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"Russia's Security and Economic Interests"
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It has been nearly nine years since Russia embarked on ambitious reforms to establish a democratic political system and free-market economy. The road to these goals has not been easy, nor has the task of building relations with the United States following the Cold War. What is Russia today and what will it be in the future—a partner or a competitor?

The answer, according to experts convened by the Stanley Foundation, is complex. They say the nature of current US-Russian relations; Russia's troubled domestic, security, and foreign policies; and the level of US commitment to improve relations with Russia will impact ties between the two countries.

The Road to Capitalism
In January of 1992 Russian President Boris Yeltsin embarked Russia on a path to transform the country's economy from a centralized command economy to a free-market system. The economic program Yeltsin laid out followed the "shock therapy" model promoted by Western economists and consisted of three main policy thrusts—privatization, price liberalization, and macroeconomic stabilization. Since 1992 the economic program has been implemented in fits and starts, and its success has been mixed. Russia's gross domestic product (GDP) has shrunk 45 percent since 1991, 40 percent of Russians live below the poverty line, and life expectancy and birth rates have steadily fallen.

Despite these problems, the Russian economy is showing signs of growth, although attitudes among conference participants were split on whether this positive growth is real or virtual. This diverse group of policymakers and policy watchers—including representatives from US government departments and agencies, nongovernmental institutions, and academia—met last fall as part of the Stanley Foundation's 41st annual Strategy for Peace Conference.

Signs that Russia's economy is improving include a 7 percent increase in GDP, a 10 percent increase in consumer spending, a decline in barter trade, and increased consumption and investment in 2000. However, troubling signs remain. To some participants, high oil prices, the devaluation of the ruble, and the Russian government's practice of partially paying wage arrears are the virtual explanations for Russia's economic growth. These indicators point to economic growth that is largely temporary and unsustainable and are signs that economic restructuring is still largely incomplete.

Fundamental Problems
The Russian government must address three fundamental problems to achieve sustainable economic growth, according to participants.

First, relational capital—the use of informal connections to carry out economic activity—must be curbed. Relational capital perpetuates the problems associated with the barter system, crowds out small innovative businesses, and allows large industries to avoid needed structural reforms.

Second, the misuse of subsidies needs to be curbed. Energy subsidies may be the largest problem because low energy prices do not provide incentives for industries to become more efficient or competitive.

Finally, there must be more incentives for economic reform. The prospect of joining the European Union motivated many of the East European countries to carry out economic reforms. Russia has had few incentives for economic reform, and the West must help Russia find incentives to continue the painful transition process.

The economic reform package by German Gref, the Minister of Economic Development and Trade, was widely applauded by participants. This package contains a mixture of policies and incentives that could move Russia through its economic transition process and help ensure sustainable economic growth. Furthermore, a number of participants noted that President Vladamir Putin's high approval ratings and good relations with the Duma would aid his effort in implementing a comprehensive economic reform package. However, economic success will only come at the expense of enacting tough reform measures.

Who Lost Russia?
The relationship between the United States and Russia over the past nine years has vacillated between periods of camaraderie and friendship to suspicion and distrust. However, most participants noticed a cooling of relations during this nine-year period to the point where cries are being heard in Washington of "Who lost Russia?"

Domestic politics are increasingly playing an important role in Russia's security policy. In particular, Russia's economic reforms and internal conflict are the major contributors. There was agreement among participants that the United States has failed to understand the prominent role domestic politics now plays in shaping Russian foreign policy. With this in mind, participants highlighted some major thrusts in Russian foreign policy.

First, Russia's uncertain economy will continue to hamper military restructuring efforts. Thus Russia's security doctrine will most likely emphasize a greater reliance on nuclear weapons over conventional forces. Continuing economic turmoil will also make it more difficult for Putin to undertake necessary military reform policies.

Second, Russia's relations with former states of the Soviet Union will depend on which major powers emerge in those regions. For example, the Baltic States, which have close relations with the United States and Europe, have largely been left alone while countries in Caucasus have witnessed Russian intervention. In Central Asia, Russia and China have been cooperating out of common concern over Islamic fundamentalism, while Russia and the United States may become competitors in the Caspian region over proposed oil pipelines.

Third, Russia is cautious of NATO expansion, and a number of participants feared that NATO's plans to expand in 2002 could undermine US-Russian relations. Most agreed that the United States should not make NATO expansion a high priority in its foreign policy.

Finally, Putin's view of Russia's role in the world is important. While Yeltsin seemed content with Russia's diminished role on the world stage and was eager and willing to work with the West, Putin seems less comfortable with Russia's status. Putin has been more assertive of Russia's interests and believes the West has ignored Russia's national security interests. Furthermore, he has been turning to the institution that dominated Soviet foreign policy—the Federal Security Service (formerly the KGB). This is likely an effort to bring coherence and consistency to Russian foreign policy that was, at times, fragmented and disjointed under Yeltsin. Many participants said these actions demonstrate that Putin will more aggressively promote Russia's interests, and these interests may conflict with the interests of the United States.

After nine years Russia is still a state in transition—a theme that was often repeated. What role Russia will play on the international stage will depend on what course it charts in its reform efforts. At the beginning of the relationship, the United States overestimated its influence on Russia's reform policies. Now, the United States should be cautious not to underestimate its ability to influence Russia's direction.