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U.S. Department of State

Department Seal William B. Taylor, Coordinator of United States Assistance
to the New Independent States

Statement before the House Committee on International Relations,
Washington, DC, June 9, 1999

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Mr. Chairman, I want to thank you for the opportunity to discuss the U.S. assistance program in the NIS and the Administration's Fiscal Year 2000 request for these programs.

There have been dramatic changes in the world since my predecessor, Dick Morningstar, testified here last year. International financial tremors have shaken economies in many nations. The Russian economic crisis of last August and its reverberations throughout the region were, from the point of view of our assistance programs, major events.

Despite these changes, a central reality remains unchanged -- the future course of reform in the Eurasian region will dramatically affect U.S. national security. If these countries go down one road, our security is enhanced. Market reform; democratic reform; and the secure disposition, reduction, and non-proliferation of the former Soviet arsenal of weapons of mass destruction are obviously good for the United States. If these countries go down another road, Americans are less secure.

Last fall, the U.S. re-evaluated our approach to assisting the NIS in light of the August events to ensure that we are still meeting current challenges. You will not be surprised to hear that we still think our assistance program is a key component of U.S. engagement with the NIS countries and that this engagement is more important than ever. Engagement is more important after the events of last August both because of the immediate threats posed by the economic crisis -- including increased risks of poverty, proliferation, and regional instability -- and because engagement ensures we can influence the long-term evolution of these societies toward markets, democracy, sovereignty, and independence. We identified two principles to guide this engagement: first, balance between programs that address immediate threats and programs that promote lasting, generational change; and second, selective engagement based on willingness to reform.

First, to engage effectively, the U.S. needs a balanced set of assistance programs to meet short-term, urgent threats while simultaneously investing in generational change. There is an urgent need to step up humanitarian and non-proliferation programs to address the immediate impact of the economic crisis. At the same time, we must continue to invest in long-term political and economic reform through exchanges, support for NGOs, and Internet access, as well as through support for small and medium business and training for entrepreneurs. These grassroots programs are the cornerstone of our program. They are our best bet for promoting democracy, civil society, job-creating growth, the emergence of a middle class, and regional stability in all the Eurasian countries.

Second, we must engage selectively. In providing technical assistance, the U.S. must increasingly distinguish between countries and sectors that are more open to reform and those that remain resistant or hostile to reform. Let's be frank: while some of the countries are making good progress, economic and political reforms are not going well in others. In Moldova, Kyrgyzstan, and Georgia, commitment to reform is genuine; in Belarus and Turkmenistan, however, we see little such commitment. Technical assistance to central governments only makes sense when they want to make good use of it. Otherwise, within individual countries, the U.S. should emphasize the grassroots programs that focus on the next generation, work with the struggling private sector, and deal directly with pro-reform regions, assuming we can find some.

What do these two principles mean in practice? First, they mean countering immediate threats, which have been exacerbated by the economic crisis, while redoubling our efforts to foster positive generational change. The U.S. has responded to urgent problems by implementing programs that have a tangible impact on the lives of those most severely affected by economic hardship. Our sizeable food aid program in Russia is one example. Health programs, such as our anti-TB effort in Russia, support for orphans, and the delivery of hospital equipment across the NIS, are key parts of this effort. Another consequence of the economic crisis that exacerbated an immediate threat was an increase in the risk of proliferation of weapons of mass destruction. Tens of thousands of former Soviet weapons scientists -- unpaid and under-employed -- are targets of opportunity for rogue states. Russia still has thousands of nuclear weapons and tons of weapons materials that are tempting illicit weapons traffickers. Russia's serious economic problems, exacerbated by the August crisis, require us to enhance resources for nonproliferation and to help Russia continue to meet its arms control commitments. The multi-agency Expanded Threat Reduction Initiative (ETRI), parts of which are included in the State, Defense, and Energy Department budget requests, will help reduce security threats to all Americans and enhance regional stability.

On the other hand, U.S. assistance programs have long sought long-term, lasting change in mindsets, attitudes, and institutions in the NIS. Our investment in long-term change involves increased funding for exchanges, partnerships, independent media, and Internet access, in particular where reform is slow. These programs help change mindsets, especially among the younger generation, and help build civil society. In country after country, we hear the stories of people -- mostly young people -- whose minds and lives have been changed by their experience in America. They come back to their homes irrevocably changed, in ways that can only help our long-term relationship with these countries. We have also kept our focus on promoting the growth of small and medium-sized businesses. We continue to support a "bottom up" approach to growth and economic reform. In both the democracy and economic arenas, our assistance must continue to support the expansion of lasting constituencies for reform.

The second principle in practice means distinguishing between countries that have embraced reform and those that resist it. The U.S. continues to direct technical assistance toward governments and sectors that are most reform-oriented, and we have begun to cut back more severely in areas where reform is not progressing. For example, we have recently increased funding for land privatization in Moldova and financial sector reform in Kyrgyzstan. That is because we see the recipient countries' willingness to make tough decisions and implement positive change. On the other hand, we have redirected our agriculture programs in Ukraine away from the central government toward pilot regions where we will work with the private sector. The U.S. has largely cut off our funding for agriculture and energy reform in Russia because we see very limited prospects for our programs to have a significant short- or medium-term impact on developments in these sectors. We have suspended our support to the election commissions in Kazakhstan and Uzbekistan. The limited size of our programs in Belarus and Turkmenistan reflects those governments' resistance to reform.

Finally, because U.S. programs are focused on the grassroots, they retain and even increase their value in important countries where we may not agree with specific foreign policies of the host governments -- policies such as Russia's nuclear cooperation with Iran. The people-to-people, generational focus of many of our programs insulates them from detrimental policy and leadership changes.

ADDRESSING URGENT NEEDS -- HELPING PEOPLE
AND PREVENTING PROLIFERATION

Mr. Chairman, I will now discuss in a bit more detail how our program for this fiscal year has addressed some of the urgent needs that were exacerbated by the financial crisis. These fall mainly into two categories: humanitarian programs and security or non-proliferation activities.

When we reviewed our assistance programs in the wake of the August 1998 financial collapse, it became clear immediately that some problems had been exacerbated by the crisis. We were particularly concerned that the dramatic reduction of real incomes would increase the risk of hardships for vulnerable populations and the temptation for proliferation of WMD or related expertise to rogue states. The analysis confirmed that certain groups were likely to suffer disproportionately, and we sought to adjust our programs to address their needs. Because these threats remain very real, a considerable part of the FY 2000 budget request has been structured to deal with the relatively short-term humanitarian and security consequences of the financial crisis.

Urgent Needs: Humanitarian Programs

Government-to-government assistance in the form of food commodity had not been a substantial part of the U.S. Government humanitarian portfolio in Russia between 1994 and 1998. The last large food assistance package was provided through USDA in 1992-93.

The Russian Government requested food aid last fall when it became clear that the financial crisis and the worst grain harvest since 1953 would lead to serious shortfalls. Our own analysis confirmed that these two -- largely unrelated -- calamities had indeed combined to create a number of new risks -- first, that the poorest populations and regions in Russia would be unable to afford or obtain enough food; and second, that overall grain supplies would reach dangerously low levels prior to the 1999 harvest. In response, after very careful consideration of the available options, the U.S. decided to provide 3.15 million metric tons of food valued at over $1 billion. The package includes:

  • 100,000 metric tons of nonperishable food to be donated to particularly needy Russians through private voluntary organizations (PVOs);
  • 1.7 million tons of wheat provided free to the Government of Russia under section 416(b), including 400,000 tons to be distributed directly to institutions and groups in need; and
  • 1.32 million tons of commodities, including beef, pork, poultry, corn, rice, wheat and soybeans, to be provided to the GOR against a concessional loan under P.L. 480, Title I.

The U.S. is also donating 15,000 tons of corn and vegetable seeds to the Government of Russia for this year's planting season and 30,000 tons of non-fat dry milk to the Government of Russia. Given the risk of diversion or corruption, we have developed an extensive program to ensure accountability and oversight. So far the U.S. has exported about one million metric tons to Russia under the food aid program. An additional million tons have already been purchased and are currently being scheduled for shipment. Our bulk food shipments and those of the European Union, with which we are cooperating closely, are helping Russia to maintain food security and stability in this difficult period. With the exception of the food being distributed directly to needy populations, our food is being sold through normal commercial channels at market prices; the proceeds will be deposited in Russia's Pension Fund to help reduce arrears in payments to one of Russia's most vulnerable groups.

In analyzing the potential consequences of the crisis on needy groups, it was clear that the ability of some NIS citizens to purchase fuel for winter heating would be adversely affected. At the same time we had some experience -- mostly negative -- in purchasing fuel for the direct use of NIS governmental entities. We therefore worked energetically last fall to design targeted programs that would work through non-governmental social service organizations to identify and assist needy people to pay their own energy bills. I take pride that the United States was able to provide such assistance to needy people in Georgia and Moldova during the past winter. The programs were effective, well publicized, and much appreciated.

The U.S. has developed a strategy to assist Russia in responding to the alarming increase in rates of tuberculosis -- especially multi-drug resistant tuberculosis. The U.S. Agency for International Development (USAID) has launched a new program involving the Centers for Disease Control, the World Health Organization, the Red Cross, and other donors to introduce the most appropriate modern treatment methods in Russia. We are focusing initially on pilot projects in three oblasts. Because the problem of tuberculosis in Russia is so serious we have made this a priority not only for our own assistance program but also for discussions with other donors.

My office facilitates the delivery of DOD excess property and donated humanitarian commodity to those most in need in the NIS. Last year, we delivered over $200 million in such assistance to the countries of the NIS region. Most of this assistance is in the form of medical commodities and is aimed at easing the plight of targeted groups who are suffering most during this period of transition. The remainder is used in responding to immediate needs resulting from either natural or man-made emergency situations (floods, drought, regional conflicts).

For example:

  • We established programs in Azerbaijan that provided over $25 million worth of medical and food assistance, focused on refugee and internally displaced (IDP) populations.
  • Over $10 million in medical and emergency assistance (tents, sleeping bags, blankets, etc.) was shipped to newly displaced populations (35,000) in the Gali/Zugdidi region of Georgia.
  • During the year, my office focused emergency assistance on several regions in the NIS devastated by flooding -- Tajikistan, Kyrgyzstan, Yakutia in Russia, and Zakarpatia in Ukraine.
  • Assistance through more than 100 U.S. private volunteer organizations (PVOs) large and small was a key part of our program in FY 1998. The U.S. funded over 66 humanitarian airlifts delivering high-value pharmaceuticals to the NIS and delivered over 1,044 containers packed with food, medical supplies and equipment, and clothing. Such assistance continues to be made available to the countries of the NIS to aid them during their critical period of transition to self-sustaining market economies. It should diminish as developmental assistance increases. As an example, when we began our Freedom Support Act (FSA) assistance program in Armenia in 1992, approximately 90% was in the form of humanitarian programs. In FY 1999, humanitarian assistance to Armenia is programmed to be approximately 30% of the overall U.S. Government (NIS assistance) budget.

Hospital packages: Since 1992, working with DOD, we have delivered 13 equipment and medical packages valued at over $190 million to hospitals in the NIS. The success of this program can be attributed in great part to the personal involvement of U.S. military teams and their close link to USAID's hospital partnership program. These hospital packages have a direct and immediate impact on the health and welfare of people in the NIS.

Donations through Private Volunteer Organizations (PVOs): Since 1992, we have worked in partnership with over 400 U.S. PVOs from all 50 states to deliver privately donated humanitarian assistance to the people of the NIS. Using FSA transportation and grant funding, the Department of State this past year leveraged the delivery of over $140 million in critical humanitarian assistance -- especially in the field of critically needed pharmaceuticals such as oncologicals and cardiovascular medicines.

Urgent Needs: Security and Non-Proliferation

We have made significant progress in addressing the threat of potential proliferation of weapons of mass destruction, related materials, and expertise from the New Independent States. However, the Russian economic crisis of August 1998 combined with wage arrears and the ruble devaluation exacerbated the already difficult economic conditions faced by many NIS military personnel and former Soviet WMD scientists. This has increased the risk of illicit transfers of sensitive weapons, weapons delivery systems, materials, technology, and expertise across already porous borders. Tens of thousands of scientists and technical experts with critical weapons of mass destruction expertise are vulnerable to offers to transfer their "know-how" to terrorists or rogue states. Although most of these highly educated specialists are probably patriotic and responsible, a mere handful could do very real harm to our national security. As DCI Tenet recently testified, we may be facing the most serious proliferation threat since the Soviet Union broke apart. Additionally, the financial crisis has created serious new obstacles to military downsizing and reform.

Our NIS assistance has taken up this challenge through a comprehensive, carefully targeted multi-agency effort, the Expanded Threat Reduction Initiative. The Administration has requested FY 2000 Congressional support for a total of $1 billion in State, Defense, and Energy Department funding to address the highest priority security, arms control, and nonproliferation assistance requirements in the NIS. We are seeking a total of $250 million in foreign operations funds this year for the State Department programs under the multi-agency Expanded Threat Reduction (ETR) Initiative. These programs serve our vital national security interests. They contribute to economic transition and structural reforms as well as to reducing risks of proliferation of weapons of mass destruction, weapons delivery systems, materials, technology, and scientific and technical expertise. These programs build upon already successful Department of State nonproliferation programs and are directed at engaging weapons scientists to prevent the proliferation of weapons expertise, targeting former Soviet biological weapons scientists to redirect their efforts to civilian agricultural and public health research, enhancing export control capabilities to prevent weapons smuggling, and facilitating ammunition disposal and equipment removal to accelerate Russian troop withdrawals from Moldova and Georgia.

Along with programs sponsored by the Departments of Defense and Energy, State Department programs have already done much to protect our security. The U.S. has gained unprecedented transparency and access through these programs to the former Soviet weapons complex. Over 30,000 former Soviet weapons scientists have been provided peaceful, civilian research opportunities -- a desirable alternative to proliferating their knowledge.

This is not enough. We remain convinced that increased support is critical to help dismantle and safeguard weapons of mass destruction and their delivery systems, secure and dispose of weapons materials, and reduce the threat of weapons and weapons-expertise proliferation. Expanded Department of State programs under the Expanded Threat Reduction Initiative will help provide the needed support.

While the highest assistance priority for the U.S. remains programs designed to facilitate weapons destruction and dismantlement to meet arms control requirements, we also have focused increased attention on efforts to strengthen export control systems and redirect former Soviet WMD scientists and technical experts to peaceful research and development activities.

The State Department continues to work closely with the Departments of Commerce, Defense, and Energy and other USG agencies in coordinating complementary, mutually reinforcing programs to enhance the export control capabilities of NIS governments. The Department of State provides equipment and training to NIS export control enforcement agencies designed to prevent, deter, and detect potential proliferation of WMD and weapons materials. Moreover, it provides technical assistance to NIS governments to establish effective export control regimes. These efforts have paid off increasingly over the past year, with the adoption of export control legislation, the commitment of several NIS governments to the adoption of international control lists and international standard export control systems, and the enhancement of enforcement. In part due to U.S. engagement, governments have intercepted several shipments of proliferation concern, including items bound for Iran. We appreciate the support of Congress for this important effort, and the attention paid by Congressional delegations visiting the NIS region to underscore the importance of nonproliferation and export controls.

Over the past 2 years, a significant portion of our export control assistance has been directed at carrying out a new program to provide export control and border security assistance to Georgia. In 1998, at Congressional direction, the State Department placed a high priority on establishing a Georgia Border Security and Related Law Enforcement assistance program to enhance Georgia's border enforcement, export control, and law enforcement capabilities. This effort was undertaken as concerns increased about Georgia's ability to control and patrol its borders and ports effectively. As the Russian border guards depart, they are leaving little in the way of equipment or infrastructure. Consequently, the State Department funded this program at $17 million in FY 1998 and $17 million in FY 1999. Our FY 2000 budget request seeks $12 million for the Georgia Border Security Program. Over 60% of these program funds are dedicated to procurement of urgently needed equipment to support the Georgian Border Guards and Customs Service. Equipment provided to date has included radiation pagers, basic law enforcement equipment, vehicles, patrol boats, a helicopter and light aircraft for patrol and re-supply missions, and barracks. We also have funded badly needed repair and overhaul of Border Guard Coast Guard vessels. U.S. funds also will support a phased approach to the design, development, and installation of a command, control, and communications (C3) system to support Border Guard and Customs Service operations across Georgia. A C3 system will play an integral role over the long-term in enhancing Georgia's overall border security and law enforcement capabilities. Another important element of the program is strengthening Georgia's system of export controls. Georgia's accomplishments in this area in the short period of our engagement will be showcased for its neighbors later this year at a major regional export control forum.

The FY 2000 budget request significantly increases funding for other export control assistance to the NIS. These funds will not only allow us to continue these successful efforts in Georgia, but will allow us to expand greatly our export control assistance to Russia, Ukraine, and several other NIS. Whereas in previous years much of our export control assistance was aimed at developing modern laws, regulations, and licensing procedures -- an essential structural step -- our current requests are increasingly for programs targeted at effective enforcement measures in NIS countries, including training and hardware. In Russia, for example, the Department of Commerce is engaged in an extensive program to install internal compliance programs (ICPs) in a broad range of Russian enterprises producing military or dual-use products, in order to foster industry compliance with and self-policing of Russia's export control laws and procedures. Commerce also is working closely with the Department of Energy on a coordinated effort to push ICP installation at Russia's nuclear institutes and enterprises. Current programs, if funded, would facilitate ICP installation at approximately 200 key Russian enterprises by the end of FY 2000. The Department of Energy has plans to facilitate installation of modern radiation detectors at critical Russian border points, and the U.S. Customs Service is working with its Russian counterpart to improve effective and professional export control law enforcement. While significant problems remain, we are making our best effort to make progress on this key non-proliferation issue.

The State Department's Science Centers program continues to make significant strides in creating opportunities for former Soviet WMD scientists to pursue peaceful research. Together, both the International Science and Technology Center in Moscow and the Science and Technology Center in Ukraine have generated more than 700 projects that engaged over 24,000 NIS scientists since 1994. U.S. contributions to these Science Centers are leveraged by substantial contributions by other members (e.g., Canada, Norway, Sweden, Japan, EU) as well as a growing "Partners" program that has private industry, foundations, and other interested organizations funding research and development activities through the Science Centers. Additionally, State Department funding of the U.S. Civilian Research and Development Foundation (CRDF) has enabled it to sustain its bilateral cooperative scientific research programs that engage former weapons scientists as well as civilian scientists in the NIS. CRDF has funded over 300 projects engaging 2,000 scientists and supported first-time visits to the U.S. by over 190 NIS researchers for projects with possible marketplace applications.

The State Department closely coordinates these programs with the Department of Energy's Initiatives for Proliferation Program (IPP) which has funded 112 projects involving more than 4,400 former WMD scientists in the NIS engaged in research and development activities with the potential for commercialization. Additionally, the Department of State has been involved in the development of the Department of Energy's new Nuclear Cities Initiative which is designed to provide sustainable employment for thousands of former nuclear weapons scientists, technicians, and others in the closed nuclear cities who will be displaced as Russia downsizes its nuclear weapons infrastructure.

In FY 1998, the State Department took the lead in a multi-agency initiative to promote scientific collaboration aimed at increasing the transparency of former Soviet biological weapons facilities and redirecting their scientists to civilian commercial, agricultural, and public health activities. This initiative includes the Science Centers, CRDF, DOE's IPP program, DOD's CTR program and the Departments of Agriculture and Health and Human Services. All project activity is subject to stringent interagency oversight by a working group formed explicitly for this purpose.

As these science and technology nonproliferation programs have grown across the U.S. Government, we recognized the need to increase coordination between relevant agencies to ensure we are not funding the same project from different institutes. We also grew concerned about issues such as projects that might have dual use implications. So we are coordinating closely between agencies on project review and approval. In addition, we are coordinating on project audit and monitoring. A problem in an institute can affect all programs at that institute.

INVESTING IN THE NEXT GENERATION: SUPPORTING THE TRANSITION TO DEMOCRATIC GOVERNANCE AND MARKET ECONOMICS

Next Generation: Democratic Development

Last fall's program review convinced us that our previous shift towards grassroots, people-to-people democracy programs was the right decision and that we should continue to restructure our programs along these lines. We are convinced now more than ever that building democracy in the NIS countries will be a long-term, generational process. Grassroots programs that change people's mindsets are the best vehicle we have for promoting reform. I'd like to draw your attention to a few examples of these types of programs, which we plan to increase in the future.

First and foremost, the U.S. will continue to expand exchange programs, because we believe they are the most effective mechanism for promoting long-term change and in some cases, even short- and medium-term change. Seventy-one thousand NIS citizens have visited the U.S. on exchanges since the beginning of our program -- roughly a third being high school, college, or graduate students. Exchanges promote a generational transition to democratic principles simply by exposing Russians to the American system. Exchanges also provide training in democratic and market-related skills and build lasting institutional and personal linkages.

There is also empirical evidence that exchanges work. Surveys show that returned high school exchange participants are more supportive of democracy and market ideas than their counterparts. And as anyone who has met these NIS high school exchange students will attest, they are bright, they ask the right questions, and they are trying to tackle their countries' problems. Studies also show that participants in business-oriented exchanges are less likely than their counterparts to believe that Russia is going in the wrong direction and more supportive of rapid economic reform and foreign investment. The entrepreneurs cited the moral support and validation they received by working with American businessmen as crucial and see the exchange programs as highly instrumental in fostering a critical mass of reform-minded Russians.

One example of the lasting power of exchanges is the American spirit of volunteerism. Exchangees, especially the younger generation, have adopted what they have seen of American ideals of community service back home. In Moscow, alumni recently cleaned up a local hospital and assisted orphanages and handicapped children in collaboration with the Ronald McDonald Foundation. In Azerbaijan, 10 high school students back from a year in the U.S. took their newly polished English skills to 4 provincial cities in Azerbaijan, giving up 3 weeks of their time to share their knowledge with other students and teachers. Exchange alumni set an example for their countrymen through their enthusiasm and positive attitudes.

A final point about exchanges. As you well know from your many constituents who are actively engaged in these programs, they rely on the generosity of thousands of Americans from all 50 states. Our investment over the past 6 years is dwarfed by the contributions of U.S. families, businesses, universities, and communities that have generously hosted exchange participants. Equally importantly, these Americans continue to stay in touch with exchange alumni after they return home and provide needed support as they begin to try out in their own communities the ideas they saw in the U.S.

Partnerships pair U.S. and NIS institutions on collaborative projects. We are encouraging all implementing agencies to look for ways to deliver assistance through partnerships involving universities, hospitals, communities, NGO's, and other counterparts. There are currently more than 166 NIS-U.S. Sister Cities, 31 hospital partnerships, and 75 USG-funded university partnerships. We think the results are impressive -- new curricula in business and public policy, strong ties between U.S. and NIS communities, improved delivery of health care in women's health, infection control, emergency medical services, and increased access for the disabled are just a few of the accomplishments.

These partnerships benefit both U.S. and NIS participants. A good example is the collaboration between the South Carolina Universities Research and Education Foundation and the Russian Institute of Biology and Inland Waters sponsored by USAID. The two worked on the Rybinsk reservoir on the Upper Volga to develop methods to raise healthy fish in the polluted waterway. The result was a Russian-developed recirculating system to grow large numbers of fish to maturity in the reservoir. The system is in high demand in Russia and also is being used by South Carolina to grow tropical fish through the winter, allowing South Carolina fisheries to stay open year-round for the first time.

Access to multiple sources of information is another key goal of our assistance program. We plan to continue to expand access to the Internet in the NIS to increase access to information and provide opportunities for information sharing and communication across the region's 11 time zones. To date, USIA has established more than 60 public access Internet sites in the NIS and trained more than 10,000 end users. We plan to increase the number of public access sites, as well as provide opportunities for users to dial in from their home computers. The program is low in cost but high in impact. For a budget of $125,000, USIA's program in Azerbaijan has set up a public access center in Baku that is open over 60 hours per week and has trained over 2,000 local businesses, alumni, university professors, NGO representatives, and journalists in how to use the Internet. The center has played an important role for NGO leaders in Baku who use it to communicate and collaborate with their counterparts in Armenia and Nagorno-Karabakh. Because there is currently no telephone service between Azerbaijan, Ngorno-Karabakh, and Armenia, the Internet offers the only direct mode of communication.

The U.S. also has increased its support for independent media to ensure that multiple viewpoints are heard. Prior to the August 17 financial collapse, our training in advertising and news management had helped TV stations and papers across Russia become more commercially viable. For example, by early 1998, at least 35 regional stations averaged over $100,000 monthly in advertising revenues. The number of USAID-assisted newspapers showing increased revenues rose from eight in 1996 to 48 in 1997. Since August, regional media in particular have been hit hard by the financial crisis, and, while few media have yet closed their doors, we remain concerned that without increased assistance, independent media will either fold or fall under the influence of particular political groups. Consequently, our augmented assistance to Russian media has shifted to training on how to continue operations in a depressed market and other measures to ensure that strong organizations will continue operating. We are also closely monitoring the situation in Ukraine, the Caucasus and Central Asia as elections approach and are prepared to offer additional assistance to independent media in other countries, where a number of governments are pressuring media not to cover the opposition. We are also increasing support to independent media in Belarus, where access to any reliable information is very scarce.

Fighting crime and corruption is essential to restoring public faith in NIS political systems and creating growth in their economies. The FBI, IRS, and other participating agencies report that cooperation through our assistance programs has helped them prosecute criminal cases in the U.S. and enhanced criminal investigations in the NIS. For example, thanks to relationships developed through our training programs, Russian law enforcement investigators have participated in American court proceedings and offered testimony that helped to convict Russian organized crime figures in the U.S.

Corruption is widespread in the NIS and is a serious impediment to development and reform. We have developed numerous strategies to address corruption across the region, but have found that we can only work with governments that have the will to tackle this problem. In Georgia, where the central government has asked for our help and taken concrete steps as a result of our assistance, such as adopting stringent qualification exams for new judges, we are currently pursuing a number of bilateral anti-corruption initiatives.

In Ukraine, by contrast, U.S. initiatives to start a law enforcement strike force to tackle crime and corruption and efforts on public ethics reform have made little headway. For this reason, in Ukraine and also in Russia, our programs have focused on mobilizing popular support for change and working with reformist regions. To effectively combat corruption, citizens must believe that it is possible to achieve results under the rule of law, pursuing their cases through local institutions. Citizens need to see examples of the system working in an impartial manner. In Ukraine, an effort is underway to train NGOs in advocacy and publicize the results of their work. The local success stories generated have been documented in over 112 new Ukrainian-produced television programs. These programs cover topics such as environmental rights, family law, apartment ownership, and intellectual property and have been distributed to a network of 26 regional stations. One particularly effective story concerns an ABA/CEELI-assisted environmental group in Kharkiv that forced a local government to abandon illegal attempts to develop a landfill. The story aired several times nationally and was then shown in schools to encourage children that each person can make a difference. Another example of initiatives that work on the local level: a foreign business team headed by Cargill recently announced that their decision to invest $65 million in a sunflower processing plant in Donetsk, Ukraine was strongly influenced by an anti-corruption media campaign conducted by the oblast administration and civil society groups led by an NGO, the Partnership for Integrity Civic Movement, which USAID supports.

NGO support programs generally have yielded successes. The number of NGOs in Russia, particularly in the regions, has grown dramatically. There are now over 65,000 registered NGOs in Russia. Fifty-four USAID-supported NGO Resource Centers have directly supported thousands of NGOs across Russia through small grants and training.

The majority of these NGOs are very small, yet they have increasingly had an impact on the local level, especially those that can help local governments provide social services. In Novgorod, after seeing the effectiveness of our grant programs, the regional government has asked for help in setting up their own small grants program to help NGOs get more involved in service provision. And recently, in both Russia and Ukraine, coalitions of NGOs have joined together to work for greater transparency in the coming national elections.

On elections, the USAID-funded International Foundation for Election Systems (IFES) has helped develop more professional election procedures throughout Russia and in other NIS. IFES has worked with the Russian Central Election Commission since 1993 on a vast range of procedural issues. It also has increased the capacity of regional authorities to hold elections. IFES has conducted voter education programs and has provided election-related support and oversight. These and other election assistance efforts have promoted numerous relatively free and fair elections in Russia, as well as in other countries such as Kyrgyzstan and Moldova. However, as seen in Azerbaijan last year and this January in Kazakhstan, no amount of assistance will guarantee free and fair elections if senior officials undercut our efforts.

A final point on elections: In Russia, IFES is supporting the development of a Russian NGO that can carry on this work and is phasing out its American staff. This is an example of a priority in our program -- turning over the operation of NGOs to citizens of the host country.

Finally, the U.S. has begun an exciting new initiative on judicial reform in Russia. The Russian-American Judicial Partnership project consists of a grant to the U.S. National Judicial College (NJC) to foster partnerships between American and Russian judicial entities -- primarily entities under the new Russian Judicial Department. This Department reports directly to the Russian Supreme Court, not to the Ministry of Justice, and represents a big step forward on judicial independence. Our program focuses on improving the caliber of the courts of general jurisdiction and the commercial courts, the latter already having made great strides. The program also works to improve judicial ethics. But our assistance can only go so far. As representatives of the Judicial Department told us recently, their judges and courts will have true independence from national and regional authorities only when the Duma provides an adequate budget to cover salaries and basic needs.

Next Generation: Building Market Economies

Again, within our economic programs the theme is to build constituencies for reform. The star reformers in the economic sphere are entrepreneurs, small business owners, private farmers -- people who are taking risks and fighting tremendous odds to support themselves and their families in difficult environments.

In Russia, we are now in the second year of a Regional Investment Initiative -- an initiative that concentrates programs to promote economic growth and civil society in pro-reform regions. In Russia, we are working in Novgorod, Samara, and the Russian Far East, and we plan to expand to a fourth region soon.

The concept is catching on, because there is a need for locally based models that work. These regional initiatives are creating successful demonstrations of local policy-making, credit programs for small business, and other creative citizens' initiatives which other regions and cities can study and adapt to their needs. Other regional initiatives are coming on-line in other NIS -- Lviv and Kharkiv in Ukraine and Atyrau in Kazakhstan.

The U.S. supports reformers through economic assistance programs by continuing to fund and promote more effective mechanisms for getting loans and other forms of credit to small business entrepreneurs. Non-bank microcredit programs are expanding to more cities, and we can't get them started fast enough to meet the demands for these small loans, often less than $1000, that help the smallest businesspeople (primarily women) support their families. The U.S.-Russia Investment Fund is forging ahead with innovative mortgage and other consumer credit programs, as well as small-business lending. Other solid programs are still moving forward, despite last August's financial crisis -- such as EBRD's Small Business Lending, Eurasia Foundation, and our other Enterprise Funds. Overall, these programs are demonstrating in the toughest economic climates that small business is a good and "doable" investment.

In parallel to credit programs, we continue to fund some of the business training and technical assistance organizations that are making an important contribution to reform in the NIS. American business volunteers are still making a difference by bringing their practical know-how and determination to the NIS region. In addition to the concrete business contribution of these volunteers, we see much long-term value in the human and organizational linkages that result from these thousands of volunteer assignments.

As I have stated, assistance programs on policy reform are clearly less effective without the local political will to actually make reform happen. Where we see this political will for economic reform, we will continue to offer policy support at the central-government level. I again note our increased funding for Moldova in the area of land privatization. Moldova is the NIS country that has moved the farthest on agricultural reform and support for private farmers, and therefore it deserves support.

In Georgia, our technical assistance on land reform has been targeted toward reformers within the Georgian Government. Just last month, Georgia's President signed a decree directing the implementation of rapid titling and registration of land owned by a million Georgian agricultural households. With legal ownership of their land, Georgians will be able to offer collateral for loans to buy needed agricultural inputs and increase production and jobs in the agricultural sector.

Another very effective technical assistance program has had a real impact in Kazakhstan. There, U.S. assistance has played a major role in the successful restructuring of the pension system. Kazakhstan's new system has already brought more than 95% of working people new individual pension accounts, and they have a choice of how to invest their savings with private fund managers.

These success stories are in contrast to some of the programs that have not worked well. Economic reform and restructuring require tough decisions by political leaders and complex implementation processes by the bureaucracy. It is very hard work, and results are elusive in some countries and in some sectors. We are continuing to reduce or simply end technical assistance efforts that do not meet with sincere attempts to implement our advice. Other recent examples where we are scaling back our assistance are in Uzbekistan and Turkmenistan in the area of fiscal and budget reform, and in Russia in the area of tax policy reform. Levels of assistance funding for economic reform at the central government level have in general dropped quite significantly over the past couple of years. In many countries, such as Russia, we have found that assistance to reformers at the regional level simply gets more concrete results. Earlier in our assistance program, the U.S. invested in the sort of urgent, short-term central government advisory work that was required to launch a market economy in this region. Some of it worked well and took root. Other pieces still need another generation to implement. The focus of the economic programs that remain today are long-term investments in the next generation of businesspeople and leaders -- training, exchanges, credit for entrepreneurs, policy reforms at the regional level.

LESSONS LEARNED

We have continued our focus on lessons learned -- what has worked and what has not worked. The Russian financial crisis of last August intensified the need to ask hard questions about U.S. and other Western assistance programs.

First, we have learned that many of our best programs do not work through central governments, many of which are either very weak or remain resistant to reform. That is why we plan to scale back large technical assistance programs with the central government in countries where we have made only slow progress. That is why we are moving toward grassroots and regional programs in these countries.

Second, we have learned that for government-led reform to work, there has to be pro-reform leadership and citizens need to feel ownership of the reform process. Reform by fiat alone does not usually work, whether it is the fiat of an IMF agreement or even of an NIS leader. Reform must have a constituency in the population.

Third, we have seen that reform in the NIS region will take longer than many expected. Many in the West underestimated the extent to which the legacy of Soviet rule would impede reform. Building the legal and regulatory infrastructure for a positive business climate has proven extraordinarily complex, and in some cases, controversial. The so-called "red directors" have remained entrenched in enterprises, corruption has remained rampant, and the absence of a democratic political culture has slowed the building of new participatory institutions. We have therefore put more emphasis on programs that change mindsets, such as exchanges and increased access to information.

Fourth, we have learned that the social costs of reform are higher than we expected. Because growth-generating reforms have not been widely implemented, poverty has increased across the region. The health care and other social service sectors are in dire straits. That is why we have focused more on health and humanitarian programs, hopefully until market reform will facilitate the provision of basic services by NIS governments themselves.

CONGRESSIONAL CONCERNS

Mr. Chairman, we have several concerns relating directly to legislation. First, I strongly seek your support for full funding for our request of $1.032 billion for FREEDOM Support Act programs. This request represents roughly the same level of funding for our economic, democracy, and exchange programs as last year, plus an increase in security and nonproliferation programs from $51 million to $241 million for the critically important new ETRI initiative.

Second, I urge the Congress to support repeal of Section 907 of the FREEDOM Support Act, which limits our ability to provide assistance to the Government of Azerbaijan. This legislation impairs our ability to be perceived as an honest broker in the conflict over Nagorno-Karabakh; it impairs our ability to facilitate the peace Armenia and Azerbaijan so desperately need. Section 907 also directly impedes our ability to promote market growth and to conduct law enforcement programs in Azerbaijan -- programs which are directly in our interest.

Third, I urge the Congress to refrain from earmarking funds in the NIS account. Earmarking restricts our ability to direct funds to reforming countries, where our assistance goes to best use. Earmarks restrict U.S. leverage and flexibility. I believe that the Congress and the Administration have come to a consensus on the need to emphasize grassroots programs in the NIS. This consensus makes earmarks all the more unnecessary.

Finally, I urge you to reconsider other restrictions the Congress has placed on Russia in past years. While we all object to certain Russian foreign policies, these restrictions on assistance to Russia are largely counter-productive. Take, for example, the restriction prohibiting us from obligating more than 50% of budgeted funds to the Government of Russia until the President makes certain certifications regarding technology transfers to Iran. This restriction is too broad and unduly impairs our national interests. I urge you to support certain carve-outs or exemptions for programs that either do not involve the Russian central government or that promote especially important U.S. interests. Example include: assistance to regional and local governments, which can be pro-reform and which do not provide aid to Iran; health and environment programs; non-proliferation programs, which directly enhance U.S. security; and anti-crime and judicial programs. In addition, we have been able to waive restrictions concerning religious freedom for the past 2 years, and concerning taxation of assistance. We believe these provisions are not necessary in the future.

LOOKING AHEAD

We firmly believe that NIS assistance programs are on the right track. The success stories of reform in the NIS represent our future directions. We will continue to emphasize exchanges, partnerships, and Internet programs. We plan to increase further our efforts to promote small business, to support the middle class. We will continue our regional emphasis, by expanding the Regional Investment Initiative to a fourth site in Russia and by expanding the regional approach in other NIS countries.

We will place more emphasis on disseminating successful models of regional reform. We hope to do this not through large technical assistance programs but by providing small grants in regions to people who want to implement reform. We will increasingly differentiate between reforming and non-reforming governments in designing our programs. We will provide technical assistance to NIS governments only where leaders and citizens demonstrate a commitment to reform. Whether or not reform is taking place today, however, we will focus much of our attention on the next generation of leaders. Threat reduction will be a priority for at least the next several years. ETRI is a program that is critical to the security of all Americans.

Mr. Chairman, I am glad to have had the opportunity to share with you this progress report on U.S. assistance programs in the NIS. We have achieved some successes, but we still face many challenges, and I look forward to your questions.

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