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MORNINGSTAR DEFENDS AID INCREASE FOR NIS, BUT PANEL SKEPTICAL

(House subcommittee hearing April 9) (870)

Washington -- Three senior Clinton administration officials asked the
House Subcommittee on Foreign Operations to support an increase of
nearly $300 million in assistance to the New Independent States (NIS)
in fiscal year 1998, but Subcommittee Chairman Sonny Callahan
(Republican-Alabama) made it clear he would agree only to maintain the
current funding level of $625 million.

During an April 9 hearing, Callahan and other subcommittee members
also expressed concern about allegations of "rampant official
corruption" in Ukraine which appeared in a New York Times article that
same morning.

Such reports weaken U.S. public support for foreign aid programs in
general, Callahan said, adding that "it's a difficult political sell"
to tell his constituents back home that more money should be given to
a country where corruption is so widely alleged.

"If you want to resubmit your request and tell us how you want to
allocate it (the $625 million), go right ahead, but forget about the
$300 million increase," he told the witnesses -- Richard Morningstar,
special advisor to the president and the secretary of state on
assistance to NIS; Thomas Dine, assistant administrator of the U.S.
Agency for International Development (USAID); and Thomas Holmes,
coordinator for East European assistance at the State Department.

Morningstar, asked to comment on Ukraine, noted that $225 million is
requested for that country for FY 1998, the same as this year's level.

He said a major economic restructuring package proposed by President
Leonid Kuchma is stalled in the Rada (Ukrainian parliament), and this
has contributed to "a worsening environment for foreign investment,
evidenced by several well-publicized cases of U.S. companies facing
serious harassment and corruption" and some companies' decisions to
pull out of Ukraine.

"Our (assistance) numbers ... are based on the assumption that the
major reforms that have been proposed by President Kuchma will take
place, that the investment climate will improve, and steps will be
taken to clean up corruption," he said. "If steps are not taken, then
we will have to review the program and look at how much money should
go to Ukraine."

Dine, who heads USAID's Bureau of Europe and the New Independent
States, noted that in addition to $900 million for NIS, under the
FREEDOM Support Act, the president is requesting $492 million in SEED
(Support for East European Democracy) funding for Central Europe,
which "will enable us to continue the phaseout of activities in the
Northern Tier.

"The successful free enterprise democracies of Czech Republic, Estonia
and Slovenia have advanced to the point where they no longer require
country assistance, with Hungary, Poland, Latvia, Slovakia and
Lithuania right behind." The program for Estonia has already ended, he
said.

He added that "in the Southern Tier, Bulgaria, Albania, Romania, and
the Former Yugoslav Republic of Macedonia still need our assistance to
move farther along the road towards democracy and free enterprise
while Serbia, Croatia and Bosnia must additionally be helped toward
peace and reconciliation."

Dine stressed that "economic growth and democratic reform go hand in
hand -- those who came farthest are those who have had the most
democratic reform."

The main argument for increased assistance to the NIS, Morningstar
said, is that "the security of the United States and the rest of the
world is immeasurably enhanced if Russia, Ukraine, and the rest of the
NIS are stable democracies."

He said the $900 million for NIS is part of the Partnership for
Freedom initiative, which is "a strategic refocus of our approach to
assistance, focused on fostering economic growth and investment, and
no less important, on strengthening the myriad of new democratic
institutions, most of them non-governmental, that have emerged over
the past five years."

If totally funded, the Partnership for Freedom would double the number
of exchanges and partnerships, expand investment programs, and double
law enforcement and anti-crime programs, Morningstar said. It would
also provide more funding for democracy and economic restructuring
work in Central Asia, Georgia, and Azerbaijan, and would increase aid
to Russia from $95 million to $241 million.

Rep. Ron Packard (Republican-California) urged that assistance to
Ukraine and perhaps Russia be tied to progress in fighting corruption
and crime. At least half the aid, he said, should be contingent on
"major and demonstrable progress" in fighting corruption.

Morningstar responded that "we have to give some tough messages to
Ukraine with respect to the need for reforms to continue and for
corruption to be cleaned up. But I don't think we should have our
hands tied; we should be able to deal with these issues on a flexible
basis."

The purpose of Partnership for Freedom programs, he reminded the
subcommittee, is to "work at the community level ... so that there is
pressure within Russia, within Ukraine and the other countries, and
constituencies build up to advocate for change."

One Democrat on the subcommittee, Rep. Thomas Foglietta of
Pennsylvania, disagreed with Callahan and said there was "no better
investment we can make" than helping the former states of the Soviet
Union in their struggle to achieve democratic governments and free
market economies. He said he would "support wholeheartedly" a $300
million increase for that purpose.
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