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 You are in: Under Secretary for Economic, Energy and Agricultural Affairs > Under Secretary's Remarks > 2002 Under Secretary for Economic, Energy and Agricultural Affairs Remarks

G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction

Alan P. Larson, Under Secretary for Economic, Business and Agricultural Affairs
Testimony Before the House International Relations Committee
Washington, DC
July 25, 2002

I would like to thank Chairman Hyde and other distinguished committee members for the opportunity to testify on the G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. My testimony will focus on one of the possible means of financing this important initiative -- the waiver of U.S. collection of Russia's repayment on its Soviet-era debt to the U.S. in order to finance Russia's implementation of expanded non-proliferation programs.

Let me step back from the debt issue for a moment and underscore two very important reasons for expanding cooperation to promote non-proliferation. The first is the national security imperative of destroying or bringing under responsible control the materials and technologies that could let hostile powers threaten the United States with weapons of mass destruction. The attacks of September 11 have given us a glimpse of the terror that such weapons, in the wrong hands, could inflict on the American people, or on the people of any country.

The second reason is the new opportunity opened by the U.S.-Russia strategic relationship. Over the last year Russia has confirmed its position as a partner in the war against terror and is cooperating with the United States on many issues. In particular, the Russian leadership has made clear its interest in doing more, cooperatively, to eliminate or secure weapons of mass destruction and related material, equipment and technologies

One fruit of this new spirit is the G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction. This agreement between Russia and the other G-8 countries was the most notable achievement of the G-8 Summit in Kananaskis. It will focus on non-proliferation, disarmament, counterterrorism and nuclear safety projects, initially in Russia. The U.S. played a leading role, but all of our G-8 partners -- Russia, Germany, France, the United Kingdom, Italy, Japan, the European Union, and, of course, Canada - deserve great credit for seeing and grasping a historic opportunity.

The Global Partnership commits the G-8 to raise up to $20 billion over 10 years for cooperation projects to address non-proliferation, disarmament, counter-terrorism and nuclear safety issues. The United States has agreed to provide half of this sum; our partners will contribute a matching amount. This initiative will make possible substantially increased nonproliferation efforts, through new and expanded multilateral and bilateral projects.

The initiative also includes a commitment to a set of principles designed to prevent terrorists from gaining access to weapons or materials of mass destruction. And the G8 partners agreed on guidelines for new or expanded cooperation projects to provide for more effective implementation. Partners will coordinate their projects to obtain the broadest coverage of non-proliferation requirements, avoid gaps or overlap, and help resolve any implementation problems.

The initiative allows each partner the flexibility to finance and carry out projects in a manner consistent with its program priorities, national laws and budgetary procedures. Bilateral debt for program exchange is an option for financing projects under the Partnership. We do not know at this point whether others will use debt exchange or more conventional assistance or a mix of both. We do know that debt exchange will be difficult for some of our partners. The Administration will consult closely with Congress on the formulation of non-proliferation and threat reduction programs and projects and on the choice between debt or more traditional assistance as a funding vehicle.

The Administration's concept for how a debt option might work is straightforward. The United States would agree in advance to waive collection of a given amount of debt payments owed by the Russian government to the United States government on Russia's Soviet-era debt. As a consequence, Russia would be able to make expanded budgetary expenditures for agreed non-proliferation activities. The financial and budget mechanics would be worked out in negotiations with Russia, subject to the requirements of U.S. law. We know the Russian authorities are interested in applying such an approach to part or all of their Soviet-era debt to the United States. Beyond that, there are still many details that would need to be worked out. We need to determine under what conditions we could offer such an option to Russia. The Russians will need to decide whether such a deal would be advantageous for them, relative to other options.

I would like to highlight one point, that the Administration does not consider this kind of a financing vehicle as debt relief, per se. Financially, Russia does not require further debt relief. Since its financial crisis in 1998, Russia has adopted improved economic policies and has benefited from relatively high world oil prices. Although it remains a country with serious poverty and pressing needs, it can and is paying its bills.

At the same time, Russia cannot afford to do everything we would like it to do. In the wake of the breakup of the former Soviet Union, Russia chose to take over the assets and liabilities of the Soviet Union. This decision saddled Russia with a number of burdens, among them a vast and decaying collection of Soviet-era weapons and production facilities. In addition, Russia assumed the entire Soviet debt in exchange for title to all Soviet assets abroad. A decade later, these decisions and a changing global environment have left Russia with many responsibilities: to destroy chemical weapons in compliance with international obligations; to close down plutonium production facilities and dispose of excess fissile material; to dismantle old ballistic missile submarines and other strategic launch systems. It must secure remaining WMD or materials. These tasks remain despite U.S. assistance of $7 billion to Russia and other former Soviet states for these purposes.

While Russia's fiscal position has strengthened enormously over the past three years -- it is now running budget surpluses -- Russia is pursuing an ambitious set of structural reforms that will involve significant fiscal outlays over the medium term. The World Bank's new country assistance strategy records how costly and painful the transition from a command economy has been.

Between 22 and 33 percent of Russians live in poverty. The life expectancy of a man declined from 64 years to 59 over the past decade. The government must cope with persistent financial demands to update its antiquated education and health systems. While Russia has been devoting its own resources to the destruction and control of dangerous materials, budget pressures have made it difficult to proceed with these tasks as fast as the Russian leadership and we believe is necessary.

The Administration has agreed to consider this exceptional financing option for Russia because of the unique burden Russia bears from the Cold War. It is not in our interest that Russia should face alone the harsh choice between the basic needs of its population or eliminating chemical weapons or excess plutonium. This is why we provide assistance, and this is why we would agree to allow Russia to use funds that it would otherwise pay us in order to achieve our mutual objectives.

Only in Russia do we confront so starkly the combination of Cold War debts and the proliferation threat. We see debt exchange for financing non-proliferation efforts as a possible approach unique to Russia. It would use Soviet-era debt to help Russia address Soviet-era problems. Under the G-8 Global Partnership, other types of financial assistance -- notably provision of goods and services -- can be made available to other countries of the former Soviet Union. The United States is committed to continuing and expanding our current non-proliferation programs in Ukraine, Kazakhstan, Uzbekistan and other former Soviet states, and we encourage our G-7 partners to expand their own efforts there.

Members of the committee understand the priority we accord to cooperative non-proliferation and threat reduction activities in Russia. We appreciate your willingness to hold this hearing on addressing those needs by facilitating debt exchange. I would like to describe more specifically some of the preliminary ideas we have on this issue. And we would be happy to work with Congress as the Administration moves forward with this initiative to shape the language of this bill, which does, in our view, need some technical revisions to make it more suitable for this purpose.

A debt exchange arrangement would be a contract between the United States and Russia. First, the contract would be based on a mutually agreed upon price for a clearly defined product, just as is the case with our current assistance programs. For instance, if the U.S. and Russia agreed that a specific project would cost $50 million over three years, then the U.S. would relieve Russia of the obligation to make $50 million of debt payments over three years -- a dollar-for-dollar proposition. There would be an agreed timeline for delivery, with clear benchmarks for tracking specific projects. We would insist on effective monitoring and accountability, a key part of our DOD, DOE and State programs. The contract would include provisions for suspension, and even termination, of the debt exchange, in the event of non-performance. The Committee should note, however, that as provided under the Credit Reform Act, the Administration would request that Congress provide the costs of this contract at the outset of the program.

In closing, I would like to emphasize that this initiative is a work in progress. Many details remain. But it is an innovative option that the administration would like to have available for working with the Russian Federation on addressing Soviet-era threats to our mutual advantage.

Although much work is still necessary to develop the technical aspects of this proposal, I would be happy to answer any questions, to the best of my ability.



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