World Stage: Robert B. Zoellick

Bob, welcome to the program.

MR. ZOELLICK: Glad to be with you, David.

MR. LYNCH: Let’s start with the situation in Russia, in the wake of the abortive mutiny by the paramilitary Wagner Group. How have the extraordinary events of the last few days affected your assessment of Russia’s internal stability and Vladimir Putin’s chances of remaining in power?

MR. ZOELLICK: Well, maybe I should start with some personal association, David. I actually first met Putin, I believe, in 1992 when I was working with Secretary Baker at the end of the Cold War, and Putin was a deputy mayor to a–for former Mayor Sobchak in St. Petersburg. And then I worked with him on various occasions about trade and other topics, and in 2010, we actually hosted a summit in St. Petersburg to try to save the 3,500 tigers left in the world. So I’ve had a fair amount of exposure to Putin.

And I guess, number one, he’s a cold, hard man. He’s a KGB officer. But one other perspective that I think he also shares with Xi Jinping, actually, is this is a man whose world was turned upside-down with the end of the Soviet Union, and he almost fell to the bottom. He climbed his way back up, and I think one should be aware that he’s not going to go down again without a pretty strong fight. The other aspect was when I was with him in St. Petersburg, actually, I tried to reach out to him a little bit by talking about Russian history because I knew he had an interest in Russian history, and I think actually I–he had to correct me on Alexander I and Alexander II in historical terms.

But this is how he sees Ukraine. He sees Ukraine in the sense of it’s–his view, it’s always been part of Russia. He criticizes Lenin forever at making it a republic during the early communist period. He believes it’s part of the Russian heartland, and therefore, I think one has to understand this is a man who’s not going to yield easily.

So going back to the sort of recent events, I think what is surprising, to me at least, was the fact that Russian domestic intelligence, it didn’t warn things more quickly. There wasn’t more of a information sort of response on the part of Putin, and anytime that you’ve got troops marching towards Moscow is obviously–is a signal of weakness; the fact that Putin refers to the 1917 revolution, again, another historical point that kind of shows how serious he thought this matter was; and the fact that you had Lukashenko, the Belarusian sort of president mediating, suggests that this is a process where it hasn’t played out. Putin’s mystique has been affected, and Putin’s sense of total power has been obviously undermined. The jackals will be circling, but I think you better expect this man will bite back.

MR. LYNCH: Do you have a sense as to whether he’s changed over the years, as some people have suggested? Has he grown more isolated or perhaps more determined to achieve what he sees as his historic mission as time runs out for him?

MR. ZOELLICK: Yeah, I think there’s some of that, David. I think this is a person, as I said–you know, it’s easy for us in the West. We have bad days. We lose elections. We’re out of power, so on and so forth. But this is a man whose world was really turned upside-down, and I think for a while, he was exploring relations with the West at various points. I think he had a reasonable relationship with President George W. Bush right after sort of 9/11. But it’s a man who also lives in a world, as the KGB would, of sort of paranoias, conspiracy, suspicion. I think the pandemic shut off life and connections for him, just as it did a little bit for Xi Jinping.

And he does have this historical view. If you read what he writes, which is not a bad guide to what the guy is thinking, you see he has this notion of Russia’s special place between Europe and Asia, saving Europe from itself, whether Napoleon or Hitler, being the bloc with the Mongol hordes sort of coming through. And I don’t think you can understand him now without appreciating that perspective that he’s developed, however it’s come about over time.

And these circumstances are clearly going to make him more wary. I think he will push back. Frankly, if we do this show a year from now, I’d be willing to wager that Prigozhin is either on a long holiday in Africa, in a prison, or gone.

But undoubtedly, on the other hand, it’s weakened Putin’s position, so huge uncertainties, David.

MR. LYNCH: Yeah. And just to follow up on that, a year from now, if we do this again, is Putin still in office?

MR. ZOELLICK: I can’t guess. It’s too uncertain.

One of the things Steve Kotkin, who’s a real Russia scholar, mentioned a good–sort of a good metaphor, he said Russia is hard, but it’s hollow inside. And I think that’s a good way to think about it. So I’d never underestimate these people, since my focus is on stopping Russia in Ukraine. I don’t think this is going to lead them to back away, and I think we need to strengthen Ukraine. On the other hand, could it crack? Certainly, it could.

I think, David, one of the other factors is Putin has run that system so that he doesn’t really have anybody near the top that could pose a threat. He’s been trying to manipulate these various power centers, and obviously, in the case of Prigozhin, it sort of got out of control.

I’ve never felt he understood economics. I worked a lot with some of his economic team, some of the technocrats from St. Petersburg, Kudrin and Herman Gref, and they were people trying to do the right thing, but it’s a world of power and fear and conspiracy in Russian history.

MR. LYNCH: So turning now to the mammoth challenge involved in rebuilding Ukraine, that country’s lost something like 30 percent of its GDP. A nearly equal share of its pre-war population has left. The bill involved in putting back together what Russia has destroyed will be absolutely enormous. As the Ukrainian military is continuing its long-awaited offensive now on the battlefield, you’ve written of the need for a companion offensive in the realm of economic and reconstruction aid using the frozen Russian state assets that the allies took action against at the outset of the war. Tell us a little bit about those assets. What are they? Where are they, and what would be involved in putting them to the sort of use that you’d like to see them put to?

MR. ZOELLICK: So, David, first, to start with the context, as we’ve discussed, this is now a war of attrition in Ukraine. It’s gone on for a year. You mentioned how the Ukrainian economy has suffered so terribly, and in wars of attrition, it’s understandable that people focus on the military side and debate about F-16s or tanks or different missile capacities. But ultimately, the economic capacity of a country to withstand this is absolutely critical.

So what Larry Summers, former Secretary of the Treasury, and I and Phil Zelikow, a former colleague of mine, now at the University of Virginia and Hoover, sort of decided is we wanted to draw attention to the need to have an economic counteroffensive that matches the military offensive. And you saw last weekend, there was a reconstruction conference in London.

Now, the challenge is today Ukraine needs about $3 billion a month just to keep the lights on. So this is for survival. This is not reconstruction. This is non-sort of military spending. And you have to ask yourself, the United States has allocated about $65 billion so far. But will we be willing to do billions and billions more? My sense is the Congress is more willing on the military side than the economic side. You can see Europeans committed another $55 billion over the next three or four years, but if it takes $3 billion a month just to keep the lights on, then if you want people to come back, as you noted–you’ve got about 7 million refugees, about 7 million displaced–who’s going to provide that money or help sustain Ukraine economically?

And this is where we focused on what we think is strategically wise and politically prudent but also ethically correct, which is the Western countries have frozen about $300 billion of Russia’s reserves. Most of that money appears to be in Europe. The Europeans have identified about $200 billion of that. This is–by the way, this is all official assets. This is not private funds. And there’s other–in the United States, a couple years ago, they estimated about $38 billion. The U.S. hasn’t announced how much has been available now.

But our idea is, under an international law, to transfer those funds to a trust fund, which could be used to support the reconstruction of Ukraine. Now, there’s a diplomatic aspect of this too. Frankly, if there ever is a chance for a settlement, you can use some of that money to make it easier for Ukrainians to perhaps accept, but they wouldn’t want to. Maybe some of it could go back to Russia. So frankly, as a former diplomat and negotiator, I’m looking for another variable here that you can use as part of the diplomacy as well as the economics.

Now, you raised the–one of the questions comes under, well, can you do this under international and domestic law? And the key under international law is there’s a principle called countermeasures, and without getting too legally dense on you, the notion is if you have a very grave action, states are allowed to take a proportionate response. Well, this isn’t just the U.S. or European judgment of a grave action. The UN has passed resolutions to this effect. The International Court of Justice has made a finding to this effect, and ironically, Russia has started to use this countermeasures against German and Finnish companies. So they’ve engaged this very sort of authority. And so the idea would be to transfer the funds to a trust fund, to an escrow that could be part of an overall effort to rebuild Ukraine over time.

Now, one of the other issues that people raise is they say, well, what about sovereign immunity? And in this, they mistake the fact that sovereign immunity–for example, there’s a law in the United States about sovereign immunity–is for court actions. That’s if a private party wants to go after somebody in court. Well, this is a state action. This isn’t sort of a court action. And in addition, the other question that arises–and this is why Larry Summers and I decided to do this together–is, well, what about the dollar? Will this weaken the dollar in international markets, which you sort of know the discussion of this.

MR. LYNCH: Yep.

MR. ZOELLICK: Well, the first answer to that is the idea would be to do it with the other reserve currencies. In fact, the euro would be the biggest amount. So whether it’s the euro or the yen or the dollar or the pound, you do it in combination. But then frankly, this is also where I think some of the banking community is a little overly protective here. If you look at the role of the U.S. dollar, the question is, if people are going to turn from the dollar, well, what are they going to turn to? Well, the renminbi is maybe 1 to 2 percent of reserves of the world. Dollar is about 59 percent of reserves. About 90 percent of foreign exchange transactions are in the dollar. And as you know, David, people don’t do this just because they’re friends of the United States. It’s because the strength of the dollar as a liquid reliable instrument.

Now, then the question would be, will people not use dollars? And then the question is, what else would they use? And remember, the United States runs current account or trade deficits. We’re producing dollars. So I can assure you today, China, which holds trillions of U.S. dollars, would prefer not to, but what are they going to hold? They can hold some gold, but how much gold?

So I think that, frankly, the dollar concern is overrated, and that’s one reason why Larry as a Treasury Secretary and I as a former World Bank president wanted to weigh in on this.

And then the other part of this, in a way, is– you almost ask yourself in commonsense terms. You believe that the U.S. or European publics are going to want to give $300 billion back to Russia? That doesn’t seem very likely to me, and so why not use this money as part of an effort to support Ukraine and also perhaps as part of the diplomacy?

MR. LYNCH: Sure. So there’s an obvious logic to that, but I’m curious, because I think you’ve written about the need to get started with this, even as the guns are blazing, and so I’m curious what exactly you’d like to see happen now as the conflict continues, and what would need to wait for a settlement of some kind? Because presumably, you don’t want to rebuild a lot of shopping malls and apartment buildings in Kiev and Kharkiv and elsewhere and allow the Russians to have a second crack at blowing them up again.

MR. ZOELLICK: Yeah. Excellent question. And so I think to start, let me emphasize, on reconstruction or recovery, there’s really three phases. One, there’s the survival, which I mentioned, just sort of making sure you’ve got about $3 billion a month to keep Ukraine going.

Second is what I call the quick recovery phase, and this actually relates to the point you mentioned about displaced Ukrainians or refugees. Those people, we run the risk–they’re not going to come home or they won’t stay unless they have shelter, they have schools for the kids, basic health facilities. Those are things you could do in parts of Ukraine that are safer without necessarily creating huge new infrastructure topics. And frankly, there’s probably some support for some of the grain and other businesses that you need to have to sort of keep you Ukraine going.

And then the third part is long-term reconstruction. But again, just to give you a historical analogy, it took about a year from the announcement of the Marshall Plan to start to get it up and running. So to answer your question directly, we believe that the G7 countries and others that support it, the European Union, should be agreeing now to transfer these funds to some account. You could put it, whether the BIS, the Bank for International Settlements. You could do it in other types of accounts. You need to start to work with Ukrainians on the nature of their reconstruction. They have to own it, but they also are going to have to deal with transparency and some of the corruption issues and oligarch sort of issues that have plagued Ukraine in the past.

But then also, you’ve got these–you’re not going to spend $300 billion right off the bat. You’ve got it, frankly, as part of the overall sort of diplomatic negotiation going forward.

And so I mentioned the international law aspect. Each country has to deal with this under domestic law. We believe under something called IEEPA, which was passed in 1977, the International Emergency Economic Powers, the president has the power to transfer this now, which by the way, President Bush 41–so this is ’91, ’92–did this exactly with Iraqi oil assets as part of a UN system to repay Kuwaitis but others that were injured.

But if you have a question about that, if you want to reassure it, well, then have Congress take action, and part of our push is, I think, also encourage–you now have a bipartisan bill in the Senate, Senators Risch and Whitehouse, that are supporting this idea. And there’s one, I think–

MR. LYNCH: Bob, you anticipated a question we have from an audience member that I’d like to get your thoughts on along exactly that point, because I think sentiment in this regard in the EU has been a little bit ahead of the action here in Washington, and so we’ve got a question from an audience member. Tamara Hayden from Pennsylvania wants to know what your opinion is of the legislation introduced by Senator Risch and Senator Whitehouse in the Senate, companion bill in the House, that would facilitate the use of these frozen Russian assets, and what do you think of the prospects for passage?

MR. ZOELLICK: So I’m delighted. I’m delighted that it’s bipartisan. I think it’s going to pick up more support because, again, as someone who’s worked with practical politics as well as policy, how many more tens of billions will the U.S. Congress want to spend for Ukraine when there’s $300 billion of Russian funds that are sitting there. So the politics are on your side as well as the policy.

Frankly, I think there is a little caution on some parts of Congress not wanting to push the administration faster than they wanted. I think the administration has shown a little bit more flexibility. Some members of the administration are more cautious than Larry and I are on some of the dollar issues, but I think it will move in their direction.

So I think in pure politics, I would say this is like a knife going through butter.

MR. LYNCH: Okay. Well, Let’s turn to the U.S.-China relationship in the time we have remaining. What’s the impact of a chaotic or unstable Russia on Chinese ambitions?

MR. ZOELLICK: Well, I think the Chinese have misplaced this, David. You know, if you ask about pure Chinese interests, they don’t like to have the notion of breakup of countries, right? They’re worried about sort of Taiwan. Well, look what Russia has done to the territory integrity of Ukraine. They’ve got to be concerned about the world economy. This hasn’t helped that as well. They don’t want to strengthen U.S. alliances, but this has just strengthened U.S. alliances, including with Finland and Sweden wanting to come into NATO. And then frankly, China wanted to play Europe off against the United States, and that’s not going to work in this environment. So I think China holds a bad hand on this.

Now, in my diplomatic experience, that doesn’t mean I just want to club him. It means I want to try to nudge him to be constructive. So notice how the Chinese did weigh in when Putin started to talk about nuclear weapons. “No, we don’t think that’s a very good idea.” So I don’t believe China could be an effective mediator, but if at the right moment, one country might be able to push Putin towards a settlement, my candidate would be China.

Now, again, I’m not forecasting that, but as part of my role as in the past as a diplomat, I want to push people to support the position that I’m interested in. And for what it’s worth, I read that when Secretary Blinken was in China recently, he had a long dinner conversation with the Chinese foreign minister on this idea. So this is where, again, these events in Moscow can’t ring very positively to people in Beijing. It doesn’t look like they’ve attached themselves to a very attractive partner.

They won’t want to sell them out because, frankly, they feel threatened and they feel they need to rely on Putin, who they can still dominate. But it just shows the fluidity of the situation and diplomacy.

MR. LYNCH: Now, as I mentioned at the outset, Treasury Secretary Janet Yellen is headed to Beijing next week for talks with her counterparts there. What do you what do you anticipate might come from those meetings? They come at a time when the U.S. is pushing to de-risk its economic relationship with China, Chinese officials as recently as yesterday pushing back on that idea. They are not persuaded by the shift in tone from the word “decouple” to de-risk. They still see it as a big negative for their economy and their relationship with us. What might come out of the Yellen visit, if anything?

MR. ZOELLICK: So, David, Americans tend to focus on each individual visit and each news story. The Chinese are focusing on the overall relationship, which is not in good shape, but there’s some efforts to at least sort of stabilize it. I think the Chinese would be more willing to try to move towards cooperation in the economic area than they will obviously in the security area. I think Secretary Yellen has been pretty cautious, and I don’t know how much room that she has to give on those topics. So it’s better that they’re talking, but I think there’s a fundamental problem here of breakdown of trust and reliability.

And let me just give you another diplomatic example of this. So actually, I–this is a piece I wrote for The Washington Post when you had the balloon incident, and you remember that Secretary Blinken sort of canceled his visit, and then the Chinese tortured Blinken in terms of coming back.

I would’ve gone ahead with the visit. I would’ve shot down the balloon, but I would’ve–clearly the Chinese, this was a mistake. I don’t even think Xi was aware of the balloon being over the United States. He was probably aware of the program. I think there’s some intelligence to that effect. They were humiliated, but that’s actually the moment to go and say, look, we’ll take the political heat by coming to talk to you, but we’re going to have to have a dialogue, whether it’s airplanes, whether it’s nuclear issues, whether others, where we avoid these sort of risks.

Instead, you see what the Chinese have concluded is because of the politics in the United States, that Biden administration won’t run any political risks. So then the Chinese say, well, why should I run any political risks?

So we’re in a dangerous position. I don’t–I’m not trying to say that, you know, be sympathetic just to the Chinese side.

I mean, just to give you another anecdote, I got to know Xi Jinping pretty well too, and when he became leader in 2012, I was just leaving the World Bank. We had done a report with the Chinese reformists about the next stage of reform, and I had a chance to meet Xi and kind of tried to say, well, what are your development priorities? And I’ll always remember his answer. He said the 86.68 million members of the Communist Party. And I remember because the numbers are transversed. It’s probably now about 95 million people. And, David, I’d spoke to a lot of presidents and prime ministers and chancellors about economic policy, and not one would’ve given me their party membership if I asked them about their priorities. So it’s pretty clear where Xi Jinping was trying to go with the Communist Party and its leadership.

MR. LYNCH: Right.

MR. ZOELLICK: But I think if you talk about the Yellen visit, let’s think where maybe the two countries could start to have some progress together. So you might have reported or noticed there was a debt restructuring deal with Zambia in Africa, and you’ve undoubtedly noted a lot of the Chinese banks and lending organizations have built up the debt in Africa. And there’s been a problem with restructuring these as we’ve done in the past through something called the Paris Club with other developed countries, because China didn’t want to take the hit. Well, frankly, both sides could help each other in the developing world if we do more of these types of arrangements.

One that I would pick–but I’m a minority here–is the Trump tariffs have done nothing for national security, and all they’ve done is raise the costs for both sides. So I’d start to reduce some of those tariffs.

But I think this visit along perhaps with one that Secretary Raimondo will make create opportunities, but the fundamental distrust, the sense that the U.S. is not going to be willing to do much because of the politics here, I think this is going to make it tense particularly related to Taiwan.

MR. LYNCH: Yeah.

MR. ZOELLICK: And I think you’ve got elections coming up in Taiwan. You could see that this came up in the Blinken visit, and I’ll assure you, based on my experience, that Secretary Yellen will hear a lot about Taiwan too.

MR. LYNCH: Yep. Let me ask you a big question in the small amount of time we have left, and that is, as you know, back in the nineties, there was an expectation that by bringing China into the–integrating it into the global economic system led by the U.S., that would encourage eventually political liberalization in China. I think we had similar hopes and ambitions for the Russians as well. It hasn’t worked out that way, and in fact, things have gone from bad to worse in recent years. Stepping back and looking at it again with the benefit of hindsight, where did things go wrong? Where was the mistake? Should we have course-corrected earlier than we have? How do you assess it?

MR. ZOELLICK: Yeah. There’s a tendency to forget a lot of the things that we actually got from China, not only sort economically but cooperation on proliferation and some of the other sort of conflicts, UN resolutions, so on and so forth. So this notion that engagement with China failed, I just think isn’t borne out by the history.

As you said and as I said, Xi clearly changed the system, and there clearly are downsides to this. But this presents the challenge for today. You’re not going to be able to contain China. This isn’t the Cold War. The Cold War is a sloppy analogy, because it was a separate economic system. Your closest allies–Japan, Korea, Australia–the countries you want on your side in Southeast Asia, they’re going to want to do economic business with China. So I think this will now be a more complex challenge. You clearly want to limit some of the high-tech materials, and the question is, how far does that go? Does it mean you don’t sell any semiconductors, in which case you hurt the semiconductor firm? Does it mean you don’t take their solar panels, in which case you’re going to have more expensive effort to move to solar? Those are the sort of questions you’re going to have to thread your way through.

And I think where the administration has been correct is strengthening the deterrence with our allies, which Trump undermined. Frankly, I would do more on the military and defense side, but from a position of strength, I don’t think you can cut off China. So this notion that the United States kind of enabled China to rise, it ignores history. China was going to rise one way or the other, and the question is, do you want to try to make it cooperative on some issues, whether it’s climate, whether it’s fentanyl, whether it’s dealing with Russia, or do you want to make it into an enemy, in which case, frankly, we’re not going to be able to do this by ourselves?

MR. LYNCH: Fair enough and interesting stuff, and we could talk about China for the rest of the afternoon, I suspect, but unfortunately, we are out of time. So, Bob, thanks. Thanks for joining us today.

MR. ZOELLICK: We’ll have to come back in a year and see what happened to Prigozhin.

MR. LYNCH: It’s a date.

And thanks to all of you for joining us. Head over to WashingtonPostLive.com to see a list of programs we have coming up.

I’m David J. Lynch, global economics correspondent here at The Post. Thanks again for tuning in.