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Russia: U.S. Defends Economic Ties, Experts Criticize

At U.S. congressional committee hearings on the Russian financial scandal yesterday, U.S. administration officials acknowledged that corruption was rife in Russia but stressed that continued engagement was the answer. Experts on Russian finance, however, said the administration had done Russia a disservice by supporting a corrupt government. RFE/RL's Andrew Tully reports.

Washington, 22 September 1999 (RFE/RL) -- U.S. Treasury Secretary Lawrence Summers is emphatic that the U.S. must maintain economic ties with Russia, despite the allegations of rampant corruption in the Russian government.

Summers, the first witness at yesterday's U.S. congressional hearing on the matter, acknowledged that corruption is entrenched in Russia.

"Russia inherited huge corruption problems from the distorted economic system of the Soviet era. Since then, it has failed to establish a rule of law and a credible law-enforcement system. And corruption is a continuing and serious problem."

One aspect of the investigations into corruption is the allegation that up to $15 billion was diverted from Russia through foreign financial institutions, including the Bank of New York.

Summers says the drain of native currency from Russia -- known as "capital flight" -- is not the cause of the country's economic trouble.

The secretary said: "It is, I think, best to think of capital flight in Russia or in another country not so much as a cause of economic problems, but as a symptom of economic problems. Because Russia's economy wasn't working, because property rights weren't secure, because people could not have confidence in the value of the ruble, they chose to leave their money offshore, or to take their money offshore."

Summers says it is in the United States' best interest to maintain ties with Russia, although the U.S. must be tough with Moscow. That is why the administration of U.S. President Bill Clinton supports the International Monetary Fund's decision to lend Russia money that can be used only to pay off existing IMF debt.

Russia has borrowed about $22 billion from the IMF since 1992. Next month, the fund will decide whether to approve a $640 million installment of a $4.5 billion loan package for Russia that was previously authorized.

Some experts, however, charged the U.S. administration has pursued a faulty policy in regards to Russia and criticized the IMF's reaction so far to charges of major financial improprieties in Russia.

Richard Palmer is a former CIA station chief who now runs a business intelligence firm specializing in Russia. He testified yesterday that the IMF is being "grossly misleading" when it says there is no evidence that IMF loans to Russia were stolen.

Palmer said corruption is rife in Russia, in the parliament, the justice and law enforcement branches, and major banks and companies. Russian laws governing finance are so lax that, in effect, money laundering and tax evasion are not illegal in Russia.

Testimony from Paul Saunders and Dmitri Simes of the conservative think-tank The Nixon Center went even further. They said the Clinton administration had "been aware of the scale and scope of Russia's corruption problem for some time."

Simes and Saunders said the Clinton administration simplistically divided Russian leaders into "good" and "bad" and supported its favorites even though it knew the Russians were involved in dubious activities. They said the administration pushed for billions of dollars in IMF loans to Russia when it was "well known" that banks were siphoning away public money. Russian officials, they said, were given reason to believe that U.S. criticisms of Russian corruption were not to be taken seriously.

Simes and Saunders concluded: "In its policy toward Russia, the Clinton administration has clearly been on the wrong side of history. It has supported not democratization and economic reform, but the polarization and corruption of Russian society."

Representative Jim Leach, a Republican who is chairman of the committee where Summers gave his testimony, sought to soothe Russian fears that he intends to use the investigation to embarrass Russia or the Russian people.

At the end of his remarks opening the hearing, Leach addressed the Russian people directly -- speaking in Russian. He recalled that the United States and Russia "successfully fought the greatest war of our times, World War II, against the forces of fascism." And he said now is the time for the two nations to ally themselves again to fight corruption and to uphold the rule of law.

"This hearing is held to underscore the help Congress wants to give the Russian people and reformers in the Duma. We want money stolen from Russians by a new class of corrupted politicians and entrepreneurs returned to Russia for the benefit of the Russian People. Corruption should be punished, not fed."

More testimony before the committee continues today.