USA-Russia Relations, Policy Recommendations Regarding How to Deal With Russia


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Policy And Politics International Perspective Paper, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, Spring 2006:

The Soviet economy and society declined in the following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an effort to renovate Communism, but his initiatives unintentionally released forces that by December 1991 splintered the USSR into Russia and 14 other independent republics. Since then, Russia has struggled in its efforts to construct a democratic political system and market economy to replace the strict social, political, and economic controls of the Communist period. While some progress has been made on the economic front, recent years have seen a recentralization of power under Vladimir PUTIN and the erosion of emerging democratic institutions.

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USA-Russia Relations, Policy Recommendations Regarding How to Deal With Russia

  1. 1. POLICY PAPER ON USA-RUSSIA RELATIONSPOLICY RECOMMENDATIONS REGARDING HOW TO DEAL WITH RUSSIA (Policy and Politics International Perspective) Ergul HALISCELIK Senior Treasury ControllerRepublic of Turkey Prime Ministry Undersecretariat of Treasury Policy Paper, Spring 2006H. John Heinz III College, Carnegie Mellon University
  2. 2. Background: The Soviet economy and society declined in the following decades until General SecretaryMikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) inan effort to renovate Communism, but his initiatives unintentionally released forces that byDecember 1991 splintered the USSR into Russia and 14 other independent republics. Since then,Russia has struggled in its efforts to construct a democratic political system and market economy toreplace the strict social, political, and economic controls of the Communist period. While someprogress has been made on the economic front, recent years have seen a recentralization of powerunder Vladimir PUTIN and the erosion of emerging democratic institutions.1 The Legacy Left by President Yeltsin: There were a number of turning points in Russia’s relationship with the West generally andwith NATO particularly after the dissolution of the Warsaw Treaty Organization in 1989.2Yeltsin’s foreign policy, like Gorbachevs, could assist set the route for economic and social changesin the country. Boris Yeltsins primary aim in foreign policy was to build a non-threatening externalenvironment that would be most favorable to his countrys internal economic and politicaldevelopment. Yeltsin cooperated with Western states, obtaining membership for Russia in that mostexclusive of Western "clubs," the G7, and pursuing opportunities to cooperate with European Union,and international financial organizations such as the World Bank, World Trade Organization and theInternational Monetary Fund.3 Yeltsin primarily engaged with internal political and economic troubles in his final two yearsin office. Many of these were because of his incorrect policies; in August 1998, Russias economycollapsed. A currency devaluation and moratorium on payment of external debts virtually destroyed 2
  3. 3. opportunities for further credits or investments from the West. The greatest crisis in East-Westrelations in the Yeltsin era took place in 1999 and resulted from a mixture of two volatile issues: thecontinuing crisis in the Balkans and the NATOs expansion. The failed war in Chechnya, the sinkingeconomy and rising corruption are other legacy left by President Yeltsin.4 The Nature of the Current Russian Political System: Russian political system is now dominated by President Vladimir Putin and his UnitedRussia party. At the 2003 legislative elections, United Russia reduced all other parties to minorstatus. Other parties retaining seats in the State Council (Gosudarstvennaya Duma), the lower houseof the legislature, are the Communist Party of the Russian Federation, the Liberal Democratic Partyof Russia and the nationalistic Rodina ("Motherland") Block. In 2004, Prime Minister MikhailKasyanov and his cabinet were dismissed by Putin. Putin won a second full term without difficultyin the March 2004 presidential election, which has been criticized by OSCE (Organization forSecurity and Co-operation in Europe) for the unfair use of state apparatus and media made byPutins party.5 The Nature of the Current Russian Economic System: The economy of Russia accomplished a remarkable transformation in the 1990s. Economywas transformed from the centrally planned economy to an economy operating on the basis ofmarket forces and private property. Russia ended 2005 with its seventh straight year of growth,averaging 6.4% annually since the financial crisis of 1998. Russia has also improved its internationalfinancial position since the 1998 financial crisis, with its foreign debt declining from 90% of GDP toaround 31%. Strong oil export earnings have allowed Russia to increase its foreign reserves fromonly $12 billion to some $180 billion at year end 2005. 6 3
  4. 4. These achievements, along with a renewed government effort to advance structural reforms,have raised business and investor confidence in Russias economic prospects. Nevertheless, seriousproblems persist. Economic growth slowed to 5.9% for 2005 while inflation remains high. Oil,natural gas, metals, and timber account for more than 80% of exports, leaving the country vulnerableto swings in world prices.7 Other problems include a weak banking system, a poor business atmosphere that discouragesboth domestic and foreign investors, corruption, and widespread lack of trust in institutions.Especially after the investigations launched against a major Russian oil company in 2003 andacquisition of the company by a state owned firm raised concerns that President PUTIN desires toreassert state control over the economy. State control has increased in the past year with a number oflarge acquisitions. Most fundamentally, Russia has made little progress in building the rule of law,the basis of a modern market economy. Estimated 2005 trade figures of Russia as follows 8:  Exports: $245 billion (Export Partners: Netherlands 9.1%, Germany 8%, Ukraine 6.4%, Italy 6.2%, China 6%, US 5%, Switzerland 4.7%, Turkey 4.3% )  Imports: $125 billion (Import Partners: Germany 15.3%, Ukraine 8.8%, China 6.9%, Japan 5.7%, Kazakhstan 5%, US 4.6%, Italy 4.6%, France 4.4%) President Putin’s Foreign Policy: Under the leadership of President Vladimir Putin, Russia continues to search for its new rolein the world. Forming relationship with western neighbors is a crucial part of this search, since bothEurope and Russia are undergoing tremendous internal changes. After the collapse of the SovietUnion in December 1991, Russia was forced to urgently develop a new foreign policy framework.For now, Russia remains beyond the political and economic boundaries of Europe and will continueto act as an independent player in the foreseeable future.9 4
  5. 5. Russia has been attempting to achieve several important goals simultaneously.  On one hand, it wants to ensure the country’s national security and territorial integrity.  But the Kremlin also wants to gain back the influence possessed by the Soviet Union in Europe and around the world to re-establish its place as one of the leading continental powers.  At the same time, Russia wants to make its foreign policy economically sensible. Europe and the United States are seen as external sources for the country’s economic modernization. These goals oppose each other. Russia today is not capable to separately guarantee its ownsecurity while also contributing to global stability. For that, it needs the tight bonds of partnershipwith and military and economic assistance from the United States, NATO, and the EuropeanUnion.10 Human Rights Issue: Council of Europe establishes a minimum standard for the safeguarding of civil and politicalrights in member states. Russian political leaders applied to enter the Council of Europe in May1992. They did so for a number of reasons, including strengthening Russias trade ties with Europe,ensure an institutional connection with its former Soviet bloc partners, and gain acceptance as anascent democracy. There were 12 Entrance Criteria for Russia that I think the below issues are stillproblems in Russia11: 5
  6. 6.  The need for, new criminal and criminal procedure codes, new civil and civil procedure codes, and a law on the functioning and administration of the prison system,  The need for, law on the Procurators Office, law on the Office of the Commissioner of Human Rights, law for the protection of national minorities, law on the freedom of assembly, and law on the freedom of religion.  Justice human rights violators in Chechnya  Allow for effective freedom of movement inside Russia. U.S also supports many social, economic and human rights project in Russia12: Democracy Programs $43.44 million In Fiscal Year 2005, the $915.78 million Economic Programs $9.74 million budgeted by all U.S. Government agencies Social Reform $23.43 million Security & Law Enforcement $828.42 million for assistance programs in Russia is Humanitarian $13.5 million allocated roughly as follows; Cross-Sectoral Initiatives $2.25 million Energy Resources: Today, Russia is one of the most important actors for the energy resource in terms of bothproduction and consumption. The below table is summary of the energy resources, production andconsumption figures of the Russia and its share in the World economy. Rank Country Oil – production (bbl/day) Date of Information 1 World 79,650,000 2003 est. 2 Saudi Arabia 9,475,000 2005 est. 3 Russia 9,150,000 2005 est. Oil – consumption (bbl/day) 1 World 80,100,000 2003 est. 2 US 20,030,000 2003 est. 3 EU 14,590,000 2001 7 Russia 2,800,000 2005 est. Oil – exports (bbl/day) 1 Saudi Arabia 7,920,000 2003 2 EU 5,322,000 2001 3 Russia 5,150,000 2004 6
  7. 7. Natural gas – production (cu m) 1 World 2,674,000,000,000 2003 est. 2 Russia 587,000,000,000 2005 est. 3 US 539,000,000,000 2003 est. Natural gas – consumption (cu m) 1 World 2,746,000,000,000 2003 est. 2 US 633,600,000,000 2003 est. 3 EU 465,600,000,000 2001 4 Russia 402,100,000,000 2004 est. Natural gas – exports (cu m) 1 World 667,600,000,000 2001 est. 2 Russia 157,200,000,000 2004 est. 3 Canada 91,520,000,000 2003 est. Source: CIA - The World Factbook -Rank OrderPolicy Recommendations Regarding How to Deal With Russia: The US and Russia should improve cooperation to respond to nuclear terrorism. Strategic partnership with Russia against terrorism will be effective. The US should cooperate with Russia to complete bilateral negotiations for Russias accomplishment to the WTO. This will improve commercial opportunities for both sides, support economic reforms that Russia has made a priority, and further integrate Russia into the world economy. Cooperation on energy issues remains an area of great assurance for U.S.-Russian relations. This issue will expand energy security, diversify energy supplies, and improve the transparency of the business and investment environment. US and Russia should also cooperate in a number of other areas such as Counterterrorism, Space Cooperation, Humanitarian and Social and People-to-People Cooperation. Moscow has concerned about American designs on the region’s oil and energy reserves and required to protect its own access to these resources.13 So U.S has to consider this concern and develop an effective diplomacy in the future developments. 7
  8. 8.  Determined bilateral relationship in conjunction with a more long-term strategy for growth Russian civil, political, and economic societies will help Russia back onto a democratizing path and it will effect U.S-Russia relations and world stability at large positively in the long run. Finally, there is oil. Russia is not only the world’s largest exporter of oil and gas, but also still has one of the world’s largest oil reserve bases and owns 30 percent of the world’s proven gas reserves. Assisting American direct foreign investment in Russia and increasing the number of pipelines available to ship them are strategic American objectives which can be pursued only through a cooperative relationship with the Russia.14 1 CIA - The World Factbook -- Russia 2 J.L.Black, “Vladimir Putin and the New World Order” 3 Robert H. Donaldson, “Boris Yeltsins Foreign Policy Legacy” 41st Annual Meeting of the International Studies Association, Los Angeles, California, March 18, 2000 4 Ibid. 5 Politics of Russia - Wikipedia, the free encyclopedia 6 CIA - The World Factbook -- Russia 7 Ibid 8 Ibid. 9 Nikolai Zlobin, Harvard International Review, “Together But Separate Russia and Europe in the New Century” 10 Ibid. 11 Demokratizatsiya, Spring 2003 by A, Pamela Russias Accession to the Council of Europe and Compliance with European Human Rights Norms 12 U.S. Assistance to Russia -- Fiscal Year 2005 13 Leszek Buszynski, “Russia;s new role in the central Asia” 14 James M. Goldgeier and Michael McFaul, “What To Do About Russia” 8