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Johnson's Russia List


December 3, 1997  
This Date's Issues: 1405  1406  

Johnson's Russia List
3 December 1997

[Note from David Johnson:
1. Reuters: Yeltsin startles on arms, Kremlin tones down.
2. Don Hill (RFE/RL): Western Press Review: Mother Russia 
Draws Press Attention.

3. Jerry Hough: Reform in Russia.
4. Joseph McCormick (Open Society Institute-Russia):
Re #1402 -- Estonian Language Law.
5. International Herald Tribune: David Hoffman, Russia's 
Recovery Suffers a Setback.

6. AP: Study: Russia Military Hurting. (Stuart Goldman, 
Congressional Research Service).

7. Financial Times (UK) editorial: Risky rouble.
8. Journal of Commerce: Scott Pardee, Contrarian bet: 
Russian investments.

9. AP: Gorbachev to star in Pizza Hut ad.
10. Nezavisimaya Gazeta: The "Government of Scandals" Must be 
Radically Upgraded.

11. Pravda: General Aslambek Aslahanov: the Mafia and the State 
Are Communicating.]


Yeltsin startles on arms, Kremlin tones down
By Alastair Macdonald 

STOCKHOLM, Dec 2 (Reuters) - President Boris Yeltsin startled listeners
during a state visit to Sweden on Tuesday with a dramatic pledge to cut
Russia's nuclear arsenal and seek a total world ban on atomic weaponry. 
The unexpected remarks, in answer to a question on security in the Baltic
region, forced a harassed Kremlin spokesman to suggest the 66-year-old leader
was tired after a long day of meetings and to insist Yeltsin had done no more
than shed some light on talks already under way with the United States. 
``I announce here for the first time that unilaterally we will reduce the
quantity of nuclear warheads by a further one third,'' Yeltsin told a joint
news conference with Swedish Prime Minister Goran Persson. 
Noting accords with the United States that had already cut the two countries'
nuclear arsenals by about a third from Cold War levels, Yeltsin said: ``It is
now for us to take this matter to its conclusion and entirely destroy nuclear
Spokesman Sergei Yastrzhembsky, who is also a foreign affairs adviser to the
president, admitted he had not expected the statement and offered his own
interpretation, saying that in fact Yeltsin had simply confirmed Moscow's
willingness to continue with the arms reduction process. 
Under the START-2 treaty with Washington, signed in 1993 but still awaiting
ratification by the Russian parliament, the two sides agreed to cut their
long-range nuclear warheads to no more than 3,500 by the year 2007. 
At a summit in Helsinki in March, Yeltsin and U.S. President Bill Clinton
agreed to begin work on a future START-3 which could begin formal
negotiations once START-2 was ratified. Yastrzhembsky noted they had
mentioned a preliminary target figure of a limit of 2,000 to 2,500 warheads
What Yeltsin said, the spokesman suggested, was that he was prepared to go
even further, while noting that Clinton might find it hard to persuade
Americans to do likewise just yet. 
``The president has opened a window for journalists on the diplomatic
negotiating process,'' Yastrzhembsky said. 
``The president in principle thinks that it might be possible to go for a
more radical reduction, that is not limiting ourselves to going to START-3,
to 2,000 to 2,500 nuclear warheads, but might be possible go down even
It was not clear precisely what Yeltsin was referring to when he spoke of a
``one third'' further reduction. 
``The president is not suggesting a new reduction... Everything was said in
Helsinki,'' Yastrzhembsky said. 
Yastrzhembsky noted that there had been an understanding since Cold War days
that the lower the U.S. and Russian ceilings went, the more necessary it
would be to extend arms reduction treaties to China, France and Britain. 
``If we sign START-3, to 2,000 to 2,500, Russian might be ready to go for a
more radical reduction, naturally in the event of parallel efforts by our
partners,'' he said. ``We're talking about including other nuclear states in
the negotiating process.'' 
In a slip of the tongue, Yeltsin had wrongly mentioned Germany and Japan as
having nuclear weapons when he said he believed he could convince other
countries to join a pact on the destruction of such armaments. 
``Maybe the president was a little tired at the end of the day,''
Yastrzhembsky said, describing Yeltsin's talks with Persson as ``a dynamic
game of ping-pong.'' 
Yeltsin, who had multiple heart bypass surgery a year ago, looked in good
spirits and firm on his feet during his round of public engagements but at
times failed to address the questions asked during his news conference. 
``As long as I am president there will be no manipulation or initiative from
Russia that will provoke war,'' he said during a long response to a question
on Baltic security. 
Yeltsin has made similar dramatic gestures before, such as in May when he
said at a NATO summit in Paris Russia would remove nuclear warheads from
missiles. The Kremlin explained he meant the missiles would no longer be
aimed at NATO members.


Western Press Review: Mother Russia Draws Press Attention
By Don Hill

Prague, 2 December 1997 (RFE/RL) -- There has been, in recent days, a flurry
of Western press commentary on Russia's politics, economy and culture.
DIE WELT Russia is irrevocably part of Europe
In today's issue of the German newspaper Die Welt, Jens Hartmann writes
that modern Russia still has not solved comprehensively the old riddle of
whether Russia is European, Asian or truly Eurasian. He writes: "Is Russia a
European power, an Asian state, or even a Eurasian hybrid in its own right
like no other? This eternal Russian question, posed by Peter the Great, and
the subject of heated debate in the salons of 19th century Moscow and St.
Petersburg between western-leaning Russians and Slavophiles, seems to have
been answered in recent days -- or at least that is what European
politicians believe.
"Russia is irrevocably part of Europe, they are saying everywhere; it is
an active part of the continent as never before, and has virtually become a
companion in destiny through myriad personal and business contacts. The
friendship and cooperation treaty between the European Union and Moscow,
which came into effect on December 1, is evidence of this feeling of
The writer says: "Yeltsin's Europe analysis is founded on a cardinal
error. He is underestimating Europe as an entity. Yet Europe has become much
more than a collection of states, which have nothing in common other than
their borders. When Yeltsin talks of Europe, he means London, Bonn, Paris,
then he means bilateral relations with European states -- not with a body of
states, which are moving closer together economically and will soon be
equipped with a common currency and a central bank. The idea of European
integration, building the European house, as promoted, for example by a
politician such as Helmut Kohl, is far from Yeltsin's mind."<p>
NEW YORK TIMES: Discovering what is back-page news in Russia helps one
better understand why Russia responds differently
New York Times columnist Thomas L Friedman wrote yesterday that
U.S.-Russia disagreements over dealings with Iraq don't represent differing
views so much as differing motives. Friedeman said: "Sometimes you can tell
a lot about a country by what's on the front pages of its newspapers.
Sometimes you can tell even more by what's on the back." He said:
"Discovering what is back-page news in Russia helps one better understand --
although not accept -- why Russia responds differently than America to the
prospects of Iran or Iraq acquiring weapons of mass destruction. To put it
simply: Russia is otherwise engaged. It's hard to worry about Iraq's weapons
when your own nuclear employees are going unpaid..."
Friedman wrote: "The fact that the Russians are not with America 100
percent doesn't mean they're against America 100 percent. This is not the
return of the cold war. It's the essence of the post-cold war. That is why
we get these ambiguous outcomes: Russia persuades Saddam to let the U.N.
weapons inspectors back in, but only to hasten the day when the sanctions
can be lifted and Russia gets paid."
The writer said: "The cold warriors who want to treat Russia as though
it's still and will always be an irredeemable foe will be blind to the
potential benefits of working with Russia in some areas. Russophiles who
want to treat Russia as a fellow Western democracy will be blind to the
dangers inherent in Russia's very different circumstances."
LOS ANGELES TIMES: Communism has claimed 85-million-to-100-million lives
on four continents
A group of historians in France has compiled a score sheet in blood of
what they call the "Black Book of Communism." John-Thor Dahlburg described
the book starkly in Sunday's Los Angeles Times: " 'A single death is a
tragedy,' Soviet dictator Josef Stalin once remarked. 'A million deaths is a
statistic.' But how many millions, precisely? This month, 80 years after the
Bolshevik takeover in Russia, a Paris-based group of historians has
published the first global balance sheet of the 'crimes, terror and
repression' committed under communism.
"The harrowing arithmetic of the 'Black Book of Communism': From the
organized extermination of Soviet peasantry to the murderous upheavals of
China's Great Cultural Revolution, from organized famine in the Ukraine to
repression in Fidel Castro's Cuba, Communism has claimed
85-million-to-100-million lives on four continents."
He wrote: "Though scholarly, thick, 846 pages, and relatively expensive
at the equivalent of 32.5 U.S. dollars, the 'Black Book' has shot to the top
of France's non-fiction best-seller lists. It also has sparked instant
controversy, inevitable in a nation where Marxist theory long dominated
intellectual thinking and the French Communist Party claimed the support of
up to 28 percent of the electorate."<p>
NEW YORK TIMES: Accountability, it seems, has gained a foothold
In Sunday's New York Times, Alessandra Stanley wrote in a commentary: "It
is the kind of political parable that enchants Western democrats eager to
see Russia adopt the rule of law: A top government official is implicated in
a corrupt financial deal, written about in the press and punished.
Accountability, it seems, has gained a foothold in a system that once
respected nothing but power. But the story of Russia's top economic reformer
and his questionable $90,000 book contract is far from a case study in how
the nation's fragile democracy is taking root. Instead it is a sobering
reminder of how far Russia still remains from Western standards of open
government. Anatoly Chubais, 42, was disgraced by an ethical misstep of his
own making and could face dismissal. But he was tripped not by a free press
and a fair hearing, but by the bankers and tycoons who support free-market
reform, only as long as they remain free to control the market.
"There is little question that Chubais crossed ethical boundaries by
accepting a book advance from a publishing company owned by Oneksim Bank,
which recently won a series of coveted auctions of state property. What is
hazier is the atmosphere of ruthless political warfare, entrenched
corruption and back-door intrigue that may have driven Chubais to take the
money, and almost certainly prompted his enemies to use it to try and
destroy him."
Stanley wrote: "Chubais came into government five years ago as a
free-market crusader. Faced with the ugly reality of Russia's entrenched
corruption, he went on to make pragmatic but deeply damaging compromises on
the age-old calculation that the end - economic stability and reform -
justified the means." And concluded: "Yeltsin has said he deplores the
ethical breach but argues that Russia's fragile economy cannot afford the
loss of Chubais. Friday, Yeltsin was quick to add, 'for now.' For now, at
least, Chubais has been saved by the very practice of unprincipled
pragmatism and compromise he entered public service vowing to reform." 


Date: Tue, 02 Dec 1997
From: "Jerry F. Hough" <> 
Subject: Re: 1404-Pfaff/Different Capitalisms...

Dear David:

I would like to make several historical comments in conjunction 
with your 1404 newsletter. First, Pfaff, like many others now, are 
drawing global implications about the nature of the Asian model from the 
recent Asian financial difficulties. The US had the Panic of 1819, the 
Panic of 1837, the Panic of 1857, the Panic of 1873, the Panic of 1893. 
All were caused by over-speculation and over-production, often with 
foreigners playing a role. They usually produced a recession or 
depression and a change in political party (indeed, 1857 had a big role 
in the election of the Republicans, which led to the Civil War), but 
America and its economy survived. Those concerned about social justice 
in Russia may be heartened to know that the corrupt politicians like 
Jefferson, Clay, and Webster usually got caught up in the speculative 
fever and were wiped out along with others when the bubble burst. We 
can hope that the Russian economists don't have all their money in Swiss 
Second, I am working on the economic reform chapters of the book 
Evelyn Davidheiser, Susan Goodrich Lehmann are writing on the evolution 
of Russia under Yeltsin. It is fascinating to go back over the press of 
earlier years and see patterns emerge. One of the most consistent is 
Yeltsin's playing good cop-bad cop with the West on personnel matters. In 
early 1993, Chernomyrdin (a man whose gas industry ties made him very 
pro-privatization and pro-emphasis on market prices for raw materials) was
trotted out with anti-reform positions, but if the West helped (and 
sanctioned an attack on the Congress), it would get the good Boris 
Fedorov (whose nationalist statements were already being made if not 
noticed). Then in the spring and summer, when Yeltsin wanted support on 
dissolution of the Congress, there was the bad Lobov who was restoring 
Gosplan. Lobov was shunted aside for Gaidar when Larry Summers came 
over in September to negotiate an IMF program. Then Soskovets (who came 
out of metallurgry and was making his millions by exporting aluminum and 
other metals) became the anti-reform person selflessly striving to 
reverse the policies that were making him rich. In early 1995 the West 
was testy about the big drop in production in 1994, the temporary rise in 
inflation, and the Chechnia war. Suddenly Polevanov is appointed head 
of the Privatization Program and talked about renationalization. The 
West came through and Believ, an associate of Chubais, was appointed. 
During the 1996 election, again there was the removal and then bringing 
back of Chubais. (It really is striking how little attention the 
Western press gave to Chubais until relatively late even though his basic 
role and that of his St. Petersburg associates in the privatization process 
goes back to 1991.) Now the IMF is holding up again. So once again 
Yeltsin is talking about fundamental personnel change. As a person who 
generally thinks the announced policy of the bad cops over the years has 
been better than that of the good cops, I hope for the best. Since the 
good cops seldom do what they promise the IMF, except in measures they 
know how to use to enrich themselves, maybe the IMF is getting fed up 
too. Judging by the usual weather vanes, we for a 
few billions can get a strengthening of the position of Chernomyrdin, 
whose views are like Zyuganov on Gazprom, and of the centrist Yavlinsky, 
who is more ideological and extreme than Gaidar and the centrist Yabloko,
which is similar to the American Libertarian Party in its views and mass 
appeal. But someone who came of scholarly age in the Brezhnev years and who 
soon shed any illusions that anything would ever change while Leonid 
Ilich was in power, it all seems like deja vu all over again.


Date: Tue, 02 Dec 1997 
From: "Joseph McCormick" <>
Subject: Re: #1402 -- Estonian Language Law

Dear David,

I realize that Baltic issues are rather peripheral for JRL, but Tom
Whitehouse's Guardian piece on Estonia's "language police" -- itself a
complement to Jens Nielsen's postings -- requires some kind of rebuttal.
Language laws typically get introduced when a titular nationality
(Quebecois in Quebec, Catalonians in Catalonia, Latvians in Latvia, etc.)
feels that their (typically "small") language is under threat by a much
larger, and in that sense more powerful, one. French may to a certain
extent still be a world language, but in the North American context,
Canadian French is an island adrift in a sea of English, which just so
happens to have a very strong (pop) cultural pull. Although the Canadian
federal government has traditionally had an ambitious policy of official
bilingualism, English is overwhelmingly the language of business,
scholarship, entertainment -- in short, every sphere of life outside the
home -- from the Maritimes to the Pacific coast. Castilian Spanish plays a
similar role vis-a-vis Catalan in Spain, where under Franco there was the
added dimension of outright discrimination against Catalan on the part of a
strongly centralizing state. In order to redress a fundamental imbalance
of linguistic power, the governments in both Quebec and Catalonia
implemented language laws that are in essence no different from what we now
see in Estonia and Latvia. The aim is to guarantee that French in Quebec,
and Catalan in Catalonia, remain (or in the case of historical
discrimination, become) fully functional languages in every sphere of life,
both private and public. This may require an enforcement mechanism --
hence the so called "language police" -- but the alternative is to aquiesce
in a situation where the tititular nation's language becomes more and more
restricted in usage, since after all, "everyone" understands English or
Spanish anyway, so why bother with all those cases and tenses.
In the former Soviet context it's impossible to ignore the legacy of a
repressive, extremely centralizing system whose lingua franca was Russian.
As I know first-hand from living four years in Riga, Russian, backed up by
the full power of the Soviet state, exerted tremendous pressure on the
Baltic languages, especially when spoken by immigrants who felt no
particular need to acquire the local language. Recall that the playing
field was never level: with very few exceptions, native speakers of
Estonian and Latvian had to become bilingual in Russian in order to
function professionally. Immigrant Russian speakers, on the other hand,
were already proficient in the language of state, so they could and did
expect Estonians and Latvians to switch to Russian in any sort of public
context. Virtually every Estonian (and Latvian) over the age of 25 or 30
can recall situations where in mixed groups at school or at work, the
Estonian- (or Latvian-) speaking majority had to switch over to Russian to
accomodate one or two Russian-speakers; sometimes this was unconscious,
sometimes there was an element of deference, sometimes there was a very
clear subtext of wanting to avoid trouble, since it would have been
"un-Soviet" to agitate for the use of Estonian (or Latvian) when "everyone"
should be eager Russian, the "language of international communication"
("jazyk mezhnatsional'nogo soobshchenija"). Of course, the pressure was
not only negative -- as in the case of English now throughout much of the
world, Russian during Soviet times meant access for Balts to the latest
scholarship in the hard sciences, to the widest array of translated
literature, and to movies from all over the former Soviet Union; it also
meant that you could strike up a conversation on the train or in the
barracks with virtually anyone, from Kaliningrad to Kamchatka.
In short, while there was tremendous formal pressure on Estonians and
Latvians to learn Russian, there was virtually none in the opposite
direction. There were exceptions -- mixed marriages, farmers in the
countryside, Old Believers whose ancestors had settled in the Baltics
before the Soviet period -- but no one, ever, was fined by the "language
police" for delivering a lecture, writing an instructions manual, or
painting a road sign in Russian only. One legacy is the fact that, to this
day, there are significant parts of the population in Estonia (and even
more so in Latvia) who, 6 years after independence, still live their entire
life in Russian; they watch Russian TV, their children go to
Russian-language schools, they speak Russian at the office and when they
One could go on an on about the politics of language in the Baltics,
bringing in elements of nationalism and even colonialism, but let's not
stray too far from JRL's main target audience. Yes, language laws can be
can be mean-spirited (Slovakia's treatment of Hungarian comes to mind), and
yes, there are elements in both Estonia and Latvia who would be happier if
Russian-speaking "immigrants" would somehow "just go home"; these latter
are, thankfully, a small minority. The focus of language planning in both
countries is, given the historical legacy, remarkably forward-looking and
proactive -- the goal is not to ban the use of Russian, but to expand the
use of Estonian and Latvian in every sphere of life, so that ordinary
Estonians and Latvians can buy a loaf of bread, order a pizza, get cash at
the bank, offer to bribe a cop, or fill out an insurance form in their
native language *and expect to be understood*. Public, Russian-language
primary and secondary schools are untouched (Spanish-speakers in the US,
Turkish-speakers in Germany, or Farsi-speakers in Denmark enjoy nowhere
near the same privileges), as is the entire private sector, outside of
bookkeeping and, of course, customer service. A major psychologically
shift is taking place in public life, where, as in Quebec and Catalonia,
the Estonian and Latvian states are trying to promote Estonian and Latvian
as the language of administration and of record, the same way English is in
the US, or Russian was in the Soviet Union.
For many younger people, the transition has been quite natural. For some
older Russian-speakers it has, indeed, been difficult: the rules of the
game have changed, and now they can no longer ignore Estonian or Latvian
with the same impunity as an Anglo in Miami. Complaining about the
"unfairness" of it all leads nowhere. Complaining about the "incredible
difficulty" of Estonian (14 cases! 6 tenses! -- what about about the 40+
prepositions and at least 12 tenses of English?) is even less productive --
if you have a strong incentive to learn a language, even as an adult, you
will. Countless non-native speaker adults have mastered enough Estonian or
Latvian to satisfy either country's language law; I myself could pass the
test in Latvian.
The question is incentive; the best kind in language matters is, of course,
personal -- the Russian-speaking student who wants to study law at the
University of Tartu, the Russian-speaking doctor who understands that
Latvian is essential for communicating with her patients, the
Russian-speaking kids who wants to play with their Estonian-speaking
neighbors, and so on. But it can be entirely reasonable and legitimate to
resort to more formal -- legal -- incentives when the odds are heavily
stacked against a small nation's language. This latter point is very
difficult for Russians and American (or Brits and even Danes) to grasp.
"Language death" is a well-established concept in sociolinguistics -- is it
so unreasonable that Estonians and Latvians, like the Quebecois and
Catalonians, are determined not to abandon their native languages to same
fate as Irish vs. English, Breton vs. French, Mixtec vs. Spanish, etc.?
Even the multilingual Dutch are concerned at the growing influence of
English in university and corporate life.
I would encourage JRL readers to keep in mind that, for example, the
discontented, middled-aged, monolingual Russian-speaking former civil
servants who still can't quite get over the loss of privilege that followed
the collapse of the Soviet state, do not necessarily offer the most
representative, or even the most just, perspective on the language
situation in the Baltics, however compelling their story may be for western
reporters and academics. Granted, knotty questions of citizenship are
still unresolved, state-of-the-art language training materials are far from
universally available, and it will be a long time before Estonia and Latvia
reach EC levels of prosperity and can throw vast tax revenues at social
problems. Nonetheless, both countries offer excellent, public primary and
secondary in Russian and host a vigorous Russian-language press; my
impression is that by and large, Russian-speakers in Estonia and Latvia
realize that they're significantly better off than their cousins in Russia
proper. There is room for improvement in the linguistic sphere, but both
the Estonian and Latvian language laws are a reasonable step in the right

Joseph McCormick
Open Society Institute - Russia
[The views expressed above are the author's own.]


International Herald Tribune,
December 3, 1997
[for personal use only]
Russia's Recovery Suffers a Setback
Global Turmoil Stalls Investment 
By David Hoffman 

MOSCOW - Russian officials acknowledged Tuesday that global market 
turmoil, fleeing foreign capital and a hemorrhaging budget had dealt a 
major setback to the country's hopes for economic recovery.
''We have been thrown back by six months,'' Anatoli Chubais, the first 
deputy prime minister, said. He conceded that rising interest rates 
could prematurely choke off hopes for a recovery next spring and the 
injection of fresh capital into industry after years of recession. 
Russia's central bank, which last raised interest rates Nov. 11, did so 
again this week to try to stem the flow of overseas investors out of 
Russian markets. While the bank has so far not raised its key 
refinancing rate, which now stands at 28 percent, it did increase 
short-term rates this week. On Tuesday, the bank raised rates on 
ruble-denominated Treasury notes to 35 percent.
Despite the central bank's efforts to preserve the ruble's stability, 
there have been signs of uncertainty in currency markets. Although the 
official exchange rate closed Tuesday at 5,944 to the dollar, some 
informal street transactions had the dollar above 6,000 rubles.
Mr. Chubais, trying to calm Russians who have been through several 
devastating currency panics in recent years, told reporters the 
ruble-dollar exchange rate would not ''suffer serious changes.''
Russia has been shaken by the Asian market turmoil, as many global 
investors have pulled out of emerging markets in favor of developed 
economies. The impact has been slightly delayed here, however, because 
Russia requires investors to wait four weeks before repatriating their 
capital. For that reason, the effects of the late-October market plunge 
are only beginning to be felt.
A mission from the International Monetary Fund arrived in Moscow on 
Tuesday to spend 10 days studying Russia's economy. A collapse in tax 
revenue - Russia is collecting only about 60 percent of what it 
anticipated - earlier caused the IMF to suspend distribution of a $700 
million installment out of a three-year, $10 billion loan. Russian 
officials have been talking optimistically about persuading the IMF to 
reinstate that loan and perhaps accelerate other loans envisioned from 
the World Bank.
The three-year loan was linked to Russia's performance in several 
economic areas. The previous IMF mission went home without making a 
report because of Russia's poor tax-collection record.
Normally, the delayed installment might be distributed in January or 
February, but Russian officials have been pressing for an accelerated 
decision. Oleg Vyugin, deputy finance minister, said Tuesday that the 
money could be released early if Russian officials persuaded the IMF 
that they could improve tax collection and trim spending.
One sign of Russia's economic uncertainty has been the ever higher 
yields on government Treasury bonds, known as GKOs, which this week have 
crept up to as much as 50 percent. Last year, in the period leading up 
to Russia's presidential election in June and July, the bonds were 
trading at more than 150 percent after inflation, and many banks 
invested heavily in them instead of making loans to industry. Since 
then, the rates had declined to 20 percent, leading many analysts to 
hope that the lower yields would unleash a surge of badly needed capital 
for investment in factories and industry. But those hopes have now been 
''We've found ourselves in a complicated situation,'' a top Russian 
policymaker who asked not to be identified by name said. He said it 
would take three to six months to overcome the latest setbacks and even 
longer to recover investor confidence and a return of foreign 
investment. The official said Russia had been doing well - with low 
inflation, declining interest rates and an influx of $6 billion in 
foreign investment in the first nine months of the year - until the 
Asian market storm hit.
''This is very difficult for us, very difficult,'' he said, noting that 
''we'll have to pay quite dearly'' for the increase in interest rates. 
In particular, the higher rates, put into place to try to stabilize the 
ruble, will ram a hole through Russia's already tattered public 
finances. The rising rates mean government expenses for paying interest 
will increase at the same time that Moscow is receiving less revenue 
because of widespread tax evasion.
''There is indeed no income; this is indeed the pure truth,'' the 
official said. ''We indeed, as is well known, and as we have repeatedly 
acknowledged, we indeed have not collected taxes and have not improved 
the situation in the tax sphere. This is our central and main problem.''
He noted that President Boris Yeltsin had insisted that all wage arrears 
be cleared up by Jan. 1, but the government is $1.5 billion behind in 
paying salaries to teachers, doctors and others on the state payroll and 
does not have the money to fill the gap.
Yet another impact of the world market turmoil is that a host of 
relatively prosperous Russian companies have postponed plans to float 
international bonds and stocks, which may also cut the flow of revenue 
to the Treasury and slow plans for industrial modernization. Moreover, 
large companies that Russia had planned to privatize during this period 
may not be sold as the government holds out for higher prices.


Study: Russia Military Hurting
2 December 1997

WASHINGTON (AP) - Desertions from Russia's military are rising, weapons
purchases are plummeting and few, if any, Army units are ready for combat.
The military's state of disrepair threatens the political and economic
stability of Russia itself, according to a congressional study.
``The armed forces are becoming more politicized. Many U.S. and Russian
specialists warn of a military calamity - implosion, mutiny or coup - if
present trends continue,'' said a report written by Stuart Goldman, a
specialist on Russian affairs for the Congressional Research Service.
``Many experts assert that the `Russian military threat' is now more to
Russia than from Russia,'' said the study, published by the group that
conducts research and major studies for lawmakers on Capitol Hill.
This means that compared to the Cold War era, ``the military threat to the
West is greatly reduced,'' and the time the West would have to be warned of
any crisis is greatly increased, the study said. It dealt only with Russia's
conventional, or nonnuclear, military forces.
Since 1986, the study said, the size of the Russian force has become a shadow
of what it was under the former Soviet Union:
Troop numbers have fallen by over 70 percent, from 4.3 million to 1.27
The number of tanks and other armored vehicles has been cut by two-thirds,
from 53,200 to 17,650.
Artillery, combat aircraft and surface warships have been reduced by
one-third. That translates to artillery pieces dropping from 29,250 to
19,150; aircraft from 7,360 to 5,160; and warships from 269 to 166.
Weapons purchases have been ``plummeting for over a decade,'' and in some key
categories - such as in aircraft, tanks and surface warships - purchases have
virtually stopped.
The ability of the Russian military has also declined, and ``few, if any, of
Russia's army divisions are combat-ready,'' the report said.
Training, exercises and far-flung naval deployments have been sharply
reduced. Morale is low, primarily because troops haven't received their
``Draft evasion and desertion are rising. Half the officers say they plan to
quit the military in 1998,'' the report said.
The study estimates it would take at least 10 years for Russia to rebuild its
nonnuclear forces.
The report also points out that since 1986, the U.S. military force has
shrunk overall by 34 percent, from 2.1 million troops to 1.4 million. But the
Pentagon has been able, with backing from Congress, to provide the money to
keep that smaller force at a fairly high level of combat-readiness.
The study coincides with many reports emerging from Russia, indicating that
soldiers have been ill-fed and lack proper pay and equipment. In May, The
Washington Post reported that rations were in such short supply that there
had been instances of recruits starving to death and that ``severe
malnutrition is common.'' Brutal hazing leads to hundreds of deaths annually,
the Post reported.
Other reports say the Russian military has had difficulty even tracking its
number of dead from the 1994-96 war in Chechnya. While the government says
about 3,000 soldiers were killed in the tiny Muslim republic, soldiers'
mothers groups put the number at 5,000 to 10,000.
The congressional report concluded that if the budget crunch for the Russian
military continues for two or three more years, ``They must lead either to
more drastic force reductions or to military collapse,'' the study said.
The report found that President Boris Yeltsin's government has ``taken better
care of internal security forces than the Army,'' apparently because it
believes it faces more of an internal, rather than an external, security
Yeltsin has declared military reform a top priority. Proposals have been made
to make even more cuts in the size of the Army, consolidate the military
command structures and services, pay all salaries in arrears and move toward
an all-volunteer force.
But the congressional study argues that resistance still exists within the
military and from opposition political parties, bringing into question
whether the reforms will be accomplished.
In May, Yeltsin put Defense Minister Igor Sergeyev in office to replace an
opponent of radical military cuts.
Sergeyev, 59, who previously had the rank of Army general, has pledged to
step up efforts to transform the bloated, underpaid and demoralized Russian
military into a smaller and better-equipped force.
He has also pledged to cut the armed forces by 500,000 by the end of 1999 and
earmark more money to develop new weapons systems.


Financial Times (UK)
3 December 1997
[for personal use only]
Russia: Risky rouble

Raising interest rates to 36 per cent is a dangerous way to shore up the 
rouble and stabilise government debt markets. The growing premium 
demanded by holders of rouble-denominated assets shows it is clearly 
unsustainable. The Russian central bank is haemorrhaging foreign 
exchange reserves to support its currency. And the yields on short-term 
government bonds have shot up over 50 per cent from a 17 per cent low 
earlier this year.
The main factor driving yields higher is the risk of a devaluation after 
a heavy government borrowing spree. The authorities desperately need to 
borrow to pay overdue federal wages and reduce dependence on piecemeal 
privatisations and International Monetary Fund disbursements. The 
government's hope is that once the rouble is redenominated on January 1 
1998, and the currency allowed to float in much broader 30 per cent 
bands, interest rates will be able to fall.
Nonetheless, short-term measures may have long-term consequences. The 
higher cost of servicing Russia's substantial public debt will sunder 
the 1998 budget. Furthermore, with real interest rates now nudging 20 
per cent, the chances of the economy's growing sufficiently next year to 
boost government coffers are shrinking. The government should not 
believe it will preserve its hard-won credibility simply by defending 
the rouble until the New Year. Rather than punish the whole economy with 
high interest rates, it should allow the rouble to find its own value 


Journal of Commerce
3 December 1997
[for personal use only]
Guest Opinion
Contrarian bet: Russian investments
Scott E. Pardee is a senior lecturer and executive director of the 
finance research center at the Sloan School of Management at the 
Massachusetts Institute of Technology. This article was distributed by 
Bridge News.

NEW YORK -- Russia is caught up in the contagion spreading from the 
financial turmoil in Southeast Asia.
The stock market is off some 40%. Russian 10-year Eurobond spreads have 
widened to more than six percentage points over U.S. Treasuries from 
some 2.5 points before the turmoil began.
And the ruble has come under selling pressure in foreign-exchange 
To the extent that investors are pulling back from emerging markets 
globally, Russia cannot avoid being caught in the worldwide flight to 
quality. But the sell-off is not likely to be a knockout blow.
Russia has been vulnerable to the contagion, of course. The main issue 
currently is the battle over the budget.
The legislative opposition in the Duma has refused to help clear up the 
arrears in payments during the current fiscal year, much less to pass 
next year's budget. It has also stalled passage of a major new tax code, 
which is sorely needed.
A book deal by First Deputy Prime Minister Anatoly Chubais and other top 
reformers in the government has been seized on by the opposition to try 
to push them out.
President Boris Yeltsin is reshuffling the economic team but is firmly 
on the side of reform.
The International Monetary Fund is still monitoring Russia's finances 
closely, doling out assistance money on a month-to-month basis.
Russia's vulnerability also stems from the inherent volatility of its 
financial markets.
Over the past two years, Russia's stock market had risen by as much as 
300%, and bond yields had declined sharply in line with the improved 
underlying inflation. Large volumes of foreign funds (including Russian 
funds held outside) had been invested in Russian stocks and bonds in 
several waves.
But Russian markets are far from liquid. The daily turnover is only some 
$100 million in stocks and $500 million in bonds, including Eurobonds.
As soon as the inflows stop and even modest selling develops, prices 
fall away sharply. 
Russia's economy is beginning to grow at long last. Many Russian 
companies are well into restructuring plans to make themselves 
Russia continues to have a trade and current-account surplus, and the 
Central Bank has kept the ruble from becoming grossly overvalued.
Indeed, under Sergei Dubinin, the Central Bank has gained credibility in 
managing monetary policy generally, which in turn enhances the 
credibility of Russian bonds.
Major negatives remain. These include the political strength of the 
Communists and the Nationalists, the lack of court-tested laws 
surrounding commercial dealings and shareholder rights, the 
still-rudimentary financial infrastructure and the mafia.
But longer term, Russia has a big internal market, with well-educated 
people and vast unexploited natural resources.
Most of its privatized companies are still undervalued relative to 
companies in the same industries elsewhere, as in the energy sector, and 
many newly created firms are thriving in the free-market economy.
Managers are beginning to recognize the logic of maximizing shareholder 
values for themselves as well as other shareholders.
Thus major Russian companies are improving their management and 
accounting controls internally, while accepting intense scrutiny of 
analysts to broaden their shareholder base.
Russia is now included in the major indexes of investable 
emerging-equity markets, which means that many more international fund 
managers than before can add Russian stocks to their portfolios.
Similarly, in bonds, many Russian state entities as well as private 
corporations are in the process of raising funds in domestic markets as 
well as in the Euromarkets, passing through the rigors of the 
due-diligence process.
In pressing the Duma to move ahead on fiscal reforms, reformers are 
stressing the need for Russia to improve its credit rating 
internationally. Ultimately, the majority of the members of the Duma 
will approve the budget and much of the reform package, if only because 
it makes good market sense.
Russia's bonds are rated just below investment grade, and many investors 
are buying them on the bet that Russia's rating will be upgraded in the 
years ahead.
Russia remains attractive, but only for traders who are nimble in 
maneuvering in the volatile day-to-day markets or for investors who have 
a longer-term time horizon but are prepared to monitor their portfolios 


Gorbachev to star in Pizza Hut ad
December 2, 1997

MOSCOW (AP) - Glasnost? Perestroika? How 'bout pepperoni and double cheese? 
Mikhail Gorbachev, the former Soviet leader renowned for introducing liberal
reforms that eventually brought down the communist state, may soon be known
as the man who gave his country American pizza. 
Gorbachev shot a television commercial for Pizza Hut last week at one of its
restaurants in Moscow. 
According to the Interfax news agency, Gorbachev is shown offering a piece of
pizza to the customers, who cry out: ``Long live Gorbachev, who brought us
Pizza Hut!'' 
Gorbachev agreed to star in the ad because his Gorbachev Foundation badly
needs money to buy the building where his library and archive are housed,
foundation spokesman Karen Karagezian said Tuesday. The organization now
rents the Moscow building. 
The spokesman said he didn't know how much Gorbachev was being paid, ``But I
would think that the amount is significant because it is to be used to buy
real estate.'' 
His 10-year-old granddaughter, Anastasia, also has a part in the commercial,
said Karagezian. 
The manager of the Pizza Hut restaurant where the commercial was made said
Gorbachev came for two of the three days of filming, staying only for about a
half-hour each time. 
``I guess he's a very popular person in the West, so they wanted him for the
commercial,'' said manager Sergei Tatosyan. 
The manager said he wasn't sure what role the former Soviet leader plays in
the commercial, which he said will not be shown in Russia, where Gorbachev is
widely disliked and blamed for the Soviet collapse. 


>From Russia Today press summaries
Nezavisimaya Gazeta
2 December 1997
The "Government of Scandals" Must be Radically Upgraded
Nezavisimaya wrote that the report by the government scheduled for Dec.
1 was postponed, because President Boris Yeltsin has finally realized he
will have to choose between Prime Minister Victor Chernomyrdin and First
Deputy Premier Anatoly Chubais.
In fact, it is now necessary to form a new Cabinet, because the
government has proven its total lack of capability. 
Yeltsin formed the current government in March, appointing radical
reformers to key offices, which was doomed to provoke much scandal but
little progress in the economy.
The daily recalled the deeds of the "young reformists," starting from the
Svyazinvest privatization auction. It was conducted with major violations,
and the money gained from the largest telecom company -- $1.875 billion --
is gone.
The author wrote that there is no excuse for the poor performance of
Chubais and fellow first deputy premier, Boris Nemtsov. They have been
unsuccessful in their undertakings, because they always wanted Russia to
leap forwards instead of merely taking a few steps.
The housing and utilities reform proposed by Nemtsov failed, and tax
collection remained poor under Chubais. Entering into the London and Paris
clubs was wrong for Russia, because Russia is economically weak and cannot
compete with developed countries, the daily wrote. 
The author said that both Chubais and Nemtsov lack professional economic
knowledge. They lose out in comparison to older Cabinet members such as
Foreign Minister Yevgeny Primakov, Defense Minister Igor Sergeyev and others.
The symbiosis of professionals and ideologists in the government cannot
exist in the Cabinet any longer, because it impedes normal work, the daily


>From Russia Today press summaries
2 December 1997
General Aslambek Aslahanov: the Mafia and the State Are Communicating 
The daily published an interview with police general Aslambek Aslahanov,
who investigated many important cases in the Soviet era. Currently he does
research on mafia in Russia.
In an interview, Aslahanov accused the last Soviet leader Mikhail
Gorbachev of unleashing crime in the country.
By the end of the '80s, he said, there were 30,000 secret millionaires in
Russia, with total goods worth 200 billion rubles. By comparison, the total
private possessions of the Soviet population were estimated at 700 billion
rubles, he said. Gorbachev's reforms opened the gateway to the shadow
economy, and it flooded Russia quickly, he added.
Aslahanov said that unless organized crime is stopped in Russia,
prospects for the country are darker than those in Colombia. Organized crime
will seize state property and take control of the whole economy.
Aslahanov named the drug and entertainment businesses and weapons trade
as the sources of primary accumulation of capital for criminals. He said
that now the mafia controls the car trade and a major part of the banking
system. It invests a lot of capital into real estate. According to experts,
Russian criminal structures transfer abroad between $20 billion to $40
billion annually. 



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