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Office of the Press Secretary

                       BACKGROUND BRIEFING

January 13, 1994

The Briefing Room

4:21 P.M. (L)

SENIOR ADMINISTRATION OFFICIAL: Good afternoon everyone. I am going to speak very briefly about the first expanded meeting that was held this morning in the Kremlin. It was on economic issues. It followed the initial one-on-one meeting between President Clinton and President Yeltsin.

Let me just say a few words to fill in some of the detail, and to add to what Secretary Bentsen and Secretary Christopher said. Another Senior Administration Official will follow me with some more detail and then we'll be glad to take your questions. I would say this was an excellent meeting. In fact, of all the meetings that I've been to since 1989, all the summits, this was the single best meeting in which I had participated.

President Yeltsin, at the end, said that it was fruitful, specific, exciting and constructive. Both Presidents were engaged on the strategy of the session and both on the details, details because they discussed many of these issues at Vancouver and Tokyo. They committed themselves to continuing the economic relationship they began at Vancouver, and they were both adamant that their governments both execute what they said they were going to do.

The meeting was two hours. It was twice the scheduled time. In fact, at one point when we neared the scheduled completion of the meeting, President Clinton said that we should simply disregard their clock and continue because the discussion was so intensive.

The Russian delegation, President Yeltsin and his ministers, essentially presented their views of the economic reform program as it now stands and what their intentions are. Prime Minister Chernomyrdin spoke as well as President Yeltsin, also Minister Fyodorov and Minister Davidov.

My colleague will discuss with you their comments on the reform program and also international assistance. Let me just limit myself to bilateral issues. President Clinton reported, in essence, to President Yeltsin on the past year's performance in the delivery of U.S. assistance. I think you've got the figures.

At Vancouver there was a $1.6-billion program announced by President Clinton. It has been 100 percent obligated, and 69 percent of those funds have been expended. In ten months this is a very solid record. He also talked about the additional $2.5- billion package of assistance appropriated by the Congress in September.

The President distributed a map in Russian which shows where the aid has gone. The great majority of this assistance, U.S. assistance, has gone outside of Moscow and St. Petersburg, the two major cities. We have copies of that map in English available to you if you would like to see it. It shows what types of projects have been delivered to which regions.

The President ran through a number of commitments that he had made to President Yeltsin in Vancouver and gave essentially a status report. Let me give you a few examples: The Enterprise Fund that was announced in Vancouver, $300 million, opens its doors next week. It's chair is Jerry Corrigan, formerly Governor of the New York Fed.

There is going to be a new second enterprise fund devoted to assistance to the large state enterprises. My colleague will tell you about that. The former Secretary of the Treasury, Michael Blumenthal, has been appointed by President Clinton as the head of that. It's capitalized at $100 million.

Secretary Bentsen mentioned that we are setting up a G-7 office in Moscow, as was agreed at the Vancouver Summit, and an American is heading that office. They also discussed trade and investment, and President Clinton made the point that this is, in many ways, the most important part of their relationship for the future.

There was a considerable amount of discussion about the activities of the Gore-Chernomyrdin Commission. President Clinton told President Yeltsin that Secretary of Commerce Ron Brown will be coming with a presidential trade mission, with a group of CEOs of major American corporations in early March to concentrate specifically on what we're calling the Pioneer Projects in Energy, in oil and gas.

President Clinton specifically mentioned a couple of projects. One was Texaco's project -- Timon Pechora. The other was the Sakhalin Island offshore oil deal in which Marathon and McDermott, two U.S. companies are involved. Both are multibillion-dollar deals. Both, we think, would make a difference here, once they are concluded.

In addition to that, the President reviewed a number of steps that he thought that the Russian government could take to improve the business climate -- tax measures, regulatory measures, ratification of a bilateral investment treaty. They finished the discussion by reviewing the market access issue. Essentially, both of our governments want to reduce barriers to trade. There are things that both Presidents can currently do within their powers to accomplish that.

There are other measures that are much more difficult to contemplate, and they agreed that they would undertake together an effort to try to look into the market access issue.

Having said that, let me just turn it over to my colleague for some comments, and ten we'll be glad to answer any questions you have.

SENIOR ADMINISTRATION OFFICIAL: Thank you very much. I want to comment briefly on the Russian economic situation, on two of the initiatives -- the large enterprise fund and the support implementation group that my colleague referred to, and talk about the international financial institutions' role in supporting reform in Russia.

Finance Minister Fyodorov commented in the bilateral meeting and commented in the meeting he had with Secretary Bentsen that he had recently completed a review of Russia's economic situation in 1993. And he highlighted, and President Yeltsin did also, the very real progress that has been made. Everybody highlights the tremendous achievements in privatization, where more than 40 percent of the employees and large manufacturing enterprises are now working in enterprises that are in private hands. More than 70 percent of the small shops and restaurants are in private hands, and both those figures will be approaching 100 percent by July of next year.

But Minister Fyodorov also emphasized -- and I think the President welcomed -- the progress that has been made in stabilizing Russia's economy. Inflation's down by a factor of 2.5 from where it was nine months ago. The ruble has appreciated very substantially in real terms. That's why, as Secretary Bentsen said, dollar wages are three times as high as they were. And real interest rates -- for the first time in 1,000 years -- are positive in Russia, and that means that the capital that had been flowing out is flowing back into the country.

There was an agreement on both sides -- a very strong agreement -- that the work of reform, of stabilization, of privatization had to, and would, continue. I think it's a -- if I might interject a personal comment -- it is remarkable to think, if one thinks back five years or ten years ago, that one would think of what one meant by "tough" in the context of a Russian-American summit as "tough" means being strongly opposed to inflation; one thinks about the kinds of messages that "tough" meant even a decade ago.

We talked about how the U.S. program of assistance can be more effective. One of the initiatives that was discussed was the fund for large enterprise reform. This will be an initiative very much like the privatization fund that Mr. Corrigan is heading -- the Russian American Enterprise Fund -- but directed at the particularly difficult and challenging problem of reform of large enterprises, and it will make equity investments in those enterprises because that's what Russian enterprises need. They don't need more debt where the banker's going to come knocking on the door in six months, they need access to equity.

President Clinton also referred to the support implementation group whose director, Michael Gillette, is now in Moscow that will undertake the hard work of trying to cut through the red tape so that assistance can -- red tape in the West and red tape in Russia so that assistance can move more effectively.

Finally, the President discussed with President Yeltsin a number of areas and approaches through which the cooperation between Russia and the international financial institutions can be energized in the context of reform. These included carrying through promptly, in the context of reform, on the program of assistance that was agreed in Tokyo last April. That means measures such as the STF, such as critical import lending from the World Bank. President Clinton indicated that the G-7 was determined that reforms, as they come, be promptly supported.

President Clinton also discussed the importance that we attach to the rapid implementation of the privatization and restructuring program that was agreed at the Tokyo Summit, and in particular to the support for oblasts in the context of that reform that would enable essential social services to be maintained as privatization took place.

President Clinton also emphasized the importance that we attach to cushioning the consequences of reform. He emphasized his willingness to provide American technical experts in the design of programs to ensure economic security. And he stressed out desire to respond, creatively and flexibly, in the international financial institutions to Russian proposals as to how the transition could best be cushioned.

And while President Yeltin did not respond in a highly specific way to that, he made clear that he welcomed that support on President Clinton's part, and that a dialogue would ensue. So the overall message of the meeting was, I think, a very positive one; stronger reform, stronger support is what's going to happen, moving forward.

Q Can you be a little bit more specific in detailing for us what will be used to respond to a vote on December 12th that was largely seen as a vote against reform so far and an unhappiness with the state of the economy in Russia? What specifically --

SENIOR ADMINISTRATION OFFICIAL: I don't think the Russian officials that we have spoken with would accept the conclusion that the vote was a vote against economic reform. They would, I think, say, and it would certainly be my view that what we had was a vote against difficult economic conditions, and that the way to alleviate those difficult economic conditions was through continued economic reform. And, indeed, I think one of the very encouraging parts of the discussion was precisely the fact that the economic diagnosis on both sides was so similar.

SENIOR ADMINISTRATION OFFICIAL: Let me just add to that. I just want to give you a sense -- and I'll paraphrase something that President Yeltsin said at the very end of this long and very good meeting. He essentially said -- I'm not quoting, I'm paraphrasing -- that he thoght he had an excellent team of reformers in the government, that there would be no backpedaling on reform; he wanted to assure President Clinton of that. That reforms would go ahead steadily and, in fact, they would intensify. And I think that the lessons that we heard from the Russian delegation today were that reform must continue.

They've obviously -- there are obviously some improvements that can be made in the prosecution of economic reform. They were looking for some ideas from us and we gave them some ideas about how the G-7 and the international financial institutions could assist that process. And that, by the way, is the major conclusion that the Clinton administration draws from these elections -- that reform must continue, and alongside it must come a development of a more comprehensive social safety net system to cushion people as they experience the shocks and the difficulties, the real difficulties during the transition.

Q Your colleague made the point that you shared the same diagnosis of the problem. But are you confident today, on the basis of your discussions, that you share the same prescription; particularly in terms of restructuring the budget, taking subsidies away from industries, using those to put down the deficit and to cushion some of the impact of the social and economic reforms? That's the prescription you've laid out. Are they committed to that prescription? That's the issue -- there's reform and there's reform.

SENIOR ADMINISTRATION OFFICIAL: We didn't -- in the meeting of the heads of state there was not a technical and detailed discussion of reform strategy. However, President Yeltsin did make it clear that there had to be more rapid motion on inflation. We did refer -- Secretary Bentsen did, at one point, refer to the need to control the growth of credits and there were nodding heads on the Russian side. In our discussion -- in the discussions that Secretary Bentsen had with Minister Gaydar and with Minister Fyodorov, there was, I think, agreement on the broad strategy.

Q We receive a continuing succession of briefings in Washington and places like this about meetings that are invariably described as "good". I've never heard one described otherwise; you have dusted off the superlatives to describe these meetings. Other than the fact that each side seemed to tell each other what they hoped and obviously expected to hear, what was it about these meetings that made them so good?

SENIOR ADMINISTRATION OFFICIAL: I think I used -- I didn't say "good," I used the word "excellent" and I used it advisedly. Because I think that the quality of the economic meetings during the latter part of the Soviet period and the first year or so of the reform period, since '91, have been two sides trying to kind of search each other out for the limits of what we can do together economically. And certainly that was the case in Vancouver. That was the first meeting between the two as Presidents. We didn't really know what to expect in many ways from that meeting. They certainly didn't know what to expect from our government and a lot of the time was spent simply in explaining positions.

What has happened since Vancouver is that we have, in effect, institutionalized a series of relationships across our two governments that have made progress. And I think the best example of that is Vice President Gore's commission with Chyrnamerdin. They've agreed to build an international space station together. We've agreed to put $100 million into nuclear power plant safety in Russia. We've agreed that the oil and gas projects -- private sector projects -- are at the center of what we're trying to do economically and that they need to be pushed, and we've agreed that this difficult issue of market access has got to be attacked by both sides.

So the quality of the discussion today was really fundamentally different for me as a participant than it had been in any of the other encounters I've had over the last four years in the economic field, because we are no longer kind of demarching each other. We're no longer passing points across the table. Prime Minister Chernomyrdin was there, and essentially gave a report to President Clinton about the two meetings he'd had in September and December with Vice President Gore. And Minister Fyodorov gave a report on the sessions he'd had with Secretary Bentsen and Larry Summers -- ongoing sessions, many sessions throughout the year. So we've now built up a pattern of cooperation -- in fact, institutions, commissions that are actually doing things and getting things done that make the relationship different.

What was also different about this meeting was the fact the President Clinton and President Yeltsin have now put economic issues, in my opinion, at the center of this relationship. I think we've made the point before in briefings that during the whole history of U.S.-Soviet relations, arms issues and foreign policy disagreements were at the center of every summit. The center of Vancouver was economics. The center of this summit is integration -- economic integration of Russia with the West, security integration through the Partnership For Peace, the President's just come from Brussels and Prague. And there is a different feel to this particular relationship, especially in the economic sector right now.

Q Why, with all the emphasis on the importance of credit policy, has Secretary Bentsen not arranged to meet with Central Bank Chairman, Victor Geraschenko, whose Central Bank is right now arranging to start subsidizing once again the countries -- other countries within the CIS?

SENIOR ADMINISTRATION OFFICIAL: Secretary Bentsen is on a very tight schedule in his meetings with the -- in participating in the various meetings that the President is participating in, and has chosen to meet with members of the Yeltsin government rather than the somewhat separate Central Bank just because the time is very short.

Q Could you clear up something we've been hearing about a possible agreement announced tomorrow, detarget remaining nuclear weapons?

SENIOR ADMINISTRATION OFFICIAL: Okay, we spent -- two of us have spent our whole day on economics. I can simply tell you that this has been under discussion for so many months, in fact, since Vancouver between our two governments. I know the issue is still being worked at the working levels. I expect there will be some further discussion; but the two presidents have not had a specific meeting yet on foreign policy or security issues. So I really can't tell you much more than that.

This evening's working dinner outside of Moscow will be devoted primarily to foreign policy issues. Tomorrow morning, in addition to the trilateral meeting and signing ceremony with the Ukrainians, there is going to be a U.S./Russian bilateral on security issues, and I expect that will come up. And then there will be a bilateral press conference, and so I think that's probably the appropriate time for us to talk about that.

Q You deny there is already an agreement today. You deny there really is an agrement on the retargeting of nuclear warheads.

SENIOR ADMINISTRATION OFFICIAL: Well, it's not a question of denying or saying -- to the best of my knowledge, and I've been spending the day on economics, I don't believe that this issue has risen above the mid levels of the delegations. And, in fact, I'm quite sure that the President has not been given any options on this issue. So, I would just ask you to wait until tomorrow when it will be taken up.

Q Will be the Partnership For Peace be taken up tomorrow? Will the information be formally delivered?

SENIOR ADMINISTRATION OFFICIAL: The Partnership For Peace was covered, as Secretary Christopher said, in his bilateral with Minister Kozyrev. It was discussed during the one-on-one this morning. It runs through this entire summit and I think it will be most intensively discussed this evening at the dinner.

Q It seems like that's the major development of change that both sides are talking about. You're both committed to going forward, accelerating on the reforms. What specifically are we talking about giving them to make the cushion? What will we do, we are they going to do to provide the safety net regarding that?

SENIOR ADMINISTRATION OFFICIAL: I'm not in a position to go into detail on that because it depends upon the design on the kinds of programs that Russia wants to have. What I think is clear is that the G-7, working through the international financial institutions, is committed to doing much more than we have done in the past to address those needs in whatever way the Russians find most constructive. And in particular to accelerating the support for oblasts for regions that are hard hit by restructuring that was one element to the privatization and restructuring program that was agreed in Tokyo.

Q But on that point, is this idea of one of the things you've mentioned is redirecting the subsidies. Isn't that a little phony because a lot of this money that was being used for subsidies was in fact going through big enterprises to education and health and those basic sort of human services. So where does the extra, where does the other money come from?

SENIOR ADMINISTRATION OFFICIAL: I'm not sure I completely understand the question. What is clear and what the Russian reformers have stressed is that Russia needs to support people.

Q Yes, but there's --


Q They were supporting the people --


Q through the, well, since you didn't understand the question, can I rephrase it?


Q I wouldn't want to confuse you --

SENIOR ADMINISTRATION OFFICIAL: What the Russia reformers have stressed is that Russia needs to provide support to people rather than to industries, that a strategy of providing large credits to industries that are producing products that nobody wants is an extremely inefficient way of supporting people.

It's true that some of those subsidies find their way into the schools and health clinics. But the larger part of those subsidies find their way into the purchases of raw materials -- raw materials that if they were not purchased in that way would instead be available for export that would generate hard currencies. And, therefore, the strategy of supporting heavy indutries, which in some cases actually have negative valued added -- that is, the output they produce is worth less than the sum of the inputs -- is an extremely inefficient way of meeting basic social needs; and that a more targeted strategy of support for social needs is appropriate.

Q But what's the factor in there? What is the waste --

Q How much will you gain from this more efficient way of running the safety net?

SENIOR ADMINISTRATION OFFICIAL: Oh, I think that most of the economists who have studied the Russian economy would agree that only the smallest part of the subsidies for heavy industries, in fact, go through to meeting basic social needs, and that the largest part of them is wasted.

Q When is -- funds coming from the IMF?

SENIOR ADMINISTRATION OFFICIAL: That we hope that in the context of -- in the context of rapid reform it could come very soon.

Q the assessment of IMF and the World Bank in their recent note -- there was a very large difference between the IMF and the World Bank assessment in their note of last week, and your assessment of Russian economic reform. How will you convince them that the funding you back, because they are the medium through which the money is going to be delivered, how will you convince them of the preparedness of the Russian government to reform?

SENIOR ADMINISTRATION OFFICIAL: The plans that the Russian government now makes will be crucial in that regard, but I would say I think there is a general feeling in the G-7 of the need to rapidly reinforce reform.

Q Anything more than $2.6 billion -- are we talking about providing anything more than $2.6 billion at this point?

SENIOR ADMINISTRATION OFFICIAL: Are we talking about providing anything in addition to 2.6?

Q Exactly.

SENIOR ADMINISTRATION OFFICIAL: Well, the President mobilized $4.1 billion in 1993 for reform in Russia and the other new independent states. That was the $1.6 billion at Vancouver and the additional $2.5 billion that he received from the Congress. He is not providing any new offers of economic assistance at this summit. The emphasis is on implementation.

If I could just take a minute, or even half a minute, Cragg, to try to respond in part to your question, I would say the question is not how to build a new social safety net for Russia, it's how to transform an existing social safety net which is huge and labyrinthine and which is outdated. And as the economy privatizes, the institutions that provided the social safety net are going to be utterly transformed so that to be competitive in the world they're not going to be able to provide hospitals and educational facilities for average Russians. And so those services will have to be provided by private organizations or nonprofit organizations, and that is a tremendous challenge -- it's going to be generational. All we're trying to do right now is understand the problem, discuss it with the Russians and begin to go down the path of working with them on this big project.

Q Could I just ask a question just vis a vis red tape, and this ties in a little bit to the nuclear issue. If you remember, in the Bush administration there was a very big deal made of the need to gainfully employ Russian scientists because of the fear of a brain drain and/or the fear they would peddle their services elsewhere. The United States, with great fanfare, announced that it was going to open an institution that was actually going to help employ these people. Whatever became of that? Has there been any discussion of it? Have you given up on it, or do you have hopes that it can ever be effective? Do you no longer think it's necessary to employ Russian scientists?

SENIOR ADMINISTRATION OFFICIAL: That's a good question. That was a Bush administration initiative, not a Clinton administration initiative.

Q Does that mean it's been dropped?

SENIOR ADMINISTRATION OFFICIAL: No, the effort continues. I don't have all the facts at hand. There was money allocated in the last year of the Bush administration to that project. I can get it for you, but I don't have it right here right now.

END 4:51 P.M. (L)