Deputy Secretary Eagleburger

Statement before the Foreign Operations Subcommittee of the House Appropriations Committee, Washington, DC, March 11, 1992

We have witnessed, over the last few years, breathtaking changes in Central and Eastern Europe and the former Soviet Union. For over 4 centuries, Russia had been an imperial, authoritarian state, dominating its neighbors and threatening stability in both Europe and Asia. But, now, the collapse of the Soviet empire and the discrediting of communism have provided new hope for freedom and prosperity for over 400 million people in the region. As a consequence, we enjoy the prospect of a democratic Russia which has dismantled its empire and is turning its energies inward toward reform rather than outward toward expansion. This is a prospect which bears directly on the national security of the United States, and it is, therefore, something which is in our national interest to support.

But it is also a prospect which is as yet fragile, one which could easily give way to a more historically familiar state of affairs. There is no guarantee that the new states of Central and Eastern Europe or those of the former Soviet Union will evolve into friendly, prosperous democracies. They face formidable obstacles along the path of reform, as communism has driven these countries and their economies to the brink of ruin. In the final analysis, success will depend on the will and determination of the governments and peoples of the region. But Western assistance can make a difference, and we have an obligation before history and to future generations to do our part in helping to make their democratic experiment a success. What is at stake for us is whether the recent transformation of dangerous adversaries into friends and partners is a permanent or a passing phenomenon.

Clearly, the United States does not possess limitless resources, especially in a time of serious economic difficulty at home. But the American people, who spent trillions of dollars to wage and to win the Cold War, hopefully are willing to allocate comparatively modest sums today in order to ensure that we do not face, once again, an old threat under a new guise. If we do the right thing today, we will have done what we could to spare our children from the specter of nuclear war and from the colossal expenditures on national defense which our generation has had to live with since World War II.

Our economic well-being is also at stake. The peoples of Central and Eastern Europe and the former Soviet Union present an enormous new market for Western trade and investment. We must actively seek to involve the American private sector in the rebuilding of this region. Not only will such involvement provide new economic opportunities for America, but it will help enhance the presence and influence of the United States in these newly emerging democracies. We certainly do not want to see the old COMECON [Council for Mutual Economic Assistance] bloc closed to US trade and investment by activities and agreements struck with other trading partners. Our private sector can provide positive examples of the free market values which are the foundation of economic prosperity both here and abroad. Our assistance program itself, by utilizing US goods and services rather than writing checks to foreign governments, creates jobs at home as well as overseas.

US Programs in Central and Eastern Europe

As we begin to implement our assistance program in the new independent states, we can benefit from our experience to date in Central and Eastern Europe. When we started our assistance program with the SEED [Support for Eastern European Democracies] Act of 1989, only Poland and Hungary were involved in major reform efforts. Now we have programs in 10 countries in Central and Eastern Europe. During the past 2 1/2 years, we have worked with the Congress to develop a creative assistance program, combining traditional activities with innovative approaches, such as the Enterprise Funds now operating in Poland, Hungary, Czechoslovakia, and Bulgaria. We and the East Europeans have learned what works quickly and what does not, and we remain committed to adapting our programs as needed to promote our goals.

The flexibility we have built into our programs has been critical in allowing us to shift resources as necessary to respond to sudden changes in individual recipient countries--changes which are inevitable given the unprecedented reforms being implemented and the resulting dislocations that are occurring. If we had, for example, allocated funds to each country for each fiscal year, we would not have been able to shift resources to respond to the dramatic developments last year in Bulgaria, Albania, and the Baltic states.

In my view, we have also been correct in focusing the majority of our assistance directly on the private sector. The overthrow of communism was a rejection of state interference in daily life. We want to strengthen nascent private institutions in these countries rather than perpetuate bureaucracies. Moreover, we believe that the primary reason why the United States has been able to disburse our assistance commitments at over twice the rate of the European Community has been because we work directly with the private non-governmental sector rather through host government institutions.

We have also sought to combine our assistance tools with new initiatives designed to enhance US trade opportunities and promote US investments. In the long run, the impact of US private sector capital, goods, and services will be much greater on the development of free markets abroad than any government assistance that we can offer.

The Administration's FY 1993 Program for Central and Eastern Europe

As we proceed with humanitarian and technical assistance for the independent states of the former Soviet Union, it is essential that we not divert resources from our programs designed for Central and Eastern Europe. The success or failure of the political and economic transition underway from the Baltics to the Black Sea will have a decisive effect on the prospects for a successful transformation in Russia and the other independent states.

We are, therefore, keeping funding for our East European program strictly separate from our CIS [Commonwealth of Independent States] program. We are also asking for a $50-million increase in funding for Central and Eastern Europe in FY 1993--$450 million as opposed to the $400 million we asked for in FY 1992. The increase in our request reflects the fact that we are now providing assistance to more countries. At the time we submitted the President's budget for FY 1992, we had assistance programs for six countries. Since then, we have added Estonia, Latvia, Lithuania, and Albania to the list, and the latecomers have some of the most urgent and long-term needs in the region.

As the number of recipients has changed, so have the needs we are trying to fill. While we continue to place emphasis on the transitional nature of our East European assistance program and look to "graduate" countries as quickly as possible, we recognize that we will be providing assistance to some parts of the region for much longer than we had originally anticipated. Albania, for example, is similar to a traditional developing country, where the United States and other donors will probably be involved in institution-building for many years.

In program terms, we want to build on our successes. Here is what we are planning for FY 1993:

-- Poland will continue to be the largest single recipient of assistance in the region, consistent with its size and importance.

-- As in the past, we will divide our program budget into democratic initiatives (approximately 7.5% of the total), quality of life activities (17.5%), and economic restructuring projects (75%).

-- The enterprise Funds will receive the largest single portion of the 1993 budget, as they have been quite successful in responding quickly to the needs of the new private sector. We believe that the funds will be able to attract other donor and private sector support, as the Polish and Hungarian funds are already demonstrating.

-- Another key program is the American Business Initiative, which is designed to promote US trade and investment in Eastern Europe. This helps US business while also providing new job opportunities for East Europeans.

-- The promotion of private agriculture and agribusiness also will remain a top priority.

-- We will continue encouraging all the countries of Central and Eastern Europe to move ahead with privatization. Our programs in this area will represent a significant share of our assistance effort in FY 1993.

The Administration's FY 1993 Program for the New Independent States

We will build on our experience in Central and Eastern Europe in developing activities for the former Soviet Union. But we must not exaggerate the parallels. We are looking at 12 entirely new countries, which are likely to proceed with reforms at different speeds and in different ways.

The challenges we face in the former Soviet Union are more extensive than those we faced in Central and Eastern Europe. The region is much larger, the number of people greater, and the problems profound. The immediate humanitarian needs are widespread, and the risks of political instability in certain areas are high. Private enterprise and societal connections with the West are much less developed compared to most of Eastern Europe 3 years ago. New government structures are just being established, with laws being written. And, of course, there is the enormous defense industry, including its nuclear component, which is a subject of special attention under our assistance program.

In short, the challenges we face are unprecedented. Simply throwing money at the situation--especially money that in these times we can ill afford to waste--will not solve these problems. Indeed, money indiscriminately pumped into the region could hinder reform and promote the very dependencies that have, for too long, existed in these countries. We must remain prudent, using the combined resources of various US Government agencies and an engaged private sector to overcome immediate humanitarian crises and help prevent political instability. We must also help create market mechanisms needed to promote self-sustaining economic reforms. Critical to this effort will be encouraging the participation of US and Western companies in trade and investment.

To achieve these simultaneous goals, the President has asked for $620 million in FY 1992 and FY 1993 in new appropriations for the former Soviet Union. These funds would be used to deliver emergency humanitarian relief and provide technical assistance to support democratic reform and promote economic restructuring:

-- Of this, $500 million would go toward special humanitarian and technical assistance to meet emerging needs as they arise. The technical assistance is intended to provide the necessary bridge between short-term humanitarian aid to cope with immediate shortages and medium-term development to promote the successful transition to a democratic society and a market economy.

-- $100 million in FY 1993 Economic Support Funds would go toward technical assistance activities to promote democratic reforms and economic restructuring.

-- $10 million in FY 1993 Development Assistance funds would be targeted at development activities in the poorest states, and $10 million in FY 1993 PL480 [Food for Peace] funds will be used to send US farmers and agribusiness experts to provide training and advice to counterparts in the new independent states.

These funds will be combined with $860 million in resources available under existing legislation, including:

-- About $210 million in food assistance ($165 million in food aid and $45 million in surplus Department of Defense stocks);

-- $100 million in Department of Defense money for transportation of humanitarian relief;

-- $400 million in Defense funds for assistance in eliminating nuclear arms and chemical weapons;

-- $30 million in funds to provide urgently needed medical supplies; and

-- $120 million in USAID [US Agency for International Development] and US Commodity Credit Corporation funds for technical assistance activities.

In addition, the Peace Corps hopes to support up to 500 volunteers in the new independent states by the end of FY 1993, and we will rely on the overseas Private Investment Corporation and the Eximbank [Export Import Bank] to encourage US investment in and exports to the region.

For our technical assistance activities, we are planning programs in the following areas:

-- Programs to privatize and restructure the militarized economies of the new independent states through conversion of defense industries and resources to consumer-oriented production;

-- Activities to promote a market economy, both on the macro- and the microeconomic side;

-- Improvements in food distribution, transportation, and humanitarian service systems;

-- Promotion of investment in and increased efficiency of the energy sector;

-- Promotion of bilateral trade and investment to encourage the US private sector to become involved in the new independent states; and

-- Initiatives to encourage the development of a democratic society, including rule of law, educational reform, public administration, and media programs.

As in Eastern Europe, we do not plan to set specific levels for assistance to individual states, as we will need to shift resources to address changing needs and to encourage the varying levels of reform efforts. We estimate, however, that roughly half of the US assistance will be directed to Russia, given its size and importance. Ukraine, Armenia, Kazakhstan, and Kyrgyzstan are also important priorities and will be treated accordingly.

In general, we want to direct assistance at whatever level--national or local--is most appropriate and effective, working with both governmental and non-governmental entities. We will be proposing new mechanisms, including the Eurasia Foundation, which will be a private organization designed to provide fast-disbursing grants for technical assistance, management training, and democratic institution building.

While much needs to be done, the United States has been a leader in responding to the urgent needs. We have delivered over 21 million metric tons of grain and other foodstuffs and over $35 million in pharmaceuticals and medical supplies. We have disbursed almost 70% of our commitments to date (including agricultural credits), a much higher rate than other donors. We have already opened, or are in the process of opening, embassies in 11 of the new states. We are working to establish an USAID presence on the ground. And, as you may know, last week the Secretary named Rich Armitage, who successfully organized Operation Provide Hope, to manage the operations of our entire assistance program to the new independent states.

Considering the importance of the challenge we face, it is also significant to note that US assistance is only part of a global response, with over 50 nations and multilateral institutions committed to providing over $27 billion to the new independent states. The Washington Coordinating Conference held in January brought together 54 delegations to develop specific plans of action in the areas of food, medicine, shelter, energy, and technical assistance. We have also met bilaterally and multilaterally with representatives of the new independent sates to discuss and implement these initiatives. We are taking a lead role in supporting memberships for the new states in the international financial institutions as soon as practicable in order to promote the macroeconomic stabilization and structural changes that are needed.

Conclusion

In sum, let us remember that the Western community worked together under US leadership to protect democracy and free enterprise during the dark years of the Cold War. We provided inspiration and hope for the peoples living under the weight of totalitarianism. It is now up to all of us to see that the promise of a more secure, prosperous world is realized. Under US leadership, the Western democracies have again forged a partnership, this time with our former adversaries, in order to build a more stable future for our children. We look forward to working with the Congress in extending the assistance that is so much in our national interest.