Where Reforms Trump Resources
Russia: Analysis From Washington

By Paul Goble
Washington, Jan 6
(RFE/RL)

In the post-Soviet states, political and economic reforms are proving to be more important
than location and natural resources in creating favorable conditions for both local
businessmen and outside investors.
Those countries and regions which have carried out such reforms have outperformed those
which have not � even when the latter have the edge in resources and other traditional
foundations for economic growth. And this gap between those who reform and those who do
not seems likely to grow in the years ahead.
This conclusion, reflected in a series of reports released at the turn of the year, is likely to
encourage those inside the region and beyond who have been pressing for reform and who
believe that political reform is just as important as economic change for business to grow.
But it is also likely to raise new questions about outside investment in countries and regions
blessed with extensive natural resource holdings or favorable geographic location but so far
lacking the commitment to complete the transition from the communist past to democracy
and free markets.
The most dramatic example of the impact of reform on economic performance is provided by
an Economist magazine�s Intelligence Unit (EIU) survey of business conditions in Russian
cities outside of Moscow that was published in December.
The EIU survey concludes that the six best cities for business in Russia � Nizhny Novgorod,
Samara, Saratov, Yekaterinburg, Perm, and Veliky Novgorod � have two things in common.
On the one hand, their leaders are committed to economic and political reform. And on the
other, they lack the natural resources that many both there and abroad had expected would
be �Russia�s saving grace.�
But as the survey pointedly notes, Russian regions which enjoy such resources and have far
better geographic locations often allow the �easy money� they have received in the short
term to become an excuse for making the kind of changes that will allow them to earn their
way in the future.
In short, the EIU says, �politics, not petroleum� appear likely to determine where Russian
businesses will thrive and where they will not.
The link between politics and petroleum also informs some recent studies of the economic
prospects of Azerbaijan, Kazakhstan, and Turkmenistan, three oil- and gas-rich countries that
had expected to outperform other post-Soviet states lacking such resources.
To date, that has not happened, and recent assessments by Western scholars and journalists
that were summarized in The New York Times last Saturday suggest that these optimistic
expectations may not be realized anytime soon.
As most of these studies acknowledge, a major reason for the lack of progress in these three
states is beyond their control. Because of geography, they are not in a position to ensure that
their enormous petroleum reserves can ever reach world markets.
And it is thus not surprising that most of the discussion in the West about these countries up
to now has focused on the pipeline routes rather than on their internal political and economic
situations.
But that is beginning to change, with ever more analysts focusing on the economic and
political situations inside these countries. And this attention has highlighted three sets of
problems that may make it more difficult for these countries to create the climate they need
for future business development.
First, all three still face the problems inherent in a transition from surviving Soviet-era
leaders who many argue have run roughshod over democratic principles to remain in power
and who by their own design appear to lack a class of obvious political successors.
Second, all three face large and in some cases growing problems with corruption, with the
overinvolvement of government officials in economic activities. While this is a legacy of the
Soviet past, it is one that all three regimes have done too little to fight.
And third, all three paradoxically face the problems of an embarrassment of riches: Precisely
because of the natural wealth they control, these leaders have attracted the kinds of
preliminary investment that has encouraged them not to take the steps toward reform that
they otherwise might have made.
For all these reasons, these three have performed much less well than several other post-
Soviet countries, such as the Baltic states, that appeared to have fewer prospects but have in
fact done better.
In the past, many analysts suggested that things would get better in Azerbaijan, Kazakhstan,
and Turkmenistan once the petroleum began to flow to Western markets. But now, ever
more people both in these countries and beyond are beginning to question their earlier
optimism.
And they are beginning to focus on the need today for the kind of reforms that until now they
had been willing to put off. That sets the stage for additional political and economic turmoil.
But it may also help to create the kind of business climate that will allow these countries to
participate in the benefits reformist states already have.

The Many Policies on Iraq

By Fred Hiatt
Jan 10

Some accuse the Clinton administration of lacking a policy toward Iraq. This is unfair. It has
many.
There is the policy of overthrowing Saddam Hussein, as embodied in the Iraq Liberation Act
that authorized $97 million to train and equip Iraqi opposition groups. President Clinton
signed that bill into law in October, and in November he promised to �intensify� U.S.
cooperation with anti-Saddam organizations.
There�s the policy explicated by Clinton�s commander in chief of Persian Gulf forces, Gen.
Anthony Zinni, who said last week that his primary mission is to provide stability. �I would not
be in favor of anything that destabilizes the situation in the region,� he said. How that
squares with fomenting a coup isn�t clear.
There�s the policy of disarming Iraq. It was because Saddam Hussein kicked out United
Nations weapons inspectors that Clinton finally authorized a three-day bombing campaign
last month.
Today, the inspectors are still shut out. The bombing damaged Iraq�s missiles but probably
not the biologicial weapons they would carry. Knowledgeable experts say Iraq would need
only about six unmonitored months to cook up such weapons. Five have elapsed since U.N.
inspectors got the boot.
Maintaining an international consensus on Iraq was a policy the administration put much
stock in. Beginning in November 1997, it cited this goal every time it retreated from a
confrontation with Saddam Hussein.
When U.S. planes finally went into action, only the British flew alongside. Russia and China
bailed out long ago. French Prime Minister Lionel Jospin last week criticized America�s
�unilateral� behavior � though, as Secretary of State Madeleine Albright pointed out, none
of these critics had proposed a better alternative for disarming Saddam Hussein. Far from
leading a consensus, the United States now may have to wield its veto against a consensus
building on the other side.
And then there�s �containment.� Under this policy, the United States enforces its no-fly
zones, maintains economic sanctions and stands ready to bomb again anytime Saddam
Hussein tries to rebuild his biological, chemical or nuclear weapons capabilities.
The administration believes this policy is working well. �We feel pretty comfortable about
where we are,� State Department spokesman James Foley said last week.
Saddam Hussein is �an increasingly desperate man,� Foley added. Gen. Zinni cited
�significant internal problems in Iraq� and �fairly desperate attempts to try to regain some of
that position he held before, or thought he held before.�
Signs of that desperation, according to U.S. officials, are Iraq�s efforts to shoot down U.S.
jets in the no-fly zone, Saddam Hussein�s taunting of fellow Arab leaders, a reshuffle of his
top command and reports that he has executed many internal enemies in recent days.
U.S. officials may know more, and may be doing more, than they can say. But if Saddam
Hussein is not teetering, if administration analyses contain some element of wishful thinking,
the question becomes how long a strategy of �containment� can be sustained.
It�s true that the United States can veto indefinitely any effort by the U.N. Security Council to
lift economic sanctions. But it can�t force the rest of the world to abide by them if most
nations come to see them as outdated and unfair.
Similarly, U.S. intelligence can monitor broad developments in Saddam Hussein�s weapons
program � the rebuilding of a missile repair facility, say. It may, with some delay and luck,
track the import of suspicious materials. But U.N. inspectors in Iraq couldn�t find all of
Saddam Hussein�s poison weapons; at a distance, U.S. intelligence won�t, either.
This unstable status quo is at the root of the continuing conflict between the administration
and U.N. Secretary General Kofi Annan, or at least some of his advisers. Efforts by some in
his entourage to torpedo the U.N. inspectorate, or UNSCOM, with malicious leaks are
shameful. But Annan�s efforts to come up with a new policy framework � an �UNSCOM 2�
� are understandable. This is not �UNSCOM Lite,� its advocates insist, but rather some
kind of grand bargain that would promise Iraq a real chance at economic recovery in
exchange for real weapons monitoring.
Unfortunately, that was pretty much the grand bargain envisaged by UNSCOM 1; Saddam
Hussein could easily have had sanctions lifted had he cooperated with U.N. inspectors. He
showed instead that he would keep his weapons of mass destruction at any cost. So it�s hard
to imagine �UNSCOM 2� not ending up as a pretense � a willingness to sign off on
incomplete disarmament.
The truth is that there are no good options on Iraq. As long as Saddam Hussein rules, total
disarmament won�t happen. One response is to show some �realism� � let him keep some
weapons, and move on. Another is to engineer his overthrow, but few of the hawks in
Congress who back that solution rhetorically also back the use of force it likely would require.
That leaves the administration somewhere in between, still test-marketing a range of
sometimes contradictory policies, claiming more success than seems warranted and clinging
for now to a containment that may or may not hold.

Central Asia: Book Examines Failing Russian Dominance

By Ben Partridge
London, Jan 6
(RFE/RL)

A new book says Russia�s financial crisis, which erupted in August 1998, will speed up what
the author calls Moscow�s �involuntary disengagement� from Central Asia, hastening a
process that began after the 1991 break-up of the Soviet Union.
The study also says that the influence of Russia, the dominant power in Central Asia for
more than a century, is waning relative to other powers � such as China, the U.S., and
European Union nations.
�Russia and Central Asia: A New Web of Relations� was written by Lena Jonson, a senior
research fellow at both the Swedish Institute of International Affairs in Stockholm and the
Royal Institute of International Affairs in London. It was published in Britain last month.
The book examines the rapidly changing political scene in five Central Asian nations �
Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan, and Tajikistan. It focuses on the impact
on these new nations of Russia�s economic crisis following last year�s devaluation of the
ruble, its default on internal debt and moratorium on repayment of foreign debt.
The study notes that Central Asian leaders initially played down the effects of the Russian
crisis on their own economies. Kazakhstan President Nursultan Nazarbayev said the two
countries� financial systems �divorced long ago� and that the Russian ruble accounted for
only 7 percent of commercial transactions with his country.
But if the Russian crisis continues, the effects on the Central Asian economies may be much
more significant. In a bid to defend their economies, the five states are expected, in the
book�s phrase, to further �reorient their external economic relations away from Russia.�
Jonson writes: �By the time Russia regains any strength, the Central Asian states will already
have secured a considerably more diverse set of external relations with Asian and Western
countries.�
She says that Central Asian leaders are reaching outwards, stressing they will strike deals
with whomever offers the best commercial conditions. This is a radical departure for a
landlocked region long sealed behind the Soviet border and, for even longer, regarded as
Russia�s �near abroad.�
The study notes that foreign capital from Europe, the U.S. and Asia is being invested in all
the Central Asian states � particularly in the rich oil and gas fields of the Caspian Sea
region. By mid-1997, Kazakhstan, the largest Central Asian nation, had the fifth largest
foreign-investment inflow of all post-communist countries, in per capita terms ranking second
only to Hungary.
Uzbekistan, with the largest population in Central Asia, also has pressed ahead with a drive
to seek Western investment. It is no longer reliant on Russian energy imports, having laid
1,000 kilometers of fuel pipelines a year and sharply cut domestic consumption.
China is a growing market for Central Asia, especially for Kyrgyzstan and Kazakhstan. Last
year, China became Kyrgyzstan�s largest trade partner with an estimated 30 percent share of
its total trade (in 1995, China was only in fifth place as a trade partner). China has also risen
to second place in its share of overall Kazakh exports, chiefly raw materials and technical
equipment.
The diversification of Central Asia�s trade and other links is being accelerated by the
extension of railways and roads that connect with its neighbors to the east and south �
China and Iran.
There are also ambitious plans for modernizing and extending existing railroad systems to
link Europe and Asia, by a so-called �Trans-Asian Railway� from China�s Yellow Sea port of
Lianyungang in the east to the Dutch port of Rotterdam in the west (via Urumchi, Almaty,
Tashkent, Ashgabat, Istanbul and Budapest). This project forms part of a larger Eurasian
transport and energy corridor made up of interlocking ferries, pipelines and communications
systems.
The Central Asian states have stepped up cooperation among themselves as well. In 1994,
the Central Asian Union (CAU) was created by Kazakhstan, Uzbekistan, and Kyrgyzstan.
Tajikistan joined last year but Turkmenistan still remains outside. Russia has observer status.
The objective of the CAU is to create a common political, economic, and cultural space
through regional integration.
An agreement on a Central Asian Economic Union (CAEU) was signed and a Central Asian
Bank for Cooperation and Development set up. In December 1997, Uzbekistan, Kazakhstan,
and Kyrgyzstan agreed to establish a what they called �a common economic space.�
Jonson notes that the leaders of the CAU countries say the organization is only a sub-
grouping within the CIS, but it �is obvious they also view it as an alternative to the stagnating
CIS.�
The Central Asian states are stepping up cooperation with CIS states other than Russia.
Ukraine and Georgia have been active in developing relations with the region. Both are
interested in energy deliveries along alternative routes to the Russian ones.
The book says that the U.S. is among the countries now playing a pivotal role in Central Asia.
In 1997, U.S. Deputy Secretary of State Strobe Talbott declared the entire Caucasus and
Central Asia to be of strategic interest to the U.S.
The book also says that all the Central Asian states appear to share Kazakh Foreign Minister
Tokayev�s words that while �we give priority to our relations with Russia, China and other
neighboring states...we are interested in having the U.S. presence strengthened.�
With regard to military issues, too, the Central Asian states are searching for wider
international structures and the means of decreasing their dependence on Russia. All except
Tajikistan became members of NATO�s Partnership for Peace program in 1996.
Jonson concludes that a new network of international relations is evolving as the Central
Asian states try to diversify their foreign relations. She writes: �A new map of political
cooperation is thus developing on former Soviet territory beyond Russian control, with sub-
groupings being created and contacts and exchange schemes developing with non-
neighboring countries.�
Her study argues that the trend toward involuntary Russian disengagement is reflected in the
commercial, military, security and cultural fields. They can be summarized as follows:
� The relative importance of trade between Russia and the Central Asian states is
decreasing as other trading partners become more important. Hardly any Russian private
capital, other than in the energy sector, is being invested in Central Asia.
� Left without national armies after the break-up of the Soviet Union, the Central Asian
states signed bilateral agreements with Russia on military cooperation and border defense.
But there is now a trend toward a diminished Russian military presence.
� The Russian population in Central Asia will always guarantee a degree of Russian cultural
presence. But as the Russian population shrinks, and Central Asian governments promote
their own cultural heritage, Russian cultural influence in time will be reduced.
� Russia�s role in the exploitation of oil and gas is being reduced to that of only one among
several players. Russia still controls the pipeline system, but agreements are being signed for
new systems to be built along routes that do not cross Russia.
The book says Russia is still the strongest foreign power in the region but that its influence is
waning relative to other countries, a development that may be seen as a natural process
following the 1991 break-up of the Soviet empire. It concludes: �For Russia, it is a painful
experience. Just how radical a break with the past it will be and how marginalized Russia will
become in Central Asia�s politics are as yet unknown. Both are contingent on Russia�s
capability to adapt to the new situation.�