December
2, 1997
This Date's Issues: 1403 • 1404
•
Johnson's Russia List
#1404
2 December 1997
davidjohnson@erols.com
[Note from David Johnson:
1. Helen Garkusha: Re Hot Dogs.
3. BBC: Russian population shrinks by third of a million in 1997.
4. International Herald Tribune: William Pfaff, To Each National Culture
Its Own Form of Capitalism.
5. Interfax: Yeltsin: Russia 'Ripe' for World Economic Integration.
6. Reuters: Russia must collect taxes so IMF can help--Summers.
7. St. Petersburg Times: Eric Schwartz, Drug Use Skyrockets,
Treatment Still Rare.
8. H-Net Russian History list: Robert Thurston reviews Tim McDaniel's
"The Agony of the Russian Idea."
9. Los Angeles Times: Carol Williams, Yeltsin Puts Off Day of
Reckoning on Economy, Making Matters Worse.
10. The Straits Times (Singapore): Kidnappings on the rise in
ex-Soviet states.
11. Emerging Markets Debt Report: Russian bank collapse unlikely,
study finds.]
********
#1
From: garkusha@nns.ru (Helen Garkusha, Moscow)
Subject: RE: 1403 Hot Dogs
Date: Tue, 2 Dec 1997 14:29:47 +0300
Re #1403-"The American Hot Dog Invades Russia and China And
Takes On Different Tastes and Forms"
A couple of words about Russian hot dog "Cold War style" - the author
writes it was "on a single slice of bread - sometimes white......, but
often stale... with a squirt of watered-down ketchup". Well, back in
Soviet times that was mustard, good old strong spicy mustard, not
ketchup. Russians developed taste for ketchup about 7 years ago. Now
Russia is flooded with ketchups of different tastes, brands and origins.
And know what? There are even brands named after Russian literature
classics :) There are Pushkin, Dostoevsky, Nekrasov, Tolstoy and so on
ketchups.
*******
#3
BBC News
December 1, 1997
World: Monitoring
Russian population shrinks by third of a million in 1997
The population of Russia has fallen by over one-third of a million since
the start of the year, the Russian State Statistics Committee announced on
Monday.
The Russian news agency Interfax quoted the committee as saying that as
of 1st October, the population of Russia totalled 147.2 million people,
against 147.5 million in January, a drop of 312,800 people, or 0.2 percent.
In total, 964,800 people were born in Russia in the period January-
September 1997, while 1.521 million died, a drop of 556,700.
However, the fall was offset by 2.323 million immigrants, a figure which
exceeded the number of those who left the country by 243,800.
The death rate currently exceeds the birth rate in 70 of the 89 Russian
regions, as opposed to 72 in January-September 1996, the committee said.
The natural decline in the population has had the most effect on the
regions of Pskov, Tula, Ivanovo, Tver, Ryazan, Smolensk and Novgorod.
*******
#4
International Herald Tribune,
December 2, 1997
[for personal use only]
To Each National Culture Its Own Form of Capitalism
By William Pfaff
PARIS - The economic crash in Asia is not the product of ''Asian
values'' but of the misapplication of Western values to Asia. A fallacy
exists in current Western thinking about capitalism, which the Western
governments and international development banks have passed along to
Asia.
It was expressed by a baffled Alan Greenspan last summer when he said
that he had always believed that dismantling communism in Russia and the
former satellites would ''automatically establish a free market
entrepreneurial system.''
The fallacy is to assume that all that is necessary to create a modern
industrial economy is deregulation. Cultural and po-litical factors are
considered irrelevant to economics or subordinate to economic forces.
This is profoundly untrue. It is the national culture that determines
the form that an eco-nomy assumes.
Asia's crash follows from the imposition of a Western market model on
politico-economic cultures in which primacy has traditionally been given
to the collective over the individual, where social conformism is a
positive value, people rely most on family and clan relations, and
government is interventionist and characterized by patron-client
relationships.
To each society its way of life. The error is to think that Western
capitalism can be installed everywhere and work the way it does in
America or Western Europe.
Asian economies have been tumbling because their traditional forms of
economic and political relationships have produced, by Western
standards, a corrupt and speculative form of economic expansion
unsustainable in a globalized economy.
Once the errant investments motivated by these relationships began to
fail, investors at home and abroad either pulled out or speculated
against Asian currencies and markets. It all began to come apart.
Earlier in this century, Max Weber and R.H. Tawney argued that
capitalism was a product of the cultural and religious nature of Western
society. The German Weber (1864-1920) wrote in 1920, in ''The Protestant
Ethic and the Spirit of Capitalism,'' that an intimate connection
existed between the ascetic ethical teachings of Calvinism and the
development of the institutions of European capitalism.
The English Christian socialist Tawney (1880-1962) developed a parallel
argument in ''Religion and the Rise of Capitalism'' and other
influential works. The arguments of Weber and Tawney were validated by
the actual development of capitalism in both Europe and the United
States.
In the American case, the peculiar evolution of Protestant Christianity
during the 18th and early 19th centuries saw the original Colonists'
sense of America's limitless possibilities transform Puritanism's
anguished consciousness of sin and conviction of predestination into a
belief that material success and earned riches are actually evidence of
God's blessing on both individuals and nation.
The Gilded Age of American capitalism in the late 19th century was rife
with social abuse and vulgar display, but functioned within a powerful
code of Protestant conviction which said that gaining wealth was
connected to virtue but was also a trust. Hence the great philanthropic
foundations created by the industrial barons of the age, the
Rockefellers, Carnegies, Mellons and Morgans.
This belief in the moral obligations of wealth persisted into the 1950s,
expressed in the notion of ''corporate citizenship'' and a belief that
companies had obligations to all their ''stakeholders'' - labor and the
community, as well as stockholders.
In today's American capitalism, the idea of stakeholder capitalism has
all but disappeared, to the benefit of stockholder and manager, and the
national morality within which business and industry function has
changed radically.
The United States remains the most religious of industrial nations in
terms of avowed belief in God, and regular churchgoing, but religion has
lost virtually all serious cultural or economic influence.
Religious influence has been driven out in the name of church-state
separation, but also by the conversion both of elites and of the public
to versions of hedonist individualism.
Individual freedom, even when destructive to common life and community,
and the aim of individual ''self-realization'' have become the
dominating themes in American life.
Religion itself has tended to become therapeutic rather than redemptive.
The practices of contemporary American capitalism are merely the
economic expression of this change.
American business functions with a principled disregard for individual
claims on social justice and with a firm belief in a new version of
economic determinism: that the market will solve all problems, including
those of justice and equity.
This could be called a dumbed-down American inversion of Marxism, but it
has become the national economic ethic. It has been exported to
post-Communist Russia and Eastern Europe, and to Asia, with a missionary
zeal worthy of another age and a more edifying cause.
Asian capitalism is in crisis in part because of a mismatch between its
inherited culture and its imported economic values.
America has yet to examine the implications for its future of a
materialistic and hedonist public culture that has, in practice,
abandoned the ethical foundation of the country's economic as well as
political history.
One may deplore this change or welcome it, but it has hap-pened, and it
marks not only the United States today, but also what modern capitalism
has become everywhere.
*******
#5
Yeltsin: Russia 'Ripe' for World Economic Integration
Moscow, Nov 25 (Interfax) -- Russian President Boris Yeltsin said
before his meting with First Deputy Prime Minister Anatoliy Chubays on
Tuesday that Russia is politically ripe for invigorating economic
cooperation with the leading world powers.
"In 1998 we must become economically stronger. Signs of stabilization
are already felt, but next year we must become stronger so we can stand
firmly on our feet. Only then shall we receive investments from other
countries," Yeltsin said.
He said that politically, Russia's doors are open to the world. He
also said that this creates conditions for more efficient economic
cooperation and trade with the leading industrialized states. "There are
no more barriers," he said.
"The situation has never been so favorable for free trade either in
the history of the Soviet Union, or in the history of Russia. There have
always been limitations due to problems in relations with China, or because
of territorial problems with Japan," he said.
"Now these and many other barriers have been removed, and so have
problems in relations with Europe and NATO. So now we must invigorate
trade," Yeltsin said.
He greeted Chubays by saying: "Have they calmed down?"
"That's life," Chubays replied.
"Life is filled with strain," Yeltsin told journalists. "I think,
however, that the storm is calming down and so are the media," he said in
reference to a scandal involving Chubays and other leading reformers which
led to four key resignations over the last week.
"I have already told the media that all their flurry of activity is a
wasteful effort. I will not give Chubays up. What's the use of wasting
materials, inventing something and looking for something? That will do.
The president has taken the decision and Chubays has agreed with it,"
Yeltsin said.
"Although he (Chubays) has written to me that the fees were a mistake,
it's not an instance of lawlessness or a criminal case. It's a moral and
ethical problem which has to do with Chubays' high post. The fees must
have been fixed to befit this post," he said.
He said Chubays had taken a correct decision by putting 95% of the
fees into a charity program. "What will you do if I write a third book?"
Yeltsin said, addressing an Interfax correspondent.
"I'll read it," the journalist answered.
Yeltsin praised the "young reformers." "They work 20 hours a day and
leave the office at midnight and even later. Chubays and Nemtsov have
plenty of work to do," he said.
"I've told Anatoly Borisovich (Chubays) that a serious discussion will
take place on December 1," when the government is due to submit a
preliminary report of its achievements in 1997.
"It's natural. There are many problems which we haven't solved yet,"
Yeltsin said.
******
#6
Russia must collect taxes so IMF can help--Summers
WASHINGTON, Dec 1 (Reuters) - Russia must focus on tax collection to get its
reform program with the International Monetary Fund back on track and enable
the fund to help, U.S. Deputy Treasury Secretary Lawrence Summers said on
Monday.
"In Russia, as in other countries, the most important thing is that they
focus on the fundamentals," Summers told a news conference.
"In their case the most important fundamental is an improvement in the
functioning of the tax collection and to get back on track under their IMF
program, which would make it possible for the IMF to help them through any
problems that might arise."
The IMF has stopped paying installments of a $10 billion three-year loan to
Russia because it is worried about dismal tax collection, and Moscow has been
looking for new sources of financial assistance.
Senior Russian officials visited Washington last week to discuss Moscow's
financial problems after big outflows of foreign funds on the domestic
treasury bill market.
Some media reports said Moscow was looking for an additional $5-7
billion of
emergency funding to support the ruble currency and strengthen economic
fundamentals.
U.S. officials have previously made clear that bilateral financing to
troubled countries must be linked to IMF packages, which say loans can only
be paid if tough conditions are met.
******
#7
St. Petersburg Times
DECEMBER 1-7, 1997
Drug Use Skyrockets, Treatment Still Rare
By Eric Schwartz
STAFF WRITER
"The future. I don't think about the future. If I did, I would kill
myself." - Dima, 23 and a drug addict.
What Dima does think about is shooting up, on average three times a day.
He's been shooting up for the last eight years.
"The first thing I think about when I wake up is my shot," he said.
He uses a crude opiate sold at the Pravoberezhny market, mixed with an
over-the-counter antihistamine. Dima's dirty hands have suffered so many
needles that they now harbor a swelling abscess.
"My veins there are gone," he said of his hands. "Now, the only place I
can use [for shooting up] are my legs," he added, gesturing to his inner
thighs.
St. Petersburg is experiencing a phenomenal growth in the use of illegal
drugs. According to Dimitry Ostrovsky, director of the Vosrashcheniye
Fond, a Christian charity that works with addicts, the amount of people
addicted to narcotics has grown 10-fold in the past 10 years.
According to Olga Shtakelberg, a psychiatrist with the city's narcology
department, the city has about 30,000 registered drug users, according
to medical records so far this year of doctors who have treated addicts.
That's up from 20,800 registered last year, she said.
Since those figures only take into account addicts who received medical
treatment, the actual amount of drug users could be ten times that, she
added - which, given the city's population of five million, would mean
nearly one in five Petersburgers.
For comparison, Shtakelberg said that when she started work in the
narcology department 15 years ago there were only 3,000 registered
addicts.
The engines driving the problem are obvious. With the breakup of the
Soviet Union, borders have become more porous, while the six-year
economic slump has left growing numbers of people who consider their
future prospects bleak.
One attempt to both alleviate and study the problem is a program funded
by the European Union's TACIS program to dispense clean needles to
addicts from a bus parked at the Pravoberezhny market. Launched a year
ago, it was designed to serve 50 addicts a day five days a week. Today
it handles six times that: The need was much more than expected, said
Olga Tyuseyeva, a psychologist with the needle exchange program.
The addicts using the services of the bus range from Dima - who lives in
a basement and looks like a stereotypical bomzhi, or homeless person -
to Anya, 22, who lives with her parents, finished her degree at the
institute and wears nice clean clothes. Anya has been shooting drugs for
the last six years.
To assist in tracking the drug explosion, people receiving needles have
to submit to an interview about their sexual and drug use habits.
There are heroin and cocaine on the local market, but they're much more
expensive than the makovaya solomka, or poppy straw, that Dima and his
friends buy. Heroin can cost about 100,000 rubles for a hit, whereas
Dima spends about 40,000 to 50,000 rubles a day for a three hit-a-day
habit. The straw is mixed with vinegar, boiled, and then heated again,
said Dima. The residue is then injected.
But putting a price on the drugs isn't easy.
"How much does it cost? How much do you have? They'll take what they can
get," said Sergei, another client of the needle exchange program.
Cost may vary, but availability does not. All the addicts interviewed by
The St. Petersburg Times said getting drugs is never a problem.
The market at Pravoberezhny is one of two where the needle exchange bus
parks. The other is at the Nekrasovsky market, near Ploshchad
Vostanniya.
Trying to get the free-needle program up and running wasn't easy, said
Ostrovsky of the Vosrashcheniye Fond. After the program began in
January, the bus itself was seized by the police. Later, the police put
the bus under surveillance and harassed addicts who got free needles
from it. Ostrovsky said his group was able to persuade the authorities
that their interference was counterproductive
"In the past, there was no acknowledgment of a [drug] problem. That is
still the situation. There has been no change in attitude," Ostrovsky
said. The official approach to drug addicts is not to help them kick
their habits, but "to put them in a hospital and hold them," Ostrovsky
added.
The medical community is little better, he added, treating addicts as
criminals and not patients.
Dr. Zorka Domic, a Paris-based doctor who has been advising the city's
narcology department, agreed. "We're trying to develop an approach that
treats these people like they have a disease, rather than as criminals,"
she said.
Outside the free-needle bus in a cold November wind, Anya related how
she was hospitalized for infections caused by her intraveneous drug
habit. "They treat drug addicts like dirt," she said.
The child of two teachers, Anya graduated from an institute but was
introduced to drugs by friends. "At first, they gave it to me free," she
said.
Now she manages to find money wherever she can to pay for her habit.
When she was hospitalized, her father had to sell his car to pay for the
antibiotics to treat her infections.
Grisha, 22, like all the addicts interviewed, had tried to kick his
habit, but was unsuccessful. He still has dim hopes of returning to his
native Siberian town near Lake Baikal.
In a scattered manner, he described how he got into injecting drugs
after traveling abroad as a student, trying hash and other drugs in
Holland and Sweden. But about four years ago he was arrested, and his
drug habit in prison became even stronger.
While Sergei, Anya and Dima may represent one side of addiction, so does
a different Sergei, who has been clean for the last two and a half
years, after using for more than eight years. He works now as a driver.
Sergei started using first marijuana and then was introduced to shooting
up opium. Soon he was stealing cars to support it. Over the years he saw
more than 10 friends, among them his wife, die from using drugs.
What helped him turn his life around, Sergei said, was his faith in God.
He is now a member of Ostrovsky's group.
But psychologist Tyuseyeva said people like Sergei are the exception.
Few break an addition and most die within five years of starting, she
said.
Dima is an exception, having survived eight years of drug abuse. He did
not seem particularly cheered by the thought, however. "I've already put
myself under a tombstone," he said.
*******
#8
Date: Tue, 2 Dec 1997 10:18:14 -0500
Sender: H-Net Russian History list <H-RUSSIA@h-net.msu.edu>
From: Martin Ryle <mryle@richmond.edu>
Subject: REVIEW: THURSTON ON MCDANIEL, _AGONY OF RUSSIAN IDEA_
H-NET BOOK REVIEW
Published by H-Russia@msu.edu (November, 1997)
Tim McDaniel. _The Agony of the Russian Idea_. Princeton:
Princeton University Press, 1996. x + 201 pp. Bibliography
and index. $24.95 (cloth), ISBN 0-691-02786-2
Reviewed for H-Russia by Robert W. Thurston
<thurstrw@muohio.edu>, Miami University
Most serious students of any subject have probably had the experience of
reading a book which was at once pleasing and irritating. But I at least
have seldom read anything which from the start (and sometimes within one
paragraph) alternated between being edifying, sophisticated, nearly
brilliant on the one hand, and being grossly oversimplified, baffling, and
arrogant on the other. Any work which claims to present _The_ Russian
idea and then to maintain that it goes far to explain the behavior of Ivan
the Terrible, the collapse of Imperial Russia, the rise of the Bolsheviks,
the fall of the Soviet Union, and Yeltsin's failures is hugely ambitious
and likely to draw fire from specialists at many steps along the way.
More than a few H-Russia subscribers could write serious reviews shredding
Tim McDaniel's latest book. But it seems to me that 1) we should step
back a bit, recognize that the point of his enterprise is to challenge us
to rethink a lot of territory and to reexamine whatever unifying concepts
we have constructed for ourselves, and that we ought to do that
occasionally; and 2) overall there is more benefit than agony in reading
his book. It is pretty good.
The Russian Idea, McDaniel finds, is that the country has its own special
worth, mission, and Truth that are all superior to anything the West has
offered. In outlining this thesis and in most of his argument the author
does not limit his discussion to Russian intellectuals but maintains that
the Idea has had, and continues to have, a powerful grip on the minds of
ordinary people. Although there have been many ideas discussed in the
country, the notion that "the Western path can and should be avoided in
the name of a harmonious and egalitarian Russian society based on a higher
form of belief" (p. 31) has always won out.
McDaniel writes that the main cause of the failure of Russian governments
to modernize, in the sense of promoting science, industry, mass education
and mass politics, has been that the population's commitment to lofty
ideals and to a moral vision has prevented a politics of moderation and
compromise. Since no government can be one of Truth for long (more than
an instant, perhaps), people have inevitably lost faith in their leaders.
Successive regimes rotted from within as the gap widened between their
deeds and the Russians' implacable faith in what should be.
The central problem for each regime in turn, including the present one, is
that it tried to link "three elements that could never be assimilated to
each other: the Russian idea, the despotic state, and the commitment to
rapid modernization" (14). The impossibility of bringing these three
elements together has plagued the country for more than 200 years. When
any Russian state tried to reform itself and turn more toward
modernization, it only provoked schisms within the body politic, sharp
disagreements over how to reach truth, and its own demise as the populace
embraced a new messianic vision in which, once again, society must be
unitary. The new/old emphasis would be not on law, widely distrusted and
rejected as foreign, cold, and simply too rational, but on personal
relations and moral behavior.
In support of his argument McDaniel offers quotations from the usual
suspects, especially Chaadaev, Dostoevsky, and Berdiaev, but also from a
parade of recent political commentators, parents of prostitutes, firemen
in provincial towns, and so forth. He has certainly been around a lot of
Russia lately, and his ability to sound out Russians appears to be great.
All of this, and a good deal more, is neatly and elegantly laid out in a
short space. Much of it will have heads nodding in agreement in our own
unharmonious community of scholars of Russia, and in fact a considerable
part of McDaniel's book has an eerily familiar ring to it, as though he
had synthesized not the Russian Idea but the old IREX conversation in situ
about why the locals never got things right.
Other points in _Agony_ are more subtle and thought- provoking, for
example that the thorough arbitrariness of the social and economic system
under Brezhnev not only provoked people to work around government
dictates, it also "gave everyone a stake in the system" (141). Much was
permitted just behind a public facade, and into the 1970s many people felt
that the existing socio-economic structures were "ours" and were better
than the West's.
But a lot of McDaniel's work, as I have suggested, will antagonize one
person or another. My own periodic peeve is his condescending attitude
toward Russians (but here again are echoes of the IREX conversation):
"workers and peasants had no real understanding of the implications of
revolutionary teachings" (81); Nicholas II was "unable to comprehend" what
was happening around him, a question of his "capacity" (84), which ignores
the context in which he was raised and operated, the series of upheavals
he had to deal with, and recent scholarship by Andrew Verner and Dominic
Lieven. McDaniel finds that Brezhnev was also terribly limited and that,
echoing Lenin, "Russian individual behavior" was marked by
"irresponsibility, laziness, passivity" (124). McDaniel seems unaware of
the patronizing text in which he sometimes operates, one developed at
least from the time Sigmund von Herberstein wrote in the sixteenth
century. His generalizations about what Russians think and are amount at
times almost to nineteenth-century discussions of national character.
Sometimes history is left out of McDaniel's discussion of history. In
particular, the massive destruction in Russia of World War I and the Civil
War is given almost no attention, as though it had no effect on what
people thought and did. Apparently the Russian Idea had an independent
and higher life of its own. In this vein it is indicative that the jacket
illustration is of a Russian woman crying behind barbed wire, implying
that the people imprisoned themselves. Then we learn that the picture was
taken from a World War II poster calling on soldiers to save people under
German occupation. There have, after all, been many reasons over many
centuries that would make Russians feel hostile to western ways and
desirous of a unitary society. But we get little feeling for any of that.
Other examples of the lack of context are that Peter the Great is often
mentioned as a modernizer but the problem that Russia was at war almost
every year of his reign, and that he sought reform out of desperate
attempts to raise money for military purposes and so that government could
operate in his frequent absences, are points not mentioned. McDaniel, a
sociologist, provides little information on the vast changes in Soviet
society from, say, the late 1930s to the late 1960s. He can then
conveniently tilt his analysis in favor of the recurrent victory of the
Idea as a force per se.
McDaniel also often overlooks the continuing dialogue between western
commentators and Russian thinkers on their country; this exchange which
had much to do with any ideas which sprang from the Russian land at the
very latest by the time Karamzin published his massive history in the
early nineteenth century. Karamzin quoted Herberstein and Olearius, who
were also read by Custine, who met with Chaadaev and also provoked
responses to his highly critical _Russia in 1839_ from Herzen,
Dostoevsky, and others. This is only one of many such threads which might
be traced but are not, so that _Agony_ gives the misleading impression
that the Russian Idea was purely homebrew. Along the same lines, it would
have improved the overall argument to include something about the ways in
which Russian thinkers have struggled with the problem that the West was
indeed ahead in certain highly visible respects.
McDaniel repeats one erroneous point widely retailed in the West and now
in Russia as well, that Stalin "sent Soviet soldiers who had been
prisoners of war in Germany to labor camps so that they would not infect
the rest of the population" (117). Figures which have appeared in Russia
in the last few years show that the vast majority of the rank and file
returning POWs were processed by the authorities fairly quickly and then
went back to military or civilian life--under a cloud of suspicion, true,
but not in the Gulag. Returning sergeants faced more problems with
Stalin's regime, while officers often found themselves in the position of
having to prove their loyalty when captured, a nearly impossible task. In
any event, McDaniel's logic, repeated so often in the literature, is
faulty: if Stalin had wanted to prevent "infection," that is the
dissatisfaction that having seen the West might produce among the
populace, he should have arrested above all those soldiers who had _not_
been in German camps and had thus seen the West in a much more positive
way. Instead, Stalin's behavior toward the former POWs is consistent with
his efforts before the war to uncover, albeit by his own twisted lights,
who the "real" internal enemies were.
But _Agony_ is well worth reading. It will not only stir up a good deal
of controversy, it will force us to ask if we have understood much over
the longue duree of Russian history. McDaniel does make a persuasive case
for the power of Russian self-construction around certain ennobling ideas,
and he does help explain recurring difficulties and collapses in governing
the country. Given that he set out to reach a wide audience in a short
space, much detail and background had to be omitted. But in a crisp way,
McDaniel has led us effectively to rethink a lot of familiar ground, to
link it to the present, to set much recent Russian experience into a
larger picture than we usually do, and perhaps to return to the basic
question of why, as he shows, so many Russian intellectuals and ordinary
people have pondered the condition of their country for so long in similar
terms.
Copyright (c) 1997 by H-Net, all rights reserved. This work
may be copied for non-profit educational use if proper credit
is given to the author and the list. For other permission,
please contact H-Net@h-net.msu.edu.
******
#9
Los Angeles Times
2 December 1997
[for personal use only]
NEWS ANALYSIS
Yeltsin Puts Off Day of Reckoning on Economy, Making Matters Worse
Russia: President had set deadline for evaluating Kremlin efforts to pay
wage arrears and lure investment.
By CAROL J. WILLIAMS, Times Staff Writer
MOSCOW--Russian President Boris N. Yeltsin postponed a day of reckoning
on the national economy, rocked by global market drops and home-grown
scandals. But Monday's evasion of judgment only accelerated a recent tumble
in stock values, the ruble and general confidence in Russia's future.
Just as this country seemed poised to turn around a six-year slide in
industrial production and cash in on competitive sales of its natural
assets, the Russian economy has been hit by ripple effects of financial
turmoil in Asia, by the discrediting of privatization czar Anatoly B.
Chubais and by fears that an impending ruble revaluation could stoke
inflation.
In a few short weeks, the long-hoped-for breakthrough in Russia's
historic but thwarted transition to a market economy has been halted by
global bad luck and local bad timing.
Yeltsin had set Monday as the deadline for evaluating the leadership's
success in paying off wage debts and luring needed investment. He had
ordered the Cabinet to work through the weekend to provide him with a full
picture of the economic state of the nation.
More than $5 billion in securities investment has been withdrawn from
Russia over the past month as investors worldwide pull out of emerging
markets. Russian regulations require foreign holders of treasury bills to
give a month's notice before converting proceeds of their sale, which
accounts for the delayed reaction here to the Asian crises that began in
late October.
Share values on the Russian Trading System stock market dropped 14%
last week and are expected to suffer body blows after Monday's decision by
the Russian Central Bank to boost interest rates on treasury bills to halt
the hemorrhage of securities investment. Now that the T-bill rates are more
attractive, banks are all the more likely to convert their stocks.
Added to the financial woes is a crisis of confidence in Chubais, the
chief navigator of the transition who has acknowledged accepting a $90,000
"book advance" from a company with connections to the successful bidder on
several controversial sales of state shares.
Russia's fractious parliament has been particularly unproductive of
late as Communist and nationalist opponents of capitalism have seized on
the bribery scandal in an effort to also taint Chubais' economic reform
plans.
The 1998 budget is being held up by hostile deputies in the Duma, the
lower house, who want Chubais fired as the price for its passage. Vital tax
legislation is also stalled, and important asset tenders, such as the
sell-off of shares in the Rosneft oil conglomerate, have been put off for
lack of bids amid the uncertainty and scandals.
Still, economists say, there are reasons for hope. Promising provinces
in Russia's vast federation have been shaking off Moscow's smothering
embrace. Cities such as Samara and Nizhny Novgorod have secured their own
international bank loans and credits to jump-start industries, and the
Saratov region last month adopted its own real estate law, having despaired
of the Duma ever endorsing a federal version.
"The Kremlin economic Titanic is sinking, but boatloads of those
trying to save themselves are sailing away," said Gennady S. Lisichkin, a
liberal economist and president of the Assn. in Support of Entrepreneurs.
Other analysts point out the undeniable accomplishments since Russia
emerged from the economic wreckage of the Soviet Union. Inflation that had
soared to four-digit annual rates in 1992 is pegged at less than 14% this
year; the ruble exchange rate has been stabilized around 6,000 to the
dollar by imposition of a "currency collar" underwritten by the Central Bank.
But Yeltsin promised in summer to clear what now amounts to $1.6
billion in state wage arrears by Jan. 1--a feat even optimistic analysts
say cannot be achieved. Income from the scuttled share auctions was counted
on to pay back the salary debts, and tax collection has been a pitiful
fraction of the amounts envisioned in the budget.
So when Yeltsin on Sunday called off the Monday Cabinet session,
claiming to need more time to make proper assessments, already skeptical
investors and analysts rushed to their own judgment. The Central Bank had
to intervene Monday to prop up the ruble as Russians scrambled to buy
dollars and stock prices continued a three-day drop. The Central Bank was
forced to boost interest rates to a whopping 36% for short-term treasury
bills and to as much as 45% for borrowing beyond nine months.
The interest-rate jump should attract enough cash to keep the
government working for now, but the higher rates will put even more strain
on next year's budget when the loans come due.
The ruble collar is draining Russia's gold and foreign currency
reserves, as $2.5 billion was spent to maintain it in the first two weeks
of the crisis, the official Rossiskaya Gazeta newspaper reported.
And looming is a currency replacement that takes effect Jan. 1. Three
zeros are being lopped off the ruble to make pricing less cumbersome. The
move was intended to instill confidence in the currency now that inflation
has been tamed.
But some economists predict damaging spillover from the current crises.
"We should expect significant danger to arise from the forthcoming
[revaluation] of the ruble," said Larisa I. Piyasheva, an economist and
parliamentary budget committee advisor. "There is a possibility that some
of the old rubles that are supposed to be exchanged and destroyed may well
reappear in circulation, given the level of corruption that exists in the
power circles."
Both old and new bills will circulate simultaneously for a few months;
any reappearance of withdrawn currency would fuel inflation.
The 1998 budget is expected to get a first hearing in the Duma on
Friday, and Yeltsin has indicated that his report card on government
performance amid the economic woes will be delivered next week.
But the opposition-controlled Duma is unlikely to pass the budget
without major concessions from Yeltsin, such as the sacking of Chubais from
his position of first deputy prime minister. Most liberal analysts fear
that the departure of Chubais would further undermine investor confidence
in Russia, and Yeltsin has vowed to keep him.
"Only this government is capable of doing something positive for
Russia," Deputy Prime Minister Oleg N. Sysuyev insisted in an interview
with Komsomolskaya Pravda newspaper Monday, characterizing Chubais as a key
member of Yeltsin's reform team.
********
#10
The Straits Times (Singapore)
2 December 1997
[for personal use only]
Kidnappings on the rise in ex-Soviet states
MOSCOW -- Kidnappings are becoming more and more common in some of the
former Soviet republics, with the prime targets being foreigners who can be
used as bargaining chips in a civil war or as a lucrative source of income
from ransom money.
The tiny breakaway Muslim republic of Chechnya and the former Soviet
Central Asian republic of Tajikistan, where neo-communists and Islamic
guerillas have been fighting one another for years, have become high-risk
areas for the employees of international organisations and foreign
journalists.
The dangers were highlighted by the death on Sunday of a French aid
worker as security forces made a last-ditch attempt to free her from Tajik
gunmen who had abducted her and her companion two weeks ago.
French Foreign Minister Hubert Vedrine voiced grief at Ms Karine Mane's
death. "This is quite shocking, considering that these people had gone
there to help," he told France-3 television.
He said her death raised the problem of the risks run by relief workers,
adding: "We are going to ask for a rethink at home and in Europe about what
is going on in northern Caucasus."
Prime Minister Lionel Jospin described hostage-taking as scandalous and
said his government was studying how to fight it.
"We must unfortunately warn our fellow countrymen: They must be very
cautious in, and even not travel to, some areas prone to hostage-taking,"
he told reporters.
France has been hit particularly hard by abductions in recent months.
In October, Mr Christophe Andre, a 30-year-old worker with the
humanitarian organisation Medecins sans Frontieres (Doctors without
Borders), managed to escape from his abductors in Chechnya after being held
for four months.
Four other French citizens, including three members of the humanitarian
group EquiLibre, were freed by their Chechen kidnappers in the Russian
republic of Dagestan in the middle of last month -- more than three months
after they were abducted.
It was rumoured that the four were released after the payment of a large
ransom, which one Chechen general put at US$3.5 million (S$5.5 million),
although this was strongly denied by EquiLibre.
"The more talk there is of ransoms, the more foreigners become potential
hostages, like walking money bags," said EquiLibre chairman Alain Michel.
According to Deputy Public Prosecutor Magomed Mogomadov, some 200 people
were kidnapped this year in Chechnya alone. Of these, 54 have yet to be
released. Those still held hostage include two Hungarians, two Britons and
a Turk.
The spate of kidnappings has led many countries to warn their nationals
to stay away from certain former Soviet republics.
Foreigners worried by the latest kidnapping have already started to
leave Tajikistan. -- AFP, Reuters.
*******
#11
Russian bank collapse unlikely, study finds
Emerging Markets Debt Report
December 1, 1997
[for personal use only]
Fears of a Russian banking system collapse appear to be exaggerated,
said Andrew Warner, an economist who works with Jeffrey Sachs at Harvard's
Institute for International Development. For a recent study, "The Emerging
Russian Banking System," the Institute was granted access to the 1994 and
1995 balance sheets of 723 banks--what it considered a representative
sample--covering 28% of assets of registered Russian banks.
On the whole, the banking system was profitable in those years, Warner
found, although some banks did well in one year and poorly in the other,
and profits were mainly generated from securities investments and
subsidized flows from the Central Bank for onlending at favorable spreads,
rather than from traditional lending.
This assessment seems brighter than that of the Central Bank of Russia,
which this year concluded that only 35% of Russia's banks are basically
sound. The Bank told the European Bank for Reconstruction and Development
(EBRD) that some 30% of the country's banks are having serious
difficulties, with most of those likely to be liquidated or merged into
stronger institutions.
Warner spoke with EMDR reporter Mary D'Ambrosio at the London School of
Economics' Centre for Economic Performance, where he presented his findings.
D: You note that when the Central Bank stopped issuing new banking
licenses in 1995, there was an undercurrent of fear that the explosion of
new banks entering the system signaled a future banking meltdown. Was this
a mistaken conclusion?
W: In retrospect, the banking crisis did materialize, though not
seriously. At the time, the evidence showed that Russian banks on average
were quite successful. In that sense, it was an exaggerated fear.
D: Now that there has been consolidation (the EBRD counts 1,847 banks as
of last July, compared with 2,600 three years ago), are the worries for the
banking system over?
W: It's difficult for me to believe that this system is on the edge of a
crisis. Rather, more small banks will fail, as part of normal
consolidation. The Russian banking system has included some of the most
successful businesses of the twentieth century. During the first three
years of the Great Depression in the United States, both the economy and
the banking sector declined by 21%. During the first three years of the
Russian transition from state socialism, the Russian economy declined 32%,
but the Russian financial sector actually grew 43%. Even by 1995, 75% of
liabilities were non-interest bearing. If you want to enter a business,
this is the business to enter.
D: Despite so much public hand-wringing about the rapid increase in the
number of Russian banks, your study found that the vast majority of them
were profitable in 1994 and 1995. How were they able to manage this?
W: A big part of their business was getting very low interest rates or
even, in real terms, non-interest bearing deposits from firms, and
investing in such things as hard currency and government bonds, all of
which earned nominal returns of as much as 200%. That is very good business
for a bank, and a main reason the banks did so well in the early years of
the transition. The Central Bank in this period was also fueling inflation
by giving subsidized loans to state enterprises. It did this by lending at
low rates to commercial banks, which would onlend to the enterprises at
higher spreads. So both things made for a very profitable few years in
Russian banking.
D: Is this pattern continuing today?
W: A lot of deposits still don't bear interest in Russia, though much
less so than before. It's a bit of a puzzle why Russian banks can get away
with that, but the evidence suggests that they do. The Central Bank isn't
lending to the economy at anywhere near the scale it was in 1992 and 1993;
that business has virtually stopped.
D: Is Russia overbanked?
W: Russia is underbanked in the sense that banking assets are a small
part of the economy. It can certainly support a much greater volume of
borrowing and lending. Assets are only 23% of GDP; less than half that of
the United States, with 58% of GDP.
D: You hint at a "dark bargain" among the Central Bank, the government
and the commercial banks. Is this a conspiracy to prevent newcomers from
getting a piece of a lucrative market?
W: I don't know if it's a conspiracy, but the fact is that the Central
Bank has stopped issuing new banking licenses. It's also true that banks
withhold taxes (owed by enterprises) on behalf of the government; that's
the way the Russian government gets its tax revenue. So banks do provide a
service to the government, which is especially important when tax revenues
are declining. In order to do business legally in Russia, you have to open
a bank account. By not changing the system of the way it collects taxes,
the government makes it easier for Russian banks to collect the deposits of
enterprises. All parties benefit from this arrangement. It's a situation
where you could get a circular transfer of favors among all these groups.
D: You also found that the so-called "silk pajama effect"--the theory
that Russian banks pouring money into building fancy headquarters were
neglecting their banking business--didn't especially hold.
W: No. Banks that had a lot of fixed capital merchandise on their books,
primarily buildings, did, on average, make lower profits than other banks.
The effect was small, however. It was an amusing finding because it
contradicts the popular Russian conception that banks are in business to
feather their nests and have nice buildings.
D: What are the implications of this situation for foreign banks who
want to build a Russian business?
W: My understanding is that entry for foreign banks is still limited.1
But, obviously, foreign banks could do very well in Russia, because there
are a lot of services they offer that are not offered in Russia. Checking
and credit cards, for example. Foreign banks could offer depositors better
interest rates than they get at Russian savings banks.
D: Do Russian banks fear letting foreign banks into the system?
W: I have no firsthand knowledge of that. But I'm sure foreign banks
would do very well and would be very popular among ordinary Russians,
because they would offer more stable banking services and higher interest
rates. And since they have a foreign asset base outside of Russia, they are
not likely to fail if the Russian economy has a downturn. If Russian
consumers are looking for a safe place to put their money, then foreign
banks are safer, for that reason alone.
D: What trends can we expect to see in Russian banking over the next 10
years?
W: There's unlikely to be a banking crisis in the sense of a banking
panic or an economic downturn triggered by the banking system. Banks are
still not lending to the real economy. But they are likely to slowly evolve
into lending to Russian companies rather than speculating on the foreign
exchange market and buying government bonds. And like Western banks,
they'll probably shift to offering more consumer services.
1 The share of foreign banks in the total capital of the banking sector
is restricted to 12%.
*******
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