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29 May 1998
[Note from David Johnson:
1. VOA: Barry Wood reports on Cato meeting on Russian crisis.
2. Mike McKeever: Stupidity and Interest Rates.
3. Reuters: IMF loan tranche may not be enough -Dep Min.
4. Christian Science Monitor: Jean MacKenzie, Rescue of Russia's
Battered Ruble May Be a Job for IMF.
5. Financial Times (UK): Chrystia Freeland, RUSSIA: Chill winds
from the east.
6. The Independent (UK): Richard Layard, If we act now to save the
rouble, we will be helping ourselves too.
7. Moscow Times: Andrei Zolotov Jr., President Asks TV to Toe State's
8. New York Times editorial: Market Anxiety in Russia.
9. AP: Russian Tax Authorities Burst Dream.
10. Interfax: Berezovskiy Says Lebed Will be 'Dangerous' as President.]
Voice of America
TITLE=RUSSIA CRISIS (L-ONLY)
INTRO: TWO AMERICAN EXPERTS ON RUSSIA THURSDAY VOICED STRONG
CRITICISM OF U-S POLICY TOWARDS RUSSIA. V-O-A'S BARRY WOOD
REPORTS THAT SUSAN EISENHOWER, THE GRAND DAUGHTER OF DWIGHT
EISENHOWER, AND CHARLES MAYNES BELIEVE THE UNITED STATES SHOULD
DO MORE TO BOLSTER REFORM IN RUSSIA.
TEXT: SUSAN EISENHOWER SAYS THE CLINTON ADMINISTRATION SHOULD DO
MORE TO OVERCOME RUSSIA'S GROWING SENSE OF ISOLATION. SHE
SUGGESTS THAT PRESIDENT CLINTON SHOULD TRAVEL FROM CHINA NEXT
MONTH DIRECTLY TO MOSCOW IN ORDER TO UNDERSCORE U-S SUPPORT FOR
RUSSIAN DEMOCRACY AND EFFORTS TO BUILD A MARKET ECONOMY.
A SCHOLAR AND CONSULTANT TO AMERICAN COMPANIES DOING BUSINESS IN
RUSSIA, MS. EISENHOWER IS A STRONG OPPONENT OF NATO EXPANSION.
SHE BELIEVES THAT RUSSIA FACES A MOUNTING CRISIS OF ECONOMIC
CONFIDENCE. SHE BELIEVES THE WEST SHOULD BE HELPFUL IN PROVIDING
ASSISTANCE BUT SHE STOPPED SHORT OF CALLING FOR NEW U-S LOANS TO
CHARLES MAYNES, THE PRESIDENT OF THE EURASIA FOUNDATION AND
FORMER EDITOR OF FOREIGN POLICY MAGAZINE, SAYS RUSSIA IS NOW AT
THE FRONT LINE IN THE GLOBAL FIGHT AGAINST FINANCIAL TURMOIL. HE
AGREES THAT RUSSIA IS UNDERGOING A CRISIS OF CONFIDENCE AS IT
EMERGES AS A GREATLY WEAKENED COUNTRY INTO A COMPETITIVE GLOBAL
ECONOMY. MR. MAYNES, A STATE DEPARTMENT OFFICIAL 20 YEARS AGO,
FAULTS U-S POLICY FOR FAILING TO EVOLVE FROM ITS COLD WAR FOCUS
ON EUROPE AND HOSTILITY TO AN EXPANSIONIST RUSSIA.
HE ARGUES THAT RUSSIA IS NOW MORE PRO-WESTERN, DEMOCRATIC, AND
PEACEFUL THAN AT ANY TIME IN ITS HISTORY. HE BELIEVES THE U-S
PARADIGM SHIFT REQUIRES A SHIFT OF ATTENTION TO CENTRAL AND SOUTH
ASIA AND THE INCOME DISPARITIES OF THE GLOBAL ECONOMY. MR. MAYNES
ALSO OPPOSES NATO EXPANSION AS A NEEDLESS ACT WHICH HE REGARDS AS
A SLAP IN THE FACE OF THE RUSSIAN REFORMERS.
BOTH SPEAKERS AT "THE FORUM ON RUSSIAN POLITICS AND ECONOMY"
BELIEVE THE CURRENT FINANCIAL CRISIS IN MOSCOW WILL LAST FOR LONG
TIME. THEY ARE OF MIXED OPINION AS TO WHETHER THE INTERNATIONAL
MONETARY FUND SHOULD BOOST ITS RUSSIAN LENDING. MR. MAYNES
BELIEVES THE I-M-F IS PLAYING A VALUABLE ROLE AND SHOULD BE
THE TWO SPEAKERS REGARD THE RUSSIAN PRIVATIZATION AS INEQUITABLE
WHICH DID NOTHING TO WIN PUBLIC BACKING FOR A MARKET ECONOMY.
MR. MAYNES SAYS A WEAK RUSSIA WITH ALL ITS NUCLEAR WEAPONS--AS IT
IS NOW--IS A GREATER THREAT TO THE WEST THAN A STRONG RUSSIA.
Date: Thu, 28 May 1998
From: mckeever <firstname.lastname@example.org>
Subject: Stupidity and Interest Rates
I wish to comment on the recent rise in interest rates. The reason, it seems
to me, to raise interest rates is to attract speculative capital into the
ruble, or to encourage people with rubles to continue to hold them. This
theory is based on the IMF proscription for capital liberalization as the
means to cure an economy in trouble. It does not work (as proven in
Indonesia, Thailand, Korea) and it will not work in Russia. The only cure in
the short and the long run is for the Russian government to institute
foreign exchange controls so that money which comes into the country has to
stay there. Now, all the money from IMF loans will become taxable
obligations of the Russian people and the money will be converted into
dollars and sent to Swiss or Carribbean banks. This is stupid.
Such foreign exchange controls will not cure the economy, but the economy
cannot be cured without them. Let us hope for a victory for common sense
before things become even bleaker. Unfortunately, my hope for common sense
is growing weaker as I watch the IMF do more and more stupid things. Yes, I
recognize that such controls are very difficult to install; but, I think
they can be installed gradually if the government wishes to do so. But
first, the IMF has to be made to agree with the idea.
Mike P. McKeever
Founder: The McKEEVER INSTITUTE OF ECONOMIC POLICY ANALYSIS (MIEPA)
1511 Woolsey Street, Berkeley, CA 94703 USA
FOCUS-IMF loan tranche may not be enough -Dep Min
By Julie Tolkacheva
MOSCOW, May 28 (Reuters) - Russia's government, faced with an immediate need
for funds to calm markets, may not have enough to solve its problems with the
next slice of an International Monetary Fund loan, but extra support has still
"The sum undoubtedly does not solve our problems. If we are talking about any
support, it must be on quite a different scale," Deputy Finance Minister Oleg
Vyugin said on Thursday, referring to the next regular $670-million IMF loan
He was speaking as senior IMF Russia expert John Odling-Smee arrived in Moscow
for talks on disbursement of the tranche under its $9.2-billion Extended Fund
Facility agreed for Russia in 1996.
Vyugin told a news conference that Russia could use some extra aid. "The
(additional) help would make the situation normal quickly," he said. "It
wouldn't be spent at once to buy dollars, but it would play a great
"Such a credit would show everyone that the government has money and there
will be no problems in the future," he added. "(But) in principle, there are
quite real chances to save the situation without extra help."
Hopes for fast approval of the next tranche and speculation about additional
support helped battered Russian markets rise somewhat on Thursday, but dealers
said the tranche would bring only temporary relief and more substantial aid
IMF head Michel Camdessus told a news conference in Kazakhstan there had been
no talks held on extra IMF support to help Russia solve its financial
problems, and he saw no need for such a measure.
"We have not started discussing anything of this kind, and I have no reason to
think that such a need exists," Camdessus said.
However, leading Western investors who met Deputy Prime Minister Viktor
Khristenko on Thursday were under the impression that the government was
looking for broad international support.
"They are going to try to work out an arrangement with international financial
institutions and some Western governments and some Western credit
organisations to create some catalyst for turning the tide," UFG's Chief
Executive Officer Charlie Ryan told Reuters.
Bill Browder, managing director of Hermitage Capital Management, said three
major Russia investors had requested the meeting with Khristenko to discuss
measures the government planned to take to deal with the turmoil gripping its
The Russian government is battling to defend the rouble against speculative
attacks, fanned by concern over the Russian economy and the ability of the
government to service its debt following sharp rises in borrowing costs.
A devalued rouble would be a serious blow to the government's efforts to
reform the economy. Low inflation and a stable rouble are the main
achievements of economic reforms, which have caused widespread hardship for
In Vienna, Austria's finance minister said he would be prepared to back a new
IMF loan for Russia if necessary. In Brussels, the European Commission offered
"If there's going to be some kind of fund to help, then probably our resources
will not make a great difference," a Commission spokeswoman told reporters.
"However, we can proceed if expertise is needed in the short term."
The central bank, which trebled interest rates to 150 percent on Wednesday in
an effort to defend the rouble, was forced to buy dollars heavily on Thursday
in a market starved of rouble liquidity.
"The central bank cut practically all sources of liquidity from the market,"
Vyugin said. "If you want to attack the rouble, the roubles are not there."
Vyugin reiterated the government's commitment to defend the rouble, saying
speculative selling of government securities on hopes of reaping profits after
a devaluation would not work.
"It is a hopeless affair," Vyugin said. "I can say for sure that whose who are
trying to sell securities today...they will not get any profit."
Christian Science Monitor
MAY 29, 1998
[for personal use only]
Rescue of Russia's Battered Ruble May Be a Job for IMF
Special to The Christian Science Monitor
Moscow's ubiquitous currency-exchange bureaus were fairly quiet
yesterday, with no long lines or obvious signs of panic. But it was not
exactly business as usual: A quick survey of bureaus lining busy
Belorussian Square showed that many had run out of dollars by noon, and
customers for the beleaguered ruble were few and far between.
While officials from the prime minister to the head of the Central Bank
assured Russians that there would be no devaluation of the national
currency, wary private citizens were taking what cautious steps they
could to protect themselves.
In contrast to the relative calm on the streets, tension was running
high in government and financial circles, as officials sought a way out
of Russia's growing crisis, touched off by a collapsing stock market,
which resulted in a threefold rise in interest rates Wednesday.
"Russia's financial market will not collapse. The Central Bank and the
Finance Ministry have sufficient reserves to control the situation,"
said President Boris Yeltsin after an emergency meeting with Prime
Minister Sergei Kiriyenko and other members of the government's economic
team yesterday morning. Mr. Yeltsin also planned to speak by telephone
with President Clinton and German Chancellor Helmut Kohl.
But although markets rebounded somewhat from Wednesday's steep fall of
more than 10 percent, the president's words were unlikely to soothe
jittery investors, who have been deserting the market in droves over the
past few weeks. "Even bitter critics of the current regime had no idea
how bad the situation really was," says Boris Kagarlitsky, an analyst at
the Academy of Science's Institute for Comparative Politics in Moscow.
Over the past month, Russia's economy has suffered a series of body
blows, with the stock market sliding 40 percent since the beginning of
May, angry coal miners in Siberia staging a 10-day railroad blockage
that cost the government more than $75 million, and the collapse of a
major privatization auction. No bidders were willing to put up the
necessary $2.1 billion for Rosneft, a state-owned oil giant and the last
plum in the government's privatization package.
Finally Wednesday, Moscow was forced to defend its shaky currency by
raising yields on treasury bills from 50 to 80 percent and adjusting the
benchmark refinancing rate from 50 to 150 percent. The government is
spending $500 million a day to shore up the ruble, against reserves of a
little more than $14 billion. Without a Gargantuan rescue effort by the
International Monetary Fund, Russia's economy could be headed for a
The effects of a downslide in the Russian ruble would be hard to
predict, but, according to some analysts, they could rival those of the
Indonesian crisis that sent shockwaves through world markets last
But IMF chairman Michel Camdessus declared yesterday that no bailout
plan was in the works. "We have not started discussing anything of this
kind and I have no reason to think that such a need exists," Mr.
Camdessus told Reuters during a visit to Kazakstan. The IMF may soon
release the next installment of a $9.2 billion credit, but the $670
million that would then become available will not go far. Analysts say
as much as $10 billion could be needed to put Russia back on solid
"The new liberals thought that if they defended financial stability they
would have economic growth," says Mr. Kagarlitsky. "But in a country
with low or no economic growth, this philosophy gave just the opposite
The push to stabilize the ruble and conquer inflation, heralded as the
major achievement of the last government, led to enormous internal debt,
which Kagarlitsky calls "canned inflation." Since the government could
not print money to cover spending, it borrowed. Now, by some estimates,
government debt has reached almost 50 percent of gross domestic product.
All of this is quite a challenge for a government that has been in place
for a little over one month. Mr. Kiriyenko and his team of young
reformers are reaping the fruits of a policy put in place by former
Prime Minister Viktor Chernomyrdin, who was summarily dismissed by
Yeltsin March 23. The political instability has contributed to the
economic crisis, and opposition members in parliament are promising a
confrontation in the fall.
But for now, the task is to last through the day.
"Kiriyenko will artificially save the ruble today," says Kagarlitsky,
"but in the end he will have to plan an orderly retreat. He will finally
have to devalue the ruble, but he can hope to do it in an organized
Financial Times (UK)
29 May 1998
[for personal use only]
RUSSIA: Chill winds from the east
The Asian crisis has unnerved investors in Russia, threatening its
financial stability, says Chrystia Freeland
Ever since the Tatar hordes swept across the plains of Asia and
subjugated the Muscovite princes, Russia's rulers have been wary of
danger from the east. This week, danger emerged again - in the form of a
financial hurricane from Asia that threatened to devastate a
painstakingly constructed market economy.
Panicked investors have been fleeing, pushing share prices down nearly
40 per cent since the beginning of the month and more than halving their
value since the start of the year. The bond market has been even harder
hit, with buyers demanding yields of more than 80 per cent this week.
Enfeebled by fears of a forced devaluation, the rouble wobbled outside
the daily target rates set by the central bank.
The exodus has forced the authorities to take desperate measures,
tripling interest rates to 150 per cent, their highest level since 1996.
This step, combined with Kremlin pledges of tough economic action,
brought a respite yesterday, as equity prices eased and the rouble
strengthened against the dollar.
But one more jolt could push the rouble, and the hard-won financial
stabilisation it represents, into free-fall. The astronomically high
rates are not sustainable over the medium term but a worse scenario
would see the rouble crashing. The immaturity of Russia's market economy
means the danger is particularly acute because a plunging rouble could
take the rest of the financial system with it, pushing leading banks
into default, killing tentative public trust in the national currency
and triggering a new burst of high inflation.
"The stakes for the rouble are far higher than in a normal economy,"
argues Christopher Granville, strategist at Flemings UCB, a Moscow-based
investment bank. "The nominal peg of the rouble to the dollar is the key
to financial stabilisation. If you lose financial stabilisation, you can
only speculate on what the social and political effects would be."
With Russia's financial stabilisation - the biggest accomplishment of
seven lean years of market reform - in jeopardy, foreign and Russian
bankers are calling for the International Monetary Fund and the Group of
Seven leading industrial nations to ride to the rescue. Fifteen
brokerage houses sent a letter to Sergei Kiriyenko, the prime minister,
urging him to ask for an emergency western stabilisation fund.
"Most people in the market are expecting an international package," says
Peter Boone, joint head of research at Brunswick Warburg, a Moscow
brokerage. "I think the situation will be very difficult unless there is
substantial financing from the international community. We are observing
a classic case of panic."
Russia's bad case of the nerves had several triggers. Two of the most
serious are external: the Asian crisis and falling world commodities
prices, particularly oil. The most severe consequence for Russia of the
Asian turmoil has been to sour investor sentiment, which just a year ago
was exuberant about almost all of the world's emerging markets.
Investors' new-found pessimism has mounted slowly but has brought a
series of economic jolts culminating in this week's instability.
Oil prices, meanwhile, have fallen from a high of $25 a barrel in
January last year to about $14 a barrel for the North Sea's Brent blend.
Urals crude, Russia's main export, has been trading at a discount of
about $1.30 to Brent. These lows have dealt a double blow to Russia's
delicate market economy, both by weakening the oil companies that are
the flagships of the private sector and by lowering the tax receipts of
the already cash-strapped treasury.
The two foreign shocks have been compounded by domestic woes. Chief
among these are the country's troubled public finances. Feeble tax
collection and the government's uncertain control over state spending
have long been at the top of the IMF's agenda. Turned sceptical by the
Asian crisis, investors have become increasingly conscious of Russia's
And as investor worries have grown, they have become a self-fulfilling
prophecy. Public borrowing costs have increased as investors have
demanded sky-high interest rates on treasury bills and forced the
central bank to dip into its meagre reserves - $14.5bn, of which about
$5bn is in the illiquid form of gold - to defend the rouble.
Over the past few weeks, there have also been several smaller local
shocks. These included the approval of a law restricting foreign
ownership in Unified Energy Systems, the national power company. And
there was a surprisingly vocal miners' protest earlier this month, which
ended only when the government found spare cash to pay back wages.
The event that may have been the immediate catalyst for this week's
sell-off was the state's failure to find a buyer for Rosneft, the
largest Russian oil company still to be privatised. The buyers' strike
exacerbated concerns about Russia's fiscal situation, by depriving the
treasury of the expected $2.1bn sale price, and bruised the political
authority of Mr Kiriyenko's new cabinet.
This troubling set of factors has been enough to unleash a raging bear
trend. Even so, many veteran Russian-watchers argue the market is wrong.
Driven by panic and false parallels with the Asian situation, investors,
they believe, have overlooked some of the real progress Russia has made
in the past few months.
The country's recent achievements include progress in containing the
budget deficit, which was 4.6 per cent of gross domestic product in the
first quarter of this year, down from 9.0 per cent of GDP in the first
quarter of last year. Cash tax collection has also edged up, with the
federal government collecting 8.8 per cent of GDP in taxes in the first
quarter of this year, from 8.5 per cent in the first quarter of last
year, according to Russian Economic Trends, the Moscow think-tank.
"The underlying situation does not warrant a crisis," argues Richard
Layard, a professor at the London School of Economics and a former
adviser to the Russian government. "The tax collection has been better
than last year, the expenditure is more under control than a year ago
and we have a better government than we did last year. People are
running only because they expect others to do the same."
But other observers are less sanguine. They believe that, far from
prompting an unjustified panic, the Asian contagion has allowed
investors to see the real problems of Russia's economy.
The biggest is that Russia's capitalist revolution is incomplete: small
business is still stifled by crime and red tape; large, inefficient
enterprises continue to operate because bankruptcy rules are not
enforced; vigorous economic growth, already well established in much of
eastern Europe, has hardly begun.
John-Paul Smith, Russian equity strategist at Morgan Stanley, said: "The
real reason for the problems is that most people thought the Russian
economy had stabilised, and that it was a question of waiting for
economic growth to kick in. Unfortunately, the stabilisation process is
only two-thirds complete."
He argues the government and companies have borrowed heavily to
compensate for unfinished structural reforms, creating an
"unsustainable" build-up of debt. Investors, he believes, have drawn the
same conclusion, and that is why they are demanding such high returns
for holding Russian paper.
The debt numbers are not reassuring. The Russian government owes about
$140bn of hard currency debt, and $60bn of domestically traded rouble
debt, says Russian Economic Trends. The rouble loans are mostly
short-term and the government will need to pay back between $1bn and
$1.5bn each week in June. With reserves at $14.5bn, and interest rates
for government debt at more than 70 per cent, the situation is
Yet one point of agreement is that, as the crisis has mounted, the
government has moved in the right direction. On Tuesday Boris Yeltsin,
the president, signed a decree slashing expenditures by $6.7bn; on
Wednesday the central bank had the nerve to raise interest rates to 150
per cent; and yesterday the Kremlin announced draconian new measures to
boost tax collection.
These steps, together with Mr Yeltsin's public show of support for his
new government, calmed markets, with the rouble performing solidly
against the dollar, share prices recovering most of Wednesday's losses,
and the central bank selling roubles and boosting its reserves with
$500m in hard currency.
But, as even Sergei Aleksashenko, deputy governor of the central bank,
admitted on Russian television yesterday, it is too early to say for
certain this week's crisis is over. Moreover, Russia has suffered two
similar, if milder, shocks over the past seven months. With interest
rates dizzyingly high and the central bank's reserves low, many
observers fear that in the next few weeks another, deeper crisis will
rock the rouble.
Such concerns are prompting Russian officials to try to cobble together
a stabilisation fund, drawing on international financial institutions
and commercial creditors. Many western observers are also calling on the
G7 to lend support to the effort, warning that, otherwise, Russia's
reforms and their architects may be lost. Devaluation of the rouble
could bankrupt Russia's financial sector, destroy public confidence in
the national currency, provoke a new wage of inflation and bring down
the new government.
"I think there is a very, very strong case for sufficient support from
the G7 countries to enable the central bank to see off the speculators,"
Prof Layard argues. "In Asia, the crisis led to the replacement of bad
governments with better ones. In Russia, the crisis would lead to the
replacement of a good government with a worse one."
If the Russian financial crisis does not abate, it is almost certain
that help from the west will be forthcoming. Russia, and its market
revolution, are too big to fail. This week's turmoil will have
nevertheless have one unfortunate consequence. High interest rates are
likely to scare off the robust growth the Kremlin promised would at last
appear this year. As usual, ordinary Russians are left waiting for the
capitalist prosperity that is always just over the horizon.
The Independent (UK)
29 May 1998
[for personal use only]
If we act now to save the rouble, we will be helping ourselves too
By Richard Layard
Richard Layard is Director of the Centre for Economic Performance at the
LSE and is a former adviser to the Russian government.
Fed by the Asian contagion, investors are beginning to run from the
rouble. But a devaluation would be disastrous for Russia's new reform
government. The West must act, and quickly.
Russia is not like Thailand or Malaysia. Last year it had a balance of
payments surplus and, after the fall in the oil price, the deficit this
year will be under 2 per cent of GDP. Tax collection is better than in
the first part of last year, and the budget deficit has been halved. The
new reform government established before Easter is better than its
So why the crisis? There are of course some Russia-specific features.
Wages arrears are still bad and have led to serious strikes, followed by
promises of extra spending. At the same time the oil price fall was bad
for tax receipts. All this fuelled fears of higher budget deficits. But
these fears have proved wrong in the past and are even less plausible
There is much wrong with the Russian economy. It is over-regulated, the
mafia has a strangle hold, and barter is pervasive. But these issues are
irrelevant to today's issue, which is whether the rouble is overvalued.
The rouble has been well managed for the last three years and this has
brought important stability to Russia. Despite complications from parts
of industry, Russia has achieved export earnings sufficient to pay for
its needs. And inflation has come down to single figures.
So, without the Asian debacle, there would be no crisis now in Russia.
But, of course, if investors start worrying about whether other
investors will run, they start running themselves. Thus fear of
devaluation becomes self-fulfilling, and it may become impossible for a
country to defend its exchange rate unaided - even when devaluation is
not justified by economic fundamentals.
A devaluation in Russia would be as catastrophic for Mr Yeltsin as the
devaluation in Britain was for John Major. The greatest achievement of
the reformers has been to bring low inflation and financial stability.
If they cannot even do that they will lose all credibility.
That would open the way to major left wing gains in the parliamentary
elections in late 1999, and make it most unlikely that any reformists
could be elected in the year 2000. Not only would this be very bad for
the life of Russian citizens; it would also be bad for the citizens of
western countries, who need a peaceful and co-operative Russia in order
to preserve a peaceful world order.
A devaluation in Russia would also spell danger for other emerging
economies. The next country to be picked off could be Brazil, it could
be Hong Kong. The world financial community therefore has a huge
interest in drawing the line in Moscow and preventing the collapse
there, which could have a further domino effect.
The basic problem for Russia is that the foreign exchange reserves of
the central bank are not sufficient to meet the demand for dollars that
could arise, especially if there is massive selling of the Russian
rouble treasury bills held by foreign investors.
In order to prevent them selling, everyone must know that the Russian
government has sufficient dollars at its disposal to meet any wave of
selling to buy up any amount of roubles that investors wanted to dump in
the market at the current exchange rate. If investors knew this, there
would be no reason for them to want to dump their roubles now in fear of
a worse exchange rate later.
The G7 nations need to put together a stabilisation fund of at least
$10bn which would be available for the Russian government. This is not
money given to Russia, this is money that would be available as a loan
facility. The sooner it is provided, the less likely it is to be needed.
Indeed, if Western support was unequivocal the loan might never be drawn
down because it would not need to be used. The measure of its success
would be how little it was used.
It would not be necessary or right for the G7 countries to provide money
for the government to spend in its budget. That is the role of the IMF,
and it is important that the IMF reaffirm its commitment to paying for
the steady delivery of the extended fund facility it has made available
Time is very short because, as we know, speculative attacks can develop
very quickly; and interest rates in Russia are already very high with 80
per cent per annum being paid on roubles (as compared with 11 per cent
per annum being paid on the government's dollar debts). Such a
differential, of course, only makes sense if people expect a devaluation
and it is crucial that the West acts in the next few days to make clear
that Russia cannot be forced to devalue. That would have enormously
beneficial effects, both in Russia and in the rest of the world.
Russia would be saved from the chaos that would follow from a
devaluation. A devaluation there would lead to an immediate increase in
inflation, and even worse, to bank failures. And bank failures would
lead to bankruptcies of enterprise. Unemployment would rise on a massive
scale, as it has in Indonesia.
Social peace could not be guaranteed. By contrast, if the fear of
devaluation were to be removed, interest rates would come down and the
economic recovery would begin.
The rest of the world, too, would heave a sigh of relief that the
international community had shown its ability to act - not after a
devaluation, as in Asia, but before.
The world financial system is now under considerably greater threat than
at any time since the early Eighties. The introduction of the euro may
add to further turbulence and volatility in the world's major exchange
rates, and it would be heartening to see the international community
able to take charge of the situation beginning in Russia. Nobody should
want exchange rate changes that are not justified by economic
fundamentals. They distort the structure of economies and create
unemployment. Ultimately they can undermine the public faith in markets
and in free trade. We would all then lose. Now is an opportunity for the
G7 to show that they can strike before the horse has bolted. Let us hope
that in the next few days it's members have the courage and wisdom to do
May 29, 1998
President Asks TV to Toe State's Line
By Andrei Zolotov Jr.
In tones that did not encourage disagreement, President Boris Yeltsin
urged television executives Thursday to support the government, while
assuring them that he had no intention of infringing on their
independence, rights or finances.
Unhappy with the extensive television coverage of last week's miners'
strikes, Yeltsin summoned the heads of the leading television
organizations -- Ksenia Ponomaryova of ORT, Mikhail Shvydkoi of VGTRK
state television and Oleg Dobrodeyev of privately owned NTV -- to the
Government television showed Yeltsin choosing his words carefully.
"We have the right to ... I don't want to use the world 'demand' -- we
have the right to ask you to carry out the state policy on television,"
Yeltsin said looking intently at Ponomaryova and Dobrodeyev -- whose
channels do not report to the government.
"Don't we?" Yeltsin repeated, staring at Ponomaryova until she nodded in
Many media officials and observers say Kremlin pressure on the media,
both state-owned and private, will increase as parliamentary and
presidential elections of 1999 and 2000 draw nearer. In particular,
Yeltsin is reorganizing local stations under VGTRK's umbrella to create
a powerful single channel that could distribute the Kremlin's message on
a par with private media empires, of whose backing the Kremlin is not so
Dobrodeyev of NTV said after the meeting, however, that he interpreted
Yeltsin's remarks as pertaining to government television only -- meaning
VGTRK, which controls the RTR state channel. Though the state owns 51
percent of ORT, the company operates as a private corporation and is
believed to be controlled by tycoon and politician Boris Berezovsky.
Ponomaryova interpreted Yeltsin's remarks in a broad sense to mean
supporting the national interest, not just the Kremlin's political
standing -- as an "urging to be accurate in order cause no harm" to
Despite Yeltsin's criticism of strike coverage, both Ponomaryova and
Dobrodeyev said they were satisfied with Yeltsin's assurances that no
reforms of Russian television system concerning private channels will be
undertaken without consulting them.
Earlier this month, Yeltsin signed a decree transforming the VGTRK
television and radio company into a conglomerate which would bring
together virtually independent regional state broadcast companies -- and
the country's transmission system -- under single centralized
management. Privately operated channels worry the government intends to
raise transmission rates in order to finance the cash-strapped VGTRK at
"For some reason, you took fright at this," Yeltsin said. "I want to say
that we do not have anything special in mind here. ...In no way does it
mean that we want to take television into our hands."
Dobrodeyev said after the meeting that Yeltsin was "correct and
friendly" and assured television leaders that nothing will be done to
their channels behind their backs.
"When the question goes down to the bureaucrats' level, president's
words are of crucial importance," Dobrodeyev said.
He also said that from now on, television executives will get together
to discuss issues of common concern -- first and foremost transmission
Earlier this week, Yeltsin pledged his commitment to free speech, but
also criticized private media owners as "the worst censors," addressing
the World Congress of the International Press Institute, an
international association of media executives and leading journalists.
Russia's media moguls often use their stations and newspapers as weapons
in political or business warfare affecting their other interests.
One media owner was bitter about Yeltsin's criticism Thursday.
"Authorities used to blame journalists for the war in Chechnya, today
they blame them for miners' strikes," said media magnate Vladimir
Gusinsky, owner of NTV, recounting how authorities threatened to kill
him when NTV pioneered fair coverage of the 1994-96 war in Chechnya.
Gusinsky denied that he "interferes" with his media's content but said
that he "monitors" and "influences" them.
Speaking to a freedom forum seminar at the Moscow State University
School of Journalism, Gusinsky preached market-oriented media business
but was candid about his media empire's pro-Yeltsin position during the
1996 presidential campaign and said Russian journalists may sacrifice
their independence again in 2000.
"Journalists defended their right to practice their profession. Bias was
a form of such defense." Gusinsky said of 1996, when journalists feared
a loss of press freedom if Yeltsin's Communist opponent, Gennady
Zyuganov, won. He said he feared that in 2000 Russia may face another
sharp confrontation: "between national-fascists and all others."
Yet Gusinsky said that his media's relations with the government are
"not black and white": Sometimes he has to ask the government for
favors, sometimes the government has to ask him. "There are always
nuances," he said.
New York Times
28 May 1998
Market Anxiety in Russia
The world's financial markets have tumbled in the past two days, and worries
about the fate of Russia's Government and economy are one reason. The
turbulence, in turn, has further shaken an already wobbly Russian economy. As
Southeast Asian nations learned last year, this kind of economic chain
reaction can be difficult to reverse, but a crisis can be averted in Russia if
international investors and Russians themselves do not panic.
Russia's economic problems have worsened in recent weeks, but not by nearly
as much as the market squall would seem to indicate. Russian stock prices have
fallen sharply, oil revenue is declining because of low world prices and the
Kremlin is facing intense pressure to devalue the ruble, yet the overall state
of the economy has not changed greatly. What has changed is sentiment among
international investors. Sobered by the Indonesian crisis, investors are more
worried about risks, and Russia looks dicier to them than it did.
The new Russian Government, like the old one, is having trouble paying its
bills because it has difficulty collecting taxes. That reflects a situation
plaguing many Russian enterprises, which cannot come up with cash to pay their
suppliers and workers, who in turn have trouble meeting their obligations. All
these factors threaten to overwhelm previous accomplishments, including a
decline in inflation and a return to economic growth last year.
It is not in anyone's interest to see a collapse in Russia. The
International Monetary Fund, which has been weighing whether to release
additional funds in light of the Government's effort to bring down its budget
deficit, should do so. It may even need to provide additional support. At the
same time the demands from international investors yesterday for a large,
immediate Russian bailout should be viewed skeptically. The need is to keep
Russia's economy from collapsing, not to protect international investors.
The Russian Government must deal decisively with the economic problems. It
needs clear support from President Yeltsin and from Russian elites, some of
whom seem to have responded by trying to get their money out of Russia. No
economy can long endure interest rates of over 100 percent, as Russia now has,
and Russia's central bank reserves are dwindling. Moscow wants to avoid
devaluing its currency, but it will have no choice if other measures do not
It is unfortunate that the I.M.F. is lacking in resources at this important
time. That is because Congress has so far failed to provide the $18 billion
requested by the Clinton Administration for bailouts.
A majority of legislators think the money is needed, but it has become
embroiled in a fight over abortion. Congress should promptly put that fight
aside and approve the needed funds.
Russian Tax Authorities Burst Dream
May 28, 1998
By JUDITH INGRAM
CHUGUNY, Russia (AP) - It was a dream imported from America: a factory that
would create dozens of jobs and finance community needs, starting with
reconstruction of the rickety bridge connecting several villages with the only
hospital and school in the region.
With $280,000 in U.S. government aid, farmer Tatyana Timofeyeva built the
sausage plant on a plot of land she and her husband had received when they
left the kolkhoz, or collective farm.
Yet just two months after the new plant opened, tax inspectors arrived and
presented Timofeyeva with a bill that was even bigger than her grant. They
demanded $305,000 in taxes and penalties.
Timofeyeva - and the U.S. government - had understood that assistance to
Russia would not be taxed. So did former Premier Viktor Chernomyrdin, who co-
signed an agreement to that effect with Vice President Al Gore.
But the tax inspectors, under greater pressure than ever to fill the state's
empty coffers, see the issue quite differently. They have told Timofeyeva
repeatedly, in writing, that she must pay value-added tax on the cost of
To underline their point, they've frozen her bank accounts and brought her
firm to the brink of bankruptcy.
``The Americans gave money for developing agribusiness, not for filling up the
state budget,'' Timofeyeva protested.
Her dairy and meat-processing firm is still working, supplying milk and
sausages to the region, 300 miles southeast of Moscow. But the 52 employees
have had to take pay cuts, all the firm's transactions are in cash, and there
is no possibility to develop further.
Two cattle feeding stations, rebuilt on the U.S. grant, stand empty, prey to
pilferers who have helped themselves to windows and roofing. The sausage plant
is working at only 30 percent capacity. The local school's funding requests
for computers have been put on indefinite hold.
``At this point, we're just barely surviving,'' Timofeyeva said. ``It's like
being in a coma.''
Pressure from the tax authorities isn't ruining just individual entrepreneurs.
It's also taken a toll on international assistance to Russia, which totaled
more than $10 billion in humanitarian and technical aid from 20 countries and
10 international organizations from 1991 to 1997.
A major charity that has been feeding up to a half-million impoverished people
in Russia's Far East has been forced to shut down operations because tax
authorities insist on charging customs fees for the food donated by the U.S.
government. Other donors have had to abandon aid shipments impounded by
A firm providing technical assistance to farming communities in central Russia
has brought the tax inspectors to court, and won several rulings against them.
But the tax authorities, who pay nothing for the court cases, continue to
The problem has been compounded by the political sensitivity of assistance for
Russia, where the plunge from superpower to aid recipient has bit deeply into
In the first years after the Soviet collapse in 1991, the U.S. and other
governments scrambled to stem Russia's economic crisis and support private
enterprise. Because there was no legal framework for administering assistance,
each government found ad hoc solutions to get the aid flowing.
A U.S.-Russian agreement confirmed that assistance should not be taxed. But
the Russian parliament, which is dominated by Communists leery of Western aid,
never ratified the agreement.
In spite of communist reluctance, a bill providing tax exemptions for
assistance is now making its way through the parliament.
``No legislation is perfect, but we believe the draft ... is a positive
step,'' said Mark Ward, deputy director of the U.S. Agency for International
Assistance in Moscow.
Timofeyeva is skeptical that the new law would afford aid recipients any
protection. Every few months, the local newspaper prints a list of the
district's biggest debtors, noting that the state government cannot meet
salaries to its workers because entrepreneurs are not paying taxes. Timofeyeva
tops the list every time, provoking a series of telephone calls that range
from insulting to downright threatening.
``I had a perfect credit record, I always paid my taxes on time,'' Timofeyeva
said. ``It makes no sense that just because I accepted aid I should go
Berezovskiy Says Lebed Will be 'Dangerous' as President
MOSCOW, May 25 (Interfax)--CIS Executive Secretary Boris Berezovskiy
has said Gen. Aleksandr Lebed would be "extremely dangerous as the
president of Russia."
"I supported the idea of Lebed becoming the governor of Krasnoyarsk
territory, but on the other hand I find Lebed would be extremely dangerous
in the capacity of the president of Russia," Berezovskiy said Monday at a
world congress and the 47th general assembly of the International Press
Institute in Moscow.
"I think today we have four realistic alternatives in the political
arena: Lebed, (Moscow Mayor Yuriy) Luzhkov, (Communist leader Gennadiy)
Zyuganov and (President Boris) Yeltsin," Berezovskiy said.
"If the situation had developed the way it did and if there was no
Lebed, that is, if he disappeared today, there is a great probability that
we would come to presidential elections in 2000 with the choice we had in
1996: in 2000 we would have to choose between Yeltsin and Zyuganov," he
"If Yeltsin decided to run for president, Luzhkov would withdraw from
the race," Berezovskiy said.
Even if in 2000 the choice would be between Yeltsin and Zyuganov, the
situation would fundamentally differ from 1996 because "Zyuganov or whoever
represents the left-wing of our society in 2000" will significantly differ
from the 1996 Zyuganov, Berezovskiy said.
"In 1996 Zyuganov was not dangerous by himself; the radical left- wing
forces that stood behind him and that would inevitably seize power in the
event of his victory were dangerous," he said.
"I mean people like (Viktor) Anpilov, (Albert) Makashov and others,"
"It is absolutely evident that the left-wing opposition today has no
chances of remaining a practical force, if it does not move to the right,"
"It is evident (the left-wing opposition) will have to part with the
radical leftist forces, and in this sense it will have to represent a much
more constructive part of the Russian political spectrum than in 1996," he
"The choice between Zyuganov and Yeltsin in 2000 would have dangerous
results. That is why I thought a threat would be the best stimulus
activating all reasonable reform-minded forces," he said.
"The danger is clear. It emerged two years before the presidential
elections, not six months before as in 1996 when we came to our senses in
February in Davos and realized that Zyuganov would inevitably come to
power," Berezovskiy said.
"Two years remain for the progressive reform-minded forces of Russia
to concentrate their will and find the strength to nominate a true
candidate who would meet the interests of Russia in the next millennium,"
He said he would not name names, remarking that "it is absolutely
evident that such people exist and there is time to make these political
"The best investments capital can make today are investments in the
political stability of Russia," Berezovskiy said.
"The formation of the top echelon of political power in Russia is
nearing completion, and it is not as important as in the past which
particular party or movement will represent power in Russia in 2000," he
"In any case (this party) will be much less radical in its actions
than in 1996," he said.
Berezovskiy expressed the belief that "if we reach a fairly broad
consensus in parliamentary elections and the 2000 presidential elections,
significant economic growth may be expected during the following three to
five years," he said.