August 21, 1997  
This Date's Issues: 1134 •1135  •1136 

Johnson's Russia List
#1134
21 August 1997
djohnson@cdi.org

[Note from David Johnson:
Today I will catch up with all requests to stop sending JRL. 
We are not fully up-to-speed yet. My 18-year old son Keir, the 
skateboarder, had an accident Tuesday night that put him in 
the hospital.
1. Anne Williamson: THREE RESPONSES.
2. Dmitry Mikheyev: Svyazinvest/Russian economy.
3. Laura Belin: Nemtsov vs. Berezovsky. Including
Floriana Fossato's "Nemtsov Blasts Berezovsky."
4. Nezavisimaya Gazeta: THE US GETS READY FOR COMPLETE NUCLEAR 
DISARMAMENT.
5. AP: US envoy recalled from Moscow.
6. Reuter: Yeltsin aide says cabinet snubs business community.
7. Chicago Tribune: Elizabeth Williamson, RUSSIAN AREA RETURNS 
TO ITS FORMER WAYS. FREE THINKING, TRADING HELP BOOST NOVGOROD.
8. Boston Globe: Martin and Kathleen Feldstein, Doing double 
take over Russia. Return visit reveals striking changes, promising 
economy.
9. Reuter: Russian nukes no longer targeted at Western states.
10. Interfax: Yeltsin worried by new 'alarming tendencies' in 
North Caucasus.
11. RIA Novosti: LUZHKOV AND NAZARBAYEV BELIEVE CIS EXHAUSTED 
ITS OPPORTUNITIES.
12. Reuter: Russian budget could spark row with regions. (DJ:
Let me again express my admiration for the breadth of coverage
of Russia on the part of Reuter.)]

*********

#1
Date: Wed, 20 Aug 1997 18:17:36 -0400 (EDT)
From: Anne Williamson <0002039223@MCIMAIL.COM>
Subject: THREE RESPONSES

Dear David,

A response first to MATT BIVENS at The St. Petersburg Times. I do have some
information concerning the hiring of British pr for Yeltsin's 96 presidential
campaign. Yes, MK is irreverent, saucy and sometimes hyperbolic, but still it
hits a homer from time to time, so perhaps the story is not so outlandish. If
you would be so good as to email me a copy of the July 14 MK article {I am an
August listing to JRL} "Secret Battle: Anatoly Chubais vs. Boris Yeltsin", I
will search my vast files for pertinent info and get back to you. This may be a
richer vein than you think.

2. Alan Fahnestock. You are well-informed on Russian tax law and you
outline
correctly the difficulties Mr. Shishkin confronts concerning equipment, but
turn around and take the other fork in the road. The issue for USAID/ILBE is
documents - not the equipment - and the issue is not "a tempest in a teapot",
but the privatization of US taxpayers' money by a closed cabal of Harvard U's
Earnst Dogooders who then socialized the money amongst their political picks
while internally Bolshevizing themselves on the way to commercial glory. 
Hubris was the name of their game. (Contrary to some reports, ILBE and ILBE
Consulting is withholding documents from investigators.) Check out GAO/NSIAD-
97-27 and Janine R. Wedel's "Clique-Run Organizations and U.S. Economic Aid/An
Institutional Analysis" in the Fall 1996 issue of Demokratizatsiya. Might read
WSJ piece of 8/13/97, a cunning success in reporting the story without telling
it.

3. Anonymous. Recently an appeal was sent via JRL for statistics concerning
teenagers in Russia and Kazakhstan - drugs, alcoholism, delinquency, violence,
bigotry, drop-out rates, and attitudes towards earning money and volunteerism -
which the author breezily noted he needed for "a grant proposal". I smell yet
another USAID give away & quick-footed opportunist who seems to know nothing of
his proposed effort's subjects. The Garvardniki were a disaster, but USAID was
and is the responsible agency whose hands-off management allowed the Moscow
debacle to flourish - with other peoples' money. The request for statistics
screams "more of the same"! Am I wrong? This is not an ad hominem attack -
but the request spoke volumes to me and I couldn't pass it by without a query. 

**********

#2
Date: Wed, 20 Aug 1997 11:05:56 -0400
From: "Dmitry Mikheyev" <dfm@tidalwave.net>
Subject: Svyazinvest/Russian economy

Dear David, as the Russian and Western media are savoring the corporate 
brawls over the purchase of 25 percent of Svyazinvest by a consortium of
Russian and foreign investors, I thought that as usual they have missed
a half-full part of the glass. The screams and belated accusations of
losers obscure a rather amazing event in the post-communist history of
Russia, when you think about it. 
Here was a notoriously outdated, dilapidated, inefficient sphere of
Russian economy a source of endless jokes, ridicules and honest pain...
Suddenly, it has become a hot property valued for about $8 billion. The
government's reserve price of $1.18 billion was exceeded by 55%.
It turned out, that the winners plan to triple the value of Svyazinvest
in two years. Who are these dreamers who hope to turn this woefully
inadequate telecommunications network of a bankrupt country into a
lucrative business? Consortium members include such institutions as
Deutsche Morgan Grenfell, Renaissance Capital, Soros' Quantum Fund, and
Uneximbank, Russia's third biggest bank They are headed by hard-nose
industrialists and bankers who proved their professional competence and
intuition by amassing billions of dollars worth fortunes. Explaining his
decision to invest about $1 billion, financier George Soros said he is
convinced that Russian economy is evolving from robber capitalism to
legitimate capitalism and that Russia has already become "the most
interesting emerging market in the world."
This sale symbolizes a more general trend: rapid growth of the
capitalization of Russian economy obscured by the numbers of stagnating
GNP. Three years ago, since the cash privatization began, the entire
block of government enterprises offered at the auctions was valued less
than the today's Svyazinvest. In the last two years, the capitalization
of enterprises traded on Russian Stock market more than tripled to about
$100 billion. Market analysts calculate it will rise a further five or
six times by the end of the decade. Their calculations are based on
several hard facts. During the past six months, capital has been flowing
into Russian securities, causing the Russian stock market to grow by 250
percent. 25 major enterprises are targeted for privatization in 1998 and
1999. If analysts' expectations materialize, the capitalization of
Russian Stock market will exceed that of France and approximate that of
Germany. It would also bring the real size of the Russian economy closer
to one trillion dollars, rather than today's official $470 billion. 
I think that in the ongoing debate between the pessimists and
optimists, between those who paddle grand theories and ideas, and those
who make megabucks, the latter possess much sharper picture of reality.
Among the sources on market activities in Russia and NIS I can
recommend: 
Interfax Russian News Agency www.interfax-news.com/FSUIndustryNews 
The FinancialPages On-Line www.publications-etc.com/russia/business 
Rye, Man and Gor Securities www.rmg.ru/research.html
Institute of Transitional Economy www.online.ru/sp/iet/trends/
Fund for Democracy and Development www.cbi.co.ru/
Transition Brief, by OECD, www.oecd.org/sge/ccet/
Bisnis www.mac.doc.gov/bisnis/country/rusecon.htm
Russica-Izvestia Information, Inc www.izvestia.ru/English/default.htm
RINACO Plus www.fe.msk.ru/infomarket/rinacoplus/about.html
Regards, Dmitry Mikheyev, 301 587-8894; dfm@nicom.com;
http://www.nicom.com/~dfm/index.htm

*******

#3
Date: 20 Aug 1997 08:49:45 U
From: "Laura Belin" <belinl@rferl.org>
Subject: Nemtsov vs. Berezovsky

David,

In JRL 1133, you carried a Reuters story called "Russia's Nemstov raps media
tycoon Berezovsky." The story cites a recent interview with Nemtsov in Sochi,
which was arranged by Radio Liberty for the program "Face to Face" (Litsom k
litsu). Journalists from Moskovskii komsomolets and Argumenty i fakty also
participated in the program, but Moskovskii komsomolets did not have
permission to publish the transcript on 19 August. (Nor did that paper give
proper attribrution to Radio Liberty or make clear that the interview had been
broadcast two days earlier.)

The Russian Service's daily news program Liberty Live broadcast fragments of
the interview on 14 August, and RFE/RL's Newsline covered some of Nemtsov's
comments regarding Berezovsky the next day. After the full interview was
broadcast on 17 August, RFE/RL's correspondent Floriana Fossato wrote a
feature story on Nemtsov's attacks on Berezovsky, which I enclose.

Best,
Laura

Rus Econ - Nemtsov Blasts Berezovsky

Moscow, Aug 19 (NCA/Floriana Fossato) - Russian television viewers -
searching for new developments in a privatization scandal that has involved
top government officials, influential businessmen and media tycoons - have
been offered a pretty straight-forward forecast of political events. The
weekly (Saturday) satirical program "Puppets," on NTV commercial tv, suggested
Security Council Deputy Secretary and business magnate Boris Berezovsky might
soon loose his job. 
Coming from a program modeled on the irreverent British "Spitting Image," the
forecast seemed no more than a hypothesis. In the aftermath of one of Russia's
most bitter financial and media disputes, Moscow these days is full of rumors
suggesting more top officials might soon follow the fate of Alfred Kokh, who
resigned last week as Deputy Prime Minister and State Property Committee
chairman. Kokh had overseen the controversial auction of shares in Russia's
telecommunication monopoly Svyazinvest, and in the biggest mining concern,
Norilsk Nikel. 
First Deputy Prime Minister Boris Nemtsov, in a RFE/RL interview in Sochi,
where he was vacationing, blasted Berezovsky's presence in the powerful
Security Council, and pledged the state will soon act to restrict the wide
influence of the businessman-turned-politician. The deputy head of the
Security Council "is not a person in the right job," said Nemtsov. He added
that "it is bad when a person with huge business interests combines them with
state service." 
Berezovsky was appointed to the Security Council following last year's
presidential election. During the campaign, newspapers, magazines and
particularly tv channels linked to a group of powerful bankers and
businessmen, played a key role in boosting incumbent President Boris Yeltsin?s
ratings from single digits to his election victory. After Berezovsky's
appointment, observers said that the economic and political dividends of this
support had became evident, particularly for the businessman, who holds the
major private stake of ORT television. The state owns a 51 percent stake in
ORT.
Besides his involvement in ORT, Berezovsky's business interests include
stakes in the giant car concern LogoVAZ, and in Aeroflot and Transaero
airlines. He also owes stakes in the daily "Nezavisimaya Gazeta," the weekly
"Ogonek" and the TV-6 tv network.
Another major Yeltsin supporter - the commercial NTV channel controlled by
the financial group MOST of Vladimir Gusinsky through the media branch
Most-Media - also after the election obtained permission to go nationwide on a
18-hours broadcast schedule. 
And Vladimir Potanin, the head of Oneximbank, Russia's third largest bank,
was a first deputy premier until a government reshuffle in March.
But most recently, following the failure of a consortium led by Gusinsky and
supported by Berezovsky to acquire 25 percent of Svyazinvest's stakes,
something close to open warfare broke out among Yeltsin's wealthy backers. 
Potanin led the consortium that paid nearly 1,900-million dollars for the
lucrative Svyazinvest stake. The result provoked an outspoken attack of the
deal by ORT and other media assets controlled by Gusinsky and Berezovsky.
Allegations of corruption on a grand scale were reported, involving Potanin
and a number of government officials.
Finally, last week Yeltsin intervened publicly in the dispute. Observers said
Yeltsin's move was a bid to defuse the scandal and placate the embittered
bankers. Publicly blasting the fired Kokh for the scandal surrounding
Svyazinvest and Norilsk Nikel, Yeltsin said the scandal was connected to
privileged links that some banks had with the former privatization head. He
added that future tenders will be open, fair and legal.
Observers say that Yeltsin's decision to intervene publicly in the scandal
for the first time was also an attempt to make clear that the government is
serious in its pledge to cut ties with powerful banks and financial groups.
Following his appointment, Berezovsky said he had delegated all his business
commitments, including his role in ORT's board of directors. However,
according to Nemtsov, "even if formally Berezovsky has now delegated the
running of his business, de-facto he is dealing only with this." Nemtsov went
on to say that it is "unacceptable when one is using his state position to
solve private problems and to clear up relations with competitors, as in the
Svyazinvest scandal." 
According to Nemtsov, one of the main points in the dispute proved to be the
involvement of people whom he said "could take advance of their unrestricted
possibility to influence top officials and spell out their opinion" clearly in
public.
Nemtsov is often seen as a possible strong contender for Russia's next
presidential election, scheduled for 2000. Since he was appointed to the
cabinet in March, he has enjoyed Yeltsin's strong backing, but his pledge of
making more transparent and fair the government activity is seen as likely to
alienate many of the powerful businessmen who backed Yeltsin. 
Nemtsov told RFE/RL that the bankers, whom he does "not believe have to be
credited for Yeltsin's electoral victory...think they did a favor and now the
state must reward them forever." But, he said "this is an absurd and will not
continue." Nemtsov's reading of the campaign suggests that financial circles
"supported Yeltsin, not because they like him, but because they knew that had
he not been elected, they could not have continued their activity in Russia." 
Since the March government reshuffle that brought Nemtsov in the cabinet,
observers have predicted Yeltsin's pledge of economic and anti-corruption
reform would be an uphill battle against powerful financial interests. 
In his attack on Berezovsky, one of the main representatives of the financial
clan, Nemtsov also directly, and for the first time, addressed the issue of
control of ORT. He said the state should 
re-establish control over both the finances and the "ideological foundation"
of the work of the Public Russian Television. In Nemtsov's words, "for a
number of reasons in the last years the state had lost the ability and the
possibility to control what it owns." And he said that "only now we are
moving toward the re-establishment of state control," first over monopolies
and then over its other assets, including ORT. 
But he said that "since the situation with ORT is very delicate, the state
cannot act as an elephant in a glass shop," with the risk of damaging
journalists and infringing laws protecting press-freedom.
In a further attack on Berezovsky, Nemtsov said the magnate has "invented and
developed to the very end a peculiar privatization scheme."
"Imagine," Nemtsov said, "a state company whose top managers get their
salaries from a private investor." He added that, by assuring the payment of
salaries, Berezovsky "first privatized the company's top managers...and
obtained all the advantages" of such a move. Nemtsov said, formally the
company belongs to the state, but "the money it needs is being channeled
through private companies that maintain the profit of the operations." 
Nemtsov said, "besides ORT, the scheme was used also for Aeroflot and other
companies." He concluded that, under the scheme, "real privatization" would
take place only later, "when everything would be already under control." He
said, "few people could have been able to curry out such an operation," which,
he said "formally is totally legal." But, he added, "this is nonsense," and
the state "will soon deal with it."
Nemtsov said the state has two ways to deal with such a scheme. 
It may decide to "draw a trust-management scheme for ORT, organizing an open
tender to transfer rights to the private structure that would guarantee the
highest profit, the payment of taxes and the creation of new working places."
He said, "only fair competition would make this option viable and, under fair
conditions, I am not sure Berezovsky would automatically win the tender."
The second option, according to Nemtsov, would be the "real privatization of
ORT." Different companies could "buy packets of shares and then organize ORT's
management in a way, guaranteeing that a minority share-holder does not
control the company."
Nemtsov acknowledged the difficulty of carrying out such plans, either for
ORT or for any other case involved in the privatization process, But, he said
Yeltsin and the government are committed to make change irreversible, despite
opposition. 
He said that it is "normal that those, who in the past used to have
advantages and make huge amounts of money, oppose the change. Their
opposition, naturally, turns into huge scandals." But he concluded that as
opponents realize "change is definitive, the number of scandals will
decrease."
As for Berezovsky, once again the decision is Yeltsin's. "God gives and God
takes away," said Nemtsov. "If the President wants to remove any official he
has appointed, he can do so without ceremonies." 

*********

#4
From
RUSSIAN PRESS ELECTRONIC COURIER
[No. 139, August 20, 1997]

THE US GETS READY FOR COMPLETE NUCLEAR DISARMAMENT
Reference: Nezavisimaya Gazeta, August 16, 1997, p. 2
Sum-up: The Pentagon has no doubt that its conventional forces are
hors-concours.

In conditions of acute economic crisis and especially the crisis in the
defense industry Russia will have to build its national defense, relying
predominantly on nuclear weapons. On the contrary, the US insists on
stepping up the nuclear disarmament process...
According to the US Joint Chiefs of Staff Chairman General John
Shalikashvili, at the moment America's conventional forces are
absolutely the best in the world and there are no challenges with which
these forces couldn't cope... The US commanders came to the conclusion
that high-precision conventional weapons can be effectively used to
carry out the task that were previously assigned to nuclear arms.
Ex-Commander of the US Aerospace Force in the Persian Gulf Horner said
recently that nuclear weapons had become obsolete and he would be happy
to get rid of them completely...
Changes in the attitudes toward nuclear weapons have partially the
results of general improvement of the military-political situation in
Europe... Besides, in terms of conventional forces NATO already has
almost triple superiority over Russia and as a result of the bloc's
expansion this superiority will further grow to the effect that the US
"nuclear umbrella" over the continent will become quite useless.
Therefore, the US have almost no motivations for keeping the nuclear
arsenals it staked on during the cold war period... In the meantime the
US military-political leadership is convinced that the only threat to
America's national security is posed by nuclear weapons, possessed by
other states, first and foremost by Russia...
The theory of the so called "virtual nuclear arsenals" that is getting
increasingly popular in the US is quite symptomatic. This theory
presupposes complete liquidation of nuclear weapons, but in the meantime
the leading nuclear powers will keep their nuclear infrastructures. This
means that if need will be, the manufacture of nuclear weapons can be
resumed within a relatively short period of time. In this case the US
with its world's mightiest military-industrial potential will have
undeniable superiority over other nuclear powers.
A wide-spread notion in the US is that the prime objective of its
nuclear policy should be establishing reliable control over Russia's
nuclear armaments and stocks of fissionable materials. For this purpose
the US special services and mass media have been sparing no efforts to
fan up international public's concern about safety of Russia's nuclear
arsenals. The ultimate end of this campaign is establishing
international control of these arsenals and in this case "international"
obviously means American...
The movement in support of complete nuclear disarmament is gaining
momentum in the US. Twenty senators favor removing nuclear warheads from
missiles already in the near future... In Paris Russia's President
Yeltsin all of a sudden declared that warheads from all the missiles,
targeted on NATO states, will be removed... This was obviously stated on
the spur of the moment, but the world public heard this statement.
Afterwards Foreign Minister Primakov had to hastily explain what Yeltsin
"really meant to say"... It is clear to every specialists that removing
nuclear weapons would mean giving up the nuclear deterrence strategy...
It has to be admitted that the nuclear-free world best suits the
strategic interests of the US. The nuclear-free world in the absence of
an effective collective security system is the way toward the
establishment of Pax Americana. There will be no forces in the world,
capable of counteracting America's hegemonic ambitions. In the
observable future limiting nuclear weapons and their combat readiness
level can become the central purpose of the US policy in the nuclear
sphere...

********

#5
US envoy recalled from Moscow
August 20, 1997

WASHINGTON (AP) - The State Department has recalled from Russia an embassy
political attache who was involved in a traffic accident that severely
injured a pedestrian. 
Spokesman James P. Rubin said Matt Bryza, a second secretary, was driving
with his wife after a workout when his car struck the woman. 
He said there is no reason to believe the accident was alcohol-related and
that Bryza has no history of bad driving. 
``We made a decision that he was no longer in a position to effectively
function in Moscow because of this incident and, therefore, we thought it
would be appropriate to return him home,'' Rubin said. 
No request was received from the Russian government for a waiver of Bryza's
diplomatic immunity, he said. 
Asked whether Bryza was at fault, Rubin said the initial reporting from the
embassy indicated that he wasn't but that the issue since has become ``more
complicated and confused.'' He said U.S. officials have not seen a final
police report. 

*******

#6
Yeltsin aide says cabinet snubs business community
By Oleg Shchedrov 

MOSCOW, Aug 20 (Reuter) - Top Kremlin aide and business magnate Boris
Berezovsky accused the government's youthful reformers on Tuesday of ignoring
Russia's business community. 
``Business people, self-made men are the backbone of economy and the
foundation of reforms,'' Berezovsky told a news conference. ``The authorities
should certainly listen to what the business community says.'' 
``Unfortunately Anatoly Chubais and Boris Nemtsov have decided they can snub
the opinion of business community,'' he added, referring to both first deputy
prime ministers. 
``This has led to some mistakes.'' 
Chubais and Berezovsky worked as a team last summer to help Yeltsin defeat a
strong communist rival in the presidential election and win a second term in
the Kremlin. 
Yeltsin made Berezovsky a deputy secretary of his policy-making Security
Council last December. He brought Chubais, 42, and Nemtsov, 37, into the
cabinet in March and gave them sweeping powers to kick-start stalled economic
reforms. 
Relations between Berezovsky and two first deputy premiers soured in recent
months when the latter moved to impose new rules for running privatisation
tenders for stakes in lucrative companies like telecoms holding Svyazinvest
and Norilsk Nickel. 
The most public manifestations of this feud were bitter attacks last month on
Nemtsov by newspapers and television stations controlled by Berezovsky and
some other tycoons. 
Chubais, naming no names in public, has said some members of Russia's
financial community have tried to impose on the government their own vision
of how these tenders should be run but added that the cabinet has resisted
the pressure. 
``The state will carry out its functions with increasing toughness whether
certain people like it or not,'' Interfax news agency quoted Chubais as
saying last week. ``Commercial banks will never get levers to control the
government.'' 
Berezovsky said that Russia's business community wanted the government to
ensure ``clarity'' in the rules of the game but added that these rules should
not be imposed in an authoritarian manner. 
``Clarity should not be established in a revolutionary way, just by saying
'that's how it's going to be just because I want so','' he said in a clear
reference to the tug-of-war with the government over who is to set the rules
in the Russian market. 
Berezovsky added though that he was not generally opposed to Chubais and
Nemtsov. 
``We simply have different understanding of what kind of relations the
authorities and the business community should have,'' he said. 

*******

#7
Chicago Tribune
20 August 1997
[for personal use only]
RUSSIAN AREA RETURNS TO ITS FORMER WAYS
FREE THINKING, TRADING HELP BOOST NOVGOROD 
By Elizabeth Williamson. Special to the Tribune. 
Dateline: NOVGOROD, Russia 

Novgorod, a swampy region less than half the size of Illinois, was once
Russia's business capital and its government the closest the country had to a
working democracy.
That all ended in 1570 when Czar Ivan the Terrible, jealous of Novgorod's
success and independence, invaded the northwestern city. He had a wall built
around the town to imprison the inhabitants and then systematically
annihilated them. According to legend, he had a large metal pan forged in
which he fried the town's merchants one at a time.
Afterward, he razed the town.
Now, more than 400 years later, blessed by geography, energetic leadership
and a unique democratic legacy, Novgorod appears headed for a return to its
medieval glory days. Moscow, which once punished Novgorod for its
free-thinking, free-trading ways, is its eager student.
"As a model for Russia, Novgorod is the path not taken," said Nicolai
Petro, an American Fulbright scholar based in Novgorod and one of the city's
most enthusiastic boosters.
Locals call the region of 750,000 people "Novgorod the Great," to
distinguish it from the larger boom town of Nizhny ("Lower") Novgorod, 500
miles to the southeast.
Novgorod emerged from the socialist era among the poorest of Russia's 89
regions, and local leaders recognized early that Novgorod's economic
salvation lay beyond Russia's borders. They pulled out all the stops to
welcome foreign investors--slashing taxes and streamlining land purchases and
business startups.
So far, it's working. Last year Novgorod drew $154 million in foreign
investments to the region. The figure placed the area first in Russia for
per-person foreign investment.
The World Bank ranks Novgorod among the top six of Russia's 89 regions for
its business climate, and the U.S. government has chosen it for a pilot
business-assistance program.
"My dream is to be able to say Novgorod doesn't use any subsidies from
Moscow," said regional Gov. Mikhail Prusak, who at 37 is one of Russia's
youngest local leaders. "Favorable conditions for business will bring a
normal economy and normal politics to the region."
To hear Novgorodians tell it, that hasn't happened since the 13th Century,
when Novgorod forged trading links with the Hanseatic League, its European
neighbors on the Baltic Sea.
Searching for goods to sell in Scandinavia and Germany, Novgorod colonized
Russia's rugged north all the way to the Ural Mountains, which mark the
border between Europe and Asia.
The independent principality of Novgorod created a democratic government
unknown in autocratic Russia. A bell in the town square was rung to summon a
meeting of the "veches," local councils that voted on laws.
Then in the late 1400s, a jealous Moscow invaded, and by 1600 the
principality was subsumed by the capital.
During Soviet times, farm collectivization destroyed the efficiency of
Novgorod's poor farmland. Sparse in natural resources, the region contributed
little to the federal budget and received little in return.
The end of the Cold War spelled doom for its military electronics plants,
among the region's largest employers.
"We looked outward," said Mayor Alexander Korsunov. "We wanted to
integrate our industry into the European economy."
With the help of the World Bank and Western accounting firms, the region
designed a program to attract investors.
Novgorod began by building the only four-star hotel in Russia outside of
Moscow and St. Petersburg. Officials call on investors in a shiny new van and
give them a tour of the city's historic center. Then they get down to
business, pointing out potential sites for plants and promising industries.
Once hooked, foreign companies pay no regional taxes until their
enterprises begin to turn a profit. Local industries that hatch ventures with
outside investors or rebuild facilities are treated to the same break.
Investors get government help in buying land, a complicated process that
elsewhere in Russia can take years. A single real estate tax, the first of
its kind in Russia, replaces a tangle of land and building taxes.

*********

#8
Boston Globe
19 August 1997
[for personal use only]
Doing double take over Russia 
Return visit reveals striking changes, promising economy 
By Martin and Kathleen Feldstein
Martin Feldstein, the former chairman of the Council of Economic 
Advisers, and his wife, Kathleen, also an economist, write frequently 
together on economics. 

Returning to Moscow recently after several years' absence, we found much 
to amaze us. Our primary interest in visiting Moscow was to get a 
clearer understanding of the economic restructuring taking place than we 
could get from reading the international press alone. After extensive 
discussions with economic policy makers and some casual observations of 
our own, we came away believing that the economic outlook for Russia is 
positive. 
The physical appearance of the city was the first surprise. The last 
time we were there, Moscow was a drab gray, the result of decades of 
Soviet uniformity and neglect. Now the city is being restored to its 
prerevolution appearance. Of course there are some new, modernistic 
buildings, but what is most striking is the restoration. Buildings from 
the 18th and 19th centuries are being restuccoed in pastel shades of 
yellow, pink, and turquoise. Churches, also being revitalized, appear to 
be visited frequently, and not just by the elderly. 
The change that affects visitors most directly is the presence of 
first-class - and expensive - hotels with excellent services. Gone is 
the requirement to use the hotel dining room or go without. Gone are the 
monitors who sat in every corridor to take note of each coming and 
going. Indeed - and most important - gone is a sense of being watched, 
and a concern that a wrong move could land one in serious trouble with 
the authorities. 
Instead Moscow resembles a frontier city, with few rules and a sense of 
limitless opportunity for those willing to take some risk. Some 
commentators describe Moscow as almost a lawless city, and the traveler 
who has read up in advance goes to Moscow with some apprehension about 
personal safety. While we read of murders of prominent Russian 
businessmen during the week we were there, our own experience was 
without incident. 
We saw no outward signs of the officially reported deep decline in the 
Russian economy, although unreliable statistics make it difficult to 
know for sure whether the economy has actually declined in the last 
half-dozen years. What is clear is that many necessary steps toward 
reforming the economy, such as freeing prices and opening the domestic 
market to foreign competition, have been adopted. Among the positive 
results is a dramatic reduction in inflation to an expected level for 
1997 of less than 15 percent. Growing public confidence in the currency 
has enabled the government to announce the issuance of new rubles, each 
equivalent to 1,000old rubles. 
Foremost among the reforms has been privatization, which has advanced 
enormously since the first cooperative restaurants began appearing in 
the late 1980s. Now virtually all restaurants and small shops are 
privatized, with the state retaining a partnership interest in some 
service establishments. Most Muscovites now own their apartments. In 
most cases, people were simply given the apartment in which they were 
living. 
The process of privatization was also fairly straightforward for small 
businesses, which were generally turned over to the existing management. 
For large businesses the process has been more complicated. Ownership 
shares were created and were distributed in part to the management, in 
part to employees, and in part to the general public. The public 
acquired their shares at auctions using special vouchers that the 
government gave to all Russians. 
For the largest companies, such as utilities, the government retained 
shares and distributed some to friends. This cronyism, which has been 
subject to much criticism, is being replaced by a process of public 
auction with government shares being sold to the highest bidder. The 
gradual conversion to a Western-style economy will create opportunities 
and incentives for improved productivity and growth. 
With privatization have come competition and choice for the customer. 
The results are a level of service and an availability of goods that are 
indistinguishable from many cities of Western Europe. 
When we were last in Moscow, many essential consumer goods were scarce, 
with long lines quickly developing at any store or kiosk that received a 
new supply of some desirable product. The problem today is not one of 
availability of consumer products, but of affordability. Prices are very 
high in comparison to local wages, in some cases higher than in the 
United States for identical goods. 
The reforms will take time. The Russian people are still suffering from 
high hidden unemployment and low income levels. Indeed, open 
unemployment will probably rise further as businesses continue to adapt 
to a market economy. But if the country can maintain political 
stability, we believe that Russia is on the way toward an economy that 
will offer a much higher standard of living for its people. 

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#9
Russian nukes no longer targeted at Western states
By Andrei Khalip 
August 20, 1997
MOSCOW (Reuter) - Russia, in line with a pledge given by President Boris
Yeltsin in May, is no longer targeting its long-range nuclear missiles at
Western countries, a military spokesman said Wednesday. 
``The promise by President Boris Yeltsin concerning non-aiming of strategic
missiles at Western countries has been realized in full,'' the spokesman
said. 
He did not specify what happened to the missiles, but the Itar-Tass news
agency quoted an official of the Russian Strategic Nuclear Forces (RSNF) as
saying some were reprogrammed to go nowhere, while others had their warheads
disconnected. 
During a Russia-NATO summit in Paris in May Yeltsin shocked the gathering
with an impromptu statement in which he said Moscow would remove warheads
from all its missiles targeted at member countries of the Western defense
alliance. 
He made clear later that he meant the non-aiming of missiles and not the
removal of their warheads. 
The RSNF also issued a statement Wednesday denouncing a recent German study
which said Russia's aging nuclear weapons could be fired by accident due to
serious problems with its early warning systems. 
``The reported views of experts at the Hessen Peace and Conflict Research
Foundation concering RSNF's nuclear armaments are groundless and
far-fetched,'' the statement said. 
The study by the foundation, which advocates nuclear disarmament, said the
problems had led to a widespread practice of keeping nuclear weapons on a
permanent state of alert. It said the missiles could be launched at the first
sign of a real or imagined attack. 
The RSNF fiercely denied such a possibility. 
``The missile attack warning system... is working and is reliable. Neither
its space nor ground services have ever caused a single false alarm,'' the
statement said. 
``Moreover, it would be flippant to assume that the country's top political
and military leadership would take a decision of global consequences based on
only one, however reliable, method of warning.'' 
The RSNF conceded that its troops, along with the rest of Russia's army, had
troubles with supplies and financing, but insisted its combat readiness
remained intact. 
``Despite supply difficulties, the troops remain fully under control, they
are in a state of mobilization and battle readiness and successfully meet all
requirements set.'' 
But former Defense Minister Igor Rodionov, fired by Yeltsin earlier this
year, has more than once raised the question of the reliability of Russia's
strategic nuclear forces. 

********

#10
Yeltsin worried by new 'alarming tendencies' in North Caucasus

MOSCOW, Aug 20 (Interfax) - New alarming tendencies have made themselves 
felt in the North Caucasus lately, Russian President *Boris Yeltsin* 
told the Security Council Wednesday. 
He said that the North Caucasus is a place where the interests of the 
CIS and the rest of the world are concentrated. "The United States is 
stating that the North Caucasus is a zone of its interests. As our 
interest is fading, the United States, on the contrary, is making moves 
to penetrate into this zone and is openly speaking about this," he said. 
The situation in this region must be settled in a way that will "meet 
the interests of Russia's national security, and we have every right to 
count on understanding in the world community. This is a task the 
Foreign Ministry must tackle," Yeltsin said. 
"The situation is getting back to normal very slowly. The North Caucasus 
remains an explosive region, he said. "All agencies without exception 
must take serious additional measures and efforts to stabilize the 
situation," Yeltsin said. 
Although many decisions have been taken on the problem, "they are 
implemented poorly," he went on. Moreover, "we provoke tensions in the 
Caucasus sometimes," he said. 
He said it was extremely important to conclude a large- scale treaty 
between the federal authorities and Chechnya. This work may take "a 
year, a year and a half or even two years, but we must reach such a 
treaty," Yeltsin said. 
He announced that the commission for drafting the treaty will comprise, 
on the Russian side, Security Council Secretary Ivan Rybkin, Head of the 
Presidential Administration Valentin Yumashev, Minister for 
Nationalities Vyacheslav Mikhailov and Deputy Prime Minister Ramazan 
Abdulatipov. The commission must do its work "insistently, confidently 
and scrupulously, the way this work was done with Tatarstan," he said. 
There are "quite a few hotbeds of tension" in the North Caucasus - above 
all Chechnya, the zone of the Ossetian-Ingush conflict and "Dagestan, 
where the situation is extremely complicated," Yeltsin continued. 
Kidnapping, trade in humans and "terrorism" are widespread, he said. The 
state border is not protected well enough, which boosts arms trade, 
Yeltsin said. 
He also said that "a common Caucasian approach" should be found to the 
solution of regional problems. Among the factors which hamper the 
implementation of the agreements reached on the settlement of the 
situation in the region is that the Russian leadership treats each of 
the Caucasian republics individually. The Security Council must work out 
a common Caucasian approach, he said. 
He also said that the Interior Ministry, the Federal Security Service 
(FSB), the Federal Border Service and the State Customs Committee do not 
properly coordinate their actions in order to restore stability in the 
region. 
He expressed dissatisfaction that these agencies had not set up a single 
coordinating center. He also complained that he received diversified and 
sometimes contradictory information on the situation in the Caucasus. 
All this "is extremely alarming, as Russia's integrity is at stake," 
Yeltsin said. 

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#11
LUZHKOV AND NAZARBAYEV BELIEVE CIS EXHAUSTED ITS OPPORTUNITIES

ALMATY, AUGUST 20 (FROM RIA NOVOSTI CORRESPONDENT ALEXANDER
KIMASOV) -- Moscow Mayor Yury Luzhkov, on a working visit in
Kazakhstan`s capital, described the Commonwealth of Independent
States as "an inefficient entity." The CIS is "a
nostalgic-illusory structure," he said at a joint press
conference today in Almaty. Luzhkov believes that it is
necessary to return to the idea of the Euro-Asian Union. "This
is the requirement of life. The time will come and the countries
which will not join this union will ask us to admit them," he
said. Luzhkov backed the main provisions of Nursultan
Nazarbayev`s draft on the creation of the Euro-Asian Union.
Having noted that there are various examples of integration
in the world, the Kazakh president expressed confidence saying
that "it will be with us, but not in the framework of the CIS."
Nazarbayev believes that it is impossible to definitely answer
the question what the CIS is, either integration or
disintegration. 

******* 

#12
Russian budget could spark row with regions
By Irina Demchenko 

MOSCOW, Aug 20 (Reuter) - Russia's federal government is preparing for a
bitter row with the regions, whose subsidies are cut sharply in the draft
1998 budget, a senior government source said on Wednesday. 
Regional leaders are already extremely negative about the draft, which plans
to cut financial aid to the regions to 38.5 trillion roubles ($6.6 billion)
in 1998 from a budgeted 66.0 trillion this year, the source told reporters. 
Forced spending cuts mean these subsidies will in any case fall to 44
trillion roubles this year, said the source, who asked to remain anonymous. 
In contrast, regional leaders want an increase in federal aid, he said. Some
of them plan to attend a cabinet meeting on Thursday, where the draft budget
is to be discussed, to lobby against the finance ministry's plans. 
They will also be able to voice their discontent when the budget is debated
over the next few months in the State Duma lower house of parliament, as well
as the Federation Council upper house, where regional leaders are
represented. 
``The deficit on the draft consolidated budget is 162 trillion roubles, of
which 132 trillion roubles is the federal budget and 30 trillion is regional
budgets,'' the source said. 
``If you compare the deficits of the federal and regional budgets, that is
exactly the reason to cut the size of the fund for federal support to the
regions,'' he said. 
The government is keen to cut spending to bring it into line with realistic
revenue projections. A shortfall in budgeted revenues this year forced the
government to cut spending across the board, and prompted the International
Monetary Fund to suspend payments of a loan, now resumed. 
It also wants to encourage a further fall in bond yields to encourage next
year's forecast economic recovery. 
The biggest cuts in regional support are on subsidised supplies to the Far
North, and to Moscow for its role as the nation's capital, the source said. 
At the same time cuts in subsidies to the farm sector could run into
opposition from agricultural regions and from the small but vociferous
Agrarian Party in the Duma. 
The source said regions receiving subsidies for supplies to the Far North
were using the funds extremely inefficiently. 
At the same time, such supplies could in future be handled by the private
sector, as the budget assumes that the central bank's refinancing rate, a
benchmark for interest rates, will fall to 18-20 percent in 1998 from 24
percent currently. 
The federal government estimates that Moscow's role as the capital has a net
positive effect on the city's finances, he said. In 1997 the federal
government budgeted 2.4 trillion roubles in subsidies for Moscow, although
spending cuts mean it will receive only 1.0 trillion, he said. 
The draft 1998 budget would cut subsidies to the farm sector to 7.9 trillion
roubles from a budgeted 16.1 trillion this year, and a likely 9.8 trillion
this year after spending cuts, he said. 
In fact the government believes that subsidies to the farm sector could
actually rise to 17.8 trillion roubles in 1998, if the sector repays earlier
credits, allowing these funds to be distributed again, he said. 
But the removal of tax privileges for farmers in the new Tax Code currently
going through the Duma would leave farmers worse off than this year, even
with these higher subsidies, he said. 
The government has already started programmes to recover the old loans, for
instance converting defaulted credits to regions into regularly auctioned
``agro'' bonds, although the market's response to these has been lukewarm so
far. 
The source said further bonds, converted from credits made in 1995, would be
issued in 1998. 

*********