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Carnegie Endowment for International Peace

US-Russian Relations: Born Again Partnership or Marriage of Convenience?
Wednesday, November 07, 2001


Anders Aslund, senior associate, leading specialist on the Russian economy, and author of Building Capitalism: The Transformation of the Former Soviet Bloc

Rose Gottemoeller, senior associate, former Energy Department assistant secretary for nonproliferation and national security, and specialist in arms control issues in Russia and the other former Soviet states

Andrew Kuchins, director of the Russian and Eurasian Program whose research focuses on foreign and security policy

Anatol Lieven, senior associate, former correspondent for The Times in Pakistan and Afghanistan, and author of the Carnegie policy brief, Fighting Terrorism: Lessons from Cold War

Thomas Carothers, vice president for studies will moderate.

Transcript by: Federal News Service

ANATOL LIEVEN: Well, since I'm kicking off, I'll make some general remarks and then go to the more specific suggestions.

As some of you may know, I recently visited Pakistan again, where I used to live, and I must say that it brought home to me yet again a couple of things about our attitudes to Russia. One is that some of those who have been writing over the years that Russia is finished have not visited Karachi or Lahore or, indeed, much of the rest of the world.

We have set a standard of economic and social progress for Russia based on the idea of ourselves as normality, and therefore that Russia is in some way extremely wicked, and other things, for failing to meet this standard. Actually, Russia hasn't done too badly by the real standards of most of the world.

The second point is that those who have written, as they have so continuously, of deep civilizational differences between Russia today and the United States, or the West, have never talked with an Islamic extremist. That is a civilizational difference. Russia's differences with us are of an infinitely lower order of magnitude and may best described in many ways as tactical or even nuances.

As you can no doubt imagine, on the debate between born-again partnership or marriage of convenience, I would therefore come down very much on the side of partnership or - well, partnership is also about convenience, but I would say that the conveniences are likely to last a very long time, if only because this war in Afghanistan is going to go on for a considerable time and it's very likely to be followed by further crises with regard to the Muslim world, either growing directly from the war in Afghanistan or from the further pursuit of terrorists.

When it comes to the nature of the relationship, I have to say that, looking at the tone -- and not just of the media, of Western media, U.S. media, in particular, politicians, commentators, and indeed governments -- toward Russia over the past 10 years, from a Russian point of view is rather like being sentenced to a 10-year-long airplane journey in the company of a deranged aunt. (Laughter.) Owen Harris has written of the continually hectoring and nagging tone of so many of the public approaches to Russia.

Now, even that wouldn't have been so bad since, after all, a good many of their approaches were basically justified, if it hadn't been for the rather striking contrast between auntie's approaches to Russia's undeniable sins, and the thing which is highly characteristic of many aunts but nonetheless deeply irritating, the very different approaches to those charming nephews in Ankara or, indeed, those delightful nephews in Beijing.

There has been a tone of really almost congenital, I would say, hostility in some quarters. When I first came to Washington as a visiting senior fellow at the U.S. Institute of Peace in 1996, having come from the debacle of the first Chechen war, looking at what had happened to the Russian state under Yeltsin, I was considerably surprised to find powerful voices here still alleging that the Russian military was a threat, and not just to its immediate neighbors in the former Soviet Union, but to Central Europe and even to the West. In more recent years, those very same voices have been alleging that Russia doesn't matter, that Russia is finished, that we don't have to pay attention to Russian interests at all. The only constant has been, as I say, hostility.

And this, of course, on the Russian side, has built up a considerable legacy of distrust, which we're going to have to work pretty hard to overcome. I hope that that will begin with this summit because, to a surprising extent, given the identity of interests in some ways, there is a good deal of unhappiness in Russia, and particularly, obviously, among the security establishment, with the distance that Putin has moved toward support for America since September the 11th. And I would say that the struggle that we're now engaged in, and that is ahead of us with regard to terrorism, does dictate putting the relationship with Russia on a footing which will be not merely tactical but strategic; will try to remove this issue at least from the complex of grave issues which will be facing American security policy and Western security policies in the years to come, and taking much greater steps than we've seen to integrate Russia into Western-led world structures. Anders will talk about the economic aspect of this. I would say that, particularly if we are indeed going to go ahead with further enlargement of NATO, beginning at the Prague summit next year, we really have to start thinking, both on our side and together with Russia, of ways in which Russia can be brought into security structures, together with NATO.

We also, however, need to reconsider some of the policies that the United States has pursued on the ground within the former Soviet Union. And this, not just from the point of view of relations with Russia, but also more generally in terms of our priorities. Many, many people have asked in recent weeks why the CIA, and indeed the State Department, Pentagon, perhaps, have so few speakers of Dari and of Pashtu; Urdu too, for that matter, and Arabic. Well, one reason is that they've spent the past 10 years training speakers of Ukrainian, Georgian, and other languages. And I think it will be hard, in the wake of September the 11th, to see threats emerging from Ukraine comparable to those emerging from the Muslim world.

The opposition, prevention, and deterrence of the recreation of the former Soviet Union, as it was dubbed, became an unexamined dogma in American institutions and in the State Department in a way that was frankly always somewhat bewildering to me, given that in the last years of the Soviet Union we actually favored the continuation of that state, minus the Baltic states, of course. Now, that is not to say, by any means, that the recreation of the Soviet Union was ever a good idea or would be a good idea today. Of course not, it would be a catastrophe. But it would not be a catastrophe for the reasons that were generally believed in here in Washington. It would not be a catastrophe because this would pose a threat to vital American national interests, because this would be a new superpower, because this would be a communist ideological super-state, or any of that. No, the reason why it would be a catastrophe is that the attempt to recreate the state would spark off a set of horrendous regional crises involving clashes between local nationalisms, Soviet loyalism, and whatever, which makes it a very good thing, of course, that this is not going to happen. I mean, it never was a serious possibility; it's certainly completely out of the question now. But I think this brings home that too much of U.S. policy, far too much, in the course of the past 10 years has been focused on rolling back Russian influence, essentially on zero sum games. This is most unfortunate because, of course, it meshed with a very strong tendency on the other side to play zero sum games. In my view, we would have done much better, and we would do much better in the future, to focus instead on solutions to problems and on crisis avoidance. And I think the need for this has been dramatized in recent weeks by the situation in Georgia, and particularly Abkhazia.

The difference between a lot of the rhetoric here about the importance of Georgia and the Caucasus before September the 11th, and after, is of course very natural. It is, nonetheless, somewhat painful. We have been told for a long time that this was an area of vital American national interests. A vital interest does not change as a result of crisis elsewhere; it continues. September the 11th has made clear that a great many things which were presented as vital interests in fact were not. The problem is that it's had the effect, actually, of almost wiping off the radar screens issues which do remain important. It is important, particularly in terms of the war in Afghanistan and U.S. need for bases in Central Asia, but also in more general terms, that Georgia, in fact, should be helped to avoid crisis, that the Abkhaz conflict should not develop again into a full-blown war which could actually wreck the whole of the Georgian state and potentially involve the whole of the Caucasus in a disaster; a disaster, by the way, which might also lead to extended possibilities of basing for international Islamic terrorist groups.

But with regard to Abkhazia, we need, I think - Andy is going to say something about this - to focus, above all, on practical solutions -- as we tend to do elsewhere, actually, in the Middle East, even in neighboring Karabakh -- not on absolute goals, not on absolute principles, which have in fact proved extremely flexible elsewhere, but trying to prevent this issue turning into another full-blown catastrophe. That, in my view, will have to involve the suspension of searches for a final solution in favor of interim ones allowing as many as possible Georgian refugees to go back in security while essentially freezing the existing status quo otherwise, and guaranteeing the security interests of the Abkhaz.

Secondly, a linked issue, but indicative, I think, of the way in which U.S. policy has been made and how it can be changed, the issue of the remaining Russian bases in Georgia, both the one in Abkhazia, but also the one in Akhalkalaki, the Armenian area of Georgia. Now, the U.S. and Western policy in recent years has been to support the Georgians in calling for these bases to be withdrawn in a very short space of time. This is despite the fact that everybody who knows this issue, including Western diplomats on the ground and the Georgians themselves, know that the Georgians cannot, in fact, take over Akhalkalaki in a short space of time. It would mean an economic disaster for the area, which could well spark another ethnic conflict. This raises the issue of why we have not, in fact, sought a deal with Russia, a pragmatic arrangement of the sort, for example, which the Ukrainians have made over Sevastopol.

As I say, we've pursued zero sum games in a way which has not merely been bad, obviously for relations with Russia -- and if one doubts that, one need only imagine the reaction of the United States if any other power had pursued such policies in Central America -- but our policies have even been bad, in many respects, to the situation on the ground and the countries that we have been trying to help. So, I would very strongly urge a radical rethink, not just of the big picture of relations with Russia, but also of the specifics of U.S. policy within the former Soviet Union.

And, as I said at the beginning, considerable rethink and reexamination of our entire attitude to Russia over the years, and the intellectual goes to the moral bases of this, and I would say that this is important, not just with reference to Russia, because we are now involved in a war in the Muslim world, which is so far, fortunately, of limited geographical extent, but which could very easily become much more complex. The Muslim world is a great deal larger then Russia. It's very much more populous, it's very much more potentially hostile, and it's very, very much more alien and complicated from our point of view. I am very afraid that if we pursue towards the Muslim world the kinds of attitudes and policies that we have pursued to Russia over the past 10 years, then we are going to lose this war.

Thank you.

THOMAS CAROTHERS: Thank you, Anatol. Next, Rose Gottemoeller.


I am going to switch gears and talk about the nuclear security agenda, particularly as it relates to the upcoming Washington-Crawford summit.

Since the outlines of the offense-defense deal are already thoroughly analyzed in the press, I'm not going to spend a lot of time on that, although I'll say a few things -- and I'd be glad to further speculate during our question and answer period -- but I'd like to spend the bulk of my time looking beyond Crawford to what needs to be done to implement the deal, and also what else should be on the arms control agenda for our strategic nuclear forces. But first, a few comments and questions about what I believe will be the outlines of the offense-defense arrangements agreed to at Crawford.

First of all, I agree with I agree with what we've seen in the press, that the numbers will be in the range of around 1,750 to 2,250 for strategic offensive reductions. I always thought the deal would be around 1,500 to 2,000, that kind of range band, taking the Russian number at one end and the lowest number from our Helsinki statement at the other end of the range, but 2,000, I think, was too hard for an upper limit in the U.S. case. I think we will also see adaptation of the Anti-Ballistic Missile Treaty to permit broader testing, and perhaps a unilateral U.S. statement to declare additional test sites, perhaps a test site in Alaska for example. And finally, I believe that we will see a missile defense transparency package. I think this is a very important aspect of the deal for the Russian side. But I'd like to make two comments with regard to what we know of the package so far, or think we know of the package, and lay before you two questions.

First of all, I want to comment that I believe it is significant that we are breaking the 2,000 barrier. As you'll recall, at Helsinki, President Clinton and President Yeltsin agreed on a range band from 2,000 to 2,500, and it has always been judged a significant barrier to breach, to go below 2,000, because at that point -- traditionally it's been argued here in Washington that at that point we can no longer sustain a triad of nuclear forces: ICBMs, submarines and bombers. I think one can argue about that, but nevertheless it is a significant barrier that is being breached, and one that is, I think, causing some reverberations in various places around town. And I want to stress that I think it is a significant move, even though it is being done somewhat with smoke and mirrors. We all recognize that the step being taken is not to count systems like submarine systems in overhaul, and therefore adjustments are being made to the counting rules. So it is not, in some sense, you know, a real adjustment to the way we think about reductions, but I do think that in political, rhetorical, and other very significant public discourse terms, it is a significant barrier that is being breached, like breaching the sound barrier, for example.

Second comment is that although we will continue, I believe, in this administration, to emphasize cooperative unilateralism, or parallel unilateralism if you prefer, we will also, I think, be making some use of building blocks from existing arms control regimes. In the last week, we've seen it emerge that what seemed impossible but a short time ago, that the ABM Treaty will continue in some transitional role for some period of time. I think it's also beginning to be clear that parts of the START I Treaty, and particularly the START I verification protocol, will continue to play a role in the upcoming arrangements.

I noted when Secretary Rumsfeld met this week with his counterpart, Minister Sergei Ivanov, Ivanov said quite proudly in his public press statement, "We have a very firm, clear and precise verification arrangement worked out for our new offense-defense deal." And I take that to mean that they are making use of some existing building blocks from previous arms control treaty regimes. And I'd just like to convey that that is by no means, I think, a problem; in fact, it's quite beneficial. All of us probably have visited Rome and noted the beautiful churches that were built out of the building blocks of pagan temples. It's no problem, in my view, to take what is good from extant, legally binding treaty regimes and build them into new cathedrals, even if they spring from pagan temples. We should take advantage of what is good from the past. So that's not such a bad deal.

Now, two questions. What will be the continuing role of legally binding regimes? Will the Russians ever be satisfied with a handshake-type arrangement or a gentleman's agreement? And this, I think, has been the key question in this endgame period. Could the Bush administration convince the Russians to proceed forward, as the Russians say, "into a legal void?" And so far it seems fairly clear that the Russians have not been able or willing to step forward into a legal void, and have wanted to sustain some basis from preexisting, legally binding arrangements.

I would say in answer to that question that if the Russians will only agree to proceed on the basis of gentlemen's agreements or handshakes, if they become as enamored of flexibility with regard to the strategic nuclear forces as we are, and then I believe we should be worried because I think that will mean a significant change. There's some buried now, I think - barely buried, but just below the surface - buried rationale that the Russians are poor at the moment, they cannot modernize their strategic offensive forces, we have an additional guarantee against modernization or surge capability in the Russian strategic offensive arsenal, so we need not be worried, we can proceed forward in more or less an informal way. But I think we must consider very cautiously that kind of argument, if it is indeed the rationale underpinning our current policy towards strategic offensive reductions, because the Russian economy doesn't look quite so bad as it did a year ago, and I know Anders Aslund will have more to say on this score. Perhaps they will have more resources to put into strategic offensive forces in the future, although in no way do I want to imply that I think that would be a priority for them at the present time.

My second question is, would the administration have compromised on the ABM Treaty without September 11th? My answer is that, in my view, there was a sharp debate going on, and has been through the summer, and the outcome was somewhat uncertain, although I would argue, on the basis of my reading of the events, particularly toward the latter half of the summer, in August, that momentum was already beginning to gather in the direction of a compromise on the ABM Treaty matter. Rumsfeld visited Moscow in August, for example, and spoke publicly at that time, taking note of the fact that it would likely take five to 10 years of intensive interaction with the Russians to bring them around to this new strategic relationship; to this new strategic arrangement. He talked about a constant schedule of consultations, verification, transparency, monitoring as, he said, "anything that is needed to demystify the process."

And so, although while, as I said, I think a debate was raging and there were still many in the administration who were pushing very hard for rapid abrogation of the ABM Treaty, I think also there were beginning to be forces pushing in the other direction. And if you'd like to read further about this period, I would commend to you a piece I did in Arms Control Today that came out in early September, and really takes you up to the point of September 11th, but it will give you a good feel for what the debate looked like this summer and, I think, give you a good idea - in my view it's still consistent with where we're headed on the offense-defense deal in Crawford.

Now let's look to the future, and look first to what I believe are the untouched agenda items in the offense-defense world.

First, how are we going to implement this new agenda of reductions? We do have existing building blocks, as I said, in the START I verification protocol, which I think will be put to work, but we are going to need some new tools also. It's become somewhat fashionable in this town to talk about Nunn-Lugar, the Cooperative Threat Reduction program, as a way to give us additional transparency into elimination and reduction of the Russian strategic offensive forces. And this is very much the case and, in my view, a great boon of this program for U.S. policy in this area. We have essentially at this time an industrial partnership with the Russians in the reduction and elimination of their strategic offensive launch vehicles: submarines, ICBMS and bombers.

However, I do believe that as we proceed down this road toward a de-emphasis on legally binding arrangements -- as I said, I believe we'll continue to make use of START I, but it won't be the only tool in our kit bag -- if we reemphasize, on the U.S. side, Nunn-Lugar as a means to provide additional transparency to the United States, I think we are going to have to take account that this is not a reciprocal arrangement. It is an assistance program and has not given the Russians equal industrial partnership in elimination of U.S. strategic offensive forces. It's become a mini-issue, I would say, in Moscow. I've heard from senior Russian military strategic rocket forces people over the last few months as they became concerned about unilateralism in U.S. strategic offensive force reduction policy. They said, "Are you going to abandon START I and the verification protocol and depend only on Nunn-Lugar and the access that gives you to our strategic eliminations?" And they were concerned about it, but not hysterical. I do want to stress that they recognize there are rights inherent in an assistance relationship. They recognize that we do need to have access for reductions that are carried out with our funds, so to speak. So they're not hysterical about it, but they do want to insure that there continues to be some reciprocity applied to verification of reductions. And I think we are going to have to consider some unusual ideas to address this situation.

For example - and this is an idea I have broached in several public forums - but the notion of Russian subcontractors working for U.S. majors who are engaged in reduction and eliminations of U.S. strategic offensive launch platforms here in this country, working as they do in Russia for Bechtel, for example, in the elimination of Russian systems. As one retired strategic rockets forces officer said to me, "Even a symbolic team of this kind would go a long way toward addressing this disbalance in industrial partnership between the U.S. and Russian sides." So, they're not asking for a kind of complete Nunn-Lugar access arrangement in opposition to what we have in Russia, but a kind of symbolic right, in any event, to participate here in the United States. And I think that's worth considering as we're entering on a new kind of strategic partnership.

Second point, I believe we need to look at crossover tools from other regimes. The Open Skies Treaty - remember the Open Skies Treaty? - not many people do, but it is close to entering into force. Belarus very recently ratified the treaty; Russia ratified it not so long ago. It could provide additional confidence building in the strategic offensive arena and it is worth considering, that and other regimes, for their crossover to the problems and - not problems, but the issues we will have in implementing further strategic force reductions.

Now, finally, I'd like to turn to what are the untouched agenda items, and I don't think we need to look farther than the Helsinki Protocol, that is monitoring of warhead elimination, constraints on non-strategic nuclear weapons, and improved transparency regarding sea-launched cruise missiles.

What the administration is doing, and they're doing it, I think, with some positive aspects to it, they are blasting past START III. And they like to say that, "We are blasting straight past START III to deeper reductions, to a deeper and more intense relationship with the Russians to a new strategic framework." However, I think in doing so we are forgetting these important pieces of the START III package. So, even if we don't want to negotiate monitoring of warhead elimination right now, we could reconfirm the goal and agree of preparatory steps, for example, an agreement to exchange sensitive nuclear information, as Jim Goodby was working on in the mid-1990's, we could return to that goal, and joint work on information barrier technologies that would be critical to warhead elimination inspection work and the kind of cooperation we would have in very sensitive areas of warhead elimination inspections and monitoring.

Although these are old agenda items, and I might say one would argue that they might be considered old agenda items, quick progress on them could publicly convey the essentially different quality of our new relationship, and I think it will be a necessary part of our new relationship.

Thank you.

MR. CAROTHERS: Thank you very much, Rose.

Before turning it to our next speaker, Anders Aslund, I would like to mention that Anders has a book coming out within this month - no, November? - "Building Capitalism: The Transformation of the Former Soviet Bloc," with Cambridge University Press. And I've read parts of it and it's a major piece of work that sums up, really, 10 to 15 years' worth of ideas and thinking about this subject. So I commend it to you, and we'll probably be having an event related to it soon.

So, Anders?

ANDERS ASLUND: Thank you, Tom.

Ladies and gentlemen, I have only happy news for you today. (Laughter.) I'm going to talk about what is happening to the Russian economy, and it's all good. And the other question is, what should U.S. policy be to it?

If you look upon Russia now during the last three years, what we have seen is fundamental change. Everything you knew about the Russian economy before August, '98 is no longer true. Unfortunately, quite a bit of discussion here in Washington seems to be stuck in August, '98, and what I'm trying to tell you now is how much that has really changed. But first, about how it changed.

You know, countries come to a certain point in time when they've really undertaken all the mistakes they possibly could make, and they realize that and they learn from it. That's what happened to Russia in August, '98, because it was a big blow to society; it was a real shock. The point about the initial shock therapy in Russia, as it's called, was that it was not a sufficient shock. Russia needed another shock really to get going. The first shock broke up what needed to be broken up, and the second shock got society onto the right track, and results have been extraordinary.

For three years immediately after this crash, Russia has now had an average growth of about 6 percent. And the results are being revised upwards all the time as the statistics improve. The federal government revenues have almost doubled as a share of GDP, while the total tax burden has not increased. This means that the federation that we were told was falling apart has strongly reassured itself. This also means that finances have become much more transparent, because the federal finances are much cleaner than the regional finances, and international reserves are now $39 billion, nine months of imports. The total Russian debt is now down to 40 percent of GDP, while at the time of the crash it was more than 100 percent of GDP, partly because of ruble appreciation, partly because Russia is paying back on its debt, and indeed the defaults on the domestic treasury bills also helped. So the debt problem is basically gone.

Those who have, all along, for the last three years, said that the Russian economy remains lousy, are now arguing that this is only an effect of devaluation and of higher oil prices. But these people, for example at the beginning of last year, suggested that the growth would be 1 percent. It turned out to be 8.3 percent. Some of them, at the beginning of this year, said that there would be no growth. Now it looks as if the growth will be 5 to 6 percent. So there seems to be something missing in their predictions, at least, and I would argue that it's more profoundly in their reasoning.

And I think that the success we are seeing here is one of systemic reform. The issue is not demand, but supply. The supply in the Russian economy has, at long last, been liberalized, and the success of course lay in the financial crash. It beat up on three groups that really needed to be beaten up. The first, the oligarchs, who would now have to discipline themselves and behave; the second, the regional governors, who have lost a lot of discretionary finance, which was a major part of corruption in Russia; and the third, the communists, who wanted a halfway house, and the financial crash, as we might see as a crash of crony capitalists, indeed showed that a halfway house doesn't work.

What you have got in Russia now is as good an understanding of the market economy, both at an elite level and at the popular level, as you possibly could ask for. And that, of course, has a reflection in policies. On top of that the very crash imposed hard budget constraints on both the government and Russian enterprises. That's where they started doing what should be done. Concrete results of this is that the budget deficit, which seemed chronic, is gone, and there's a slight budget surplus instead. A hopelessly arbitrary tax system has been replaced with a flat income tax of 13 percent and a corporate profit tax of 24 percent, probably the most liberal tax system in Europe, and bond trend offsets that had cost the virtual economy, have fallen like a stone by two-thirds from August, '98 to August this year, and it's no longer a problem. This was very much a way of getting implicit subsidies from the government.

What we are seeing now as we talk of the Russian government is that President Putin has been firmly committed on virtually every economic reform you could ask for and is pushing it through. The government adopted a substantial reform program in July last year, and about half of it has now been carried out. The great reformer today is the minister of Economic Development and Trade, German Gref, and he has turned out to be a very effective policy maker. The government now has enough of technical skills, and good Russians are writing it -- you don't need Western technical assistance to get reform laws written any longer -- and the parliament is happily adopting one reform law better than the other.

What has happened? In particular, the first half of July this year, Russia adopted more reform laws than has ever been adopted, with new tax legislation, the land code giving private ownership of urban land, five laws on deregulation simplifying licensing and reducing inspections, three bank laws that the IMF had pushed for for years, currency deregulation, initiation of pension reforms, labor code, judicial reform, and structural reforms in the power sector and telecommunication, and improvement of tariff safety.

About half of what we have really asked for has been done. If we thought that was important for economic growth, then we would expect economic growth, and then we see it. But then people try to explain it by totally irrelevant factors, which are not related to transition. I was in Moscow in mid-July and saw several leading reformers, like Boris Nemtsov, and they were just stunned that so much could go through parliament, and that Putin really wanted to do it, because it required a lot of mobilization on his side.

What remains now? Judicial reform is, after the tax reform, the most important thing, and it's on its way through the Duma. Property rights have already been substantially strengthened, but a full privatization of agriculture land is needed, and Putin is pushing very hard for it, while it's extremely controversial. Corruption is hit and is undoubtedly checked by all kinds of means in this process, in particular through the cleaning up of the tax system and the public finances. The concerns are of a bank reform, which is going very slowly, and small enterprise promotion, which is not going.

Where does this leave us? I think that we are seeing now that Russia has entered a period of sustained economic growth. McKinsey Global Institute, with great foresight two years ago, said that Russia could maintain 8 percent growth a year for the next decade if it undertook tax reform, cleaned up the public finances, cut down on subsidies. All of these things have been done. And I think that we should pose the question, rather, whether Russia will have 6 or 8 percent average growth, than this bizarre discussion about, will everything just stop, which is simply not based on anything. If you get going like this, it continues.

What about oil prices falling? Well, it's not very important. Russia today, this year, has a current account surplus of 13 percent of GDP. Then Russia can continue growing well by promoting its own domestic demand, for a couple of years. Russia has huge international reserves, which are held in international banks since the Russian banks are not good enough, and this is, for some reason, called capital flight. Well, I think it's rather good that people use good banks rather than bad banks. That was really what the Bank of New York scandal was all about. And the whole former Soviet region is now booming. This region will have about 6 percent growth this year, so at the end of this year we will see that China, India and the former Soviet Union are growing, while the rest of the world is stagnant, at best.

What does this mean for the U.S. economic agenda on Russia? Obviously this facilitated enormously. Since the Russian economy is doing well, the U.S. doesn't need to do very much about a lot of things. The IMF and the World Bank and the debt issues are essentially gone, or can be left to those organizations that don't require much of U.S. policy input. I don't think that debt relief is essential, because what is happing here is that the U.S. suggests that the Germans should give money away, and that is rather complicating the position for Russia, which is coming in between, and it can aggravate Russia's credit rating more than it helps.

The main issues are, instead, trade. And I would focus only on four issues that I think are essential. The first is that the U.S. Congress should, at long last, abolish the obsolete Jackson-Vanik Amendment from 1974. I think it's absurd that a piece of law that was directed against limitations of immigration of Jews from the Soviet Union should remain. It should have been abolished at the end of '91, and I think it should be cleaned out as soon as possible. Secondly, the U.S. should declare Russia a market economy, which facilitates Russia's market access by providing Russia more legal support an anti-dumping procedures. Thirdly, the U.S. should speed up Russia's accession to the WTO. And fourthly, U.S. anti-dumping measures against Russian steel exports to the U.S. should be mitigated.

These are the four issues that really matter. The rest could be taken off the agenda. The only thing here that is really important is Russian early entry to the WTO. And generally, turning back to Anatol, it's time to realize that the Cold War is really over.

Thank you.

MR. CAROTHERS: Thank you, Anders.

And finally, we'll hear from Andrew Kuchins, who is the Washington director of our Russia-Eurasia program.


ANDREW KUCHINS: Well, excuse me for a moment while I call my broker. (Laughter.) Whenever I hear Anders talk about the Russian economy, I want to buy.

MR. CAROTHERS: Their stock market is up 40 percent this year, so you're too late.

MR. KUCHINS: I bought earlier this year.

It's a daunting task to follow my eloquent and insightful colleagues. Let me simply start by wishing everyone a happy Revolution Day. This is the 7th of November, a major holiday in Soviet history, and perhaps we have something to learn from the Russians about their holiday policy. Revolution Day remains a holiday in the Russian Federation. Not only have the Russians managed to maintain their old Soviet holidays, but they've added a bunch of new ones as well. I think there may be something to be learned there.

Is the current improvement in U.S.-Russian relations durable or will the relationship founder once again if and when the war in Afghanistan winds down and/or bin Laden is apprehended? Sergei Rogov joked last week that it would be bad for Russia if bin Laden were located too soon. Maybe. It is true that the Bush Administration has certainly reconsidered the importance of partnership with Russia in the wake of September 11 and evinced signs of greater flexibility especially on strategic nuclear issues-or so it appears. And it is also true that the Russians, and not only Russians, are concerned that the new religion the administration has found on partnership and multilateralism is only a temporary tactical adjustment in the face of the exigencies of war.

The argument that I want to briefly make this morning is that, at least from the Russian side, the improvement in ties has considerably deeper roots than the stark and tragic emergence of our common interests in destroying bin Laden and the al Quaeda network and toppling the Taliban government. The tragic events of September 11 and their aftermath have given Mr. Putin political cover for doing things at least he wanted to do anyway in order to strengthen Russia's ties with the West including the US.

We saw the momentum shifting in this direction especially with the June Ljublana meeting of President's Bush and Putin. Now let me clarify that I do not claim to have looked into Mr. Putin's soul in order to understand his most secret desires for Russia's relations with the world. But a cold-eyed analysis of Russia's current position will lead to a realistic and pragmatic calculation of Russia's interests that does not depend on telepathy, psychoanalysis, or our old Sovietological favorite, tea-leaf reading

Mr. Putin became President of Russia at a time when Russia's international status and influence were at near all-time lows with the recent memory of the August '98 financial crash; daunting social, environmental, health, and demographic challenges that would require years and decades of steady effort to resolve, military forces in a in a dangerously weakened state, and an international reputation as a lawless and deeply corrupt place. I often joked in recent years that Russia had endured such a bad 20th century that it made the experience of the Chicago Cubs look good!

Indeed, 1908, the last year the Cubs won the title, the Russian Empire was undergoing economic reforms led by Prime Minister Stolypin that held out much promise. But that went awry, and things went downhill for Russia basically ever since. Now Putin is young enough and smart enough to realize that restoring Russia's place in the world-and make no doubt about it, he is a nationalist in this sense, but that is ok-would be a generational or multi-generational effort. Earlier this year he spoke of the goal of the Russian economy growing rapidly at the rate of 7-8% (very ambitious rate even by Anders' standards!)for 15 years to reach a level of per capita income of Portugal, or one of the least well-off EU members.

He inherited a foreign policy program conceived by former Foreign Minister and Prime Minister Primakov that sought to promote a multipolar world - Primakov's mantra, maybe his nirvana - as a means of balancing against US power. These inclinations were accentuated by the deepened concern over US hegemony evinced by the Kosovo War followed up by Russia's second war in Chechnya beginning in the fall of '99.

But the problem for Russia with this multipolar world concept is that it is difficult to effectively make the argument that with the exception of its nuclear arsenal - granted a big exception, but basically not easily fungible power - and its United Nations Security Council status that Russia could qualify today as a great power, or one of these so-called poles in a multipolar world. Obviously there was the US, Europe, Japan, China, maybe India-fast rising-but Russia with a GDP ranking in 1999 of 15 between Australia and Netherlands at fixed exchange rates and 10 at purchasing power parity would not qualify.

Not since the 17th century, for example, ha anyone considered the Netherlands a great power! Unfortunately for Mr. Primakov, his multipolar world would be, as our old colleague Tom Graham would say, to some extent "a world without Russia." The other problem, of course, is that these other poles are either US allies or rising powers like China and India that, while unhappy with aspects of US hegemony, have too much to lose by trying to balance against US power and the forces of globalization.

Then Mr. Putin looks around him when he is elected President in spring 2000 and sees the ongoing war in Chechnya and a band of weak and unstable states in the Caucasus and Central Asia and concerns about Islamic extremism, terrorism, drug-trafficking further South, especially in Afghanistan. These are immediate and near-term threats. He looks east, and he sees a rapidly rising power in China on his border, a border which on the Russian side is sparsely populated, amongst the worst governed in Russia, while also being the richest in natural resources-in other words strategically valuable but increasingly vulnerable.

The majority of Russian analysts are deeply skeptical about China as a long-term partner for Russia, and the stark juxtaposition of a rising China and a falling Russia is disturbing. This is not viewed as a near-term threat like those to the south, but more of a potential long-term threat if Russia does not get its act together.

Finally he looks West, and he does not see a real threat to Russia, and in an ironic way the Kosovo war proved this. NATO nearly unraveled in a military effort against a country that had virtually no capability to retaliate against NATO members' homelands. Obviously Russia is a very different matter-it could massively retaliate against NATO. It is virtually impossible now to imagine US/NATO taking action on Russian territory without Russian agreement. The oft-heard response in Russia at the time, "first Kosovo, maybe Russia next," was an emotion-laden lament with virtually no basis in reality. Another Kosovo lesson for Mr. Putin-who would have stood with Russia if Moscow had chosen to confront NATO by actively siding with Mr. Milosevic? Maybe Belarus? Not exactly your dream team.

So in sum, the West is not a real threat, there are real challenges in real time to the South, as would be demonstrated this year, and the East is a question mark as real longer-term vulnerability could develop. You couple this external framework with major domestic problems and challenges, and the cold-eyed realist Mr. Putin can only conclude that Russia is not enhancing its security by trying to balance against the West, but rather that Russia should bandwagon with the West. Now this is not to say that Russia's relations with China, India, Iran, and a host of other states are unimportant, they are, and they will continue to be so, and there will be aspects to those relationships, especially Iran and China, that run counter to US interests. But for Russia it is not a black and white choice, as has been often threatened by some Russian elites that either you treat us right or we will ally with the Chinese.

So September 11 comes along and provides Mr. Putin an opportunity to crystallize, to consolidate his foreign policy orientation, and he makes the right decision. Now, there has been much talk in Moscow of late that Russia must get something in return for all the so-called "concessions" it has made, or its good behavior, even altruism as a few Russian commentator have put it.

Supposedly the public support for Russian cooperation in operations in Afghanistan is thin, and if Mr. Putin is not able to demonstrate some rewards for his good behavior soon then he risks being viewed as doing a Gorbachev; i.e. making a series of strategic concessions and getting little in return. Well, this seems to be dubious analysis steeped in Cold War logic. This is obviously not altruism.

Was Stalin being altruistic in fighting the Nazis in World War II? Was Alexander I being altruistic in opposing Napoleon? No, these were strategic choices, just like Putin's choice to cooperate with the international coalition against terrorism. While not the mortal threat of the Nazis or Napoleon, Putin has made a strategic choice to support the US and a broad international coalition. And it is also a misnomer to call Russian cooperation concessions. These are choices made on the basis of calculations of national interest.

I think the comparison of Putin with Gorbachev is also either misplaced or misunderstood. Gorbachev made a strategic choice to improve relations with the West because he recognized the need to reallocate domestic resources as well as to integrate the Soviet economy into the world economy to promote growth and prosperity. His problem was he did not have the where with all to reform the Soviet economy, and it was not something the West could do for him.

Consequently his choice to strategically retrench saw no reward of economic growth and so appeared to many as simply a strategic give-away. By contrast, Mr. Putin is moving the government and working with the Duma to pass a great deal of legislation to help revive the Russian economy and make Russia a more attractive place for domestic and international investment. Plus we are 10 years past the end of the Cold War, and the institutional and psychological detritus of that conflict is slowly but surely evaporating, and this will increase Mr. Putin' chances for successful reform as opposed to his predecessors.

Now what about us? We have this second chance to consolidate and institutionalize a more durable partnership with Russia; how can we make best use of it? First, let's be reasonable about our expectations. We made this mistake ten years ago when Russians interpreted the new world order as one that would be built around US-Soviet and later Russian cooperation. Given the tremendous asymmetries in power at the time which would only grow as Russian dysfunction grew, it was never realistic to expect the bilateral relationship to be the pillar for managing global issues.

Now, cooperation to fight the Taliban and bin Laden does not an alliance make, and I think it is far too premature to talk about any kind of US-Russian alliance, a NATO-Russian alliance, or frankly, even Russian membership in NATO at this time. Right now we are talking about partnership efforts to combat terrorism in a specific place; if the US wanted to take military efforts outside Afghanistan, especially Iraq or Iran, our nascent partnership with Russia, along with many other international partners, gets pretty complicated pretty fast. September 11th helped move the ball forward on a number of knotty issues, but it certainly did not wipe the slate clean-if I can mix some metaphors.

But while the slate is not wiped clean, the environment for looking to cooperative solutions to regional security issues is enhanced, and there are new opportunities. One area where the US and Russia have tended, despite rhetoric to the contrary, to look at things in a competitive, zero-sum framework has been the Caucasus and Central Asia, the not-so-newly independent states of the former Soviet Union.

Through NATO's Partnership for Peace, many states in the region have looked to the West to enhance their security and to some extent their independence from Russia. But as Afghanistan demonstrates, weak states are highly vulnerable to the interests of religious extremists, separatists, terrorists, organized crime, drug-traffickers-and in many cases these are overlapping categories-and there is no shortage of weak states south of Russia.

One in particularly dire condition today, but receiving less attention is Georgia where the conflict in Abkhazia has flared up once again and the Shevardnadze government seems to be on the ropes. In this new environment of enhanced appreciation of mutual interests could the US and Russia, and the Europeans work together to reach a peace agreement that potentially could employ NATO and Russian peacekeepers in Abkhazia? We managed to do eventually get this done in Bosnia and Kosovo-why not in other trouble spots?

The Ferghana Valley is another place that looks ready to blow. Can we find a way there to work together with regional governments to try to stabilize the situation? If China, Russia, and the four Stans-excluding Turkmenistan-can establish an organizational framework, as they have with the Shanghai Cooperation Organization, to cooperate in addressing regional security threats and this was done pre-September 11, can't we, Russians and Americans, think more openly about the possibility of NATO countries playing a more significant role in the region jointly with Russia-perhaps China as well-- in the post-September 11 environment?

A word about China and nuclear security. Both Russians and Chinese have real serious concerns about the impact of US nuclear policy, offensive and defensive on their nuclear postures. The Russians are not only concerned about the possible impact of US eventual deployment of defensive systems coupled with reductions in their arsenal possibly compromising their second strike capability at some point in the future, they are also concerned about the impact of US actions on accelerating Chinese nuclear force expansion and modernization.

The Russians are also sensitive to the possibility, indeed likelihood in the view of some strategic thinkers, of the Chinese not only reaching parity with Russia but at some point achieving nuclear superiority to Russian forces. Sure, this would not happen for at least a decade or so, but that is not that long a time for strategic thinking. I think it is time for us, and this is probably a role for non-governmental organizations at this time, to address the future of strategic stability in a trilateral framework because each of these three countries plans the disposition of their nuclear forces taking the other two into consideration, and that will not change anytime soon, I am afraid.

The Russians are understandably skeptical about how genuine the US is this time around about partnership, and I think partnership is the right word for our relationship in that it neither oversells nor undersells the import of bilateral ties nor does it convey the impression that we agree on every issue at all times-of course, we know that allies do not have that kind of relationship. It is not entirely clear how far Mr. Putin wants to go with this partnership, my gut says pretty far, but it is clear that there are domestic constituencies in Russia that are far more skeptical if not in opposition to Russian cooperation with the war on terrorism and a broader strategic partnership with the United States and the West.

Partnerships are about give and take, and in our case, as for the Russian case, the language of quid pro quo, altruism, and concessions does not seem quite right, but nor does that of one-sided, unilateral measures. I think the Bush administration has gained a new appreciation for this basic ingredient for successful partnerships, and with some carefully applied strategic generosity, we may indeed ensure that the newly born again partnership between Moscow and Washington will outlive the current crisis. There are a number of measures we can take that will be in our mutual interests and they may help to reduce or buy off sources of opposition to what I think are Mr. Putin's inclinations.

The fact that the Bush administration appears to be ready to modify rather than walk away from the ABM Treaty and to agree to a lower thresh hold for strategic nuclear weapons are both measures that the Russians would welcome.

Second, real cooperation over development and construction of missile defense systems would also be welcome as it could help support ailing sectors of Russia's military/technological R&D sectors.

Russian arms sales have been a contentious issue; can NATO markets be opened to sales from Russia, and are there promising areas for joint R&D.

Thinking creatively about debt swaps in conjunction with our European partners, especially the Germans, would be welcome. If we are really concerned about unsafe Soviet-era nuclear reactors, and we sure as hell should be, then is there some way that this debt can be applied to refitting the reactors-this might also relieve pressure on Minatom to sell nuclear technologies to places of concern.

Can some of this debt be applied to expand efforts to ensure safety of Russian nuclear weapons and fissile materials-this has been discussed much in recent days?

Russia is suffering from an epidemic of a variety of infectious diseases that is exacerbating an already near catastrophic demographic collapse. Can we think about ways to divert some of the debt to helping Russia modernize its health care system-maybe take on multi-drug resistant TB? That is costly. Less costly is support for greater efforts in health education to ensure more people are aware of the risks of some activities-notably intravenous drug use and unsafe sex.

The Russian Far East and Siberia are key for Russia's economic prosperity as well as energy security more broadly, but its physical and transportation infrastructure are collapsing-can we target development funds to support private industry efforts to develop resources in the region?

There are many potential measures that would not only demonstrate that we are serious about engaging Russia in a long-term partnership, that we are genuine in desiring that Russia's people prosper and Russia be a major international player. Obviously most of the choices that will enhance Russia's attractiveness as an international partner will be made by Russians-we can be encouraging and help to facilitate Russia's entry into the WTO, for example, but the heavy lifting will be done by Russians. But let's think hard how we can make those choices easier.

I will conclude my remarks right now and open it up so we have time for discussion.

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