Order Code IB95077
Issue Brief for Congress
Received through the CRS Web
The Former Soviet Union and
U.S. Foreign Assistance
Updated February 5, 2003
Curt Tarnoff
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Snapshot of U.S. Assistance to the Former Soviet Union
Levels of Assistance
Grant Assistance
Credit Assistance
Direction of Assistance
Programs and Projects
Status of U.S. Assistance to the Former Soviet Union
Developments in 2002
Administration FY2003 Request
FSU Aid Debate in the Senate
FSU Aid Debate in the House
Cooperative Threat Reduction and Nonproliferation Aid
FY2002 Emergency Supplemental
FY2003 Appropriations
Developments in 2003
Administration FY2004 Request
Issues for Congress in 2003
Aid to Russia
Funding Levels
Conditionality
Aid to the Other Republics
Ukraine
Central Asia
The Caucasus
LEGISLATION

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IB95077
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The Former Soviet Union and U.S. Foreign Assistance
SUMMARY
Seeking to encourage a transition to
sion of the FY2003 Foreign Operations bill,
democracy and free market economics in the
that provides $765 million in aid for the FSU.
states of the former Soviet Union (FSU) –
The House Appropriations Committee re-
Russia, Ukraine, Moldova, Belarus, Georgia,
ported its bill, H.R. 5410 (H.Rept. 107-663),
Armenia, Az erbaijan, Kaz akhstan,
on September 19. It provides $755 million for
Kyrgyzstan, Turkmenistan, Uzbekistan, and
the FSU. In the absence of an enacted appro-
Tajikistan – the United States, since Decem-
priation, FY2003 aid is currently provided
ber 1991, has offered roughly $8.2 billion in
under a continuing resolution (H.J.Res. 1, P.L.
grants for economic and technical assistance
108-2). On January 23, the Senate approved
to the region. Most of the grant assistance has
its version of H.J.Res. 2, providing $765
been provided through the Agency for Interna-
million for the FSU. A House-Senate confer-
tional Development (USAID).
ence is expected to meet the week of January
27.
In addition, $4.8 billion has been pro-
vided in food aid through the Department of
On February 3, 2003, the President sub-
Agriculture, and $2.9 billion by the Depart-
mitted his FY2004 budget request, including
ment of Defense for nonproliferation pur-
$576 million for the FSU, a cut of roughly
poses. The United States has also subsidized
25% from the anticipated FY2003 level.
guarantees for more than $12 billion in credits
from the Export-Import Bank, Overseas Pri-
Whether, how much, under what condi-
vate Investment Corporation, and the Depart-
tions, and to whom in the successor entities of
ment of Agriculture.
the Soviet Union assistance might be given
remain matters of ongoing debate in Congress.
In its FY2003 budget request, the Ad-
ministration proposed funding the former
For more information on this issue, see
Soviet Union account at $755 million, a de-
CRS Report RL31699, U.S. Bilateral Assis-
crease of $29 million, or 4%, from the
tance to Russia: 1992-2002, CRS Issue Brief
FY2002 appropriated level of $784. On July
IB98038, Nuclear Weapons in Russia, and
24, the Senate Appropriations Committee
CRS Report 97-1027, Nunn-Lugar Coopera-
reported S. 2779 (S.Rept. 107-219), its ver-
tive Threat Reduction Programs: Issues for
Congress.
Congressional Research Service ˜ The Library of Congress

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IB95077
02-05-03
MOST RECENT DEVELOPMENTS
On February 3, 2003, the President submitted his FY2004 budget request, including
$576 million for the FSU account, a cut of roughly 25% from anticipated FY2003 levels.
Proposed FSU account allocations for Russia and Ukraine would be cut substantially, by
51% and 39% respectively. A decision to appropriate educational exchanges through the
Department of State budget rather than FSU account is responsible for part, but not all, of
the decrease.
In the absence of an enacted appropriation, aid programs for the former Soviet Union
are operating under a continuing resolution, H.J.Res. 13 (P.L. 108-4, January 31). On
January 23, the Senate approved H.J.Res. 2 in an amended version that includes foreign
operations appropriations. It would provide $765 million for the FSU account.
In mid-September, the Administration “initiated a temporary pause” in new FREEDOM
Support Act aid to the central government of Ukraine, in response to information that
Ukraine may have sold an early warning radar system to Iraq in violation of U.N. sanctions.
On September 19, the House Appropriations Committee reported H.R. 5410 (H.Rept.
107-663), its version of the FY2003 Foreign Operations bill. It provides $755 million for
the FSU, $29 million less than the FY2002 level, but matching the President’s request.
On July 24, the Senate Appropriations Committee reported S. 2779 (S.Rept. 107-219),
its version of the FY2003 Foreign Operations bill. It provides $765 million for the FSU, $19
million less than FY2002, but $10 million above the Administration request.
BACKGROUND AND ANALYSIS
Seeking to facilitate the transition of the states of the former Soviet Union (FSU, also
known as the NIS, New Independent States) to democracy and free market economies, the
United States launched a program of economic assistance to the region in late 1991. The
FREEDOM Support Act, approved by Congress in October 1992, authorized this program
(P.L. 102-511) and provided the policy guidelines under which assistance would be
allocated. A broader program of assistance has existed concurrently that encompasses many
spigots — including export credit programs, food aid, and the Nunn-Lugar cooperative threat
reduction effort in the four nuclear weapons states of the region. (For details on the latter
issue, see CRS Issue Brief IB98038, Nuclear Weapons in Russia, and CRS Report 97-1027,
Nunn-Lugar Cooperative Threat Reduction Programs: Issues for Congress.) While this
issue brief describes trends and issues in the broad program of assistance, it concentrates on
the bilateral economic aid program that has been both the main U.S. instrument for
influencing the economic and political transition in the FSU and a chief focus of
congressional attention. For more details on the economic assistance program see CRS
Report RL31699, U.S. Bilateral Assistance to Russia: 1992-2002 (January 2003), and CRS
Report RL30112, Russia’s Economic and Political Transition: U.S. Assistance and Issues
for Congress (May 1999).
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Snapshot of U.S. Assistance to the Former Soviet Union
Levels of Assistance
Grant Assistance. Since 1992, roughly $8.9 billion in grant economic assistance has
been appropriated by Congress to run U.S. programs in the former Soviet Union. The
vehicle for this assistance is the Independent States of the Former Soviet Union account
(formerly known as the NIS, New Independent States, account; and also called FSU account
in this issue brief), funded annually by the foreign operations appropriations bill. According
to the State Department, in FY2001, $846 million was obligated by the Agency for
International Development (USAID), the main implementor of the program, or transferred
by it to other agencies for their programs in the region. The FY2002 FSU account
appropriation of $784 million represents roughly 5% of total U.S. worldwide foreign aid for
that year.
Table 1. FSU Account Appropriations
(millions of $)
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
230a
417
2,158b
818c
641
625
770
847
836d
808e
784f
a. Economic Support Funds reprogrammed for FSU in early 1992.
b. Includes $1.6 billion FY1993 supplemental approved September 1993. P.L. 103-211 rescinded $55 million
of the FY1994 and FY1993 supplemental appropriations for the FSU.
c. Original appropriation was $850 million. P.L. 104-6 rescinded $7.5 million. P.L. 104-19 rescinded $25
million.
d. Original appropriation was $839 million. P.L. 106-113 rescinded .38%.
e. Original appropriation was $810 million. P.L. 106-554 contained .22% across-the-board rescission.
f. In addition to this amount, $46.5 million was transferred to the FSA account from the emergency
supplemental approved September 2001 (P.L. 107-38).
In addition to the FSU account economic assistance, other types of grant aid have been
provided to the region. Under the Department of Defense annual appropriations, the Nunn-
Lugar Cooperative Threat Reduction Program — $329 million obligated in FY2001 — is a
defense program aimed chiefly at assisting the denuclearization of Russia, Kazakhstan,
Belarus, and Ukraine, where nuclear weapons were located when the Soviet Union fell. With
$279 million in FY2001 obligations, the Department of Energy conducts a range of programs
to support the safety of nuclear reactors and the protection and control of fissile materials and
stockpiles. Under the U.S. Department of Agriculture appropriations bill, grant or subsidized
food aid, mostly for humanitarian purposes, is funded — equaling $158 million in FY2001
obligations. Additionally, a number of other U.S. government agencies, most notably the
State Department, have their own disparate programs of exchanges and technical assistance
conducted out of their agency budgets and also not drawing on the FSU account. Obligations
in FY2001 of U.S. grant assistance from all spigots, including the FSU account, equal $1.8
billion.
Credit Assistance. In addition to grant assistance, the United States has provided
guarantees or loans to support the equivalent of $12.1 billion in U.S. exports of manufactured
and agricultural products and business investments in the FSU since 1992. The actual budget
outlays for these programs, administered by the Export-Import Bank, Overseas Private
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Investment Corporation, and the Department of Agriculture, are as little as one-fifth of these
amounts, since only the subsidy cost has to be appropriated to back up the loan or guarantee.
In the event of a default, however, the U.S. taxpayer would be liable for the full face value
of the loan.
Direction of Assistance. Although in recent years, Russia has accounted for only
15-22% of FSU account allocations, the bulk of U.S. assistance since the program began in
1992 has gone to Russia – 35% of
cumulative obligations. This is a
FSU Account Country Allocations
reflection of its importance to U.S.
(in $ millions)
national interests, its physical expanse
Country
FY02
FY03
FY04
and population size, and the relatively
(supps)*
(req)
(req)
advanced state of its reformist efforts
compared to the other states of the
Russia
159.1
148.0
73.0
region. In FY2002, Ukraine and
Ukraine
154.9
155.0
94.0
Russia each were expected to receive
Belarus
10.6
9.5
8.0
about 20% of allocated appropriations,
Moldova
35.9
32.5
23.0
followed by 11% each for Georgia and
Armenia.
Armenia
90.2
70.0
49.5
Azerbaijan
43.5
46.0
41.5
However, on a per capita basis,
Georgia
89.8
87.0
75.0
suggesting the size and, possibly,
impact of the program in the recipient
Kazakhstan
45.8
43.0
32.0
country, the order changes. Armenia
(1.5)
was the chief recipient of FSU account
Kyrgyzstan
35.5
36.0
40.0
allocations in FY2002, receiving $26
(36.5)
per capita, followed by Georgia ($16),
Tajikistan
19.4
22.5
35.0
Moldova ($8), and the Kyrgyz
(37.0)
Republic ($7.50). Russia was eleventh,
Turkmenistan
7.4
7.0
8.0
at roughly $1 per person.
(4.0)
Uzbekistan
29.2
31.5
42.0
Programs and Projects
(89.0)
Most of the FSU account program
Regional
62.7
67.0
55.0
is in the form of technical assistance
(6.0)
and exchanges. Where there is “cash”
Total App.
784.0
755.0
576.0
involved, it is mostly in equity
(174.0)
investments and loans to the private
* Amount in parentheses is sum of two FY2002
sector provided by the region’s three
supplementals, not included in figure above.
enterprise funds. As much as three
fourths of the aid is going to the private
sector — not the governments of the FSU. Roughly 78% of those funds used for programs
run by USAID are spent on U.S. goods and services. Although the FSU account is
appropriated directly to USAID, more than one-fourth of the funds has been funneled to other
U.S. government agencies. But the proportion has grown in recent years – in FY2002,
roughly 41% will go through other agencies.
Responsibility for the overall strategic direction of the aid program lies in the hands of
the Department of State’s Coordinator of U.S. Assistance to the NIS, currently Ambassador
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William B. Taylor, Jr. Generally speaking, in its first years, the aid program emphasized
technical assistance, especially to central governments for policy reforms establishing basic
laws and institutions intended to allow democracy and free market economy to flourish. By
1997, in the case of Russia and, to a lesser extent, in other countries, the Clinton
Administration began to shift to what it called a more long-term view of FSU needs and U.S.
relations with the region. Its Partnership for Freedom initiative emphasized assistance
targeted more at the grassroots, at local government and the hinterlands, and at building more
cooperative relationships between the FSU and American people. Hence, on the economic
front, there has been a greater amount of funds put into trade and investment — including,
at the national level, efforts to affect tax policy — and support for small and medium
business and for establishing joint ventures with U.S. business. To further the development
of a civil society, there has been greater support for partnerships between U.S. and FSU non-
governmental organizations and U.S.-FSU exchanges. The Bush Administration has
indicated that the trend toward funding exchanges and grassroots activities will continue and
possibly expand.
The FSU account funds programs in a wide variety of sectors, many of which overlap.
Private sector development programs, representing the largest proportion of funds, have
included efforts to assist the privatization of state-businesses and efforts to help draft new
tax, securities, and commercial law. The on-going enterprise funds are among several efforts
to assist micro to medium-sized business lending aimed at stimulating the nascent private
sector. Numerous person-to-person volunteer programs provide technical assistance to
individual farmers and businessmen.
Trade and investment programs include a variety of activities run through OPIC, the
Department of Commerce, the Trade and Development Agency, and the Export-Import Bank
to encourage U.S. investment and exports. Among the democratic initiatives are the
various educational exchanges and traineeships run by USAID and the U.S. Information
Agency (USIA) and technical assistance provided to political parties, the judiciary, and law
enforcement agencies. Efforts to encourage the development of indigenous
non-governmental organizations(NGOs), such as professional associations and charities, and
the growth of independent media are also being emphasized.
Humanitarian assistance provided under the FREEDOM Support Act funds food and
medical aid for highly vulnerable groups, especially in the Caucasus region. Health care
programs include efforts to combat infectious disease, promote health care reform, assist
family planning, and establish hospital partnerships. Energy and environmental programs
are helping address nuclear reactor safety, seeking through demonstration projects to
encourage energy efficiency, and providing small project grants for local environmental
programs. Finally, housing programs include technical assistance for housing policy
reform, such as establishment of a mortgage lending system.
In recent years, the FSU account has been drawn upon for nonproliferation activities,
usually more closely associated with the Nunn-Lugar Cooperative Threat Reduction Program
funded under the Department of Defense appropriations. Under the so-called Expanded
Threat Reduction Initiative, the State Department supports commercial alternative
employment for nuclear and chemical weapons scientists, border security training, and other
efforts to control the proliferation of weapons expertise and materials. In FY2002, roughly
8% of the FSU account was used for these purposes. The FY2003 FSU account request
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shifts many nonproliferation programs, including border security, to the NADR
(nonproliferation, anti-terrorism, and demining) account of the foreign operations bill.
Status of U.S. Assistance to the Former Soviet Union
In 2003, Congress will continue its oversight of the ongoing assistance program for the
FSU while determining the size and shape of the FY2004 program. The section below
discusses the FY2003 appropriations process that serves as a backdrop for the debate on the
FY2004 budget. The following section looks at Administration and congressional actions
as they unfold in 2003. For a review of earlier actions, see CRS Report RL30148, U.S.
Assistance to the Former Soviet Union 1991-2001: A History of Administration and
Congressional Action (revised January 15, 2002).
Developments in 2002
Administration FY2003 Request. On February 4, 2002, the Bush Administration
proposed its regular FY2003 budget, including $755 million for the former Soviet Union
account under the foreign operations appropriations. This is a decrease of $29 million, or
4%, from the FY2002 appropriated level of $784 million.
FSU Aid Debate in the Senate. On July 24, the Senate Appropriations Committee
reported S. 2779 (S.Rept. 107-219), its version of the FY2003 Foreign Operations bill. It
provided $765 million for the FSU, $19 million less than FY2002, but $10 million above the
Administration request.
The bill earmarked $90 million for Armenia, recommended that $87 million be used for
Georgia, and allowed up to $155 million for Ukraine. It also earmarked $17.5 million for
the Russian Far East, not less than $30 million for nuclear reactor safety initiatives in
Ukraine, and not less than $3 million for coal mine safety programs in Ukraine.
S. 2779 continued some conditions on aid to Russia. It would withhold 60% of aid to
the Government of Russia, with some exceptions, if it provides Iran with nuclear reactor and
other technology or if it impedes access by international humanitarian NGOs to Chechnya.
It continued exemptions to section 907 restrictions on aid to Azerbaijan, allowing
democracy, nonproliferation, TDA, Foreign Commercial Service, OPIC, Export-Import
Bank, and humanitarian assistance to the government of that country, and did not alter or
terminate the waiver authority provided in the FY2002 bill.
The Senate Committee report on the bill contained additional language recommending
support for various programs, including $2 million for the Primary Health Care Initiative of
the World Council of Hellenes, $4 million for Russia orphanage programs, up to $3 million
for the Russian, Eurasian, and East European Research and Training Program, funding at the
current level for the violence against women programs in Russia, and $3 million for a small
business development project in Georgia.
FSU Aid Debate in the House. On September 19, the House Appropriations
Committee reported H.R. 5410 (H.Rept. 107-663), its version of the FY2003 Foreign
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Operations bill. It provided $755 million for the FSU, $29 million less than the FY2002
level, but matching the President’s request.
H.R. 5410 carried soft earmarks (“should”), providing $82.5 million for Georgia and
not less than $83.4 million for Armenia. The bill recommended that not less than $1.5
million be used for the health and other needs of victims of trafficking in persons and that
at least $60 million be used for child survival, basic education, health/family planning, and
infectious diseases.
Like the Senate bill, H.R. 5410 continued some conditions on aid to Russia. It would
withhold 60% of aid to the Government of Russia, with some exceptions, if it provided Iran
with nuclear reactor and other technology or if it impeded access by international
humanitarian NGOs to Chechnya. It would terminate all aid to the Government if it
implemented laws discriminating against religious groups. It continued exemptions to
section 907 restrictions on aid to Azerbaijan, allowing democracy, nonproliferation, TDA,
Foreign Commercial Service, OPIC, Export-Import Bank, and humanitarian assistance to the
government of that country, and did not alter or terminate the waiver authority provided in
the FY2002 bill.
H.R. 5410 added a condition that would prohibit most funds for the Government of
Ukraine unless the Secretary of State certifies that it has not facilitated or engaged in arms
transfers to Iraq. It also required that the Secretary determine that the Government of
Uzbekistan is making progress in meeting commitments under its March 12, 2002,
framework agreement with the United States before funds may be made available to it. That
agreement contains language supporting progress in democratization, among other issues.
In report language, the Committee noted its support for a variety of FSU aid programs.
Among other things, it recommended provision of $3 million for the Primary Health Care
Initiative of the World Council of Hellenes, continued support for the Eurasian Medical
Education program of the American College of Physicians, provision of $164,000 in core
funding to the Sister Cities International program, $15 million for the U.S. Civilian Research
and Development Foundation, not less than $15 million for the Georgia Border Security and
Law Enforcement Program, and $4 million for the National Endowment for Democracy to
assist NGOs.
Cooperative Threat Reduction and Nonproliferation Aid. The FY2003
Administration request for Department of Defense nonproliferation activities is $428.3, of
which $416.7 million was for Cooperative Threat Reduction. The request for Department
of Energy nonproliferation for the FSU was $419.7 million. Related State Department
programs under the NADR (not yet allocated by region) and FSU accounts were expected
to equal roughly $109 million. The Defense Appropriations bill, H.R. 5010, signed into law
on October 23 as P.L. 107-248, provided $416.7 million for CTR activities.
FY2002 Emergency Supplemental. On March 21, 2002, the President submitted
a $27 billion FY2002 emergency supplemental request which included $155 million for six
of the nations of the FSU – Georgia and the five “stans” of Central Asia, $110 million of
which is for the FSU account and the rest for foreign military financing. The funds were
intended to help these nations fight terrorism and, in some cases, were rewards for
cooperation in the war. A conference report on H.R. 4775, the FY2002 emergency
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supplemental, was approved by House and Senate on July 23 and 24, respectively. It left
unchanged the amounts requested for the region by the President. H.R. 4775 was signed
into law as P.L. 107-206 on August 2. The President’s subsequent decision not to spend
some of the bill’s funds did not appear to affect the former Soviet Union countries.
Russian Democracy Act. On October 23, 2002, the President signed the Russian
Democracy Act of 2002 into law (P.L. 107-246/H.R. 2121). It reemphasizes U.S. support
for democratic forces in Russia, and amends the FREEDOM Support Act to elaborate in
greater detail the range of democratic and rule of law activities the U.S. should support there.
It authorizes $50 million for democracy and independent media programs in Russia, and
another $1.5 million for the Sakharov Archives and Human Rights Center at Brandeis
University.
FY2003 Appropriations. In the absence of an enacted appropriations bill, foreign
economic aid for the FSU is being provided under a continuing resolution, H.J.Res. 13 (P.L.
108-4, January 31, 2003).
On January 23, the Senate approved an amended version of H.J.Res. 2, the continuing
appropriations resolution, making it an omnibus appropriations bill that includes foreign
operations. It replicates most of the language in S. 779, the foreign operations bill approved
by the Appropriations Committee on July 24, 2002. Like S. 779, it would provide $765
million for the FSU account. However, a provision requiring across-the-board cuts,
reportedly of 2.9%, would affect amounts ultimately provided to the account.
With regard to the FSU, the only significant difference between S. 779 and the proposed
legislation is that language permitting “up to $155 million” for Ukraine has been dropped.
The change has been made in response to the reported covert transfer by Ukraine of the
Kolchuga radar system to Iraq. Although the new language makes no recommendation, it
does not forbid aid to Ukraine but leaves the amount to the discretion of the Administration.
Developments in 2003
Developments that have occurred in early 2003 with regard to formulation and passage
of the FY2003 appropriations are discussed in the 2002 section above.
In January 2003, the Russian government announced its withdrawal from participation
in the Peace Corps program. Since 1992, more than 700 volunteers had served in Russia.
Recently, some Russian officials had suggested that volunteers were involved in intelligence
gathering operations for the United States government, but, for many years, some officials
had indicated their belief that the Peace Corps was for “developing countries” and not an
appropriate form of assistance for the more “advanced” Russia. On January 14, President
Bush made a national interest determination waiving restrictions in the FREEDOM Support
Act and the Cooperative Threat Reduction Act of 1993, thereby allowing $450 million in
CTR assistance to be released. The restrictions prohibited aid if Russia was not found to be
in compliance with existing arms control agreements.
Administration FY2004 Request. On February 3, 2003, the President submitted
his FY2004 budget request, including $576 million for the FSU account, a cut of roughly
25% from anticipated FY2003 levels. Proposed FSU account allocations for Russia and
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Ukraine would be cut substantially from probable FY2003 allocations, by as much as 51%
and 39% respectively. According to the Administration, part of the decrease is compensated
by a shift in funding of all educational exchanges from the FSU account to the State
Department budget. Although $100 million of exchange programs previously funded by the
FSU and SEED accounts is included in the FY2004 State Department budget, in FY2002,
roughly $110 million was transferred to State under the FSU account alone (another $10
million in SEED funds) and more was provided by State’s own budget. It is not clear
whether FY2004 State exchange spending will actually match previous years, as implied in
congressional presentation documents.
The sharp decline in funding for Russia and Ukraine is also partly explained by an
Administration decision to put both on a track to “graduation” from the aid program. In the
view of some Administration officials, both countries’ progress in economic growth and
policy reform has diminished the need for U.S. assistance. Many observers outside the U.S.
government are likely to dispute this assertion.
Issues for Congress in 2003
Foreign aid is an instrument of U.S. foreign policy, and U.S. relations and interests in
the former Soviet Union determine levels, direction, and types of aid funding. While there
has been opposition, support for the FSU account economic aid program has generally been
bipartisan and strongly supported by congressional leaders. A decline in program funding
from FY1994 to FY1997 reflected a downward trend in the foreign aid program overall,
criticisms of program implementation and of Russian behavior, and, some would say, the
Clinton Administration’s failure to make a case for higher levels of funding. In 1997, the
Clinton Administration attempted to reinvigorate the program and its funding with its
Partnership for Freedom initiative, resulting in a 23% increase in funding in FY1998 and a
further 10% increase in FY1999. From its FY1999 level of $847 million, however, support
gradually declined to the FY2002 level of $784 million. The Administration requested $755
million for FY2003, the Senate Committee version of the foreign aid bill, S. 2779, provides
$765 million, and the House Committee bill, H.R. 5410, matched the President’s request.
The FY2004 request is $576 million, a decrease of 25% from anticipated FY2003 levels.
The decrease might be closer to 10% if the full amount normally provided for exchanges is
appropriated under the Department of State budget.
Since its inception, the economic aid program — united by the coherent and singular
purpose of democratization and free market reform — has always treated Russia as a case
distinct from the other NIS countries. Increasingly, through earmarks, their differentiated
development, and roles in the war on terrorism, the program is treating the region as four
distinct entities — Russia, Ukraine, the Caucasus, and Central Asia — which all compete for
the same pool of funds.
Aid to Russia
Funding Levels. Even after the demise of the Soviet Union, Russia has remained a
significant interest of U.S. foreign policy and a major focus of the foreign aid program.
Reflecting the highs and lows of U.S. interest and goodwill, Russia was the main beneficiary
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of the assistance program in its first years, but has borne the brunt of FSU account cuts more
recently. Funding for Russia declined from roughly 60% of the FSU total during the first two
years to about 15% of FY1997 funds and represents 20% of FY2002 allocations. The
Administration request for FY2004 is $73 million, 13% of the total FSU account. The long-
term funding decrease, especially for democracy and economic reform activities, has led
many to question whether available funding for Russia is adequate to meet both short- and
long-term U.S. foreign policy objectives in that country.
There are a number of reasons for the historic decline in Russia aid. Some argued that
U.S. foreign policy had become too dependent on Russian President Yeltsin and that more
funds should be funneled to other countries in the region. Others criticized Russian domestic
and international behavior and either sought cuts in aid or sought to use the aid program as
leverage to change Russian behavior. These conditions are discussed below.
Supporters of a larger aid program for Russia argued the importance to U.S. foreign
policy and defense interests of a democratic and free market Russia. They contended that
it was less expensive to assist a more cooperative Russia than it was to defend the United
States from threatened Soviet aggression during the Cold War and any future threat the
country might pose if it reverts to totalitarian rule. Finally, they pointed out that aid is
intended to be used to change Russia to a form of government and economy we would prefer,
and that most aid goes to grassroots businesses and NGOs — not the central government —
for the purpose of building long term cooperation and friendship with a people long isolated
from the West.
Several developments in the U.S.-Russia relationship might affect amounts and type of
aid provided. While legislative conditions on aid suggest continued congressional concerns
regarding Russian behavior, strong movement to adopt economic reforms long-stalled during
the Yeltsin era, Russian cooperation and support for the U.S. war on terrorism, and the
October 17, 2001 decision to withdraw from the intelligence listening post at Lourdes, Cuba,
would be arguments favoring an improved aid relationship. On the other hand, the January
2003 announcement by Russia of its intention to terminate the Peace Corps program and
closure of the OSCE mission in Chechnya may affect aid negatively. New demands for
assistance in the region, especially in Central Asia, and continuing hard and soft earmarks
for Armenia and Georgia, have continued to limit amounts available for Russia programs.
For FY2003, the Administration proposed a $148 million allocation for Russia, a 6% cut
from the estimated FY2002 level. For FY2004, it has proposed $73 million, a 51% cut.
Conditionality. As noted above, linked to the criticisms of Russia is the issue of
conditionality. Both the FREEDOM Support Act and annual foreign operations
appropriations bills contain general and specific conditions that all the states of the FSU are
expected to meet in order to receive assistance. Conditions left to the broad discretion of the
President include whether these countries are undertaking economic and political reform,
whether they are following international standards of human rights, whether they are
adhering to international treaties, and whether they are denying support to terrorists.
Other conditions established by Congress are more firm and specific, and the majority
of these to date have been aimed at the Russian government. Although a variety of
conditions have been proposed and some adopted by one body of Congress or the other, three
conditions in particular have become a regular focus of debate in the annual foreign
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operations legislation since 1995. These concern the sale of nuclear reactors to Iran, Russian
behavior in Chechnya, and implementation of a law regulating religious minorities.
In both the FY1996 and FY1997 appropriations, Congress prohibited aid unless the
President assured it that Moscow had terminated its plans for the sale of a nuclear power
plant to Iran. In both years, however, the President was allowed to waive this restriction if
he deemed it in the interest of U.S. national security. The FY1998 bill subjected half of aid
allocated specifically for the government of Russia to the requirement of a presidential
determination, but allowed a waiver. It did not affect aid to the private sector. In FY1998,
President Clinton did not make the necessary determination and half of aid allocated to the
government of Russia — local and regional as well as central government — was cut.
As increasing amounts of U.S. assistance have been targeted in recent years on the local
level and on the expansion of trade and investment, the condition, as then worded, threatened
to frustrate the U.S. aid strategy, because local and regional governments play a significant
role in facilitating the growth of business through legislation and other support. It also
affected such programs as the hospital partnerships, family planning, and exchanges because
most hospitals, clinics, and universities are government-operated. Although the final version
of the FY1999 appropriations repeated the same Iran language as in the FY1998 bill, the
conferees statement exempted aid to partnerships with universities, hospitals and
environmental institutions. Aid to local and regional governments was still affected. The
FY2000 appropriation bill, however, prohibited half of aid, specifically to the central
government of Russia alone if the Iran transfers continued. The FY2001 appropriation
continued that restriction, but raised the withholding level to 60%. The FY2002 act
maintained this condition and it appears in both Senate and House FY2003 committee bills.
During debates on this issue, the Clinton Administration and others stated that the
reactors could be used by Iran to help develop nuclear weapons. The economically strapped
Russians argued that they would be hard pressed to give up what might well become more
than a $3 billion deal and pointed out that the reactor is the same type as the United States
was supporting in North Korea. See CRS Report RL30551, Iran: Arms and Technology
Acquisition for further details on the nuclear deal.
Early in 1995, Russia’s behavior in Chechnya was mentioned by congressional critics
as a potential condition and was one reason given for acceptance of rescissions directed
specifically at Russia. With the renewed war in Chechnya in 1999, commentators and
members of Congress, including Senator John McCain, argued that a cut-off of aid would
be an appropriate expression of U.S. disapproval. Many of these critics targeted aid provided
by the IMF or the Export-Import Bank, and specifically exempted U.S. nonproliferation or
democracy assistance. Although the Clinton Administration consistently argued against
imposition of conditions on the aid program, the second Chechnya war also caused it to take
a harder line, at least with respect to aid provided by international financial institutions. The
IMF’s continuing delay of a $640 million loan installment suspended since September 1999
was attributed by many observers not to Russia’s failure to enact economic reforms as cited
by the IMF, but to pressure from Europe and the United States in reaction to Chechnya. The
FY2001 foreign aid bill prohibited 60% of aid to the central government of Russia if it was
not cooperating with international investigations of war crime allegations in Chechnya or
providing access to NGOs doing humanitarian work in Chechnya. The FY2002 bill
withholds 60% of aid to the central government only if it does not provide access to NGOs.
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Possibly as a result of Russian cooperation with the United States in its war on terrorism, the
war crime provision has been dropped. House and Senate FY2003 bills continue this
practice.
Another major restriction on aid to Russia has been approved each year since FY1998.
This prohibits any aid to the government of the Russian Federation (i.e. central government;
it does not affect local and regional governments) if it has implemented a law discriminating
against religious minorities. Each year, the President has determined that Russia has not
implemented the law, most recently on May 4, 2001. The FY2002 appropriations bill
continues this restriction. H.R. 5410, the House Committee FY2003 bill continues this
provision, while S. 2779, the Senate Committee bill, drops it.
In response to congressional efforts to impose conditions on Russian aid, the Clinton
Administration repeatedly argued that it was inappropriate to condition aid to Russia on a
particular desired behavior such as regarding Iran or Chechnya inasmuch as the program was
intended to benefit reformist elements in Russia and ultimately facilitate a transformation
that might ensure a more cooperative relationship in future. For example, according to the
Clinton Administration, less than a quarter of U.S. funds in 1998 were going to assist the
Russian central government directly, and that aid was for efforts to reform taxation, banking,
financial markets, and other economic laws. The level of aid to the central government has
diminished significantly since then.
Aid to the Other Republics
Ukraine. By virtue of its size and location, Ukraine is one of the more important of
the FSU countries to the United States. With the support of a strong U.S. ethnic lobby, $225
million in aid was earmarked for Ukraine each year from FY1996 to FY1998, making it the
largest FSU account recipient in those years. For FY1999, $195 million was earmarked for
Ukraine. In a departure from previous practice, the FY2000 appropriations recommended,
but did not require, that $180 million be provided to Ukraine. For FY2001, Congress
recommended not less than $170 million, and for FY2002 it recommended at least $154
million for Ukraine – levels allocated to it in both years. The Administration requested $155
million for FY2003. Although S. 2779, the Senate Committee FY2003 bill, would allow up
to $155 million for Ukraine, H.R. 5410, the House Committee FY2003 bill, contains no
recommended amount for Ukraine. The Administration has requested $94 million for
FY2004.
To the degree that FSU aid is predicated on a country’s adoption of economic and
political reform, Ukraine, has not lived up to expectations, delaying or rejecting privatization
efforts and other reforms. Several years ago, this led some in Congress to question the level
of funding provided to Ukraine, especially in view of news reports of the ill-treatment of U.S.
businessmen. As a result, almost half of earmarked appropriations were withheld pending
determinations – in FY1998, that issues affecting U.S. investors were resolved, and, in
FY1999, that progress on economic reform was being made. The determinations were
eventually made. Succeeding appropriation bills dropped such conditions. Ukraine’s
progress in economic reform efforts has improved, but reports of corruption and the
implication of President Kuchma in the murder of a journalist suggest that democratic reform
is not assured.
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Reports of the possible sale of an early warning radar system to Iraq, in violation of
U.N. sanctions, has now emerged as a significant factor in U.S. aid to Ukraine. In mid-
September, the Administration “initiated a temporary pause” in new FREEDOM Support Act
aid to the central government of Ukraine. Roughly a third of U.S. aid – that part which
directly assists the central government, about $54 million – was put on hold. Previously, the
Senate Committee report on S. 2779 had recommended that severe restrictions be put on
Ukraine aid if reports of the sale of weapons technology to Iraq prove credible. H.R. 5410,
the House FY2003 bill, adds a condition that would prohibit most funds for the Government
of Ukraine unless the Secretary of State certifies that it has not facilitated or engaged in arms
transfers to Iraq. H.J.Res. 2, as approved by the Senate, provides no recommended or
earmarked amount of aid, in response to these concerns. However, it imposes no legislative
conditions on Ukraine relating to this issue.
Central Asia. Until the launching of the U.S. war on terrorism, Central Asia was the
neglected child of the U.S. assistance program in the former Soviet Union. One rationale
presented by the Clinton Administration for the Partnership for Freedom initiative in 1997
was that it would mean a substantial (in some cases threefold) increase in funding for Central
Asia and Russia. The Central Asian states had been relatively neglected by the aid program
in previous years but were of increasing interest to the United States for their oil production
and strategic location. While Congress did increase overall aid levels to the FSU in FY1998,
earmarks for other countries fenced off much of the funds and Central Asia benefitted little.
The increase in funding for the FSU under the FY1999 appropriations, however, permitted
a 26% increase for Central Asia to $136.9 million, but in FY2000, the account funding level,
country earmarks, and ETR priority led to an allocation of $109.5 million.
For FY2002, the five Central Asian states are expected to receive $143 million in
regular FREEDOM Support Act funds. This does not count an additional $46.5 million
provided out of the Emergency Response Fund as a direct result of the war on terrorism,
most of which is for economic and law enforcement aid in Uzbekistan and some for border
security for the region. Nor does it count the $110 million in aid to all the Central Asian
countries requested by the Administration and contained in the FY2002 supplemental (H.R.
4775/P.L. 107-206) that was signed into law on August 2, 2002. Given the importance of
the region to the U.S. war effort, some observers had been surprised at the modest size of the
Administration’s FY2003 request at $149 million. However, the presumption that Central
Asia, all the countries of which are likely considered “front-line states” by the
Administration, would be included in any supplemental that addresses the war on terrorism
has proven correct.
Prior to September 2001, public discussion regarding Central Asia highlighted two
issues in which aid plays a role in furthering U.S. interests in the region. In congressional
hearings, officials argued that increased assistance would help to build goodwill and cement
a U.S. role in exploiting energy reserves in the region and that aid could be used to facilitate
a positive business environment for U.S. investors, including assistance to help reform of the
energy sector. Some, however, pointed out the potential conflict between U.S. support for
commercial interests in authoritarian governments, such as Uzbekistan, and U.S. support for
democracy and human rights. The Clinton Administration argued that the aid program
sought to “leverage as much democratic reform as possible” in these countries.
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The post-September 11, 2001 view of Central Asia may be much different. As the
United States confronted the Taliban in Afghanistan and continues to deal with regional
terrorist threats, it requires the cooperation of countries in the region for military bases and
supply centers. Concerns regarding their human rights records are likely to be given low
priority in these circumstances. A Senate amendment (Wellstone) to H.R. 2506 reflected this
situation by requiring a report every six months on defense assistance provided to Uzbekistan
and the extent of any human rights violations. Although the language was omitted from the
conference report, the statement of conferees directed the Secretary of State to report on
defense assistance and its use by Uzbekistan. No special report was required on human
rights violations. However, H.R. 5410, the House Committee FY2003 appropriations bill,
requires that the Secretary of State determine that the Government of Uzbekistan is making
progress in meeting commitments under its March 12, 2002 framework agreement with the
United States before funds may be made available to it. That agreement contains language
supporting progress in democratization, among other issues.
The Caucasus. Of the three Caucasus countries, Armenia and Georgia have been
given a high priority in U.S. aid funding, with money earmarked for both in amounts that
make them the highest recipients of FSU aid on a per capita basis. Azerbaijan, on the other
hand, has received relatively little assistance, many types of assistance, until recently, being
prohibited under Section 907 of the FREEDOM Support Act. In FY2002, the region was
expected to receive $224 million in regular FSU appropriations, representing 29% of the
FSU account. This figure includes a congressional earmark of $90 million for Armenia and
a recommendation of $90 million for Georgia. For FY2003, the Bush Administration
requested $205 million for the region, 27% of the total FSU request. The Senate Committee
version of the FY2003 foreign operations bill, S. 2779, earmarks $90 million for Armenia
and recommends $87 million for Georgia. The House bill, H.R. 5410, recommends $83.4
million and $82.5 million for Armenia and Georgia, respectively.
Possible infiltration of Georgia’s Pankisi Gorge by members of Al Qaeda have brought
Georgia into the American war on terrorism. The Administration’s FY2002 emergency
supplemental request, approved by Congress as H.R. 4775, includes $20 million in additional
military financing assistance for Georgia.
The war on terrorism appears to have provoked a significant change in U.S. policy
toward Azerbaijan – allowing the President to waive Section 907. Section 907 of the
FREEDOM Support Act prohibits all aid to the government of Azerbaijan except for
disarmament related assistance until the President determines that the Azerbaijani
government is taking demonstrable steps to cease all blockades and other offensive uses of
force against Armenia and Nagorno-Karabakh, the enclave of Armenian ethnic people which
has sought independence from Azerbaijan (see CRS Issue Brief IB92109, Armenia-
Azerbaijan Conflict). The Clinton Administration opposed Section 907 and asked Congress
to repeal it. In the past, some Members of Congress suggested that the Clinton
Administration waive the provision, using its broad authority under the Foreign Assistance
Act, if it did not approve of it. However, domestic political considerations appeared to have
discouraged such a move.
Congress has taken some steps to change the restriction. Beginning in 1994, there was
a concern that the restriction would impede the delivery of humanitarian aid, which may be
provided through private voluntary organizations (PVOs). A key problem was the need to
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utilize Azerbaijani government facilities, doctors, and transport to move and administer
humanitarian supplies. In 1996, the FY1997 foreign operations conference report allowed
PVOs to deal with the government to meet humanitarian objectives.
Although the status of Nagorno-Karabakh has yet to be resolved and despite pressure
from the Armenian-American community, the erosion of Section 907 prohibitions has been
more serious since 1997, partly because many do not want the United States to appear to be
biased in favor of Armenia while playing a role in the Minsk Group that oversees the peace
talks, and, perhaps more important, because U.S. economic interests in Azerbaijan have
grown with the exploitation of oil resources by U.S. firms. The FY1998 foreign operations
bill allowed both the U.S. Foreign Commercial Service and the Trade and Development
Agency to function in Azerbaijan. Although the House Appropriations Committee version
of the FY1999 appropriations, H.R. 4569, would have repealed Section 907 entirely, a Porter
amendment was adopted (231-182) on the House floor that struck the repeal language. The
final version of the FY1999 appropriations adopted Senate exclusions that allow OPIC,
TDA, Export-Import Bank, the Foreign Commercial Service, and democracy and
humanitarian activities. Under this FY1999 language, perhaps the only programs affected
by Section 907 were economic and other policy reform type activities. The FY2000 and
FY2001appropriation bills contained the same exclusions as in FY1999.
While maintaining this language, the FY2002 appropriations bill allows the President
to waive the section 907 provision as it affects all aid to Azerbaijan if he determines that to
do so would support the U.S. war on terrorism and other factors. The provision is renewable
annually. This step was taken to permit the possibility of greater military cooperation
between the United States and Azerbaijan in view of the war on terrorism. On January 25,
2002, the President exercised his waiver authority. Although the Senate and House
Committee versions of the FY2003 foreign operations bill contain the usual exclusions to
Section 907, they do not mention the waiver which is, unless specifically amended,
permanent law.
LEGISLATION
H.J.Res. 2 (Young)
Making further continuing appropriations for the fiscal year 2003. Approved in House
by voice vote as continuing resolution. Amended in Senate with text of Foreign Operations,
Export Financing, and Related Programs Appropriations Bill, 2003. Approved by Senate on
January 23.
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