New U.S. Aid for Central Asia, Russia

In the war against terrorism, the United States will become involved in economic development in Central Asia and in building closer economic ties with Russia, marking a new chapter for the world economy.

Russia’s quick support for U.S. policies and military needs in the wake of Sept. 11 has “defined” a new relationship between the two nations, Condoleezza Rice, national security advisor to President Bush, told a Washington meeting of the U.S.-Russia Business Council last week. The ready offers of cooperation and use of military bases by Uzbekistan and similar support from other Central Asian republics, notably Tajikistan, Kazakhstan, Kyrgyzstan and Turkmenistan, will result in a long-term program of U.S.-aided economic development.

Such a program began last week with a proposal by Sen. Joseph Biden (D-Del.), head of the Senate Foreign Relations Committee, for a “fund for the reconstruction and recovery of Central and Southwest Asia,” to which the U.S. would make a $1-billion contribution immediately.

Afghanistan will share in development once the campaign against that country’s Taliban rulers is over--as indicated by Bush’s promise last week of $320 million in aid for Afghan refugees.

The focus on Central Asia, an area of historic importance for both Russia and China and of great concern to both, marks a new and uncertain venture for U.S. economic policy and U.S. business.

And what promises to be deepening ties with Russia for the European Union, Japan and China, as well as the United States, could enlarge and redefine the global economy.

Russia’s economy has shrunk in the last decade, after the dissolution of the Soviet Union, from total economic output of more than $1 trillion a year to only $250 billion in 2000. Russia’s gross domestic product now is less than that of Mexico’s.

But it may have turned the corner, with sustained economic growth in the last three years. With new alliances--Russia will almost certainly join the World Trade Organization next year--the nation of 146 million people could progress swiftly.

In Central Asia, the aim of development will be to provide an alternative to backwardness and poverty, which have become breeding grounds for the resentments that beget terror and unrest.

“Central Asia is key to the development of China and Russia, and of Pakistan and India,” says Robert Legvold, Columbia University scholar of Russia and the Central Asian countries, which were ruled by Czarist and Soviet Russia from the mid-19th century until the early 1990s.

It is a region of vast potential, with higher education levels than is common in many developing economies, and with oil and gas reserves equal to those of the North Sea, experts say. Kazakhstan is the site of the Tengiz oil field, one of the world’s largest, which Chevron Corp. has developed over the last eight years.

Oil from Tengiz now is flowing through a new 1,000-mile pipeline to Novorossiysk, a port on the Black Sea. And more oil developments are in the works for Kazakhstan, which with Chevron’s help has set up a $1-billion social and economic development fund to spread some of the oil wealth among its 15 million people.

Uzbekistan, a country of almost 25 million people north of Afghanistan, is allowing U.S. forces to use its airfields in the current crisis. It is ambitious for the development of its natural gas and oil deposits and for industrial development.

Fiber-optic cables and modern telecommunications systems are being developed in the country, whose people are descendants of the armies of legendary rulers Genghis Khan and Tamerlane. An Uzbekistan company, Eurasia Technology Group of Tashkent, has set up Web site (www.esezam.com) to provide information about all the Central Asia countries, plus Russia, Armenia and Georgia, for potential investments.

Business in Central Asia will be no picnic. Uzbekistan has replaced Afghanistan as the chief source of heroin for Western European drug markets. And like all countries in the region, Uzbekistan has problems with fundamentalist groups that threaten its government’s ruling party.

The Central Asian countries are getting their economies in shape to receive investment from global markets, but they haven’t reached a point yet where business would invest on economic grounds alone, says a business expert in the region.

That means the U.S. government will add political encouragements to foster investment in the region, just as it did in various parts of the world during the Cold War.

Levels of world business investment, even in Russia, are very low today. Foreign investment in the Russian economy last year totaled only $2 billion, more than half of it from the United States. That compared with investment flows into China of $30 billion to $40 billion a year.

But Russia has great promise because of the scientific and technical skills of its people. U.S. and European pharmaceutical companies are working with Russian biologists and chemists through the support of the Civilian Research and Development Foundation, a U.S. government agency that finds work for scientists in the former Soviet Union.

And in the new environment of cooperation, “companies who do business with Russia can expect an improved political climate to facilitate routine business matters,” says Deborah Palmieri, director of the Russian-American Chamber of Commerce, a Denver-based organization that holds forums on industrial ventures for companies ranging from Lockheed Martin to Philip Morris.

Software development is becoming a Russian specialty. Philip Myers, head of Typhoon Software, a small entrepreneurial company based in Santa Barbara, employs 40 software programmers in St. Petersburg, Russia. “We do contract work for U.S. companies,” Myers says, but on a smaller scale than such giants as Intel Corp. and Sun Microsystems Inc., which employ 200 to 250 programmers each in Russia.

Russian programmers work for $500 to $1,000 a month, wages far below U.S. levels that nonetheless make the programmers an elite in Russia.

U.S. business with Russia, or with the former republics of the Soviet Union, never reached the levels envisioned a decade ago when reforms of the Soviet system began. At that time, Los Angeles lawyer Tim Bruinsma, of Fulbright & Jaworski’s local office, recalls introducing Mattel Inc. to Russia and orders for millions of Barbie dolls and Hot Wheels resulting instantly.

But as Russia’s economy ran into trouble and a political chill descended over U.S.-Russian affairs, such business dwindled.

Now political and economic ties are about to revive again--in an environment in which the world has changed.

Before Sept. 11, theories abounded that nation states were headed for the ash heap of history in an era of globalization. Global flows of capital, according to some theories, either would automatically take care of backwardness, ethnic tensions and economic underdevelopment--or such problems could be ignored by the successful parts of the world.

But the terrorist abomination not only reminded the U.S., in Sen. Biden’s words, that “we are not buffered from faraway events,” but that attention must be paid to poverty and backwardness in even the most remote countries.

The world economy has entered a new era.

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James Flanigan can be reached at jim.flanigan@latimes.com