[Senate Hearing 114-813]
[From the U.S. Government Publishing Office]
S. Hrg. 114-813
THE ECONOMIC AND POLITICAL
FUTURE OF UKRAINE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 8, 2015
__________
Printed for the use of the Committee on Foreign Relations
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Available via the World Wide Web: https://www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
35-960 PDF WASHINGTON : 2019
COMMITTEE ON FOREIGN RELATIONS
BOB CORKER, TENNESSEE, Chairman
JAMES E. RISCH, Idaho BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida BARBARA BOXER, California
RON JOHNSON, Wisconsin ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky TIM KAINE, Virginia
JOHN BARRASSO, Wyoming EDWARD J. MARKEY, Massachusetts
Lester Munson, Staff Director
Jodi B. Herman, Democratic Staff Director
John Dutton, Chief Clerk
(ii)
C O N T E N T S
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Page
Hon. Bob Corker, U.S. Senator From Tennessee..................... 1
Hon. Benjamin L. Cardin, U.S. Senator From Maryland.............. 2
Hon. Victoria Nuland, Assistant Secretary, Bureau of European and
Eurasian Affairs, U.S. Department of State, Washington, DC..... 3
Prepared Statement........................................... 6
Hon. Paula J. Dobriansky, Former Under Secretary of State for
Democracy and Global Affairs, Senior Fellow for the Future of
Diplomacy Project, Harvard University JFK Belfer Center for
Science and International Affairs, Cambridge, MA............... 18
Prepared Statement........................................... 20
Hon. Clifford G. Bond, Former Ambassador to Bosnia and
Herzegovina and U.S. Assistance Coordinator in Ukraine, U.S.
Department of State,
Washington, DC................................................. 21
Prepared Statement........................................... 23
(iii)
THE ECONOMIC AND POLITICAL FUTURE
OF UKRAINE
----------
THURSDAY, OCTOBER 8, 2015
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 10:39 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Bob Corker
(chairman of the committee) presiding.
Present: Senators Corker, Gardner, Cardin, Menendez,
Shaheen, and Kaine.
OPENING STATEMENT OF HON. BOB CORKER,
U.S. SENATOR FROM TENNESSEE
The Chairman. Our hearing will come to order, and we want
to thank you for being here today, and thank you for your
service to our country. We look forward to your testimony. We
thank our witness from the State Department and our panel of
private witnesses for being here today.
We believe and our European allies agree that Ukraine
should be free to choose its future. Ukraine can, over time, be
like its neighbor, Poland. Ukraine has a number of resources
and educated and determined people. Most Ukrainians, as the
Secretary knows well, want to be a part of a united, free, and
prosperous Europe.
If Ukraine wants to go in the right direction, if Ukraine
wants the rule of law, it has to keep making real changes, and,
again, I know our Secretary is working hard toward that end.
This cannot be done without political will on their part. The
United States for our part needs a sustained bipartisan
commitment to Ukraine for as long as necessary. Today we will
examine where the Minsk process and the Normandy Group stand.
Any progress on that front will only be worth something if it
creates space for Ukraine to become a part of Europe.
Ukrainians are wondering if the West will walk away.
Candidly, I have concerns about our real commitments to Ukraine
and the length of that time that a real commitment will be
sustained. And so, we need to make sure that that is not the
case. Ukraine's leaders are enacting key reforms, but they will
also be judged on how they address corruption. We and our
allies will be judged on what we do now and over the next
decade to support Ukraine.
Here in Congress we are working to authorize a long-term
framework for Ukraine, but given all that has happening, our
executive branch also needs to act to set the right course and
not posture. Obviously, we can never accept Russia's land grabs
through frozen conflicts and outright annexation. We need to be
prepared to invest resources and put significant effort behind
that.
A reformed Ukrainian economy needs to be fully engaged with
the West so that it can grow and withstand Russian pressure. We
obviously need to be firm and reinforce Ukraine's economic and
political reforms, including decentralization and punishing
corruption. And we need to ensure that all Ukrainians,
including Russian speakers, benefit from Ukraine's democratic
future.
We need to make sure that we are assisting and training and
supporting Ukraine's military and security forces, and we need
to do whatever is necessary to ensure NATO readiness in the
Baltics and Europe east of Germany. We need our NATO allies,
including Germany, Poland, United Kingdom, France, Canada, and
others to also make a real long-term commitment to work with us
to see that Ukraine has a future tomorrow, and that it is as
secure as Poland's is today.
And I just want to say one more time, our friends in
Europe, so few of them--I am sorry--so few of them are honoring
their basic NATO commitments. Basic NATO commitments. I know
the Secretary has pushed hard to change that. I know that our
NATO Secretary General is pushing hard to change that. We
continue to be, our Nation, the provider of security services.
Europe continues to be the consumer of security services, and
that dynamic has got to change.
I would like to recognize our distinguished ranking member
for any opening comments that he would like to offer, and thank
him for his service.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM MARYLAND
Senator Cardin. Well, thank you, Mr. Chairman, and thank
you for convening this hearing. Secretary Nuland, it is always
a pleasure to have you here and our distinguished guests on the
second panel. It is nice to have both of you here also.
Let me first make an observation as it relates to Ukraine.
Ukraine has a dual challenge. It has the external interference
by Russia, which has affected not only its territorial
integrity, but also its ability to advance a strong,
independent state. And then it has its internal challenges, a
country that has been plagued for many, many years with
weakness in democratic institutions and its susceptibility to
the plague of corruption. Both need to be dealt with for
Ukraine to be successful.
Many of us have visited Ukraine on many occasions. I have,
and I have seen the people. I have been there during the
different revolutions and seen the will of the people. I have
been to the Maidan and could sense the frustration. And what I
got from my visits is that the people of Ukraine want a
government that is honest, that gives them a fair shake, and
that represents all the people. It is not so much whether it is
affiliated with Europe or Russia. It is more of whether you
have an independent country that can make independent judgments
and can represent all of its people.
So our Ukraine strategy has been to try to make sure that
we accomplish both objectives, and, quite frankly, I have
supported a more aggressive approach than the administration on
the defensive side. I thought we should have been providing
more military equipment so that Ukraine could defend its
borders more successfully than it has been able to defend its
borders. And I understand the administration has been slow on
that mainly because of our coalition, but I do think we have
paid the price because of the porous borders between Ukraine
and Russia, particularly on the eastern part and what has
happened.
Secondly, we need to aggressively work to establish strong
democratic institutions in Ukraine, and we have worked with the
international community, and I am interested in seeing where we
are on that and what more can be done. Part of that is fighting
corruption. I am going to say this over and over. Fighting
corruption. And I know the commitment of the President to fight
corruption, but it is still a huge problem, and how much have
we done in order to make that possible.
We have seen progress, as the chairman has pointed out. The
Association Agreement with the EU is certainly a positive step
forward. We have seen anticorruption laws passed by their
legislature, which is certainly a positive step. The question
is how they are being implemented. And we have seen energy
reform, which is a critical issue for Ukraine's future.
But much work remains. The interaction of the oligarchs
with the government and its impact on democratic reforms is a
matter that we can get into some discussion about. The
inability to remove corrupt officials still remains in Ukraine,
and what efforts are being made in order to remove corrupt,
particularly in the judicial branch of government. Humanitarian
assistance is problematic in the territories that are not
controlled by the government. Can we be more effective in
providing humanitarian need?
And one last point I added as a result of this morning's
business discussion, and that is, Madam Secretary, I think if
you had your full complement, including the assistant
administrator for Europe, it would be helpful. That is not the
fault of this committee. Tom Little has been lingering on the
floor of the United States Senate for 71 days, and I think we
could help if we confirmed that position for you to give you
the full complement at the State Department.
So, Mr. Chairman, I look forward to our witnesses, and I
look forward to how we can work together to strengthen
Ukraine's ability to become a strong, independent state.
The Chairman. Thank you. Our witness for the first panel is
the Honorable Victoria Nuland, Assistant Secretary for the
Bureau of European and Eurasian Affairs at the State
Department. We thank you for being here. You have been here
many times. I know that a summary of 5 minutes is probably what
you want to do. Any written materials will be made part of the
record, without objection.
With that, we would like to recognize you and thank you for
waiting to testify as you have. Thank you.
STATEMENT OF HON. VICTORIA NULAND, ASSISTANT SECRETARY, BUREAU
OF EUROPEAN AND EURASIAN AFFAIRS, U.S. DEPARTMENT OF STATE,
WASHINGTON, DC
Ms. Nuland. Thank you very much, Chairman Corker, Ranking
Member Cardin, members of this committee, for the opportunity
to join you today and for the bipartisan spirit in which you
have supported Ukraine in its difficult times, and for the
personal investment that so many of you have made in Ukraine's
democratic European future.
I have submitted a longer statement with more detail,
particularly on the reform side, but I will summarize here.
As you noted during the business meeting, this week we
celebrate 25 years since Germany's reunification, the first
major step on our collective bipartisan journey toward a Europe
whole, free, and at peace, a goal of administrations of both
parties, and today that journey goes through Ukraine.
In the 6 months since I last appeared before this
committee, Ukraine can be proud of the progress that it has
made. Last spring, the IMF approved a 4-year $17.5 billion
economic support program for Ukraine, and disbursements have
begun. The Rada has passed legislation to reform the energy and
agriculture sectors, to devolve authority to the regions, and
to create oversight structures to clean up corruption. Last
month, Ukraine reached a landmark debt relief deal with its
creditors, and the September 1 cease-fire in Eastern Ukraine is
largely holding. Heavy weapons are starting to be pulled back.
While we welcome this progress, as you both mentioned,
Ukraine still has a long, hard road to travel. Today I want to
talk about the status of the Minsk agreements, Ukraine's reform
agenda, and the tough work ahead to cement Ukraine into a
European future.
We continue to believe that the Minsk package provides the
best hope for the return of Ukraine state sovereignty in its
east. Yet in the 8 months since the February signing of the
implementing agreement, Eastern Ukraine has seen almost
constant violence, continued weapons shipments from Russia,
separatist filibustering at the negotiating table, and repeated
Russian efforts to relitigate basic elements of Minsk.
Yet on September 1, the guns largely fell silent, and on
October 2, President Putin agreed to put a stop to the
separatists to hold another round of fake elections. Instead he
committed to Presidents Poroshenko and Hollande and to
Chancellor Merkel to withdraw heavy weapons, to allow full OSCE
access all the way to Ukraine's border, and to negotiate
modalities for real elections in the Donbass under Ukrainian
law and monitored by ODIHR.
If these commitments are kept, Ukraine will once again have
access to its own people and its territory in the East. And as
President Obama did with President Putin in New York last week,
we will also keep pushing for the return of all hostages,
including Nadiya Savchenko and Oleg Sentsov, who are being held
in Russia, for full humanitarian access to Donbass for relief
agencies, Ukrainian and Russian international, U.N. as well,
and the removal of all foreign forces, weapons, and landmines
as Minsk dictates.
We understand why after almost 2 years of violence, war,
and lies, many Ukraine patriots and some in the West doubt that
Russia and its proxies will ever allow full implementation of
Minsk. But Minsk remains a goal worth fighting for because the
alternatives for Ukraine are bleak. At best, we will have a
frozen conflict in the Donbass; at worst, a return to the war
that has already claimed too many lives.
So we will keep supporting Ukraine as it does its part to
implement Minsk, and we will keep pushing Russia and its
proxies to demonstrate good faith. But we will judge Russia and
the separatists not by their words, but by their actions, and
we will work with the EU to keep sanctions in place until the
Minsk agreements are fully implemented. And, of course, Crimea
sanctions must stay in place so long as the Kremlin imposes its
will on that piece of Ukrainian land.
While 7 percent of Ukraine territory remains under threat,
the other 93 percent is fighting a different battle. To build a
democracy that is closer to its people and a colony where what
you know matters more than whom you know, and a society where
law rules rather than corruption and greed.
The reforms Ukraine have already enacted are impressive in
their scope. Just a few examples. With U.S. help, newly vetted
and trained police officers are now patrolling the street of
Kiev, Odessa, Lviv, and Kharkiv. A new national anticorruption
bureau has been approved, and with the help of the IMF, the
government is rebuilding its financial sector, closing
insolvent banks, and strengthening protection of depositors'
rights.
These efforts are beginning to bear some fruit. The latest
IMF forecast released this week predicted Ukraine's economy
could grow by 2 percent in 2016. And Ukraine's foreign reserves
have already increased to $12.8 billion, up from a low of only
$5.6 billion in February.
With Congress' support, the United States has committed to
provide over $548 million in assistance to Ukraine since the
start of this crisis, plus the two $1 billion loan guarantees.
With continued progress on economic reform and as conditions
warrant, we will come back to work with you on a third loan
guarantee later this winter.
Because there can be no reform in Ukraine without security,
$266 million of our United States support has been in the
security sector. This includes sending 130 Humvees, 150 thermal
and night vision devices, over 300 secure radios, five
explosive ordnance disposal robots, and 20 counter mortar
radars. Just last week we notified Ukraine that two defensive
longer range counter artillery radars are on the way, and in
November we will successfully complete our train and equip
program for Ukraine's national guard, and begin training six
battalions of Ukraine's army and special forces.
Ukraine has already put this training and equipment to good
use. When combined Russian and separatist forces tried all
summer to break Ukraine lines, particularly at Marinka and at
Starohnativka, they were pushed back by Ukraine's increasingly
capable military.
As I said, though, much difficult work remains to reform
the economy and the justice sector and to clean up endemic
corruption. Next steps for the reform agenda should include the
following kinds of things: a cleanup of the prosecutor
general's office so that it begins to serve the Ukrainian
people rather than ripping them off; procurement and revenue
management reform, particularly in the gas sector, and the
unbundling of services making way for the restructuring of
Naftogaz by June 2016; transparent privatization of the many
state-owned companies and cutting of ???red tap??? for
investors; constitutional amendments to reform the judicial
sector, limit immunity, and improve judicial ethics and
standards; and continued recapitalization of the banking
system; and, of course, on October 25 when local elections are
held across Ukraine, good, free, fair elections.
While Ukraine works through these tough challenges, the
United States, Europe, and the international community must
continue to keep faith with Ukraine, and we thank this
committee for continuing to highlight Ukraine, making clear we
stand with them. America's investment in Ukraine is about far
more than protecting the free choice of a single European
country. It is about protecting the rules-based system across
Europe and around the world. It is about saying no to borders
changed by force, to big countries intimidating their neighbors
or demanding a sphere of influence.
I thank this committee again for its bipartisan support and
its commitment to the sovereignty and territorial integrity of
Ukraine and to a Europe whole, free, and at peace. I am
delighted to take your questions.
[The prepared statement of Ms. Nuland follows:]
Prepared Statement of Assistant Secretary Victoria Nuland
Thank you Chairman Corker, Ranking Member Cardin, members of this
committee for the opportunity to join you today and for the personal
investment so many of you have made in Ukraine's democratic, European
future. Your bipartisan support, your visits to Ukraine, the assistance
you and your fellow members have provided are truly making a
difference.
This week we celebrate 25 years since Germany's reunification--the
first major step on our journey toward a Europe whole, free, and at
peace. Today that journey goes through Ukraine. Across Ukraine,
citizens are standing up and sacrificing for the universal values that
bind us as a transatlantic community: for sovereignty, territorial
integrity, human rights, dignity, clean and accountable government, and
justice for all. America helps Ukraine because that country's success
is central to our own profound national interest in an ever more
democratic, prosperous, stable Europe. Ukraine's aspirations are ours.
In the 6 months since I last appeared before this committee,
Ukraine can be proud of the progress it has made:
Last spring, the IMF approved an augmented 4-year, $17.5
billion economic support program for Ukraine, $6.7 billion of
which has already been disbursed;
The government has proposed and the Rada has passed
legislation to reform the energy and agriculture sectors,
strengthen the banks, shrink and modernize government
bureaucracy, devolve more authority to the regions, and create
oversight structures to clean up corruption;
Last month, Ukraine reached a land-mark debt-relief deal
with its creditors, opening the door for more intensive
support;
The September 1 cease-fire in Eastern Ukraine is largely
holding, the Minsk parties have signed and begun to implement
agreements to pull back their heavy weapons, and some IDPs are
returning home.
While we welcome this progress, Ukraine still has a long, hard road
to travel.
In my remarks today, I will first discuss implementation of the
Minsk package of agreements; I will also give an update on the work
that Ukraine is doing, with U.S. and international support to reform
the country, tackle corruption, and to strengthen democratic
institutions; and, finally, I will focus on the tough work ahead to
cement Ukraine into Europe and the community of successful democracies.
the minsk agreements
The September 2014 and February 2015 package of Minsk agreements
remains the best hope for peace, weapons withdrawal, political
normalization, decentralization in Eastern Ukraine, and the return of
Ukrainian state sovereignty over that part of its border. Yet in the 8
months since the February signing of the implementing agreement,
Eastern Ukraine has seen almost constant violence all along the contact
line, continued weapons shipments from Russia masquerading as
humanitarian aid, separatist filibustering and threats at the political
negotiating table, and repeated Russian efforts to relitigate basic
elements of Minsk.
On September 1, however, the guns largely fell silent. And on
October 2, in Paris, President Putin agreed to put a stop to the
separatists' threat to hold another round of fake elections. Instead,
he committed to Presidents Poroshenko and Hollande and Chancellor
Merkel to withdraw heavy weapons, allow full access to the OSCE all the
way to the border, and to negotiate modalities for real elections in
Donbas under Ukrainian law, safe conditions, and observation by OSCE's
ODIHR.
If these commitments are kept--if weapons are pulled back and
stored, if the OSCE gets in, and legal, monitored elections are
negotiated and held--Ukraine will once again have unfettered access to
its own people and its territory in the East. That is what Minsk
promises: peace, weapons withdrawal, political normalization, then a
return of the border.
As President Obama did with President Putin in New York, we will
also keep pushing to complete other unfinished aspects of Minsk--the
return of all hostages, including Nadia Savchenko, Oleg Sentsov, and
those held in Russia; full humanitarian access for U.N. agencies,
Ukrainian NGOs, and government relief agencies; and the removal of all
foreign forces, weapons, and landmines.
We understand why--after almost 2 years of violence, war and lies--
many Ukrainian patriots and some in the West doubt Russia and its
proxies will ever allow full implementation of Minsk. But Minsk
implementation remains a goal worth fighting for because the
alternatives are bleak: at best, a frozen conflict in which Donbas
becomes an unrecognized gray zone for the foreseeable future; at worst,
a return to the war that has already claimed too many Ukrainian lives--
and Russian lives, as well.
So we will keep supporting Ukraine as it does its part to implement
Minsk. Along with the Normandy powers, France and Germany, we will keep
pushing Russia and its proxies to demonstrate equal good faith. As the
President and Secretary Kerry have repeatedly said, we will judge
Russia and the separatists by their actions, not their words. We will
work with the EU to keep sanctions in place until the Minsk agreements
are fully implemented. And of course, Crimea sanctions remain in place
so long as the Kremlin imposes its will on that piece of Ukrainian
land.
reforms update
While 7 percent of Ukrainian territory remains under threat, the
other 93 percent is fighting a different battle: to build a democracy
that is closer to its people; an economy where what you know matters
more than whom you know; and a society where law rules rather than
corruption and greed.
The electoral, judicial, financial, and anticorruption reforms
already put forward by the government and enacted by the Rada are
impressive in their scope and political courage.
Here are just a few examples:
With generous U.S. support, newly vetted and trained police
forces are now patrolling the streets of Kiev, Odesa, Lviv, and
Kharkiv, with another three provinces to be covered by year's
end. By the end of 2016, every Ukrainian oblast will have them;
A new National Anti-Corruption Bureau is being stood up and
will work with a new special anticorruption prosecutor once the
latter is appointed;
With U.S., EU, and U.K. help, new local prosecutors are
being hired, old ones are tested and retrained, and all will
now submit to periodic performance evaluations to root out
corruption and malfeasance;
Ukraine is closing loopholes in its pension system to help
reduce the system's $3.7 billion annual deficit;
It is working hard to increase energy efficiency, cut
subsidies for state-owned gas producers, and establish a
market-oriented model;
And, with the help of the IMF, the government is rebuilding
its financial sector, closing insolvent banks and strengthening
protection of depositors' rights.
These efforts and more are beginning to bear fruit:
The latest IMF forecasts released this week predict
Ukraine's economy will grow by 2 percent in 2016.
Ukraine exported a record-breaking 33.5 million tons of
grain in 2014, and in 2015 will increase agricultural exports
by 6 percent;
And, Ukraine's foreign reserves have increased to $12.8
billion, up from a low of $5.6 billion in February.
what the u.s. is doing
With Congress' unwavering support, the United States has committed
to provide over $548 million in assistance to Ukraine since the start
of this crisis, in addition to two $1 billion loan guarantees. With
continued progress on economic reforms and as conditions warrant, we
will ask you to work with us on a third loan guarantee of up to $1
billion. U.S. economic and technical advisors advise almost a dozen
Ukrainian ministries and localities. Our $69 million in humanitarian
support helps 2.4 million displaced Ukrainians through international
relief organizations and local NGOs.
Because there can be no reform in Ukraine without security, $266
million of our support has been in the security sector. This includes
sending: 130 HMMWVs, 150 thermal and night vision devices, over 300
secure radios, 5 Explosive Ordnance Disposal robots, and 20 counter
mortar radars.
Just last week, we notified Ukraine that two more life-saving long-
range counter fire radar batteries are on the way. And, in November, we
will complete a $19 million train and equip program for Ukraine's
National Guard and begin training Ukrainian Ministry of Defense forces
using $45 million in European Reassurance Initiative funding.
Ukraine has already put this equipment and training to good use.
When combined Russian-separatist forces tried all summer to break
Ukrainian lines at Maryinka and Starohnativka, they were pushed back
again and again by Ukraine's increasingly professional military, and
Ukrainian lives were saved.
what ukraine still must do
Because the best antidote to Russian aggression and malign
influence is for Ukraine to succeed as a democratic, prosperous,
European state, the Ukrainian Government must continue to live up to
its promises to its own people and maintain the trust of the
international community.
As I said, much difficult work remains to clean up endemic
corruption throughout government and society, at every level; to
stabilize the economy; break the hold of corrupt state enterprises and
oligarchs; and reform the justice system.
Key steps toward these reforms include:
Procurement and revenue management reform in the gas sector,
and unbundling of services along with the restructuring of
Naftogaz by Ukraine's deadline of June 2016;
Like Ukraine's police force, the Prosecutor General's Office
has to be reinvented as an institution that serves the citizens
of Ukraine, rather than ripping them off. That means it must
investigate and successfully prosecute corruption and asset
recovery cases--including locking up dirty personnel in the PGO
itself;
The newly created Inspector General's Office within
Ukraine's prosecution service must be able to work
independently and effectively, without political or judicial
interference;
And, the government must appoint the NABU Anti-Corruption
Prosecutor ASAP in order to start investigating these crimes.
Ukraine is well situated to provide products and services to Europe
and Eurasia, but must improve the business climate by dismantling
thousands of duplicative functions and transparently privatizing
approximately 1,800 state-owned enterprises, and do more to
recapitalize and repair its banking system. Clean governance and
business practices that root out corruption are essential to attracting
more foreign investment and development opportunities.
Ukrainians also need a justice system that cannot be bought, one
that will deliver verdicts, uphold the rule of law, and stop injustice,
which was a key demand of
the Maidan protests. Currently, only 5 percent of the Ukrainian
population completely trust the judiciary. Inspiring confidence will
require passing the constitutional amendments to limit judges'
immunity, improve judicial ethics and standards, and rigorously
investigate judicial misconduct and enforce disciplinary rules and
dismissals.
what the international community must do
While Ukraine works through these tough challenges, the United
States, Europe, and the international community must keep faith with
Ukraine and help ensure that Russia's aggression and meddling cannot
crush Ukraine's spirit, its will, or its economy before reforms take
hold.
We must challenge the false narrative that nothing can or will
change in Ukraine. To fight disinformation not only in Ukraine and
Russia, but across Russian-speaking communities in Europe, we are
joining forces with our partners in the EU to support alternatives to
state-sponsored, Russian programming. We are also training foreign
journalists and civil society actors in the art of fighting lies with
the truth.
Mr. Chairman, Mr. Ranking Member, members of this committee,
America's investment in Ukraine is about far more than protecting the
choice of a single European country.
It is about protecting the rules-based system across Europe and
around the world. It is about saying no to borders changed by force, to
big countries intimidating their neighbors or demanding a sphere of
influence.
I thank this committee for its bipartisan support and commitment to
the sovereignty and territorial integrity of Ukraine and to a Europe
whole, free and at peace.
The Chairman. Well, we thank you very much for your
testimony and your continued efforts sometimes swimming
upstream to make things happen in an appropriate way in
Ukraine. And I had a lot to say over the last hour. I am going
to defer our ranking member.
Senator Cardin. Well, thank you, Mr. Chairman, and,
Secretary Nuland, again, thank you for your leadership on this
area. I want to talk about one area. I want to talk about
corruption. To me, if they cannot deal with this issue, their
future is not going to be very bright.
Prior to the current revolution, the government was very
corrupt at all levels. It is my understanding that very few
people have been sent to jail for corruption in Ukraine. It is
my understanding that there are still corrupt officials in the
judicial branch of government that have not been rooted out.
And I heard what you said about moving forward in dealing this
issue. If the impunity rate cannot be reduced, it is not going
to make much difference these reforms.
So how do we anticipate leveraging our involvement so that
there is real progress made on dealing with the problems of
corruption in Ukraine?
Ms. Nuland. Well, thank you, Ranking Member Cardin. We
could not agree more. As I said in my opening, this is a
central tenet of the work that we are doing with your support
with the Ukraine Government. We have U.S. and European advisors
in the prosecutor general office's helping with the reforms, to
stress test all of the individuals there, to insist that those
who are found to be corrupt are dismissed, and the hiring and
retraining of new personnel. And that has to happen not just at
the federal level, but at every level in the districts.
As I said in my testimony, there need to be constitutional
amendments and then new legislation to eliminate impunity in
the judicial sector to ensure that the highest standards of
ethics apply. That has not been the case in Ukraine. The
Ukrainian people, when you look at public opinion polls,
fighting corruption is their number one demand. And as you have
said, there are too many instances, even in the last months, of
cases not being made of folks being put back on the street who
should not be.
So this is a major, major focus of our effort. It is a
major focus of international attention on Ukraine. A lot of the
support that you are giving us we are applying to this
question. Every time we meet with senior Ukrainian leadership
we push on this, including when the Vice President saw
President Poroshenko in New York last week.
Senator Cardin. So let me make a suggestion, and it deals
with transparency and metrics.
Ms. Nuland. Yes.
Senator Cardin. Where you can show progress being made or
not made, that there is expectations. The United Nations is
developing metrics right now for anticorruption measures with
the implementation of Sustainable Development Goal Number 16. I
think Ukraine could be a case in point of how the international
community, working with the Government of Ukraine, which I
think is sincere in trying to root out corruption, can address
this issue. Whether Ukraine is capable of doing so, or not, is
another story.
But developing achievable goals on reducing the impunity
rates on the expectations of an independent judiciary, of
independent prosecutors, of funding these offices, of
implementing the anticorruption laws, transparency, those types
of issues, is important so that the public can gauge how well
the government is meeting the goals, which then gives the
government more power to make--to implement that because they
know the public is looking. It helps the government achieve
these goals and fight some of the corruptive influences of the
powerful who do not want this to change.
Ms. Nuland. We agree completely. The IMF agrees. In fact,
some of the benchmarks that you are looking for are part and
parcel of the IMF's program. And some of the things that the
Ukrainians have already done are because the international
community is demanding it, the standing up of the
anticorruption bureau, et cetera. The things that I mentioned
in my testimony, which are outlined in more detail, are not
only requirements of the IMF and the EU, they are also
requirements that we put forward with regard to the loan
guarantees that you have been so generous in helping us to
attack. So we will continue to be on this. We are also working
on things like e-governance, customs reform, things that can
squeeze out the ability for graft.
But I would say that given how endemic this has been in
Ukraine, this is going to be a relatively long journey because
you can change the tops of ministries. You have to change the
entire culture and not just at the federal level, but all
through the localities. So this is a major challenge for
Ukraine and something that we agree we must stay on.
Senator Cardin. I agree it is long term. I just urge you to
set it up in a way that we can evaluate if we are making
progress.
Ms. Nuland. Right.
Senator Cardin. Not only that we can evaluate, not only IMF
can evaluate, not only the international investors can
determine, but also the people of Ukraine need to know that
there is progress being made. Without that, I am afraid the
stability in the country will not be there.
Ms. Nuland. Absolutely. And, you know, they are going to
measure it by when cops stop taking bribes, when you do not
have to bribe your way into a hospital or into a school, and
when cases are actually made such that they have the courage to
come forward with cases because they know that folks will be
convicted.
Senator Cardin. I agree. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Shaheen.
Senator Shaheen. Thank you. Just to follow up on that line
of questioning, and thank you for being here. To what extent do
you think the leadership in the Rada, the elected officials,
understand the importance of addressing corruption?
Ms. Nuland. I would say that particularly in the broad
reform coalition, many of those Rada deputies, particularly
those serving for the first time, got elected on a promise of
trying to clean up the system. I think some of them are
concerned about how difficult it is, and that they need
support, particularly on the justice and prosecutorial side,
and that this is a long-term project.
One of the most popular programs we have, as you know, and
I think you have seen some of them when you have traveled, is
this investment that we have made in clean police. And as I
mentioned in my testimony, they are now present in five cities
in Ukraine, and every city in Ukraine is now asking for them
because they are setting a new standard for serving the people
rather than shaking down the people, so that is a small first
step. Now we have to see that in the justice system. We have to
see that in every ministry. We have to see that in daily life
for Ukrainians.
Senator Shaheen. And in terms of the measures that Senator
Cardin was talking about, is this something that the commission
on corruption is actually looking at implementing as they are
thinking about the challenge that they have?
Ms. Nuland. Again, the anticorruption bureau is responsible
for oversight of the various ministries and trying to root out
the corrupt deep state in all of these ministries. That is only
one piece of the puzzle. So this is part of the challenge that
almost every sector of the Ukraine Government has to be working
on anticorruption, so the judicial reforms, the prosecutorial
reforms, e-governance, what it feels like in the regions as
well.
So the anticorruption bureau will be one of the monitors,
one of the stress testers, but every ministry is going to have
to be involved, and is going to have to prove that it is making
progress.
Senator Shaheen. You talked about Putin's commitments on
the 2nd to hold elections not with the separatists, but with
the rest of the country, and to remove heavy weapons. Have we
seen any evidence yet? I mean, it has only been a week, but
have we seen any evidence that they are actually going to move
in that direction?
Ms. Nuland. The agreement that was finally achieved on the
second phase, the tanks and weapons under 100 millimeters,
allows for the withdrawal in two phases, a northern phase and a
southern phase. Ukraine wanted to do it that way to ensure that
the most sensitive areas come second, and that the OSCE can
truly get in and monitor.
My understanding, and I checked this morning with our folks
who work with the OSCE, is that we are starting to see on both
sides, on the Ukrainian side and on the separatist Russian
side, some pullback of heavy weapons, some increased access in
that northern first segment. The question will be whether that
remains the case, whether access is allowed for the OSCE
because we have seen occasions where this has been incomplete,
and we did have one violent incident overnight, so the sort of
first break in the cease-fire in a little bit. So we are
watching very, very carefully.
Senator Shaheen. Okay. One of the things that I think we
would probably all agree that has helped with progress in
Ukraine has not just been the will of the people of the
country, which is obviously the most important, but it has been
support from the international community to try and help them
as they are making these changes. And I wonder to what extent
we feel like we are continuing to be in sync with President
Hollande and Chancellor Merkel with respect to the progress on
the Minsk II agreements, and how willing do we think they are
to continue with a sanctions regime if Russia does not respond
as they have committed to.
Ms. Nuland. We have very good--we have had very good
coordination at every level going forward. We had superb
coordination at the leader level, I would say, in New York when
everybody was in the same place in advance of the October 2
Normandy meeting. And as you know, President Obama met with
President Putin early in that New York week.
And I think, you know, one of the reasons why the Normandy
meeting went better on October 2 was because what President
Putin heard from President Obama, from Chancellor Merkel, and
from President Hollande, particularly on canceling fake
elections, on pulling back heavy weapons, and on having real
elections in Ukraine and on hostages, was identical. So that is
extremely important that we continue to work moving forward.
The EU continues to join us in saying that there will not
be sanctions relief until Minsk is fully implemented. That
means until Ukraine has sovereignty again over its eastern
border. Given the shifting timelines of Minsk, that is likely
going to take more time than we originally anticipated, so that
is probably going to mean we will have to have some rollover
next year.
Senator Shaheen. Some of us just met with some Ukrainian
parliamentarians who were here, and they were quite--seemed
very anxious about what is going to happen with Minsk II, not
just with the elections, but also with withdrawal of weapons,
and talked about how important it was for us to support and to
push for the other provisions. Are there other provisions that
we think Ukraine is particularly concerned about other than
those two that we should be aware of and be pushing for here?
Ms. Nuland. As I mentioned in my opening, the return of
hostages, including those held by Russia, like Nadiya
Savchenko, that is an extremely important humanitarian issue
for Ukraine. The issue of the OSCE having access not just where
weapons are being pulled back, but all the way to the border is
an essential prerequisite to Ukraine itself having access,
which you have to have before you can have an election. I think
the concern also is that heavy weapons need not just to be
pulled back, but Minsk ultimately calls for the full withdrawal
of all foreign weapons and troops, so that needs to happen.
You know, it is not surprising that there is skepticism, as
I said in my opening, among many Ukrainian patriots given the 7
months of nonimplementation that we have had. With the cease-
fire now, with the beginning of the pullback, we need to use
this time now to push for continued demilitarization so that a
real election can happen because that is the only way for
Ukraine to get its territory back.
Senator Shaheen. All right. Thank you very much. Thank you,
Mr. Chairman.
The Chairman. Thank you.
Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman, and thank you,
Madam Secretary. Look, I want to focus on the reality. We had
the IMF managing director here in a private session with the
members of the committee, and there is one statement, I think,
that is pretty open and public that is pretty universal, which
is that when you take 20 percent of a country's GDP, which is
the eastern part of Ukraine, and when you are ultimately and
still are in war, for all intents and purposes, as is evidenced
by your own statement, that in the eight months since the
February signing of the implementing agreement Eastern Ukraine
has seen almost constant violence all along the contact line,
continued weapon shipments from Russia masquerading as
humanitarian aid. Then it is very difficult to be able to
steady yourself and advance economically in a way that we want
Ukraine to advance.
So notwithstanding all the other elements of your testimony
and questions that have been raised about focusing on
corruption, which I am all for, and other elements of economic
reforms that they have been, I think, pretty aggressive on and
need to continue to move forward. It seems to me the central
question as the administration comes up a new ask of assistance
to Ukraine, as we look at the future of Ukraine, as someone who
has been very supportive on the committee.
The question is, Where are we headed with Russia, because
at the end of the day you cannot continue to have 20 percent of
GDP under assault. You cannot continue to have new armaments
being shipped into Ukraine by Russia and simply think that this
is not the ultimate plan of President Putin is either to have,
by de facto or default, a quasi-annexation of the eastern part
of the country, or at least a leash that you can pull at any
given time when President Poroshenko and the Ukraine people
want to move westward.
So what are we going to do with Russia because they have
shown themselves, so they now think that military intervention,
not only here, but in Syria, serves their aims. So what are we
ready to do?
Ms. Nuland. Well, thank you, Senator Menendez. You know,
this is one of the reasons why we focus so much on the Minsk
agreements because if these weapons can be pulled back from the
line, if the cease-fire can hold as it has now for a month, you
can start to have economic activity from the Donbass benefit
all of Ukraine. So just in the last couple of weeks, coal is
beginning to flow out of the Donbass back into the rest of
Ukraine so that they will not have to import as much coal as
they did last year. If we can get the OSCE in in a real
election, you can reintegrate the population, all those kinds
of things.
Senator Menendez. I do not want to interrupt you----
Ms. Nuland. Yes.
Senator Menendez [continuing]. Because I did read your
testimony. I know some people do not read testimonies before. I
read your testimony. It is why I stepped outside and did
something else knowing that I had read your testimony. I have
the whole section.
If the commitments are kept, my concern is what if they are
not kept? What are we ready to do? What do we think we should
do in anticipation or in trying to ensure that the commitments
are kept, because for me, if there are no consequences for
Russia not to keep their commitments other than that which
exists, there is not necessarily a reason for them to pursue
their commitments, at least in the way that we would like to
see. You know, we have this one step forward, two steps back
situation going on.
So I am trying to get a sense of what we are willing to do.
For example, the Russians went ahead and at the height of the
Maidan protests extended a $3 billion bond to then President
Yanukovych in power to try to help him stay in power.
Yanukovych fled the country with unknown millions, but as far
as I understand, the Ukrainian citizen still ends up with the
debt. The terms of the bond are pretty exorbitant, and Russia
could demand an immediate payment, which they have not done. I
acknowledge they have not done so, but they could, so it is an
economic weapon at the end of the day potentially.
So should they pay a price with that issue? Should the
international community suggest to them if you do not go ahead
and pursue the elements of Minsk fully, that there is going to
be a consequence as it relates to your bond, because we are not
necessarily going to, in essence, help the Ukrainians pay the
Russian bond, right?
Ms. Nuland. Well, first, Senator, as I said and as you have
helped us to implement throughout this, the first line with
regard to pressure on Russia from Minsk is the sanctions that
the United States and the EU have in place, and which will have
to be rolled over if Minsk is not implemented by January 1.
Those sanctions, we believe, are biting the Russian economy
deeply. I can go through the figures if you would like.
We have also said that if there is a return to violence, if
there is a new land grab, and we have worked with our European
partners on this, there will be an increase in sanctions. I
think that the message that we sent is that if another round of
fake elections were held, that would also draw a conversation
about more sanctions, had an impact on the decision to prevail
and the separatists to cancel what would have been a bad scene.
You are right that there is a $3 billion note coming due
for Ukraine because Yanukovych took this $3 billion loan as he
was in his final months. My understanding is that the Ukrainian
Government is now approaching the Russian Government, and that
conversation may begin in coming days at the Lima Bank Fund
meeting to say we have now made a debt relief deal with our
private creditors. If you, Russia, are prepared to accept the
same terms, then that would be acceptable to Ukraine. We will
see what Russia does in that circumstance.
Senator Menendez. Was that not offered and rejected already
once?
Ms. Nuland. There has not been a formal conversation about
it because the deal with the private creditors was only
completed a couple of weeks ago, so we will see how Russia
deals there. Russia has said it wants to help Ukraine with its
recovery. This would be one way that it could do so. If it does
not accept those terms, then we will have to work with Ukraine
on other options.
Senator Menendez. Mr. Chairman, if I may, one final
comment, and that is that, look, I hope that this all works
out. But from my perspective, hope is not a national security
strategy.
Ms. Nuland. Absolutely.
Senator Menendez. So the question then becomes, what are we
ready to do. And I will say that if we wait for Minsk and it
does not get fulfilled by Russia, and then start thinking about
what we are going to do, other than keep what we have, and
obviously keeping what we have, if they violate or do not
fulfill the Minsk agreement, then there will be no reason for
them to change course.
So I hope that we are ready to go with a series of other
actions to ratchet up the consequence, even putting Syria aside
for the moment. But just on this because one of my concerns is
that what is happening in Syria, for which I think Putin has a
series of reasons, but not the primary, but a collateral reason
is I have got you all paying attention over here, and when the
time comes, we will do what we want to do in Ukraine. So I just
hope that we are being proactive at the end of the day.
Ms. Nuland. If I may just say that we did over the summer
do considerable work with the European Union on what an
increase in sanctions would look like if that were necessary.
The Chairman. Thank you. If you would, share with us the
sanctions relief that Russia will receive in the event they
satisfactorily implement Minsk II.
Ms. Nuland. Senator, we have--Mr. Chairman, we have talked
about a rollback of sanctions if Minsk is fully implemented. As
I said in my testimony, there are certain sanctions that were
applied for Crimea, about Crimea. Those stay in place. There
were other sanctions that were applied in direct response to
the violence in Eastern Ukraine, primarily the sectoral
sanctions, the banking sanctions. It would be those that we
would look at rolling back should Minsk be fully implemented,
meaning all weapons and foreign forces withdraw and a real
election and return of sovereignty at the border and hostages.
The Chairman. So I know there have been some discussions
with others about the $3 billion bond payment. And I think what
Senator Menendez may have been referring to is maybe those
negotiations were not between two real parties, and the former
President left the country, and was $3 billion the right
number, if you will. Now, the country certainly is bound by
that.
So I guess there has been some discussion about Russia
would have huge amounts of war reparations, would they not,
that Russia would owe Ukraine for what they did. And I am just
curious as to how people are thinking about ensuring that
Ukraine, with their economy tanked, with the illegal actions
that Russia has taken, is there not going to be some type of
compensation, if you will, to offset some of the issues that
Ukraine has gone through, or is that just going to be washed
over?
Ms. Nuland. Well, I do not want to speak for the Ukraine
Government and how it would pursue those reparations. But our
understanding from our conversations with them is that they are
working on International Court of Justice cases. They are
working on ICC cases, which could apply in some of those cases.
But I think we can prepare a separate briefing for you on what
they are thinking if you are interested in that.
With regard to, as I said, the debt, our understanding is
that Ukraine will offer Russia the same proposal that it had
with its private creditors. We will see if Russia accepts that,
and if it does not, we will have to see where Ukraine wants to
go thereafter.
The Chairman. The recent discussions regarding the moving
back of the elections until February and some of the demands
that have been placed on Ukraine have read as if the United
States and Europe have placed additional demands on Ukraine
that were very much in Russia's favor. And could you talk just
a little bit about what those additional demands on Ukraine
have been relative to moving things back so that Minsk possibly
could be successful?
Ms. Nuland. I would actually argue the opposite, that what
we have been doing with Ukraine is working with that country to
ensure that it can make the case that it has met every single
one of its Minsk obligations, and thereby shining the spotlight
on the nonimplementation by Russia and the separatists. And it
is because Russia and the separatists have not pulled back
weapons, it is because they have not been serious at the
political negotiating table that the timelines of Minsk are
probably going to have to be moved out.
But as I said, that also means that sanctions will stay in
place longer. So it is Russia that has, by not meeting the
original Minsk timelines, ensured that it stays under sanctions
longer than was originally intended.
Now, in working with the Ukrainians to ensure that their
record was completely unimpeachable on Minsk implementation, we
did, along with our European partners, support early work on
the constitutional amendments on decentralization, which are
good for the country nationally, but which include this very
difficult concession that Ukraine made at the Minsk table to
codify in the constitution special status for these territories
in Donetsk and Luhansk Oblast.
This caused a huge reaction in the Parliament when it was
originally reviewed in August and again in September because a
number of Ukraine legislators--probably you met some of them--
felt that they should not be forced to make those moves in
advance of a real cease-fire in advance of a real weapons
pullback. They did, though. They did the statesman-like thing,
and now it will be on Russia and the separatists to implement
their portions.
The Chairman. On the corruption front, you know, we have
heard good reports about the police that you referred to, and
certainly they are making significant efforts within the
country, a country that, let us face it, is at least 20 years
behind the rest of Europe because of its inheritance from the
Soviet Union, but also all the corruption that takes place
within the country.
We understand the, you know, big power center, if you will,
in Ukraine is the oligarchs, and it would seem to me that that
would be--those would be a group of people that can help
determine success and certainly help make it not happen. Can
you talk to us a little bit about that evolution?
Ms. Nuland. Well, you are absolutely right, Chairman, that
there is a 20-, maybe longer, year tradition in Ukraine of the
biggest business folk, the oligarchs having sweetheart deals
with corrupt politicians. In the context of the IMF reform
process, the Ukrainian Government, both the Prime Minister and
President sat down individually with each of the major power
brokers, and renegotiated some of the deals that they had had
with Yanukovych so that they would be more transparent, so that
these guys would be paying their taxes, so that the royalties
owed to the state for resources of the state were appropriate
and at world market prices.
And most of the major oligarchs were willing to sit down
and cut those deals. A number of them are now paying their
taxes, as I mentioned. The coal is now being delivered to
Ukraine, et cetera. But there are a few that have either broken
deals, or are not paying their taxes, or are using ill-gotten
gains to throw money around in the political system. And the
Ukrainian Government is now considering what kind of legal
action it can take against those people.
And we are making clear as the Vice President has, as the
President has in all of his statements, the Secretary has, and
as I did at a conference in Ukraine, that there should be zero
tolerance for anybody who does not pay their taxes, for anybody
who continues in this environment to rip off the people of
Ukraine.
The Chairman. Thank you. I do not--if there are additional
questions, I am glad for those to be asked. I would just ask in
closing, I know we have another panel, and thank you for being
here. Are there additional things that you plan to be asking
Congress to pursue relative to Ukraine? Are there things that
we might do to provide even more assistance to the
administration and others as we deal with Ukraine?
Ms. Nuland. Mr. Chairman, the Congress has been extremely
generous in fulfilling and sometimes over fulfilling our
requests, so we are very grateful for that. As I said in my
testimony, if Ukraine stays on track, we do anticipate coming
and asking you some time this winter to support a third loan
guarantee for Ukraine. The conditions that we will put on it in
our negotiations with Ukraine will cover many of the issues we
discussed here today, primarily implementation of
anticorruption measures.
The Chairman. I do think it would be helpful, maybe not in
a hearing, but for there to be a small briefing of some kind
for us to fully understand the sanctions relief that is going
to be taking place relative to Russia. And I hope that we are
not sending signals to Russia that they come into countries
like this, destabilize countries like this, in many ways get
their wishes relative to how Eastern Ukraine is going to be
governed, and leave, and have all sanctions released. So I do
hope we can, and we will be following up to make sure we fully
understand what is happening there.
We thank you for your testimony and your service to our
country. Thank you.
Ms. Nuland. Thank you, Chairman. Delighted to come brief.
The Chairman. So we will bring the next panel up. We thank
you for your patience.
This panel consists of two witnesses. The first witness is
Ambassador Paula J. Dobriansky, the former Under Secretary of
State for Democracy and Global Affairs., senior fellow for the
Future of Diplomacy Project at Harvard University, JFK Belfer
Center for Science and International Affairs. Thank you so much
for being here and for listening to us. Our second witness will
be Hon. Clifford G. Bond, the former Ambassador to Bosnia, and
former United States assistance coordinator in Ukraine.
We thank you both for being here. I know you all have been
before us before and certainly participated. If you could keep
your comments to around 5 minutes, and your written testimony,
without objection, will be entered into the record. And with
that, in whichever order you feel like is best, begin.
Ambassador Bond. Ladies first.
The Chairman. Ladies first apparently. Thank you so much.
STATEMENT OF HON. PAULA J. DOBRIANSKY, FORMER UNDER SECRETARY
OF STATE FOR DEMOCRACY AND GLOBAL AFFAIRS, SENIOR FELLOW FOR
THE FUTURE OF DIPLOMACY PROJECT, HARVARD UNIVERSITY JFK BELFER
CENTER FOR SCIENCE AND INTERNATIONAL AFFAIRS, CAMBRIDGE, MA
Ambassador Dobriansky. Thank you, Chairman Corker and
members of the Senate Foreign Relations Committee. I appreciate
the opportunity to testify before you today concerning why
Ukraine's economic and political future matters and what should
be done to secure it.
This hearing is both timely and essential. While Russian
airstrikes in Syria have properly caused the global community
to focus on events playing out in the Middle East, attention
unfortunately has been diverted from the grave situation in
Ukraine. Russia continues its illegal occupation of Crimea and
has embarked on a variety of measures designed to finalize its
unlawful annexation of that portion of Ukraine's territory.
Meanwhile Russian-led aggression continues unabated in
Eastern Ukraine in violation of the Minsk cease-fire agreement.
More than 6,400 Ukrainians have lost their lives, and more than
1.5 million have been displaced because of Russia's invasion.
At the same time Ukraine is fighting a war on its eastern
front, the Kiev government seeks to revitalize its economy and
secure needed Western aid. Their circumstances are extremely
difficult as Moscow continues to destabilize Ukraine by adding
to its war costs, keeping energy prices artificially high,
resisting efforts at debt rescheduling or reduction, blocking
Ukraine's trade, and inhibiting foreign investment there.
Despite these major challenges, the Ukrainian Government
has achieved some notable progress: partial debt rescheduling,
improved tax collection, reduced government procurement,
passage of anticorruption laws, disclosure of assets of members
of Parliament, and curbed energy subsidies. Change and
substantial reform in Ukraine will take time--but it is an
effort which is both in Ukraine's interest and in our national
security interest. Accordingly, it deserves our steadfast,
long-term support.
Moscow's aggression against Ukraine is a component of
Putin's strategic vision, which he has laid out openly in a
series of speeches, not isolated misbehavior. Clearly
understanding his desire to reverse the consequences of the
Soviet Union's collapse and a rejection of the existing
international system's legitimacy is central to understanding
why long-term support for Ukraine is so crucial.
The Atlantic Council has outlined the task at hand--
``Secure Europe's East--Support Ukraine.'' Their experts call
for three basic steps: stop Putin through enhanced economic
sanctions, support Ukraine through increased U.S. economic
assistance and military and humanitarian aid, and strengthen
NATO. What happens in Ukraine is not just Europe's concern.
Both the United States and Europe have a stake in seeing a
democratic, economically strong Ukraine.
Russia's invasion of Ukraine starting in February 2014 in
Crimea marks the first annexation of one European country's
territory by another since World War II, and threatens the
normative order and geostrategic stability in Europe. Our
values, institutions, and alliances have been directly
challenged. Putin abrogated the 1994 Budapest Memorandum and
other agreements which have kept the peace in Europe for
decades and buttress nuclear nonproliferation. To not act and
leave Putin's aggression unchallenged sends a signal to other
authoritarian regimes that they, too, can commit acts of
aggression without consequences.
The crisis in Ukraine has created a highly dangerous
situation in Europe fraught with risks of further Russian
aggression. There are several important implications to
consider. First, this crisis underscores that the end of the
cold war, which saw the collapse of the Soviet Union and the
creation of many European economic and security institutions,
has not rendered Europe immune to new security and political
challenges.
Second, as the developments in Ukraine since it became
independent demonstrate, the path to democracy in post-
Communist countries is a difficult one filled with dangers,
especially if domestic problems are exacerbated by other
countries. To survive Ukraine needs long-term economic
assistance and targeted military aid that can augment the
fighting capabilities of the Ukrainian military.
Third, the Ukraine crisis highlights the precarious
security of the Baltic States and their extreme vulnerability
to Russian pressure and potential military action. The failure
of the West to confront Russia more directly in Ukraine has
emboldened Moscow to take provocative actions along other parts
of its periphery.
Fourth, new thinking is needed on sanctions. Fifth, the
assumption that post-Communist Russia has become a responsible
member of the international community, seeking to work within
the framework of existing international institutions and the
rule of law, has proven to be unfounded. Last, there is no
substitute for an engaged American policy to exercise robust
leadership.
Let me close by briefly elaborating on economic sanctions
and military assistance to Ukraine. Ukraine's President,
Poroshenko, has requested military aid and training from the
West. Specifically he has requested antitank weaponry,
antibattery radar systems, and other types of defensive
military equipment. We must act upon this request. We must also
extend and expand economic sanctions which will impose a
heightened cost for Russia's aggressive actions.
Despite Moscow's far-reaching strategic aspirations, Russia
is operating from a weak posture. The Russian economy continues
to shrink. Russia's greatest vulnerability may be its
refineries. While Russia is one of the world's top energy
producers, its refining facilities are antiquated, have no
spare capacity, and must be refurbished with Western spare
parts on a continuous basis.
Much of this equipment is of U.S. origin. If Congress were
to enact statutory sanctions placing an embargo on exports to
Russia of refinery pumps, compressors, control equipment, and
catalytic agents, it would cause widespread shortages of
refined products, putting tremendous pressure on Russia's
civilian economy and Moscow's ability to carry out military
operations.
In sum, the most effective strategy is to provide military,
economic, and humanitarian assistance to Ukraine in the long
term. I look forward to your questions. Thank you.
[The prepared statement of Ambassador Dobriansky follows:]
Prepared Statement of Ambassador Panla J. Dobriansky
Chairman Corker, Ranking Member Cardin, and members of the Senate
Foreign Relations Committee, I appreciate the opportunity to testify
before you today concerning why Ukraine's economic and political future
matters and what should be done to secure it.
This hearing is both timely and essential. While Russian airstrikes
in Syria have properly caused the global community to focus on events
playing out in the Middle East, attention has unfortunately been
diverted from the grave situation in Ukraine. Russia continued its
illegal occupation of Crimea and has embarked on a variety of measures,
designed to finalize its unlawful annexation of that portion of
Ukraine's territory. Meanwhile, Moscow-led aggression continues
unabated in Eastern Ukraine, in violation of the Minsk cease-fire
agreement. More that 6,400 Ukrainians have lost their lives and more
than 1.5 million have been displaced because of Russia's invasion.
At the same time Ukraine is fighting a war on its eastern front,
the Kiev government seeks to revitalize its economy and secure needed
Western aid. Their circumstances are extremely difficult, as Moscow
continued to destabilize Ukraine by adding to its war costs, keeping
energy prices artificially high, resisting efforts at debt rescheduling
or reduction, blocking Ukraine's trade and inhibiting foreign
investment there. Despite these major challenges, the Ukrainian
Government has achieved some notable progress: partial debt
rescheduling, improved tax collection, reduced government procurement,
passage of anticorruption laws, disclosure of assets of members of
Parliament, and curbed energy subsidies. Change and substantial reform
in Ukraine will take time--but it is an effort which is both in
Ukraine's interest and in our national security interest. Accordingly,
it deserves our steadfast, long-term support.
Moscow's aggression against Ukraine is a component of Putin's
strategic vision, which he has laid out openly in a series of speeches,
not isolated misbehavior. Clearly understanding his desire to reverse
the consequences of the Soviet Union's collapse and a rejection of the
existing international system's legitimacy is central to understanding
why long-term support for Ukraine is so crucial.
The Atlantic Council has outlined the task at hand--``Secure
Europe's east--support Ukraine.'' Their experts call for three basic
steps: (1) stop Putin through enhanced economic sanctions, (2) support
Ukraine through increased U.S. economic assistance and military and
humanitarian aid, and (3) strengthen NATO.
What happens in Ukraine is not just Europe's concerns. Both the
United States and Europe have a stake in seeing a democratic,
economically strong Ukraine.
Russia's invasion of Ukraine, starting in February 2014 in Crimea,
marks the first annexation of one European country's territory by
another since World War II and threatens the normative order and
geostrategic stability in Europe. Our values, institutions and
alliances have been directly challenged. Putin abrogated the 1994
Budapest Memorandum and other agreements which have kept the peace in
Europe for decades and buttress nuclear nonproliferation. To not act
and leave Putin's aggression unchallenged sends a signal to other
authoritarian regimes that they too can commit acts of aggression
without consequences.
The crisis in Ukraine has created a highly dangerous situation in
Europe fraught with risks of further Russian aggression. There are
several important implications to consider:
First, this crisis underscores that the end of the cold war,
which saw the collapse of the Soviet Union and the creation of
many European economic and security institutions, has not
rendered Europe immune to new security and political
challenges.
Second, as the developments in Ukraine since it became
independent demonstrate, the path to democracy in post-
Communist countries is a difficult one filled with dangers,
especially if domestic problems are exacerbated by other
countries. To survive, Ukraine needs long-term economic
assistance and targeted military aid that can augment the
fighting capabilities of the Ukrainian military.
Third, the Ukrainian crisis highlights the precarious
security of the Baltic States and their extreme vulnerability
to Russian pressure and potential military action. The failure
of the West to confront Russia more directly in Ukraine has
emboldened Moscow to take provocative actions along other parts
of its periphery.
Fourth, new thinking is needed on sanctions.
Fifth, the assumption that post--Communist Russia has become
a responsible member of the international community seeking to
work within the framework of existing international
institutions and the rule of law has proven to be unfounded.
Last, there is no substitute for an engaged American policy
to exercise robust leadership.
Let me close by briefly elaborating on economic sanctions and
military assistance to Ukraine. Ukraine's President Poroshenko has
requested military aid and training from the West. Specifically, he has
requested antitank weaponry, antibattery radar systems, and other types
of defensive military equipment. We must act upon this request.
We must also extend and expand economic sanctions, which will
impose a heightened cost for Russia's aggressive actions.
Despite Moscow's far-reaching strategic aspirations, Russia is
operating from a weak posture. The Russian economy continues to shrink.
Russia's greatest vulnerability may be its refineries. While Russia is
one of the world's top energy producers, its refining facilities are
antiquated, have no spare capacity and must be refurbished with Western
spare parts on a continuous basis. Much of this equipment is of U.S.
origin. If Congress were to enact statutory sanctions, placing an
embargo on exports to Russia of refinery pumps, compressors, control
equipment and catalytic agents, it would cause widespread shortages of
refined products, putting tremendous pressure of Russia's civilian
economy and Moscow's ability to carry out military operations.
In sum, the most effective strategy is to provide military,
economic, and humanitarian assistance to Ukraine in the long term.
I look forward to your questions.
The Chairman. Thank you very much. Thanks for being here.
Mr. Bond, sir. Ambassador.
STATEMENT OF HON. CLIFFORD G. BOND, FORMER AMBASSADOR TO BOSNIA
AND HERZEGOVINA AND U.S. ASSISTANCE COORDINATOR IN UKRAINE,
U.S. DEPARTMENT OF STATE, WASHINGTON, DC
Ambassador Bond. Thank you very much. It is a pleasure
being here. I met several of you gentlemen and lady in Kiev
over the past 17 months when I was working on coordinating and
expanding our assistance program in Kiev. My work focused on
the technical and humanitarian aspects of the assistance
program, though an important security component was built up
over those months as well.
I am going to make a few comments about the economic
transition in Ukraine. Those comments are informed by my
experience in Eastern Europe and Prague for the Velvet
Revolution, and then working in Washington on the support for
East European Democracy Act and implementing it, and then
later, my experience in Moscow where we saw a failed economic
transition. And what I have to say now, I want to be clear is
not criticism and should not be viewed as criticism, but is a
hard-headed approach to what needs to be done if we want to see
Ukraine develop a functioning market economy.
First off, the current Kiev government is the most
reformed-minded and technically the most competent team Ukraine
has had since post-Communist times. But I am afraid its goals
are not ambitious enough and they are not radical enough, and
the process of reform, as others have said, is only just
beginning in Ukraine. There have been important successes.
Raising energy tariffs and meeting other IMF conditions. The
patrol police reform in Kiev, which was already discussed, is a
big success, and is now being repeated in many cities, and we
have had agreement on debt restructuring.
But the reformers are facing serious resistance in a number
of key areas, including the fight against corruption. The
prosecutor general's office should be ground zero for that
fight. Unfortunately, the prosecutor general's office has not
completed a single criminal investigation or criminal
prosecution of any senior-level figure from the Yanukovych era.
We have Department of Justice and FBI advisors working with
reformers inside the prosecutor general's office. They are
being resisted and fought by old thinkers and old timers in
that bureau, and they need the support of senior members of the
government if they are to succeed.
A new anticorruption bureau, which was discussed and which
is being formed, will rely on the PGO's office for any
corruption prosecutions. And the PGO's office is, frankly, just
not doing its job right now. In the health ministry, there are
efforts to reform the procurement system. That is essential
because the procurement system was deeply corrupt and resulted
in a catastrophically low level of vaccinations of Ukraine
youth, and we have just seen the first signs of polio outbreaks
in Western Ukraine. In some areas, in fact, privatization and
deregulation, for example, reforms are only just beginning.
My bottom line is what the Ukrainian economy basically
needs is a fundamental liberalization and deregulation to
include broad privatization of more than 2,200 state-owned
enterprises. What economists sometimes refer to as the factor
markets of production for land, labor, and capital just are not
functioning in Ukraine. If you are an SME owner or an
entrepreneur, you find it very difficult to buy real estate,
you cannot get capital or a loan from a bank. There are hiring
practices and restriction that make it very difficult for you
to set up your business. This is a key problem.
Again from my experience in Eastern Europe it is important
for macroeconomic policies to be coordinated and focused. Some
ministries are doing outstanding work, but there is no central
figure in the government who is pulling all of those pieces
together for a comprehensive macroeconomic strategy.
In Eastern Europe countries where transitions were
successful, they were led by a Deputy Prime Minister, who
usually was double-hated as the Finance Minister. I am thinking
of Leszek Balcerowicz in Poland and Vaclav Klaus in Prague.
There is no figure like that in Ukraine, and I think the Prime
Minister and the President need to agree and empower such an
individual to lead the whole process of market reforms.
A big part of the problem is a lack of understanding on the
part of the general public, a lack of communication by
political leaders on what a market economy is and how it works.
Significantly, there is a recent poll conducted by the
International Republican Institute that shows two-thirds of the
citizens of the country believe that government should be
supplying jobs and investment. Less then 10 percent understand
that it should be the private sector. This is part of the
Soviet legacy that needs to change.
In Eastern Europe, focusing on developing the private
sector was key to the success of the transitions. Poland, for
example, focused on SME creation, and that resulted in
investment, growth, and jobs. The GOU seems to be--the
Government of Ukraine seems to be focused on meeting the
conditions required by the IMF, and that is important, it is
essential it is how you are going to get the money to pay the
bills. But it is not a substitute for a growth strategy that
gets out in front of that IMF demanded reform curve to get
things moving in the broader economy.
Energy is a perfect example of this. They have raised the
tariffs as required by the IMF, but have not done anything to
fundamentally reform the Ministry of Energy or the energy
sector itself, which is not really a market, but a battleground
of competing oligarchic interests. This point was made at a
recent Ukraine Foundation Conference which discussed the energy
situation.
I have more to say on the question of assistance, but we do
need assistance so that we can work with reformers to build
institutions, fight corruption, and create conditions for
growth. And that that is going to require a long-term
assistance strategy with our partners, other donors, and a
commitment from Congress to multiyear funding and additional
resources.
Visiting congressional delegations, including your members
of your committee, have repeatedly told us that they are ready
to consider substantial expansion of assistance to Ukraine, and
that they understand its importance. Ukraine's success is
essential for the wider security of Europe and fulfilling the
vision of a continent whole, free, and at peace.
Now, if we were able to get substantial new resources, I
have some ideas about how they could be used. We have been
trying to direct the resources we do have to make more of an
impact on reforms in Ukraine already. One thing I think we need
to do is consider new forms of macroeconomic support. The loan
guarantees that we are providing are very costly in terms of
our assistance dollars. They also place a very heavy sovereign
debt burden on Ukraine itself.
We can look to the Support for East European Democracy
(SEED) Program of the early 1990s for successful ideas of how
we support successful reforms then. With more macroeconomic
support, in particular, we would create a financial cushion
that would allow Ukraine reformers to be more radical.
Thank you very much, and I welcome your questions.
[The prepared statement of Ambassador Bond follows:]
Prepared Statement of Clifford G. Bond
It is a pleasure to appear before the committee today and join my
fellow panelist.
I returned only a few weeks ago from Kiev where I worked for 17
months on expanding and coordinating our assistance program to Ukraine.
Over those months our assistance grew by more than four times and
included a significant security component. I arrived as the aggression
was beginning in Eastern Ukraine and as a humanitarian crisis
developed. My work was focused on technical and humanitarian
assistance, not the security aspects of the program.
I will make some comments on the state of economic reforms and
transition in Ukraine that our program is meant to support.
I have past experience in economic transitions. I witnessed a
successful transition in Eastern Europe in the early 1990s when I
served in Prague during the Velvet Revolution and later worked in
Washington implementing our Support for East European Democracy or SEED
assistance program. Later in the 1990s I saw a failed transition when I
worked at our Embassy in Moscow.
What I have to say now is informed by this experience. It should
not be viewed as criticism, but as a hardheaded approach to what needs
to be done if Ukraine is to succeed in an economic transition to a
well-functioning market economy.
First off, the current Kiev government is the most reform-minded
and technically most competent team in post-Soviet times, but its goals
are not ambitious or radical enough, and the process of reform has only
begun. There have been important successes: energy tariff rate
increases and meeting other IMF conditions, the recent rollout of a new
patrol police in Kiev, a reform now being repeated in other cities, and
agreement on debt restructuring.
But reformers face increasing resistance to change in key areas
such as anticorruption. The Prosecutor General's Office (or PGO) should
be ground zero for the fight against corruption, but the PGO has yet to
carry out a corruption prosecution against a senior Yanukovych-era
figure. The PGO is divided between reformers who want to work with our
FBI and DOJ advisors (and need full political support from the top),
and an old guard that is frustrating and seeking to intimidate them.
A new Anti-Corruption Bureau is being formed, which will rely on
the PGO to prosecute any criminal investigations it concludes. But, as
I said, the PGO is not doing its job. In the Health Ministry efforts to
change corrupt procurement practices are being resisted by domestic
pharmaceutical interests --even in the face of low levels of
vaccination and immunization among Ukrainian children (a direct result
of past corrupt practices) and the first outbreak of polio cases in
western Ukraine.
In some areas, such as privatization and de-regulation, reforms are
only getting started. What the Ukrainian economy needs is fundamental
liberalization and de-regulation to include broad privatization of its
approximately 2,200 State-owned Enterprises (SOEs).
What economists call the factor markets of production in the
economy for land, labor, and capital are simply not functioning because
of structural impediments and rigidities built into the system or
because of corruption, past and on going. This means an entrepreneur or
SME finds it extremely difficult to buy the real estate (there is no
market in farm land), raise capital (the banks are not lending) or hire
the people he/she needs to start up or expand a business.
lack of macroeconomic coordination
Importantly from a macroeconomic perspective, there is no overall
coordinator of market reforms. Some ministers are out there doing
important work, but there is no central figure overseeing and
coordinating the process with a strategic vision in mind to pull the
pieces together.
In east European transition economies the senior Deputy Prime
Minister who was usually double hatted as Finance Minister played this
role. Poland's Leszek Balcerowicz and the Czech Republic's Vaclav Klaus
were key to the success of economic reform in their countries. The
Prime Minister and President need to empower an individual with real
reform credentials to fill this function and step out of the way to let
him or her get the job done.
need for strategic communication
Part of the problem is also lack of understanding on the level of
the general public and a lack of communication by political leaders of
what a market economy is and how it should operate. Public surveys,
such as a recent IRI poll, show that two-thirds of citizens believe
investment and job creation are the responsibility of the government.
Less than 10 percent understand this should be the role of the private
sector.
focus
Early cleanup of the business and investment climate was central to
the success of the transitions in Eastern Europe. Poland focused on SME
growth. This produced new businesses, jobs and investment, and gave
government the political capital to move on to other reforms.
The GoU is focused on meeting the conditions required by the IMF
and other donors. These are hard conditions and meeting them is
essential to get the money to pay the bills. It is not a substitute,
however, for a growth strategy that gets out ahead of the IMF-demanded
reform curve. Energy is an example of the problem. The GoU has done
difficult things, like raising energy tariffs as the IMF required, but
it has not fundamentally reformed the corrupt Ministry of Energy nor
changed the sector, which is not a market, but a battleground of
struggling interest groups. (This point was made at a recent Ukraine
Foundation conference discussion of reforms.)
more international assistance
We need to work with reformers to build institutions, fight
corruption and create conditions for growth. This will require a long-
term assistance strategy coordinated with our partners and a commitment
from Congress to multiyear funding and additional resources.
Visiting congressional delegations repeatedly told us in Kiev that
they are ready to consider a substantial expansion in assistance to
Ukraine. They understand that our support to Ukraine is important, but
is currently insufficient, particularly in comparison to our response
to the Georgia crisis of 2008.
Ukraine's success is essential for the wider security of Europe and
fulfilling the vision of a continent ``whole, free, and at peace.''
how would we use additional money?
We should consider new forms of macroeconomic support and link this
to tougher, more market-oriented reforms. Our current use of loan
guarantees is costly in terms of assistance dollars and is placing a
heavy sovereign debt burden on Ukraine.
We should look to the sorts of things done under the SEED Act in
the early 1990s. It will be easier for Ukraine's reformers to be more
radical when they have a macroeconomic cushion for the economy.
The government badly needs public sector and civil service reform.
The current bloated and poorly paid bureaucracy is a brake on reform
implementation, and a source of corruption. But this is an enormous and
expensive task.
It is not a task a single donor or the Ukrainian Government can
assume alone. But with additional funding we could work with the EU and
other donors to undertake widespread public sector reform.
We also need to support a massive privatization effort with the
advisors and technical assistance to do the due diligence to prepare
hundreds of state-owned enterprises for transparent privatization
process that will attract strategic investors.
In addition to the conflict in the East and fighting for reform in
Kiev, Ukraine faces a humanitarian crisis, largely overlooked in the
West. This involves more than 1.5 million displaced persons inside the
country, more than a million refugees outside it and millions more
trapped and vulnerable in the area of conflict.
Neither we, nor our European allies are stepping up with an
adequate response to the needs of these people, particularly as they
face the onset of a second winter.
In conclusion, Ukraine needs to redouble efforts at reform and
adopt deeper, more radical market-oriented measures, particularly by
cleaning up the business and investment environment. The U.S. and
international community need to explain the stakes to their publics and
think bigger and more strategically in terms of the level and types of
assistance that can be made available.
The Chairman. Thank you very much.
Senator Menendez.
Senator Menendez. Well, thank you both for your testimony.
Ambassador Dobriansky, your testimony is more forward leaning
in terms of--and by that I mean Ambassador Bond is focused on
the economics, so you had a whole different set of agendas,
different than what we heard from Secretary Nuland, from my
perspective, and you mentioned the Atlantic Council.
So let me ask you about a couple of those things. Number
one is as it relates to sanctions, is there a set of ideas that
you all have? Is it about being prepared? If Minsk does not
move forward fully enforced, is it before that? Is it
proactive? What are you thinking about in that regard?
Ambassador Dobriansky. Earlier when you posed the question
to the Assistant Secretary, it certainly caught my attention
because the sanctions that had been imposed on Russia by the
administration, although they have had an impact, the costs
have not been that great to deter Russia from what it is doing,
and not just in Europe, but also in Syria. And I think there is
a concern in Europe about Russia's next move.
So to answer your question, it is now and later. It is
looking at strengthened sanctions now. We need to focus on what
we should be doing further because we are not operating and
having discussions from a position of strength. In the
discussions that we are having with Russia, we are not having
the kind of influence and impact that we should. We have not
deterred Russia, at least as I can see, in terms of their
actions. So our focus is on now and beyond.
Senator Menendez. Let me ask you, I personally have been an
advocate, as I think the majority of this committee has, of
providing lethal weapons to the Ukrainians--lethal defensive
weapons to the Ukrainians. It is great to provide night vision
goggles so that you can see your enemy coming, but if you
cannot stop it, it does not do you very good to see them
coming.
So the response to that is, well, that would only
potentially create a greater provocation by Russia. It does not
seem that Russia has needed much provocation to use its
military might so far--Crimea, Eastern Ukraine, and now Syria.
So I doubt provocation is really an answer. But it seems to me
that the existence of Ukraine's ability to defend itself and up
the cost to Putin is part of an equation to try to both deter
him from doing anything more, and maybe to get the
implementation of Minsk as we would like to see. Do you support
that view?
Ambassador Dobriansky. First, if I may----
Senator Menendez. Sure.
Ambassador Dobriansky [continuing]. I was here in Congress
when Ukraine's President Poroshenko delivered his remarks
before the joint session and said to the United States, thank
you for the blankets, but blankets will not win wars. Ukraine
needs serious military aid and assistance to be able to defend
its territory and to push back against these Russia-backed
separatists or terrorists, as the Ukrainians call them, and
also to push back against Moscow.
Our support militarily, not only would be in response to
the request from Ukraine, but, significantly, I think it sends
a very important and clear signal in terms of our concern about
what is happening on the ground there. We were one of the
signatories of the 1994 Budapest Accords. We do have on
obligation to fulfill it, and in that context, Ukrainians are
saying, please help us, let us defend ourselves. It is not only
a military issue for Ukraine's self-defense, but a political
one as well. I do not support the argument and concern about
escalation.
Putin is very concerned about Russian soldiers, dying. You
know that former Russian Deputy Prime Minister Boris Nemtsov
was murdered near the Kremlin. He was going to release a
documentary on Russia's military in Ukraine. The Atlantic
Council also has a report called ``Hiding in Plain Sight,''
which documents in detail the scale and scope of Russian
involvement in Ukraine. And then third, there is just the
political dimension here of what we are about and what we stand
for. Not moving on providing military aid sends a very bad
signal indeed.
Senator Menendez. The Budapest Agreement where we gave
Ukraine security assurances if they gave up their nuclear
weapons that we would protect their territorial integrity, that
has not worked out too well for them.
Ambassador Dobriansky. That is correct. In fact,
interestingly enough, when Russia illegally annexed Crimea, and
then invaded Ukraine's eastern territory, I remember reading in
Japanese press about their concern about the credibility of
U.S. extended deterrence in Asia. This also has ramifications
for global nuclear proliferation given Moscow's abrogation of
those accords. It is not just about Ukraine.
Senator Menendez. Ambassador Bond, let me ask you a
question. Your testimony has a lot of golden nuggets in there
about things we can be doing and should be considering as we
help Ukraine achieve an economy that can grow. But as a
prerequisite to that or as a condition of success, how can they
ultimately--if they did every reform that we could envision,
can they really ultimately succeed when a part of the most
robust economic part of the country, which is the eastern part,
which the head of the IMF said was about 20 percent of their
GDP. If that ends up being gone, just for argument sake, how
successful can they be?
Ambassador Bond. I think there is no question----
Senator Menendez. If you can put your microphone----
Ambassador Bond. I think there is no question that they can
be very successful. That eastern part is the old industrial
base of the economy, so if----
Senator Menendez. So if it is----
Ambassador Bond. It is a rust belt.
Senator Menendez. Okay.
Ambassador Bond. Some have--some investors there, domestic
investors, have upgraded those industries, but their future is
in the knowledge economy. It is in agriculture. It is in energy
efficiency, information technology. They have the base in the
rest of Ukraine to succeed.
Senator Menendez. For all intents and purposes, not that
they want to, but you are suggesting they could lose that 20
percent and still be successful.
Ambassador Bond. Yes, I think the country could be
economically successful. Of course, no one wants to see them
lose the Donbass and the eastern parts of the country that are
now occupied. It creates--being occupied, not being under the
control of Ukraine means less tax revenue, less of a base to
support the conflict that they need to support, less money to
finance some reforms.
But an argument I tried to make was that deregulation and
liberalization may not actually be very costly. It is removing
regulation, it is removing sources of corruption. And you hear
it again and again from Ukraine business people when you talk
to them.
Senator Menendez. If I may, one very final question, Mr.
Chairman. So investment, investors.
Ambassador Bond. Right.
Senator Menendez. External investors. So they see what is
happening in Eastern Ukraine, and they say to themselves, I do
not know how far this is going to go. I do not know what it is
going to create as a ripple effect across the country. Does it
undermine the opportunity to bring investment, or is your view
that the reforms is what undermines investment?
Ambassador Bond. Reforms, systemic reforms are undermining
investment, particularly substantial strategic investors who
might be interested in some of those state-owned enterprises
that need to be privatized. There is a plant, the Odessa
Portside Plant, which is the largest fertilizer factory in
Europe. That is a state-owned enterprise which could be
privatized if it was done correctly, transparently. With due
diligence and the proper paperwork, it would attract strategic
European and American investors. And there are other examples
of that throughout the economy.
Senator Menendez. Thank you, Mr. Chairman.
The Chairman. Thank you. Ambassador Bond, I happen to agree
with the comments of the other Ambassador relative to our
support of them defensively and in other ways, intelligence
which we have been just incredibly remiss in not sharing. Do
you share those thoughts relative to, again, defensive lethal
weaponry? I know we are a little different stage of the
evolution right now.
Ambassador Bond. Right. As I said, that was not my lane in
the Embassy, but I personally believed that lethal defensive
weapons should be considered for Ukraine. We have seen the
Minsk agreement signed when the body counts of fallen Russian
soldiers has gone sharply up. I think it will create a
deterrent. It will create a cost, but Putin does not see it
right now.
The Chairman. As far as the details of the Minsk II
agreement relative to our sanctions relief for Russia, we put
sanctions in place because of what they had done in Eastern
Ukraine, and we also had sanctions relative to Crimea. Have you
gone through those and looked at those and feel there is a
balance, an appropriate balance there regarding the relief that
is being given to them by simply agreeing to an accord after
they have come in and destabilized the country the way they
have?
Ambassador Bond. Senator, I have not. That, again, was not
part of my brief when I was working at the Embassy. My small
part of following Minsk were the humanitarian aspects where
there is a working group that is supposed to be finding ways to
get humanitarian assistance into the conflict area for
civilians. It has not been very successful.
But, you know, we talk about the fight in the East and we
talk about the reform fight in Kiev against corruption and
everything else. There is a third struggle going on on the
humanitarian front where, as Ambassador Dobriansky said, they
have got $1.5 million displaced persons in the country, another
million fled outside as refugees, and millions of other people
who are trapped in this area of conflict and that we cannot get
humanitarian supplies in to support them, particularly with the
onset of a second winter for these people.
The Chairman. Ambassador Dobriansky, have you seen those--
have you examined the relief that is going to be given to
Russia for somewhat fully implementing Minsk?
Ambassador Dobriansky. No, I cannot say that I have studied
that in detail, but I will make two comments relative to the
Minsk accords. I would have liked to have seen the United
States at that table, quite frankly, as part of the discussions
taking place. I think our European allies, Germany and France,
are working very hard, but I think that the United States
should be engaged there as well. We have a stake in the future
of Europe. We are part of the transatlantic community.
Secondly, I would just say that hearing Ukrainian officials
speak about what is contained in the Minsk Accords, I think
there is significant concern about certain interpretations of
the text. Russian President Putin has stated very clearly his
aspiration to see federalism established in Ukraine whereas the
Ukrainians emphasize ``decentralization.''
So my concern is politically what will unfold, and Russia's
actual influence already on the ground in Eastern Ukraine. And
as Ambassador Bond pointed out, even just from the humanitarian
side, OSCE is not able to bring in assistance, no less to be
able to evaluate the political situation on the ground there.
The Chairman. What is your sense, and I know there is no
way for you to fully know, but what is your sense of the role
that Syria is playing relative to Russia's recent behavior in
Ukraine?
Ambassador Dobriansky. Well, I will start with this, and if
I may go back to the statement or question posed by Senator
Menendez about our different testimonies. Actually I think our
testimonies were very complementary in a way because Ambassador
Bond got into a lot of detail, which I agree with. I wanted to
explain to you why Ukraine matters, and why we must give
different kinds of aid to Ukraine.
With respect to Syria, Putin's vision and his long-term
goals and intentions, I think, have been very clearly stated
and had not changed. At the Munich Security Conference in 2007
he stated very clearly that he rejected the international legal
order, and would take steps to bring about a change.
In the case of Syria, I see what is happening as threefold:
first, to bolster Assad or a successor to Assad because they
have a stake in Syria's territory; secondly, to marginalize the
United States and our role in the region; and thirdly, to
divert attention from their aggression in Ukraine and to
undertake action which would force other countries, in
particular, Europe, to have to engage with them. And it puts
the negotiations and the discussions about in Ukraine in a very
different context as a result of Syria.
I see all of these issues as interrelated. And what really
does matter here and what has not changed, despite in these
last weeks a slow down in fighting or cessation of fighting in
Eastern Ukraine, is the fact that Putin's goals and objectives
have not changed.
The Chairman. What, from your standpoint, of the NATO
alliance--I know we had some--we had a leader of one of the
Baltic countries in here recently, and the over flies and
things that are taking place obviously are disconcerting. I
know that, you know, article 5 is being looked at because of
hybrid warfare, what does it mean for another country to be
attacked, what is the definition of that. How do we come to
their aid if it is over cyber, if it is something else?
I have been increasingly concerned about our friends in
Europe and their lack of commitment. I mean, let us face it,
again Germany--we have numbers of NATO bases and others in
Germany, and yet they do not come close to meeting their NATO
commitments financially. And, by the way, why should they? I
mean, they are so reinforced. How are the Eastern European
countries feeling about Western Europeans' commitment towards
that region and towards real pushback relative to Russia?
Ambassador Dobriansky. I think that there are several
factors that are on the table relative to NATO. The first is
that NATO is being challenged by Putin both in terms of in area
and also out of area. Secondly, I think you asked the question
how does the East feel about the West. President Duda, the new
President of Poland, made it very clear in his inaugural
speech, that one of the steps that he would when the NATO
summit will be held in Warsaw in 2016 is to advance the forward
permanent deployment of NATO troops. It will be part of the
Warsaw NATO summit agenda.
I am a proponent of that. I think that we have demonstrated
previously, to the Russians and to Gorbachev when Gorbachev
himself talked about Europe whole and free, that the nonforword
deployment was part of that overall arrangement. But at this
time, we are witnessing an aggression, and terms and
circumstances have changed. So, the East European countries are
acting on their stated goals. They want to see permanent,
forward deployment of NATO troops on Polish territory and in
the Baltic States.
Thirdly, with regard to NATO's budget, you raised a fair
point. It is something that has concerned the United States. We
would like to see greater burden-sharing. A number of the
countries, since the aggression in Ukraine, have enhanced their
budgets, but not all. And toward that end, it has to be a
shared responsibility. There cannot be complacency. There has
to be a transatlantic strategy as well here, which is lacking.
The Chairman. Well, listen, thank you both. Do you have any
further questions? I know we started late and you witnessed
something that is rare in this committee. But one of the
reasons we do not give some of the Deputy Secretaries and Under
Secretaries a difficult time, candidly, you know, many of us
are disappointed about what has, and has not, happened in
Ukraine. We feel like it has been half-hearted support.
It is difficult to give an Under Secretary a hard time when
you are not even sure--you know, the policies are emanating
from someone else, and I think in some cases it is somewhat
difficult for them to really testify in a strong manner about
what is happening. So that is what you may have witnessed with
the last witness.
We thank you for being here today and sharing your
insights. I know we will be following up. There will be
questions. Without objection, the record will remain open until
the close of business tomorrow, and if you would answer
expeditiously those questions, we would appreciate it.
Thank you both for your service to our country, for being
here today. And with that, the meeting is adjourned.
[Whereupon, at 12:04 p.m., the hearing was adjourned.]