This is an edited transcript of a Financial Times interview with Condoleezza Rice, US Secretary of State, on December 19 2008

FT: What do you make of people who say that in your second term you really made a valiant effort to rebuild the international ties which frayed in the first?

Rice: In the first term we had to do some difficult things, not all of which were well received in all quarters. I might note I think the relationships with our Asian friends and partners - China, Japan, South Korea, the deepening relationship with India - were never subject to those sorts of stress. But I don’t think it’s any secret that there were strains with some of our Nato allies; not all, but some.

And the proximate reason for that was Iraq and disagreements about Iraq, but by the time I became secretary people had moved on to be concerned about stabilising Iraq because, whether you agreed with the war or not, everyone understood that a stable Iraq was going to be essential to everyone’s interest.

Similarly, I think that we were in a post-war phase in a number of circumstances and trying to then reassure that we were going to turn to diplomacy to stabilise various situations around the world.…

The one area in which I really did, with the President’s very strong support, take a conscious decision to change course was on Iran, where I went to Europe in February of 2005 and it was my first trip as Secretary and I was stunned at the degree to which there was a split with our allies, closest allies…

So that was a conscious decision to change course because I thought we were in the wrong place.

FT: Presumably you take it as a compliment that you probably can’t divulge as taking as a compliment that the first term was seen as non-diplomacy, the second as diplomacy, and you happen to be the diplomat in the second term.

Rice: I know, but I was national security adviser in the first term and I don’t think of it as a period in which we didn’t have diplomacy.

[Former Secretary of State] Colin Powell did extraordinary work on Iraq, for instance, with [United Nations Security Council Resolution ] 1441 passed unanimously, and then putting together a strong coalition on Sudan, where we got a comprehensive peace agreement.

There are a lot of examples of diplomacy. But there’s no doubt that the first term, both because of the attack on September 11 and then the war in Afghanistan, then the war in Iraq, was less a time of solidifying gains and building relationships and more a time of a different kind of engagement.

FT: When you talk about things like Iran, is it right that there seems to be strong elements of continuity with the Obama approach?

Rice: I don’t want to speak for the new administration; they will do things in their own way. But I think that we’ve left in place some diplomatic structures that are ways of managing and I think ultimately resolving these really difficult issues, whether it is the P5 plus one on Iran [the group of five permanent UN Security Council members plus Germany that work on a common approach on Tehran’s nuclear programme]… When I talk to our allies they believe that that is the structure with which this is ultimately going to be resolved.

So if you look at the six party talks [on North Korea], even though we have had a recent set of difficulties, we managed to get an agreement with the North Koreans that they will de-nuclearise, shut down the reactors so they haven’t made any plutonium since 2005…

I think the reason why there might be some elements of continuity is that what we’ve tried to do is to arrange or organize international groupings that can first manage and then resolve these very difficult problems in a multilateral way.

FT: Is there any sign however on Iran that it’s working? People talk an awful lot about process and yet Iran continues enriching and is getting closer to nuclear capacity.

Rice: That’s a fair argument on Iran. On North Korea, there have been real outcomes. I think on Iran, we’ve managed to levy great costs onto Iran for what they are doing. They’re very isolated, they can’t use the international financial system…

Investment credits have dried up. All of the major western oil companies are out, Total was the last one to go. And so we are imposing costs. I suspect those costs will be amplified by the lower price of oil. And then we will see whether the ferment that you’re hearing inside of Iran, which does question whether Iran’s president is on the right course with the international community, begins to produce a change in behaviour. I think it probably will. There’s also an election coming up…

FT: Will it in time, given how close they’ve come?

Rice: That’s the question, and that’s why it’s important to if anything tighten even further the constraints on Iran so that it has to make those choices soon….

And by the way, there are other elements to this. Iran’s allies lost in the south of Iraq, in Basra. The Iraqi security forces, the people they defeated were Iran’s allies, those special groups that Iran had trained. Iran did everything it could to stop the Sofa [status of forces agreement] with the US and they couldn’t. Iraq is emerging again as an independent Arab state which is a bulwark against Iranian influence in the region…. We’ve succeeded in large part in making life very difficult for the Iranians. When that will have an effect on their decisions about enrichment and reprocessing I cannot tell you.

FT: What do you think is the best realistic scenario of stabilizing Afghanistan and how do we get there?

Rice: While the situation in Afghanistan is not by any means ideal it is also not as dire as I sometimes read. The Taliban tend to hit and run and they tend to hit and run in the south and so it’s a matter of extending government control and increasing probably the counter insurgency capacity in that region…

People say win the hearts and minds of the people, but first you need have to help them secure the bodies and then you can work on the hearts and minds. I think we have just not been attentive enough to population security.

FT: Do you think it’s right to have two or three more brigades go in?

Rice: Yes, I think it [is], the US is to going to send in more military forces. [But] I don’t think you want to get into the idea that… it’s just more military force and more military force…. You don’t want to be overbearing… The Afghan army is clearly a national institution, clearly effective and well respected, it’s just not big enough

Afghanistan has two problems that Iraq does not and one is, it’s desperately poor… the other problem is the safe haven across the border and there the stability and activity in Pakistan [is important]

FT: Do you think you misjudged former Pakistani president Pervez Musharraf?

Rice: In fact, I’ve made just the opposite argument. I think Musharraf after 2001 did a lot to try and rid Pakistan of extremism, but it’s very deeply buried in the country, it goes all the way back to [former Pakistani president] Zia al Haq.

I have been impressed with the way that the [new Pakistani] civilian government has dealt with certain circumstances, the economic circumstances. They have managed to get an IMF programme. That was not easy.

They are however really going to have to take on this issue of terrorism and extremism. They now know it will consume them if they don’t, but this is a very tough problem for this civilian government.

FT: In the light of Mumbai, how worried are you about a recrudescence of India-Pakistan tensions when this whole argument has been precisely for Pakistan to focus on its internal extremists?

Rice: Well, it is a far different and better circumstance than we had in 2001 and 2002.

FT: That’s not a great baseline.

Rice: No, no, no, but it’s important. I’ll give you a retrospective.

In 2001 on Christmas day, with my family downstairs, I was on the phone with Jack Straw [former UK foreign secretary], David Manning [former Downing Street foreign policy adviser] and Colin Powell trying to figure out which foreigner could go and visit so they didn’t go to war. It was pretty dire.

They had no relationship between them, we had not terribly deep relations with India or with Pakistan, this was just post September 11. Now we have very strong relations with India, really deep relations with India, very good relations with Pakistan…. But this really comes down to dealing with the problem. That means Pakistan really has to do everything it can to bring the perpetrators to justice and then also make sure that they know as much as they possibly can, so they don’t have a follow on attack or something.

FT: On Russia, you gave a set-piece speech earlier this year, a few months ago, where you talked about its paranoid aggressive impulse, authoritarian at home, aggressive abroad. What kind of relationship can or should the US have with such a partner?

Rice: Well, we will have a relationship where we have common interests; we have to.. We have excellent cooperation on North Korea and the six party talks…We actually have really good cooperation on Iran.

FT: But they aren’t signing any substantive Security Council sanctions any more.

Rice: But the Security Council sanctions we’ve gotten we’ve gotten because we have cooperated. They have been faithful to the two tracks [of sanctions and an offer of negotiations], they have. We’ve had really good cooperation on terrorism, really good cooperation on proliferation issues.

Where we part company is on the periphery of Russia, where they have a view that Russsia has a special place and special influence and therefore special rights concerning their neighbours. And we believe their neighbours are independent states that ought to be able to choose their own course. And that’s caused a flash, of course the most heated over Georgia…

[US-EU] unity has frustrated Russian strategic objectives on Georgia. The Georgian president and his government are still there. The Georgian economy was not destroyed; quite the contrary the Georgians got more money at the donor conference than perhaps they even need… The question is, that is on everybody’s mind, is: ‘Is Russia a good partner?’

So I believe we will continue to have a relationship with Russia based on interests.

I think what we had hoped for and tried to give an opening for was a relationship that was based not just on interests but on interests and values…

And it hasn’t turned out that way. Now I don’t think it is lost for ever. Because it is not the Soviet Union, this is not a big ideological conflict in which the Soviet Union had one narrative about how human history ought to develop and we had another…

FT: How stable is it given that the Putin narrative of providing stability and prosperity is now under such stress?

Rice: Well, I think it’s stable, I don’t worry about the stability of Russia. But I think there is a question going forward on what is Russia going to base its legitimacy. If it’s not a set of values, if it’s not the ability to deliver a better life, if it’s not modernity, both domestically and internationally, I don’t know quite where that leaves Russia. And I think that’s probably the debate that’s going on internally in Russia.

I thought that when President [Dmitry] Medvedev made his speech about the ‘I’s- investment and innovation and so forth - that that was where Russia wanted to go. Maybe it still is, maybe it still is.

FT: So you see it as a state of flux, rather than instability.

Rice: I think it is in a state of flux, I don’t think stability is quite the right word for it, but it’s definitely this great transformation or transition, this post-Soviet transformation isn’t over.

FT: Why as Secretary of State are you reluctant to say who you voted for?

Rice: It’s a tradition actually, because Treasury, State, Defence and Attorney General are in effect non partisan, non political positions and so if you’re out there during a campaign talking about who you are voting for, or even after, who you voted for, it just crosses the line, you are kind of breaking that tradition.

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