THE WHITE HOUSE
the Press Secretary
NATIONAL ECONOMIC ADVISOR
The National Hotel
10:08 P.M. (L)
MR. KENNEDY: Here to brief you on
President Clinton and President Putin's economic session today is Gene
Sperling, the Director of the President's National Economic Council. Thank you.
MR. SPERLING: The overwhelming portion of the second, larger
session today between the two Presidents was on economic policy, both broad and
very specific issues between them.
President Putin talked about the
improvement in their economy, went through some of the statistics in terms of
the strength of growth that they've had recently, but stressed that they were
not stopping there; made a very strong case for his economic reform package,
focusing on particularly the tax reform that was in front of the Duma,
production sharing, different intellectual property issues.
both the capital flight problems and money laundering, stressing that both
result in, obviously, capital leaving Russia, but stressing the different
nature of the problems -- capital flight by Russian investors reflecting lack
of confidence that needs to be repaired, while the money laundering reflected
specific criminal activity that they also are seeking to address in the Duma.
He also, from there, talked about their efforts to re-engage in the
IMF. They talked through the budget position, the debt burden that Russia still
faces. The two Presidents also talked -- both some last night, I have heard,
but then clearly today -- about the possibilities of Russia's efforts to accede
to the WTO.
They talked very specifically on the bilateral investment
treaty between the United States and Russia. On that, there was a bilateral
investment treaty in 1992, which our Senate ratified, their Duma never
ratified. Now the issue is whether or not we can make progress on that. They
presented a paper to us. We made clear that we are willing to consider
amendments in some limited areas, which would require it to then be ratified by
the Duma. We would have to resubmit it to our Senate for ratification in that
So they had both a very broad discussion on the general issues of
economic reform, on building economic confidence. The President talked about
the similar situations he faced in his first year, in '93 -- the difficulty of
getting things through in the first year, but the necessity of seeking to do
your tough reforms in the first year, and the importance of changing a negative
market perception, and how President Clinton felt the United States, in terms
of the deficit and trade and other issues, that his actions in the first year
were very helpful, though politically difficult, but that they paid off in the
So, again, it was a conversation that was mixed with broad
themes, and then at times very specific and detailed bilateral issues between
our two countries, like the bilateral investment treaty and some other issues.
And since I know it's late, I will stop there, take any questions
anybody might have.
Q What makes the President think that these reforms
are actually going to -- if they get passed in the Duma, how would they be
implemented and why would they work if they never worked --
SPERLING: Well, I don't think that right now what you're looking at is so much
a case where Russia has passed significant structural reforms since --
Q -- they did pass?
MR. SPERLING: No, no. What I'm saying is,
this is not a case so much where there's been significant passage of structural
reforms and then there has been a failure of implementation. There has been a
failure at implementing the basic structural reforms in the beginning.
But you're absolutely right. This will take an all-out commitment on
the implementation side. One thing that President Zedillo always said, when he
talked to other leaders in terms of his experience with Mexico, is when you've
had a negative perception, when people have lost money investing in your
country, it's not good enough to just do the right thing -- you have to go the
extra mile, you have to do a bit of repair on the negative perception.
And so I think people will be looking at what's going on in Russia,
both in terms of what passes, structural reforms, both in implementation. But I
think they'll also be looking for those symbolic efforts that will show that
there is a change of course.
Obviously, the biggest problem in capital
flight in Russia has never been foreign capital flight. It has always been
domestic capital flight. And I think that for the new Russian government they
are going to be able to, first, re-engage successfully with IMF; second,
successfully pass some of these new structural reforms.
structural reforms, in a sense, are very basic. Anybody in this room probably
invests money at times, and the question is, when you invest in the United
States, you may think about whether you think the stock market is valued right,
you may think about whether it's a good bet. You don't worry that you somehow
might not have your rights protected in a shareholder dispute or in a
bankruptcy or in a contract. These are basic rule-of-law issues of which one
feels secure in a place like the United States.
Russia is a place where
there is enormous intellectual capital, very highly trained scientists, people
-- in that sense, an attractive place for investment. But the failure to
develop these structural market mechanisms that are very tied into the rule of
law has kept people from feeling that this is the type of business investment
climate that they want. So you really have to have both the new reformed and
stronger budget situation, structural reforms. And yes, you're going to need
the type of implementation and examples that make people look twice, think
The President -- they talked about the fact that Bob Strauss was
going to bring some CEOs to look, but clearly people are going to be affected
not by talk, but by action.
Q Gene, this isn't going to happen
overnight. Did they put any kind of timetable on when this was going to come
about, if at all?
MR. SPERLING: I think probably the most immediate
thing they have before the Duma is the tax reform. And the way the Russian
system works is, you have to pass tax law six months in advance before it's
implemented. So they're not on a fiscal year like we are, they're on a calendar
year. So if you're counting on new revenues coming in at the start of the next
calendar year, you want to pass your tax reform over the summer. I mean, the
core of their tax reform is obviously that they have very significant
exceptions, low compliance. And the question is, can you simplify, actually
lower rates, but broaden the base, pick up more? There are some efforts to
federalize things like the inheritance tax, they have an excise tax on high
octane gasoline. And I'm sure, just like with our Congress, they have a flat
tax, which here as well as back in the United States has its critics. But I'm
sure that here as there, it will go through some controversy in the Duma.
The question is whether they will pass something that meets these
general principles. I think that is something that is very much alive. I think
the other issues are some of the more rule-of-law issues -- bankruptcy,
intellectual property, customs codes, some of those things -- viable.
Clearly, to get every single thing done in a single session would be
very difficult, and it might not be wise as a legislative strategy to seek to
do absolutely everything. In any political situation, you have to use your
political capital well.
But again, business confidence is based on
tangible things and intangible. I think people will look at the degree of
progress, at the seriousness of the government, whether they are using some of
their federalization efforts to actually -- whether some of those turn out to
be sincere efforts to actually implement the issues. As the previous question
asked, if this is a way of making sure when reform happens, there's better
ability to implement. These are all the things I think people will look at.
There won't be a silver bullet and it won't happen overnight.
there any substantive discussion on rooting out corruption and tackling
organized crime specifically, continuing more investigations?
SPERLING: Well, President Putin brought it up fairly early. As I think I said,
he talked very specifically about the fact that there is sometimes confusion in
his press between capital flight issues and money laundering issues. They do
have an anti-money laundering legislation. I think that it would be, again, a
very positive sign for them to pass that, not only for the tangible impacts
that has, but also for the intangibles, in the sense that it's a way of
I think there are other reforms -- what I would say
is that there are many reforms in which this is an issue that is since being
talked about. When you look at something like the WTO, when you have clear
rules and more transparency and better custom codes, things are clearer. That
removes the vagueness and discretion in your custom ports; that takes away a
lot of the ability for both outright fraud, subtle fraud, subtle bribery. And
that's not just in Russia, that's in anywhere. And one of the things we always
stress in terms of WTO -- and we talked about this with China, as well, -- is
that when you have clear, transparent, accountable rules, it takes away some of
the arbitrary discretion that makes people less dependent on arbitrary state
decisions, but also takes away the environment that can facilitate bribery and
Q Can I ask you a little bit about the Strauss mission? I don't
understand quite -- but probably because not enough was said. On the one hand,
your position is the Russians haven't done enough?
MR. SPERLING: Right.
Q And, you know, and now Strauss is coming in with a bunch of big-bucks
people, I'm sure, to look at ways to benefit from Russia's need for outside --
MR. SPERLING: No, that's --
Q Wait a minute. Does this mean
you've turned a corner now, you think Russia is a safe place to invest, that in
the IMF you will back the renewal of loans, with the starting the flow of IMF
loans to Russia or again? Or is this just a survey they're taking?
SPERLING: Well, I was going to start, actually, by saying that was a good
Q I'll wait for a good answer. (Laughter.)
MR. SPERLING: I'll give you --
Q Surely you want it both ways?
MR. SPERLING: No, no, I'm going to give you a candid answer, which is
that this is a private sector effort. And we did not, at this point, call for a
public sector effort just for exactly the reasons that you're giving. In other
words, I think it would be a good thing, at some point, if Secretary Daley
could do something like that. But just for the reasons you said, I don't think
it is as helpful for the U.S. government to use its sway to encourage people to
take a second look at Russia before they've produced anything.
think that this is something Bob Strauss is doing, because of his long-standing
both business ties to the U.S. and Russia. But I think the message very much
from the President, from our President, was that he wants to be in a position
to encourage people to look again, but that that can't happen until they can
show some of these structural reforms happening.
And, in fact -- and
this is probably the point you're referring to -- actually encourage that type
of thing before it happened, it could be counterproductive. People could come
over and say, nothing has changed as much. So I think they should look at the
-- the Strauss visit as kind of a fortunate effort to at least perhaps explain
to people what they're doing.
I do think one thing -- as one who has
had a chance to meet some of the members of their economic team and look at
their plan -- there is a very detailed and serious market-oriented plan here,
and that is impressive to a point. Obviously, though, a plan that's not passed
and not implemented is nothing more than paper. So it's a step. It's a
necessary, but not sufficient step.
Q Could you -- did you talk at all
about the Russian debt situation? And what would be the U.S. position on
whether Russia deserved more debt forgiveness, particularly from creditor
governments, particularly given its large current account surplus?
SPERLING: Right. Well, the situation he's referring to, as everyone probably
knows, is that Russia has about $159 billion of external debt. About exactly
$100 billion of that is from the Soviet era, and so a discussion point that
obviously the government raised, President Putin raised today and has been
raised before is what type of Paris Club -- which, for folks who don't live and
die by all this stuff, is the official government creditor club -- what kind of
rescheduling or relief in some form could be talked about. They did mention, of
course, that they got London Club relief of about 35 percent to 36 percent debt
write-down, probably 50 percent in net present value terms from the private
creditors. So the discussion certainly came up.
reaction was what you would expect, which is that first things first. They have
to first reengage successfully with the IMF. And we believe they have a new
government, a new plan, and they are engaged in a new negotiation with the IMF,
and we are hopeful that that will be successful. That's a first step for any
Secondly, they're going to have to take steps that build
confidence within the Paris Club. Nobody, in any context, is for any form of
debt assistance without the confidence that that debt assistance is going to
proper purposes -- leading to economic growth, dealing with serious social
problems -- and not to waste or other illegitimate purposes. So you really have
to first engage successfully the IMF, show the structural reforms.
think that President Clinton certainly made clear that in that context of
success in those two areas, that he felt that the Paris Club members would
certainly want to listen to President Putin and engage with him, and that
obviously the goal would be, down the line, some form -- for Russia would be to
be in a position where they could have some form of comprehensive plan.
But as to, you know, is that rescheduling? is that write-downs?
Anything like that, that's just extremely premature and not anything that is
appropriate for discussion at this point.
Q Did he discuss at all why
he felt he needed these seven regional federal people above the governors, that
he's just appointed? And did he ever specifically mention any of the major
oligarchs that he might move against? Did he talk about the Bank of New York?
Did he get specific about any of this stuff?
MR. SPERLING: On the first
issue, it did not come up at this meeting, and I was not in the security
meeting. I raised the issue with his economic advisor, Andrey Illarionov, and
certainly they made the case in its most optimistic sense from the economic
side, which is that they needed to have a structure that if they were passing
economic reform, that they could give confidence that it could be implemented
both effectively and in a fairly similar way throughout the regions. But that
did not come up in the specific discussion that we had at this time. I would
not be surprised, though, if the two Presidents did speak about that in the
walks and other hours that they had.
It's an interesting issue, and
certainly those of us who are on the economic side look at it and are curious
to know to what degree it is designed for implementation of an economic plan,
or whether it has other primary motives, or dual motives. But certainly those
of us looking at the economic plan certainly are also looking at that and
wondering what the connection could be, and whether it will be a positive one
Q Gene, isn't it a chicken before the egg sort of scenario,
that there has to be some sort of move against corruption and the oligarchs
before anybody, any capital, would be willing to come into Russia? I mean,
obviously, you know, there are allegations that some of the most senior people
in the Russian government are corrupt.
MR. SPERLING: Well, I think I
need to let them speak as to what their exact reason for the strategy is. And I
don't want to become essentially their spokesperson, explaining why they're
going for the seven super-districts, or why they're going for their reforms on
the 89 regions.
As an economic advisor, I look at it and wonder if it
is or could be part of a plan that could deal with effective implementation of
an economic plan. But I say that as one looking, analyzing the situation. I
can't tell you what all the exact reasons that they have, nor do I want to
suggest that in some way affecting the status of the governors is tied in that
way. I just don't feel I'm the proper person to speculate on that.
How forcefully did the President address the issue, in terms of how that
relates to the economic package that they're working --
Well, the President addressed it. I think that you have to understand that in
this conversation, President Putin obviously knew that this would be an issue
for us, and he addressed it very quickly himself, and talked very specifically
about the need to fight money laundering and crime, and that that had to be a
separate and focused effort apart and in addition to the more systematic
structural efforts they are doing to prevent legal but at times damaging
But again, I think it's very much part of the
discussion when you're talking about WTO. The President also talked about
Russia's potential in the high-tech area. I mean, right now 80 percent of
Russia's exports are in commodities, so they're very dependent. The higher oil
prices that are a headache for us right now are a blessing for them. But in the
future, you don't want to have your entire economy or your revenue so
Now, when we're sometimes talking to some countries, you're
talking about long-term efforts in their schooling and training system to build
up a corps of highly-educated workers so that they could attract the kind of
Silicon Valley-type of investment. Here, you have some of the most highly
skilled scientists and technical people in the world. So you have a key
ingredient to attracting the highest value-added.
But as any of you
know, intellectual property issues are sacrosanct to anybody in that field. And
until you have strong intellectual property protection, strong contract rule of
law protections, you're not going to get that benefit.
But again, the
issues on the rule of law came up constantly, and I think it's very interesting
both on the security -- both in the non-economic issues and the economic
issues, rule of law is often at the very front of the agenda.
again, it sounds like you keep reiterating the things that the United States
would like to see Russia do, and once again, Russia has not done any of them.
At least in the public discussion of economic matters and economic relations
with the United States, there's a fair amount of prickliness on the Russian
side -- that they keep getting lectured from the United States time and time
again, nothing they do is ever good enough. I'm sure that your meetings were
very polite. But did you find any signs of this prickliness on either side?
MR. SPERLING: We really are in a bit of a different situation here
right now. This is a new government, they have put forward a new plan. This is
not a situation where we are sitting there in a situation where we're being
overly analytical on each and every thing. We're looking at a strong reform
plan, but we're saying what anybody would say to the government of any country,
which is, it's good to talk the talk, but you have to walk the walk, and you
have to show the action.
Actions speak louder than words is, in a
sense, a truism. But it's an especially important truism in any country where
there has been talk of economic reform and it hasn't happened. That is going to
up the -- there's not the record that simply having a good plan leads to
So people will look at the -- they will look at the action or
the results. I didn't -- again, I found our conversations to be cordial and
constructive, but maybe -- you want to follow up?
Q Yes, if I could. I
mean, I understand where you're coming from, and you say whenever there's talk
of economic reform and it doesn't happen, then that's not good. But in the
Russian public discussion of the economy, they did reform, and it was a
disaster, and it led to the August '98 financial crisis. This is the way that
the Russian public, anyway, formulates these issues, and it makes them very
difficult to discuss. And even the Prime Minister a couple of months ago said
we don't need any more IMF loans because we're doing just fine. I mean, there's
a real sense in the public discussion of withdrawal from engagement with the
United States on economic issues.
MR. SPERLING: Well, two things. One,
it's a positive thing when a country such as Russia says we are the masters of
our destiny, we're going to take ownership of our economic plan. That is a
positive sign. I did not take from that, however, meaning that they wanted to
disengage. In fact, President Putin was very clear that they needed to engage
with the IMF, and they understood that the IMF, working something with the IMF,
a Russian-authored reform plan that is successful with the IMF is a key that
unlocks many other forms of assistance and cooperation that are necessary after
Q You talk about reengagement with the IMF. Is this a big-ticket
-- a return to the sort of big-ticket programs that we've seen? Or is this on a
more modest, like last year, just a thing to get their current debts together,
right? And second, you keep mentioning the plan. As far as I know, they haven't
actually published a plan. We've seen elements of an economic plan.
SPERLING: I think there is at least significant elements of a plan -- I think
there are different drafts. But I think that -- I actually was just at a dinner
with Minister Gref, who I think has been working on a draft that's around 400
pages long. Whether any -- you know, the degree that something is consensus,
trial balloon, all those things -- that stuff is difficult enough to figure out
in a political system that you know, as opposed to one that you're dropping in
for a couple of days on right now.
But I think that people who have
looked at what they're doing see a pretty significant seriousness in the degree
of specificity and comprehensiveness. Again, I think most of the issues are,
you know, will there be the political ability to pass it and implement it.
And the previous question asks an important question about public
perceptions which -- again, I don't want to try to pass myself off as an expert
on what the Russian public's perception is of different reform efforts. But the
point I was making before is, I think that most people would feel that Russia
has never really passed the kind of basic institutional structural issues --
that they may have had moments where their budget was in better shape or in
worse shape or in fiscal situation.
But I think that in terms of
actually passing effective banking, customs, tax reform measures, I think the
reason why people are looking at this particular government and this particular
plan with such great interest is they are seeing an effort at -- more of an
acceptance at the structural areas. And, actually, as opposed to perhaps, past
times, where maybe you might have had the case where the U.S. government was
coming and stressing how important these things were, here there is --
President Putin is saying this to us, saying that focus on an attractive
business climate, an attractive foreign business investment climate is
critical, and that he is focused specifically on things that will attract that,
and that he understands that one has to win that test with one's own retained
earnings and domestic investment first.
So, again, I don't think that
this was at all a situation of us preaching. I think that they were coming
forward with a plan, with a type of plan that seemed to be right in the general
direction to us. I think, however, the reality is, though, that for the United
States to be in, a sense, out there pushing, one has to have results and action
to point to in order to justify taking action to encourage people to invest.
Russia has to lead; other people can validate, once they've led. You can't
validate in advance of their own leadership and action.
Thank you very much.
Q -- the IMF?
Oh, I'm sorry, on the IMF.
As you know, they are not -- this is not a matter of simply seeking to unlock
the tranche from September that never went. I think they are clearly in a new
discussion, a new framework. I don't want to second-guess exactly how that will
turn out, but I think most observers think that it will be of a more modest and
more basic framework, dealing with their repayments to the IMF itself.
END 10:40 P.M. (L)