Professor Blank concludes, "Thus the Sino-Russian cooperation is threatening in many ways. It seeks to arrest the spread of
democracy and to threaten the United States and its allies. The comprehensive scope of Russo-Chinese political coordination
aims to frustrate the realization of U.S. interests, to preserve multiple areas of conflict in the world by which to tie down or
restrict and contain American power. They are actively supporting the proliferation of nuclear and perhaps chemical or
biological warfare capabilities. They are attempting to undermine democracy or democratic tendencies in Eurasia, and to
threaten the United States itself.... [I]f [the United States] refuses to acknowledge the true dimensions of this relationship and
rethink its strategy, policy, and military posture, the United States, other governments and other peoples may well pay an
exorbitant price for its complacency and blindness." at 17.

117 See, e.g., Joint U.S.-China Statement during President Jiang's visit to Washington on October 29,1997 ("The two
Presidents are determined to build toward a constructive strategic partnership between the United States and China...."). The
PRC itself at one time returned the favor. In his speech at Harvard during a fall 1997 visit to the United States, President Jiang
stated that "China and the United States should strengthen cooperation and work to build a constructive strategic partnership
oriented toward the 21st century." See also remarks of President Clinton and President Jiang in Exchange of Toasts, October
29,1997 ("President Clinton and I reached agreement on the goal of the future development of China-U.S. relations-namely
... China and the United States should strengthen cooperation and endeavor to build a constructive strategic partnership
oriented toward the 21st century.") Subsequent PRC descriptions are less fulsome. See Stephen J. Blank, U.S. Army War
College, "New Strategic Trends in Russo-Chinese Relations," testimony before the House Armed Services Committee hearing
on "Military Capabilities of the People's Republic of China," July 19,2000, p. 1 and n. 1.

118 Testimony of Peter Rodman, Director, National Security Program, The Nixon Center, before the House International
Relations Committee, hearing on "The U.S. and Russia: Assessing the Relationship," July 16,1998.

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Chapter 12
1 Michael Dobbs, "The New Russia," WASH. POST, Aug. 13,2000, p. Bl.

2 Michael R. Gordon, "Hardened by Their History of Hardships, Russians Simply Stretch the Rubles Farther," N.Y. TIMES,
Aug. 23,1999, p. A8.

3 Survey carried out by ISM Research Centre of 3400 respondents across Russia, ECONOMIST, Oct. 3,1998, p. 60.

4 Michael R. Gordon, "Hardened by Their History of Hardships, Russians Simply Stretch the Rubles Further," N.Y. TIMES,
Aug. 23,1999, p. A8.

5 European Bank for Reconstruction and Development, Annual Report 2000, p. 75.

6 Ben Hooson, "Optimistic Government Predicts 5.5% Growth," MOSCOW TIMES, July 28,2000.

7 Magen Mongush, "Statistics Chief Unveils Rosy Figures," MOSCOW TIMES, Aug. 1,2000.

Sid.

9 Id.

10 Russia Country Analysis Brief, Energy Information Administration, Feb. 2000.

11 "27 Billion Trade Surplus," MOSCOW TIMES, July 26,2000.

12 "In Brief: Central Bank Reserves," MOSCOW TIMES, Aug. 4,2000.

13 Michael Wines, "Russia's Powerful Regional Chiefs Yield Meekly to Putin," N.Y. TIMES, July 27,2000, p. A3.

14 Peter Graff, "Putin Signs Revolutionary Russian Tax Overhaul," Reuters, Aug. 7,2000.

15 "Kasyanov Says Tax Reform Will Bring Money 'Out of Shadows,'" Reuters, June 13,2000.

16 "Russian Capitol Flight Drops to $300 Million a Month," Reuters, June 20,2000.

17 "Government Sets Up Entrepreneurial Council," RFE/RL NEWSLINE, Vol. 4, No. 15, Aug. 8,2000.

18 Catherine Belton, "Loan Scheme to Help Small Business," MOSCOW TIMES, June 27,2000.

19 WALL ST. J., June 21,2000; Russian National Institute for Social and Psychological Research, Jan. 2000 at
http://www.cisco.eom/warp/public/779/govtafFfactsNStats/Ijitemet_Usage.html#EUROPE.; see also Interfax, "Internet Use
in Russia on the Increase," Aug. 17,2000.

20 See, e.g., Gazeta.Ru, "Consumers to Pay for FSB Eavesdropping," Aug. 23,2000 ("Communications Minister Leonid
Reiman has issued an order allowing the Federal Security Service (FSB) to eavesdrop on telephone conversations, pager
messages and personal communication across the Internet without having to obtain a court decision or warrant beforehand.").

21 Foreign investment in Russia is expected to be 92% of the pre-August 1998 levels. Magen Mongush, "Statistics Chief
Unveils Rosy Figures," MOSCOW TIMES, Aug. 1,2000.

22 This includes direct investment, portfolio investment, and loans. According to official figures, foreign direct investment for
all of 1999 totaled only $4.26 billion, although that was 26% higher than the horribly depressed 1998 figure. "Foreign
Investment Figure Corrected," RFE/RL NEWSLINE, June 5,2000.

23 "Foreign Investment Figure Corrected," RFE/RL NEWSLINE, June 5, 2000.

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24 According to the Commerce Department's BISNIS Country Report.

25 Id.

26 Igor Semenenko, "International Banks Reduce Exposure," MOSCOW TIMES, May 16, 2000.

27 U.S. Dept. of Commerce BISNIS Information Service. From 1993-99, the U.S. accounted for 36% of cumulative foreign
direct investment, or $4.54 billion, Cyprus was second followed by Germany.

28 "Russia: Back to the Future?" Dept. of State Opinion Analysis, M-190-99, Oct. 22,1999, p. 3.

29 Richard B. Dobson, "Is Russia Turning the Corner?" CHANGING RUSSIAN PUBLIC OPINION, 1991-1996 (USIA
Office of Research and Media Reaction, September 1996), p. 24.

30 "For Young Russians, 5 to 1, Prosperity More Important than Great Power Status," USIA Opinion Analysis, M-130-98, p.
2.

31 Richard B. Dobson, "Young Russians' Lives and Views," USIA Research Report, R-10-98, September 1998, p. 1.

32 Richard B. Dobson, "Is Russia Turning the Corner?" CHANGING RUSSIAN PUBLIC OPINION, 1991-1996 (USIA
Office of Research and Media Reaction, September 1996), p. 14. By comparison, only one-fifth of Russians over 60
expressed the same sentiment.

33 Id, p. 24.

34 "For Young Russians, 5 to 1, Prosperity More Important than Great Power Status," USIA Opinion Analysis, M-130-98, p.
2.

35 Twenty-seven percent chose great power status. Id.

36 "The People Have Spoken: Global Views of Democracy, Vol. II," USIA Special Report, September 1999, p. 24.

37 "Russia Growing More Religious," CHI. TRIB., Apr. 7,2000, p. 8.

38 Id.

39 Id.

40 Id.

41 Yelena Yugina, "Communists seek to win Orthodox believers over for polls," Itar-TASS, Aug. 21,1999.

42 "Putin goes to Kremlin's Annunciation Cathedral for service after inauguration," Itar-TASS, May 7,2000.

43 "Putin congratulates Alexei II on 10th election jubilee," Itar-TASS, June 9, 2000. The interest shown by Russian
politicians in capitalizing on the public's confidence in the Orthodox Church does pose the danger of intentional or
unintentional discrimination against other religions, or of state limitations on the freedom to practice other faiths. The U.S.
State Department's 1999 Human Rights Report suggests that registration of other religious organizations-required even under
Russia's post-Soviet laws-has become more difficult.

44 Yevgenia Borisova, "Charities for Kursk Spring Up," MOSCOW TIMES, Aug. 23, 2000.

45 William H. Courtney, "Human Rights in Russia," Briefing of the Commission on Security and Cooperation in Europe,
Sept. 8,1999.

46 Harry Dunphy, "Greens Call for Suspension of World Bank Loans," MOSCOW TIMES, July 13,2000.

47 Sergei Blagov, "Education Suffers All Round Decline in Post-Soviet Years," BUSINESS AND INDUSTRY, Apr. 25,
2000.

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4SId.

49 "The People Have Spoken: Global Views of Democracy, Vol. II," USIA Special Report, Sept. 1999, p. 4.

50 Id.

51 "Russian Poll: State Should Not Interfere in Private Life," Itar-TASS, Mar. 5,2000.

52 Zyuganov received 24,211,790 votes in 1996 ("Final Results for First Round of Presidential Election," BBC SUMMARY
OF WORLD BROADCASTS, June 21,1996) and 21,928,471 votes in 2000 ("Russia Election Boss Announces Voting
Results," Itar-TASS, Apr. 5,2000).

53 "Russia: Back to the Future?" State Dept. Opinion Analysis, M-190-99, Oct. 22,1999, p. 3.

54 Michael McFaul, "Despite All the Bad News, Democracy Marches On," L.A. TIMES, Oct. 3,1999, p. 2.

55 Id. For more on Russian political party development see STEPHEN WHITE, RUSSIA'S NEW POLITICS: THE
MANAGEMENT OF A POSTCOMMUNIST SOCIETY (New York: Cambridge University Press, 2000), pp. 34-50;
Michael McFaul, "Party Formation and Non-Formation in Russia," WORKING PAPERS SERIES OF THE RUSSIAN AND
EURASIAN PROGRAM NUMBER 12, Carnegie Endowment for International Peace, May 2000.

56 LILIA SHEVTSOVA, YELTSIN'S RUSSIA: MYTHS AND REALITY, (Washington, D.C.: Carnegie Endowment for
International Peace, 1999).

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