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Johnson's Russia List


May 28, 1998   
This Date's Issues: 2198 2199

Johnson's Russia List
28 May 1998


The Independent (UK)
28 May 1998
[for personal use only]
Financial turmoil grips Russia 
By Phil Reeves in Moscow 

RUSSIA tripled interest rates to a staggering 150 per cent yesterday in 
an attempt to defend the rouble and find an antidote to the wasting 
disease afflicting its financial markets. 

Boris Yeltsin personally joined the battle, by calling an emergency 
meeting for today with the head of the Central Bank, his new prime 
minister, and finance minister as a fresh flurry of panic over Russia's 
economy sent shares tumbling still further. 

Rocked by the continuing fall-out from the Asian crisis, depressed oil 
prices, labour protests and a plethora of other domestic problems - new 
and old - Russia's woes are proving to be a baptism of fire for the 
prime minister, Sergei Kiryenko, a former provincial banker appointed a 
month ago to cries of alarm from opposition parties. 

His problems were compounded this week by the government's failure to 
sell at auction the state oil company Rosneft, long hailed as the show 
piece of the privatisation programme, the model sell-off. Mr Kiriyenko 
had hoped to raise more than $2bn (£1.25bn) for the gaping state coffers 
by selling a 75 per cent stake. He decided to press ahead in spite of 
complaints from potential buyers that the starting price was too high, 
given world oil prices. 

It was a resounding flop. The leading expected contenders, which include 
consortia containing BP and Royal Dutch/Shell, stayed away. No one bid, 
forcing the Kremlin back to the drawing board. A new auction date will 
be set on Monday, but the government has cut the opening price to 

Mr Yeltsin countered by signing an "austerity plan", cooked up by Mr 
Kiriyenko, to slash government spending by $10bn - 12 per cent of the 
1998 budget. Although a proportion of the cuts were a foregone 
conclusion, as the government never had a hope of raising the tax 
revenue to fund them, some will be real. 

The country is already echoing with the clamour of victims of market 
transition - from angry miners (fresh from 10 days of blockading the 
railway system) unpaid pensioners and forgotten scientists, to a 
crumbling army, and workers in a tottering education and health system. 
However, the president's move was welcomed by the International Monetary 
Fund, which has dispatched a senior official to Moscow today. The fund 
is still mulling over the release of the next $670m tranche of a $9.2bn 
loan agreed in 1996. 

Matters were not helped by rumours in Moscow that, after pumping 
reserves into propping it up, the government will devalue the hitherto 
stable rouble - sacrificing one of the Yeltsin administration's triumphs 
in the difficult transition to a market economy. 

Mr Kiriyenko yesterday reiterated his determination to defend the 
currency, as interest rates rose to their highest level since February 
1996. It remains to be seen if this will sooth the nerves of the small 
stock market, which - after a stellar performance - has recently slumped 
by 50 per cent. 

A central part of Russia's problem is that the government is caught in a 
snare. It is under intense political pressure to pay wages and pensions, 
despite low tax revenues, meagre foreign investment, and a post-Soviet 
record-low income for oil. If the situation worsens, there will be a 
political price to pay - notably in the presidential elections in 2000. 
Nationalism, anti-westernism and a general distaste for reform is 
already simmering away. To find funds, it has to borrow, but it can only 
lure investors by offering hefty returns, diverting their money from 
vital investment in the infrastructure. 


ANALYSIS-Financial crisis laps at walls of Kremlin
By Alastair Macdonald 

MOSCOW, May 27 (Reuters) - As Russian financial markets sank into panic
selling on Wednesday, President Boris Yeltsin spent the day in the country. 

For his peace of mind it was perhaps best that he passed the time at his
Gorky-9 residence. For had he been in the Kremlin, he might have heard the
waves of political change lapping at the walls from the sea of red digits on
Moscow's trading screens. 

The panic that has quintupled Russian money rates and nearly halved share
prices in the past month will not spark the sort of violent upheaval seen in
Indonesia. But, analysts said, it may have a profound impact on who runs
Russia, and how. 

Reacting to the storm in Moscow, Yeltsin, 67, summoned Prime Minister Sergei
Kiriyenko, the finance minister and central bank chief to the Kremlin for
emergency talks on Thursday. 

Yeltsin, who is struggling to make a success of post-Soviet reforms before his
term ends in two years, risks seeing his authority weakened by economic
failure. Ambitious establishment figures could start demanding more say in
policy, analysts said. 

Having sacked veteran Prime Minister Viktor Chernomyrdin in March for, Yeltsin
said, failing to bring economic benefits to most Russians, the president could
rapidly eject his successor, Kiriyenko, if financial matters get even worse. 

``Kiriyenko could be out very quickly. No one has a quick answer,'' political
analyst Sergei Mikhailov said, adding, however, that the premier would
probably last the summer. 

Yeltsin would find it harder to distance himself from this government after
deliberately choosing the hitherto obscure 35-year-old precisely to assert his
own role in policy. 

``There has been no strategic reform. All these problems have built up over
years under Yeltsin. But the debt problem could be the death throes of the
ruling elite,'' Mikhailov said. 

Two months into the job, Kiriyenko is battling a tidal wave of pessimism about
emerging economies that began in Asia but came crashing down on Moscow on
Wednesday, wiping 13 percent off shares and forcing the central bank to raise
interest rates to 150 percent from 50 percent amid fears of a rouble

His government, packed with thirty-something reformers like himself, announced
an austerity package on Tuesday. 

The International Monetary Fund, Russia's biggest creditor, is still
considering whether to advance Moscow new funds. But IMF officials backed the
government's determination to finally get to grips with years of budgetary
drift caused by woefully poor tax collection and said there was no case for

Kiriyenko says there is no quick-fix solution to Russia's economic problems.
But he had to take familiar stop-gap measures to end rail blockades by angry
unpaid coal miners last week and will need similar sure-footedness to calm
financial markets now. 

If he comes through his baptism of fire, notably by holding the line on the
rouble whose relative stability is one of the few unmitigated successes of
Yeltsin's economic policy, the former provincial banker could find himself a
major player in the political manoeuvring before the 2000 presidential

But the premier has acknowledged his policies will not make him popular and
admits he could be their first victim. Perhaps even more exposed is Finance
Minister Mikhail Zadornov, who sat in parliament for the liberal opposition
Yabloko party. 

Failure, especially if it hit the fortunes of the magnates who rallied round
Yeltsin to fend off a Communist challenge in the 1996 vote, could prompt the
return of an old guard in government at the expense of Yeltsin's ``young

``If instability increases, the bulk of the elite will urge what may seem to
be a return of the ancien regime, the Chernomyrdin model of stability,'' said
political analyst Boris Makarenko of the Centre for Political Technologies. 

Chernomyrdin, 60 and a former gas industry boss, has already declared his
candidacy for the presidency and has powerful backing from business leaders,
especially in the energy sector. 

Makarenko said Russia's new rich elite could also turn to another potential
president with strong business backing, Moscow mayor Yuri Luzhkov, to come
into government. In that case Yeltsin, despite hints by aides that he might
yet run again in the year 2000, would risk being increasingly sidelined. 

An alternative scenario for the run-up to elections, Makarenko said, would be
the rise of a non-establishment figure -- possibly newly elected Krasnoyarsk
governor Alexander Lebed -- on a wave of discontent with continued poor living

Highlighting how far the financial crisis may threaten Yeltsin's authority, if
not his legal hold on power, was an attack in the newspaper Nezavisimaya
Gazeta, which is controlled by business tycoon Boris Berezovsky, once a key
Yeltsin backer. 

Outlining how Kiriyenko might find ways out of the present crisis, the paper
said that ``the president's unpredictable policy'' could, as in the past,
wreck the premier's budget plans. 

``Such feelings exist within the elite,'' Makarenko said. ``If the situation
doesn't improve, such feelings could begin to predominate...There could be an
anti-Yeltsin move in the elite.'' 


Date: Wed, 27 May 1998 
From: "Vlad Signorelli" <>
Subject: Re: One perspective on the Russian financial "crisis"

Below are some personal impressions of Russia's current financial mess. You
may share this with JRL if you like.
The IMF might have suspended the tranche to foment a "crisis" situation
giving Yeltsin a politically expedient excuse to by-pass the Duma and push
through their austerity program. 

What might happen-

The IMF, like last year, finds Yeltsin's emergency decrees substantial
"enough" to warrant the loan disbursement, sending it along sometime next
month. Meanwhile, I would bet that any reforms coming to fruition under the
current "crisis" situation would be austerity minded -- such is the
character of Yeltsin's latest decree which cuts R40 billion out of the

There is little official discussion on how Russia might grow itself out of
the current mess. Instead, PM Kiriyenko is discussing how “Russia is not a
rich country,” and all indications are that Russia is being fitted for an
economic strait-jacket much like the one IMF-minds tailored for South
Korea. If you notice, Korea’s KOSPI continues to break new bottoms since
their IMF deal. It’s quite a pity that only belt tightening measures are
being considered and no positive movement is being made toward revamping
the tax system. After all, Yeltsin could improve the country's growth
prospects overnight by decreeing broad-based tax reform. 

Most of the discussion I've seen show CB officials publicly agreeing that
devaluation would be disastrous right now. Even the new administration is
in agreement. Nonetheless, further defenses of the ruble will liekly become
more and more costly for the CB. Since October of last year the CB lost
around 35% of its money reserves -- approximately $5 billion between
October and December. It now has $15.5billion and CB governor Sergei
Dubinin stated last week's defense of the ruble cost $520 million. 

I would hasten to add that despite attempts to stave a devaluation, central
bank officials have been sabotaging their own efforts. Sergei Dubinin and
his First Deputy Sergei Aleksashenko have given interviews (FT in April,
Ekspert in May, respectively) discussing the possiblities of devaluation.
Meanwhile dollar-deflation continues to hit Russia oil exports. Thus
government tax revenue from this sector, as in others hurt by the worlwide
price deflation, continue to trickle in under IMF-approved forecast.

Growth expectations are now heading south and a recent article confirmed
the supposed 1Q growth was really a statistical illusion. Moreover the
economy is decline. Given the events since last year, I see no reason why
this retraction will not continue. In defending the ruble, the CB had
refinancing rates running around 30% (reported as high enough to cut
economic growth prospects) since December. After last week's run they are
50% and will climb higher. Today I believe they’re 150%. 

If one concludes that Russia's market climb from Januuary to August of 1997
was largely propelled by expectations of a tax system overhaul and
continued currency stability, then one can understand the market's current
pre-1997 numbers. Pro-growth tax reform now looks unlikely until next year

and declining export revenues, along with foolish CB interviews, leave
suspect the CB's commitment to maintaining ruble stability -- eventhough
devaluation remains techinically illegal for the CB.

The June 1st article in of the Nation(JRL 2178) “The Harvard Boys Do
Russia” made a pretty compelling argument that the de facto economic
policmaking body since 1991 has been the IMF/World Bank. The Yeltsin
administration comes out looking like a rubber stamp institution. This
situation might not be much different in that Yeltsin will continue to
decree whatever economic diktat the IMF desires.

Vlad Signorelli (
Web Editor - Polyconomics, Inc. (


Financial Times (UK)
May 28, 1998
Russia's rouble crisis

Having staved off two attacks on the rouble in the past eight months, 
Russia now faces an even greater challenge. The rouble yesterday came 
under its most serious pressure yet, prompting a rise in interest rates 
to 150 per cent. Whether Russia survives this crisis depends on whether 
Boris Yeltsin, the president, can accept his role in bringing it about - 
and credibly commit to real reform.

The root of the problem is Russia's public finances, which have been in 
an unhealthy state for some time. This has increasingly led investors to 
withdraw, putting pressure on the rouble and leaving the Russian 
authorities no choice but to raise interest rates. But they are caught 
in a vicious circle. Each interest rate rise increases their debt 
service payments and further worsens the public finances.

Recent events have brought the situation to a head. Mr Yeltsin's 
decision to sack his cabinet left foreign investors feeling nervous. The 
failure of the Russian government to pay public sector wages then led to 
a costly blockage of key railway lines by striking miners. And the 
collapse on Wednesday of the Rosneft privatisation was the last straw. 
Not only was it meant to be a showcase privatisation but the revenues it 
would have raised were crucial to the public finances.

The situation is now fragile. But a devaluation must be avoided if at 
all possible. The exchange rate anchor has delivered some stability to 
the Russian economy and is the only credible monetary target. And the 
rouble is not overvalued. A forced devaluation would be extremely 
destabilising for the Russian economy - and could have serious knock-on 
effects for other vulnerable currencies, particularly in eastern Europe.

Russia's problems have sprung from a government too weak to impose the 
necessary reforms. Mr Yeltsin must now show strong leadership. First, he 
must avoid the temptation to use Sergei Kiriyenko, his new prime 
minister, as a scapegoat. Second, he must accept that the public 
finances are at the heart of this crisis - Asian contagion is no longer 
a factor.

The International Monetary Fund, now in Moscow, also has a critical role 
to play. It is due to release a tranche of Russia's IMF programme and is 
under pressure to grant an emergency rescue package. It could be 
reluctant to do so, as Russia's promises of tax reform have been too 
slow in coming and so far unmatched by action.

But, with the support of world leaders, the IMF could use this crisis as 
an opportunity to impose stricter conditionality on Russia and to demand 
greater involvement in its attempts to reform its public finances. Mr 
Yeltsin must swallow this medicine if he hopes to escape the crisis 
without lasting damage.


Government Does Not Believe Devaluation Feasible 

Moscow, 26 May, (Itar-Tass) -- "The government does not regard
devaluation as a feasible stabilization measure on the domestic financial
market," Chairman of the Russian Federation government Sergey Kiriyenko
told journalists today. He explained that devaluation could not lead to
real stabilization because "in two or three months the situation would once
again revert to what it was".
Sergey Kiriyenko also said the government did not intend to change the
parameters of the currency corridor. "In the government statement and in
other documents we have been stressing all along that the macroeconomic
parameters for this year approved earlier will be retained," Sergey
Kiriyenko said.


Kiriyenko Says End to Inflation Biggest Reform Achievement 

Moscow, May 25 (Interfax-FIA)--The end of inflation and a steady ruble
are the main achievements of the last five years of economic reforms in
Russia, Prime Minister Sergey Kiriyenko said in a speech to representatives
of 20 leading foreign pension funds and companies (Russell 20-20) in Moscow
on Monday.
He said these achievements cannot be doubted. He said his Cabinet
will carry on a tough budget policy, implying cuts in spending and an
increase in revenues.
Kiriyenko said it was a fundamental task of the government to stand by
its domestic and foreign lending obligations. "The spending on servicing
these debts is quite great and burdensome for the Russian budget, but it is
a principled stance strictly to service them," he said.
The Government plans to reduce spending on servicing the government
debt through extending lending agreements and attracting additional means
on foreign currency markets to guarantee the gradual redemption of domestic
short-term ruble loans, Kiriyenko said.
Part of the money coming in through the government program of
increasing revenues will be channelled every month to the repayment of
government bond debts, he said.
He said that on Tuesday President Boris Yeltsin may sign a decree
approving the Cabinet's program for cutting budget spending.
Kiriyenko said the Cabinet will step up efforts to guarantee property
rights. Speaking of the situation regarding Unified Energy Systems of
Russia, he said the government had approved a set of measures developed by
the Ministry of State Property guaranteeing the rights of investors until
the Constitutional Court issues a verdict on the legality of the law
restricting the stake of foreign investors in UES.
Russell 20-20 is an association of 20 leading pension funds and 20
investment companies controlling assets exceeding $1.5 trillion. It aims to
study the investment climate in countries switching from centralized
planning to any form of a market economy.


Moscow Times
May 28, 1998 
SEASON OF DISCONTENT: It's Russian Pneumonia, Not Asian Flu 
By Andrei Piontkovsky 

Boris Yeltsin's entourage and commentators close to the Kremlin insisted 
that the Russian president participated on an absolutely equal footing 
in all the meetings at the Birmingham summit, which gave them the right 
to call this the first meeting of the Group of Eight. 

Yeltsin had not been invited to take part, however, in the discussion of 
Southeast Asia's financial problems, during which most attention was 
understandably devoted to the situation in Indonesia. This is a pity. 
Among the almost exclusively ritual ceremonies in Birmingham, it was 
precisely this discussion that could have been most useful for Yeltsin. 

Just at the moment when leaders of the leading industrialized powers of 
the world were discussing Indonesian affairs, in Jakarta the speaker of 
the parliament was gently convincing the then still President Suharto to 
remove his daughter and a famous entrepreneur close to her from the 
levers of power. Doesn't this sound like a very familiar tune? The word 
family, semya in Russian and chuko in Indonesian, has become the most 
frequently used politological term both in Moscow and Jakarta. 

The negative results on the Russian stock market have been largely 
attributed to external factors such as the flight of investors from all 
emerging markets, including Russia's, as a result of the Southeast Asian 
crisis. But almost no one has spoken of the basic lessons to be learned 
from these crises, which have a direct bearing on Russian reality. 

Strangely enough, the first to speak about these lessons were IMF 
Managing Director Michel Camdessus, who warned Yeltsin of the "dangerous 
similarities between the chaebols, Korea's closely held family 
conglomerates, and the prevailing relations among oligarchy members in 
Russia," and U.S. Treasury Secretary Lawrence Summers, who said that 
"one of the real dangers Russia now faces is the same kind of crony 
capitalism that helped cause the Asian financial crisis." 

Neither Camdessus nor Summers belongs to the Russian intelligentsia, 
"whose culture known for gloom and doom" was blamed last week on these 
pages by Michael McFaul for Russia's poor image. 

Russia's fundamental problem is not its image in the West but its 
oligarchic system of incestuous collusion between Power and Money. This 
system does present more dangers than Korean chaebols or the Indonesian 

Before it became evident that the system of chaebols was an inefficient 
means of further developing the Korean economy, the chaebols had created 
modern branches of industry that won a place on the world markets for 
automobiles, electronics and shipbuilding. 

But what has the chaebol of the speculator in automobiles, Boris 
Berezovsky, or the chaebol of Vladimir Potanin, a private banker 
inclined to suck the state budget dry, created in Russia? Where are the 
industries and technologies created by them or highways and scientific 
cities built by them as is the case with Tegjon or Kwangju in Korea? 

The leaders of the economy in Korea and Indonesia turned out to be 
people not without vices. But they created modern economies in their 
countries from nothing. Our oligarchs and oligarkhchiks turned out to be 
capable only of stuffing their pockets with the riches of a former 

If we want to be cured, it's high time to make a proper diagnosis. What 
we are suffering from is not Asian flu, but Russian pneumonia. 


Russia: Kremlin Steps Up Pressure On The Media
By Floriana Fossato

Moscow, 27 May 1998 (RFE/RL) -- The International Press Institute -- a 
respected organization of editors, publisher, journalists and media 
specialists from around the world -- this week brought journalists from 
93 countries to its three-day annual meeting, taking place for the first 
time in Moscow. 

Russia' President Boris Yeltsin took the opportunity to address the 
opening ceremony of the conference in the Kremlin Monday, and he 
expressed his concern over the influence some of Russia's leading 
business tycoons have over media assets they control. After asserting 
that "media owners are sometimes the worst censors," Yeltsin, who has 
said in the past that he is the guarantor of a free press in Russia, 
added, "they are the biggest threat to Russia's press freedom." 

Using tones that might have sounded alarming for many in the audience, 
Yeltsin complained that power-hungry media owners "openly interfere in 
editorial policy, deciding what should and should not be written." He 
added that "as a result, the people's right to objectivity and truthful 
information is in jeopardy." 

Less than an hour after Yeltsin's powerful call in support of a free 
press, Kremlin spokesman Sergei Yastrzhembsky said Russian television 
coverage of the recent miners railways blockade "went beyond the limits 
of what is reasonable." Yasterzhembsky said Yeltsin would meet the heads 
of three leading national networks, including the fully private NTV, 
this week on Thursday (May 28) "to discuss the relationship between the 
media and the authorities." He said also that Yeltsin would meet Friday 
(May 29) with leading financial leaders, including some of the most 
powerful media magnates, to listen to their view of the current 
financial crisis. 

During a meeting last September with some of the influential tycoons, 
Yeltsin had urged them not to use the media they controlled to "sling 
mud" at each other and at top government officials. However, his appeals 
have had no discernible affect on the tone of Russian media coverage. 

Yeltsin benefited from almost unanimous support in the Russian media 
during his 1996 re-election campaign, when journalists helped spread his 
campaign message, and keep his health problems out of public view. Media 
tycoons, who had supported Yeltsin in his bid were rewarded with 
sweetheart deals. But, since last year, the government has demonstrated 
its determination to stop the practice, and the power-hungry tycoons, 
and regain influence over the media assests they control. 

In interviews with RFE/RL correspondents, Muscovites of assorted 
background and age-groups seem to agree with Yeltsin -- but they 
overwhelmingly and sharply criticized Yastrzhembsky's following remarks. 
Most people interviewed said Russians "had the right to see all the 
details of fellow citizens' protests, including placards, calling for 
the President's and the government's dismissal." 

And, Deputy Prime Minister Boris Nemtsov, in an interview after his 
return from successful negotiations to lift the railways blockade, said 
he could not criticize the media coverage of the ten-day protest. Using 
a popular Russian saying, Nemtsov said the state "should not blame the 
mirror for the way it looks." However, Nemtsov agreed with most 
observers, who argue that with their coverage of events in Russia, 
television networks and the people controlling them "partly attempt to 
support their private and sometimes political interests." 

In his speech to IPI delegates, Yeltsin said that the Russian media had 
made huge progress towards independence since seven decades of Communist 
censorship ended in 1991, and he balanced his criticism with praise for 
Russian journalists for their courage, bravery and defence of human 
rights. But, he added that "certain people in the Russian government 
cannot part with the illusion that journalists must serve those in power 
-- that the press is to be under command, and that the bold are to be 
punished, while the obedient are to be encouraged." 

Yeltsin added his voice to those of many media experts in Russia and 
abroad, who, since the last presidential election in 1996, have 
complained that, in Russia, there is freedom of the press, but not press 
freedom. He said that "few publications have remained in Russia which 
enjoy genuine independence." 

This month, Yeltsin signed a decree, instructing the new government to 
form, by the end of 1998, a production/technical media-holding company, 
including all state-owned electronic media on the basis of VGTRK, the 
second nationwide channel of Russian television, which also manages the 
channel Kultura and Radio Russia. With this decision, the fully 
state-owned VGTRK - commonly known outside Russia as RTR -- replaces ORT 
as the main channel of Russia's television. 

Changes at the Federal Broadcasting Commission also have observers 
saying the creation of a media-holding is aimed at allowing the 
government to re-establish control over the media assets in which it 
maintains formal control as majority shareholder -- but, where money and 
managers are controlled by influential businessmen. 

Yeltsin's comments this week were clearly aimed at the business tycoons, 
who, since the 1996 presidential election, have increased their 
influence over most of Russia's major electronic and print media. They 
include Most-Group's Vladimir Gusinsky, who controls NTV; as well as 
business and financial leaders such as Menatep-Rosprom group's Mikhail 
Khodarkovsky, Oneximbank-Interros group's Vladimir Potanin and other 
influential magnates with whom Yeltsin will meet this week. However, the 
President's words seemed to be addressed, in particular, to businessman 
turned politician, Boris Berezovsky. Until the March government 
reshuffle, a powerful Kremlin insider, Berezovsky boasted of influential 
ties to some Kremlin officials, including Yeltsin's daughter and image 
adviser, Tatyana Dyachenko. 

Yeltsin's decree concerning the creation of a state media-holding 
appears to damage, in particular, the interests of Berezovsky, who was 
recently appointed Executive Secretary of the Commonwealth of 
Independent States (CIS). Despite being formally state owned, Russia's 
most popular television network, ORT, is effectively controlled by 
Berezovsky. He owns only a minor stake in ORT, but maintains control 
over some top ORT managers and over the network's cash flow. 

In April, ORT consistently gave favorable coverage to retired General 
Aleksandr Lebed, during Lebed's successful gubernatorial campaign in 
Krasnoyarsk. Addressing a panel of the of participants in the 
International Press Institute's conference Monday, Berezovsky responded 
to Yeltsin, saying the government has developed an "allergy" to business 
interests, that had no voice in the Soviet era, but, now "reflect the 
interests of the nation." According to Berezovsky, "this is why big 
business must be heard." However, Berezovsky conceded that, while he 
"supported Lebed in the Krasnoyarsk election", he (Berezovsky) 
"considers Lebed exceptionally dangerous as a possible president of 


Russia: Analysis from Washington -- Short-Term Measures Jeopardize 
Long-Term Goals
By Paul Goble

Washington, 27 May 1998 (RFE/RL) - Post-communist governments 
increasingly find themselves caught between the short-term demands of 
the international marketplace and the long-term imperatives of systemic 
economic and political change. 

When they bow to the former, they risk losing the political authority to 
pursue the latter. But if they refuse to respond to the short-term 
demands of the marketplace, they may lose the capacity to cope with 
popular expectations. 

Consequently, the political leaders of these countries are constantly 
looking for some combination of measures that will reassure the foreign 
investment community without destroying their own political base, a 
search that appears ever more difficult across this region. 

The situation in the Russian Federation this week is but the latest 
example of this problem. On Monday, President Boris Yeltsin assembled 
his country's financial leaders to the Kremlin to consider how to 
respond to such short-term challenges without destroying his own 
political base. 

In order to attract foreign investors increasingly skittish about the 
so-called emerging markets, the Russian government has taken a number of 
steps to reassure them that the Russian economy is on the right track 
and that they should continue to invest there. 

The Russian Central Bank has raised the interest rate it pays on 
treasury bills from 30 to 50 percent in order to attract the funds 
necessary to reduce the government's deficit and thus attract 
International Monetary Fund loans. 

The Russian authorities have doled out money to one of the country's 
many troubled financial institutions and have been purchasing rubles in 
the international marketplace lest a bank collapse or the devaluation of 
the ruble spark a financial panic. 

And Moscow has launched a major public relations effort to tell key 
investors and their advisors that Russia remains an attractive place for 
their money despite these problems and their consequences in Asia. 

But none of these steps is without difficulties: Raising the interest 
rate on government paper may buy time but it places a new burden on 
Russian budgets in the future. 

Moreover, supporting one troubled bank inevitably gives rise to 
speculations that Moscow may prop up others, with all the dangers that 
implies. And the Russian government has only a limited amount of foreign 
exchange to defend the ruble. 

As a result, these measures, driven by short-term concerns, may have 
negative consequences over the longer haul. 

At the same time, other short-term concerns at home may push the Russian 
authorities in another direction. Even as it faced down the miners' 
strike earlier this month, the Russian government had to promise to pay 
back wages. 

And Moscow can do little about its image problem with investors when the 
country's parliament passes measures that would sharply curtail the 
ability to own more than a relatively small percent of key Russian 

In this situation, the Russian government has had to watch stock prices 
on the Moscow markets fall by almost 50 percent since the start of the 
year, an indication that portfolio investment from the West has declined 

Not surprisingly, the bind that Moscow finds itself in has led some 
Russian politicians to question the value of reform altogether, to 
suggest that the whole idea of the political and economic transformation 
of the country in the direction of democracy and the free market is a 

And the existence of this bind has led some in the West to suggest that 
Russia and the other post-communist states should be allowed more time 
to meet the ambitious goals of the transformations these countries are 
attempting to make. However superficially attractive such suggestions 
may appear to those concerned about the future, their adoption almost 
certainly would doom these countries to an even more difficult future 
than the present they now have. 

But an appreciation of just how difficult this bind is could help 
everyone involved to take the longer view and thus overcome the very 
real problems that a focus on the short-term inevitably produces. 


From: NDobrokhot (
Date: Tue, 26 May 1998 
Subject: Communism, Fashism or Dictorship of the Party of Power

by Vitaly Tretyakov (Nezavisimaya Gazeta, May 21, 1998)
Subtitle: The History of Economic Reforms in Russia Has Been Written to
the End

It looks that the history of the so called reforms in Russia is coming to
its logical end. Although we hope that reforms themselves (in the forms
that will better correspond to the sense of this word) sooner or later
will be continued. But if to speak on the current "reforms" and
"reformers" - they are practically coming to their end. And it
would be fine if it's only the political end. 
However nobody is disturbed with the personal fate of the
"reformers" (and it's fair because the reformers themselves
were not worried at all on the fate of the people they were experimenting
with). Nevertheless the fate of Russia is the point of concern. As the
finale of the whole closing historical period. 
This finale is unfortunate. The reforms in Russia not just failed. They
failed shockingly. They collapsed. The question is if this collapse would
mean the simultaneous collapse of the country also. It cannot be ruled
Politically as a result of the dull and irresponsible "course of
reforms" we do have now the following uncomplicated choice:
The communists (new communists) will come back to power - it's not the
worst option in comparison with another.
Second version - anarchy and dissolution of the country.
Third version - the dictatorship of the party of power that in few months
will lead inevitably to the second one.
Forth version (optimistical one) - the current powers will find
reasonable economical and at the same time democratical way out of crisis
or will drag the situation to year 2000 when the further fate of all of
us will depend on who is elected president.
Finally, fifth version that early was impossible in Russia and now has
matured solely as a result of the so called reformers activity: the
fascists of one or another varieties will come to power here.
Whole five versions. Their diversity is not funny at all.
What reforms means? They mean more or less radical but evolutionary
transformation, without global (in the framework of the whole country)
shocks and without irreversible negative after-effects; the
transformation of something old fashioned into something new, that
corresponds to the facts of new times and satisfies the majority of the
population in the reformed country. What we got in reality as a result of
the "reformers" activity? Something vice versa. To be more
concrete, we have gotten: 
- messed up and inactive economy that used to be second in the
- massive unemployment;
- full liquidation of your right to be paid for your work;
- great number of neglected and homeless children;
- massive corruption.
Everybody may continue the list themselves, but for purpose of our
discussion I would like to underline two substantial moments:
- turning the Russian population into lumpen-proletariat and its
pauperization against a background of few super-rich;
- the emergence of a class of small business people, which counts several
million, and who are surviving and enriching themselves (in their scale)
by illegal means in general, who are realizing this illegality (which has
been created not by them) and who because of that and under the threat to
be ruined and to loose any means of their subsistence are ready to do
anything, to support any "commanding figure".
If the first factor is an objective base for the returning to communist
ideology and power, the second one - the natural environment for power of
fascists emergence...
Is it possible to consider the reforms to be good, successful and
progressive, if they have created a ground (in Russia!) for the emergence
of fascism? Is it possible to consider them to be reforms at all? Is it
possible to consider the ones who conducted those reforms to be
intelligent people and responsible politicians? I would like to hear the
answers on those questions from the top &quot;reformers&quot; - Messrs.
Gaidar &amp; Chubais. However I am afraid that in response they will tell
us on reducing inflation, that gas is going in uniform motion into
non-working engine of a broken car, whose wheels have been stolen, and
passengers are in hunger faint. It would be possible for them to tell us
also how much money Gorbachev borrowed from the West, that communists did
all wrong with economy and wasted the oil-bucks. And also on Lenin,
Stalin, all wrong Russian people and on the land reform that has been
intended to make Russian economy bloomed once and for all, and Gaidar
&amp; Chubais been dedicated for that by special chapter in the book
called &quot;Russia - the World's Leading Light&quot; (but all that
failed as a result of Duma's stupidity).
The fact that Gaidar &amp; Chubais have prepared the soil for fascism in
Russia is seen with the naked eye. Moreover it's not excluded that both
are the members of Anti-Fascist League and are paying their fee
punctiliously. It's easy to believe that small retailers - the biggest
class without job after industrial workers in Russia today - will defend
their ideologists if their commanding figure will come to power. But
maybe this class will not make out to whom it is indebted by its
emergence, its petty joys and big fear of the Law, its great jealousy to
those who have taken more, and this is why it will not immortalize its
parents in a Pantheon of Heroes but will chose for them another fate,
that will be in accordance with theory and practice, that is developing
in the whole world following the same rules and with the same finale.
I'm shocked by two things! By my initial trust, that those people who
have told us that they knew all about how to manage economy and politics
of the country, knew that in reality. But I am astonished much more by
the fact that the people that don't know and unable to do that, still
undertaking to do the work, and after all, don't want to quit the stage
when it is coming to be clear for everybody besides them, that for seven
years they brought the country to such dead end, to which the communist
were unable to bring it for seventy years (and who, by the way, did a lot
for good on their way).
But please agree, that it was hard to believe for normal human being,
that your cab driver, first of all, had stolen the cab; secondly, it was
his first time as for a driver; third, that he was going to bring you not
to the place he was asked to, but to the area which he wanted to visit
himself because he has read in one book, that it would be much better for
you to be there; though he not cared a damn how you would
The miners were the first to loose their temper - just because their
children began to die of starvation. In accordance to the theory by
Gaidar &amp; Chubais, those children had to die after the flourishing of
market economy, but they began to die early. Obviously, the miners were
wrong. In accordance to the theory, they had to join small retailers and
enter Democratic Choice of Russia party, but they failed to do that. This
is why their children are dying now. In addition to that, the miners are
not fighting with oligarchies - if they do, it could take the place of
their job on unprofitable mines and add charm to their leisure-time that
has been created as a result of the lack of job. The miners are wrong
when they are bothering the Government, in which both Gaidar &amp;
Chubais are absent already. And this is why Sergey Vladilenovich
Kiriyenko will be responsible for everything. 
It was said that somebody had told concerning Khrushchev: he was really a
genius - to leave such country as Russia with no grain. Now we do have
all the ground to say about Gaidar &amp; Chubais - they were really
geniuses - to leave such country like Russia not only without economy,
but without trousers also. But - with fascism. 


NATO calls for understanding as Russia distrusts
By Andrei Khalip 

MOSCOW, May 27 (Reuters) - The head of NATO was quoted on alliance's expansion
to give way to more positive views, but Russia's foreign minister indicated
the mistrust was there to stay. 

``Today, when we mark the first anniversary of signing a NATO-Russia
partnership, I have a feeling that NATO's decision to accept new members into
its ranks causes certain suspicion in Russia,'' Solana wrote in Russia's
Izvestia newspaper. 

``It is hard to expect (understanding) after a long period of distrust during
the Cold War. But I hope that people with open views are ready to listen,''
Solana said. 

Foreign Minister Yevgeny Primakov, in Kiev for talks with his Ukrainian
counterpart, said however that Russia remained opposed to the eastward
expansion of the alliance, seeing it as a military threat. 

``From the point of view of geopolitics, it creates threatening elements and
dividing lines in Europe -- something we would like to avoid,'' Primakov said,
adding that NATO was still a military organisation based on Cold War dogmas. 

As if responding to the accusation, Solana wrote: ``NATO expansion to the East
does not mean an eastward move of the military machine.'' 

Both, however, said integration between Russia and NATO should develop. 

``If NATO changes to become a political organisation and emphasises
peacekeeping actions, such a change could intensify our relations,'' Primakov
said in comments carried by Russia's Interfax news agency. 

``I am sure the further our cooperation goes, the quicker old suspicions will
disappear,'' said Solana, hailing the agreements already reached. 

Russia is opposed to the Western alliance's eastward expansion, saying the
move would harm its security interests and push Russia out of Europe. But
Moscow has not closed the door completely despite its reservations. 

On May 27 last year, Russia signed the ``Founding Act'' on a new partnership
for security in Europe with leaders of the 16-nation Atlantic alliance. 

Russia's former communist allies Poland, the Czech Republic and Hungary are
expected to be admitted to NATO in the first round. Romania and Slovenia are
also fighting for quick membership but face U.S. resistance. 

Moscow tacitly accepted the first round in exchange for some Western security
pledges and signed the cooperation pact. But it still firmly opposes NATO
membership for former Soviet republics such as the Baltic states or Ukraine. 

The partnership pact gives Moscow a say, but not a veto, in some security



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