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Washington File
07 February 2001

Text: CIA's Tenet on Worldwide Threat 2001

(Greatest threat to U.S. national security is terrorism) (8105)

The most serious and immediate threat facing U.S. national security is
from the Middle Eastern terrorist network of Usama bin Ladin, says CIA
Director George J. Tenet.

"The threat from terrorism is real, it is immediate, and it is
evolving," Tenet said February 7 in testimony before the U.S. Senate
Select Committee on Intelligence. "State-sponsored terrorism appears
to have declined over the past five years, but transnational groups --
with decentralized leadership that makes them harder to identify and
disrupt -- are emerging."

Tenet said that since 1998 bin Ladin has declared all U.S. citizens
legitimate targets of attack, which he has demonstrated by attacks on
U.S. embassies in Africa in 1998 and his Millennium plots last year.
Bin Ladin is currently wanted by the FBI in connection with the 1998
bombings at U.S. embassies in Kenya and Tanzania in which 224 people
were killed.

The director of the Central Intelligence Agency makes an annual public
presentation to the U.S. Congress on the most acute and serious
threats facing the United States.

Beyond bin Ladin, Tenet said that the terrorist threat to Israel and
to participants in the Middle East peace negotiations has risen as
violence has continued. "Palestinian rejectionists -- including HAMAS
and the Palestine Islamic Jihad (PIJ) -- have stepped up violent
attacks against Israeli interests since October," Tenet said.

Tenet also told the Senate Intelligence Committee that Islamic
militancy is expanding, and that the worldwide pool of potential
terrorist recruits is growing. "In central Asia, the Middle East, and
South Asia, Islamic terrorist organizations are trying to attract new
recruits, including under the banner of anti-Americanism," he said.

The CIA director also emphasized the importance of national security
threats from the proliferation of ballistic missile technology, U.S.
vulnerability to attacks on its critical information infrastructure,
the expansion of illegal drugs entering the United States, increasing
population pressures, and the limited prospects for economic
development in some regions of the world.

Tenet also warned the Senate of the increasing potential for security
instability from the fragmentation and failure of nations.
"Afghanistan obviously falls into this category," he said. "The Afghan
civil war will continue into the foreseeable future, leaving the
country fragmented and unstable." He also cited recent events in
Indonesia and the chronic turbulence and crises in Africa.

Following is the text of Tenet's remarks as prepared for delivery:

(begin text)

Remarks by Director of Central Intelligence George J. Tenet on the
"Worldwide Threat 2001: National Security in a Changing World" (as
prepared for delivery)
07 February 2001

As I reflect this year, Mr. Chairman, on the threats to American
security, what strikes me most forcefully is the accelerating pace of
change in so many arenas that affect our nation's interests. Numerous
examples come to mind: new communications technology that enables the
efforts of terrorists and narco-traffickers as surely as it aids law
enforcement and intelligence, rapid global population growth that will
create new strains in parts of the world least able to cope, the
weakening internal bonds in a number of states whose cohesion can no
longer be taken for granted, the breaking down of old barriers to
change in places like the Koreas and Iran, the accelerating growth in
missile capabilities in so many parts of the world-to name just a few.

Never in my experience, Mr. Chairman, has American intelligence had to
deal with such a dynamic set of concerns affecting such a broad range
of U.S. interests. Never have we had to deal with such a high quotient
of uncertainty. With so many things on our plate, it is important
always to establish priorities. For me, the highest priority must
invariably be on those things that threaten the lives of Americans or
the physical security of the United States. With that in mind, let me
turn first to the challenges posed by international terrorism.

TRANSNATIONAL ISSUES

We have made considerable progress on terrorism against U.S. interests
and facilities, Mr. Chairman, but it persists. The most dramatic and
recent evidence, of course, is the loss of 17 of our men and women on
the USS Cole at the hands of terrorists.

The threat from terrorism is real, it is immediate, and it is
evolving. State sponsored terrorism appears to have declined over the
past five years, but transnational groups-with decentralized
leadership that makes them harder to identify and disrupt-are
emerging. We are seeing fewer centrally controlled operations, and
more acts initiated and executed at lower levels.

Terrorists are also becoming more operationally adept and more
technically sophisticated in order to defeat counterterrorism
measures. For example, as we have increased security around government
and military facilities, terrorists are seeking out "softer" targets
that provide opportunities for mass casualties. Employing increasingly
advanced devices and using strategies such as simultaneous attacks,
the number of people killed or injured in international terrorist
attacks rose dramatically in the 1990s, despite a general decline in
the number of incidents. Approximately one-third of these incidents
involved U.S. interests.

Usama bin Ladin and his global network of lieutenants and associates
remain the most immediate and serious threat. Since 1998, Bin Ladin
has declared all U.S. citizens legitimate targets of attack. As shown
by the bombing of our Embassies in Africa in 1998 and his Millennium
plots last year, he is capable of planning multiple attacks with
little or no warning.

His organization is continuing to place emphasis on developing
surrogates to carry out attacks in an effort to avoid detection,
blame, and retaliation. As a result it is often difficult to attribute
terrorist incidents to his group, Al Qa'ida.

Beyond Bin Ladin, the terrorist threat to Israel and to participants
in the Middle East peace negotiations has increased in the midst of
continuing Palestinian-Israeli violence. Palestinian
rejectionists-including HAMAS and the Palestine Islamic Jihad
(PIJ)-have stepped up violent attacks against Israeli interests since
October. The terrorist threat to U.S. interests, because of our
friendship with Israel has also increased.

At the same time, Islamic militancy is expanding, and the worldwide
pool of potential recruits for terrorist networks is growing. In
central Asia, the Middle East, and South Asia, Islamic terrorist
organizations are trying to attract new recruits, including under the
banner of anti-Americanism.

International terrorist networks have used the explosion in
information technology to advance their capabilities. The same
technologies that allow individual consumers in the United States to
search out and buy books in Australia or India also enable terrorists
to raise money, spread their dogma, find recruits, and plan operations
far afield. Some groups are acquiring rudimentary cyberattack tools.
Terrorist groups are actively searching the internet to acquire
information and capabilities for chemical, biological, radiological,
and even nuclear attacks. Many of the 29 officially designated
terrorist organizations have an interest in unconventional weapons,
and Usama bin Ladin in 1998 even declared their acquisition a
"religious duty."

Nevertheless, we and our Allies have scored some important successes
against terrorist groups and their plans, which I would like to
discuss with you in closed session later today. Here, in an open
session, let me assure you that the Intelligence Community has
designed a robust counterterrorism program that has preempted,
disrupted, and defeated international terrorists and their activities.
In most instances, we have kept terrorists off-balance, forcing them
to worry about their own security and degrading their ability to plan
and conduct operations.

PROLIFERATION

I would like to turn now to proliferation. A variety of states and
groups continue to seek to acquire weapons of mass destruction and the
means to deliver them.

First, let me discuss the continuing and growing threat posed to us by
ICBMs.

We continue to face ballistic missile threats from a variety of actors
beyond Russia and China -- specifically, North Korea, probably Iran,
and possibly Iraq. In some cases, their programs are the result of
indigenous technological development, and in other cases, they are the
beneficiaries of direct foreign assistance. And while these emerging
programs involve far fewer missiles with less accuracy, yield,
survivability, and reliability than those we faced during the Cold
War, they still pose a threat to U.S. interests.

For example, more than two years ago North Korea tested a space launch
vehicle, the Taepo Dong-1, which it could theoretically convert into
an ICBM. This missile would be capable of delivering a small
biological or chemical weapon to the United States, although with
significant targeting inaccuracies. Moreover, North Korea has retained
the ability to test its follow-on Taepo Dong-2 missile, which could
deliver a nuclear-sized payload to the United States.

-- Iran has one of the largest and most capable ballistic missile
programs in the Middle East. Its public statements suggest that it
plans to develop longer-range rockets for use in a space-launch
program, but Tehran could follow the North Korean pattern and test an
ICBM capable of delivering a light payload to the United States in the
next few years.

-- And given the likelihood that Iraq continues its missile
development work, we think that it too could develop an ICBM
capability sometime in the next decade assuming it received foreign
assistance.

As worrying as the ICBM threat will be, Mr. Chairman, the threat to
U.S. interests and forces from short- and medium-range ballistic
missiles is here and now. The proliferation of MRBMs-driven largely
though not exclusively by North Korean No Dong sales-is altering
strategic balances in the Middle East and Asia. These missiles include
Iran's Shahab-3, Pakistan's Ghauri and the Indian Agni II.

Mr. Chairman, I cannot underestimate the catalytic role that foreign
assistance has played in advancing these missile and WMD programs,
shortening their development times and aiding production. The three
major suppliers of missile or WMD-related technologies continue to be
Russia, China, and North Korea. Again, many details of their
activities need to remain classified, but let me quickly summarize the
areas of our greatest concern.

Russian state-run defense and nuclear industries are still strapped
for funds, and Moscow looks to them to acquire badly needed foreign
exchange through exports. We remain concerned about the proliferation
implications of such sales in several areas.

-- Russian entities last year continued to supply a variety of
ballistic missile-related goods and technical know-how to countries
such as Iran, India, China, and Libya. Indeed, the transfer of
ballistic missile technology from Russia to Iran was substantial last
year, and in our judgment will continue to accelerate Iranian efforts
to develop new missiles and to become self-sufficient in production.

-- Russia also remained a key supplier for a variety of civilian
Iranian nuclear programs, which could be used to advance its weapons
programs as well.

-- Russian entities are a significant source of dual-use
biotechnology, chemicals, production technology, and equipment for
Iran. Russian biological and chemical expertise is sought by Iranians
and others seeking information and training on BW and CW-agent
production processes.

Chinese missile-related technical assistance to foreign countries also
has been significant over the years. Chinese help has enabled Pakistan
to move rapidly toward serial production of solid-propellant missiles.
In addition to Pakistan, firms in China provided missile-related
items, raw materials, or other help to several countries of
proliferation concern, including Iran, North Korea, and Libya.

Last November, the Chinese Foreign Ministry issued a statement that
committed China not to assist other countries in the development of
ballistic missiles that can be used to deliver nuclear weapons. Based
on what we know about China's past proliferation behavior, Mr.
Chairman, we are watching and analyzing carefully for any sign that
Chinese entities may be acting against that commitment. We are
worried, for example, that Pakistan's continued development of the
two-stage Shaheen-II MRBM will require additional Chinese assistance.

On the nuclear front, Chinese entities have provided extensive support
in the past to Pakistan's safeguarded and un-safeguarded nuclear
programs. In May 1996, Beijing pledged that it would not provide
assistance to un-safeguarded nuclear facilities in Pakistan; we cannot
yet be certain, however, that contacts have ended. With regard to
Iran, China confirmed that work associated with two nuclear projects
would continue until the projects were completed. Again, as with
Russian help, our concern is that Iran could use the expertise and
technology it gets-even if the cooperation appears civilian-for its
weapons program.

With regard to North Korea, our main concern is Pyongyang's continued
exports of ballistic missile-related equipment and missile components,
materials, and technical expertise. North Korean customers are
countries in the Middle East, South Asia, and North Africa. Pyongyang
attaches a high priority to the development and sale of ballistic
missiles, equipment, and related technology because these sales are a
major source of hard currency.

Mr. Chairman, the missile and WMD proliferation problem continues to
change in ways that make it harder to monitor and control, increasing
the risk of substantial surprise. Among these developments are greater
proficiency in the use of denial and deception and the growing
availability of dual-use technologies-not just for missiles, but for
chemical and biological agents as well. There is also great potential
of "secondary proliferation" from maturing state-sponsored programs
such as those in Pakistan, Iran, and India. Add to this group the
private companies, scientists, and engineers in Russia, China, and
India who may be increasing their involvement in these activities,
taking advantage of weak or unenforceable national export controls and
the growing availability of technologies. These trends have continued
and, in some cases, have accelerated over the past year.

INFORMATION OPERATIONS AND SPACE

Mr. Chairman, I want to reemphasize the concerns I raised last year
about our nation's vulnerability to attacks on our critical
information infrastructure. No country in the world rivals the U.S. in
its reliance, dependence, and dominance of information systems. The
great advantage we derive from this also presents us with unique
vulnerabilities.

-- Indeed, computer-based information operations could provide our
adversaries with an asymmetric response to U.S. military superiority
by giving them the potential to degrade or circumvent our advantage in
conventional military power.

-- Attacks on our military, economic, or telecommunications
infrastructure can be launched from anywhere in the world, and they
can be used to transport the problems of a distant conflict directly
to America's heartland.

-- Likewise, our adversaries well understand U.S. strategic dependence
on access to space. Operations to disrupt, degrade, or defeat U.S.
space assets will be attractive options for those seeking to counter
U.S. strategic military superiority. Moreover, we know that foreign
countries are interested in or experimenting with a variety of
technologies that could be used to develop counterspace capabilities.

Mr. Chairman, we are in a race with technology itself. We are creating
relations with the private sector and academia to help us keep pace
with ever-changing technology. Last year I established the Information
Operations Center within CIA to bring together our best and brightest
to ensure that we had a strategy for dealing with the cyber threat.

Along with partners in the Departments of Justice, Energy, and Defense
we will work diligently to protect critical U.S. information assets.
Let me also say that we must view our space systems and capabilities
as part of the same critical infrastructure that needs protection.

NARCOTICS

Mr. Chairman, drug traffickers are also making themselves more capable
and efficient. The growing diversification of trafficking
organizations-with smaller groups interacting with one another to
transfer cocaine from source to market-and the diversification of
routes and methods pose major challenges for our counter-drug
programs. Changing production patterns and the development of new
markets will make further headway against the drug trade difficult.

Colombia, Bolivia, and Peru continue to supply all of the cocaine
consumed worldwide including in the United States. Colombia is the
linchpin of the global cocaine industry as it is home to the largest
coca-growing, coca-processing, and trafficking operations in the
world. With regard to heroin, nearly all of the world's opium
production is concentrated in Afghanistan and Burma. Production in
Afghanistan has been exploding, accounting for 72 percent of illicit
global opium production in 2000.

The drug threat is increasingly intertwined with other threats. For
example, the Taliban regime in Afghanistan, which allows Bin Ladin and
other terrorists to operate on its territory, encourages and profits
from the drug trade. Some Islamic extremists view drug trafficking as
a weapon against the West and a source of revenue to fund their
operations.

No country has been more vulnerable to the ramifications of the drug
trade than Colombia. President Pastrana is using the additional
resources available to him under Plan Colombia to launch a major
anti-drug effort that features measures to curb expanding coca
cultivation. He is also cooperating with the U.S. on other important
bilateral counternarcotics initiatives, such as extradition.

A key impediment to President Pastrana's progress on drugs is the
challenge from Colombia's largest insurgent group-the Revolutionary
Armed Forces of Colombia or FARC-which earns millions of dollars from
taxation and other involvement in the drug trade. Founded more than 35
years ago as a ragtag movement committed to land reform, the FARC has
developed into a well-funded, capable fighting force known more for
its brutal tactics than its Marxist-Leninist-influenced political
program.

The FARC vehemently opposes Plan Colombia for obvious reasons. It has
gone so far as to threaten to walk away from the peace process with
Bogotá to protest the Plan. It appears prepared to oppose Plan
activities with force. The FARC could, for example, push back on
Pastrana by stepping up attacks against spray and interdiction
operations. U.S. involvement is also a key FARC worry. Indeed, in
early October FARC leaders declared that U.S. soldiers located in
combat areas are legitimate "military targets."

The country's other major insurgent group, the National Liberation
Army or ELN, is also contributing to mounting instability. Together
with the FARC, the ELN has stepped up its attacks on Colombia's
economic infrastructure. This has soured the country's investment
climate and complicated government efforts to promote economic
recovery, following a major recession in 1999. Moreover, the insurgent
violence has fueled the rapid growth of illegal paramilitary groups,
which are increasingly vying with the FARC and ELN for control over
drug-growing zones and other strategic areas of rural Colombia. Like
the FARC, the paramilitaries rely heavily on narcotics revenue and
have intensified their attacks against noncombatants in recent months.
Paramilitary massacres and insurgent kidnappings are likely to
increase this year, as both groups move to strengthen their financial
positions and expand their areas of influence.

As for Mexico, Mr. Chairman, President Fox is also trying to attack
the power of Mexican drug traffickers, whose activities had made
Mexico a transit point for cocaine shipments into the U.S. and a
source of heroin and methamphetamine for the U.S. drug market. He
faces great challenges in doing so and has simultaneously launched
high-profile initiatives to strengthen rule of law and reduce
government corruption, including among Mexican law enforcement
officials.

REGIONAL ISSUES

THE MIDDLE EAST

Mr. Chairman, I would like to turn now to the Middle East. We are all
aware of the violence between the Israelis and the Palestinians, and
the uncertainty it has cast on the prospects for a near-term peace
agreement. So let me take this time to look at the less obvious trends
in the region-such as population pressures, growing public access to
information, and the limited prospects for economic development-that
will have a profound effect on the future of the Middle East.

The recent popular demonstrations in several Arab countries-including
Egypt, Saudi Arabia, Oman, and Jordan-in support of the Palestinian
intifada demonstrate the changing nature of activism of the Arab
street. In many places in the Arab world, Mr. Chairman, average
citizens are becoming increasingly restive and getting louder. Recent
events show that the right catalyst-such as the outbreak of
Israeli-Palestinian violence-can move people to act. Through access to
the Internet and other means of communication, a restive public is
increasingly capable of taking action without any identifiable
leadership or organizational structure.

Mr. Chairman, balanced against an energized street is a new generation
of leaders, such as Bashar al Asad in Syria. These new leaders will
have their mettle tested both by populations demanding change and by
entrenched bureaucracies willing to fight hard to maintain the status
quo.

Compounding the challenge for these leaders are the persistent
economic problems throughout the region that prevent them from
providing adequately for the economic welfare of many of their
citizens. The region's legacy of statist economic policies and an
inadequate investment climate in most countries present big obstacles.
Over the past 25 years, Middle Eastern economies have averaged only
2.8 percent GDP growth-far less than Asia and only slightly more than
sub-Saharan Africa. The region has accounted for a steadily shrinking
share of world GDP, trade, and foreign direct investment since the
mid-1970s, and real wages and labor productivity today are about the
same as 30 years ago. As the region falls behind in competitive terms,
governments will find it hard over the next 5 to 10 years to maintain
levels of state sector employment and government services that have
been key elements of their strategy for domestic stability.

Adding to this is the challenge of demographics. Many of the countries
of the Middle East still have population growth rates among the
highest in the world, significantly exceeding 3 percent-compare that
with 0.85 percent in the United States and 0.2 percent in Japan. Job
markets will be severely challenged to create openings for the large
mass of young people entering the labor force each year.

-- One-fourth of Jordanians, for example, are unemployed, and annual
economic growth is well below the level needed to absorb some 60,000
new labor market entrants each year.

-- In Egypt the disproportionately young population adds 600,000 new
job applicants a year in a country where unemployment is already near
20 percent.

Mr. Chairman, the inability of traditional sources of income such as
oil, foreign aid, and worker remittances to fund an increasingly
costly system of subsidies, education, health care, and housing for
rapidly growing populations has motivated governments to implement
economic reforms. The question is whether these reforms will go far
enough for the long term. Reform thus far has been deliberately
gradual and slow, to avoid making harsh economic choices that could
lead to short term spikes in high unemployment.

Arab governments will soon face the dilemma of choosing between a path
of gradual reform that is unlikely to close the region's widening gap
with the rest of the world, and the path of comprehensive change that
risks fueling independent political activity. Choosing the former
risks building tension among a younger, poorer, and more politically
assertive population.

IRAQ

Mr. Chairman, in Iraq Saddam Hussein has grown more confident in his
ability to hold on to his power. He maintains a tight handle on
internal unrest, despite the erosion of his overall military
capabilities. Saddam's confidence has been buoyed by his success in
quieting the Shia insurgency in the south, which last year had reached
a level unprecedented since the domestic uprising in 1991. Through
brutal suppression, Saddam's multilayered security apparatus has
continued to enforce his authority and cultivate a domestic image of
invincibility.

High oil prices and Saddam's use of the oil-for-food program have
helped him manage domestic pressure. The program has helped meet the
basic food and medicine needs of the population. High oil prices
buttressed by substantial illicit oil revenues have helped Saddam
ensure the loyalty of the regime's security apparatus operating and
the few thousand politically important tribal and family groups loyal.

There are still constraints on Saddam's power. His economic
infrastructure is in long-term decline, and his ability to project
power outside Iraq's borders is severely limited, largely because of
the effectiveness and enforcement of the No-Fly Zones. His military is
roughly half the size it was during the Gulf War and remains under a
tight arms embargo. He has trouble efficiently moving forces and
supplies-a direct result of sanctions. These difficulties were
demonstrated most recently by his deployment of troops to western Iraq
last fall, which were hindered by a shortage of spare parts and
transport capability.

Despite these problems, we are likely to see greater
assertiveness-largely on the diplomatic front-over the next year.
Saddam already senses improved prospects for better relations with
other Arab states. One of his key goals is to sidestep the 10-year-old
economic sanctions regime by making violations a routine occurrence
for which he pays no penalty.

Saddam has had some success in ending Iraq's international isolation.
Since August, nearly 40 aircraft have flown to Baghdad without
obtaining UN approval, further widening fissures in the UN air
embargo. Moreover, several countries have begun to upgrade their
diplomatic relations with Iraq. The number of Iraqi diplomatic
missions abroad are approaching pre-Gulf War levels, and among the
states of the Gulf Cooperation Council, only Kuwait and Saudi Arabia
have not reestablished ties.

Our most serious concern with Saddam Hussein must be the likelihood
that he will seek a renewed WMD capability both for credibility and
because every other strong regime in the region either has it or is
pursuing it. For example, the Iraqis have rebuilt key portions of
their chemical production infrastructure for industrial and commercial
use. The plants he is rebuilding were used to make chemical weapons
precursors before the Gulf War and their capacity exceeds Iraq's needs
to satisfy its civilian requirements.

-- We have similar concerns about other dual-use research,
development, and production in the biological weapons and ballistic
missile fields; indeed, Saddam has rebuilt several critical missile
production complexes.

IRAN

Turning now to Iraq's neighbor: events of the past year have been
discouraging for positive change in Iran. Several years of reformist
gains in national elections and a strong populist current for
political change all threaten the political and economic privileges
that authoritarian interests have enjoyed for years under the Islamic
Republic-and they have begun to push back hard against the reformers.

Prospects for near-term political reform are now fading. Opponents of
reform have not only muzzled the open press, they have also arrested
prominent activists and blunted the legislature's powers. Over the
Summer, Supreme Leader Khamenei ordered the new legislature not to
ease press restrictions, a key reformist pursuit. This signaled the
narrow borders within which he would allow the legislature to operate.

The reformist movement is still young, however, and it reflects on the
deep sentiments of the Iranian people. Although frustrated and in part
muzzled, the reformers have persisted in their demands for change. And
the Iranian people will have another opportunity to demonstrate their
support for reform in the presidential election scheduled for June.
Although Khatami has not announced his candidacy, and has voiced
frustration with the limitations placed on his office, opinion polls
published in Iran show him to remain by far the most popular potential
candidate for president.

The short-term gains made by shutting down the pro-reform press and
prosecuting some of its most outspoken members is not a formula for
long-term success. A strategy of suppressing the demands of the new
generation coming of age risks a political explosion down the road.
Some advocates of the status quo are beginning to recognize this
danger as more conservatives -- to include Khamenei -- have endorsed
the principle, if not the substance, of reform.

Despite Iran's uncertain domestic prospects, Mr. Chairman, it is clear
that Khatami's appeal and promise of reform thus far, as well as the
changing world economy, have contributed to a run of successes for
Iran in the foreign arena over the past year. Some Western ambassadors
have returned to Tehran, and Iranian relations with EU countries and
Saudi Arabia are at their highest point since the revolution in 1979.
Higher oil prices, meanwhile, have temporarily eased the government's
need to address difficult and politically controversial economic
problems. They have also taken more of the sting out of U.S.
sanctions. Iran's desire to end its isolation has not resulted in a
decline in its willingness to use terrorism to pursue strategic
foreign policy agendas-Tehran, in fact, has increased its support to
terrorist groups opposed to the peace process over the past two years.

NORTH KOREA

I would like to shift gears to North Korea. Pyongyang's bold
diplomatic outreach to the international community and engagement with
South Korea reflect a significant change in strategy. This strategy is
designed to assure the continued survival of Kim Chong-il's regime by
ending Pyongyang's political isolation and fixing the North's failing
economy by attracting more aid. We do not know how far Kim will go in
opening the North, but I can report to you that we have not yet seen a
significant diminution of the threat from the North to American and
South Korean interests.

Pyongyang still believes that a strong military, capable of projecting
power in the region, is an essential element of national power.
Pyongyang's declared "military first" policy requires massive
investment in the armed forces, even at the expense of other national
objectives. North Korea maintains the world's fifth largest armed
forces consisting of over one million active-duty personnel, with
another five million reserves. While Allied forces still have the
qualitative edge, the North Korean military appears for now to have
halted its near-decade-long slide in military capabilities. In
addition to the North's longer-range missile threat to us, Pyongyang
is also expanding its short and medium range missile inventory,
putting our Allies at greater risk.

On the economic front, there are few signs of real systemic domestic
reform. Kim has recently shown interest in practical measures to
redress economic problems, most notably with his trip to Shanghai. To
date, however, Kim has only tinkered with the economic system.

External assistance is essential to the recovery of North Korea's
domestic economy. Only massive food aid deliveries since 1997 have
enabled the country to escape a recurrence of the famine from the
middle of the last decade. Industrial operations remain low. The
economy is hampered by an industrial base that is falling to pieces,
as well as shortages of materials and a lack of new investment.
Chronic energy shortages pose the most significant challenge.

Aid and investment from the South bring with them increased foreign
influences and outside information that will contradict propaganda
from the regime. Economic engagement also can spawn expectations for
improvement that will outrace the rebuilding process. The risk for Kim
is that if he overestimates his control of the security services and
loses elite support, or if societal stresses reach a critical point,
his regime and personal grip on power could be weakened. As with other
authoritarian regimes, sudden, radical change remains a real
possibility in North Korea.

CHINA

Mr. Chairman, let me now turn to China, whose drive for recognition as
a Great Power is one of the toughest challenges we face. Beijing's
goal of becoming a key world player and especially more powerful in
East Asia has come sharply into focus. It is pursuing these goals
through an ambitious economic reform agenda, military modernization,
and a complex web of initiatives aimed at expanding China's
international influence-especially relative to the United States.

Chinese leaders view solid relations with Washington as vital to
achieving their ambitions. It is a two-edged sword for them, Mr.
Chairman. China's development remains heavily reliant on access to
Western markets and technology. But they also view Washington as their
primary obstacle because they perceive the U.S. as bent on keeping
China from becoming a great power.

Perhaps the toughest issue between Beijing and Washington remains
Taiwan. While Beijing has stopped its saber rattling-reducing the
immediate tensions-the unprecedented developments on Taiwan have
complicated cross-strait relations. The election last March of
President Chen ushered in a divided government with highly polarized
views on relations with Beijing. Profound mutual distrust makes it
difficult to restart the on-again off-again bilateral political
dialogue. In the longer term, Mr. Chairman, cross-strait relations can
be even more volatile because of Beijing's military modernization
program. China's military buildup is also aimed at deterring U.S.
intervention in support of Taiwan.

Russian arms are a key component of this buildup. Arms sales are only
one element of a burgeoning Sino-Russian relationship. Moscow and
Beijing plan to sign a "friendship treaty" later this year,
highlighting common interests and willingness to cooperate
diplomatically against U.S. policies that they see as unfriendly to
their interests-especially NMD.

On China's domestic scene, the Chinese Communist leadership wants to
protect its legitimacy and authority against any and all domestic
challenges. Over the next few years, however, Chinese leaders will
have to manage a difficult balancing act between the requirements of
reform and the requirements of staying in power.

China's leaders regard their ability to sustain economic prosperity as
the key to remaining in power; for that reason, they are eager to join
the WTO. Beijing views WTO accession as a lever to accelerate domestic
economic reform, a catalyst for greater foreign investment, and a way
to force Chinese state-owned enterprises to compete more effectively
with foreign companies.

But Beijing may slow the pace of WTO-related reforms if the leadership
perceives a rise in social unrest that could threaten regime
stability. Chinese leaders already see disturbing trends in this
regard. Their crackdown on Falun Gong, underground Christians, and
other spiritual and religious groups reflects growing alarm about
challenges to the Party's legitimacy.

All of these challenges will test the unity of the leadership in
Beijing during a critical period in the succession process. The 16th
Communist Party Congress next year will be an extremely important
event, as it will portend a large-scale transfer of authority to the
next generation of Communist Chinese leaders. The political jockeying
has already begun, and Chinese leaders will view every domestic and
foreign policy decision they face through the prism of the succession
contest.

RUSSIA

Mr. Chairman, yet another state driving for recognition as a Great
Power is Russia. Let me be perfectly candid. There can be little doubt
that President Putin wants to restore some aspects of the Soviet
past-status as a great power, strong central authority, and a stable
and predictable society-sometimes at the expense of neighboring states
or the civil rights of individual Russians. For example,

-- Putin has begun to reconstitute the upper house of the parliament,
with an eye to depriving regional governors of their ex officio
membership by 2002. He also created a system of seven "super
districts" where Presidential "plenipotentiaries" now oversee the
governors within their districts.

-- He has moved forcefully against Russian independent media including
one of Russia's most prominent oligarchs, Vladimir Gusinskiy, pressing
him to give up his independent television station and thereby minimize
critical media.

Moscow also may be resurrecting the Soviet-era zero-sum approach to
foreign policy. As I noted earlier, Moscow continues to value arms and
technology sales as a major source of funds. It increasingly is using
them as a tool to improve ties to its regional partners China, India,
and Iran. Moscow also sees these relationships as a way to limit U.S.
influence globally. At the same time Putin is making efforts to check
U.S. influence in the other former Soviet states and reestablish
Russia as the premier power in the region. He has increased pressure
on his neighbors to pay their energy debts, is dragging his feet on
treaty-mandated withdrawals of forces from Moldova, and is using a
range of pressure tactics against Georgia.

Putin has also increased funding for the military, although years of
increases would be needed to deal with the backlog of problems that
built up in the armed forces under Yeltsin. The war in Chechnya is
eroding morale and thus the effectiveness of the military. Despite its
overwhelming force, Moscow is in a military stalemate with the rebels,
facing constant guerrilla attacks. An end does not appear close. There
are thousands of Russian casualties in Chechnya, and Russian forces
have been cited for their brutality to the civilian population.
Increasingly, the Russian public disapproves of the war. Because Putin
rode into office on a wave of popular support, resolution of the
conflict is an issue of personal prestige for him. Recently, Putin
transferred command in Chechnya to the Federal Security Service,
demonstrating his affinity for the intelligence services from which he
came.

Despite Putin's Soviet nostalgia, he knows Russia must embrace markets
and integrate into the global economy and that he needs foreigners to
invest. Plus, public expectations are rising. Putin is avoiding hard
policy decisions because Russia enjoyed an economic upturn last year,
buoyed by high oil prices and a cheap ruble. But Putin cannot count on
these trends to last permanently. He must take on several key
challenges if Russia is to sustain economic growth and political
stability over the longer term.

-- Without debt restructuring, for example, he will face harsh choices
through 2003. Russia will owe nearly $48 billion spread over the next
three years.

-- Domestic and foreign investment is crucial to sustained growth.
Moscow recently announced that capital flight last year increased to
$25 billion. Putin will need to demonstrate his seriousness about
reducing corruption and pushing ahead with corporate tax reform and
measures to protect investor's rights.

CENTRAL ASIA

Mr. Chairman, the Caucasus and Central Asia are parts of the world
that have the potential to become more volatile as they become more
important to the United States. The strategic location of the Caucasus
and Central Asia-squeezed between Russia, Turkey, Iran, Afghanistan,
and China-make the stability of these countries critical to the future
of Eurasia. Here corruption, poverty, and other social ills are
providing fertile ground for Islamic extremism, terrorist networking,
and drug and weapons trafficking that will have impact in Russia,
Europe, and beyond. Central Asian leaders, seeking to fend off threats
to their security from terrorists and drug traffickers, are looking
increasingly to the West for support.

-- We are becoming increasingly concerned about the activities of the
Islamic Movement of Uzbekistan, an extremist insurgent and terrorist
group whose annual incursions into Uzbekistan have become bloodier and
more significant every year.

In addition, U.S. companies have a significant stake in Caspian energy
development. As you know, the United States supports the construction
of pipelines that will bring the Caspian's energy resources to Western
markets. One oil pipeline is expected to pass through both Georgia and
Azerbaijan. Western companies are pursuing the construction of a gas
pipeline under the Caspian Sea from Turkmenistan through Azerbaijan
and Georgia en route to Turkey. Although many of the leaders in the
region through which the pipelines will flow view the United States as
a friend, regime stability there remains fragile.

The Balkans

Mr. Chairman, let me now turn to another important region: the
Balkans. It is an open question when Balkan states will be able to
stand on their own. The Balkans continue to be fraught with turmoil,
and the coming year promises more challenges.

Milosevic's departure was a victory for the Serbian people and the
United States. America was a strong force in helping to depose this
indicted war criminal who was a major obstacle to progress.
Milosevic's fall through election and popular rebellion gives Serbia
and what is left of Yugoslavia a chance to remake its politics and to
begin to recover. It also means that Serbia can be reintegrated into
Europe.

Milosevic's successors will have a hard time cleaning up the mess he
left. Milosevic, his family, and cronies stole much of what had value,
ran down industries, and wasted whatever resources were left. From the
ashes, newly elected President Vojislav Kostunica is trying to create
a legal, transparent, and effective government. Meanwhile, the Serbian
economy has contracted 50 percent since 1990.

Mr. Chairman, Kostunica will also face problems holding his country
together. Montenegro's drive for independence presents a simmering
crisis. Montenegrin President Djukanovic remains committed to
negotiating a new, decentralized relationship with Belgrade. Events in
the rest of Yugoslavia will have impact on Kosovo as well. Ethnic
Albanians from across the political spectrum in Kosovo still insist on
independence.

There are signs that Kosovo's troubles are spilling over into southern
Serbia where both ethnic Albanians and Serbs live in close proximity.
Most ethnic Albanians in this region seek only greater civil rights
within Serbia, but militants are fighting to join the region to an
independent Kosovo. This is a dangerous flashpoint, Mr. Chairman, with
the potential for escalation. In short, Mr. Chairman, we are still not
at the point where we look confidently ahead to a Balkans without
violence.

With regard to Bosnia, none of the three formerly warring factions --
Muslims, Serbs, or Croats -- wants to begin fighting again. Refugee
returns continued at a brisk pace last year as in 1999, the most
encouraging development since the end of the war. Disarmament of the
warring factions has been generally successful, and positive
developments in Croatia and Serbia have removed some sources of
earlier nationalist sentiment. But there has been little progress in
achieving a common vision of a unified, multiethnic Bosnia capable of
standing on its own.

SOUTH ASIA

At this point, Mr. Chairman, let me draw your attention to the
potentially destabilizing competition in South Asia. I must report
that relations between India and Pakistan remain volatile, making the
risk of war between the two nuclear-armed adversaries unacceptably
high. The military balance in which India enjoys advantages over
Pakistan in most areas of conventional defense preparedness remains
the same. This includes a decisive advantage in fighter aircraft,
almost twice as many men under arms, and a much larger economy to
support defense expenditures. As a result, Pakistan relies heavily on
its nuclear weapons for deterrence. Their deep-seated rivalry,
frequent artillery exchanges in Kashmir, and short flight times for
nuclear-capable ballistic missiles and aircraft all contribute to an
unstable nuclear deterrence.

If any issue has the potential to bring both sides to full-scale war,
it is Kashmir. Kashmir is at the center of the dispute between the two
countries. Nuclear deterrence and the likelihood that a conventional
war would bog down both sides argue against a decision to go to war.
But both sides seem quite willing to take risks over Kashmir in
particular, and this-along with their deep animosity and
distrust-could lead to decisions that escalate tensions.

The two states narrowly averted a full-scale war in Kashmir in 1999.
The conflict that did occur undermined a fledgling peace process begun
by the two prime ministers. Now, for the first time since then, the
two sides are finally taking tentative steps to reduce tension. Recent
statements by Indian and Pakistani leaders have left the door open for
high-level talks. And just last week [2 Feb 2001], Vajpayee and
Musharraf conversed by phone perhaps for the first time ever, to
discuss the earthquake disaster.

The process is fragile, however. Neither side has yet agreed to
direct, unconditional talks. Tension can easily flare once winter ends
or by New Delhi or Islamabad maneuvering for an edge in the
negotiations. Leadership changes in either country also could add to
tensions.

Kashmiri separatist groups opposed to peace could also stoke problems.
India has been trying to engage selected militants and separatists,
but militant groups have kept up their attacks through India's most
recent cease-fire. In addition, the Kashmir state government's
decision to conduct local elections-the first in more than 20
years-will provoke violence from militants who see the move as
designed to cement the status quo.

Pakistan's internal problems-especially the economy-complicate the
situation and further threaten what maneuvering room Musharraf may
have. Musharraf's domestic popularity has been threatened by a series
of unpopular policies that he promulgated last year. At the same time,
he is being forced to contend with increasingly active Islamic
extremists.

Mr. Chairman, a word on proliferation. Last year I told you I worried
about the proliferation and development of missiles and weapons of
mass destruction in South Asia. The competition, predictably, extends
here as well and there is no sign that the situation has improved. We
still believe there is a good prospect of another round of nuclear
tests. On the missile front, India decided to test another Agni MRBM
last month, reflecting its determination to improve its nuclear
weapons delivery capability. Pakistan may respond in kind.

FRAGMENTATION AND FAILURE

The final point that I would like to discuss today is the growing in
potential for state fragmentation and failure that we have observed
this past year.

Mr. Chairman, Afghanistan obviously falls into this category. The
Afghan civil war will continue into the foreseeable future, leaving
the country fragmented and unstable. The Taliban remains determined to
impose its radical form of Islam on all of Afghanistan, even in the
face of resistance from other ethnic groups and the Shia minority.

Mr. Chairman, what we have in Afghanistan is a stark example of the
potential dangers of allowing states-even those far from the U.S.-to
fail. The chaos here is providing an incubator for narcotics
traffickers and militant Islamic groups operating in such places as
Kashmir, Chechnya, and Central Asia. Meanwhile the Taliban shows no
sign of relinquishing terrorist Usama Bin Ladin, despite strengthened
UN sanctions and prospects that Bin Ladin's terrorist operations could
lead to retaliatory strikes against Afghanistan. The Taliban and Bin
Ladin have a symbiotic relationship-Bin Ladin gets safe haven and in
return, he gives the Taliban help in fighting its civil war.

Mr. Chairman, events of the last few years in Indonesia paint a vivid
picture of a state struggling to regain stability. Last year I
described the difficult political transition that Indonesian President
Wahid was trying to manage. He has managed to stay one step ahead of
his opponents, mostly because they are unable to work together. He has
survived several confrontations with the legislature, but efforts to
impeach him on corruption charges will continue.

Separatist violence is rampant in Aceh and rising in two other key
provinces. Muslim-Christian violence continues, and resulted in
several thousand deaths last year. The country's security forces are
poorly equipped, and either back away from challenges or respond too
forcefully.

Mr. Chairman, Indonesia's problems are worrying neighboring countries
that have long considered it as the pillar of regional stability. Some
Southeast Asian leaders fear a power vacuum in Indonesia would create
fertile ground for international terrorist groups and Islamic
activists, drug trafficking, and organized crime.

My final case study, Mr. Chairman, is Africa, a land of chronic
turbulence and crises that are among the most brutal and intractable
in the world. Left behind by globalization and plagued by ethnic
conflicts, several African states appear to be the first of the wave
of failed nations predicted by the Global Trends 2015 Report.

We are especially concerned because hotspots often set off chain
reactions across the region. The brutal civil war in Sierra Leone, for
example, started as an offshoot of fighting in Liberia and has now
spread into Guinea. These waves of violent instability bring even
worse woes in their wake, including the ethnically-based killings that
are now routine in the wars in Sudan, Congo (Kinshasa), and Burundi.
Coping with this unrest depletes the scant resources available to the
region's governments for fighting HIV/AIDS and other epidemics.

One immediate challenge in Africa, Mr. Chairman, is the protection of
U.S. diplomats, military personnel, citizens, and other interests in
the region. Violent unrest has necessitated a half-dozen evacuations
of Embassy employees, other citizens, and Allied nationals in recent
years.

CONCLUSION

Mr. Chairman, I have spoken at some length about the threats we face
to our national security. It is inevitable given our position as the
world's sole superpower that we would attract the opposition of those
who do not share our vision or our goals, and those who feel
intimidated by our strength. Many of the threats I've outlined are
familiar to you. Many of the trends I've described are not new. The
complexity, intricacy, and confluence of these threats, however, is
necessitating a fundamental change in the way we, in the Intelligence
Community, do our business. To keep pace with these challenges:

-- We must aggressively challenge our analytic assumptions, avoid
old-think, and embrace alternate analysis and viewpoints.

-- We must constantly push the envelope on collection beyond the
traditional to exploit new systems and operational opportunities to
gain the intelligence needed by our senior policymakers.

-- And we must continue to stay ahead on the technology and
information fronts by seeking new partnerships with private industry
as demonstrated by our IN-Q-TEL initiative.

Our goal is simple. It is to ensure that our nation has the
intelligence it needs to anticipate and counter threats I have
discussed here today.

Thank you Mr. Chairman.

(end text)

(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)