The Former Soviet Union and U.S. Foreign Assistance

The Former Soviet Union and U.S. Foreign Assistance

Order Code IB95077
CRS Issue Brief for Congress
Received through the CRS Web
The Former Soviet Union and
U.S. Foreign Assistance
Updated September 16, 2003
Curt Tarnoff
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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
FY2003 Appropriations
Cooperative Threat Reduction and Nonproliferation Aid
FY2002 Emergency Supplemental
Russian Democracy Act
Developments in 2003
Administration FY2004 Request
FY2004 Authorization
House Action on FY2004 Appropriations
Senate Action on FY2004 Appropriations
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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The Former Soviet Union and U.S. Foreign Assistance
SUMMARY
Seeking to encourage a transition to
mitted his FY2004 budget request, including
democracy and free market economics in the
$576 million for the FSU, a cut of roughly
states of the former Soviet Union (FSU) —
24% from the FY2003 post-rescission level of
Russia, Ukraine, Moldova, Belarus, Georgia,
$755 million. H.R. 2800, the FY2004 Foreign
Armenia,
Az erbaijan,
Kaz akhstan,
Operations appropriations, approved by the
Kyrgyzstan, Turkmenistan, Uzbekistan, and
House on July 23, provides $576 million for
Tajikistan — the United States, since Decem-
the FSU. On July 17, the Senate Appropria-
ber 1991, has offered roughly $9.7 billion in
tions Committee approved its version of the
grants for economic and technical assistance
FY2004 appropriations (S.1426, S.Rept. 108-
to the region. Most of the grant assistance has
106), providing $596 million for the FSU.
been provided through the Agency for Interna-
tional Development (USAID).
Whether, how much, under what condi-
tions, and to whom in the successor entities of
In addition, $4.8 billion has been pro-
the Soviet Union assistance might be given
vided in food aid through the Department of
remain matters of ongoing debate in Congress.
Agriculture, and $2.9 billion by the Depart-
ment of Defense for nonproliferation pur-
For more information on this issue, see
poses. The United States has also subsidized
CRS Report RL31699, U.S. Bilateral Assis-
guarantees for more than $12 billion in credits
tance to Russia: 1992-2002, CRS Issue Brief
from the Export-Import Bank, Overseas Pri-
IB98038, Nuclear Weapons in Russia, and
vate Investment Corporation, and the Depart-
CRS Report 97-1027, Nunn-Lugar Coopera-
ment of Agriculture.
tive Threat Reduction Programs: Issues for
Congress.
On February 3, 2003, the President sub-
Congressional Research Service
˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On July 17, the Senate Appropriations Committee approved its version of the FY2004
Foreign Operations appropriations (S. 1426, S.Rept. 108-106) providing $596 million for the
FSU, $20 million above the Administration request, and 21% ($159 million) below the post
rescission FY2003 level of $755.06 million.
On July 23, the House approved H.R. 2800, the FY2004 Foreign Operations
appropriations (H.Rept. 108-222), providing $576 million for the former Soviet Union, the
same as the Administration request and a cut of roughly 24% ($179 million) from the
previous year’s level.
On July 9, the Senate began consideration of S. 925, an act authorizing appropriations
for both the State Department and foreign assistance for FY2004. It provides $646 million
for the former Soviet Union, a 12% increase over the Administration request and 14% below
the FY2003 level.
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 cooperative threat reduction
efforts 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).
Snapshot of U.S. Assistance to the Former Soviet Union
Levels of Assistance
Grant Assistance. Since 1992, roughly $9.7 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
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(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 FY2002, $958 million was allocated to 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 FY2003 FSU account
appropriation of $755 million (after rescission) 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
FY03
230a
417
2,158b
818c
641
625
770
847
836d
808e
784f
755g
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).
g. Original appropriation was $760 million. H.J.Res.2 contained a 0.65% across-the-board rescission.
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 — $359 million budgeted in FY2002 — 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
$507 million in FY2002 allocated, 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 $128 million in FY2002
allocations. 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. Amounts
budgeted in FY2002 of U.S. grant assistance from all spigots, including the FSU account,
equaled $2.3 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
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.
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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 reflection
FSU Account Country Allocations
of its importance to U.S. national interests,
(in $ millions)
its physical expanse and population size,
FY2002
FY2003
FY2004
and the relatively advanced state of its
Country
(supps)*
(est)
(req)
reformist efforts compared to the other Russia
159.1
141.0
73.0
states of the region. In FY2003, Ukraine
Ukraine
154.9
138.4
94.0
and Russia each were expected to receive
about 18-19% of allocated appropriations,
Belarus
10.6
8.9
8.0
followed by 12% for Armenia and 11% for Moldova
35.9
29.8
23.0
Georgia.
Armenia
90.2
89.4
49.5
Azerbaijan
43.5
45.7
41.5
However, on a per capita basis, Georgia
89.8
83.5
75.0
suggesting the size and, possibly, impact of
Kazakhstan
45.8
42.7
32.0
the program in the recipient country, the
(1.5)
order changes. Armenia is expected to be
the
chief
recipient
of
FSU
account Kyrgyzstan
35.5
37.9
40.0
(36.5)
allocations in FY2003, receiving $24 per
capita, followed by Georgia ($15), Kyrgyz
Tajikistan
19.4
25.8
35.0
Republic ($9).
Russia is eleventh, at
(37.0)
roughly $1 per person.
Turkmenistan
7.4
7.8
8.0
(4.0)
Programs and Projects
Uzbekistan
29.2
38.8
42.0
(89.0)
Most of the FSU account program is in Regional
62.7
65.5
55.0
the form of technical assistance and
(6.0)
exchanges. Where there is “cash” involved, Total App.
784.0
755.1
576.0
it is mostly in equity investments and loans
(174.0)
to the private sector provided by the * Amount in parentheses is sum of two FY2002
region’s three enterprise funds. As much as
supplementals, not included in figure above it.
three fourths of the aid is going to the
private sector — not the governments of the
FSU. Generally, more than three fourths 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 FY2003, roughly 40% 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, Ambassador Carlos
Pascual. 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
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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
shifts many nonproliferation programs, including border security, to the NADR
(nonproliferation, anti-terrorism, and demining) account of the foreign operations bill.
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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
FY2003 Appropriations. 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 was a decrease of $29 million, or 4%, from
the FY2002 appropriated level of $784 million.
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. On September
19, the House Appropriations Committee reported H.R. 5410 (H.Rept. 107-663), its version
of the FY2003 Foreign Operations bill. It provided $755 million for the FSU, $29 million
less than the FY2002 level, but matching the President’s request.
On February 13, both houses of Congress approved a conference report on H.J.Res.2
(H.Rept. 108-10), an omnibus FY2003 appropriations bill that provides $760 million,
$755.06 million after a 0.65% across-the-board rescission that is included in the legislation.
The final amount, therefore, matches the President’s FY2003 request level.
The conference report earmarks $90 million for Armenia, but includes no specific
amount for Georgia or Ukraine, two countries that have often received earmarked funds in
the past. Of amounts provided to Ukraine, $20 million is recommended for nuclear safety
and $1.5 million is required for coal mine safety. Programs assisting victims of trafficking
in persons are provided $1.5 million and $17.5 million is provided for programs in the
Russian Far East. Of total funds under the NIS account, at least $60 million must be
provided for child survival, basic education, environment and reproductive health, and
infectious diseases.
The conference report retains some previous conditions on assistance. Aid to the central
government of Russia is cut by 60% (with the exception of nonproliferation, disease, child
survival, and trafficking in persons programs) unless the President certifies that it has
terminated transfer of nuclear or ballistic missile technology to Iran and is providing access
of international NGOs to refugees in Chechnya. Section 907 restrictions on aid to the
government of Azerbaijan are exempted for democracy, nonproliferation, TDA, Foreign
Commercial Service, OPIC, Export-Import Bank, and humanitarian assistance.
The report includes two new conditions and eliminates one old one.
Language
terminating all aid to the Government of Russia if it implemented laws discriminating against
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religious groups is absent. A provision prohibiting aid to the government of Ukraine unless
the Administration determines that it is not engaged in arms transfers to Iraq has been added.
It exempts disease, nuclear safety, victims in trafficking in persons, and nonproliferation
programs. Another new provision prohibits aid to Uzbekistan unless the Secretary of State
determines that the government of Uzbekistan is making progress in meeting commitments
under its March 12, 2002 framework agreement with the United States. That agreement
contains language supporting progress in democratization, among other issues. Another
provision prohibiting aid to Uzbekistan if it is not making progress in human rights is
waivable by the Secretary of State.
The statement of managers recommends that $15 million be used for reproductive
health and family planning and that $2.5 million go to the Primary Healthcare Initiative. It
also supports the Administration request for Georgia ($87 million). Of funds provided for
Ukraine nuclear reactor safety, it recommends that $12 million be for simulator-related
projects. Significantly, the statement notes that request levels for some countries are
declining rapidly and requests that the NIS Coordinator works with the Committees in
developing country strategies leading toward graduation from the aid program.
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
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.
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.
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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
24% from FY2003 levels. Proposed FSU account allocations for Russia and Ukraine would
be cut substantially from FY2003 allocations, by 48% and 32% 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.
FY2004 Authorization. On May 29, the Senate Foreign Relations Committee
reported S. 1161, an act authorizing foreign assistance for FY2004, including $646 million
for the former Soviet Union, a 12% increase over the Administration request. In its report
(S.Rept. 108-56) the Committee noted that the proposed cut was “too steep” and would
“harm U.S. interests in stability, democracy and market reform” in the FSU. The Committee
also urged the Administration to insure that educational exchanges previously funded under
the FSU account would be maintained at FY2003 levels in the State Department
appropriations. On July 9, the Senate adopted the text of S. 1161 as an amendment to S. 925,
the State Department Authorization. At this time, debate has not concluded on the bill.
House Action on FY2004 Appropriations. On July 16, the Appropriations
Committee reported H.R. 2800 (H.Rept. 108-222), the FY2004 Foreign Operations
appropriations. The House approved the measure on July 23 (370-50). H.R. 2800 provides
$576 million for the former Soviet Union, the same as the Administration request and a cut
of roughly 24% from the post-rescission FY2003 level of $755.06 million. Of this amount,
it earmarks $70 million for Armenia and $90 million for Russia. The latter amount is $83
million less than the FY2003 level, but $17 million more than the request. The bill also
specifies $1.5 million for the victims of trafficking in persons, and $63 million for child
survival, health, disease and related activities.
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H.R. 2800 maintains previous conditions on assistance. Aid to the central government
of Russia is cut by 60% (with the exception of nonproliferation, disease, child survival, and
trafficking in persons programs) unless the President certifies that it has terminated transfer
of nuclear or ballistic missile technology to Iran and is providing access of international
NGOs to refugees in Chechnya. Section 907 restrictions on aid to the government of
Azerbaijan are exempted for democracy, nonproliferation, TDA, Foreign Commercial
Service, OPIC, Export-Import Bank, and humanitarian assistance.
Senate Action on FY2004 Appropriations.
On July 17, the Senate
Appropriations Committee approved its version of the FY2004 Foreign Operations
appropriations (S. 1426, S.Rept. 108-106), providing $596 million for the FSU, $20 million
above the Administration request, and 21% ($159 million) below the post-rescission FY2003
level of $755.06 million.
S. 1426 earmarks $75 million for Georgia and $75 million for Armenia. It also
earmarks $20 million for the Russian Far East, $3 million for technical assistance provided
by an American university to the Russian Far East, and $20 million for Ukraine nuclear
reactor safety.
Like the House bill, S. 1426 maintains previous conditions on assistance. Aid to the
central government of Russia is cut by 60% (with the exception of nonproliferation, disease,
child survival, and trafficking in persons programs) unless the President certifies that it has
terminated transfer of nuclear or ballistic missile technology to Iran and is providing access
of international NGOs to refugees in Chechnya. Section 907 restrictions on aid to the
government of Azerbaijan are exempted for democracy, nonproliferation, TDA, Foreign
Commercial Service, OPIC, Export-Import Bank, and humanitarian assistance.
In its report on the bill, the Committee, expressing concern regarding the proposed cut
in assistance to Russia, directed that not less than $93 million be made available for Russia.
Along with a variety of programmatic recommendations, it supports $1 million for
Communities for International Development, a new sister cities organization.
The
Committee also recommends provision of $2.5 million for the Primary Health Care Initiative
of the World Council of Hellenes, $200,000 for Kidsave International, and $7 million for
non-profit groups with contacts in the Russian Far East. It directs that $5 million be
provided for humanitarian assistance in Nagorno-Karabakh. Looking ahead to the eventual
“graduation” of Russia from the aid program, the Committee supports the concept of a trust
fund under the leadership of the Eurasia Foundation that would finance democratic reform
and civil society for a period of up to ten years.
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,
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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, funding
has gradually declined to the FY2003 level of $755 million. The FY2004 request is $576
million, a decrease of 24% from the FY2003 level. 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. 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
of the assistance program in its first few years, but has borne the brunt of FSU account cuts
since. Funding for Russia declined from roughly 60% of the FSU total during the first two
years to about 15% of FY1997 funds and represents nearly 19% of FY2003 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. In the past, some
argued that more of the FSU account 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.
These same arguments are made today as the FY2004 Administration request — a 48%
cut — indicates a plan to “graduate” Russia from the aid program over the next few years.
In response, it is argued that democracy is by no means assured and economic reforms
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remain incomplete (see for example, “Potemkin Democracy,” Washington Post, May 30,
2003). In its report language on the FY2004 appropriations, the House Appropriations
Committee notes that its $90 million earmark for Russia is “necessary in order for important
civic society and health programs to be completed prior to the anticipated ‘graduation.’”
Similarly, the Senate Committee directed that at least $93 million be provided for Russia
programs.
Conditionality. As noted above, linked to the past 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
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.
Since the FY1996 appropriations, Congress has conditioned all or a portion of aid
unless the President assured it that Moscow had terminated its plans for the sale of a nuclear
power plant to Iran. The FY2003 appropriations withholds 60% of aid that would go
specifically to the central government of Russia if the Iran transfers continue. Since the
issue was raised, both Clinton and Bush Administrations have 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. Only recently, in the wake of the war on terror and diplomatic
dispute on Iraq, has Russia taken steps to seek assurances from Iranian officials regarding the
uses to which the reactor will be put (“Russians Pressure Iran on Weapons, Washington Post,
June 5, 3002). See CRS Report RL30551, Iran: Arms and Weapons of Mass Destruction
Suppliers for further details.
The war in Chechnya has been a frequent object of congressional conditions on Russian
behavior. The FY2001 foreign aid act 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
act withholds 60% of aid to the central government only if it does not provide access to
NGOs. Possibly as a result of Russian cooperation with the United States in its war on
terrorism, the war crime provision has been dropped. Both H.R. 2800 and S. 1426 continue
this practice.
Until the FY2003 act, a major restriction on aid to Russia had been approved each year
since FY1998. This prohibited any aid to the government of the Russian Federation (i.e.
central government; it did not affect local and regional governments) if it implemented a law
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discriminating against religious minorities. Each year, the President determined that Russia
had not implemented the law. The FY2003 act dropped this provision.
In response to congressional efforts to impose conditions on Russian aid, some have
argued that it is inappropriate to condition aid to Russia on a particular desired behavior such
as regarding Iran or Chechnya inasmuch as the program is intended to benefit reformist
elements in Russia and ultimately facilitate a transformation that might ensure a more
cooperative relationship in future. For example, 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. From FY2000 through FY2002, Congress
recommended, but did not earmark, declining levels of aid. The FY2003 bill contains no
recommendation. For FY2004, the Administration has requested $94 million, a 32% drop
in assistance from the previous year.
Until recently, Ukraine’s failure to adopt economic and political reform 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 markedly, but
reports of corruption and the implication of President Kuchma in the murder of a journalist
suggest that democratic reform is not assured.
In late 2002, reports of the possible sale of an early warning radar system to Iraq, in
violation of U.N. sanctions, 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. The FY2003
appropriations prohibits 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. This provision
has been dropped from both H.R. 2800 and S. 1426.
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, of increasing U.S. interest for its 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 relatively little. For FY2002, the five Central
Asian states were expected to receive $145 million in regular FREEDOM Support Act funds.
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As a direct result of the war on terrorism, an additional $175 million was provided out of the
Emergency Response Fund and FY2002 supplemental. The FY2003 allocation is $160
million and the FY2004 Administration request for the region is $163 million.
Prior to September 2001, public discussion regarding Central Asia highlighted two
competing issues in which aid plays a role in furthering U.S. interests in the region. Some
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. On the other hand, some 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.
While democracy and human rights continue to have proponents in the post-September
11, 2001 view of Central Asia, other considerations have become important. As the United
States deals with regional terrorist threats, it requires the cooperation of countries in the
region for military bases and supply centers. The FY2003 appropriations act requires that the
Secretary of State determine that the Government of Uzbekistan is making progress in human
rights and 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. For FY2003, the
Administration plans to allocate $221 million for the region, 29% of the total FSU request.
The FY2003 appropriations earmarks $90 million for Armenia, but requires no specific
amount 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 took 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
utilize Azerbaijani government facilities, doctors, and transport to move and administer
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humanitarian supplies.
The FY1997 appropriations 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 appropriations
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. All foreign operations
bills since FY1999 have maintained these exclusions.
While maintaining this language, the FY2002 appropriations bill also contained a
provision of permanent law that allows the President to waive section 907 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. This step was taken on January 25, 2002, and again on January 17, 2003, to
permit the possibility of greater military cooperation between the United States and
Azerbaijan in view of the war on terrorism.
LEGISLATION
H.R. 2800 (Kolbe)
Foreign Operations, Export Financing, and Related Programs Appropriation Bill, 2004.
Reported July 21 (H.Rept. 108-222). Approved by House July 23 (370-50).
S. 1426 (McConnell)
Foreign Operations, Export Financing, and Related Programs Appropriation Bill,2004.
Ordered reported July 17 (S.Rept. 108-106).
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