6 February 1999
Source: http://www.usia.gov/current/news/topic/intrel/99020205.tpo.html?/products/washfile/newsitem.shtml

USIS Washington File
_________________________________

02 February 1999

### CIA DIRECTOR TENET'S STATEMENT AT SENATE HEARING FEB. 2

    (Discusses WMD proliferation, Russia, China, North Korea) (6470)

    Washington -- The greatest threat to US security is the proliferation
    of Weapons of Mass Destruction (WMD) among rogue states, Central
    Intelligence Agency Director George Tenet told the Senate Armed
    Services Committee February 2.

    In his opening statement to the panel, he said of particular worry to
    the Intelligence Community "is the security of Russian WMD (weapons of
    mass destruction) materials, increased cooperation among rogue states,
    and more effective efforts by proliferants to conceal illicit
    activities."

    The "changed political dynamic and the economic slide" makes Russia
    increasingly unpredictable, Tenet stated. The worsening economic
    situation there only increases incentives for Russia to aid in the
    proliferation of weapons and technologies.

    "China has the potential to affect" the US security posture in Asia,
    Tenet acknowledged, "but the extent to which its ambitions and growing
    capabilities represent a challenge or threat to US interests is still
    an open question."

    "Both the Chinese government and Chinese firms have long-standing and
    deep relationships with proliferant countries, and we are not
    convinced that China's companies fully share the commitments
    undertaken by senior Chinese leaders," to prevent the export of
    nuclear weapons and fissile material.

    North Korea, Tenet said, has become "more volatile and unpredictable"
    and is a major global proliferator. "Missiles and WMD know-how are
    North Korean products for which there is a real market. North Korea's
    sales of such products over the years have dramatically heightened the
    WMD threat in countries of key concern such as Iran and Pakistan," he
    said. The United States is also concerned about North Korea's
    underground construction project at Kumchang-ni, which it suspects to
    be a production facility for nuclear weapons, he added.

    Tenet warned that the fluid situation in Iran could easily lead to a
    "proliferation surprise." This fluidity stems from severe economic
    stress which has made it almost impossible for President Khatami to
    institute reforms, he said. Adding to the problem are the
    conservatives, who are increasingly turning to violence to achieve
    their goals, he noted. Tenet predicts that in 1999 Iran will see its
    most serious civil unrest in 20 years.

    Another threat to US security, the CIA Director said, is the
    production of new missiles with longer range; North Korea and Iran are
    both in the process of developing such missiles, he said, and he
    warned that Iraqi missile capabilities could also become a threat
    again if United Nations sanctions against Iraq are lifted.

    Tenet said that Usama Bin Ladin, the dissident Saudi businessman of
    Yemeni origin who now resides in Afghanistan, and his allies are
    planning further attacks against Americans. "We have noted recent
    activity similar to what occurred prior to the African embassy
    bombings," he said. Tenet explained that Bin Ladin refers to the
    acquisition of chemical, biological, radiological and nuclear weapons,
    as his "religious duty."

    Tenet also urged both sides in the Kosovo conflict to agree to an
    interim political settlement.

    "The Kosovo Liberation Army will emerge from the winter better
    trained, better equipped, and better led than last year," Tenet
    warned. "Both sides will likely step up attacks on civilians" if a
    settlement is not achieved, the CIA Director said.

    Following is the CIA text, as prepared for delivery:

    (begin text)

    STATEMENT BY
    DIRECTOR OF CENTRAL INTELLIGENCE
    GEORGE J. TENET
    BEFORE THE SENATE ARMED SERVICES COMMITTEE
    HEARING ON
    CURRENT AND PROJECTED NATIONAL SECURITY THREATS

    2 February 1999

    INTRODUCTORY REMARKS

    In this last annual threat assessment of the 20th century, I must tell
    you that US citizens and interests are threatened in many arenas and
    across a wide spectrum of issues. What is noteworthy is the manner in
    which so many issues are now intertwined and so many dangers mutually
    reinforcing.

    Why is this so? To some degree it involves historic legacies fueled by
    the continued crumbling of Cold War constraints. We see this in the
    ongoing turmoil of the Balkans, the increasing violence in Africa, and
    the renewed volatility of the Subcontinent. But in today's world,
    these problems fester amidst new danger -- dangers that flow from new
    factors, such as the increasing availability of sophisticated
    technology and the ease and speed with which it can be applied by
    those hostile to the United States. In a very real sense, we live at a
    moment when the past and the future are colliding. In other words,
    today we must still deal with terrorists, insurgents, and others who
    have hundreds of years of history fueling their causes -- but chances
    are they will be using laptop computers, sophisticated encryption, and
    weaponry their predecessors could not even have imagined.

    Transnational Issues:  WMD Proliferation

    No issue is more emblematic of these new challenges than the
    proliferation of weapons of mass destruction. As you know, 1998 saw
    the nuclear tests in South Asia, continued concerns about Iraq's WMD
    programs, accelerated missile development in Iran, North Korea,
    Pakistan and India, and broader availability of BW and CW relevant
    technologies. Particularly worrisome to the Intelligence Community is
    the security of Russian WMD materials, increased cooperation among
    rogue states, and more effective efforts by proliferants to conceal
    illicit activities. US intelligence is increasing its emphasis and
    resources on many of these issues, but I must tell you that there is a
    continued and growing risk of surprise.

    Looking at the supply-side first: Russian and Chinese assistance to
    proliferant countries has merited particular attention for several
    years. This year, unfortunately, is no exception. I mentioned in my
    statement last year that Russia had just announced new controls on
    transfers of missile-related technology. There were some positive
    signs in Russia's performance early last year but, unfortunately,
    there has not been a sustained improvement. Especially during the last
    six months, expertise and materiel from Russia has continued to assist
    the Iranian missile effort in areas ranging from training, to testing,
    to components. This assistance is continuing as we speak, and there is
    no doubt that it will play a crucial role in Iran's abilility to
    develop more sophisticated and longer range missiles.

    Making matters worse, societal and economic stress in Russia seems
    likely to grow, raising even more concerns about the security of
    nuclear weapons and fissile material. Although we have not had recent
    reports of weapons usable nuclear material missing in Russia, what we
    have noticed are reports of strikes, lax discipline, and poor morale,
    and criminal activity at nuclear facilities. For me, Mr. Chairman,
    these are alarm bells that warrant our closest attention and concern.

    The China story is a mixed picture, Mr. Chairman. China's senior
    leaders are actively studying membership in the Missile Technology
    Control Regime and have pledged to prevent the export of materials or
    technology that could assist missile and nuclear programs in South
    Asia. Beijing has promulgated controls on dual-use nuclear technology
    and tightened chemical export controls.

    We cannot yet assure you, however, that the new export control
    mechanisms will be effective. Both the Chinese Government and Chinese
    firms have long-standing and deep relationships with proliferant
    countries, and we are not convinced that China's companies fully share
    the commitments undertaken by senior Chinese leaders. While all
    aspects of China's proliferation behavior bear continued watching, we
    see more signs of progress on nuclear matters than on missile
    assistance. Moreover, the restructuring of China's defense industrial
    bureaucracy -- including entities charged with export oversight --
    holds the potential to create confusion and incentives that would
    impede the effectiveness of this system. In short, Mr. Chairman, our
    guard remains up on this question.

    There is little positive I can say, Mr. Chairman, about North Korea,
    the third major global proliferator, whose incentive to engage in such
    behavior increases as its economy continues to decline. Missiles and
    WMD know-how are North Korean products for which there is a real
    market. North Korea's sales of such products over the years have
    dramatically heightened the WMD threat in countries of key concern,
    such as Iran and Pakistan.

    Meanwhile, countries, such as India, Pakistan, and Iran that
    traditionally have been seen as technology customers, have now
    developed capabilities that they could export to others.

    Looking at the demand side, Mr. Chairman, let's focus first on nuclear
    programs. Last spring dramatically made clear that both India and
    Pakistan are well positioned to build significant nuclear arsenals.
    Meanwhile, Iran, too, seems to be pushing its program forward. With
    regard to North Korea, the Agreed Framework has frozen P'yongyang's
    ability to produce additional plutonium at Yongbyon, but we are deeply
    concerned that North Korea has a covert program. The key target for us
    to watch is the underground construction project at Kumchang-ni, which
    is large enough to house a plutonium production facility and perhaps a
    reprocessing plant as well.

    The missile story is no more encouraging. Indeed, we expect the high
    level of launch activity in 1998 to continue in 1999. Last year's
    activity included the first launches of the North Korean Taepo Dong 1,
    the Pakistani Ghauri and the Iranian Shahab-3, the latter two based on
    North Korea's No Dong. With a range of 1,300 km, the No Dong,
    Shahab-3, and Ghauri significantly alter the military equations in
    their respective regions; each is probably capable of delivering
    weapons of mass destruction.

    In short, theater-range missiles with increasing range pose an
    immediate and growing threat to US interests, military forces, and
    allies -- and the threat is increasing. This threat is here and now.

    More disturbing, is that foreign missiles of increased range and
    military potential are under development. North Korea's three-stage
    Taepo-Dong 1, launched last August, demonstrated technology that, with
    the resolution of some important technical issues, would give North
    Korea the ability to deliver a very small payload to intercontinental
    ranges -- including parts of the United States -- although not very
    accurately.

    P'yongyang is also working on another missile -- the Taepo Dong-2.
    With two stages, the Taepo Dong-2, which has not yet been
    flight-tested, would be able to deliver significantly larger payloads
    to mainland Alaska and the Hawaiian Islands and smaller payloads to
    other parts of the United States. In other words, the lighter the
    payload, the greater the range. With a third stage like the one
    demonstrated last August on the Taepo Dong-1, this missile would be
    able to deliver large payloads to the rest of the US. The
    proliferation implications of these missiles are obviously
    significant.

    Foreign assistance is a fundamental factor behind the growth in the
    missile threat. For example, foreign assistance helped Iran save years
    in its development of the Shahab-3 missile, which is based on the
    North Korean No Dong and, as I noted earlier, includes Russian
    assistance. Moreover, Iran will continue to seek longer range missiles
    and to seek foreign assistance in their development.

    If Iran follows a development time line similar to that demonstrated
    with the Shahab-3, which included significant foreign assistance, it
    would take Iran many years to develop a 9,000 to 10,000 km range ICBM
    capable of reaching the United States. But Iran could significantly
    shorten the acquisition time -- and warning time -- by purchasing key
    components or entire systems from potential sellers such as North
    Korea.

    Iraqi capabilities to develop missiles also continues to be a concern.
    Iraq was ahead of Iran before the Gulf war, and if sanctions were
    lifted, we would have to assume that Iraq would seek longer-range
    capabilities.

    Against the backdrop of an increasing missile threat, Mr. Chairman,
    the proliferation of chemical and biological weapons takes on more
    alarming dimensions. At least sixteen states, including those with the
    missile programs mentioned earlier, currently have active CW programs,
    and perhaps a dozen are pursuing offensive BW programs. And a number
    of these programs are run by countries with a history of sponsoring
    terrorism.

    The Threat of Terrorism

    On terrorism, I must be frank in saying that Americans increasingly
    are the favored targets. US citizens and facilities suffered more than
    35 percent of the total number of international terrorist attacks in
    1998. This is up from 30 percent in 1997, and 25 percent in 1996.

    Looking out over the next year, let me mention two specific concerns.
    First, there is not the slightest doubt that Usama Bin Ladin, his
    worldwide allies, and his sympathizers are planning further attacks
    against us. Despite progress against his networks, Bin Ladin's
    organization has contacts virtually worldwide, including in the United
    States -- and he has stated unequivocally, Mr. Chairman, that all
    Americans are targets.

    Bin Ladin's overarching aim is to get the United States out of the
    Persian Gulf, but he will strike wherever in the world he thinks we
    are vulnerable. We are anticipating bombing attempts with conventional
    explosives, but his operatives are also capable of kidnappings and
    assassinations.

    We have noted recent activity similar to what occurred prior to the
    African embassy bombings, Mr. Chairman, and I must tell you we are
    concerned that one or more of Bin Ladin's attacks could occur at any
    time.

    One of my greatest concerns is the serious prospect that Bin Ladin or
    another terrorist might use chemical or biological weapons. Bin
    Ladin's organization is just one of about a dozen terrorist groups
    that have expressed an interest in or have sought chemical,
    biological, radiological, and nuclear (CBRN) agents. Bin Ladin, for
    example, has called the acquisition of these weapons a "religious
    duty" and noted that "how we use them is up to us."

    Earlier I referred to state sponsorship of terrorism, so let me take
    this opportunity to say, with respect to Iran, that we have yet to see
    any significant reduction in Iran's support for terrorism. President
    Khatami took office in August 1997, but hard-liners, such as Supreme
    leader Khamenei, continue to view terrorism as a legitimate tool of
    Iranian policy and they still control the institutions that can
    implement it.

    The Threat of International Narcotics and Organized Crime

    Turning now to the problem of international narcotrafficking and
    organized crime -- I must tell you that the threat remains
    significant, despite many successes, particularly in the fight against
    cocaine trafficking. The illicit narcotics trade adapts quickly to law
    enforcement pressures, new markets, and shifting supply patterns.
    Three developments particularly concern me.

    First, there is good news and bad news on coca cultivation. In Peru --
    which historically has accounted for more than half of the Andean
    total -- cultivation has declined by more than half over the past
    three years. Cultivation in Bolivia, historically the second largest
    coca producer, has also dropped substantially. The bad news, however,
    is that these declines are largely offset by significant increases in
    coca cultivation and production in Colombia -- much of which is in
    high-risk insurgent-controlled territory making Colombia's eradication
    efforts more problematic.

    -- To President Pastrana's credit, he is trying to engage the
    insurgents in talks intended partly to seek their help in eradication
    efforts -- the first time a Colombian President has taken such a bold
    and risky step.

    Second, drug shipments are increasing overland through Central America
    to Mexico, and from there across the southwest border into the United
    States.

    Finally, opium production -- the source of all refined heroin -- has
    ballooned in Afghanistan. This country now accounts for almost 40
    percent of potential worldwide opium production and may be approaching
    Burma as the top heroin exporter in the world.

    Now, harder to track than drugs -- but every bit as insidious -- is
    international organized crime. In Russia, crime groups have permeated
    the financial sector, and bad bank loans, some made at the behest of
    criminal groups, have weakened individual banks and the Russian
    banking system.

    Here's my principal concern, the potential profitability of smuggling
    items related to weapons of mass destruction may lead to organized
    criminal involvement in brokering deals, financing transactions, or
    facilitating the transport of WMD materials to rogue states and
    terrorist groups.

    The Threat of Information Warfare and the Year 2000 Problem

    In another arena, 1998 made clear to me that the increasing digital
    domination of our lives in the Information Age is creating a
    vulnerability of a different kind -- the potential threat to our
    national security posed by information warfare.

    Several countries have or are developing the capability to attack an
    adversary's computer systems. Developing a computer attack capability
    can be quite inexpensive and easily concealable: it requires little
    infrastructure, and the technology required is dual-use.

    For our part, providing timely warning of an attack against US
    computer systems is a tough technical challenge. It will require close
    coordination with law enforcement and the private sector to succeed,
    and that is what we are working hard to achieve.

    And as we close the 20th Mr. Chairman, there is one more
    computer-based threat on my mind -- the inability of some foreign
    countries to deal adequately with the Year 2000 problem.

    In our judgment, foreign countries trail the United States in
    addressing the Y2K problems by at least several months, and in many
    cases by much longer. The lowest level of Y2K preparedness is evident
    in Eastern Europe, Russia, Latin America, the Middle East, Africa, and
    several Asian countries, including China. Y2K remediation is
    underfunded in most countries.

    These uneven efforts account for several potential threats to our
    interests. Global linkages in telecommunications, financial systems,
    air transportation, the manufacturing supply chain, oil supplies, and
    trade mean that Y2K problems will not be isolated to individual
    countries, and no country will be immune from failures in these
    sectors. There is potential for civil unrest in some countries,
    particularly if critical service sectors are disrupted for extended
    periods. Energy flows could be interrupted in some countries. Europe,
    for example, gets more than one-third of its natural gas from Russia
    and could be affected if Gazprom has Y2K problems. Some military
    activities, including those of our allies, depend on the secure and
    uninterrupted flow of digital information, making overall readiness a
    potential casualty of Y2K.

    CHALLENGE:  RUSSIA AND CHINA

    Daunting as these challenges are, we cannot, in focusing on them,
    overlook some more traditional concerns in two nations of critical
    importance to the United States: Russia and China.

    Russia

    Let me start with Russia. Last year I reported to you my view that
    Russia's future direction -- whether it develops as a stable
    democracy, reverts to the autocratic and expansionist impulses of its
    past, or degenerates into instability -- remained an open question. My
    concerns about Russia's direction are greater today than they were a
    year ago -- largely because Russia's deteriorating economy elevates
    the "uncertainty quotient" in a number of key areas.

    Just one year ago, Russia had its problems, but it had a basic sense
    of direction and seemed to be moving forward, however fitfully. Now,
    however, Prime Minister Primakov is struggling with mammoth problems.
    To his credit, he has built a good relationship with the legislature
    and gained passage of some long overdue legislation. But the nation is
    heading into a political transition, facing difficult economic
    choices, and possibly entering a period in which it debates its future
    political direction. This is playing out against continuing instances
    of lawlessness and growing public sentiment for a stronger hand at the
    helm. This could be a dangerous path for a country with Russia's
    authoritarian history, even though Russia has now held successful
    elections and adopted a constitution.

    The sense of drift is accentuated by the focus most political leaders
    already have on the December 1999 Duma elections and the June 2000
    Presidential election. Very few are disposed to take bold steps or new
    initiatives that might risk additional public "pain" right now.

    -- Meanwhile, President Yeltsin's health problems limit his
    involvement in decisionmaking and place on Prime Minister Primakov
    much of the responsibility for the day-to-day management of the
    country.

    As the government ponders how to proceed, the economic indicators grow
    more worrisome. Russian consumers have been hit hard by inflation --
    prices have shot up 90 percent since late July -- imports of consumer
    goods have now fallen sharply, unemployment has inched up to nearly 12
    percent and is spreading to the emerging middle class, and the economy
    will probably contract by 6 to 8 percent this year.

    This changed political dynamic and the economic slide highlights the
    foundation of my increased concern: Politically, Russia is
    increasingly unpredictable, and the worsening economic situation
    affects all aspects of the Russian scene, as the desperate search for
    revenue streams is exacerbating a number of serious problems:

    -- For example, it has magnified the proliferation threat across the
    board, as growing financial pressures raise incentives to transfer
    sensitive technologies -- especially to Iran.

    -- It has also highlighted the patchwork, inconsistent nature of
    Moscow's relations with Russia's 89 regions -- particularly in the
    delineation of fiscal powers and responsibilities. Alarm bells rang in
    Moscow as dozens of regions initially responded to the economic crisis
    by imposing price controls and limiting the flow of foodstuffs and
    other goods outside their regions.

    China

    Turning now to China, my concerns bear some resemblance to those about
    Russia, but in China's case, the trajectory is clearly different.
    China is a great power on the rise -- diplomatically, militarily, and
    economically. There is no doubt that China has the potential to affect
    our security posture in Asia, but the extent to which its ambitions
    and growing capabilities represent a challenge or threat to US
    interests is still an open question.

    The Chinese have signaled in summit meetings and elsewhere that they
    want constructive bilateral relations. But at the same time, they
    remain fundamentally suspicious of US intentions toward China, and --
    like Russia -- seek to constrain any increase in US global influence.

    Meanwhile, China's military modernization program continues apace,
    despite slowing economic growth. The Chinese program is assisted by
    sustained levels of defense spending and the availability of weapons
    and technologies from the former Soviet bloc. Its focus is on air,
    naval, and strategic nuclear modernization.

    -- China is increasing the size and survivability of its retaliatory
    nuclear missile force, even though it is unlikely to make the resource
    commitment needed to approach the force levels of either the United
    States or Russia.

    -- China is also developing and acquiring air and naval systems
    intended to deter the United States from involvement in a Taiwan
    Strait crisis and to extend China's fighting capability beyond its
    coastline.

    Although China does not want a conflict over Taiwan, it refuses to
    renounce the use of force as an option and continues to place its best
    new military equipment opposite the island.

    China's future is also uncertain because of its pressing domestic
    challenges. On the economic side, China's major concern this year will
    be sustaining economic growth, which officially reached almost 8
    percent last year. China has not been immune from the global financial
    crisis, and much slower growth this year would threaten labor peace
    and increase pressure to devalue the currency -- a step that would
    fuel a new round of financial turmoil in Asia.

    These economic uncertainties have heightened China's fear of civil
    strife, and the recent arrests of several pro-democracy dissidents
    leave no doubt that China's leaders are determined to sustain the
    Communist Party's monopoly on political power.

    CHALLENGE:  REGIONAL TROUBLEMAKERS

    I'd like now to draw your attention to a group of hostile countries
    that remain determined to challenge our interests at every turn. The
    Threat from Iraq Needless to say, Iraq is high on this list. For eight
    years, Saddam has been scarred by military defeat, diplomatic
    setbacks, and UN sanctions. But he remains in power, and therefore,
    remains a threat.

    -- A fresh reminder of the threat has been Baghdad's return to
    anti-Kuwait themes not heard since 1994. Tariq Aziz in January, for
    example, called the Kuwaiti border issue "a mine that may explode in
    the future."

    -- In early January Saddam called on the Arab people to overthrow
    governments that support US policy.

    Such threats to Kuwait and moderate Arab regimes are signs of Saddam's
    frustration with containment. Such threats also are classic examples
    of Saddam's heavy-handed approach to the world -- one that exasperates
    Arab regimes.

    -- While noting their sympathy for the Iraqi people, Arab regimes have
    reiterated that Saddam is responsible for the consequences of his
    defiance.

    -- The Arab League Ministerial meeting in January and the November
    Damascus Declaration -- from GCC states plus Syria and Egypt -- showed
    that Saddam's defiance and bluster are backfiring.

    We fully expect that he will continue his confrontational approach
    this year. It stems from Saddam's frustration that Allied airstrikes
    have not triggered a decisive backlash against UN sanctions from
    Security Council members and Arab governments.

    -- His challenge to the no-fly zones, for example, is an effort to
    deepen divisions within the Security Council and to inspire greater
    opposition to American and British policy.

    With his diplomacy and his challenges to the No-Fly zone failing to
    deliver the breakthrough he seeks, Saddam will try other tactics to
    end sanctions.

    -- Over the years, I have talked about the capabilities of his
    military and his hidden weapons of mass destruction, as well as
    Saddam's ability to launch terrorism.

    -- Many of these capabilities remain available to him as he grows more
    frustrated and desperate to break out of containment.

    -- They remind us how dangerous Saddam is and why only his fall from
    power will free the region from this abiding threat.

    -- In this context, one important result of Operation Desert Fox was
    to damage the missile infrastructure that would support future Iraqi
    WMD development.

    -- But more importantly from my perspective, Baghdad learned from
    Desert Fox that Washington's will to address the Iraqi threat has not
    faded and that we know how to reach the things Saddam cares about most
    -- the instruments of his power.

    How secure is Saddam's rule? There is good news and bad news on that
    score. Over the last eight years UN sanctions, and other pressures
    have complicated Saddam's efforts to maintain firm control over the
    country. Economic difficulties and the Shia insurgency in southern
    Iraq have helped undermine morale in the regular Army, and perhaps in
    the Republican Guard. And as you have heard, Operation Desert Fox at
    least briefly had some disruptive impact on the Republican Guard and
    Security Services.

    Balancing such pressures on Saddam's regime, however, is a still --
    formidable security apparatus. The overlapping security services are
    pervasive and ruthless, leaving few vulnerabilities that can be
    exploited by those opposed to his rule. The security services are not
    infallible and Saddam has made many enemies inside Iraq, but his
    regime is not, as some have claimed, a house of cards.

    The Threat from North Korea

    Dangerous as Saddam is, Mr. Chairman, I can hardly overstate my
    concern about North Korea. In nearly all respects, the situation there
    has become more volatile and unpredictable. The regime is still
    struggling with serious food shortages, last year's grain harvest
    having been more than 1 million tons short of minimum grain needs.
    Very few heavy industrial plants are in operation. Living conditions
    for most North Koreans are miserable. Incredibly, this misery coexists
    with the robust WMD program I mentioned a few minutes ago.

    Fresh signs of social decay have increased our concern about stability
    in North Korea. Crime and indiscipline are commonplace even in the
    military and security services. Citizens from all walks of life,
    including members of elite groups, are more apt to blame Kim Chong-il
    for systemic problems, including poor living conditions.

    All of this will encourage the North to rely still more heavily on
    risky brinkmanship in its dealings with the United States. P'yongyang
    has a history of precipitating crises that it thought it could control
    to increase US engagement in bilateral relations.

    A key area where this will play out in the coming year is US efforts
    to inspect the underground construction project at Kumchang-ni, which
    may be intended to house a nuclear facility.

    The key point, is that North Korea remains a serious military threat,
    despite dire economic conditions. In addition to the WMD capabilities
    I mentioned earlier, P'yongyang continues to devote considerable
    resources to its mainline military, which can still initiate a
    full-scale war on the Peninsula and inflict massive damage on South
    Korea and the 37,000 American troops deployed there. We see no
    indication that Kim Chong-il has abandoned the goal of ultimately
    bringing the entire Peninsula under his control.

    The Threat from Iran

    Turning now to Iran: last year I described Iran as a still dangerous
    state in which some positive changes were taking place -- changes that
    could -- and I stressed could -- lead to a less confrontational stance
    toward the United States.

    But Iran has had a tumultuous year, and my sense is that it is more
    likely to face serious unrest in 1999 that at any time since the
    revolution 20 years ago. The situation is very fluid, and the more
    moderate elements represented by Iran's President Khatami are on the
    defensive to a greater degree than ever before in their struggle with
    the country's conservatives. Some of President Khatami's domestic
    reforms have come under intense attack by conservatives. And the
    current jump in political violence, including the recent murders of
    several dissidents, suggests that some conservative elements have
    decided to revert to force to impose their will.

    Khatami now has an opportunity to use the investigation of these
    murders, in which hardline elements appear implicated, to put his
    opponents on the defensive. He needs to regain the momentum he
    demonstrated in his first few months to make concrete gains against
    the conservatives. He could do so by using the investigation to push
    for change in the MOIS and, combined with large turnout in nationwide
    elections later this month, could reaffirm his popular mandate to push
    for reform.

    But his efforts to do this will play out against a background of
    severe economic stress in Iran, largely the result of the slump in
    global oil prices. This is making it harder for Khatami to deliver on
    his reform promises -- with high unemployment also contributing to the
    potential for civil unrest in the country.

    Several troublesome developments involving Iran could unfold this
    year. First, Mr. Chairman, we need to bear soberly in mind that
    reformists and conservatives agree on at least one thing: weapons of
    mass destruction are a necessary component of defense and a high
    priority. Thus, as I stated earlier, we need to be vigilant against
    the possibility of proliferation surprise.

    India and Pakistan

    Moving further East, I must tell you that India and Pakistan continue
    to have fragile governments committed to potentially destabilizing
    nuclear and missile programs.

    In India, the Hindu-nationalist led coalition is struggling with
    internal strains, a resurgence of extremism, and rising expectations
    that contrast sharply with a slowing economy and weak policies.

    In Pakistan, the Sharif government is hampered by enormous economic
    problems and is contending with rising Islamic sentiment that includes
    an extremist fringe inspired by the Taliban example in Afghanistan.

    Meanwhile, both India and Pakistan continue to resist curbing WMD
    programs to escape economic sanctions. Neither side has established a
    clear nuclear-use doctrine, which makes deterrence unstable. And the
    bilateral dialogue between the two rivals does not appear promising.
    Further nuclear tests are a distinct possibility and testing of
    advanced new missiles seems a certainty. Kashmir remains a dangerous
    flashpoint. While neither side appears to want war, and our diplomats
    are working hard to ease tensions, the two sides could easily stumble
    into conflict by misinterpreting intentions or military posture.

    The Balkans

    Similarly, I must report a guarded outlook for the Balkans in 1999.
    Kosovo remains a tinderbox, and a constitutional struggle between
    Serbia and Montenegro could lead to a violent confrontation. In
    Bosnia, the Dayton process has brought stability and ended violence,
    but sharpening ethnic divisions may mean harder going for Dayton this
    year. Throughout the region political, economic, and social progress
    is unsustainable without direct international involvement in virtually
    every aspect of policy formation and resource allocation.

    Kosovo is the most acute problem. The Kosovo Liberation Army will
    emerge from the winter better trained, better equipped, and better led
    than last year. With neither Belgrade nor the Kosovar Albanians
    willing to compromise at this point, spring will bring harder fighting
    and heavier casualties, unless the International Community succeeds in
    imposing a political settlement.

    The fragility of any political solution is likely to generate pressure
    for the International Community to deploy ground forces to enforce
    implementation and deter new fighting.

    Kosovo -- province of Serbia -- has long been a flashpoint between the
    Serbian and Albanian communities in what is now the Federal Republic
    of Yugoslavia. For Serbs, Kosovo is the birthplace of the Serbian
    nation and the location of many of the countries most famous and
    revered religious and historical sites. The source of tension is that
    over time Serb migration from the economically depressed province
    combined with a high birth rate among the ethnic Albanian community
    has resulted in the Serbs becoming a minority -- they now account for
    less than 10 percent of the population of about 2 million.

    Despite these demographic pressures, tensions between the two
    communities were contained through the seventies and eighties. During
    this period, Kosovo's Albanian majority enjoyed substantial autonomy
    and had representation in the main Federal Yugoslav bodies. Kosovo
    also had its own constitution, provincial assembly, interior ministry
    and wide administrative authority. This all changed in 1989 when
    Slobodon Milosevic -- looking for an emotional and patriotic issue to
    rally public support behind his bid for power -- posed as the defender
    of Serb interests in Kosovo. He abrogated Kosovo's autonomy on the
    wildly exaggerated grounds that the shrinking Serb population was
    being discriminated against by the Albanian majority.

    In place of autonomy, Milosevic imposed his version of apartheid --
    shutting down ethnic Albanian schools and local administrative bodies
    and forcing ethnic Albanians out of government jobs and state-run
    businesses. Ethnic Albanian leaders initially responded to this
    repression by organizing non-violent resistance and seeking to reach a
    compromise with Belgrade. These efforts, however, only resulted in
    more repression.

    By 1996, a loosely organized insurgency -- the Kosovo Liberation Army
    or KLA -- had emerged -- dedicated to overthrowing Belgrade's rule by
    force. The KLA grew quickly and was able last spring to mount
    low-level attacks against Serb police forces and expand its presence
    throughout the province, even exercising effective control over some
    areas in central Kosovo.

    Alarmed by the growing threat posed by the KLA, Belgrade launched a
    major counter-insurgency operation that lasted until late October.
    Serb security forces succeeded in pushing the KLA out of many areas,
    but they were unable to inflict a mortal wound. The KLA suffered
    relatively light casualties and its command structure remained largely
    intact. The Albanian civilian population was not so fortunate, bearing
    the brunt of the Serbs scorched earth campaign.

    The agreements Belgrade signed last October stemmed the fighting only
    temporarily. The KLA used the cease-fire and the presence of
    international verifiers to reoccupy all the territory it lost last
    year, and it has kept up a continuous series of small-scale attacks
    against Serb security forces. Belgrade, for its part, has failed to
    comply with many of the provisions of the October agreements,
    including those pertaining to troop withdrawals u maintaining
    considerably more police in Kosovo than permitted under the agreements
    reached with NATO. The large presence of so-called special police --
    the most brutal of the Serb forces in Kosovo -- has served as a
    lightening rod for KLA attacks.

    We are on the verge of a dramatic deterioration of the Kosovo crisis
    as the limitations of winter weather pass. The cease-fire negotiated
    last October is near collapse. The number of attacks by both sides is
    increasing as are the casualties.

    Both sides are now preparing for much heavier fighting in the spring.
    The KLA has used the cease-fire to improve its training and command
    and control, as well as well as to acquire more and better weapons. As
    a result the KLA is a more formidable force than the Serbs faced last
    summer. We estimate that there are several thousand KLA regulars
    augmented by thousands more irregulars, or home guards. Moreover,
    funds pouring into KLA coffers from the Albanian Diaspora have
    increased sharply following the massacre at Racak.

    We assess that if fighting escalates in the spring -- as we expect --
    it will be bloodier than last year's. Belgrade will seek to crush the
    KLA once and for all, while the insurgents will have the capability to
    inflict heavier casualties on Serb forces. Both sides likely will step
    up attacks on civilians. There is already evidence that the KLA may be
    retaliating for the slaying of Albanian civilians at the hands of Serb
    security forces by attacking Serb civilians. The recent attacks
    against Serb bars and restaurants in Pristina and Pec could be the
    beginning of a pattern of tit-for-tat retaliation that will grow more
    severe as fighting intensifies. Heavier fighting also will result in
    another humanitarian crisis, possibly greater in scale than last
    year's, which created 250,000 refugees and internally displaced
    persons along with hundreds of destroyed buildings and homes.

    The Aegean, Haiti, and Africa

    The outlook is better in the Aegean, Mr. Chairman, where tensions
    remain but the chances of an immediate armed confrontation between
    Greece and Turkey have receded, now that Cypriot President Clerides
    has agreed to divert Russian SA-10 missiles to Crete.

    In Haiti, progress toward strengthening democratic rule suffered a
    series of setbacks last year and we could see an up-tick in unrest,
    violence, and crime as Haitians struggle to meet basic needs.

    And Africa continues to present huge challenges as it struggles to
    build stronger political and economic institutions, but erupts
    increasingly into violence.

    CONCLUDING REMARKS

    So, the world seen from my window is far from placid. It is becoming a
    vastly more challenging place for those of us whose job it is to warn
    our nation's leaders and to protect American lives.

    The questions are growing in number, the problems are more complex,
    and the issues are increasingly tangled together in intricate
    patterns. Many of our targets are paying closer attention to
    information security, and many are adding emphasis and resources to
    deny and deceive our intelligence gathering capabilities. Moreover,
    media leaks give our adversaries a roadmap to find and defeat our
    sources and methods.

    With all of this in mind, we are working hard to improve our
    operational reach and analytic depth; to reinvigorate our ability to
    get the best human and technical intelligence possible; to ensure that
    our analytic corps has the sophistication to grapple with the growing
    intricacy of the threats;

    As we do this Mr. Chairman, rest assured that we will give you the
    good news and the bad news with equal dedication. Our overarching aim
    is to ensure that our nation has the intelligence it needs to
    anticipate and counter the threats I've discussed here this morning.

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