U.S. Strategy for Responding To Russia's Transformation

US Department of State Dispatch, Oct, 1998

In the long run, the gap between Russia's needs and its resources must be met not by foreign bailouts but by foreign investment. Furthermore, what will truly help Russia now is not more people betting on its T-Bills but more people betting on its factories, oil fields, and people.

We need to remember that Russia has tremendous inherent wealth. Yet it has only attracted a trickle of outside investment where there should have been a bonanza. Had the conditions been right, it is estimated that investors could have pumped more than $50 billion into Russia's oil and gas sector alone. As it was, in 1997, energy investment didn't even reach $2 billion.

Just think how much could have been done if investment on this scale had been coming into Russia from the very beginning of the 1990s. Those who blocked it have a lot of explaining to do to their people.

One of the obstacles has been Russia's inability to approve adequate legislation on production-sharing agreements and to create a stable, predictable tax system, which would create an environment for attracting investment. A related obstacle has been the sense among many Russians that accepting foreign investment means selling their country. President Clinton and I have been making the case that this is a dangerously short-sighted view. We have pointed out that foreign investment has fueled growth in every thriving emerging economy from Latin America to central Europe, that it helped build America in the 19th century, and that attracting foreign capital to America is one of our highest priorities today.

By welcoming long-term, committed capital, Russia is not giving away its national patrimony; it is gaining jobs, growth, and tax revenues. It is gaining advances in technology that will allow it to market its resources at competitive prices. It is gaining a corporate culture that will help it to replace robber barons with responsible stewards of its national treasure. It is gaining investors who will not fly home or move their money to Switzerland at the first sign of trouble. I gather that some of those who are beginning to understand all this include Russia's governors--who see, like our own governors, how much foreign investment can do for them.

Let me acknowledge the many members of the U.S. business community who have had the guts to hang in there despite all the difficulties you have suffered and uncertainty you have faced. I thank you all for that.

As long as the Russian Government is willing to play by global rules, foreign governments and institutions will help it to weather tough times. And whatever the policies of the government, we will try to support programs that help the Russian people and advance our shared interest in democracy.

In response to the current crisis in Russia, we have been re-examining all our assistance programs, retargeting money where it can be used effectively to support economic and democratic reform. We will increase our support for small business and the independent media and try to bring a much larger number of Russian students, politicians, and professionals to live and learn in America. And we intend to launch a lifeline to non-governmental organizations whose funds have been frozen in Russia's banking crisis.