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Newsletter:  September 2002/ Issue 3
House International Relations Committee Hearing on the Debt Reduction for Nonproliferation Act of HR 3836
Excerpts from Testimony

Testimony by Alan Larson, Undersecretary for Economic,
Business and Agricultural Affairs, U.S. Department of State

I would like to thank Chairman Hyde and other distinguished committee members for the opportunity to testify. My testimony will focus on one of the possible means of financing this important initiative—the waiver of US collection of Russia's repayment on its Soviet-era debt to the US in order to finance Russia's implementation of expanded non-proliferation programs.

Let me underscore two very important reasons for expanding cooperation to promote nonproliferation. 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 US-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.

The G-8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction 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 US played a leading role, but all of our G-8 partners 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 nonproliferation, disarmament, counterterrorism and nuclear safety issues. The United States has agreed to provide half of this sum. 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. Partners will coordinate their projects to obtain the broadest coverage of nonproliferation 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. The Administration will consult closely with Congress on the formulation of nonproliferation 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 upon nonproliferation activities. The financial and budget mechanics would be worked out in negotiations with Russia, subject to the requirements of US law.

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.

While Russia's fiscal position has strengthened enormously over the past three years Russia is pursuing an ambitious set of structural reforms that will involve significant fiscal outlays over the medium term.

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.

Only in Russia do we confront so starkly the combination of Cold War debts and the proliferation threat. We see debt exchange for financing nonproliferation efforts as a possible approach unique to Russia.

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. There would be an agreed timeline for delivery, with clear benchmarks for tracking specific projects. We would insist on effective monitoring and accountability. 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.