April 5, 2000    
This Date's Issues: 4226 • 4227 •  4228

Johnson's Russia List
#4227
5 April 2000
davidjohnson@erols.com

[Note from David Johnson:
1. AFP: Putin officially pronounced election winner, 
term starts May 7.
2. Rossiiskaya Gazeta: THE DICTATORSHIP OF THE LAW DOES NOT 
ADMIT A DICTATOR. (Interview with president's spokesman in the 
Federation Council Vyacheslav KHIZHNYAKOV)
3. Washington Post: Robert J. Samuelson, Putin's Ancient Foe.
4. Novaya gazeta: Oleg Sultanov, The Shadow Side of LUKoil.
5. US Department of State: Deputy Secretary of State Talbott 
on U.S.-Russia Relations.] 

*******

#1
Putin officially pronounced election winner, term starts May 7

MOSCOW, April 5 (AFP) - 
Russia's election chief on Wednesday officially pronounced Vladimir Putin the 
victor in last month's presidential polls, saying the new Kremlin chief would 
begin his four-year mandate on May 7.

Putin won a 52.94 percent share of the March 26 ballot or "nearly 40 million 
votes" out of an electorate of 108 million, said Alexander Veshnyakov, head 
of the Central Elections Commission.

Communist Party candidate Gennady Zyuganov came second with 29.21 percent of 
votes, he said on the private NTV television station. Ppposition leader 
Grigory Yavlinsky, a pro-free-market reformer, took third spot with 5.8 
percent of the vote.

"After the results are approved by the CEC (Central Elections Commission), 
they will be officially published, probably April 7," said Alexander 
Veshnyakov.

"Thirty days after official publication of these results, the president 
officially takes office on May 7, 2000," Veshnyakov said.

That would mean Putin drops the "president-elect" tag on a Sunday, but 
Kremlin officials said they did not yet know if an inauguration ceremony 
would be held that day.

When Boris Yeltsin won a second term in office following a closely fought 
race against Zyuganov in 1996, the incumbent was sworn in before both houses 
of parliament during a ceremony in the Kremlin's Palace of Congress.

Yeltsin read the oath of office from a prompter but stood immobile as 30 
cannon shots rang out and made no further comment during the 16-minute 
ceremony, fuelling intense speculation about his health.

It later transpired Yeltsin had suffered a series of heart attacks before the 
second round of the ballot, and that November he underwent multiple heart 
bypass surgery.

Health problems dogged Yeltsin's second term in office, but such concerns are 
unlikely to trouble Putin. The youth and vigour of the 47-year-old judo 
enthusiast was an important factor in his victory.

The win crowned an extraordinary eight months for the man plucked from the 
half-shadows of the FSB domestic intelligence agency he headed to become 
Yeltsin's last prime minister in August 1999.

On assuming office Putin was forced to tackle insurgency by Chechen fighters 
in the southern Russian republic of Dagestan, which borders the breakaway 
republic of Chechnya.

The conflict dragged into September, when Russia was stunned by a series of 
bomb attacks on apartment blocks across the country which left close to 300 
dead that month.

Moscow seized on the bombings as a pretext to send thousands of troops backed 
by armour and heavy artillery into Chechnya on October 1 at the start of an 
"anti-terrorist" operation that, six months later, is still in progress.

The former KGB spy transformed the bombings and the Chechnya crackdown into a 
national crusade for the very soul of Russia, which united behind his 
resolute leadership and sent his popularity ratings into orbit.

A vicious campaign by state-controlled television systematically sank the 
ambitions of his presidential rivals.

By the time Yeltsin announced his eve of millennium resignation, Putin was 
already the runaway favourite to replace the ailing Kremlin chief, a lead he 
never lost.

Putin's triumph last month came despite having offered only the vaguest of 
policy platforms, a witches' brew which appealed to voters across the 
political spectrum.

*******

#2
Rossiiskaya Gazeta
April 4, 2000
[translation from RIA Novosti for personal use only]
THE DICTATORSHIP OF THE LAW DOES NOT ADMIT A DICTATOR
Competent Opinion
A strong state is a sign of a mature democracy, rather 
than "a hand of iron," holds the Russian president's spokesman 
in the Federation Council Vyacheslav KHIZHNYAKOV. Below our 
correspondent Boris YAMSHANOV interviews him. 

Yamshanov: On March 26 we put our clocks on in the hope of 
changes for the better. Do you think there will be really any 
changes in the life of the country?
Khizhnyakov: I would not confine myself to the attribute 
"any." A countdown has begun to a radical renovation. 

Y.: Is there a guarantee that as a result we will not come 
to square one? 
K.: Changes are being launched to solve vital tasks, not 
return to the past. These are ensuring an economic recovery and 
a better life for the people. The guarantee is our laws. The 
aim of the work of the representative branch of authority and 
the Federation Council is still the building of a law-governed 
state.

Y.: Do we lack laws or something else for this today?
K.: We have a dual problem in this case. Even now the 
legislative base is rather broad. But we often hear that laws 
do not work and hurry to pass new ones. The reason is that we 
do not think whether the laws being adopted can be implemented 
and hence, have to make amendments to them right away, fitting 
them for the current realities. 

Y.: Are there new laws to be examined? 
K.: There are plenty of them. There is a lot of Federation 
members who have the right to initiate laws. Many initiate laws 
without thinking first how much the country needs them, without 
thinking about their economic substantiation. This is why, in 
my opinion, it is very important to decide today which of these 
laws should be considered in the first place.

Y.: So, what prevents you from doing so?
K.: Regrettably, there is a lot of factors here, including 
ambitions, both political, party and election ...

Y.: Do you pin your hopes on the new Russian president?
K.: Yes. By his character, way of thinking and experience 
gained our president is a statesman. He has emphasized on more 
than one occasion that in power structures there can be people 
of various party affiliations, but they should forget about 
their bias and think about Russia, work for it, making up a 
team of like-minded people.

Y.: His opponents allege that he has no an economic 
program and is making a stake on sheer force, that is, power 
agencies...
K.: But aren't pensions, wages, steps to support the 
military-industrial complex, small- and medium-scale businesses 
and domestic producers economic issues? Practical deeds are 
more important than most high-sounding words. To cite one of 
our well-known authors, "one should just sweep streets, not 
campaign fort the cleanliness of a city.

Y.: Objectively, there can be no utterly idyllic 
relations between the legislative and executive branches of 
authority. How can one work out the common "rules of the game" 
in this case?
K.: One should do this on the basis of understanding the 
priority directions of the work of the government, Duma, 
Federation Council and President that are especially important 
in ensuring an economic recovery and the people's well-being. 
Such understanding already exists and a plan to pool efforts in 
tackling these priorities has already been coordinated. A joint 
session of the councils of both chambers - the State Duma and 
the Federation Council has already been held for the first time 
to adopt the plans of legislative activity agreed with the 
government.

Y.: Vladimir Putin recently stated the need to iron out 
the differences in federal and regional laws which will hinder 
the working out of a single state policy. How can this be done 
in practice?
K.: The mechanism is known and already exits. It is just 
that some liberties were admitted before. Incidentally, the 
senators are well aware of this and spoke themselves about this 
at the session of the chamber's council. The acting president 
also cited a specific example: when in Bashkortostan, he signed 
an agreement where the deviations that had existed in the 
republic were brought in line with the Federation's common 
legal field. 

Y.: New people have come to the State Duma. Has it become 
more constructive or vice versa, unpredictable? The first 
sessions have been marked by scandals ...
K.: This is due to election politicisation and an 
inevitable adjustment after renewal. On the whole, the current 
Duma is definitely more constructive. 

*******

#3
Washington Post
April 5, 2000
[for personal use only]
Putin's Ancient Foe
By Robert J. Samuelson

What we know about Vladimir Putin is that we don't know much. He won Russia's 
presidency as a strong leader who would restore national pride--a conviction 
flowing largely from his dogged pursuit of the war in Chechnya. On the other 
hand, he didn't say how he would repair Russia's crumbling economy. This is 
the critical issue on which his fate may ultimately hang.

Russia's economy defies simple labels. It isn't the old command-and-control 
Soviet system. Prices have been liberalized. Enterprises have been 
privatized. But the result isn't market capitalism. Under capitalism, the 
profit motive leads to a bigger economic pie and higher living standards. 
People create new products and improve efficiency. Production and profits 
grow. By contrast, the driving forces in Russia seem to be plunder and 
self-preservation. People protect their piece of the pie or take someone 
else's.

By some estimates, Russia's gross domestic product (output) in 1999 was only 
about 60 percent of what it was in 1989. There have been serious social side 
effects. Life expectancy has dropped dramatically. In 1989 it was 64 years 
for men; by 1997 that was 61. The economic shrinkage partly reflects the 
dismantling of the Soviet military-industrial complex. But the slump also 
results from the absence of widespread incentives to expand production.

"Privatization" transferred much of the country's wealth--particularly oil 
fields--to a few men, the notorious "oligarchs." They got so much so easily 
that their main incentive is to use it to strengthen their personal economic 
and political power. Some wealth is siphoned off to the safe haven of foreign 
bank accounts. After reviewing various studies, the Congressional Research 
Service put such "capital flight" at $150 billion between 1992 and 1999. This 
dwarfed foreign direct investment into Russia since 1992 ($12 billion) and 
all loans from the International Monetary Fund ($22 billion).

How does capital flight occur? Here are some ways, according to the CRS: (1) 
Oil is exported--and some profits are left abroad; (2) Russian companies 
deliberately overpay for imports, with excess amounts deposited in their bank 
accounts abroad.

Another problem is barter. Companies don't pay their bills, taxes or wages. 
Governments don't fulfill spending commitments. Money isn't used. Barter 
substitutes, or companies survive through complex noncash exchanges--to 
cancel taxes or obtain supplies--often arranged by middlemen. In 1998, almost 
60 percent of company payments weren't in cash, reports the Organization for 
Economic Cooperation and Development in Paris.

Barter is hugely inefficient. People can't buy what they want. They take 
what's available. It also obliterates the profit motive and encourages 
corruption. Middlemen exact bribes for arranging advantageous deals. Hustling 
skills count. Managerial skills--improving production--don't.

There's method in this madness. In a superb paper, World Bank economist Brian 
Pinto shows that the Russians have evolved an informal system for subsidizing 
unprofitable companies. To simplify slightly: Manufacturing companies don't 
pay some or all their electricity and natural gas bills; in turn, the natural 
gas and electricity monopolies don't pay their taxes to the government. The 
aim is to prevent bankruptcies and the resulting unemployment.

It doesn't work. Without higher production, the economy can't absorb the 
defense retrenchment. The central government--squeezed for taxes--trims its 
own spending. The elderly, dependent on government pensions, particularly 
suffer. Consumer spending weakens. Unemployment is about 12 percent.

There are two schools of thought on Putin. One is that he has a "window of 
opportunity," says Keith Bush of the Center for Strategic and International 
Studies in Washington. He arrives when the economy is already 
reviving--albeit from low output levels. In 1999, GDP grew about 3 percent. 
Except for a tiny gain in 1997, this was the first increase in 11 years, says 
Bush. Ironically, the explanation lies in the financial crisis of August 
1998. With hindsight, that may have been a blessing in disguise. It forced 
the country to abandon an unrealistic exchange rate that, by making imports 
cheap, punished local producers. In early August 1998, the exchange rate was 
about 6 rubles to the dollar; now it's about 28.

The resulting surge in import prices has shifted buying to Russian companies. 
In January and February, industrial production was 13 percent higher than a 
year earlier, reports Ben Slay of PlanEcon, a consulting service. Lower 
imports and higher oil prices--oil is Russia's biggest export--ballooned the 
trade surplus to $33 billion in 1999. Government tax collections have 
improved. Unpaid wages and intercompany payments have declined.

Given his popularity, Putin will get more cooperation from the Duma (Russia's 
parliament) than ex-President Boris Yeltsin, says Bush. What will Putin's 
program be? Will he challenge the oligarchs? Can he rebuild the insolvent 
banking system? Can he simplify taxes? The biggest need--as the World Bank's 
Pinto argues--is to create incentives to expand production. The informal 
subsidy system needs to be dismantled. Companies need to pay bills and taxes; 
those that are unprofitable need to erase losses--or go out of business. 
Managerial skills, not hustling skills, should count. The same is true of 
agriculture, where Russia became overdependent on imports and production has 
fallen disastrously.

Pinto says this policy worked in Poland--and can work in Russia. Will it? The 
second school of thought on Putin is skeptical. It holds that Russia is 
culturally incapable of creating a dynamic economy. Czarist Russia never 
fully embraced capitalism. A "self-indulgent aristocracy contemptuously 
[resisted] modernization," economic historian David Landes once wrote. The 
Soviet system squelched any remaining vestiges of risk-taking. The 
entrepreneurial spirit is feeble. Corruption is a way of life. By this 
school, Putin--whatever his personal qualities and ambitions--is fighting a 
losing battle with history.

"To feel optimistic, you have to compare Russia with its own past," says 
economist John Litwak of the OECD. "If you compare it with other countries, 
you get very pessimistic." 

*******

#4
April 3, 2000
Novaya gazeta
Oleg Sultanov
The Shadow Side of LUKoil
[translation for personal use only]

On August 31, 1997, Vitalii G. Shmidt, vice-president of LUKoil company,
died in his Moscow apartment. He was 48, a prosperous man from the top
managerial elite. In December same year, three months and a half after his
death, a company named VHS Foundation was established in Liechtenstein. If
one were to believe its documents, the founder of the company was Vitalii
Shmidt.

His post-mortem activities, manifested by the establishment of a special
foundation for the management of his personal property, aroused the interest
of local judiciary. Soon, the investigation uncovered the impostors who had
acted on behalf of the deceased businessman. These turned out to be Mssrs.
Semen Vaincheck and Romanos Safidis. Lawyers from the Duchy of Liechtenstein
documented this misbehavior in an official text titled
"Protektoren-Reglement der VHS Foundation" and issued in Vaduz. (Copies of
documents mentioned here and below are available at our newspaper.)

The criminal-commercial interest related to the enormous inheritance of
Shmidt began showing itself immediately after his unexpected death: in
various countries of location of his archives, funds and property, false
warrants and other documents were used by swindlers, giving them access to
his cash and other assets.

<...> The analysis of numerous documents related to LUKoil activities has
led me to the conclusion that not long before his death Vitalii Shmidt tried
to sort out the messy condition of LUKoil's foreign offshore affiliates,
whose business activities generated profits personally for the top managers
of this oil monster.

Shmidt's effort was not welcome by those of his colleagues who cared first
and foremost of the interests of their so-called "VIP group". Vice-president
Shmidt was a part of this group, and one can only guess why he ended up
antagonizing them...so much that he suddenly died from a "heart illness",
which he never suffered before. <...> The body was not examined to uncover
the reasons of his death in more detail. <...> It is no less puzzling why he
was so quickly buried by LUKoil employees at a private company cemetery next
to the Ankudinovo village of the Naro-Fominsk district of the Moscow oblast.
On this cemetery, there are only two graves, one of which is Shmidt's. By
the way, his relatives say they don't know who decided to bury him in
Ankudinovo and who set up his memorial. All this is markedly at odds with
the social status of one of the first deputies of Vagit Alekperov.

<...> One can poke the finger into any place on the world map and find there
commercial affiliates set up by LUKoil - or, rather, holes through which our
taxpayers' roubles are draining. In Ireland, this is Lukoil Internation LTD,
in Holland - Lukinter Finance B.V. and Overseas Lukoil B.V., in Austria -
Lukoil International Holding GmbH and Lukoil International GmbH, in
Britain - Lukoil Europe Ltd.., Lukoil Europe Holding Ltd., Lukoil Bunkering
Services Ltd., Lukoil Trading Ltd., Lukoil Racing Ltd., in Denmark - Lukoil
Scandinavia A/S, in Switzerland - Lukoil (Switzerland) S.A., in Moldova -

Lukoil Moldovar S.A., and so on, and so on. All these small-letter lukoils
serve only private interests of the company's supreme managers. Any serious
auditing effort would disclose that the Russian budget gets precious little
from these offshore companies. And LUKoil managers understand this very
well - they will become very sensitive to their shareholders' critique once
LUKoil attempts to enter American and German stockmarkets.

Vice-president Shmidt was well aware of that, and he wanted to establish
some order that would conform to the shareholding laws. He died, and was
buried virtually in secret. Why? We believe, the question should be
addressed to Mr, Romanos Safidis, the owner of Greek passport no.458723,
who, by coincidence, also bears the name of Ralif Safin, LUKoil
vice-president. We are still figuring out which country issued the passport
in the name of Mr.Semen Vaincheck, whose Russian name is Semen Vainshtok,
who is also former deputy to Alekperov, and currently the chief of
Transneft.

Let us hope that the Prosecutor-General's Office will assist Novaya gazeta
in solving these puzzles. In November last year, the P.-G. Office received
the appeal on behalf of Shmidt's relatives, saying that LUKoil's top brass
had acquired Greek passports for themselves and their relatives "on the
basis of falsified personal information", and then used these passports "in
an illegal attempt to take over Shmidt's property located in Liechtenstein."

Was it in Liechtenstein only? German criminal police initiated a case no. SM
105998 SJ, entrusted to police officer Fischer, which involves Anna
Brinkmann-Makowski, Shmidt's former assistant. During search, police
arrested her files with documents that shed some light on the activities of
LUKoil managers. <Details on how Shmidt's 20% of shares in an enterprise
called CAT GmbH was parceled out by his colleagues.> Documents in this
criminal case look like a practical manual teaching skills of takeover of
corporate property. <...> According to the appeal by the Shmidt family, Anna
Brinkmann did not deny that she had played the organizational role in the
parceling of Shmidt's money and other assets and claimed that she had acted
upon the instructions from Vagit Alekperov.

There is an impression that someone was just waiting impatiently for
Shmidt's death. He was buried on a village cemetery on Sept. 2, 1997, and on
Sept.9, a bank named Sparcasse Celle accepted a false payment charge and
debited Shmidt's account for several hundred thousands of German Marks.
Then, his personal credit card was used in an attempt to made expensive
purchases in New York (allegedly, on Sept. 16, i.e. 17 days after his death,
Vitalii Shmidt called from Greece to AMA Shop on East 98 in New York and
confirmed his ownership of the card).

<...> Once upon a time, Forbes Global placed Vagit Alekperov third on the
list of Russia's richest individuals. My Western colleagues can inquire
about the ways to make fortune in Russia - suffice it to contact Anna
Brinkmann of CAT GmbH, living in Celle, Germany. But shall we find a single
law enforcer in Russia, who would act like his German colleague, Fischer?

Hardly. Only now, almost three years since Shmidt's mysterious death, a
criminal investigation of its circumstances has begun in Russia. Only in
February 2000 our law enforcing agencies started to pay attention to
Shmidt's relatives who had not even been allowed by LUKoil employees to open
Shmidt's coffin. It wasn't even firmly established whether it really
contained Shmidt's remains.

Based on how quickly our prosecution authorities acted in this case, one can
surmise that by next presidential election their investigators will begin to
check evidence pointing to LUKoil managers' ownership of false foreign
passports.

*******

#5
US Department of State 
04 April 2000 
Text: Deputy Secretary of State Talbott on U.S.-Russia Relations 
(April 4: Says war in Chechnya is "defining issue" for Putin) (4,810)

U.S. Deputy Secretary of State Strobe Talbott outlined the challenges
the United States faces in pursuing its strategic interests with
Russia as President Vladimir Putin takes power and Russia continues to
take actions in Chechnya that raise "serious questions about Russia's
commitment to international norms."

"Since the end of the Cold War, first President Bush and then
President Clinton have pursued two overarching goals: first, to
increase the safety of the international environment and, second, to
encourage the evolution of Russia itself in...the right direction,"
Talbott said in testimony prepared for the Subcommittee on Foreign
Operations of the Senate Appropriations Committee April 4.

"Our posture with regard to Russia as it completes its transition of
leadership and continues its transformation as a society, polity and
international actor is emphatically not...one of wait-and-see; rather,
it's one of active advocacy and advancement of our own bottom-line
strategic objectives and interests," he said.

These interests require the United States to actively work with Russia
to reduce Cold War arsenals, stop proliferation, and build a stable,
undivided Europe while supporting Russia's efforts to "transform its
political, economic and social institutions at home and to integrate
fully with the principal international structures of the world
community," Talbott said.

Talbott said the war in Chechnya has been the "defining issue" in
President Putin's rise to power, and the way he handles it will mark a
"watershed" for Russia's attempts to "become a normal, modern,
democratic and prosperous state."

"No other development in the nine years since the collapse of the
Soviet Union has raised such serious questions about Russia's
commitment to international norms as the war in Chechnya," Talbott
said. "[T]he war has already greatly damaged Russia's international
standing. Whether Russia begins to repair that damage, at home and
abroad, or whether it risks further isolating itself is the most
immediate and momentous challenge Mr. Putin faces."

He pointed out that the March 26 presidential election in which Putin
received over 50 percent of the vote "marked the completion of
Russia's first democratic transfer of power at the executive level in
its 1,000-year history.... The ballot box is increasingly the
instrument whereby Russians choose their leaders."

It is not clear what the new president will do with his democratic
mandate, since Putin is still something of an enigma, Talbott told the
subcommittee. "Where will he lead Russia? Who -- and, what -- is
he?... Just as the new Russia is a work in progress, so its new leader
has only just picked up his tools and is trying to figure out which
ones to rely on and what to do with them."

He noted that "election monitors from the U.S. and Europe concluded
that there were no major irregularities in the electoral process."
However, democracy requires a free press, and in Russia "far too much
power resides in media outlets controlled by a select few, including
the powers-that-be in the Kremlin itself. The emergence of a more
diffuse, balanced and genuinely independent media remains a key
challenge in deepening democracy's roots in Russia over time."

Following are terms and acronyms used in the text:

-- START: Strategic Arms Reduction Treaty.

-- ABM: Anti-Ballistic Missile.

-- OSCE: Organization for Security and Cooperation in Europe.

-- CFE: Conventional Forces in Europe.

-- NATO: North Atlantic Treaty Organization.

-- USAID: United States Agency for International Development.

-- NMD: National Missile Defense.

-- WMD: weapons of mass destruction.

-- ngo: non-government organization.

Following is text as prepared for delivery:

(begin text)

PURSUING U.S. INTERESTS WITH RUSSIA AND WITH PRESIDENT-ELECT PUTIN

TESTIMONY OF STROBE TALBOTT DEPUTY SECRETARY OF STATE
April 4, 2000

Senate Appropriations Committee
Subcommittee on Foreign Operations 
Washington, D.C.

Chairman McConnell, Senator Leahy, thank you for the chance once again
to appear before you and your colleagues. Secretary Albright looks
forward to her appearance before you on Thursday next week to review
U.S. foreign policy as a whole. I welcome the chance today to discuss
the ongoing task of forging U.S. policy toward Russia. On that crucial
subject, along with our policy toward the other new independent states
of the former Soviet Union, the interaction between the State
Department and the Senate Appropriations Committee Subcommittee on
Foreign Operations has been especially frequent and intense. Our
staffs have been in regular contact on a wide array of issues,
including the details of the assistance programs that Ambassador Bill
Taylor coordinates. That's why he is here with me today.

On a personal note, Mr. Chairman, let me say that I appreciate your
willingness, over the years, to meet with me in various settings, not
just in this chamber. It was almost exactly five years ago that you
invited me to join you at the McConnell Center for Political
Leadership in Louisville for a discussion with students and faculty on
America's role in the world. On that occasion, and every other time
we've met, we've agreed on the need for American engagement with
Russia. The issue has always been the terms for that engagement. That,
you've made clear in your opening statement, is our focus again today.

This hearing could not be timelier, given the recent Russian
presidential election. President-elect Putin faces daunting challenges
in achieving what many Russians have described as their greatest
aspiration: to become a normal, modern, democratic and prosperous
state.

Progress toward that goal was uneven and difficult even before the war
in Chechnya -- another topic of this hearing. That conflict -- which
is ongoing even as we meet today -- would be a severe test for Russia
no matter who was in charge in the Kremlin. But because of Mr. Putin's
personal identification with the war in Chechnya -- because it was the
defining issue in his own extraordinary rise -- what happens there
next is of watershed importance not only for Russia but also for its
new leadership, and its new leader in particular. I will return to
this subject -- and its implications for Russia's integration into the
international community -- in a moment.

First, let me offer a few words on the March 26 presidential election.
It marked the completion of Russia's first democratic transfer of
power at the executive level in its 1,000-year history. Since the
break-up of the Soviet Union, there have been three nationwide
parliamentary elections in Russia and now there have been two
presidential elections; there have also been hundreds of regional and
local contests. The ballot box is increasingly the instrument whereby
Russians choose their leaders. Nearly 70 percent of eligible voters
participated in this last election. Russia's citizens understand that
expressing their fundamental rights is central to the nation's
continued evolution. They like to vote; they want to vote; they are in
the habit of voting.

Vladimir Putin won an outright victory with over 50 percent of the
vote. Election monitors from the U.S. and Europe concluded that there
were no major irregularities in the electoral process, but that is not
to say that the election was free of controversy. Democracy is not
just about free, fair and frequent elections; it's also about a free
press. Today in Russia, far too much power resides in media outlets
controlled by a select few, including the powers-that-be in the
Kremlin itself. The emergence of a more diffuse, balanced and
genuinely independent media remains a key challenge in deepening
democracy's roots in Russia over time.

Now that he has acquired the title President-elect, Mr. Putin has a
democratic mandate. What is not clear is what he will do with it.
Where will he lead Russia? Who -- and, what -- is he?

We've all devoted a great deal of energy to those questions. My friend
and colleague Under Secretary Tom Pickering, who served brilliantly as
Ambassador to Moscow during a tumultuous period, noted last week that
Putinology has become a cottage industry that smacks less of political
science than pseudo-psychology. Everyone is asking: is the real Putin
the KGB lieutenant colonel of the '80s, or the deputy to St.
Petersburg's reformist mayor in the '90s? What does his black belt in
martial arts tell us about how he will deal with the oligarchs, with
the Duma, with the regional governors, with Chechen guerrillas -- or,
for that matter, with the President of the United States when they
meet, no doubt more than once, in the months to come?

The short answer, of course, is that we don't know. Today, Mr.
Chairman, the real bottom line on Mr. Putin -- the honest, hard-headed
bottom line -- is that there is no bottom line. It's not just that we
can't see it; he may not have gotten there himself. Just as the new
Russia is a work in progress, so its new leader has only just picked
up his tools and is trying to figure out which ones to rely on and
what to do with them.

Moreover, insofar as he has a plan in his own mind, he's not going to
unfold it to us, or to his own people, overnight. What he's shown us
so far has a placeholder, watch-this-space, trust-me quality to it. It
also has a something-for-everybody quality: something for liberals and
conservatives at home; something for Russian nationalists and
internationalists; something for statists and for freemarketeers; and,
of course, something for an attentive, curious -- and in many cases,
apprehensive -- foreign audience.

Here's what we do know: Mr. Putin has affirmed his support for
Russia's constitution and its guarantee of democratic government and
basic freedoms for Russia's people; he's declared himself a proponent
of a competitive market economy; he's promised quick action on tax
reform and investment legislation; he told Secretary Albright when she
spent three hours with him on February 2 that he sees Russia as part
of Europe and the West, that he favors Russia's integration with the
global economy, that he wants to continue the process of arms control
and U.S.-Russian cooperation on non-proliferation.

Put in those terms, his stated aspiration for his country jibes with
American interests and American policy. On that pair of subjects, Mr.
Chairman -- our interests and our policy -- there is a clear bottom
line. Since the end of the Cold War, first President Bush and then
President Clinton have pursued two overarching goals: first, to
increase the safety of the international environment and, second, to
encourage the evolution of Russia itself in what we -- and many
Russians -- would regard as the right direction, both for the sake of
their future and ours. The first goal means reducing Cold War
arsenals, stopping proliferation, and cooperating in building a stable
and undivided Europe. The second goal means supporting Russia's effort
to transform its political, economic and social institutions at home
and to integrate fully with the principal international structures of
the world community.

In both those areas, the record -- while mixed and, by definition,
incomplete -- includes real progress. Furthermore, in both those
areas, our Administration is determined to use the rest of this year
to press forward. Our posture with regard to Russia as it completes
its transition of leadership and continues its transformation as a
society, polity and international actor is emphatically not, Mr.
Chairman, one of wait-and-see; rather, it's one of active advocacy and
advancement of our own bottom-line strategic objectives and interests.

Let me now review both the record and our work plan for the period
ahead.

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

The months ahead promise to be crucial for the enterprise of strategic
arms control. Mr. Putin has repeatedly told us that he expects to win
ratification of START II in the Duma. If that happens -- and we've
been waiting for it for a long time -- we will be able to begin formal
negotiations on START III and deeper reductions of offensive weaponry.

We are doing so, as you and your colleagues know, in the context of
consulting with the Russians on an intimately related subject:
strategic defense and our conviction that the Anti-Ballistic Missile
Treaty of 1972, while part of the bedrock of the global security
order, should be amended to take account of the way the world has
changed in the past 28 years.

The American plan for a limited National Missile Defense has been a
difficult issue between us and the Russians, as everyone here knows.
The Russians have resisted the idea of any change to the ABM treaty.
They have been frank, though unconvincing, in making the case that NMD
threatens the long-term credibility of their own deterrent. We have
been equally frank not only in pushing back against their technical
arguments, but also in urging them to intensify their efforts to
cooperate with us in addressing the root cause of the problem that
gives rise to NMD: the proliferation of ballistic-missile and WMD
technology to states that could threaten both the U.S. and Russia.

One of those states -- though by no means the only one -- is Iran. For
a number of years, we've worked hard with the Russians, including at
the level of the President and the Vice President, to prevent the
transfer of lethal Russian know-how and technology to Iran. Russia has
not yet shown that it can or will effectively implement its own
export-control laws and regulations. The long episode of a
revolving-door prime ministership made it even more difficult to
develop traction in our joint, government-to-government dialogue on
this subject. That feature of Russian politics, presumably, is now in
the past. We have been working directly with Mr. Putin in all his
immediate past capacities -- head of the national security council,
prime minister and acting president. So there is some progress on
which to build, and some momentum behind the work we'll be doing with
Mr. Putin and his colleagues in the weeks and months ahead.

We have challenges in other areas of security, too, including the
control of "loose nukes." That is why the overwhelming majority of our
assistance dollars to Russia go to programs that lower the chance that
weapons of mass destruction or sensitive missile technology will fall
into the wrong hands. President Clinton's Expanded Threat Reduction
Initiative will help Russia to tighten export controls, improve
security over its existing weapons of mass destruction, facilitate the
withdrawal of Russian troops and equipment from Georgia and Moldova,
and provide opportunities for thousands of former Soviet weapons
scientists to participate in peaceful commercial and research
activities.

Throughout this decade, we have tried to work with Russia and our NATO
Allies to build a Europe that is secure, stable, and free from the
divisions that endangered our own security in the 20th century.
Progress has not been easy and we have had our share of public
disagreements with Russia, most notably during NATO's air campaign
against Yugoslavia. However, despite these disagreements, we have
built a solid track record of practical work together. Even at the
height of our dispute over the war in the Balkans, the U.S. and Russia
coordinated their diplomacy to induce Milosevic to meet NATO's
conditions for ending the bombing. Since then, Russian and American
soldiers have served side-by-side to keep the peace in Kosovo; they
are cooperating in Bosnia as well; our negotiators worked with 28
other countries to adapt the Treaty on Conventional Armed Forces in
Europe, and to reach agreement on the withdrawal of Russian forces
from Georgia and Moldova; and American and Russian scientists
collaborated in ensuring that Y2K brought no nuclear mishaps.

Let me turn now to how the U.S. is using its resources to help
Russians build a prosperous and democratic country that will be the
U.S.'s partner in meeting the challenges of this century. In this
regard, I want to stress that three-quarters of USAID's assistance for
Russia is spent on programs that do not involve the Russian
government. It is part of our effort to bolster grassroots support for
change. U.S. assistance programs have brought more than 40,000 young
Russians to the U.S. for training, they have helped 250,000 Russian
small businessmen with financing or training, and they reached out to
300 independent TV stations in Russia's provinces.

In this respect, the programs on which Ambassador Taylor and others at
the Department regularly consult with this subcommittee and its staff
have themselves evolved to take account of changing realities in
Russia. Power centers are developing outside of Moscow. Pluralism,
decentralization and greater autonomy are among the key facts about
contemporary Russia. Elected governors and mayors have created their
own political bases; entrepreneurs have built up commercial empires.
Russia today has 65,000 non-governmental organizations today; a decade
ago it had only a handful.

We are working with Congress -- and with this subcommittee -- to
obtain more funding for assistance programs that will further
strengthen many of those NGO's, start-up political parties,
independent media outlets and small businesses. There is considerable
bipartisan support on Capitol Hill for beefing up exchange programs,
such as the one that the Librarian of Congress, Jim Billington, a
source of much wise counsel to the Administration and Congress alike,
launched this past summer and also the one that Senator Richard Lugar
has proposed to train Russians in business management, accounting and
marketing. There is a new generation of regional leaders, many of whom
are committed to reform. Through the vigorous activities of Ambassador
Collins and his Embassy team, along with the creative use of our
assistance funds, we should make sure that we are reaching out across
Russia.

None of these programs would have been possible without bipartisan
support from the Congress. Members of Congress play a direct role in
engagement as well. After the Russian people elected a new, more
pragmatic Duma last December, Senators Hagel and Lieberman led a
bipartisan delegation from both houses to meet with the new Duma
leadership. Congressman Cox just returned from observing presidential
elections. Secretary Albright and the rest of us encourage you to
continue such contacts. The Duma has an important role to play in
passing legislative basis for Russia's continuing transition and
ratifying arms control agreements, like START II.

In choosing to continue engagement, we will continue to promote
Russia's international integration, to reduce nuclear danger, and to
help the Russian people consolidate their democracy and market
economy. America's relationship with Russia is based on our own
national interests, not the personality of Russia's leader.

Still, it matters who is in charge in the Kremlin. So let me return to
the question of -- and to the many questions about -- Mr. Putin. We
have listened carefully, and respectfully, to what he has said. Now,
as he moves toward his inauguration and consolidates his team, we will
have a chance -- and the Russian people will have a chance -- to see
what he does. He has some advantages: he already has an unprecedented
degree of collaborative rapport with the Parliament, which, in turn is
-- also to an unprecedented degree -- more pragmatic, that is: less
ideological, less in the grips of the holdovers from the old Soviet
Communist structures and mindset.

This development could augur well for the Russian economy. Russia has
in fact rebounded quite a bit since the crash and seeming financial
meltdown of Aug 1998. That's in part because of rising oil prices and
the export benefits of ruble devaluation. But it's also because of a
reasonably tight fiscal policy that has beaten back -- though by no
means whipped -- inflation. Mr. Putin has attached particular emphasis
to the importance of foreign investment as a motor to drive Russian
economic growth in the future. His success will depend on whether his
government can build a relationship of mutual confidence with the
international financial institutions, private capital markets and
foreign investors.

To do that, however, Mr. Putin must build on a constructive
relationship with the new Duma. Together, they may be able to put in
place the institutions of a modern economy: laws that protect
property, that ensure transparency and accountability, and that
establish a rational, equitable and progressive tax code. In this
area, we will judge Russian actions, and adjust the implementation of
our own policies, on a case-by-case basis. For example, in discharging
her obligation to protect the rights of American investors in Russia,
Secretary Albright last week decided that positive developments in the
case and clear assurances from the Russian Government to protect
investor rights and address the underlying weaknesses in the legal
framework allowed her to give a go-ahead to the Export-Import Bank for
a loan to the Russian company Tyumen Oil.

Mr. Putin and others in his government have proclaimed their
determination to improve the climate for foreign and domestic
investment in Russia. They will succeed only insofar as they are able
to make respect for the rule of law a hallmark of economic life and
commercial activity.

In this regard, Mr. Putin has identified countering crime and
corruption as one of his priorities, not least because that scourge is
a major obstacle to foreign investment. He will succeed only if he
works with the legislature to put in place legal, regulatory and
enforcement structures that instill confidence in citizens, buyers,
sellers, depositors and investors that the Russian economy is a
leveling playing field with fair, universally applicable rules -- that
it is not, in other words, a giant back alley where anyone with a
little money to save or invest is likely to get mugged.

Here the questions about Mr. Putin are more apparent than the answers.
He has said he wants to see Russia governed by a "dictatorship of
laws." That's a phrase worth pausing over, perhaps with an arched
eyebrow. Where is the accent? Is it on the D-word or the L-word? Are
the two even compatible? Does it suggest that "order" will come at the
expense of basic personal and civil liberties?

Those are questions that a lot of Russians are asking themselves
today, Mr. Chairman.

Mr. Putin has also said he wants to re-establish Russian strength. How
will he define strength? Will it be in anachronistic terms of brute
strength and the capacity to intimidate neighbors? Or will, it be in
modern terms, relevant to the demands and opportunities of an era of
globalization?

Those are questions that virtually all of Russia's neighbors are
asking themselves today. They are doing so, especially, though by no
means exclusively, because of the festering crisis in the North
Caucasus. It is to that subject I would like now to return.

The Russian authorities faced -- and still face -- a very real threat
in Chechnya. The violent secessionism and extremism of Chechen rebels,
coupled with provocations in Dagestan and elsewhere were legitimate
security concerns. We don't dispute Russia's right, or indeed its
responsibility, to fight terrorism on its soil.

But none of that begins to justify the Russian government's decision
to use massive force against civilians inside Chechnya. The numbers
speak for themselves: 285,000 people displaced, thousands of innocent
civilians dead or wounded, and thousands of homes and businesses
destroyed since last September.

The brutal war has damaged both Russia's democratic transformation and
its reputation in the eyes of the world. It represents a resurgence of
one of the worst habits of Russia's past -- including its Soviet past:
the tendency to treat an entire category of people -- indeed, of its
own citizens -- as an enemy. Grozny today is, literally, a smoking,
charred ruin and a grotesque monument to the phenomenon of overkill.
It will take decades and millions of dollars to rebuild Chechnya.

Two weeks ago I accompanied Secretary Albright from India to Geneva,
where she delivered a straight-from-the-shoulder speech to the United
Nations Commission on Human Rights. She made clear that credible
allegations about atrocities by Russian forces raise fundamental
questions about the Russian Government's commitment to human rights
and international norms; they require prompt and transparent
investigation. She pressed for Moscow to grant the International
Committee of the Red Cross unhindered access throughout Chechnya,
including to all detainees and for the reestablishment of the OSCE
Assistance Group in the region. President Clinton underscored these
concerns when he spoke to Mr. Putin on the telephone a week ago
yesterday.

President-elect Putin's decision to grant the International Committee
of the Red Cross access to detainees was a welcome first step. So was
the decision to invite United Nations Commissioner for Human Rights
Mary Robinson to visit. Unfortunately, Ms. Robinson, who was in
Chechnya over the weekend, was not allowed to visit all of the sites
that she wanted. Mr. Putin has appointed Vladimir Kalamanov as special
human rights representative for Chechnya, but to be credible and
effective, Mr. Kalamanov needs a clear mandate and the resources to do
his job.

Russian policy in Chechnya has ramifications that reach far beyond
Chechnya itself. For example, the Russian Government's decision to
clamp down on the media's ability to cover the conflict and its
treatment of Radio Liberty's Andrei Babitskiy have raised questions
about its commitment to freedom of the press in Russia as a whole.

The U.S. has also been concerned about spillover of the conflict into
neighboring Georgia since last fall. That is one reason I have made a
point of visiting Tblisi and meeting with President Shevardnadze
myself in recent months. With active encouragement by our government,
the OSCE has sent a border-monitoring mission to the border and Russia
has taken steps to lessen tensions there with Georgia. Again, these
are useful steps, but the situation bears close watching. On a related
issue, we are using our ongoing diplomacy with Moscow to urge Russia
to comply as soon as possible with the CFE Treaty limits in the
Caucasus.

Russia also has a responsibility to care for its 285,000 citizens
displaced by the conflict. The U.S. has helped to ease the
humanitarian crisis by providing $10 million to the International
Committee of the Red Cross and United Nations agencies to help persons
displaced by the conflict.

That means taking action against real terrorists, but not using
indiscriminate force that endangers innocents or re-intensifying the
disastrous war in Chechnya. It means opening a political dialogue with
the more pragmatic leaders in the North Caucasus, not antagonizing
them or their populations. It means stepping up measures to prevent
further bombings, but being careful not to make people from the
Caucasus second-class citizens, or in any other way trample on
hard-won human rights or civil liberties. It means working
cooperatively with neighboring states to deal effectively with the
underlying economic and security problems of the Caucasus, but not
pressuring those neighbors in ways that will shake their fragile sense
of their own stability and independence.

I would submit, Mr. Chairman, that no other development in the nine
years since the collapse of the Soviet Union has raised such serious
questions about Russia's commitment to international norms as the war
in Chechnya. That view is widely shared around the world. This week
the Parliamentary Assembly of the Council of Europe will consider
whether to suspend Russia's participation. At the UN Human Rights
Commission in Geneva, a number of countries are considering the
introduction of a resolution criticizing Russia for human rights
violations. Chechnya casts a shadow over the entire process of
Russia's integration into the international community.

In short, Mr. Chairman, the war has already greatly damaged Russia's
international standing. Whether Russia begins to repair that damage,
at home and abroad, or whether it risks further isolating itself is
the most immediate and momentous challenge Mr. Putin faces. In this
respect, as in others, how he answers the many questions about him
that we will touch upon today will be a major determinant in framing
the agenda of U.S.-Russian relations in the months, and years, ahead.

In conclusion, Mr. Chairman, I would return to a theme that you and I
have discussed over the years: how the very absence of clarity about
Russia's future course, including in the minds of its own people and
its own leaders, requires all the more clarity in U.S. policy and
interests. And that, in turn, requires the maximum degree of
bipartisan consultation on the terms of our engagement with Russia.
It's in that spirit that I look forward to our discussion today.

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