FROM THE OFFICE OF PUBLIC AFFAIRS

Good morning.

Thank you, Ambassador [Bill] Luers, for your introduction, and for your invitation to speak today. The Eurasian region has strategic importance for the United States, and it is a pleasure to see so much interest in the region at this conference.

In the past year, the world’s attention has been focused on the war on terror, and its center in Afghanistan. Following the international military action in Afghanistan, Americans have gained a far greater awareness of Central Asia, and how its issues are ours as well. Americans have seen the devastation, and where it leads, and we have taken a stand against it – not only in our military intervention, but also in our support for the reconstruction of Afghanistan. All nations that have pledged their support for reconstruction need to quicken the pace of meeting their commitments. I’d like to see Afghanistan become a model of what good foreign assistance programs can do. That requires coordination in setting goals and meeting them, whether for building roads or raising literacy.

While the situation in Afghanistan is central, it serves to alert us to the importance of the greater region; it should not overshadow its neighbors, or the broad swath of the Earth from Central Asia to the Caucasus. Each of these nations is important in its own right, and every individual person in every nation matters. In my view, the newfound Western attention toward Eurasia is an opportunity to encourage growth and development, from which peace, prosperity and freedom spring. We can afford no more wasted countries, and the people of these countries deserve to enjoy the fruits of the global economy, free from the extremes of communism, state repression, or religious fanaticism. As their stake in the global system grows, and ties of trade, investment, and common culture expand, peace will prevail.

In my role as Treasury Secretary, and in my work in the private sector before this, I have traveled to Eurasia in pursuit of economic development. I have met with leaders, to understand their thoughts and plans, and I have met with entrepreneurs and workers, to see the realities of each country first hand.

I know that all people have the potential for achievement and success. When nations are poor, it is a result of bad policies and historical legacies, not any lack of potential in the population. In Eurasia, the historical legacy is especially challenging. Communism ruined generations of promise, and left nations without the infrastructure or knowledge base for a quick recovery.

Communism is no longer a major political force, but vestiges of the communist economic ideology linger in the minds and actions of some officials – vestiges such as authoritarian central planning, state ownership of industry, corruption, cronyism, and a public sector that suffocates enterprise. Some countries in the region also suffer from theocratic or repressive regimes that learned their development theories from the same tattered Soviet textbooks.

The physical legacy of Soviet times is hard to miss. On a recent visit to Rustavi, Georgia, I saw a massive chemical-industrial complex stretching on for miles and miles, all of it now defunct. The cavernous factories and rusting pipes were caked in black soot, pools of sludge sat open beneath decaying storage tanks, and the air was thick with the smell of ammonia and sulfuric acid. The poisoned landscape was as lifeless as the chemical plants. Those factories were built in 1980, in the heyday of Soviet central planning. I have seen plants built in 1880 that were in better physical shape.

Only a system with a total absence of leadership, accountability or incentives for enterprise could have created such an open sore on the Earth.

Yet what I have seen, in countries as diverse as Russia and Romania, Ukraine and Uzbekistan, Georgia and the Kyrgyz Republic -- to name only a few -- has strengthened my passion for the principles that invite prosperity, and a strong sense of the urgent need for economic growth and development. The economic tragedies of communism demand a response, and that response lies in accountable national and local leadership in every country – leaders that rule justly, encourage economic freedom, and invest in their people.

Ruling justly means enforcing laws and contracts fairly, respecting human rights and property rights, and fighting corruption. Encouraging economic freedom means removing barriers to trade, opening economies to investment and competition, pursuing sound fiscal and monetary policies, and divesting governments from business operations. Investing in people means providing the best possible systems for education, health care, and clean water.

Over the past fifty years we have seen that these principles work, as long as a nation’s leaders are committed to pursuing them, and if they are held accountable for measurable progress.

The Eurasian nations are each at their own place in the transition to democratic capitalism, and each shows strengths and weaknesses in heeding the principles of development. As they progress, foreign and domestic investors, businesses, and entrepreneurs will make the most of their new economic freedom to unleash private enterprise and human potential, and living standards will rise.

The United States and our development partners can help make a difference in these countries, although we cannot accomplish anything unless local leaders take responsibility for change.

We will support leaders who make the right choices, meeting criteria for ruling justly, encouraging economic freedom, and investing in people. That is the purpose of President Bush’s Millennium Challenge Account, and it has become the focus of our development assistance, including our work with international financial institutions. Our assistance will target progress that we can measure, such as the number of people with access to clean water, and the portion of children who have the skills to read, write, and compute at age ten. For too long, international assistance programs have rewarded effort, rather than accomplishment. We are refocusing our mechanisms and our money on results measured by positive meaningful change in the lives of real people.

In countries that lack national leaders that share our values, we will do what we can to support local, civil, and private sector leaders who are committed to progress.

We have come to an agreement with the International Development Association of the World Bank to make a greater share of development assistance as grants, rather than loans. We cannot saddle future generations with unsustainable debts, even as we invest in the infrastructure that will allow them to succeed. In fact, debt levels in many Central Asian countries have skyrocketed since the World Bank and other IFIs started providing assistance in the early 1990s. This must change. These grants will be tied directly to measurable results – we will not support governments that cannot produce for their people.

When individuals have the tools and incentives to succeed, they do succeed – that is why I also believe in micro-loan programs, such as the European Bank for Reconstruction and Development’s small and medium enterprise loans. Jobs are created and lives are changed one at a time, and programs that target small businesses can often make a much bigger difference than investments in giant projects that serve as magnets for corruption.

Consider a few of the seedlings of prosperity I have seen myself.

Even in the middle of Rustavi, the industrial wasteland, there was hope. I visited a new company that has developed low-cost technology for producing high-quality manganese, and they are selling their products throughout Europe. Unfortunately, because of poor infrastructure, 30 percent of the company’s shipping cost is simply in the short drive to the Georgian border. Another 10 percent of total production cost goes to requisite bribes to customs officials.

In Ukraine, agricultural production today is still below its level in Soviet times but it has great potential. With modern equipment and techniques, Ukraine’s famous fertile soil could feed millions more worldwide, and raise living standards for all Ukrainians. If Ukrainian farmers were as productive as farmers in Iowa, for example, the additional 1.5 million metric tons of wheat produced could meet all the import needs of Western and Central Africa. Were Ukraine to invest in upgrading its existing high pressure gas transit system, it could increase capacity by 55 billion cubic meters per year, or enough for the combined gross gas consumption of Denmark and the Netherlands [in 2001].

In Central Asia, I saw that the Kyrgyz Republic has tremendous potential for hydropower production, which they could sell to generate income that would meet other pressing needs. Two dams could produce 2,200 megawatts of power. They could export that environmentally clean power to China, Uzbekistan and other neighbors, increase their own energy independence, and potentially develop bauxite reserves creating a major new industry. The dams could also help rationalize water usage in the region. The water stored for power production in the Kyrgyz Republic in winter could be released for irrigation in Uzbekistan during the growing season. To tap all this potential they need to work with their neighbors to build regional cooperation and trade, invest in distribution systems, and overcome lingering distrust and Soviet economic thinking. The barriers to trade among these countries are much to high and corruption raises transportation cost even further.

In Russia, ongoing free market reforms necessary to enter the World Trade Organization are creating a more welcoming environment for entrepreneurs, investors, and employment. In the Russian city of Nizhny Novogorod, I toured a modern printing plant that could compete with any in the world. Founded by two brothers and a sister, the company employs 120 people and supplies most of Coca-Cola’s labels in Russia. But this company and others like it won’t truly be able to reach their potential until Russia’s market becomes fully integrated in the world trading system, burdensome tariffs are removed, and Russia progresses further in its ambitious reform program. This is why the US strongly supports Russia’s accession to the WTO on the same terms as other members.

In Bucharest, Romania, I visited a furniture factory employing 50 people. The company took a $35,000 loan from the European Bank for Reconstruction and Development last year and used it to purchase productivity-enhancing equipment. The owners expect the company to grow by 40% this year.

In Ukraine, I saw a moving example of investment in people, a center for women that helps those at risk to avoid entering the sex trade, and helps those who have been abused and exploited to recover and rebuild their lives. The center provides counseling, and helps women to find legitimate jobs and start new businesses themselves, so they can become independent.

And in the Kyrgyz Republic, I saw the new American University, established in 1997. It is accredited in the United States, already has over 1,000 students enrolled, and demonstrates the benefits of a cleanly run institution. It is a marked change from the old State University, which became so mired in corruption that professors sold grades, and students paid for admission.

As the U.S. presence grows in Central Asia, we are becoming more engaged with long-neglected nations. Beyond the immediate cooperation we have sought for military and security interests, these nations are becoming new partners for economic development, the source of long-term stability and prosperity. At the same time, our growing alliance with Russia, the most influential country in the region, in the context of Russia’s improving policy environment has made the future brighter.

We are at a moment in time when great change is possible in this important part of the world, and we, together, can make that change for the better.

Thank you.