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                  Office of the Press Secretary
                         (Tokyo, Japan)
For Immediate Release                           July 8, 1993     
                         PRESS BRIEFING
                           Hotel Okura
                          Tokyo, Japan

7:05 P.M. (L)

MR. GERGEN: Good evening. Ordinarily, we begin with a readout, but we'd like to reverse the order tonight. Secretary Bentsen is here with a statement. He is due for a dinner fairly quickly, so he'll be able to take a couple of questions and then he must move one. After that, Strobe Talbott and Larry Summers will be here and they will both -- all three will be on the record, available for camera. And then at the conclusion of that, we'll come back with a readout from the afternoon session.

Secretary Bentsen.

SECRETARY BENTSEN: Earlier today I commented to some of you that I was encouraged by what -- in the way of support for the privatization fund that President Clinton has proposed for Russia. So I'd like to deal a little more in specifics.

I am totally convinced that other nations and international institutions are going to join the United States in undertaking a substantial program that will support privatization of large-scale enterprises in Russia.

Russia, under President Yeltsin, has made substantial progress when it comes to the privatization of small businesses. When I was over there a month ago, I was told of some 60,000 businesses that had been privatized. But those were small ones. When you get to the larger ones it's somewhat more difficult. Sometimes in a region they'll be virtually the only employer and they'll be supporting the social structure there.

And to get that changed to products that will meet the demand of the Russian people, to be able to modernize it, to get the funds for that purpose is something we think is quite basic and quite essential.

In this instance, I think that the key elements of this program will be a $500 million contribution for technical assistance and to subsidize investments in businesses from G-7 countries; $1 billion export credits; $1 billion from the World Bank, European Bank for Reconstruction and Development, and the IFC in support of privatizing and restructuring enterprises; $500 million from the World Bank for support for local areas affected as large enterprises are restructured. The problem you have with some of these big industries being the only ones in that area is that they support the entire social structure in that particular area, and that has to be accounted for.

Overall, we're talking about $3 billion, and that to be done in some 18 months. If you remember we were originally talking about $4 billion, but that was to be done over a sequence of years. Here, we're talking about an accelerated, expedited program and a total of $3 billion. And I think that's really a contribution to be applauded and will be of substantial assistance to the Russian government.

Now, I'll take such questions as you might have, and then I'll be going on and I'll turn it over to Strobe Talbott and to Larry Summers.

Q What's your expectation about Russia's ability to absorb the money and put it to productive use?

SECRETARY BENTSEN: They've done a remarkable job in six months on 60,000 small businesses. To some degree, you're seeing them move faster than parts of Eastern Europe. So I'm optimistic that this can be done. The structure is there for that purpose.

Q Mr. Secretary, earlier you were talking about a package of $2 billion. Could you explain how you got from $2 billion to $3 billion?

SECRETARY BENTSEN: It wasn't easy. And I'm going to let Strobe Talbott and Larry Summers tell you about the arms that have been twisted on that one.

Q Have you actually gotten commitments, hard commitments for the $3 billion?

SECRETARY BENTSEN: That's right. We have commitments -- let me put it another way so I can stay within the rules. I'm optimistic that we're going to have that $3 billion by the close of this session.

Q The original package was $2 billion grants and $2 billion loans. Now it's $500 million in cash and then whatever it is -- $2.5 billion in loans. And the Russians have long complained about credits being piled on. I mean, why more credits and why not more cash?

SECRETARY BENTSEN: Well, in all candor, part of the discipline of a loan is seeing that you comply with the conditions of it. And what we're insisting on is that the Russians -- that these are conditional things dependent on their being able to take care of inflation, have the kind of discipline that has to be exercised to stop the expansion of credit. A loan does that more effectively than a grant.

Q Do you think Yeltsin has the Central Bank under control?

SECRETARY BENTSEN: I think that they have an agreement between Fyodorov and Garashenko that has resulted in some reduction in inflation, has brought the price of coal more close to market value, has done some increases in the price of oil, has increased the interest rates by about 140 percent, and that has been in conjunction and with cooperation of the Central Bank.

Q Is that agreement firm enough for you, in your mind?

SECRETARY BENTSEN: The other part of it is, the $1.5 billion that's been sent there by the IMF was done as a result of those advances made in the control of credit and inflation. But there's another $1.5 billion that's waiting from the IMF that is conditional on their continuing to accelerate that kind of control.

Q How far down the road to modernization will this $3 billion fund push Russia? And what does this say about the G-7's faith in Yeltsin's ability to --

SECRETARY BENTSEN: Well, I think it shows the confidence in President Yeltsin, and that's very important. Insofar -- obviously, this by itself cannot make that major a change, but it does give the initiative for them to be able to demonstrate what they can do toward further privatization and democratization of that government.

The other thing that will do as they begin to get that accomplished, that will also encourage private enterprise to come in with major capital in that event.

Now, if you'll excuse me.

MR. TALBOTT: Good evening. Let me pick upon Secretary Bentsen's last observation and, in order to put what's being announced here this evening into a political context, just recall for you briefly the record of President Clinton's confidence in Boris Yeltsin and what Boris Yeltsin stands for. This goes back to the campaign -- to the earliest part of the campaign last year in President Clinton's first major foreign policy address when he was still a candidate back in December of 1991. He stressed the importance of American support for Russian reform.

He made clear at the outset of his administration that support for reform in Russia and Ukraine and the other new independent states of the former Soviet Union was going to be the number one foreign policy priority of his administration.

Let me just recall for a moment the events of March 20th of this year when President Yeltsin was locked in a confrontation with the Russian Parliament. In that moment of crisis there was some controversy over President Clinton's decision -- within an hour or so of President Yeltsin's speech announcing that he was throwing down the gauntlet to the Russian Parliament and calling a referendum, there was some controversy about whether President Clinton was identifying too much or supporting too exclusively President Yeltsin as a single leader. And President Clinton's response at the time and the administration's response since then has been that the Clinton administration is not just supporting President Yeltsin, it is supporting President Yeltsin and what he stands for, which is the process of reform in all of its manifestations in Russia.

In his Annapolis speech on the eve of the Vancouver summit, President Clinton used the phrase that the United States was going to pursue for many years to come what he called a strategic alliance with post-communist reform. One of the most important manifestations of reform in Russia in the economic area is privatization. At Vancouver, President Clinton announced a bilateral package of assistance for Russian reform programs totaling $1.6 billion, but at the same time he made clear that he wanted to use American assistance efforts to leverage support from the international community. And that's why less than two weeks later Secretary Christopher and Secretary Bentsen came here to Tokyo and announced at that time the $1.8 billion package which has since been passed overwhelmingly by the House of Representatives and is now before the Senate.

The results of the referendum on April 25th in Russia I think gave great heart not only to President Yeltsin, but also to President Clinton, and it gave us a sense that there was indeed a great deal of popular support for what President Yeltsin is trying to do there.

Since April 25th, we have seen I think a steady buildup of momentum for reform in Russia both in the political and in the economic area. In the political area, we have seen gathering support for a new constitution -- Russia's first postSoviet constitution. We have seen the likelihood of elections this fall that would produce a new parliament with which the Yeltsin government would be able to work. And in the economic area, as Secretary Bentsen has said, we have seen considerable progress in the area of privatization.

There has been momentum for the United States as well, and its policies, and I think that's particularly manifest in the support that the $1.8 billion Tokyo package has received in the United States Congress so far.

On Saturday, President Clinton and President Yeltsin will be sitting down for their second meeting. It is safe to assume that President Clinton will use that meeting to give a report to President Yeltsin on the progress that he feels has been made so far, both in bilateral and in multilateral assistance for reform in Russia.

And I now turn the podium over to Larry Summers.

MR. SUMMERS: I'm going to stick to the economic aspects. Six months ago, there were two real risks in Russia: Hyperinflation and a return to communist government. Both those risks are much more remote today. Where inflation was one percent a day, meaning thousands of percent a year, in January, the inflation rate has fallen very substantially and is no longer measured in the thousands of percent at an annual rate. That's a reflection of the efforts that the Russians have taken to stabilize, and the commitments they've made. Those commitments were recognized when the IMF provided support under the Systemic Transformation Facility, the facility that was inaugurated following the Tokyo meeting in mid-April. Russia has a long way to go, but it is back from the brink of hyperinflation.

The second great concern was a return to communism. And there, the thing that makes the process of reform irreversible is privatization. As Secretary Bentsen said, that's occurred on a very substantial scale -- 60,000 enterprises. On some statistics, 10 percent of the employees in Russian industry are now in privatized firms. But privatizing small enterprises -- shops, restaurants and the like -- is much easier than privatizing large ones, which is why this privatization program will be such an important shot in the arm to the reform effort.

I think it's fair to say that in a real sense, in terms of Russian economic reform, as Churchill said, we may not be at the end, or even at the beginning of the end, but we are at the end of the beginning with these key steps toward stabilization and towards privatization.

Strobe or I are happy to answer questions.

Q How did you get up from $2 billion to $3 billion? Where is the --

MR. SUMMERS: We've been engaged in discussions with our G-7 counterparts for a couple of months now on this program, and with the international financial institutions. Two billion dollars was never any kind of official figure. We knew this program would take shape at the summit, and the shape at the summit and the shape it's taken was indicated to you by Secretary Bentsen as he laid out the role of grant financing, the role of export credits and the role of the international financial institutions.

Q When the $4 billion figure was mentioned, did that also include the export credit?

MR. SUMMERS: The $4 billion figure referred to bilateral contributions and contributions from the international financial institutions. The bilateral portion -- part of the bilateral portion has been provided through in what has resulted -- has been provided through export credits. The precise form of that contribution wasn't clear when we laid out the original proposal -- $4 billion. Something that I think needs to be stressed is that this is, as Secretary Bentsen said, an 18-month initial phase of this program.

What the United States had originally proposed was a $4-billion multiyear program as we discussed this program with our G-7 counterparts, the judgment was that this was sufficiently uncharted territory, that it was better to have a solid program for an initial phase and take stock of the results of that program, and I expect that the next summit will be an opportunity to do that before making commitments on a multiyear basis.

Q the U.S. share of the $4 billion was supposed to be a $.5 billion. What's the U.S. share of the --

MR. SUMMERS: The U.S., we anticipate, will contribute $125 million in grants and technical assistance, and will make available $250 million in export credits.



Q Larry, to clarify a point, it's always difficult to get the -- the previous aggregate for $43 billion aid package -- now, -- what Secretary Bentsen -- from all the other financial institutions, including World Bank -- some of that can come from what was already included in the $43 billion. What is the net increase from that $43-billion aid package?

MR. SUMMERS: I don't think it's so helpful to add together to the $43 billion, which was itself combining credits with grants with indications of debt relief. I think they key point is that, in the technical assistance budget, we have budgetary commitments from other countries which have never previously been part of a program.

In the export credits, we have money which previously was committed to state enterprises. We have the first set of commitments to provide credits to privatized enterprises, and we have an expanded role for the international financial institutions in providing support for privatized enterprises.

Q confirm -- of the $3-billion privatization - - a large percentage of that money was already included in what was counted on in the World Bank --

MR. SUMMERS: No, there's never before been a commitment to provide export credits to private enterprises. The G-7 -- the $500 million in grant assistance is money that is not counted as part of the $43-billion program. There were general commitments by the international financial institutions that did not include these specific forms of assistance. It's possible, and those commitments in any even referred to one year from April, rather than the 18 months that this program refers to. So I would say the lion's share -- so, because of those ambiguities, it's difficult to answer your question precisely, but I would say it would be fair to characterize the lion's share of this as commitments to provide support to private enterprises that weren't there three months ago.

Q the most desirable way to finance privatization? I mean, what if they don't want to buy new cadillacs for their executives? I'm not quite sure I understand how this is going to help --

MR. SUMMERS: I think the experience with supporting enterprises around the world is that, to use the economists' lingo for a second, hard budget constraints make a difference. That money that's provided with an obligation to insure that it's repaid, and therefore has to be invested well is more effective in supporting the private sector than money that's provided without a hard budget constraint. We're not anticipating that there's

going to be anything like fleets of Cadillacs that these export credits are going to provide, but they are going to provide necessary equipment -- necessary equipment for enterprises as they restructure.

Q How many enterprises -- how many people are going to be affected by this? And what criteria do you intend to use to measure the effectiveness of this program --

MR. SUMMERS: I can't give you a precise figure on the number of enterprises that will be affected. That depends upon how widely the money is spread. But I think we would expect that large -- I would say you could certainly say large numbers measured in the hundreds of thousands and quite possibly in the millions of workers would be in enterprises that would be affected by this program and I think the test of the program will be whether we see the momentum of privatization in Russia, which has been tremendous but concentrated more on small and medium sized enterprises -- whether we see that momentum of privatization continue over the next 18 months. And I think if we provide the kind of support we're trying to, then you'll see that momentum continue.

Q Is any of the new money you mentioned from countries outside the G-7? And who is going to oversee that the money, including the grant money, is properly spent, that it doesn't get used in any way for bribes or corruption?

MR. SUMMERS: The G-7 countries will be seeking support from other countries. But the $500 million commitment that I refer to is a commitment just of the G-7 countries along with the European Community. This will be a program, and countries will consult together. But each country will have responsibility for using its technical assistance resources well.

Q Who is going to decide which companies get the money -- which enterprises receive the credits?

MR. SUMMERS: The different -- there are different elements in the program. The World Bank will decide -- in consultation with the Russian government, of course -- decide which enterprises will be beneficiaries of its privatization loan. Export credit agencies will do the same thing with the export credits.

Q Can you explain this $500 million World Bank loan? I mean, the Secretary suggested it was to support transitions in company towns where there's only one company. What is that money going to be used for?

MR. SUMMERS: It will be used to make the -- in many of these towns, the large-scale enterprise also provides the health care, also provides the education, also provides the butcher shops where people buy their meat. So when those enterprises are restructured and put on a more traditional market basis, there are obviously going to be some expenses incurred in facilitating the continuation of those activities. And that's what will be supported with this loan.

Q Can I follow up? So this is a social safetynet loan, this is not --

MR. SUMMERS: No, it's not a social safety net. It's not a loan to support -- it's not a loan for direct payments to people who are unemployed. This is an investment loan in providing -- in the provision of critical services of a kind that were previously provided but can't be provided in the way they were after restructuring.

Q Can you review the legislative status of this money? Is the $125 million that's now moving through Congress?

MR. SUMMERS: It's the $125 million that's now moving through Congress, exactly.

Q The export credits do not have to --

MR. SUMMERS: The export -- the money from which the export credits will come has already moved through Congress.

Q So none of this requires new legislative mandates?

MR. SUMMERS: None beyond the carrying through of the $125 million.

Somebody asked a question for Mr. Talbott.

Q Can you tell us what Western taxpayers are getting for the $3 billion?

MR. TALBOTT: The premise of this administration's policy towards Russia -- to pickup on a word that Larry just used -- that this is an investment. That Russia is a -- not just a giant country geographically, but also that it's a country that is rich in natural resources and rich in human talent. And once it succeeds in making the transition that it is now undertaking -- which is, by the way, really three transitions in one. It's a transition from a totalitarian dictatorship to a democracy, and from a command economy to a free market, and from an imperialistic system to a modern nation state -- once it completes that transition, it will be a very important partner for the United States and its allies around the world. It will be an extremely important market for American goods and services, which is to say the results of American labor as well as a reliable source of raw materials and indeed ultimately manufactured goods as well for the international marketplace.

One last question.

Q Secretary Bentsen said you'd tell us whose arms were twisted to get the extra money. Do you want to tell us who they were?

MR. TALBOTT: I think he also volunteered his colleague, Larry, to answer that.

Well, I would say it was not a matter of twisting arms. It was a matter of taking a new idea, which, by the way, was presented, we admit, very much at the last minute at the midApril joint ministerial meeting here in Tokyo -- taking that new idea and trying to persuade our colleagues in the G-7 that it had merit and it had promise. Nothing like this has ever been tried before. I don't think it's surprising that it took a couple of months of fairly intensive discussion with our colleagues in the G-7, and I think it's very gratifying that the arguments in favor of the idea prevailed. And I would like to give Larry a chance to add something, since he was the most eloquent advocate of this with his G-7 counterparts.

MR. SUMMERS: It's something we were -- I don't have much to add to what Strobe said. It's something that was worked out in a process of consultation between the United States and other G-7 countries. There was, I think, from the beginning a shared sense of the importance of support for large-scale privatization as a key element in the reform process. Countries are in very difficult budgetary situations, as is the United States. There are somewhat different perspectives in different countries on the process of privatization, and so it took an extensive period of discussion.

But I think we've got an initial program -- and I want to come back to that -- an initial effort in this area that's got the potential to make a very important contribution.

Q Wasn't it also the case of you had to change the ministerial -- the program for the ministerial because the individual countries wouldn't pony up?

MR. SUMMERS: We put forth a proposal for discussion, and proposals for discussions always evolve in the course of their discussion and elaboration. But to have $3 billion of support going for privatized enterprises inside of 18 months is something that I think will make a real contribution.

MR. GERGEN: We're expecting a formal announcement with regard to this $3-billion fund tomorrow. And in that regard, we'll provide you a fact sheet which I think will lay out in more detail some of the elements here that were discussed tonight.

Now, there was a question that arose earlier today in the briefing from Brit about Somalia, and we were operating at that point from some sketchy information. Sandy Berger is here and will address that briefly, and then we'll do a brief readout from the afternoon session.

MR. BERGER: There was a question raised at our earlier briefing about the operation in Somalia that took place earlier. It involved 350 Marines who were part of the Marine Amphibious Readiness Group, the MARG, which is offshore in Somalia. It's a civic action exercise that was done at the request of civic leaders in northern Somalialand. This hundreds of miles from Mogadishu. These Marines will be there for a few days, engaged in some instruction and some other kinds of specific programs and, presumably, will be back aboard the WASP in two or three days. It is not a military operation; it was done, as I say, at the request of the leaders and under the coordination of the United Nations.

Q It was 350?

MR. BERGER: Three hundred and fifty.

Q The two thousand figure was just flat wrong?

MR. BERGER: Correct. There are two -- I don't know where that comes from, except that the Marine Amphibious Readiness Unit is a unit of about 2,000-plus, Brit, that was brought back around towards -- in the Gulf of Aden a few weeks ago, and aboard the WASP, and so the overall number of Marines that are floating off in the Gulf of Aden is 2,000 to 3,000.

Q What is it they're going to do, exactly -- are they going to assist in construction projects?

MR. BERGER: There apparently are some bridgebuilding kind of civic action efforts that were requested by local leaders, and that is something that is very much a part of the UNISOM operation in Somalia. Let's not lose sight if its objective, which is nation-building, and this is part of it.

Thank you.

END7:35 P.M. (L)