a reminder about our road to the white house coverage. it continues today with hillary clinton. she campaigning in kentucky today. that state hold its primary next tuesday. coverage of hillary clinton tonight is under way at 6:15 eastern on our companion network. also senator bernie sanders is holding a rally in solemn, oregon, holding its primary on tuesday as well. also tonight, results from the west virginia and nebraska primaries. live now to capitol hill for a house hearing on political prisoners in vietnam. the wife of a human rights lawyer who's been in prison since 2016 will appear. this hearing comes ahead of president obama's trip to vietnam next week. live coverage on c-span3.

among the partners, vietnam is the only country that bans independent religious groups, the only country considered one of the worst violators of internet vietnam harbors severe child labor and forced child labor violators and regularly jails and tortures those who speak out for human rights, political inclusion with a right to practice their religion. there are today over 100 prisoners of conscience in vietnam wynn van didefend of religious freem down and he was detained and detained last september for continuing his work. his arbitrary detention undercuts any claim that the current vietnamese leadership can become a trusted u.s.

partnership. prior to his arrest i had the previous to meeting with him in hanoi at his law officer at 10 dwayne tran yip street in 2005. i was deeply impressed with his passion for truth, his defense of universally recognize the -- his tate, extraordinary courage and deep aabiding live for as a result name. he is truly a patriot. his wife vu minh khanh is with us today to speak on his behalf and for the other prisoners are conscience in vietnam. her testimony is especial slid timing, because president obama will travel to vietnam at the end of this month. a steady stream of state department officials are going to vietnam prior to the trip. in fact, assistant secretary for democracy, human rights and labor, tom malonoski is in vietnam today.

the the administration should not try to whitewash the record prior to the trip, but must make absolutely clear unequivocal statements in support of democrat sick and free speech advocates. and minority groups and human rights defenders. the unconditional revice of win van diand others should be a precondition of the president's visit. however, if the president goes without any conditionality, i appeal this submittee appeals to the president to demand the immediate and unconditional freedom and release of wynn nguyen van di. a clear message to american interests. some of 6% who were born after the vietnam war ended.

thats further expand of traits, the lifting of arms embargo is unacceptabled until significant s. verifiable and irrear versible improvements in human rights. unfortunately for the past seven-plus years, the administration has failed to deliver such messages to victims of abuse anywhere. no tough message was delivered in cuba, for example, despite an escalation of arrests and abuse. the administration seems eager to proceed with lucrative trade and to lift the bag on el lyle arm sales to vietnam without imposing any real conditions. that would be a colossal mistake. the administration will surely adjust extending these generous benefits by arguing that lifting the trade barriers and expanding diplomatic engagement with

vietnam will bring about human rights and other positive advances. such arguments have long been discredited, however. s. hanoi responded by launching the first of three waves of arrests that jailed more than 100 dissidents and introduced sweeping new laws restricting freedom of association, assembly and the internet. in short vietnam's wto membership allowed the communist government -- made it free to jail, torture and to abuse. the pressure was off. why would they not do so again? the communist leadership in hanoi will take our benefits you are our trade benefits, our security commitments, and

continue repressing those seeking political reform and universal freedoms. the business of the communist party is staying in power, and repressing those who may challenge their power. they will not embrace human rights improvements or the rule of law unless it is a condition of better relations with the united states. vietnam needs the u.s. markets and security commitment much more than the united states needs vietnam's markets and security cooperation. administration should demand additional protection for human rights, internet freedom and the rule of law as a condition of u.s. assistances not doing so is short-sighted, misguided and fails to achieve long-term u.s. interests, and it throws the victims under the bus. one way to send an important message about u.s. policy priors is to pass the vietnam human rights act hr-2140, which i had

reintroduced in this congress and is now waiting further action in the house and senate. i would note parenthetically in past generations that i have introduced the vietnam human rights act in previous congresses, have passed the how three times, only to be ignored in the senate. the bill estimates that the united states cannot increase non-humanitarian assistance to vietnam until the president certifies that the government of vietnam has made substantial progress in establishing human rights protections. the american people should not have to subsidize torture or underwriter the jailing of journalists, religious leaders, labor activists, or advocates of democracy or internet freedom. the bipartisan vietnam human rights act will restore the right priorities to u.s. policy towards vietnam.

-- who seek or freedoms more than our trade. u.s. policy must send the unmistakable message to the government of vietnam that human rights improvements are fundamental to better relations, critically linked to our mutual economic and security interests, and will not, i say again, will not be ignored or be bargained away. i would like to introduce our most distinguished witness today, ms. vu minh khanh, wife of the lawyer nguyen van di, who was arrested of the vitt in a meet penal code for conducting propaganda against the state. since his arust ms. vu has been

acting for his release, giving interviews with various media agencies to raise awareness. she has volunteered at a church in hanoi, and has been doing so since 2009. the church reaches out to manies vulnerable groups, including those who suffering from drug addiction, orphans and youth. in addition, providing support and counciling to those groups, ms. vu also assists with the daily financial management of the organization and works to promote and protect human rights through the church. i'd like to yield for our chairman, mr. ed royce. i just would start by thanking chris smith for holding this hearing at exactly the right time. now is the time we have got to get the attention of the international community on these human rights abuses.

so, yes, in a few weeks, the president of the united states is going to be traveling to vietnam, and while maintaining peace in the south china cease and improving trade ties is an important shared goal, the administration must carefully take into account vietnam's human rights abuses as this relationship develops. that is the conundrum, because this is has not gotten better. i have med with the venerable other religious leaders when they were under house arrest. i heard about the circumstances. i check in with human rights ngos, and as we all know, this is situation is not improving. human rights have got to be at the very top of the president's agenta. the reality as we all know is

that vietnam remain a one-party communist state with significant human rights abuses. as we will hear today from the wife of the lawyer and activist, and i want to thank chris smith for his efforts here to elevate this issue, but as we'll hear, nguyen van di, she'll share with us the reality that vietnam has a long, long way to go. in december he was badly beaten by government -- well, i guess we should call them thugs, because they beat her, and was taken into custody. since that time -- took her husband into custody. since that time he's been denied access to his lawyer, even his family. he sits in solitary confinement. his condition is unknown, and ms. vu is rightly concerned sad

hi his treatment police still frequently -- human rights watch says they frequently torture suspects to elicit confessions and sometimes use excessive force in responding to protests over convictions, land confills case, because land grabbing is one of the things the party does, and other social issues. so last year more than 40 bloggers and rights activists were beaten by plainclothesed government agents. not surprisingly not one of the thugs that did the beating were held femme punished. -- while other laws restrict freedom, bloggers like -- it ahn

ban sun and nguyen minute dfu and others remain in prison for what the state or what the communist party calls abusing the rights to freedom of democracy. not surprisingly vietnam now ranks in the world 175th out of 180 countries for press freedom. that means vietnam is behind cuba, it's worse than saudi arabia, it's worse than iran. that's why we're here at this hearing. freedom of religion is a significant concern in vietnam as the government continuing to restrict religious practice through registration requirements, through harassment, through surveillance, branches off the buddhist chump and independent

catholics and property assistants are b protestants are banned, and several have remained under house arrest since 199 for his religious beliefs. if the united states and vietnam are to build a stronger relationship, the vitt in a immediate government must honor the basic human rights. with respect to freedom of speech, religion, assembly. and that's the message the president of the united states needs to send during his upcoming visit. i wrote to the president last week, asking that he carry exactly that message we are all watching the president's trip, cannot be a replay of his trip to havana. we have to have these issues addressed. mr. chairman, thank you again for calling this important and

timely hearing. >> chairman royce, thank you for your very eloquent and strong statement, and consistent support for the human rights advocates in vietnam and especially today for nguyen van di, again he's back into prison, as i said in my opening, four years of prison, four years of house arrest. without objection, a very, very well-written appeal that ms. vu made at the time of the first arrest, without objection, i would like to make it part of the record and i yield the floor to mids vu for such time as she may consume.

>> translator: first of all, i would like to deeply thank chairman christmas and chairman royce for this opportunity to speak. my name is vu minh khanh, wife of attorney nguyen van dai. dai is a human rights defender now in jail.

my husband was first arrested in 2007, then sentenced to four years imprisonment, plus four years of house arrest for violating article 88 of vietnam's penal code for quote/unquote conducting propaganda against the state, end quote. my husband was disbarred and his law office was shut down.

after having completed his house arrest, my husband was again arrested and charged with under the same article 88. my husband had been detained for almost five months now, yet i have not received any information about him. he has been held incommunicado and not allowed to meet with my family, myself nor with his defense lawyers.

twice a month i am permitted to bring foot to detention center b-14 in hanoi for his daily needs, but i do not know if he has received any. in fact i do not know if he is held at b-14, because in vietnam the public security force can do whatever they want. if they transfer inmates, they do not inform the family members accordingly. for example, this has happened to a blogger currently with another. first, if in fact my husband has been tortured physically and/or mentally or given false information, i would not know. >> my husband has not been allowed to receive a copy of the bible, a gift from the u.s.

ambassador mr. ted arsias. specifically ten days before his arrest, he was attacked and severely injured following a human rights training session for about 60 penal in the province, about 300 kilometers from hanoi. having been attacked ten days ago prior, his injuries had not healed. he was then arrested on december 16.

throughout his human rights activism, my husband was constantly followed, threatened d. each time he was attacked it related to his work, because the government did not like it and had requested him to top doing human rights work. however, my husband believes his at this time are within his rights under the vietnamese constitution and international law, because the police constantly follow my husband all day, i believe they would know clearly who attacked him.

however, the government claims they do not who the assailant were. my husband accepted the risks that comes, and this is the reality that human rights activists have to face constantly. my husband also has hepatitis-b. therefore, i am very worried about his health condition.

>> my husband experienced democracy initially in germany, have been witnessed the fall of the berlin wall, he returned to vietnam and studied to become a lawyer. in 1997, my husband ran for the national assembly with the hope he could speak up for the people. in 2000, my husband officially began his activism and fought for freedom of religion. the first human rights case my husband took was in 2000, when he defended a member of the protestant church who was brought to court, because she tried to stop the police when they came to disband a prayer service at the local church.

tlafr my husband provided free service to the christians who were suppressed based on their religion. those who fought for democracy and human rights, victims of land grabs or home loss, and two people who were physically attacked and arbitrarily detained. he also led training courses about human rights in his law office.

sings he started his activism in 200, aside from the four years he was in prison and right upon his release, my husband continued to immediately raise his voice for human rights even when he was still under house arrest. he always fevantly tried to fight for freedom of religion, freedom of speech, freedom of assembly through nonviolent method and through provides education on human rights. my husband also focused. he started classes on human rights for different people within society and wrote articles on the rule of law. my husband usually worked with

many others and within the country. he also advocated with foreign governments, as he had a good working relationship with many embassies in vietnam and government officials from around the world. s regardless my husband's arrest in 2007, the police arrested him at his law office while he was teaching a class on human rights to his students. the topic of the class was based on a book on civil society, which the american embassy in vietnam had published.

as for his arrest this time, it was while my husband was leaving the house to meet with a delegation from the european union who were in vietnam for the annual european union/vietnam human rights dialogue. my husband is currently facing from three to 120 years imprisonment. he has worked hard to protect human rights, and these activities cannot possibly be seen as criminal. therefore, i hope that congress and the u.s. government, especially obama on his trip to vietnam, who helped demand for his immediate and

unconditionable release. i sincere his thank you for spending time to listen to my husband's case, respectfully. >> ms. vu, i would like to thank you for your absolutely compelling testimony that will be heard by many in america and hopefully around the world, as you've been telling the story, i'm glad that other news outlets have not only cared year op-eds and very profound on words and sentiments, but notice the congress is listening very carefully. i want to thank c spanned for being here so that a larger america audience will get to hair you and to realize that thing are horrific for your husband. i do have a couple questions,

and i'd like to that. dr. binh for the translation, and for your advocacy as well. i have a couple questions. you know, you point out in your testimony that use husband was arrested this second time as he was leaving the house to meet with a delegation from the european union who were in vietnam for the annual human rights dialogue. i'm wondering, first of all, i believe the dialogues are essentially, but they should not be seen as a substitute like the government of vietnam that commits egregious violations of human rights against its own peoples dialogue is great. no one is suggesting that it needs to be suspended, but needs

to be -- like the lifting of an arms embargo, like greater trade and other kinds of interactions. i'm wonders if any of the americas have raised their voices in support of your husband after he was arrested, again, en route to meet with them. to dialogue with them.

trunks i am not sure what transpired between the conversation of my husband and the european union delegates who met with my husband prior to his arrest. i do know after his arrest, they actually contacted me and met with me and showed a lot of support. >> that's so extremely important. >> i would hope as well as you point out in your testimony that the continued gross mistreatment and others would become the

subject of the human rights council. where vietnam sits in a place of dignity as a member of that council. it is bret teaguingly disturbing that an abuser of human rights could simultaneously be an arbiter of how well or poorly other countries are doing. first fix your own house and get that in order. so i think we need to press the case there as well. let me ask you, if i could, about how you have been treated by the authorities. you mentioned in your testimony that an attempt for his defense attorneys to get certificates has not been allowed. could you further elaborate on what that process is all about? and how you yourself have been treated when you advocate on behalf of your husband?

>> translator: so in short, after his arrest, when i hired three lawyers, they were refused to be able to meet with dai, nor able to proceed with any legal actions for his cass, to prepare for his case. at for myself, i noticed that there's a camera constantly in front of my house following all my activities in front of the house, and i have tried to visit my husband and always denied to see my husband when he is incommunica incommunicado. i have asked to request to bring him the bible or have visitation rights and for other family members to visit him, but have all been denied. i have written complaints, but not received any verbal or written response for the government. >> can you tell us, to the best of your knowledge, how your

husband was treated when he was imprisoned the first time? obviously four years in prison followed by four years of house arrest. what were the prison conditions like?

>> translator: so to complete her previous statement, she had also mentioned that the harassment puts a mental stress on her, and also the fact that she knows her husband has hepatitis-b, was beaten severely prior to his ace rest. she's constantly worried about him not being able to see him as he's incommunicado. in 2007, his was put in a -- the

cells water so so contaminated they had to filter the water with their socks. there were harassment by the prisoners in the same cell, and puts a lot of stress with constant observation and surveillance from the government during hi jail time. you mentioned he was beaten by thugs in the they beat him around the face were his teeth broken, did it require any kind of medical attention?

>> translator: during the beating my husband had suffered a lot of beating to the face. especially he had sustained injury to the eye globes, so he was undergoing evaluation, then he was arrested. in addition his body was covered with bruises all over. >> have they been helpful, allowed any access to him?

>> translator: immediately after to the arrest. and he gave a lot of support and comfort. and he also gave me a bible to

give too my husband while he is imprisoned. however, when i brought the bible, it was denied, so my husband never received the bible. in addition, the embassy has mentioned that i could meet with them at any time. >> just to make a couple final observations and ask if you have anything further that you'd like to say. i can assure you we will continue our effort. i see dr. tan from s.o.s. is here today. i met, as i mentioned earlier your husband in hanoi on a human rights trip in 2005 at his law offices. even though he spoke glowingly about his finish about a victim nat and whether -- human rights, usual when i hear a government

has violated -- propaganda against the state. i was with him privately -- as a matter of fact, some of the people who were en route were detained and not allowed to go to his law office that day to meet with me, but there was no propaganda against the state. there was a love for the vietnamese people that was very deep and very profound, which i found just -- i was almost speechless how he could have endured so much, known about so much wrongdoing yet he spoke about human rights in such clear terms and had such a clear purpose about him. the vietnamese government needs to know we are inspiredly nguyen van dai, and with growing

numbers of members of parliaments, congresses will rally to his defense. your testimony has sent a clear message to the world not just at shall venue, but every elsewhere you have spoken, how can a government do what they're doing to your husband, who only desires the best for the countr. so you have have been an inspiration and he has been an inspiration. when i met with mr. dai, and dr. tong a year later here, again -- in my office, i was touched with the absence of ma hlice. he did not engage in tie raids against vietnam or his government. he spoke about defending human rights, and caring for the disenfranchised, the people of faith, which i found just incredible, and i do hope that that is not lost.

there are always reformers in any dictatorship or any repressive government. they need to know when he's away from them, talking to members of parliament or congress, in his office or washington, his message was one of hope for the people of vietnam, and so i want you to know what an inspiration your presence here is today. if president obama were sitting here where i'm sitting, or if the prime minister of vietnam was sitting here, what were you say?

>> translator: if the president was sitting in front of me, i would plead with him to help the people of vietnam. when he fights for human rights in vietnam, he helps the people. the people of vietnam have suffered a lot through all these years of war, and now if the president that is what i ask for. the reason they arrested my husband and now i'm asking for his release while the president is there, is because he represents a symbol of nonviolent fighting for human rights. that's why his release would be crucial and that would also be symbolic of the president's support for such moments.

as you have questioned, i have a few more points to add, please.

>> translator: i would like to present to you, mr. the u.s. cot i would like to plead the case of my husband. i did not understand why he was arrested under penal code article 88 when he is a human rights activist for nonviolent movements. and also when they came to the house, they took away the issue of civil society that was published by the u.s. embassy in vietnam. they also took away any materials that my husband has from the united nations human rights council especially even the symbol of the dove which my husband believes it represents peace and nonviolent movement for human rights. they took everything, envelopes, papers, anything that has that symbol on it. and then one particular thing that i would like to point out is all the t-shirts that has the

word "hong kong today, vietnam tomorrow" were also confiscated as an artifact to be used against my husband.

>> translator: to share with you my thoughts why i am here and, first, thank you so much for holding this hearing. this is very important. it is because back in 2007 i had written over hundreds of complaints to different agencies and never heard anything back. this time i have tried the same written many complaints and also visited many of the agencies just to try to see if anyone would respond to my request. and none of them had responded

in any way verbally or writtenly to me and i have met with a lot of obstructions and ignorance from these agency. in addition i feel that because if i could go outside at my own risk and raise this voice to the world, then i would be able to present my husband case so that more people would know about a situation in vietnam and my husband is just one of the many people who are in similar situation.

>> translator: just to recount what happened in 2007, the lawyer only had seven days to prepare for his trial back then. specifically when i went to the investigation unit, they had

sent the papers to the judicial office but there is no clear evidence against my husband at that time. so, in fact, i'm very worried about similar situation this time. >> translator: i am really worried that if that repeats, that the lawyers for dai only has a few days just like the previous time, then there is not enough time for them to prepare the trial for dai.

>> translator: so, i would like to request that my husband be released unconditionally and immediately, but in case he does go to trial, i really want a fair trial and also for his lawyers to have the time to prepare for his case.

>> translator: thank you, chairman smith, for holding this hearing. please accept my deep gratitude and also to all the staff members who have made this possible. i really appreciate all of your caring and support throughout this very difficult time for myself, my husband and my family. i would like to know as a request whether, mr. chairman, together with other members of congress could write a letter to president obama asking for his response, first, to this hearing and also to other requests that have been put in my statement previously. thank you. >> ms. vu, thank you. we'll be more than happy to send your statement and a letter encouraging the president and an appeal to the president to raise your husband's case and that of

other prisoners of conscience in a specific fashion, not an oblique mention in a windup statement or some generality. there needs to be specific requests made so that we can gauge whether or not vietnam is about to move in the right direction or continues its deterioration when it comes to human rights. there are a number of areas where human rights violations are worsening, human trafficking, religious freedom. and the administration could today designate vietnam as a cpc country, country of particular concern. the facts warrant it. and they also could be known as a tier three country when it comes to egregious violations of sex and labor trafficking, especially labor trafficking in vietnam. so, the president has tools in his toolbox, the president of the united states. we hope that he uses them.

we'll send as per your request your testimony and your strong appeal backed up by our strong appeal. we'll do it immediately. and, again, i hope the president is specific. just some general statement about human rights doesn't cut it. it hasn't in any other country around the world. it hasn't in vietnam. he needs to be specific. so, i want to thank you, again, for your very brave testimony. thank you for your husband's tremendous personal sacrifice for the cause of vietnam human rights and religious freedom. he is a truly remarkable man, as are others who are fighting this battle with nonviolence and with faith. know that our prayers are with you and with him. we are in solidarity with them, i can assure you. and i would like to note for the record that we will be having a follow-up hearing to this

hearing in mid-june, the latter part of june, the 23rd or so, and we will be assessing the president's trip and whether or not any progress was indeed made. so, again, i want to thank you so very much for your testimony. and dr. binh, thank you for your very fine translation. the hearing is adjourned. thank you.

>> how you doing, nice to see you. we've got voa first and you go second.

well, there we go. >> mr. chairman, throughout the hearing today what would you think what would be your assessment of the progress to help vietnam on human rights? >> i think the next step is the president needs to be very clear that we want deeds, not words, deeds, actions. and mr. dai's release and the release of other prisoners of conscience would be a very, very serious and positive step for the vietnamese government to

make. and it's doable. the president has to ask. he has to demand. because the vietnamese government wants certain concessions from the u.s., government to government. we want freedom and respect for human rights. nothing for ourselves. but for the brave people like mr. van dai. >> through the hearing of ms. dai testimony, would you have any more facts or something that you never heard before about the human rights situation in vietnam? >> well, it is deteriorating, and that's very troubling. after the world trade organization, the bilateral agreement as well, there was great expectation. i was frankly not that encouraged that things would happen, but there were a lot of people that thought vietnam would turn the corner and start respecting human rights.

precisely the opposite has happened. and they're in a -- unfortunately in a dive, a nosedive, when it comes to respecting really just freedom, other fundamental human rights and, you know, that's got to change. you know, vietnam, the people of vietnam are wonderful people. they deserve better than what they're getting from their own government. they deserve freedom and democracy. >> thank you very much. >> thank you. >> thank you. >> how are you? >> nice to see you. thank you. thanks for organizing. i would love to. >> i'm so sorry. >> okay. >> who is the point staff member? >> this guy. mark nulty. mark. >> thank you.

>> hey, how are you? >> nice to meet you. >> good to see you. >> nice to see you. >> they work with this guy. >> yeah, yeah. >> thank you. >> sure, thanks. >> so, we'll get back to you. >> yeah, thanks. >> mark, get back to him. >> sure. >> thank you. >> thank you. >> nice meeting you. >> nice meeting you.

our road to the white house coverage continues today with hillary clinton campaigning in kentucky ahead of next tuesday's primary in that state. that begins at 6:15 eastern time on c-span2.

and senator bernie sanders holds a rally in salem, oregon, which also holds its primary on tuesday. live coverage on c-span begins at 10:00 p.m. eastern. on "american history tv" on c-spa c-span3. >> there has never been a full public accounting of fbi domestic intelligence operations. therefore, this committee has undertaken such an investigation. >> on "real america" the 1975 church committee hearings convened to investigate the intelligence activities of the cia, fbi, irs and the nsa, saturday night at 10:00 p.m. eastern the committee questions frederick schwartz and curtis smothers, including attempted intimidation of martin luther king jr. >> king, there's only one thing left to do. you know what it is. you just have 34 days in which

to do it. this exact number has been selected for a specific reason. it was 34 days before the award. you are done. >> then associate fbi director james adams admits to some of the successes while defending a number of other fbi practices. then at 8:00 on "lectures in history" -- >> see a death or two, they see hundreds. and so they're the first to sort of see patterns or shifts in how people are going out of the world. so, they are the ones who sound the alarm. >> university of georgia professor steven berry on the role of a coroner and how they shed light on the emerge patterns of death within a society and spot potential threats to public health. sunday evening at 6:30 secretary of state john kerry who served in the vietnam war and later became a vocal opponent of the war shares his views on vietnam at the lyndon b. johnen

presidential library in austin, texas. >> our veterans did not receive the welcome home or the benefits or the treatment that they not only deserved but needed, and the fundamental contract between soldier and government simply was not honored. >> then at 8:00 on the presidency -- >> one other person sitting at home watching tv watched reagan deliver the speech. it was dwight eisenhower. he immediately called his former attorney general and said what a fine speech ronald reagan had just delivered. he then called a former special assistant and said, what an excellent speech ronald reagan had delivered. dwight eisenhower wrote back a multi-step political plan for ronald reagan to follow. reagan would end up following eisenhower's advice to the letter. >> author examines dwight d. eisenhower's behind-the-scenes mentoring of ronald reagan and the pivotal role the former president played in reagan's

political evolution in the 1960s. for the complete "american history tv" schedule, go to c-spspan.or cspan.org. cspan.org is a video-rich complement to your c. fan vi-c-. most hearings stream live on the site, so if you're away from your television, you can watch on your desktop or laptop or smartphone or tablet and c-span archives all of its programs online in the c-span video library. if you miss an episode of "washington journal" "book tv" or other favorites, you can find them online. the powerful search engine helps you find and watch programs going back many years. to watch on your television c-span publishes its onair

schedule for its three platforms and radio. check it out. it's on the web at cspan.org. the state of the russian economy is dire and facing recession for another year according to the world bank's lead economist for russia. this forum looks at russia's need for structural reforms and improvements needed in its business environment to improve investment and productivity. and a look at sanctions and the falling energy prices in russia. >> well, good afternoon, everybody. and welcome to csis. i am john lipsky, i am senior

fellow at the foreign policy institute here, but formerly used to hang out at the international monetary fund just across the street from our distinguished speaker's home base. well, sort of home base. and today it's my honor and pleasure to welcome back to csisberget hansel, who is the program leader and lead economist for the russian federation, europe and central asia at the world bank. he's been at the world bank for 11 years now. but the last three she has been based in moscow. and for those of you who were lucky enough to be here a year ago when she visited to present the then current or new economic report on russia of the world bank, i think folks found the

report a little gloomy. apparently she tells me that she was -- a lot of folks questioning why they were so gloomy. and as things worked out, here is -- you're going to get presented a synopsis of the latest world bank russia economic report. and, of course, looking back i'm sure she now gets asked why weren't you gloomier. why were you so sunny a year ago. and i think that the title probably gives away some of the themes of the presentation. "the long journey to recovery." as i told her earlier, unfortunately the weather is appropriate for the message and for the topic. but nonetheless, i am sure we will all benefit from her presentation. she has a power point as you can

guess, and we'll go through that. and then i'll join her here up on stage. we'll have a discussion. and then open it to the audience. i'm sure this is going to be worthwhile. but also i highly recommend that you pull out your -- not now, but when you get home or to your office, pull out your favorite electronic device. connect to the internet and download your own copy of the economic report. it's well worth taking a look at. it's nearly 80 pages long, so it's a very serious bit of business. it behooves a look-through if you're interested, but luckily we'll hear the high points right now. thanks for coming back to csis. >> well, thank you for having me again. and, yes, why is our report called "the long journey to

recovery." and john already alluded a bit to it. one is related to what happened about a year ago when we presented our report in april 2015, when there wasn't a lot of hope that oil prices would quickly rebound and the contraction would not be as bad as we projected and that was 3.8% a year ago. and unfortunately as you know, things turned quite difficult in august when we saw another oil price shock and a quite sizable oil price shock that in the end dashed these hopes of an earlier recovery and we actually had minus 3.7% growth last year. but this is a bit about the backward-looking part of the report, which where i will illustrate how the economy in

russia adjusted to this oil price shock but also to the economic sanctions. and then also forward looking, we really try to see what are new movements in the economy, in the structure of the economy, where we could see new opportunities for growth and how fast could these new opportunities come along. and this is also part of the story. it looks like this kind of recovery that is based on a renewal in the economy and change in the structure of the economy might change a bit longer than many perhaps expect. so, when we look back at what happened last year in terms of how deep the recession was and how long it actually is already lasting, you can see it here very nicely in the blue line which is the, quote-unquote,

seasonal adjusted growth and, of course, shows us economists if an economy is in recession and we talk about a recession if we have two consecutive quarters negative. and you can see that for russia this is now turning into already a quite long recession of six consecutive quarters. and if we take the entire gdp contraction over this period since the quarter three of 2014, we see that it is already 5% cumulative. so, 3.7 last year was only part of the story anyway. we can see, which is perhaps the good news, that the lowest point was reached in the second quarter of last year. and we since then have at least a slightly less contraction. if we think about how did this -- how did the adjustment

of the economy happen to this double shock that hit the russian economy in terms of the oil price shock but also the sanctions shock. we can see that it was mainly leading to a gross domestic income drop driven by terms of trade losses. and you can see what happened in terms of adjustments of especially domestic demand on the household side that households really reduced consumption quite dramatically because the ruble devaluation led to double-digit inflation and wages and incomes unfortunately did not adjust in line with inflation and that led to this reaction of households. so, private consumption dropped by over 10% last year.

and the same, if we have an economy where we have very weak domestic demand in terms of consumption, it is very likely that, of course, investors see little incentives to increase capacity through investments. and added to that, of course, the sanctions impact that is restricting access to international finance but also overall capital flows, less flexible with the sanction environment. we see that due to the ruble devaluation interest -- the key policy rate was increased dramatically by the central bank to support the ruble. and since inflation pressure stayed pretty high throughout last year, the monetary easing cycle especially since august was discontinued and we still have key policy rates of 11%.

so, these factors altogether but mainly driven by this weak consumption led to also this very negative growth in investment. the bright side is the one that is related to the policy response, and to which i will go a bit later on the next slide is the one that we had a free float that signaled immediately to households that their purchasing powers is now differently because the ruble devaluated in line with the oil prices. and that meant that households could not anymore purchase imports like they did before. and hence you have a positive contributation of inports because imports adjusted dramatically and dropped

significantly. and another good sign is this light blue part in the last quarter where we see for the first time a significant increase in export volumes, which could point to the fact that some rationed firms now take advantage of the weaker ruble and perhaps become exporters. and these were the main questions, too we try to explore further in the report is there now a new opportunity for russian firms to produce for the domestic market and substitute these imports and is there now an opportunity for them to become exporters. and if not what could hold them back. here is just a slide to illustrate to you the beauty of the free float and what helped -- how it helps in russia to really bring imports down

very nicely. you can see here the oil price and the relative effective exchange rate adjusting nicely with it, but ultimately with that imports adjusting very well. and this is a really great result for resource exporting country to have in essence at the end still a positive current account balance even though you have major external shock hitting the economy. and that is really thanks to the adherence of the central bank to the free float throughout last year. and what is often underestimated it's also that the free float that didn't just help the external balances to adjust very nicely in russia, but it also helped to preserve very precious foreign exchange reserves and fiscal buffers for russia. so, overall on the macroeconomic response side you see a very

nice management and we could even call it textbook macroeconomic management of a crisis. and i want to illustrate how well russia fared with the free float. and you can see it here. the exchange rate, the free floating ruble compared to the currency in neighboring country in azerbaijan and kazakhstan that still clung to the fixed exchange rate much longer than russia did. russia free floated their currency on the 3rd of november in 2014, and the other two kazakhstan and azerbaijan still tried to keep the fixed exchange rate. and in the end, how did it affect the foreign exchange and fiscal reserves compared to russia. we can see that, for instance, russia's foreign exchange rate -- exchange reserves where the end of last year still 13 months of imports.

that's really nice reserve in foreign exchange. while we saw the ones for azerbaijan dropping from eight to four months of imports. and at four months we macroeconomists get a business nervous. you can see that azerbaijan actually did float their exchange rate in december last year, too. if we look at, for instance, the differences it had in terms of fiscal impact, we had a sizable federal deficit for russia of 2.4% last year. but, again, if we compare it, for instance, to kazakhstan, they had one that was nearly 7%. so, these are really very different numbers and tell you how well russia fared with the free float. but most of all, i think this is for a macroeconomist to think about where is this macro picture connecting actually to the microeconomics to the different sectors to the

opportunities for russian firms to take advantage of a weaker ruble. and this is an interesting story for russia, and we spend actually most of the report on digging into these kind of data and trying to find out what is happening. is the structure of the economy changing, are there new firms, especially in the tradeable sector that should have now a relative price advantage. are there now emerging more than before, are more firms becoming exporters. and when we look at it first in terms is the tradeable sector taking advantage and producing more, right, because usually you have to produce before you can export. it's an interesting picture. you see, every culture output here on the left is increasing. mining and extraction is positive still. but we did see that overall manufacturing contracted

strongly. and this is counterintuitive as first. but, of course, if we think that it takes time perhaps for firms to adjust to this new reality, and first you have to see what you want to see as an economist, that the factors of production move to the new growth sectors from the ones that are not growth sectors anymore. then you would first look at data like, for instance, investment growth or employment growth because that could tell you which sectors have now actually -- are now able to pool more off these factors. and you can see if we look at different sectors that there are actually a few here on the right that have quite sizable investment growth. and these could be the new growth sectors for russia.

and this is chemical production, mining, rubber, plastic products. if you look at our cover picture, you see the balloon that is held up by the bird, and these are perhaps the new birds where you can see some diversification in the economy away from simply oil -- the oil sector. but it's also interesting that overall manufacturing investment is still negative. and perhaps more surprising when we see agricultural increase -- production increase of 3% last year that agriculture investment and food processing investment is deeply negative. and if i didn't tell you also that agricultural exports actually did not increase last year. we can see that all this production increase was purely for the domestic market. it was not a sector that is at the moment becoming an export

sector and it's, of course, also related to the import restrictions that were imposed on food imports. but if i look forward, while i say these are the future growth sectors perhaps, this is, of course, also indicating that agriculture at this point is not looking like a sector that can become a future competitive sector. because it simply doesn't get new resources, investments, capital to change products, to make them more competitive on the international market. and then it was interesting for us to look into the broader export profile, not just the production side, but what happens actually with the export profile in russia. and what we saw is when we looked at the latest data we

have and the previous years on the composition of exports and the destinations of especially nonfuel exports, because what we want to see at this point is a change in nonfuel export. we see that unfortunately until now there is little change that most of the export products are nonfuel commodities, metals, wood and then some primary goods like chemicals. and then at the same time we see that most of russia's nonfuel exports still go mainly into the eu and some cis countries, but there's not a huge expansion of markets yet visible. and, again, it's a question why is this the case. so, what we see is that the traditional exporters that russia had -- and these are commodity, even nonoil commodity

exporters and chemicals actually fared pretty well last year. and they're also the ones that lead at the moment to this large increase in export volumes. so, what we can see here is they were able to take advantage of this relative price adjustment and simply increase the production of the same goods that they produced before and pushed more out into the same markets because they now have the goods at much cheaper prices. but all we don't see yet is to a large extent that new firms or new exporters emerge. and this is, then, of course, a question of why is investment not happening in other manufacturing sectors. what is holding back a change in the structure of the products on the left or as you can see by

country here into new markets. and this is, of course, related to the issue that no firm is born an exporter. you have to really -- if you produce something domestically it's a different competition than you produce for export markets. you have to adjust your production. you have different quality and standard requirements for your products. you need a different logistic and marketing packaging approach, and that usually needs some changes in how you produced than compared to before for the domestic market and that needs investment. and it seems like at the moment we have, of course, not many investors in production and exporting firms coming forward to do so. and this might be related to many of the so-called structural constraints in the economy that, of course, did not change.

so, we have a change in the relative prices, but we don't have yet a change in the reality of production for firms in russia. and if i don't see major effort in structural -- in the structural reforms and in the structure of the economy, it is unlikely that i will see new growth potential emerging. and russia's growth in the medium term being higher than the 1% or 2% growth potential that we see at the moment. and this is reflected in the outlook that we have for russia. at the moment you can see in our report oil prices are now a baseline of minus -- of $37 per barrel which lead to -- which would lead to a contraction of 1.9% this year and next year at

$48 per barrel on average we would get to positive growth of 1.1%. i can tell you already that our oil price forecast was revised last week. so, i have already a new forecast. and with our new corporate world bank oil price forecast of $41 per barrel for this year, the contraction is slightly smaller. but still, over 1%. but perhaps it's not so interesting what is happening here, and given the oil price volatility we, again, have lower bound oil price and an upper bound oil price and now the lower bound is, for instance, assuming on average $30 this year. and the upper one over $40. it is just to -- given this oil price volatility to give this spectrum of forecast where we

are very confident that growth will turn out. and even our revised forecast is obviously within this band of forecast. but i think what is more important for russia is, of course, what happens in the next year and beyond. so, what is the growth path that russia is embarking on. and one, of course, very important assumption in the forecast is the sanction assumption. and this is something that we were asked a lot in the past, how is the sanction environment impacting the russian economic growth path. and what we did this time because when we looked backwards, it was very difficult to distinguish the impact of the sanctions from the oil price shock because they're both really hit the same channels of investment and consumption and net exports. and for that reason it is rather

difficult to disentangle these two effects and one can do it very roughly. but we decided now forward looking it is a good opportunity to use the same baseline assumption and monetary fiscal policy and oil prices and have an alternative baseline that assumes that for projection purposes only the sanctions would be removed in 2017. and to illustrate, then, what the impact would be, we compare here on the left the sanction environment or baseline with the alternative baseline where we assume no sanctions for 2017. so, you can see the main impact we would assume to be seen is in the investment growth, so we would assume due to the removal of the sanctions capital flows would increase again, external is possible and sentiments

overall improve and for that reason we could see higher growth in 2017 in investment, but also sentiment improvement and second round effects of investment growth on consumption. but overall perhaps the impact is rather limited between 1.1% and 2%. and if we especially look at 2018, short lift. overall, we are not just as the world bank look at growth trends. we always want to see also how does it impact the welfare of households and most of all poverty trends, but also shared prosperity trends, which is how it impacts the income growth of the bottom 40% of the population. and when we do our forecast and

at the same time do our poverty forecast, we can see that we still expect further increase in the poverty rate for 2016. but the largest increase in poverty was really last year where it increased from 11.2% to 13.4% and these are 3 million people more under the national subsistence level. especially, again, when we talk about shared prosperity and poverty trends, these usually are trends you want to look at over a longer period. you can see that in one year or two years basically the poverty gains -- reduction gains over the last decade where it was eradicated. so, it's going to be very interesting what kind of growth materializes over the next two years, if it could reverse this

loss in poverty achievements again. and finally, if we think about what are forward looking, the main policy changes and risks, we see, of course, that there are some key challenges when we think about the new opportunities that there are with the weaker ruble, that we showed in the report are related to lack of investment and still large constraints in economy-wide investment conditions, are these structural constraints. so, at the moment what is really important, again, for russia is that these structural barriers to growth in the economy are of utmost importance in limiting the change -- positive change in growth potential. and that's why they're really

the base for any higher growth going forward. it's not the third, the last one, it is really the most important issue that has to be in place if russia would like to change its growth path. and i mentioned a few important one like high transportation and logistic cost which is now very important. if you can produce cheaper, but it still costs you three times more than in china to ship a container across the border, then this advantage is quickly disappearing. and the same if there's not enough competition in markets, then it is less likely that the price adjustment is passed through to the households, who then could also purchase goods at cheaper prices. and we see that actually in the profit growth that happened last

year in the recession year of 3.7% corporate profits increased by 50% last year on average. so, this is a sign that there is high concentration in the markets and not full competition. but there is a role also for what we call more the cyclical policy issues. and this is the fiscal and on the financial sector side actually more stability issues at the moment. and on the first fiscal challenges, we see that after this adjustment of the external balances, the main policy challenges now shift to the adjustment of the fiscal balances. this is going to be a quite difficult task for russia because it appears with the oil price forecast you see globally that oil prices remain around $50 over the next years at least

in our forecast but many other analysts have very similar forecasts. and that means that they will face a permanent reduction in their revenue base. and that -- in the light of the decreasing fiscal buffers, really brings up fiscal adjustment challenges. we will have the majority of the reserve fund being used this year, and then there is no fiscal buffer to finance large fiscal deficit like last year or that is expected this year. so, in essence the faspace, wha we call the policy space, or the options f s for the policy choi are much more limited than last year. and in our view would require a really much more strategic adjustment of expenditure going forward. different from the general

expenditure cuts of last year of 5% in real terms and now in this year in january by 10%. but not just an adjustment on the expenditure side either which at the moment it's an emergency situation. usually the first adjustment that is introduced to just stop spending or reduce spending at least, but it really needs also thinking about nonoil revenues if i think my revenue base -- my oil revenue base is permanently lower. and, of course, the financing strategy going forward, which is, of course, also reflecting if you have access to external markets or not. and last but not least, it is still about assure ing that the is financial sector stability. the measures that the authorities introduced last year through the anti-crisis program

that had a massive bank recapitalization program, but also the forbearance of central bank regulations really helped the financial sector to adjust last year. but there is still a lot of reliance on financing from the central bank and increasingly actually by the financial sector and also this strategy of continued consolidation is, of course, requiring that there are enough resources, for instance, in the deficit insurance fund to compensate investors or creditors. and this is a bit -- an issue where we can see if another global financial shock or instability happened, it would limit the instruments that the

government had last year for securing financial sector stability this year. and when we, again, look at all these different policy challenges, it seems like a lot of open questions are still there. we still don't know what is medium-term fiscal strategy of the authorities. is it one of social policy expenditure reduction. is it one of investment reduction. is it one of continued low corporate and private income taxes or is there change in vision. and these are very important policy choices that economic agents, consumers and firms would like to know. and the same on the financial sector stability. we have many banks that simply will not be able to make it in

this adjustment process. so, what does it mean, for instance, the biggest, small and medium enterprise bank was delicensed last year because it was not financially viable. but what does it mean in terms of credit flows to different parts of the economy, and, of course, in general what does it mean if we don't have clarity for businesses if something fundamentally changes in the conditions for investment and doing business. and this is really becoming this whole package of policy uncertainty is becoming key binding constraint for russia and its recovery from this recession. and will in our view determine how fast and how big the rebound for the russian economy going forward will be. what you can see here, we have

business confidence still very deeply negative, but at least it seems to bottom out. but if we ask -- or if rasta, this is rasta data, what is your constraint out of this five-week demand, policy uncertainty and interest rate and lack of financial resources and if we compare how often these constraints are mentioned this year in the first quarter is the orange bar compared to last year in the first quarter, we see that policy uncertainty is now the key constraints for businesses, and that's very interesting because, yes, we have extremely weak consumer demand. as i said household demand dropped by 10% last year, and it is still a key constraint similar to last year. but what really changed is that now businesses see that these uncertainties about what policy

choices will be made is holding them back to think about expanding production and their businesses overall. and until these policy uncertainties, then, are not addressed, we don't think that there is an opportunity for higher growth potential for russia and with that for higher growth in the next years. thank you. >> well, that was illuminating, but not very encouraging. first of all, did i get it right? just some back of the envelope without an envelope calculation

suggests it will be 2020 before they get back to the level of production of 2014? is that about right? >> yeah. >> whew. so, not going to have a lot of happy russians anytime soon at least from that score, so that's a pretty tough picture. you can say, well, we're just now in the eu, just now getting back to the levels of production of 2007, which is also true, but in any case, that seems to be a basic fact. you've -- there are a number of ways to come at this. one simple way to look at it is big shortfall in investment and that both increasing -- both structural shifts and productivity gains will require investment and that's exactly what's not happening here,

right? i had the honor of chairing a session at davos three years ago on ask -- he wanted tough questions. i should give him tough questions. i asked when would russians have enough confidence in their future that they would start investing in russia and stop shipping money abroad. it turned out he didn't want that question. i got a very -- not a very happy response. looks like we haven't reached that response, is that correct? one of the big problems is not only are foreigners not investing in russia, russians aren't investing in russia. >> yes, that's certainly correct. it is something that started to happen before the crisis. we see that kind of pattern that investors are sitting on the

fence already since 2012. we saw that the large state driven, quasi state investment started to finish off and private investment not coming in to drive investment growth. the prices, oil price shock over the last year, we saw, of course, these new investors are facing, a lot of uncertainty of what will be the domestic demand in the country, very little willingness to take what we think is really an opportunity for russian now to produce more on the market because households cannot afford imports that they could before. really to become an exporter in

manufacturing goods, which they could not because partly the effect of the dutch -- oil exporting countries led to exchange rate that dominated the impact of the oil sector in terms of the structure of the economy. >> so the picture you've drawn -- i'm going to come back to it, about the run up to the current situation. most recently what you've laid out very clearly is that the key policy adjustment mechanism has been to allow the ruble to depreciate, as someone from the

imf knows well, the depreciation of a currency is not a way to solve a problem without flanking measures of adjustment both in terms of demand management and in terms of structural reform. you didn't exactly say it this way. is it fair to interpret that there has been a lack on both sides -- unclear fiscal adjustment and lack of structural reforms, hence, the positive impacts or potential positive structural impacts of the significant exchange rate adjustment are not being felt quickly or clearly. >> well, i think to be fair, for an economy -- how an external shock works is waved through the economy, first hits external balances anti-exchange rate and if you allow these to adjust, this the magic wand of the

flexible exchange rate, then you're in a better position to take change of good things, production or exports. it is a bit of a sequencing. first step of macroeconomic is perfectly done. central bank very disciplined, adhere to flexible exchange rate and only intervened in december 2013. dramatically, maybe in october and then floated the exchange rate because it realized it has to prop up the ruble by using a lot of its foreign exchange reserves. and decided that perhaps not wise, not knowing whether the oil price would perhaps bottom out. but so that job of central bank was done nicely. but it is done, more or less. so what happens next is then to look beyond emergency measures on the fiscal side.

of course, when, again, such a shock that impacts your revenue base that is more than 40% oil revenues, so suddenly, of course, you will cut first on the expenditure side to somehow balance your budget and you run a higher deficit, so that's exactly the rule of the reserve fund, to manage higher fiscal deficits in times of commodity price shock. and that's the time where you should use it, to balance the budget, if you can, depends on the size of the fiscal deficit.

and i think that's also done actually in a very nice, measured way, but this is the second year now. so two years of fiscal sizable fiscal deficit of 2%, 3%, will deplete the reserve fund that was around 7% of gdp. so if this is not just one or two-year shock that oil prices remain at that level, it means you have to adjust your fiscal picture. and this is really the question of the 2017 budget. it is really the first budget that should signal clearly what other strategic policy choices for the authorities. and the last one, but not least,

is about the structural reforms. it is about, yes, my firms now have this opportunity of a relative price advantage because my central bank floated the exchange rate, but can they actually take advantage of it? because it takes more than a relative price advantage to be able to produce more and export more. therefore, you still need investment capital, labor, you have to hire more people usually to produce more or new goods. and again, you have to ship these products to the consumer so it's about transportation costs and all of these structural constraints. and it is very interesting that again now these become to the forefront of these policy challenges. so it is not enough, which many economists first think that if

you have relative, then magically, all of the classic approach magically, all of the factors of production move to the right producer. no, there are these barriers of lack of competition and so on that prevent that. and they have to be really addressed. or it's less opportunity for firms. >> let me ask two questions then that flow from that one. i think non-experts from abroad have the impression that in the period of run-up to the crisis, the oil price shock, that there was a process of centralization going on in the russian economy, reassertion of the role of the state or large enterprises that were associated with the state. does that in the current context, does that turn out to have left the economy wrong-footed and needs to be reversed, or should these firms actually be able to be more decisive in moving to take advantage of opportunities?

so far, it looks like they haven't been, but you tell me if that impression is a justified one, and how you see the interaction of the opportunities and these recentralization of the economy that preceded the shock. >> well, first of all, from an economist's point of view, if a company state owned or privately owned, it doesn't really matter, but the outcome matters. do i see the firm to be efficient? that there's not a monopoly. so these are the questions. so in general, if i see in a country that the state footprint like we call it, increases, it is not necessarily telling me if this is good or bad for the allocation of resources and productivity growth ultimately, but of course, we know that state-owned companies in many countries have different goals than profit maximizing, which

usually leads to the drive to increase productivity because that's how you increase your profit margin. they have the incentives of providing employment or public goods at the price that is centrally regulated. and these are, of course, then the issues that become a problem if the state economy is growing, because you have a lack of innovation, a lack of productivity growth, and this is holding them back, of course. growth on aggregate. but there are different ways. you can make state-owned companies more efficient or you can privatize parts of the economy where it's not intuitive why the state should be involved in the production and not just rather doing what the main job of the state is, to regulate the market and provide equal