Johnson's Russia List
#6353
13 July 2002
davidjohnson@erols.com
A CDI Project
www.cdi.org

[Contents:
  1. AP: Putin Cements Pro-Western Stance.
  2. BBC Monitoring: Putin outlines main planks of Russian foreign policy - 
TV reports.
  3. RIA Novosti: OFFENSIVE WEAPONS CUTS TREATY RATIFICATION TO BE PRIORITY 
AT STATE DUMA AUTUMN SESSION.
  4. RFE/RL: Nikola Krastev, Kirov Ballet Creating A Stir At New York Summer 
Festival.
  5. AFP: Putin appoints new rights representative for Chechnya.
  6. The Russia Journal editorial: High crimes. (re business practices)
  7. Financial Times (UK): Paul Taylor, A how-to manual for tapping Russia's 
riches and reforms.
  8. Moscow Tribune: Stanislav Menshikov, PUTIN AND "FAMILY" Clash for 
spheres of control.
  9. RIA Novosti: RUSSIA READY FOR POLITICAL DIALOG WITH US ON REVISION OF 
BERING STRAIT DIVISION AGREEMENT.
  10. The Russia Journal: Otto Latsis, Budanov: one of them.
  11. gazeta.ru: Advocates of market reform turn to prostitution.
  12. Science: Paul Webster, Agreement Unlocks Loan for TB and AIDS Treatment 
in Russia.
  13. The Wall Street Journal Europe: Vladimir Socor, Pulling NATO Readiness 
Weight in the Baltics.
  14. US Department of the Treasury: Paul O'Neill, Accelerating Growth in 
Eastern Europe and Central Asia.]

********

#1
Putin Cements Pro-Western Stance
July 12, 2002
By ANGELA CHARLTON

MOSCOW (AP) - President Vladimir Putin cemented his commitment to pro-Western 
policies Friday and urged better pay and fresher faces for a diplomatic corps 
that he called unequipped to understand free markets, free media and 
post-Cold War threats.

Terrorism and other common threats are bringing Russia closer to the United 
States, he told a rare gathering of Russian ambassadors from around the world.

Putin's support for Washington after the Sept. 11 terror attacks strongly 
bolstered Russia's ties to the West after a decade of tension and uncertainty 
about the country's post-Soviet direction.

Today's U.S.-Russian relations ``are based on a new reading of the national 
interests of the two countries and a similar view of the very nature of world 
threats,'' the ITAR-Tass and Interfax news agencies quoted Putin as saying.

Before Sept. 11, Putin had sought to boost ties with China and nations that 
the United States has shunned, such as North Korea and Libya, in an apparent 
bid to counterbalance growing U.S. global influence.

His comments Friday, however, were clearly pro-Western, echoing an interview 
published Wednesday with Foreign Minister Igor Ivanov, who said Russia's main 
threats come from Asia, not the United States or NATO. Ivanov also gave a 
candid assessment of Russia's inability to compete with the United States as 
a global power.

Russia's diplomats must be ready to adjust to this new world, Putin said, 
urging the Foreign Ministry to attract new faces to what was in Soviet times 
one of the most coveted careers in the country.

He said low salaries have contributed to a drastic reduction in the number of 
young Russians joining the foreign service.

Russian diplomats at the Foreign Ministry in Moscow earn an average of $158 a 
month, said Natalya Borodina, deputy director of the ministry's finance 
department. Diplomats abroad earn more, but the ministry does not release 
those figures, she said.

Putin also said there aren't enough women in the foreign service or enough 
people to deal with the media.

``The absence of the so-called fair sex in the Russian diplomatic corps can 
become a weak spot in our foreign service,'' he was quoted by ITAR-Tass as 
saying.

``Senior diplomats have committed the sin of ... inability to work with the 
mass media and other institutes of a civil society,'' he said.

He also suggested attracting more people from the business world to the 
foreign service to help press Russia's bid to join the World Trade 
Organization and gain a greater role in world markets.

In addition to closer ties to the United States, Russia has also pursued 
better relations with the European Union and NATO.

Putin expressed willingness Friday to compromise with the EU in a dispute 
over visas for residents of Kaliningrad, a Russian enclave that will be cut 
off from the rest of Russia when neighboring Poland and Lithuania join the EU 
in 2004.

Russia has pushed strongly for a transport corridor that would allow 
Kaliningrad's 1 million residents to travel visa-free between the enclave and 
the rest of Russia. EU officials have rejected the idea.

********

#2
BBC Monitoring
Putin outlines main planks of Russian foreign policy - TV reports 
Source: Russia TV, Moscow, in Russian 1000 gmt 12 Jul 02

[Presenter Mariya Sittel] A major diplomatic gathering is under way in
Moscow today. It is being attended by representatives of all Russian
missions abroad. The last time such a meeting was held was 16 years ago. The
meeting in the Russian Foreign Ministry which is being attended by President
Vladimir Putin is discussing foreign policy issues. Our correspondent Andrey
Rumyantsev is in a live linkup with the studio.

Andrey, good afternoon. Recently Russia's foreign policy strategy has
undergone considerable changes. Following this, what are the main tasks
faced by diplomats today?

[Correspondent] Good afternoon, Mariya. Indeed, meetings like this have not
been held for 16 years. Then, 16 years ago, Mikhail Gorbachev gathered
Soviet ambassadors and plenipotentiary envoys to explain to them what
perestroika, glasnost and new thinking were all about. Now the situation has
again changed and Vladimir Putin has come to the [Foreign Ministry] building
in Smolenskaya Square to outline what Russia's foreign policy concept
consists of today.

To begin with, it is necessary to stress that Russia, as listed in all the
relevant documents, remains a peaceful country which intends to build its
relations with any other country on the basis of equality.
What has not changed either is the global nature of Russian foreign policy.
It still has interests all around the world. Here's what President Putin
said on this issue.

[Putin] Does Russian foreign policy remain global in its coverage? I know
that these questions are asked frequently. Of course, it does, not only
because of our military or economic potential, but because of geography
itself. We are present in Europe and in Asia, in the north and in the south.
It is natural that we should have our interests there. How can it be
otherwise? But to ensure this, we need to look for Russian partners and
allies everywhere. These should be partners who take into account and accept
our national interests.

[Correspondent] The most noticeable changes have taken place in Russia's
relations with the USA since the events of 11 September. The two countries
have recently been building their relations on a common basis of fighting
terrorism. Today Vladimir Putin confirmed that Russia will cooperate with
the USA not only in this respect but also on a whole range of issues.

[Putin] In strengthening global stability, special responsibility
undoubtedly rests with Russia and the United States of America. Therefore it
is important to know that the basis for our relations today lies in a new
interpretation of the national interests of our two countries as well as in
a common vision of the nature of modern global threats.

I would like to stress it once again: a partnership of trust between Russia
and the USA is not only in the interests of our peoples but it also has a
positive influence on the whole system of international relations and
therefore remains an indisputable priority for us.

[Presenter] Andrey, another important issue is our compatriots abroad. Were
possible ways for solving this problem discussed at all?

[Correspondent] Yes, the fact is that embassies not only represent our
country abroad, but first of all they should protect both Russian citizens
and our compatriots who live abroad. Putin devoted a rather large section of
his speech to this problem. He demanded that embassies focus their attention
on protecting Russian expatriates.

[Putin] Compatriots should be granted legal, educational and business
assistance. In the meantime, from your reports and from appeals coming from
expatriates themselves, one can see that many [Russian] missions [abroad]
treat this issue as a peripheral one. This is wrong. I assure you, it is a
big mistake. And we shall gauge the efficiency of certain embassies on the
basis of this parameter.

[Correspondent] Another thing that Vladimir Putin demanded was that the
staff of our embassies abroad assist our business elite and our businessmen
in developing the markets of those countries where these ambassadors
represent our country. On the whole, the economic component in Vladimir
Putin's speech was rather large. He frequently spoke of it.

By the way, it is likely that in the near future all [Russian] trade
missions which are now supervised by the Ministry for the Economic
Development and Trade will be transferred to the Foreign Ministry, and that
economic departments will be established at the embassies to assist our
businessmen in developing foreign markets.

In addition, Putin spoke of CIS countries, stressing two priorities: the
economic community and the collective security treaty. Vladimir Putin did
not say anything about Belarus.

Speaking on relations with the EU, he said that the main task is the
creation of a single economic space and the energy dialogue, as well as
negotiations on the Kaliningrad Region issue. On the latter, Vladimir Putin
said that there are limits to compromise when it involves Russian citizens
protecting their own territory.

********

#3
OFFENSIVE WEAPONS CUTS TREATY RATIFICATION TO BE PRIORITY AT STATE DUMA 
AUTUMN SESSION 

MOSCOW, JULY 12, 2002. /FROM A RIA NOVOSTI CORRESPONDENT/ The Russian Foreign 
Ministry believes the issue of Offensive Weapons Cuts Treaty ratification to 
be "one of the priorities for the Parliament when the parliamentary session 
resumes in autumn", said an official representative for the Russian Foreign 
Ministry Alexander Yakovenko at a press conference. 

The Ministry hopes the final decision will be positive, he stated. 

"The Parliaments of the two countries are aware that it is vitally important 
to ratify the Offensive Weapons Cuts Treaty", said Yakovenko in the context 
of the fact that the document had been put into consideration in the US 
Senate. "Yet the documents preparation procedures, the work of the 
legislative bodies and the process of ratification itself in Russia and the 
USA are different, thus the dates of ratification will hardly coincide," the 
diplomat pointed. Moreover, the Russian Foreign Ministry doesn't consider it 
necessary. 

In compliance with the Russian legislation, the Treaty and its detailed 
analysis were passed to the Russian Federal Assembly (the upper chamber of 
the Russian Parliament) for consideration early in June, Yakovenko recalled. 
The corresponding Russian departments are currently finishing preparation of 
the main set of ratification documents, the diplomat pointed and recalled 
that the work of the Federal Assembly had been adjourned. 

********

#4
U.S./Russia: Kirov Ballet Creating A Stir At New York Summer Festival
By Nikola Krastev

The Kirov Ballet of St. Petersburg opened Lincoln Center's Summer Festival 
2002 in New York this week with three classics in the Petipa tradition: "Swan 
Lake," "Don Quixote," and a revival of "La Bayadere." Expectations run high 
for a company of this caliber, and if the first reviews and attendance are 
any indication, the Kirov has little to worry about. The Kirov is also 
performing "Jewels," regarded as one of choreographer George Balanchine's 
masterpieces. The Kirov dancers not only breathe fresh air into a technically 
formidable performance but also confirm Balanchine's connection to St. 
Petersburg, where he was educated. 

New York, 12 July 2002 (RFE/RL) -- This year's Lincoln Center Festival marks 
the Kirov Ballet and Opera's first visit to New York in three years, and 
begins a two-year collaboration between the Kirov and the Metropolitan Opera.

The festival features the North American premiere of Kirov's new production 
of Leon Minkus's "La Bayadere," as well as productions of Tchaikovsky's "Swan 
Lake," Minkus's "Don Quixote," and the New York premiere of George 
Balanchine's "Jewels." The works also feature the Kirov Orchestra, under the 
direction of Valerii Gergiev. 

While the revival of "La Bayadere" is creating excitement in New York for its 
authenticity to Russian Marius Petipa's 19th-century original, "Jewels" -- a 
three-act piece from 1967 that features the music of Faure, Stravinsky, and 
Tchaikovsky -- is considered to be the ideal work showing the development of 
Balanchine's style as it evolved from the 19th-century Russian classical 
tradition.

The director of the Kirov Ballet, Makhar Vaziev, tells RFE/RL that there is 
an obvious connection between the dance tradition created by Balanchine in 
New York in the 1930s and 1940s and the classical ballet tradition of St. 
Petersburg: "Balanchine is the greatest classical [dance] choreographer of 
the 20th century, in the same manner as Petipa is the greatest classical 
choreographer of the 19th century. There is a development and there is 
connection [between the two]. Balanchine began in St. Petersburg. He was 
educated and he was schooled in St. Petersburg. He [later] expanded classical 
dance [in New York]. He added his own stylistics and dynamic to it, but the 
fundamentals were classical and the desire of a classical ballet troupe [such 
as the Kirov] to dance Balanchine is a natural one. The choice of 'Jewels,' I 
think, is natural and organic, too."

The staging of Balanchine's more than 200 works is strictly guided by the New 
York-based George Balanchine Trust, which was established to preserve the 
integrity and purity of Balanchine's style after his death in 1983.

Vaziev says there is an ongoing exchange between the George Balanchine Trust 
and the Kirov Ballet. Since 1989, seven of Balanchine's works have been 
staged in St. Petersburg under exclusive arrangements between the trust and 
the Kirov.

The Russian premiere of "Jewels," Vaziev tells RFE/RL, occurred at St. 
Petersburg's Mariinskii Theater in 1999 to great acclaim.

"In Russia, [the staging of] 'Jewels' stirred astonishing interest. I can say 
that 'Jewels' so organically merged into our repertoire that it perhaps once 
again highlights the fact that Balanchine was a genius."

Vaziev was asked if he had ever considered bringing dancers from the New York 
City Ballet, Balanchine's company, to St. Petersburg to perform "Jewels." 
Vaziev tells RFE/RL that the idea was rather to do Balanchine with only 
Russia's home-grown talent: "We wanted to stage ['Jewels'] from the very 
beginning, and we were discussing it with Barbara Horgan [of] the [George 
Balanchine] Trust. They were sending their teachers and repetiteurs 
(coaches). Naturally, we were trying to develop the work exactly as we were 
coached, as we were guided. We didn't have, as it is said proverbially, a 
desire to dance it 'Russian-style,' although unconsciously we are perhaps 
dancing it a bit differently. It is natural. It is unconscious, in a way."

The 42-year-old Vaziev began his association with the Kirov during the 1970s, 
eventually becoming the principal male dancer of the troupe. He took over the 
company's management in 1995. Some observers credit Vaziev with creating a 
more liberated and dashing approach toward the classical ballet heritage than 
his predecessor, Oleg Vinogradov.

Vaziev tells RFE/RL that in tradition and scope, it is hard to compare the 
American classical ballet school and the Russian classical dance school: "I 
would say that the St. Petersburg ballet school [tradition] has already 
accumulated a colossal, I'd say, an ancient history, while the American 
classical ballet school [tradition] was mainly developed by Balanchine. He 
was the one who created this school, and naturally there are differences 
between the two."

The Kirov Ballet's performances in the 2002 Lincoln Center Summer Festival 
continue through 20 July. Vaziev says the Kirov Ballet is planning to stage 
several more of Balanchine's works in 2004 to celebrate the 100th anniversary 
of the choreographer's birth.

********

#5
Putin appoints new rights representative for Chechnya
July 12, 2002

MOSCOW, July 12 (AFP) - Russian President Vladimir Putin on Friday appointed 
a new human rights representative for Chechnya, who quickly rose to the 
defence of federal troops in the war-torn republic.

In his first interview following his appointment, Abdul-Khakim Sultygov 
defended the army, the focus of strong international criticism after local 
allegations of widespread rights abuses in Chechnya.

"We demand so much of the army. We expect angels to serve in Chechnya. But 
they are doing all that they can," the new representative was quoted as 
saying by ITAR-TASS news agency.

"In addition, these people agreed to give up their lives in order to restore 
the state's authority in the republic and defend citizen's rights," he said.

Sultygov stressed it was important to assure the safe return of ethnic 
Russians to the republic, saying some 400,000 Russians have fled the war zone.

"Without solving this problem, we will never be able to stabilise the 
situation," he said.

Sultygov was previously responsible for Chechen affairs on the commission on 
nationalities in the State Duma, or lower house of parliament.

An ethnic Chechen, he replaces Vladimir Kalamanov, who has been named as 
Russia's ambassador to UNESCO in Paris.

His appointment was greeted guardedly by human rights activists, who said 
they regretted Kalamanov's departure.

"Relations with Kalamanov were difficult but constructive. Without him, the 
situation would have been even worse," Oleg Orlov of the organisation 
Memorial said.

"Kalamanov's office in Chechnya had two jobs -- monitoring human rights and 
impressing Westerners. For Putin, the second was a lot more important than 
the first," he said.

Orlov said he had first met Sultygov in 1996 when the Chechen official had 
"explained with great conviction that (Islamic) sharia law was a good thing".

"I think he will now defend the Russian constitution in Chechnya with the 
same ardour," he said.

Ruslan Badalov, of the Chechen Salvation Committee, said Sultygov was 
"someone who will scrupulously follow politico-military directives from 
Moscow. He will never side with human rights defenders or ordinary people."

He feared the situation now would be worse than with Kalamanov because 
Sultygov was a Chechen.

"The Kremlin will use his origins as a smokescreen," he warned.

Human rights groups are concerned by the worsening situation of displaced 
Chechens following the forced closure of the Znamenskoye refugee camp in the 
north of the republic.

The refugees have been "temporarily" installed in Grozny, the devastated 
Chechen capital in extremely insecure conditions.

Orlov said "a similar removal" appeared to be in the offing for Chechen 
refugees in the neighbouring republic of Ingushetia.

Moscow has said it plans to close the refugee camps in Ingushetia, currently 
home to around 36,000 people.

A total of around 150,000 Chechens have sought refuge in Ingushetia.

Russian troops stormed into Chechnya on October 1, 1999, in what had been 
planned as a lightning strike against suspected terrorist camps. The troops 
are still there.

********

#6
The Russia Journal
July 12-18, 2002
Editorial
High crimes
 
Mammoth U.S. and transnational corporations from energy giant Enron to
cable provider Adelphia, telecom leader WorldCom and pharmaceutical icon
Merck have been collapsing under the weight of accounting fraud.

The nature of the frauds – cooking the books to show better revenues and
profits for better market valuations, higher stock prices and thus personal
enrichment – indicates that we have, as yet, seen only the tip of the
iceberg of corporate America’s woes.

While many like Rank Xerox have been let off with fines, others are likely
to face bankruptcy and criminal charges. The death knell sounded for
100-year-old audit and accounting firm Arthur Andersen after a jury
convicted it of weighty white-collar crimes. More indictments and
convictions will follow.

The system of checks and balances within the market economy system that the
United States proudly provides has clearly failed. 

Billions in investor value have been lost; the economy has a crisis of
confidence; and at a time when the West should be showing its moral
leadership, corporate rascals have done to America what Osama bin Laden
failed to do – overturned the U.S. economy.

Four years ago, economic mismanagement in Russia led to a default that sent
shock waves across the world, and collapsed dozens of mutual funds. Now,
the collapse on Wall Street will have severe repercussions for Russia.

First, capital is enmeshed in such serious problems at home in the United
States that neither Wall Street investment banks nor big corporations have
the time, energy or resources to invest in potentially lucrative external
markets like Russia’s. 

Why take the risk of working to make money in Russia when you can simply
tweak the numbers at home and generate billions in profits?

Worse still, the Russian market itself is stuck with some of the worst
talent that U.S. corporations are able to export overseas.

Except for a few wise foreign appointments to boards, which give the
companies involved a tremendous PR advantage when it comes to the Western
market, Russian corporations suffer from many of the corporate government
woes of their U.S. counterparts.

While Russian companies are unlikely to have learned the U.S. art of
sophisticated accounting fraud, Western auditors and accountants are in the
market and holding daily educational seminars in Moscow. Large-scale
accounting fraud cannot be far behind.

Russia’s market watchdogs and tax police are woefully unprepared to deal
with such improprieties. The kind of insider trading, manipulation and
fraud that we have seen in the United States is too sophisticated for even
savvy investors and analysts to spot, and Russian tax inspectors will need
top-class training and resources to combat it. 

The last few months in Russia have seen a dirty media war being fought over
claims that accountancy firm PricewaterhouseCoopers falsified Gazprom
audits by deliberately failing to reveal asset sales and gas trades below
market price. 

PwC has been exonerated a number of times by various courts and agencies,
but that has not stopped rival Western firms from using dirty tactics
–including the use of mercenary journalists – to throw dirt at the auditor.
No one, whether investors or the general public, benefited from this ugly
fight, which only distracted attention from what Gazprom was actually up to.

It is obvious that Russia should not adopt U.S. or European standards of
accounting, auditing or corporate governance. These have proved to be
flawed and tailored to suit vested interests. 

A growing capital market like Russia’s must set higher standards of conduct
and enforce better supervision and punishment if a clean, fair and
competitive market is to develop here.
  
*******

#7
Financial Times (UK)
12 July 2002
GLOBAL INVESTING: A how-to manual for tapping Russia's riches and reforms 
By Paul Taylor
 
Russia has been one of the top six emerging market performers so far this 
year - along with Indonesia, Thailand, Pakistan, Korea and the Czech 
Republic. The 27 per cent year-to-date gain posted by Morgan Stanley Capital 
International's Russia index confirms Russia's rehabilitation in the eyes of 
investors following the 1998 devaluation and default on domestic debt.

The Russian market's impressive performance so far this year reflects a 
mixture of positive factors including growing investor confidence in the 
government's economic strategy, greater familiarity with the leading Russian 
stocks and the fact that, despite price gains, most Russian stocks are still 
good value when compared with their western counterparts.

Most Russia-watchers believe President Vladimir Putin has a much stronger 
grip over the levers of power - and the economy - than did his predecessor, 
Boris Yeltsin. Mr Putin is trying to move Russia towards economic reform and 
closer co-operation with the West.

In addition, the domestic economy is growing stronger. "Russians want what 
Americans want," says John Connor, portfolio manager for the Third Millennium 
Russia fund, one of the top-rated mutual funds specialising in the country.

Indeed, the latest edition of Mr Connor's book How to Get Rich in Russia 
(Third Millennium Forum), makes a compelling case for portfolio investment in 
the country.

The author's involvement with Russia dates back 25 years. As a former 
deputy-director of the US Commerce Department's Bureau of East-West Trade who 
lived in Moscow and ran a successful Russian insurance group for several 
years, Mr Connor offers a valuable perspective.

The central thesis of the slim volume is that Russia's transition from the 
Soviet era to an independent, modern nation, coupled with the shift from a 
planned economy to a western-style free market system, offers unique 
opportunities for investors. "The new Russia possesses the potential for the 
most promising investment opportunities of the 21st Century," claims Mr 
Connor.

The book itself is built around short summaries of Russian companies spanning 
the oil and gas, telecommunications and energy sectors which, as Mr Connor 
points out, form the basis for the most actively traded Russian American 
Depositary Receipt programmes.

Much investor attention has focused on Russia's oil and gas sector, not just 
because of higher international oil prices, but also due to greater 
transparency, improved management and higher productivity in the sector. The 
sector dominates the Russian economy, accounting for 10 per cent of gross 
domestic product and more than 50 per cent of exports.

Mr Connor's book is very much a practical handbook. For example, chapter two 
begins with a guide on how to invest in Russian stocks - complete with 
sensible "health warnings" on political and currency risks and advice on 
asset allocation.

Chapter three examines ADRs in some detail, while chapter four provides a 
condensed guide to Russian politics and the economy.

Clearly Mr Connor is a Russian stock enthusiast, and has something of a 
vested interest in encouraging portfolio investment in the country. But as 
Jack Matlock, the former US ambassador to the Soviet Union, notes in the 
foreword, there are very few books that describe as succinctly and clearly 
how the Russian stock market works as well as its legal and regulatory 
context.
 
*******

#8
Moscow Tribune
July 12, 2002
PUTIN AND "FAMILY" Clash for spheres of control
By Stanislav Menshikov

Moscow is full of rumours about the growing clash between Vladimir Putin and
the "Family", i.e. the political and oligarchic clan close to Boris Yeltsin.
Evidence of the controversy is seen in the president's attacks on the
government for ignoring his instructions on growth policy and in Mikhail
Kasyanov's public counter-attacks. Putin's attacks are seen as new
corroboration of his long brewing plans to sack Kasyanov (said to be
hand-picked by the "Family"). The latter's counter-attacks are interpreted
as a warning to the Kremlin to stay out of the economy.

Sergei Stepashin, head of the Accounting Chamber and Putin's watchdog on
financial matters, has collected new evidence (yet unpublished) implicating
Kasyanov (among others) in the old 1998 case of the "lost" IMF billions. The
current prime minister was then deputy finance minister in charge of
international affairs. Putin is also allegedly preparing the demotion of
Vladimir Voloshin, head of the president's administration and another
"Family" man. His replacement could be Sergei Ivanov, current Defence
Minister and chekist loyalist.

These intentions are in infringement of the alleged 1999 deal between
Yeltsin and Putin under which the latter would refrain from drastic changes
in his government and administration in the first two years of his tenure.
That period is now over and, as the story runs, the "Family" is concerned
that Putin might finally want to achieve independence. If there indeed was
such a deal, it was based not on faith and good will but rather on mutual
possession of damaging information. To demonstrate that Putin is still bound
by that agreement the clan is showing its teeth in many ways.

One way is threatening to promote a joint right-wing candidate to run
against the incumbent in the 2004 presidential race. The Nemtsov-Khakamada
party is already talking to YABLOKO on that subject. As Grigory Yavlinsky
puts it, such a candidate would not hope to win but could deflect enough
votes from Putin in the first round. This would deprive him of an easy
victory and make him accept right-wing conditions of support in the second
round, presumably including important ministerial portfolios in the new
cabinet. The mastermind behind this plan is Anatoly Chubais, who combines
the position of actual head of the Nemtsov-Khakamada party with that of the
boss of the electric power monopoly, which is the main source of the party's
financial support. His own ambition is to return to high government in 2004
and aim for the presidency in 2008. In response, Putin's underlings in the
Duma are delaying legislation on Chubais's favourite electricity reform.

Another anti-Putin move is publicly opposing him over his handling of the
Union with Belarus. The bone of contention here is not Lukashenko. Both
sides share little love for him and are prepared to sell him down the NATO
river. The issue is rather who gets the upper hand in privatising that
country's yet undivided assets - oligarchs close to the "Family" or those
close to Putin.

The ongoing fight for control over "Slavneft" shows what is at stake. The
company is one of the last non-privatised oil concerns that happens to own
assets in both Russia and Belarus. It currently belongs to the governments
of both nations and 20 percent of its shares are scheduled for sale later
this year. "Sibneft" majority owner Roman Abramovich was planning to buy the
lot and had, through Kasyanov, installed a new "Slavneft" president, Yuri
Sukhanov, who used to work for him. "Mezhprombank" owner Sergei Pugachev,
close to Putin, contested the appointment through court litigation. The
Russian Prosecutor-General (Putin's man) initiated proceedings against
Sukhanov for alleged tax fraud. Police groups representing the rival parties
have been chasing each other out of the company's premises for the last two
months. At this writing, the conflict is still unresolved.

Putin's reluctance to interfere directly in this squabble is seen by his
opponents as a sign of weakness. Less certain is the attitude of Lukashenko,
whose government controls 11 percent of "Slavneft" shares. Pugachev
initially managed to secure Belarus government support of his case through
his connection with Paul Borodin, executive secretary of the Russia-Belarus
Union. But apparently Lukashenko overruled their arrangement causing Putin
to react negatively to the Belarus president's proposals on the Union
structure. This conflict led Boris Yeltsin to intervene in person on
Lukashenko's (as well as on Abramovich's and Kasyanov's) side. Putin
retaliated by publicly stating that it is he rather than Yeltsin who is now
in charge.

It is too early to predict who will have the upper hand. Putin's strength is
in his control over the "power" ministries - Defence, Interior (ordinary
police and anti-riot troops), and FSB (secret police). His weakness is
dependence on "Family" money and media. Both rivalling clans are solidly
pro-western and Putin suits the "Family" in that orientation. Their
differences are on control of domestic economic assets. The "Family" has
accumulated too much but wants even more. It is stingy when powerful
newcomers demand their share. Eventually the competing clans will
compromise. As the Russian saying goes, crows do not pick crow's eyes.

*******

#9
RUSSIA READY FOR POLITICAL DIALOG WITH US ON REVISION OF BERING STRAIT 
DIVISION AGREEMENT 

MOSCOW, JULY 12, RIA NOVOSTI - The Federation Council, Russian parliament's 
upper chamber, intends to promote Evgeny Nazdratenko's initiative to revise 
the Russian-US agreement on Bering Strait division at an international level, 
Alexander Nazarov, chairman of the chamber's committee for the northern and 
scanty ethnicities affairs, has said in an interview with RIA Novosti. 

Nazarov raised the issue at a meeting between the Russian president and the 
chamber's leadership the day before, he said. 

On Friday, chairman of the State Fishery Committee Evgeny Nazdratenko called 
the division of the Bering Strait "absolutely illegal" and the 8,253 square 
km of water surface given to the USA "a huge loss" for Russia. 

Nazdratenko called on Russian MPs to discuss with US Congress the return to 
Russia of the territory the USA received after the Bering Strait division 
under the Baker-Shevardnadze agreement of 1990. 

The Federation Council on its part will utterly promote the initiative, 
Nazarov said. 

"Even being chairman of the district executive committee and, later, governor 
of the Chukotka autonomous district I intensely resisted the idea of dividing 
the economic zone and continental shelf of the Arctic and Pacific oceans, and 
the Chukchi and Bering Seas between Russia and the USA," he pointed out. 

The US government took advantage of the unstable situation in the Russian 
higher political circles then, "and the document was signed by a weak 
person", according to Nazarov. 

As chairman of the Committee for the North affairs, he "repeatedly proposed 
to the State Duma [parliament's lower chamber] the solution to the issue, but 
it was postponed", he said. 

Today Russia is ready for a serious political dialog with the USA on this 
problem, the senator believes. The upper chamber is able to make a 
substantial contribution to the settlement effort, he added. 

His committee in cooperation with the international committee intends to 
consider the issue, "and one of the senators may appear at the international 
level with specific proposals by autumn", Nazarov said. 

He recalled that the upper chamber of the Russian parliament was in a 
permanent contact with US MPs. Interaction on specific problems is conducted 
within an ad hoc group the US Senate and Russian Federation Council set up 
last year on the Russian senators' initiative. 

*******

#10
The Russia Journal
July 12-18, 2002
Budanov: one of them
By OTTO LATSIS 

‘He’s one of them" was a description of Colonel Yury Budanov, whose trial
has again attracted public attention with a new turn. Well-known defense
lawyer Vyacheslav Bakhmin, who is also the acting director of the "Open
Society" institute, said this during a live discussion on TVC of the many
turnarounds in the scandalous trial. 

"One of them" means he is no different from the politicians and
high-ranking officers of the Russian army, who are determined to protect
Budanov against a just verdict – that is, find him guilty of the kidnapping
and murder of Elsa Kungaeva, an 18-year-old Chechen girl. The loudest voice
in support of Budanov came from one of the leaders of the shameful war in
Chechnya and governor of the Ulyanovsk Region, General Shamanov, who came
to Rostov-on-the-Don to defend him. 

Shamanov, trying to present the criminal as a hero, demonstrated fully his
spiritual union with Budanov. Budanov’s defenders seemed close to achieving
their goal with the expert psychological-psychiatric report from the Serb
Institute, sadly famous for punitive diagnoses once used for the mandatory
"treatment" of Brezhnev’s critics in mad houses. But this time, the
institute’s expertise opened the way not for imprisonment in a psychiatric
ward, but for an acquittal. Budanov was declared to be insane at the time
he committed the murder. 

This conclusion made it possible to drop the murder charge without
requiring psychiatric treatment, since Budanov was declared insane only at
the moment of the killing. Citing the psychiatrists’ report, the government
prosecutor dropped the original charge during the trial.

That a tank regiment in the Russian army could be commanded by an
individual who goes insane every once in a while hardly bothered the
government. Stronger motives were needed to interfere decisively in the
trial process. 

However, on the eve of the expected announcement – a shameful acquittal –
the case took an unforeseen turn. The first prosecutor was retired
mid-trial and a second appointed, while at the same time a third, new
psychological-psychiatric review was requested. The appearance of the
Kremlin’s will in this unexpected format made even more clear what had been
obvious from the start: that the Rostov trial was a political, not a legal,
matter. But this time, politics turned the wheel of fortune in the other
direction, not toward the acquittal of the accused, but against him. Why?

There is only one possible explanation: The Kremlin understood that even if
it didn’t want to convict Budanov, acquitting him was impossible. Observers
connect this understanding with the inevitable public response in Russia,
and especially abroad. 

That certain forces have tried for so long to steer the trial towards an
acquittal shows they are not thinking about the unacceptable and
unavoidable consequences for Russia if the murderer of Elsa Kungaeva was
set free. These consequences would be the response in Chechnya. Budanov’s
acquittal in any form would prompt thousands of new fighters, currently
peaceful Chechens, to take up arms. Realizing this only requires placing
oneself in the Chechens’ shoes for a moment. The Russian military applies a
double standard in Chechnya; that which is impermissible against other
Russian citizens is quite all right for Chechens. No people can accept
this. Russian mothers must understand that a Budanov acquittal means that
thousands more of their sons will die, defending not Russia, but Budanov
and criminals like him.

Having commanded the court to change its course, the Kremlin is hoping to
buy time to find a way out of a situation that now seems hopeless.
Actually, even a strict legal decision – the possibility of which is
setting the government at odds with military men like Shamanov – will
appease the Chechens. The long trail of legal red tape created to acquit
Budanov has done its work and discredited the government. 

But Budanov’s case is a small drop in an ocean: it revealed to the world
not just the crime of one soldier against one civilian, but the criminal
character of a state war against a small people. The world sees not only
the moral degeneracy of one colonel, but the deep crisis permeating a vast
army. The case of Budanov reminds us of daily announcements of desertions,
and not just from combat areas. Desertion from military units has reached
40,000 a year, behind which lies the relationship between privates and
officers, the obvious conflict between the military and civilian
populations, and the conflict between officers and the government. All
these threatening signs demand immediate action. The time for reforming the
military, created in the years of the wildly military politics of Stalin
and Brezhnev, has over-ripened. A way out of the trial in Rostov-on-the-Don
is just a beginning.
 
*******

#11
gazeta.ru
July 12, 2002
Advocates of market reform turn to prostitution 
By Viktoria Maliutina 

Deputies of the State Duma’s rightist SPS (Union of Rightist Forces)
faction have decided to push market reforms to the extreme and legalize
prostitution in Russia. If the bill prepared by the rightists is passed in
autumn, the prostitutes will turn into civilized ''sex-workers'', ridding
themselves of pimps and providing services according to the law. 

On Thursday, the State Duma deputies of the SPS faction announced that they
intended to raise the question of legalizing prostitution. It is very
likely that the State Duma will come to a decision as early as this year.
Deputy Aleksander Barannikov has told Gazeta.Ru that the draft law would be
ready before the autumn session. 

Barannikov said that the Draft Law would not be called ''On Legalizing
Prostitution,'' but rather ''On Regulations and Rules of Granting Sexual
Services'' – the deputies want the word 'prostitute' to be completely
replaced by another term, like, 'commercial sex-worker'. For the moment,
the deputies are only at the conceptual stage – they want the prostitutes
to be relieved of criminal and administrative responsibility and to
establish punishment only for violating certain rules in the business. They
intend to work out the rules (i.e. how, where and who should be served in
this way) before the autumn session. 

In order to study how the question has been solved in other countries, the
legislators have already sent ten inquiries to the ambassadors of European
countries. ''This business should be put in a reasonable legal framework,
because imposing harsher criminal responsibility, suggested by some
politicians, is not solving the problem,'' Barannikov said. 

Apart from that, he said that the SPS sees one of its tasks as moving
prostitution out of criminal spheres of interest: ''According to most
modest estimates, there are 15,000 prostitutes in Moscow charging 1000
roubles (about $30) per service on average, while estimated monthly
turnover in the business reaches millions of dollars. As prostitution
becomes legalized, the criminal world will lose control of these
substantial cash flows.'' 

The authors of the draft understand that their initiative will have many
opponents. ''Certainly, there will be some cants among them, but I’m afraid
that so-called advocates of morality, who are actually expressing the
interests of criminal moneymakers, will shout the loudest,'' Barannikov
said. However, he did not elaborate on whether he meant a pimp-lobby in the
State Duma or something else. 

Deputies Aleksander Barannikov and Andrei Wolf intend to discuss the
question with specialists on July 24. ''We want representatives of the
Interior Ministry and Health Ministry to participate in the round-table
meeting,'' Barannikov said. 

However, the deputy head of the SPS faction in the State Duma, Boris
Nadezhdin, has told Gazeta.Ru that his faction had not yet discussed the
possibility of submitting the bill and therefore no decision had been made
on the matter. 

''But there are bills submitted by the faction and there are some submitted
by single deputies. They have a right to do this,'' Nadezhdin said and
added that in his own opinion, there was certain sense in adopting such a
bill, but it must not be adopted at the federal level, as in some regions,
like Muslim republics, it is not unheard-of for people to get stoned for
such activity. But Nadezhdin also said that some regions are ready for such
a move – St. Petersburg, Kaliningrad, and other port cities and, for some
reason Saratov Region in central Russia. 

Probably the choice of Saratov was made because the region’s governor
himself came forward with an initiative to legalize prostitution a couple
of years ago. In 2000 Dmitry Ayatskov suggested adopting a bill elaborated
by a commission headed by the regional HR envoy Aleksander Lando which
wanted to legalize prostitution, license the activity, handle labour record
books along with medical certificates, etc. The bill, however, failed to
reach the State Duma. 

Another attempt to start the debate on legalizing prostitution was made in
the State Duma in 1995. It was also cut short at the very last moment. 

*******

#12
Science 
Volume 297, Number 5579
12 July 2002
Copyright © 2002 by The American Association for the Advancement of
Science. All rights reserved.

PUBLIC HEALTH:
Agreement Unlocks Loan for TB and AIDS Treatment in Russia
By Paul Webster (webster@co.ru)
Paul Webster is a writer in Moscow.

MOSCOW--After more than 3 years of wrangling and delay, a $150 million loan
from the World Bank designed to tackle Russia's burgeoning AIDS and
tuberculosis epidemics might at last be on the verge of approval. It has
been held up because Russian officials have refused to accept the TB
treatment scheme prescribed by Western agencies. But in the past few weeks,
negotiators from the World Bank, the World Health Organization (WHO), and
the Russian Ministry of Health have apparently settled their differences.
"The discussions have now been completed. We've agreed on the basic
issues," says Tatyana Loginova, health officer for the World Bank in
Russia. "All we're waiting for now is the government to approve the loan." 

Speed and thoroughness are the watchwords of successful TB treatment, but
Russia's approach has faltered, say observers such as Vinciane Sizaire, a
TB adviser for Doctors Without Borders, which operates a TB treatment
program in Siberia. "The approach has been erratic since the early 1990s,"
Sizaire complains. As a result, the number of TB cases has soared, reaching
epidemic levels in the late 1990s. Government figures suggest that there
are 133,000 newly diagnosed cases of TB in Russia every year, with as many
as 100,000 of them concentrated in prisons, where almost 30% of patients
are infected with drug-resistant strains. 

According to Sizaire, the explosion of drug resistance in Russia is largely
the result of poor medical management, scarce drugs, and unfinished courses
of treatment. Valentina Shishkina of the Red Cross in Russia, which treats
10,000 patients with a budget of only $500,000, estimates that up to 40% of
TB patients get irregular treatment, which allows drug-resistant strains to
flourish. "The government's approach until recently has been that they
don't know exactly how to deal with this," she says. Mikhail Perelman, the
Russian government's top TB adviser, acknowledges that scarce resources
have been a major problem and that TB mortality rates are "unacceptable." 

Russia is also struggling with a rising tide of HIV infection and AIDS.
Official figures indicate that the number of HIV infections has almost
tripled to 200,000 in the past 3 years. But government researchers say many
cases are not reported and the real figure is close to 700,000. The World
Bank recently warned that the epidemic could reduce economic output in
Russia by more than 10% by 2020. 

In the late 1990s, the Russian government requested help from the World
Bank in dealing with these twin epidemics, and a loan was agreed on in
1999. But Russian officials, including Perelman, advised the Ministry of
Health to reject the loan because it stipulated the use of a TB treatment
procedure advocated by WHO known as Directly Observed Therapy Short-Course
(DOTS), which requires a very closely monitored antibiotic regimen. The
DOTS approach has been adopted by 148 countries and has been especially
successful in China and India, where one-third of the world's TB cases
reside. 

But DOTS conflicts with Russia's traditional approach to TB treatment,
which relies heavily on mandatory inoculations, x-ray diagnosis, and
isolation of patients in sanatoriums, sometimes for years. Paul Farmer of
Harvard Medical School in Boston, who helped design the medical program for
the World Bank, said the Russian objections to updated approaches were
"frustrating." The stalemate over how to tackle TB, moreover, held up
funding from the same loan for AIDS therapies. 

There was more to the dispute than simply a culture clash, however. Last
year, Perelman said that World Bank stipulations would force Russia to buy
drugs from foreign companies, a charge Russian drug company executives had
raised in parliamentary hearings. "Russia wanted economic benefits for the
drug industry," despite the fact that Russian drug companies lack the
capacity to produce the numerous drugs used in the DOTS treatment, says
Sizaire. Olusoji Adeyi, the World Bank's senior health specialist for
Russia, says, however, that Russia would be free to use home-produced
drugs. "There are no conditions imposed by the World Bank at issue," he
says. "There are no guidelines for drug procurement." 

Russian officials have finally accepted the DOTS approach. Mikko Vienonen
of the WHO Directorate in Russia says that last week's agreement followed a
lengthy "process of understanding" that was delayed by numerous
administrative hurdles. The Russian Ministry of Health will now recommend
that the government pass a special prikaz, or order, to harmonize TB
treatment with the DOTS methodology. "We are practically almost there,"
says Vienonen, although he cautions that full government approval will be
needed before the World Bank money starts flowing and TB and AIDS patients
see any benefit. Vienonen has no idea how long that final hurdle will take
to overcome: "I've been in Russia for 3 years working on this," he says.
"I've stopped making predictions." 

*******

#13
The Wall Street Journal Europe
July 12-14, 2002 
Pulling NATO Readiness Weight in the Baltics
By VLADIMIR SOCOR
Mr. Socor is a senior analyst for the Jamestown Foundation.

VILNIUS, Lithuania and RIGA, Latvia -- Leaders of ten European countries,
from the Baltic to the Adriatic and Black Seas, met on July 5-6 here in the
Latvian capital to underscore their nations' resolve to join the enlarging
NATO. And, on July 8-9, the NATO-Ukraine Commission met in Kiev to review
Ukraine's substantive contributions already to the Alliance's activities,
and to prepare a new NATO-Ukraine Action Plan which can pave the way for
Ukraine also to join the alliance.

Such events illustrate two convergent processes. First, the Euro-Atlantic
gravitation of these recently freed countries, old borderlands of Western
civilization. Complementing that is the enlargement of the West itself
toward Eastern Europe and across Eurasia -- a trend that has gained
stronger momentum since Sept. 11 through American and NATO initiatives.

Among NATO candidate countries, it is the Baltic states of Estonia, Latvia
and Lithuania that lead the way in meeting the wide range of criteria for
membership in the alliance. Does their small size, or exposed location,
mean -- as some have suggested -- that these states are "indefensible"? No
assumption could be more mistaken. For one thing, the alliance's Baltic
enlargement would rule out military aggression in the region, guaranteeing
its peace along with that of all Europe. Just as importantly, the Balts
themselves are preparing and training for territorial defense, which can
effectively deter a hypothetical aggression -- or turn it into a very
costly affair for the aggressor, pending the arrival of friendly forces to
turn the tide. For such contingencies, the Baltic states -- in close
consultation with NATO -- are developing their capacity to provide what is
called Host Nation Support for allied forces.

Does it mean, then -- as some have fretted -- that the Balts intend to be
mere "security consumers," and not "security contributors," if admitted to
NATO? In fact, with little Western public notice, the Baltic states are
well along in becoming security contributors to the alliance even before
their accession. Their direct contribution -- as with almost any country --
is proportionate to their size. But, in the Balts' case, the contribution
is disproportionately high in terms of costs to their societies, while they
recover (and they are robustly recovering) from the Soviet Russian economic
morass.

As one measurement of that contribution, the Baltic states have committed
themselves -- politically and legally -- to spend 2% of their respective
gross national products on defense, mostly on NATO-related programs. This
2% is NATO's benchmark, but many current members fail chronically to meet
it, and turn a deaf ear when urged. The Balts are meeting it already, and
once in NATO, they -- along with some of the other aspirant countries --
will be a good example to older and more blase member countries.

"Military homework" for NATO is the motto in the Baltic states'
governments, parliaments, and of course their rapidly maturing military
establishments. The Baltic naval squadron, Baltron, is a mine-hunting and
-sweeping flotilla, NATO-interoperable, and training with NATO forces
constantly. In the current exercise period alone, Baltron is taking part in
the U.S.-led Baltops and Baltic Eye exercises, in the German-led Open
Spirit, in NATO mine-countermeasures training in the Baltic sea, and in
Danish-led search-and-rescue exercises, among other events. Baltron's
ships, mostly donated by Germany and Scandinavian countries, are aging but
fully operational, their technical equipment modernized, and their national
crews -- Estonian, Latvian, Lithuanian -- training to NATO standards.

The Baltic Air Surveillance Network, Baltnet, with radars in the three
Baltic states, by now provides the air picture of the entire Baltic region
to NATO operations centers. NATO recently gave political approval for
Balnet-NATO data exchanges to begin shortly on a regular basis. Baltnet's
hub, the Regional Air Surveillance Coordination Center at Karmelava in
Lithuania, is the easternmost NATO-interoperable surveillance center and
will become part of NATO's Integrated Air Defense System when Estonia,
Latvia and Lithuania officially become members of the alliance, or perhaps
even during the accession process.

The Baltic Peacekeeping Battalion, Baltbat, regularly deploys platoon- and
company-sized units with NATO forces in the Balkans. As its Estonian,
Latvian and Lithuanian components rotate there, a growing number of Baltic
soldiers gain invaluable experience operating with NATO allies. Baltbat's
training -- much of it in Denmark -- prepares this unit for peace-support
operations and also for wartime defense of the homelands. The upcoming
major international exercise, Baltic Eagle, will be watched for evidence of
Baltbat's progress.

The joint Baltic Defense College, in Estonia's city of Tartu, trains army
staff officers and battalion-level commanders mainly for the three Baltic
states, but also for other NATO aspirant and partner countries.
Baltdefcol's faculty consists largely of senior officers from NATO and
Nordic countries. Once the Baltic states become NATO members, all these
joint programs are to become part of the NATO Integrated Military Structure.

Because of their small size, the three states have to plan creatively on
how they might proportionately contribute to NATO Article Five operations.
This would mean rushing to the aid of an attacked allied country that
invokes the alliance treaty's article on common defense, NATO's bedrock. By
year's end, Lithuania will have a NATO-interoperable, deployable mechanized
infantry battalion, able on 30-day readiness to participate in Article Five
operations. Latvia and Estonia are considering alternative options for
their contributions to such operations -- for example, by their special
troops.

Military specialization is also now on the order of the day. Almost all
countries, but especially small ones -- member and candidate countries
alike -- can maximize the returns on their defense spending by focusing on
certain specialized activities, "niches" in which they perform best, as
part of a division of labor with alliance members, and an effective new
form of burden-sharing. For the Baltic states, the military niches can best
be used in joint efforts by the three countries. The Baltic niches of
special skills are already emerging: They include mine-hunting at sea,
naval divers (they are being trained at Liepaja in Latvia), explosive
ordnance disposal on land, military medicine, and crack special troops for
anti-terrorist operations.

While the Balts have been building their forces from scratch and been
spared the burdens of military reforms, other NATO candidate countries --
including now Ukraine -- are struggling with the high costs of reforming
militaries inherited from the Soviet era. On the other hand, Black Sea
countries such as Romania and Bulgaria can bring to the alliance their own
panoply of assets. These include forward deployment sites, strategic air,
sea and overland routes, and insertion in the Balkan-Black Sea-Caspian
space, which forms a continuum in terms of international security and
transit economics, also linking NATO Europe directly with Asia theaters of
antiterrorist operations.

The Cold War began when the Iron Curtain fell on the countries from the
Baltic to the Balkans. By the same token, the Cold War's legacy will not be
finally "buried" until these countries' Western choice is secure. They,
along with their Euro-Atlantic partners, now stand before a unique
opportunity to guarantee that choice permanently, through NATO's
enlargement across the entire front this year at the alliance's upcoming
summit.

******** 

#14
US Department of the Treasury
Accelerating Growth in Eastern Europe and Central Asia
Paul H. O’Neill, Secretary of the Treasury
Kiev, Ukraine
July 12, 2002

Good afternoon.

The nations that have emerged from the former Soviet Union are among the
most promising and dynamic in the world, teeming with human talent and
economic potential. On my tour this week through several of those nations
-- Ukraine, the Kyrgyz Republic, Uzbekistan, and Georgia -- I plan to see
for myself the results of a decade of economic and political reform, and
see the considerable challenges that remain. I expect to see gains, and
also disappointments.

By coming here, I hope to understand how the United States and our
international partners can best help your leadership to build on those
gains, and overcome the great challenges that remain, so that the people of
Eastern Europe and Central Asia can enjoy the rewards of the global
economy, and build prosperity at last.

I am not here to write prescriptions, or give a "how-to" course on economic
development -- there’s no such thing, and I wouldn’t presume to have the
answers. I am here to listen, and learn from your experience. At the same
time, I want to share what we have learned from around the world, and help
apply those lessons to your unique situations. In particular, I want to
emphasize the key principles of economic development: just rule, economic
freedom, and investment in people.

Your nations -- your people -- are important to the United States. We hold
a mutual interest in international security, including the war on terrorism
and the fight against weapons of mass destruction. And true security
depends on more than military might, intelligence, and arms control -- it
depends on a shared stake in the future of the global economy, ties of
trade, investment, and enterprise. It depends on common values of political
and economic freedom, even as we respect diverse cultures and appreciate
historical traditions.

There are many differences among our nations, and great differences among
the many nations of this part of the world. But in my travels to every part
of this globe, as a private sector leader and a government official, I have
witnessed three common principles that are beyond dispute.

The first was best expressed in the American Declaration of Independence,
which we celebrated last week: all people are created equal. It is
self-evident. People everywhere can do great things when they have the
tools and incentives for success.

The second is that with leadership -- honest, accountable, and committed to
progress -- everything is possible. Without leadership, nothing is possible.

The third is that a flourishing private sector drives sustainable growth,
higher incomes, and a rising standard of living for everyone. Governments
can create environments for growth, but the private sector drives it.

Knowing these principles, I can also say this: the gap between the enormous
potential of this region compared to real performance has been
unacceptable. Goals can and should be set high. A few points of growth each
year or spurts of high growth interspersed with declines are not enough to
achieve prosperity.

The road from the former Soviet Union has been difficult. After more than
ten years of transition experience, this is the time to take stock, to look
critically at what has worked and what has not. This is the time for
accountability and results. This is the time for leadership.

My visits this week and next will include meetings with national leaders. I
will also visit businesses, large and small, nongovernmental organizations,
schools, banks, farms, and Peace Corps projects. I will visit a village
water project in the Kyrgyz Republic, a dam in Uzbekistan, and a maternity
hospital in Georgia.

In these visits and others, I will be looking for examples of just rule,
economic freedom, and human investment, especially in clean water, primary
education, and health care. I will also look for examples of new private
enterprise, which drives economic growth. I will look for civic engagement
which is fundamental to a vibrant democracy. These are the ingredients for
success that I saw in my recent trip to Africa and my previous trips to
Russia and Romania, and while the details will vary in Europe, Africa and
Asia, the principles are constant.

Today I will focus my remarks on Ukraine’s progress in these areas.

Governing Justly

First, regarding just rule. Countries that want to unleash private sector
productivity and raise living standards practice good governance. They
enforce law and contracts, respect human rights and property rights, and
they fight corruption. The facts show that low income, high poverty rates,
and low foreign direct investment correlate strongly with excessive
regulation and government intervention, and weak property rights.

In some areas, Ukraine has taken bold steps. A little more than two years
ago, Ukraine’s government failed to pay for goods and services. Businesses
followed that example and failed to pay taxes. The government bartered its
obligations for taxes. The result was an impossibly opaque and distorted
economic system and low tax compliance, while wages and pensions went unpaid.

When the government took steps toward reducing barter and insisting on cash
payments for taxes and energy, we saw a huge response in the economy, which
started to confront budget constraints, market forces, and the need to
create real value.

Ukraine’s government is now pursuing the next items on the good governance
agenda: a fair, predictable tax system with low rates, uniformly applied,
additional budget accountability, and judicial reform and contract
enforcement. The word "contract," incidentally, does not appear in basic
Ukrainian laws. Contracts must have meaning and courts must enforce them.
When businesses must rely on special actions from political leaders to
solve disputes, the whole country suffers.

Economic Freedom

Second, countries seeking economic growth must encourage and protect
economic freedom. This includes removing barriers to trade -- both internal
and external -- and opening the national economy to investment. It also
includes allowing companies -- especially small and medium size companies
-- to compete without excessive government interference.

Surely, the fall of the Soviet Union proved the folly of putting central
planning over economic freedom, which is the heart of the free enterprise
system.

Ukraine has made progress on improving the climate for the creation and
growth of small and medium enterprises through deregulation and reduced
inspections. As a result, the number of small businesses has grown by about
140,000 between 1999 and 2001 -- an increase of 31%. But Ukraine still has
a long way to go in improving economic freedom throughout the country.

Two areas are especially critical to establishing a foundation for
prosperity: land reform and banking reform. A market-oriented banking
system allocates capital based on creditworthiness, far more efficient than
allocation based on political connections. Ukraine has made progress
reducing state ownership of land, and largely as a result agricultural
production has soared in recent years. Yet the potential is so much higher,
here in the Bread Basket of Europe.

Investing in People

The third essential component of development is investment in people. That
means targeting government spending where it can make the greatest
difference for people, thereby enabling them to achieve their potential in
the free enterprise system. Governments need to invest in clean water,
primary education, and health care -- especially the fight against AIDS.

These are the facts for Ukraine: The percentage of children completing
primary education in Ukraine is 58%, about the same as in Kenya. Health
care is weak. Life expectancy for men fell by three years between 1990 and
1999, and the rate of HIV infection is now 1.29%, already above the global
average, and soaring rapidly. Intervention right now could avert disastrous
infection levels.

Still, there is progress. Tomorrow I will visit a project to fight
trafficking in women. Projects like these are encouraging because it shows
that the Ukrainian people are willing to protect women and give them better
alternatives so that they can achieve their potential.

In addition, through the Agency for International Development, the United
States has been working with the Ukrainian government and various
nongovernmental organizations to stem the rise of tuberculosis and
HIV/AIDS. The fight against tuberculosis has focused on identifying
systemic problems in drug management and health care diagnostic systems.
For HIV/AIDS, we are helping to develop a national prevention program in
Ukraine, which includes new programs for reaching at-risk youths in cities
and distant regions.

Challenges in the Caucasus and Central Asia

Tomorrow I will leave here to visit three more countries: the Kyrgyz
Republic, Uzbekistan and Georgia. While unique in culture and history,
these countries share a Soviet past with Ukraine, and know the social and
economic challenges of charting a new, independent course.

In the Kyrgyz Republic, 49% of the population lives on less than $2 per
day; in Georgia and Uzbekistan 24% and 22% do. In the Kyrgyz Republic, just
66% of the rural population has access to clean water. In Georgia,
secondary school enrollment has fallen sharply -- by 30 percentage points
between 1980 and 1998.

Each of these countries needs a healthy private sector, especially new
small businesses and foreign investment, to move ahead. Former state
enterprises cannot drive an economy. And without good governance, smaller
businesses hide in the shadows, staying small to avoid attention from
corrupt officials. Weak rule of law, corruption, and poor enforcement of
contracts scare away domestic and foreign capital, and prevent individuals
lacking political connections from making their full contribution to
economic growth. And these countries need to think differently about water
and energy. Reforms in these sectors will bring higher productivity and
regional integration.

When I visit these countries I will address those issues, as well as call
attention to local success stories.

But I will also point to Ukraine. Ukraine, at the nexus of Europe and
Russia and on the cusp of Central Asia, is an important country in the
region, especially with respect to its transition experience. Ukraine’s
successes and setbacks can be important lessons for these countries to draw
upon.

I will also emphasize how transition economies as different as China and
Hungary have relied on trade to grow. Not just trade with rich countries
such as the United States, but regional trade with their neighbors. Central
Asia was once a crossroads for half the world, the center of the old Silk
Road, and a hub for trade in all directions. It must become so again.

What the U.S. Is Doing

Over the last decade, the United States has worked with the international
community to support the transition of Ukraine and all of the former Soviet
states to market economies, with market institutions, and representative,
democratic governments. Multilateral and bilateral assistance has helped
put an end to hyperinflation, stabilize Ukraine’s economy, and lay the
foundations for essential structural reform in agriculture, energy,
banking, and the business environment. But substantial work remains to be
done.

The United States, our partners, and the multilateral institutions cannot
dictate solutions to local problems—not in Ukraine, or anywhere -- we can
only support dedicated local and national leaders as they make difficult
decisions -- decisions that are in the interest of the majority of the
Ukrainian people, and not just for a privileged few.

I have long believed that small and medium businesses play an important
role in this process -- not just in creating jobs and generating growth,
but also in building institutions and shaping democracy.

It is for these reasons that official development aid and financial
assistance programs must target well-managed businesses that would not
otherwise have access to capital. In particular, the European Bank for
Reconstruction and Development is supporting micro and small lending
operations in Ukraine, such as the creation of a dedicated microfinance
bank in 2001. The U.S. has contributed $4 million to support the start-up
of this bank and other partner banks. In 18 months, the Microfinance Bank
has extended loans totaling $111 million. I will have the privilege of
opening a branch of this bank tomorrow in Donetsk. By the end of 2003, our
hope is that this branch will have made 7,500 loans totaling $55 million.
The United States believes so strongly in this endeavor that it is
mobilizing $3.4M for the expansion of these operations elsewhere in the
region -- to Georgia, the Kyrgyz Republic, and Uzbekistan.

Other U.S. initiatives, like our enterprise fund in Ukraine, make direct
investments in business ventures and are making a big difference here. But
success requires good corporate governance and strong shareholder rights,
which the government must address. And private financial institutions in
Ukraine have far more potential than they can realize today. This country
lacks a legal basis for asset-backed lending such as mortgages and
equipment leases.

But just as concrete results require tough decisions and good leadership on
the part of the country, so too do they require responsibility on the part
of the international community to insist that aid makes a meaningful
contribution to the lives of the people it serves.

Since I became Treasury Secretary, I have been determined to reform the way
in which the World Bank and the other multilateral development banks do
business. They must improve the effectiveness of their assistance. Rather
than focusing on inputs, I want them to focus on results. In Ukraine, the
focus on results in recent years has in fact produced results. The
international community worked with Ukraine to set explicit targets for
cash collections in energy and for reducing wage and pension arrears.
Reaching these targets brought real improvements in Ukraine’s budget and
energy sector and set the stage for strong growth.

Conclusions

We know from simple observation that the people of Eastern Europe and
Central Asia have the potential to reach a level of fulfillment and
economic prosperity that matches the highest attainment in the world. But
in the ten years since the break up of the Soviet Union the transition to
that condition has been painfully slow. In some places, democracy and
private enterprise are seedlings, their roots still shallow. Instability
and extremism still threaten them.

But the attention of the world, and the United States, has turned to these
regions, their vast potential for growth, and our common security
interests. We are ready to help where responsible, accountable leadership
is committed to sound policies: ruling justly, encouraging economic
freedom, and investing in people. We also appreciate your efforts to fight
the war against terror.

I believe that Ukraine can again be the breadbasket of Europe; and Central
Asia can again be a hub for trade in all directions. Working together to
achieve real results, we can unleash the human potential -- we will not be
satisfied with anything less.

*******

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