12:35 P.M. (L)

There were four main topics for this morning's discussion. The first was further discussions on the world economy, with particular focus on Russia; then trade, development, and nuclear safety.

The discussion on Russia and Russian economy was largely a presentation by Prime Minister Stepashin who talked about steps that the government has taken in the evolution of the Russian economy, particularly since the economic crisis last August. I think the main message from the Prime Minister was that while there had been serious impacts on the economy since last August, what was really quite remarkable was the resilience both in the economic sphere and the political sphere of Russia -- that he talked about the kinds of doom-saying predictions that we had seen last fall about dramatic social upheaval, even potential political crises as a result of the economic crisis, but in fact, the Russian political system had proved resilient. Even the most recent change of government which led to Prime Minister Stepashin taking office happened very smoothly.

On the economic front, the beginning of the stabilization on the economic side; the fears of high or even hyperinflation not realized. And he stressed his commitment and his government's commitment to meet the terms of the IMF, to take the steps -- he talked about the efforts they were making with the DUMA to pass the necessary legislation to meet the prior action's requirements of the IMF agreement, and their hope that in July that they would be able to go forward with the IMF.

Prime Minister Stepashin put a particular emphasis on their desire to become integrated into the international economic organizations, in particular the WTO and the OECD. And his efforts received strong support from all of his colleagues in the G-8, who stressed the importance of the G-8 as a forum for Russia to cooperate with its partners.

On trade, the focus was on the upcoming WTO ministerial and the launch of a new round. There was a very strong sense that the efforts of the G-8 countries to avoid protectionism during the most recent economic crisis was important, and that that momentum needed to be sustained. On the WTO ministerial, there was a strong sense, particularly emphasized by President Clinton, of the need for a broad-based approach, but one that allows for early effective results, many of the leaders stressing the need for an ambitious effort to sustain support for open trade.

There was considerable discussion about how to integrate labor and environment into the trading system. The President -- you've heard a number of occasions recently, including at his ILO speech, talk about the importance of sustaining public support for open trade. And the leaders expressed a variety of views about that best could be done to reconcile those interests.

There was also considerable discussion about making sure that developing countries could participate in the international trading system. The President discussed how -- while we had made important steps yesterday on debt relief for the developing countries, that in the long run, allowing them access to our markets, giving them an opportunity to trade with us was the best hope for raising living standards in those countries, and talked about the efforts that we're making both in the United States and our hopes for the new round to help involve developing countries.

And, finally, a number of the leaders discussed their interest and hope that there would be an early resolution of China's and Russia's accession to the WTO.

On development, they reviewed the steps that they had taken yesterday on debt relief and the continued role of development assistance as a part of the overall strategy, as well as trade. Both President Clinton and President Chirac emphasized the need to sustain our involvement with Africa and the initiatives that had been launched both in -- and Denver.

The leaders agreed that in order to make sure that there's a sustained focus on developing countries, that they would ask the international financial institutions -- the IMF, the World Bank and the regional development banks -- to prepare an annual report to the leaders on the efforts to alleviate poverty in developing countries, to provide these reports to the leaders, themselves, so there could be import from the developing countries into their discussions, and to plan for regular discussions at their summits on our progress in dealing with these issues.

Finally, there was a brief discussion on nuclear safety and the importance particularly with respect to some of the Russian reactors, to meet their obligations with respect to their nuclear safety accounts.

This afternoon at lunch, the lunch discussion will have as its primary focus on education. The leaders are considering a charter on education that would enshrine common approach and some principles to govern the role of education and life-long learning in the information society. I think it is possible that they will issue that charter later today, and for those of you who follow the President's education program, I think you will see a number of themes that are very familiar there, including the importance of standards and support for teacher and teacher training.

They will also talk about this human face of globalization, how to sustain support for the global system. And they will talk about strategies for employment, particularly how the models that we have adopted both in the United States and the U.K. focus on increased flexibility labor markets can help sustain high levels of employment.

Then the afternoon session will begin with what is recalled a retreat, but is actually sort of an opportunity for the leaders to have informal discussions with each other. During this period the President will be talking first with Prime Minister Stepashin, followed by the Italian Prime Minister D'Alema, and then, time permitting, with Prime Minister Chretien.

There are sort of spaces that have been set aside within the galleries for these conversations. There's actually a magnificent collection of 20th century American paintings in the room that has been set aside for the President, so it's a great environment for these discussions.

And then in the formal afternoon session they will be talking about an initiative that President Clinton has pushed with his colleagues to increase support for what we call "enhanced threat reduction" in Russia -- that is support for things like plutonium disposition, dismantling of nuclear weapons, decommissioning of nuclear submarines and employing Russia's nuclear and arms scientists in civilian activities. A number of the other countries are going to be working with us on this, including the Japanese who, yesterday, announced an initial $200 million.

As some of you know, the United States has proposed a five-year, $4.2-billion program in this area, which is now before Congress. They'll discuss nonproliferation, the environment, the millennium bug and health issues this afternoon. They may also touch on some of the other regional political issues, though that may be deferred until tomorrow.

Q What happened to the political statement last night that you had said that they would probably make, and what kind of commitments do you expect -- financial commitments do you expect this summit to produce in terms of reconstruction aid for Kosovo and the other countries of Southeastern Europe?

SENIOR ADMINISTRATION OFFICIAL: At dinner last night, they decided in light of the fact that they had an agreement with Russia on Russian participation in KFOR that they would let that stand as the principal statement for the evening on Kosovo. But I expect as part of the final communique tomorrow that they will address both Kosovo reconstruction and the broader stability pact for Southeastern Europe.

I think the approach that we're taking -- and I think you will see reflected in the communique -- is a two-stage approach which is the goal of having a very early donor's conference in July -- probably within the next two to three weeks -- to deal with the immediate, primarily humanitarian needs that have to be addressed in the very short-term.

As some of you know, we have, as part of the supplemental, got significant emergency assistance which can go for shelter, for food and medicine and the like. And we will then begin a very intensive period of needs assessment leading to a second conference in the fall which will look at the long-term needs for reconstruction. Rather than sort of try to kind of guess at numbers which have been thrown out now, all of which are really just sort of seat-of-the-pants estimates, the idea is to have a systematic needs assessment in these two stages.

We have now what we call dart teams from USAID, which are beginning to go into Kosovo to assess the immediate humanitarian needs, so that for this first conference we'll have some sense of the scope of what's required. Then during this period following the first donor's conference and leading up to the fall, a more intensive effort involving the World Bank, the EU and others to do the kinds of a needs assessment that would make for a meaningful pledging conference in the fall, rather than trying to guess at the numbers at this stage.

Q To follow up on that, did Prime Minister Stepashin raise objections about the aid and say that Serbia should get development and reconstruction aid, as well?

SENIOR ADMINISTRATION OFFICIAL: I believe there was a brief discussion of that at the dinner last night, but since none of us were there, I can't give any details. But I think that you heard President Clinton speak on this, President Chirac when we were in Paris, and I think there is a very, very strong feeling among most of the countries that while we're prepared to provide humanitarian assistance directly to the Serbian people, that reconstruction aid, economic development will require real political change in Serbia.

And I believe that that's a sentiment that's broadly understood, that the stability pact that Europeans adopted during their Cologne summit was very clear on that issue as well, that until Serbia embraces the principles embodied in that pact, that it would not be eligible for economic reconstruction.

Q Was there discussion last night or on the fringe of other discussions about questions whether there can be stability in the region as long as Milosevic remains in power and what to do about that fact?

SENIOR ADMINISTRATION OFFICIAL: I'm not aware that there was any specific discussion about Milosevic remaining in power, but there certainly was a discussion about the importance of democratization and opening up Serbian society as part of the long-term strategy of integrating Serbia as a country that respects these rules and principles that are in the stability pact.

Q And how to bring that about in terms of changing Milosevic -- getting rid of Milosevic and changing the political situation?

SENIOR ADMINISTRATION OFFICIAL: Again, I'm not aware of the specific discussion, but because the discussion at dinner was private last night, I don't have all the details.

Q In the meetings or on the margins, is there a discussion of who should be the head of the civilian authority, and will there be a G-8 candidate or is there a U.S. candidate, and is there contact with Annan on this, or not?

SENIOR ADMINISTRATION OFFICIAL: There has been considerable discussion about the kinds of qualifications that they would like to see in a leader. There's been a sense of a need for a very strong leader who has both management skills, communication skills, the ability to deal with more difficult political challenges. So far as I know, there have not been discussions of specific individuals, but there has also been a discussion about the need to engage with the Secretary General directly, and I think that there probably would be further discussion on that as the day and evening passes.

Q Is it the U.S. view that it's fair to say it will not be a Brit because of Jackson running the military side?

SENIOR ADMINISTRATION OFFICIAL: The President has said -- he's discussed this in a number of the bilaterals over the last two days, and our view is that we should not focus on the nationality of the individual. We think it should be somebody who is most qualified. Even if it's a British candidate, notwithstanding the fact that it's Jackson, that this is such an important position, and the success of the effort depends so critically on having the right kind of leadership -- not only in the top position, but there are going to be probably four key deputy positions having to deal with civilian implementation, developing institutions, reconstruction and humanitarian assistance -- that we need a very strong management team; that we ought to put aside sort of the political considerations.

The President has said while he thinks that an American should not be ruled out, we're not seeking an American on the basis of nationality, but really to get a very strong, capable person who can deal with the challenges.

Q Should it be someone who has hands-on political experience?

SENIOR ADMINISTRATION OFFICIAL: Again, I think that what a number of them have identified is a need for a mix. And it's a fairly unusual mix, to have both management, sort of operational experience, but also to have political experience.

Q What's your understanding of what the Russian Prime Minister's view was last night on reconstruction aid to Serbia, is the first question. The second question, what's on the agenda between the President and the Russian Prime Minister this afternoon?

SENIOR ADMINISTRATION OFFICIAL: I think that -- let me take the second one first. The President has had the opportunity to speak by phone with Prime Minister Stepashin, briefly. But this is in part a chance to get to know each other better. It's a very informal setting. It's a chance to preview the discussions that the President will have in a slightly more formal setting with President Yeltsin tomorrow. I think they will probably want to continue the discussion on the economic issues, which is a particular purview of the Prime Minister.

They may preview some of the other issues that the President will be discussing with President Yeltsin, particularly with respect to arms control and the like. But I'm not sure that they'll get in any detail into that.

On the first, I don't have any specific readout out whether Stepashin took a position. But I think that it is clear -- I mean, the Russians have been involved in the discussions of the stability pact. I think they understand that there is a broad consensus that there cannot be economic reconstruction -- that the leaders of the countries that are going to be providing the money are not prepared to provide assistance to an unreformed Serbia.

Q Was there any discussion of rescheduling Russian debt either by a single country, such as Germany, or by the G-7 as a whole?

SENIOR ADMINISTRATION OFFICIAL: There has been considerable discussion about Russian debt. I think that, first of all, there are a set of issues associated with some debt rescheduling in connection with the IMF agreement. That's a very sort of specific set of commitments that are dependent on Russia meeting its obligations or its commitments to the IMF, which could lead to some Paris Club rescheduling.

There's also been some general discussions about the long-term, about how in the course of more deeper and far-reaching Russian reform, what that might mean for debt relief. It's clearly something that's very much on the Russians' mind. I think the leaders may have something to say about it as part of their final communique, but we don't have a final resolution of that at this point.

Q As a group, as a G-7 group, or as a bilateral issue?

SENIOR ADMINISTRATION OFFICIAL: Again, there are two separate issues. There is the issue of the Paris Club rescheduling in connection with the IMF agreement. I think that the other has to do with less specific commitments than more as sort of a general perspective on this, and we're going to have to wait until they finalize the language on that before I can say anything more specific.

Q Is it fair to say that the breakthrough in Helsinki last night affected the mood or tone of the discussions today? Has that helped Russia's position when they're looking for things such as long-term debt restructuring?

SENIOR ADMINISTRATION OFFICIAL: Actually, there was not any direct connection. I think that -- I think you heard from a number of us informally last night that the leaders -- I think, have been very impressed with Prime Minister Stepashin, his command of the issues, the fact that he's quickly moved into this job and taken the issues on. There's a real sense of commitment to reform. And I think that's what's motivated them more than Kosovo -- in part because while Prime Minster Stepashin's certainly been a positive force on the issue, that that has not been the locus of the discussions that he's been directly involved in.

But there's no doubt that I think everybody is very encouraged by the agreement that was reached last night. It does reflect the fact that the decision to make Russia a partner in the G-8 is something that reflects a broader commitment by Russia to try to work with its G-8 partners. So I think it is a positive reflection of the overall trend of keeping Russia engaged, working with Russia as a partner, and that was mentioned a number of times in the morning discussion.

Q Has the relationship with Russia improved since Primakov was replaced by Stepashin?

SENIOR ADMINISTRATION OFFICIAL: I wouldn't say that there's any notable difference. I think what is important, and I think that Prime Minister Stepashin stressed that, is the fact that there is a constitutional process that works in Russia, that they were able to move within their own constitutional processes to a new government that quickly moved in, that's able to take up its responsibilities. To carry forward in the IMF program that kind of seamless transition I think is a tribute to the resilience of the system and the strength of constitutionalism in Russia.

Q Any discussions of Russia rejoining the Partnership for Peace?

SENIOR ADMINISTRATION OFFICIAL: No specific discussion, although it's not surprising in this context since this is not a NATO meeting.

Q Have they been -- have their concerns over U.S. policy toward Iraq been allayed?

SENIOR ADMINISTRATION OFFICIAL: There has been no discussion that I'm aware of on Iraq with the Russians.

Q You've talked a couple of times about democratization in Serbia, but not specifically about Milosevic's departure. Does that mean you believe democratization is possible with Milosevic there?

SENIOR ADMINISTRATION OFFICIAL: I don't want to make a specific comment on that, except to say that I think that we believe that a fully open and democratic process could easily have a different result in terms of the kind of government that we would see in serbia.

Q Chirac suggested the creation of an international organization to control the quality of food. Did it come up in the discussion, what is the composition --

SENIOR ADMINISTRATION OFFICIAL: It did not come up in the discussion. I think, as some of you know, President Chirac has written to others. There was a discussion, which I believe we're going to have a further discussion of, on the broad problem of food safety and biotechnology. But there has not been a specific discussion of his proposal for a council.

THE PRESS: Thank you.

END 12:52 P.M. (L)