#2
Carnegie Endowment for International Peace
www.ceip.org
The Reflections of the U.S. Ambassador to Moscow on the U.S.-Russian Partnership
January 9, 2003

Presentation by The Honorable Alexander Vershbow, Ambassador of the United States to the Russian Federation.
Transcript by: Federal News Service
Washington, D.C.

AMBASSADOR ALEXANDER VERSHBOW: -- Moscow is one of the most rapidly evolving capitalist metropolises on the planet, with more shopping malls, sushi bars and Mercedes dealerships opening each month than anywhere else in the world, and with the traffic gridlock to match. And they're even giving the US a good run for its money in the number of SUV's that are all over the roads.

But we are now at also the three-year mark in Vladimir Putin's presidency. And this has been a period characterized by greater stability and steady economic growth, with the institutions of a market economy and civil society continuing to set down solid, if still very shallow and very uneven roots. To be sure Russia still faces huge challenges, how to extend the economic progress beyond the energy sector and the other raw material exports, how to spread the Moscow miracle to the regions, how to cope with the declining population, escalating drug use, and incipient HIV/AIDS epidemic, and crumbling infrastructure, just to name a few. And, of course, there's the bleeding wound of Chechnya.

But the upheavals of the 1990s I think are unlikely to return. Putin's sky-high polls indicate that the public is convinced that he gets it when it comes to the economy and that he can be trusted to safeguard Russia's interests in an increasingly dangerous and uncertain world. The domestic changes have been quite impressive. A quite significant, wide range of important reforms have been enacted. We're in the fourth straight year of economic growth, although the rate of growth has declined. Inflation is down. There's a trade and budget surplus. Reform legislation, new tax, land, labor codes, a very impressive new code of criminal procedure. So, as I said, a lot of the framework for a market economy and a civil society is taking shape.

The big challenge in all these areas, of course, is implementation, which will take years and will require overcoming tremendous institutional resistance, inertia and a lot of old thinking, particularly at the regional and local level. But, still, it's a very impressive record that President Putin will be running on for re-election in March 2004. But the internal changes are significant.

The transformation of U.S.- Russian relations is, if anything, much more remarkable. 2002 was a very successful and productive year as we continue to build on and consolidate the foundation laid by the first Bush-Putin meetings in 2001, including the Washington-Crawford Summit, and the new sense of common purpose that followed the events of September 11. Putin's turn to the West, as it's called, remains the basis for the widening areas of U.S.-Russian cooperation, and it has, in my view, proven to be a strategic rather than a tactical shift in Russian foreign policy. I think Putin remains convinced, as he was even before 9-11, that Russia's interests can be best advanced through closer alignment with the West in general and the United States in particular, rather than through the zero-sum policies of the Cold War.

The number one driver in all this is economics. Russia needs foreign capital and integration into the global economic system if it is to achieve Putin's modest goal of overtaking Portugal in per capita GDP by the end of the next decade, and already he is behind schedule. It means seeking a calm international environment and removing as many irritants as possible in relations with us and with Europe that can get in the way of business. And we heard this view expressed very clearly when Putin gave the marching orders to the Ministry of Foreign Affairs and all the assembled ambassadors from the Russian Foreign Service last summer.

Apart from economics Putin has, I think, far more than many other Russian leaders, including many of the people in his own administration, he has been able to escape the ideological straitjacket of the Cold War and to see that Russia's security interests in the 21st century increasingly coincide with those of the West. And following the pattern of many of our traditional allies, he has sought to maximize Russia's influence at a time of relative weakness by working with, rather than at cross purposes with the United States, to try to leverage American power like some of our European allies do. And so this is one of the factors behind the extraordinary cooperation on terrorism, Russia's support for UN Security Counsel Resolution 1441 on Iraq, and Russia's pursuit of closer ties with NATO rather than harping on NATO enlargement.

Now we, of course, still do have some very important differences, such as over Russia's nuclear cooperation with Iran on how to deal with North Korea, and Russia continues to maintain active diplomacy in other parts of the world. It's not a total shift in the westward direction. He just completed a swing through East, South and Central Asia, Beijing, New Delhi and Bishkek, but I think his priority remains relations with us, and I think our differences are increasingly over tactics rather than reflecting a fundamental conflict of interest, at least in most cases.

Now, the exceptionally close relations between our two Presidents have helped a lot in managing those remaining differences and in keeping up the momentum of change. The relationship is based on more than just comaraderie. I think our two presidents really connected when they first met because President Putin -- excuse me, because President Bush was also determined to break out of the Cold War paradigm and he saw Russia as a potential ally in dealing with the very different set of security threats that we face in 21st century -- terrorism, proliferation of weapons of mass destruction, failed states and the like. And I think it's also a simple fact that Russia's proximity to the world's most unstable regions and to the sources of terrorism and WMD proliferation gives it the potential to be an even more important partner for the United States than some of our traditional allies.

If I have concerns, one of the most important concerns is that the political base for Putin's new foreign policy line still remains very weak, particularly among the elite. Only this summer did we see in the speech I mentioned the first efforts by Putin to explain why cooperation with the West makes sense for Russia. And there are still many voices who see our presence in Central Asia and the Caucasus, NATO enlargement into the Baltics and our recently announced missile deployment -- missile defense deployment plans as posing not just long-term but immediate threats to Russian security, and who charge that Putin hasn't received enough in return for his post-9/11 cooperation. And we still must contend with xenophobic, anti-Western feelings in the security services, the military and parts of the bureaucracy, and the slanted, even tendentious analysis and policy advice to Putin and other leaders that results from this world view. Putin still retains substantial freedom of maneuver on foreign policy, more so than on domestic policy, in my view, but he certainly must watch his back, especially in an election year.

So, given these constraints, perhaps all the more impressive that the balance sheet of Russian-American relations for 2002 is so impressive. We have continued close cooperation in the war on terrorism, building on the early support that we saw during the campaign in Afghanistan, involving intelligence sharing, air transit rights and support for basing of U.S. forces in Central Asia. We have an institutional mechanism now for keeping up the pace on counter-terrorism cooperation. The working group co-chaired by Deputy Secretary of State Armitage, his Russian counterpart Trubnikov, which will be meeting in two weeks in Moscow. This gives both political impetus from on high and keeps the bureaucratic wheels turning, especially on the Russian side.

We had the May summit in Moscow, which produced a whole series of very important deliverables -- the Moscow treaty of strategic arms reductions, the launching on an energy dialogue, first recommendations of the Russian-America business dialogue, and a document that I think has gotten too little attention but is quite remarkable -- the political declaration on the new strategic relationship, which if implemented could be the framework not just for a long-term partnership but even a long-term alliance between Russia and the United States, incorporating cooperation on security affairs as well as political, economic and people-to-people links. The spring also saw the NATO-Russia Summit and the establishment of the new NATO-Russia council, the launch of the global partnership at the G-8 Summit as a new initiative on proliferation of weapons of mass destruction.

On the economic side we granted Russia market economy status and after much sturm und drang we avoided an incipient trade war over poultry, at least so far. That's a subject that ruined my life for more than a month and a half, and negotiating with the Russian veterinarians proved be far more daunting than dealing with their arms negotiators or with even Slobodan Milosevich.

In the fall we had a first meeting of our consultative group of strategic security. We've launched working groups on potential cooperation on missile defense. I think especially significant was the progress we made in the latter part of the year in working with President Shevardnadze to help reduce tensions between Russia and Georgia and working with the Georgians to crack down on Chechen and al Qaeda linked forces that were operating in the Pankisi Gorge along the Russian, or Chechen frontier; and we've gotten them to establish high level security talks on a regular basis with Georgian officials, despite the underlying frictions in that relationship.

In October we had the Houston energy summit, which lays the groundwork for major new U.S. investments in the Russian energy sector and for Russia to become a much more significant supplier of oil to the U.S. market, which will further our goal of diversifying sources of supply and strengthening the economic base for the new relationship. Houston launched a commercial energy dialogue in which we want to get the companies on both sides to identify and solve the problems, and that held its first inaugural meeting in December. And of course, during the fall Russian worked with us closely and in good faith in the UN Security Council, to arrive at a strong resolution that makes clear to Saddam that he can no longer evade his responsibility to disarm Iraq of WMD.

So, we had a very upbeat mini-summit to cap all this cooperation in St. Petersburg at the end of November. It was upbeat despite the fact that it took place just after NATO had invited the Baltic states to join the alliance. The meeting covered the whole gamut of issues -- counter terrorism, Iraq, Iran, North Korea, NATO, the energy relationship, and sensitive issues like Chechnya and media freedom. I think the open dialogue and the positive spirit surrounding that discussion symbolized the enormous progress we've made and the shared interests that are increasingly guiding the relationship.

I wish that really did cap the year. Unfortunately, there were a few sour notes that ended 2002. Despite the solidarity that we displayed during the hostage crisis in October and our efforts in Georgia and elsewhere to reduce external support for the Chechen insurgency, there's been little movement by Russia toward a political settlement there and the forcible return of refugees to Chechnya and the determination of the OSCE assistance groups' mandate in Chechnya have only complicated the situation further. The horrific car bombing of the Chechen administration building in Grozny on the 27th and the continued violence throughout Chechnya are really at odds with official claims that life in Chechnya is returning to normal.

Also, in late December, Moscow exercised its right to terminate the Peace Corps ten-year program in Russia. Their declared rationale that Russia is not a developing country and has outgrown the need for Peace Corps training is not the issue. We can respect that decision, but unfortunately the decision was accompanied by groundless allegations by the head of the FSB about spying by Peace Corps volunteers that are not only outrageous but an ominous departure from the Moscow summit's commitment to expanding people-to-people links. And at the end of the year we saw a visit by the Russian atomic energy minister to Iran that highlighted our continued concerns about Russia's assistance that could help Teheran obtain nuclear weapons.

But still, I think we've had a very good year, but these problems of the last few weeks are a reminder that there will be some challenges in the year ahead that could erode some of the progress made thus far, and these challenges will require active efforts and creative thinking by both sides if we're to keep the relationship moving forward.

Let me close by offering a few thoughts on what I see as the biggest challenges for 2003.

The Iraq crisis is, needless to say, approaching the moment of truth. Russia is clearly eager to avoid military action and to keep the issue firmly within the UN Security Council. But Russia also does share our interest in demanding that Saddam fulfill his obligations to disarm. So, we will certainly have a lot of difficult diplomacy with Russia and many others in the weeks ahead, but I don't see any scenario that is likely to stress the relationship to the breaking point. Russia has made clear that its paramount concerns are economic and we have sought to assure Moscow that we will take their economic interests into account when we think about post-conflict Iraq. We also welcome Russian engagement in the post-conflict stabilization of the region, so I think Iraq, while it will be difficult and it will be a challenge, will not necessarily be the hardest challenge.

Other non-proliferation issues may pose greater challenges. As I noted, the Russians continue their nuclear assistance to Iran, which we believe is not only a danger to the region, but to Russia's own long-term interests. And in the coming year Russia really needs to make some fundamental choices. It needs to fully contain the proliferation risks from the light-water reactor that they're building at Bushehr. The recent agreement that they announced to take back all the spent nuclear fuel is encouraging, it's a good start, but it's not enough to contain the risks from Bushehr. And, in addition, the Russians need to crack down more effectively on other transfers of technology to Iran, both for WMD and for ballistic missiles. And if the situation doesn't get better it will likely get worse in terms of pressures for new UN sanctions and new political frictions. On the other hand, if there were a serious change for the better it could unlock very profitable cooperation in the nuclear and aerospace fields that is now blocked by the Iran nonproliferation act. So the challenge there is for Russia to make the right choice.

North Korea is an area where we think Russia could play a more substantial and positive role in bringing Pyongyang to its senses. The question is whether the Russians, and this applies to the Chinese as well, will put much more substantial pressure on the North Koreans, including economic sanctions, before it's too late. The Russians are still showing a tendency towards denial of the significance of the threat and they need to wake up fast. At the same time I think there might be ways that Russia could play the role of face-saver if and when Kim Jong Il starts looking for one. So we hope to engage the Russians more in the coming weeks to try to get them to be more part of the solution to the North Korean problem.

There are some other challenges on the bilateral security front for the coming year. The Russian military has been historically very reluctant to engage in serious military-to-military cooperation and this remains the case today, and it reflects lingering Cold War hostility, as well as a resistance to change and to reform, which is seriously overdue. Russian officers who sometimes do participate in unit exchanges or inter-academy exchanges with our military often find themselves ostracized upon their return. Their careers are sometimes finished. But dialogue on missile defense cooperation, which has been launched, still remains handicapped by Russian military suspicions that we are just trying to steal some of their technology rather than collaborate against real threats that are here today and emerging in the future. So, here, I think, both sides need to overcome inhibitions to more substantial cooperation on missile defense which could encompass joint early warning and even joint development of the architecture and the systems. One would think that the North Korean situation would be a reminder to the Russians that the need for missile defense against rogue regimes is all the more urgent.

The NATO-Russia relationship will also present challenges. In this case, we've seen a good start to the new work in the NATO-Russia council. The challenge is to move beyond the useful but modest initial projects that have been undertaken by the new forum to more substantial activities. Only then will we fulfill the promise of the new forum and avoid repeating the disappointments that set in the last time around in the earlier forum, the permanent joint council.

Missile defense cooperation and enhanced military-to-military cooperation, again, should be among top priorities for NATO-Russia work as well as bilateral military cooperation. And if we can get to some initial level of interoperability of NATO and Russian forces, we could begin to think of even bolder steps such as some kind of link between the Russian forces and NATO's new response force as a vehicle for joint training and joint exercises to meet unconventional threats. How Russia handles its relations with its neighbors will also be a challenge and could affect the bilateral relationship writ large. We'll have to stay active to keep the warming trend alive in Russian-Georgian relations, and also work to persuade the Russians to end decade-old disputes like Abkhazia and Transdniestria. We also hope the Russians will work more actively with us to support democratization Belarus and in other former Soviet republics.

On the economic and trade side a lot of the focus in the coming year will be on Russian accession to the World Trade Organization. The talks have accelerated in recent months. Russia has indicated it would like to finish the process even this year. It is very ambitious. They're moving the additional legislation through the Duma. They've launched a long overdue crackdown on violations of intellectual property rights, especially rampant piracy of compact discs and DVDs, with great fanfare, with bulldozers crushing 25,000 CDs the other day. But it remains to be seen as far as WTO is concerned whether they will be prepared to make the compromises necessary on market access to meet the US and the EU halfway, especially in key areas like financial services, telecommunications, civil aviation. Meeting the WTO standards in these areas is going to affect some very powerful monied interests in Russia, so getting those decisions in an election year is very much a challenge for the Russians, and for our part we're prepared to proceed as fast as they are, but I wouldn't make any predictions as to whether we'll get there in the course of 2003.

Expanding American and other foreign investment in Russia remains a big challenge and a source of great frustration to me. Even in the most promising area, energy, Russia has yet to deliver on critical legislation on production sharing agreements that is the sine qua non for the multi-billion dollar investments that it needs to develop the remote offshore and Arctic reserves. And more generally Russia needs to do a lot more to protect investor rights and uphold the sanctity of contracts.

Although it had some major investments over the past year, including the opening of Ford and GM plants in Russia, there are still serious doubts about the rule of law, and there's rampant bureaucratic red tape that discourages many small and medium-sized US companies from investing.

And of course there's the ever-present danger of another poultry war, which gives me nightmares at least two nights a week. The Russians recently indicated they may impose import quotas on poultry and other meat. All that will depend on the level, whether this is a good or a bad step, but I think quotas would be certainly better than further manipulation of their veterinary standards. At least we should have up-front protectionism rather than covert protectionism using the Russian vets.

For our part, of course, we still need to deliver on Russian graduation from Jackson-Vanik. This got tied in with the poultry crisis earlier this year, but it really is a relic of the Cold War that deserves to be retired, given that the Russians now have freedom of emigration and official anti-Semitism is, thankfully, a thing of the past.

I think that that is one area where we've seen enormous progress, some of the biggest challenges to the relationship will derive from how Russia handles other internal challenges. The durability of our partnership with Russia will ultimately turn on whether Russia does remain on the path of democratization, or put another way, whether America sees Russia as a country committed to the same values.

The endless war in Chechnya is not only causing a terrific human toll but it is very corrosive to Russian democracy. Continued human rights violations by Russian forces will weaken the foundation for US-Russian cooperation, as well as destroy the prestige and effectiveness of the Russian military itself. The current Russian strategy, which I call normalization without negotiations, based on a constitutional referendum and later in the year elections for local government, is unlikely to succeed without additional steps to attract the support of the civilian population, while at the same time marginalizing those who are unwilling to renounce violence and terror.

We certainly have an interest in helping Russia out of the Chechen quagmire, but Russia has been very reluctant to engage in a serious dialogue on this, but we have to keep trying and we certainly will.

The conduct of the upcoming elections, the fate of independent media, the treatment of the Catholic church and other religious groups, measures to rein in skinheads and other extremists, all these will also be bellwethers of the future of Russian democracy and factors affecting the US-Russian relationship. And the future health of Russian civil society will also hinge on whether they face up to the HIV/AIDS crisis and to the growing problem of human trafficking.

So there's a short list of challenges that I'll be trying to deal with along with my colleagues in the embassy over the coming year. Still, as we review the first three years of the Putin presidency, I think that the pace and direction of economic reform and the strategic reorientation of Russia's foreign policy demonstrates strong commitments on Putin's part to make Russia a stronger and more stable international partner, and this will be to Russia's benefit as well as to ours.

The picture on Russia's internal developments, however, is more mixed, and as I said earlier, the institutions are taking shape but the roots are still shallow, and the habits and practices of decades under communism still lie too close to the surface. So even as we take great satisfaction in the extraordinary expansion of strategic cooperation with Russia, and the growth in trade and investment, we have to keep our eye on the development of democracy and civil society in Russia, which as I said is the foundation of any enduring US-Russian partnership.

So continued support for NGO's, for judicial reforms, continued efforts to bolster the independent media, continued commitment to exchange programs that expose the new generation to the Western experience, and continued efforts to encourage the Russians to find a workable political settlement in Chechnya, all of these must and will remain key policy priorities for the United States. (Applause)

Questions?

Q Dan Horner from McGraw-Hill nuclear publications. You mentioned several times the Russian relationship with Iran on nuclear issues. I wonder if you could clarify what exactly was agreed between Russia and Iran on this latest trip by Rumyantsev and if there has been any communication between the US and Russia on that. And in particular if you could comment on the agreement to take back, or lack of agreement to take back spent fuel and on plans to build further reactors in Iran beyond the first Bushehr unit. Thank you.

AMB. VERSHBOW: Well, we stay in continuing contact with the Russians on their nuclear relationship with Iran. I should say, we're in their face all the time because we still have serious concerns. We think that the best course still would be for them to terminate the Bushehr project, but if that can't be achieved, we are pushing for a variety of steps to contain the proliferation risk.

One of the keys is the notion of taking back all the spent nuclear fuel so it can't be diverted to a weapons program, and they reached an agreement at least in principle during Rumiantsev's visit at the end of the year to -- provisions whereby the Russians would provide all the fresh fuel for the life of the reactor and then take back all the spent fuel as soon as it's cooled sufficiently. So if this is translated into a formal agreement, which we hope will be within the coming weeks, (it will be) at least a step in the right direction.

But we'd also like to see other steps because we believe the evidence is increasingly clear that the Iranians are not just interested in the peaceful use of the atom but are working on a weapons program as well. And we think that the Russians definitely should not build any more reactors, despite provisional agreements in the 90s to build a second one at Bushehr and potentially another four at other sites. So far there seem to be no serious efforts to move ahead with any of the other reactor projects. We don't have any iron-clad commitments in that regard, but we think the Russians have gotten the message that there should be no more Bushehrs.

Beyond that project, of course, there is some evidence still that other expertise and know-how is still finding its way to Iran, that some Russian specialists are still helping the Iranians obtain the know-how for other parts of the nuclear fuel cycle. So it's an area where there are some steps in the right direction but we still have very profound concerns.

Q Sarah Mendelsohn from the Center for Strategic and International Studies. I appreciate your comments about the mixed picture that we see in Russia, and I wanted to ask you to comment on a new problem, or one that arose on New Year's Eve but which continues, and that is with Irene Stevenson. Irene Stevenson is the director of a center in Moscow that is funded by USAID and was one of the four core institutions in Ronald Reagan's vision of democracy promotion. She was detained and then removed from Russia. That is, she was put on the next plane. She was arriving back from Christmas vacation and the Russians essentially turned her around.

This seems to be, if not in the letter, a violation of bilateral assistance, certainly of the spirit of bilateral assistance. Is it a violation? Is there anything that can be done about it? It makes all sorts of people who are interested in bilateral assistance a little bit nervous, as you can imagine. What is the embassy doing about it, what's US foreign policy on this?

AMB. VERSHBOW: We're very worried about this because it's not the only example of Russian efforts to scale back contacts, interaction, cooperation with us and with other countries. I mentioned the Peace Corps, which as I said it's Russia's sovereign choice to decide that it no longer needs the Peace Corps, but the insinuations about the volunteers that surrounded the decision gave one a fairly chilling feeling about old-think making a comeback, and I think Solidarity Center has indeed been one of the most successful ventures that we've had since I guess going back even to the perestroika period. Irene has done a great job. I've never heard anything derogatory about her work.

But there's no absolute right to anybody to a Russian visa any more than there's a right to an American visa, and they apparently canceled her visa at the airport. We've raised it with the Russian foreign ministry. We did the minute we heard it and we've been in touch with them and they seem to be invoking just a blanket national security rationale without giving us any explanation as to the real reasons beneath that.

So we will continue to press, we will try to turn this around. It is certainly not in keeping with the spirit of our bilateral assistance relationship, but also of the Bush-Putin relationship, including the declarations that were issued at the May summit this year.

Q Barry Schweid, AP. Most of your observations about cooperation reflect obviously a happiness that Russia's seeing things the US's way, they're coming around to our way and as an American obviously that's what you like to see. But what about Chechyna. Is the US coming around to see Russia's point of view, especially after 9/11? I don't quite -- I hear the calls for political settlement, but it seems that maybe the US is more sensitive to Russia's problem with terror.

AMB. VERSHBOW: I think our view of the Chechen conflict has evolved, and not just because of 9/11 but because of emerging facts about what's happening there. There is clear evidence of an external link between al Qaeda and some elements of the Chechen insurgency. There were al Qaeda fighters operating and training in the Pankisi gorge, so we have a conflict which has its roots as an internal separatist struggle, effectively hijacked by international terrorist networks.

We have sought to be helpful on the international terrorist aspect of this in our efforts with the Georgians, and trying to help cut off financial networks that support the insurgency, and doing all these things in the hope that it will encourage the Russians to deal with the internal side of the equation through a political process. On that side of the equation we're not particularly satisfied.

Of course we remain deeply disturbed by the excesses being committed by Russian forces, the lack of accountability for those who have committed atrocities in these so-called cleansing operations and disappearance of people in the dark of night. We think that ultimately some kind of dialogue is going to be needed to bring this conflict to an end.

But terrorism is terrorism. We certainly condemn categorically the hostage-taking in Moscow, and unfortunately some of the Chechen leaders, like Mr. Maskhadov, didn't acquit themselves very well in failing to denounce that until after the fact. We may never know exactly what role he may have had in the planning of it, but finding the right interlocutors is not easy. But there does need to be some kind of political process if this bloody war is ever going to be brought to an end.

Q Martha Wexler from National Public Radio. How much influence do you think Russia really has with North Korea, and what if anything has the United States asked Russia to do in the way of interceding in this dispute?

AMB. VERSHBOW: I think the Russians have significant influence there. They've developed a closer relationship over the last year. Kim Jong Il has paid two visits to Russia, one including a fairly bizarre cross-country train ride. So we think he will -- he listens to his Russian friends and there are developing economic links as well.

Russia may have less leverage than China, which has much more substantial economic ties and historical ties to the North, but we are urging the Russians to come down much harder on the North and to insist that they come back into compliance with their obligations under the NPT, terminate the covert uranium enrichment program and their efforts to re-start the plutonium reactor, and basically pull back from the brink.

What the Russians might offer the North Koreans as a sort of added inducement is something we could speculate about. We haven't made any specific requests of the Russians in that regard, but Russians could perhaps offer some assistance in fulfilling North Korea's energy needs. There may be other things they could do. If, as I said earlier, Kim Jong-il is looking for a face-saver -- and that's not clear, whether he really is determined to go all the way and acquire nuclear weapons. But right now the Russians have been reluctant to put -- to raise the specter of sanctions. I think that as one of the P-5 they have a responsibility to be a bit more proactive to help solve this.

Q Marvin Kalb with the Shorenstein Center at Harvard. I wonder if you could help us better understand the parameters of Putin's power. Who are the people, which are the power centers, the institutions that have the ability to stop him if he wanted something to happen?

AMB. VERSHBOW: That's a very complex question and a difficult one to answer on the record. But mainly it's difficult to answer because it's very complicated.

Putin first of all enjoys tremendous popular support, which gives him a lot of latitude. Eighty-five percent support in the polls. And people are using the term "Teflon presidency." When things go wrong, people tend to blame the prime minister and the government, and when they go right, they give Putin the credit. Every politician's dream, I guess.

But his power base-wise, first I think in the industrial elite, the so-called oligarchs who I think feel they've arrived at a kind of modus vivendi with Putin, and there are holdovers from the Yeltsin team, the so-called "family," co-existing within his immediate entourage with the new figures he's brought in from the security forces and some other old colleagues from St. Petersburg.

So he has kind of a coalition of different forces working in an uneasy consensus as his power base. But I think institutionally the security forces may be the most important pillar. I think the military is less comfortable with his pro-Western foreign policy, but there's no tradition of Bonapartism in Russia. So it's a combination of factors. One shouldn't under-estimate the importance of popular support and public opinion as Russia evolves into a particular form of democracy.

Q Molly Baker with the Fund for Peace. Russia has been named as one of the countries that are on the cusp of a new AIDS epidemic, one of the larger countries. Could you comment on what the perceptions are about this within Russia, and what the security implications would be, specifically on the military?

AMB. VERSHBOW: Russia is indeed considered to be one of the highest-risk countries for a massive expansion of HIV infection and eventual AIDS epidemic. The contributing factors are huge growth of drug use, drug abuse in the last few years. It's come a little late to Russia so they're well behind Africa and other crisis regions, but there's now escalating drug use with shared needles. It's also spreading within the prison population, and ironically, as judicial reforms advance and people aren't kept in jail as long, it means that people coming out of jail are increasing the rate of spread of HIV/AIDS throughout the population.

But sexual transmission is beginning to emerge as a more and more significant source of the spread, moving beyond the drug-using segment of the population. The official statistics, which I don't know off the top of my head, we think grossly under-estimate the current level of infection and the potential catastrophic spread that could begin to seriously impact the Russian economy and decimate the population.

There's still not yet full acknowledgement of the scope of the problem on the part of the political leadership. The Russian health establishment knows the score, but political leaders tend to point to the official statistics and are very uncomfortable talking about it, as was the case of politicians in our country and other countries in the early days.

Local leaders are beginning to tackle it more aggressively and it gives me some hope that they may get a grip on it before it's too late.

I was recently in Saratov, which may not be one of the most progressive regions in economic terms, but the local governor there, Ayatskov, has been very out-front in tackling the problem there. Local support for some NGO's and some new clinics, and there's a very impressive grassroots effort among young people to do outreach to spread understanding about the nature of the AIDS threat and how to prevent it.

But this is an area where our systems can be quite crucial. I haven't really thought about the security implications, but to the extent that it becomes as debilitating -- if it does become as debilitating for Russian society as it has been for countries in Africa then one could see the enormous demographic dislocations which could affect the viability of the Russian military, which itself is probably facing a serious AIDS menace itself.

Q Rose Gottemoeller, Carnegie Endowment for International Peace. It's very interesting to hear you talk about the new working group on missile defense cooperation, and I do think that that has had some very active and in some ways unexpected dialogue going on. I know there are other working groups that work, however, including ones that are looking at additional transparency measures beyond the Moscow treaty of perhaps some unfinished business from the Moscow treaty. I wonder if you could talk about that arena and whether you think there are agenda items on the agenda for strategic offensive reductions that will be active in the coming year.

AMB. VERSHBOW: Yes, we have agreed to get back to the subject of additional transparency measures, which we were ready to discuss in the context of the Moscow treaty but we never really got fully engaged with the Russians, and so we opted for the streamlined treaty and to defer that issue.

I'm frankly not sure when that work will get underway in earnest. I think we want to wait for ratification before we get into serious work on further elaboration to the treaty. But we already have proposals that were on the table last year which we're prepared to pick up with whenever those talks get moving.

Then there will be a whole structure to review of implementation and compliance with the new treaty, in addition to the continued implementation of the START treaty, which remains in effect as part of the Moscow package. So that, and then the missile defense are the main areas that I'm aware of. But we're always open to new suggestions.

Q Ambassador Jim Collins, Akin Company. Sandy, you listed a fairly comprehensive agenda of democracy issues and issues of internal reform. Can you say a word about what's happening to our contribution to this in terms of the budget outlook for the next fiscal year?

AMB. VERSHBOW: For assistance programs?

Q And exchange.

AMB. VERSHBOW: Well, for the coming fiscal year we're hoping to get the administration, since we're on a continuing resolution now but we hope to get levels only slightly below last year's, which were roughly $158 million, I think, for both Freedom Support Act -- all Freedom Support Act programs, including exchanges. In the coming year we may separate exchanges from Freedom Support Act and just treat them as part of the budget for worldwide exchanges under the Bureau of Educational and Cultural Affairs at the State Department, but hopefully without any impact on the overall level.

I think that over the next few years there's a growing consensus in the administration that we need to begin thinking, as we did with Central Europe, about graduation for Russia, and I think we need to -- as we move that way, as we see Russia begin to become more self-sustaining, or as other sources emerge to take the place of US-funded programs that we focus on the high-priority areas before we pack up and leave. I would argue that programs related to civil society and programs relating to HIV/AIDS are the most urgent, whereas on the entrepreneurship, small business side where we've been doing a lot of work we may be able to contemplate more rapid ramping down and shifting responsibility to the EBRD and other instruments to carry the load.

But I won't speculate on where we'll come out when the dust settles with Congress, but this is something that's right now on the active agenda, both to get this year's budget finally in place and we're beginning to talk about FY04.

Q Spurgeon Keeny, National Academy of Sciences. Could you say a word about how the recent expansion of NATO has been received in Russia and particularly the Baltics with the elite. Does this remain a major issue or has it receded into the past?

AMB. VERSHBOW: It is no longer a major issue. The issue passed surprisingly quietly, and as I said the meeting between our two presidents the day after the Prague summit was a very upbeat affair. I think the Russian leadership, at least, recognizes that there's no real threat to Russia from the membership of the Baltic states or any other Central European state in NATO and that their real security threats lie to the south and to the southeast.

I think that they see the positive possibilities of NATO-Russia cooperation as much more of an important issue for Russia's security, and I think they are quite serious this time around, again at the political level, in trying to develop a real strategic partnership with NATO. That's been facilitated by their perception that NATO is evolving in its orientation to deal with the very same threats that Russia is worried about -- terrorism, WMD proliferation, and that's making it easier for them to see NATO in a more positive light.

I say this is where the political leadership is, and I think the general public has become more and more indifferent to NATO expansion. I think they realize the sky isn't falling. But the military and the security elites may not be quite as converted, and so you still hear some grumbling and some lone voices asserting that this is a new case of capitalist encirclement and that sort of thing, but those kinds of voices are becoming, thankfully, fewer and far between.

Q Harvey Sloan with Eurasian Medical Education Program. You mentioned the AIDS crisis that's coming to Russia. You also mentioned a declining population and President Putin addressed that in his inaugural speech to the Duma in 2000. The single biggest problem is the loss of 750,000 or so people a year because of the very high death rate of men, particularly from cardiovascular disease and there's a tuberculosis epidemic. There's a crumbling infrastructure of the public health system.

Is there some interest on our part in joining in a partnership with Russia on health, and to help them develop some programs that are more effective to deal with their declining population?

AMB. VERSHBOW: There's certainly an interest. The health care system is indeed crumbling, and only very limited steps have been taken in a few areas to reverse this. It does come down, however, to resources. There may be limits as to how much the US government can do but we do encourage some local initiatives. There have been a lot of partnerships between American communities and Russian cities to develop -- to help modernize the hospitals and clinics, mobilizing some private philanthropy or corporate in support of that.

There too there are obviously going to be limits to how much we can mobilize to help Russia when we have plenty of needs at home, but within our limited resources for USAID programs we're focusing mostly on HIV/AIDS and other highly infectious diseases like TB, but the larger structural modernization of the health care sector is a bit beyond our reach. We do help at least in some specific areas.

Q Andy Kuchins, Carnegie Endowment. Thanks, Ambassador, for your very thoughtful remarks. I'm not sure to what extent you can address this question, but let me give it a shot anyway. You mentioned the political season in Russia, both parliamentary and presidential, and it seems to me at this point that the most bitter and even brutal struggle going on right now is over the restructuring of UES, the Russian electricity monopoly, and the fate of its head, Mr. Chubias. It's been alleged to me by some in Moscow that Mr. Chubias in fact over the fall was spending so much money on bribing Duma members that he was spoiling the market, and this was upsetting a number of financial figures that some people call oligarchs.

I think, though, that what happens with the restructuring of UES and the fate of Chubias does have very significant economic and political implications for Russia. I'm wondering if you could describe what the -- do you see that there are US interests in how this struggle is resolved?

AMB. VERSHBOW: I wouldn't pretend to fully understand all the different angles that lie behind this epic struggle that is indeed going on. Many believe it is pitting the Yeltsin family against the Petersburgers for control of this tremendous asset.

(Off mike remarks.)

Many people may have their own personal agendas in this process in terms of new career moves that they hope will profit themselves. I think that it does have tremendous implications for Russia, and it does have some implications for us because this is really emerging as a kind of test case for whether the corrupt and totally non-transparent forms of privatization that they went through in the early 90s are really behind them and they can do this in an open, transparent and fair way that doesn't benefit another handful of oligarchs or senior government officials who want to become oligarchs.

So that does mean it does affect what kind of Russia we're going to be partnering with over the coming years, and whether it really will be a place where our companies can do business or whether it still is going to be a place with the outer shell, the veneer of a normal market economy but still the inner workings of a far less attractive and honestly run economic regime.

Q Kempton Jenkins with the Ukraine-US Business Council. As Putin surveys the perimeter of his empire, how does he perceive the relationship with Ukraine unfolding today? Is this a bright spot in his mind or a troubling spot? While he's maintaining an arm's distance from Lukashenko's embrace, he seems to be reaching out to Kuchma with some enthusiasm while we seem to backing away from Kuchma.

AMB. VERSHBOW: I think Russia to some degree has seen the current strains in US-Ukrainian relations as an opportunity to tighten their links. They still consider Ukraine part of their so-called near abroad and have been working even before the recent troubles in our relations to strengthen their position, largely through economic leverage, by getting Russian companies to invest heavily in the commanding heights of the Ukrainian economy.

There are also very close political links between the presidential administration in Moscow and the presidential administration in Kiev. I think Russia is not going to be entirely passive in the upcoming Ukrainian election campaigns. So they see their relationship with the Ukraine as important. I think they're focusing on economic leverage as the main way to maintain and expand their influence, and for our part we don't see this as a zero-sum relationship. We have no problem with close Russian-Ukrainian economic cooperation as long as it's based on the premise that Ukraine is a sovereign state and the Russians are respecting that.

So because of our difficulties it's a very fluid situation, but the Russians are showing renewed activism in recent weeks.

MS. MATHEWS: Ambassador Vershbow has given us a detailed tour d'horizon -- not an oxymoron -- and has been awfully generous in answering nearly every question in the room. I hope you'll join me in thanking him very much.

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