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Johnson's Russia List
31 May 1998
[Note from David Johnson:
1. Fred Weir on economic crisis.
2. AP: Russians Unaware of Economic Crisis.
3. Reuters: Russia's Chubais in U.S. for talks, not cash.\
4. The Sunday Times (UK): Mark Franchetti, Yeltsin's tax claim
rattles the new rich.
5. The Sunday Times (UK): Mark Franchetti reviews "The General
against the Kremlin" by Harold Elletson. (About Lebed).
6. Moscow Times: Yelena Bragina, No Growth's High Cost.
7. St. Petersburg Times editorial: For Creating Russia's Crisis,
Yeltsin Must Go.
8. RIA Novosti: IMPORTANT DATES OF RUSSIA'S ECONOMIC AND SOCIAL LIFE
IN JUNE 1998.
9. New York Times: Celestine Bohlen, Yeltsin Clashes With Network News.
10. VOA: Peter Heinlein on "THE CRISIS THAT WASN'T."
11. Reuters: Economist Unit reaffirms Russia's high risk rating.
12. Business Week: RUSSIA'S MESS GETS MESSIER.]
Date: Sat, 30 May 1998
For the Hindustan Times
From: Fred Weir in Moscow
MOSCOW (HT May 31) -- Russia is teetering on the brink of
economic collapse after a month that saw the Moscow stock market
lose almost half its value, interest rates rise to crippling
levels and growing pressure to devalue the beleaguered Russian
"We are in a very deep and serious financial crisis, and
there's no obvious way out," says Vilen Pervamotrov, an analyst
at the independent Institute of Market Problems in Moscow.
"At the heart of our troubles is the decline of industry in
Russia over the past ten years. Production has fallen by half,
and in such circumstances it's impossible to maintain financial
Foreign investment has been fleeing in recent weeks, in part
due to a general confidence loss in all emerging markets, but
also because many experts fear Russia will be the next country to
suffer an Indonesia-style meltdown.
Russia's stock exchange, which was the world's best
performing in 1997, is now officially the world's worst
performing stock market after crashing to its lowest level in two
Capital has also been fleeing the treasury bond market,
forcing the government to raise interest rates to a staggering
150 per cent last week in an effort to stave off devaluation of
So far panic selling of roubles has not affected the
population, who seem indifferent to the crisis. But analysts say
a general run on Russia's beleaguered currency is possible if
things don't improve in coming days -- a development that could
bring on a radical devaluation of the rouble and a wave of bank
Any devaluation of the rouble would strike hard at the
living standards of Russia's already impoverished population.
Much of the country's food and consumer goods are imported, and
hence prices would shoot up almost immediately.
"The government's options are very limited in this
situation," says Mr. Pervamotrov. "It can cut spending, raise
taxes or get a big bailout loan from the International Monetary
In an effort to improve the country's dismal rates of tax
collection, President Boris Yeltsin on Friday fired the head of
the tax service, Mr. Alexander Pochinok, and replaced him with a
tough-talking former Russian Finance Minister, Mr. Boris
But analysts say tax revenues are unlikely to improve as
long as Russia's industrial slump continues and world oil prices
-- export duties on oil amount to almost a quarter of the Russian
government's tax income -- remain low.
Mr. Yeltsin has also ordered radical cuts in state spending,
but this threatens to ignite new social upheavals among Russia's
chronically-unpaid workers, pensioners and students.
"There is already a wave of strikes among workers, which has
subsided somewhat for now, but if they squeeze the population
much more there could be an explosion," says Mr. Pervamotrov.
A big foreign bailout also seems unlikely, although the IMF
did release a previously-scheduled loan of $670-million last week
to help take the pressure off Russia's crumbling finances.
But the IMF has indicated it will not provide any new money,
which leaves Russia with very few options indeed.
"Basically the government needs about $10-billion in fresh
cash to save the rouble from collapse in the next month or two,"
says Mr. Pervomotrov. "If it doesn't arrive, we could be facing
some very bleak developments."
Russians Unaware of Economic Crisis
29 May 1998
By ANNA DOLGOV
MOSCOW (AP) - Even as government officials and investors battle to contain
Russia's financial crisis, many Muscovites admit they're unaware that the
markets are in a tailspin.
``What crisis?'' said retired Russian-language teacher Yevgenia Pionova, as
she walked along a rain-soaked Moscow street. ``I didn't even know about it.
This has no relation to my life.''
It was a typical response Thursday from many people, who appeared oblivious to
financial events despite extensive local media coverage. The government has
been struggling to maintain the value of the ruble at a time when Russian
financial markets are being deserted by frightened investors.
Many people seemed convinced that government and business leaders would sort
out the problem and that it would not hit the public. Nobody was rushing to
change rubles at foreign exchange points and bored clerks said business was
``The government is trying to keep the ruble stable,'' said 35-year-old
Aleksei Petrov, a government worker. ``I can't really tell how much they would
succeed - but personally, I think nothing will happen to the ruble.''
He laughed when asked if he thought the financial problems could lead to
protests or political unrest.
The government's biggest fear is that the ruble will collapse, sparking steep
price rises and affect all of the country's 147 million people. But even the
threat of inflation, which the government thinks it can control without a
bailout, didn't appear to cause much worry.
President Boris Yeltsin assured investors Thursday that the government would
not allow the crisis to spin out of control.
``I heard today that Yeltsin said (inflation) won't happen, that it's out of
the question,'' said an office worker in her mid-thirties, who only gave her
first name, Tatyana. ``We ought to believe it.''
Others said they placed their trust in the country's banks, reasoning that the
big financiers would resolve the crisis to save their own interests.
``The banks rule the country to a bigger extent than the Kremlin does,'' said
Andrei Krivtsov, an English-language teacher.
Years of economic uncertainty have prompted most Russians to keep their
savings in foreign currencies, with U.S. dollars being a clear favorite. And
on Thursday, most people appeared convinced that even if they stand to lose
something through inflation, it wouldn't be much.
``The crisis will hardly have any reflection on me personally,'' Krivtsov
said. ``I try to keep my money in (foreign) currency.''
The only alarmist remarks came from communists, in the legislature and on the
``There will be a civil war,'' said a gruff-face retiree who only gave his
first name, Mikhail.
But no, he hadn't heard about the market crisis, he said.
Russia's Chubais in U.S. for talks, not cash
By Adam Entous
WASHINGTON, May 29 (Reuters) - Former Russian reform chief Anatoly Chubais
held top-level meetings in Washington on Friday, but U.S. officials said he
did not ask for extra funds to keep Russia from descending into economic
The visit of Chubais, who was recently ousted from the government but remains
an influential figure in Russia, came as President Bill Clinton, German
Chancellor Helmut Kohl and the International Monetary Fund all rallied behind
Russia's embattled government, praising the emergency austerity plans it has
drafted to deal with a severe financial crisis.
Clinton promised Washington would back an IMF staff recommendation that Russia
be offered a $670 million installment on a $9.2 billion loan. He added that
Russia's latest economic plan represented a ``solid strategy'' for tax reform.
State Department spokesman James Rubin told a briefing he was encouraged by
Russia's reform efforts and Chubais had not asked for extra help.
``My understanding is that in his meetings with the administration, Mr.
Chubais did not ask for such an additional package,'' Rubin said.
A spokeswoman for the U.S. Treasury Department said Chubais had not asked for
new cash during meetings with Treasury Secretary Robert Rubin and his deputy
Chubais, widely regarded as the father of Russia's economic reforms in the
early 1990s, left the government two months ago and now heads state-owned
electricity firm UES. His trip was initially dubbed a private visit.
Sources close to the Russian Embassy said Chubais' trip to the United States
had been planned for some time and he did not appear to have been briefed by
Russian President Boris Yeltsin.
Still, the talks fueled speculation that Chubais might be on a mission to
solicit funding for the new government, headed by little-known former Energy
Minister Sergei Kiriyenko.
The Russian government faces deep problems, in part as a result of Asia's
financial malaise and also because of concern about the Russian economy, which
is plagued by nonpayment and a dismal record of tax collection.
On Friday, Chubais held talks with World Bank President James Wolfensohn and
the IMF's First Deputy Managing Director Stanley Fischer.
Wolfensohn and Chubais ``exchanged views'' about the market turmoil, a World
Bank spokeswoman said. She said the bank had no plans to provide emergency
loans to Moscow. ``There is no such major emergency package under
consideration by the bank.''
The IMF had no comment on Chubais' meeting with Fischer.
A U.S. official said Chubais would also discuss economic issues with State
The IMF's top regional expert, John Odling-Smee, told reporters in Moscow that
Russia did not need a short-term IMF stabilization loan to help resolve its
Analysts agreed with his assessment, saying Russia's greatest need was for
political and economic reform to help attract private investors, rather than
for emergency funds.
``What Russia needs more than the support of outside governments is the
support of world markets,'' said Richard Burt, a senior adviser and Russia
expert at the Center for Strategic and International Studies.
``The existing support of the IMF is enough. I'm not sure any emergency money
would be very well spent at the moment,'' he said, adding that improving the
rule of law and creating a safer climate for international investors were
crucial if Russia was to overcome its present woes.
Odling-Smee said he expected Russia to receive its next installment of IMF
cash after an executive board meeting to be held by the end of June.
Payout of the loan has been delayed on several occasions because the IMF is
worried about low tax collection.
Odling-Smee said Russia had held no formal negotiations with the IMF on extra
funds beyond the coming installment.
But Moscow officials had asked about the nature of the fund's supplementary
reserve facility, a special mechanism introduced in 1997 to provide short-term
funding for countries facing unexpected demands for cash.
Loans from this facility carry higher interest rates than normal IMF loans and
run for a shorter period.
The latest crisis has led to market worries that Russian official reserves are
being depleted. Russia's public debt is mostly in the form of short-term
Treasury bills. T-bill yields have soared in recent weeks, stretching the
government's ability to service its debt.
The Sunday Times (UK)
May 31, 1998
[for personal use only]
Yeltsin's tax claim rattles the new rich
by Mark Franchetti, Moscow
THE richest men in Russia will answer a summons to the Kremlin this week
to rescue their country from a financial crisis. They may strut in
looking like beneficent heroes, but as the country's top bankers and
industrialists take their seats in front of Boris Yeltsin to discuss
ways for the government to raise tax revenue, they will be shifting
uneasily in their gilt chairs.
Rem Vyakhirev, head of Gazprom, one of the world's largest industrial
groups, is certain to be asked why the gas giant owes the depleted state
coffers $600m (£368m) in unpaid taxes. Vagid Alekperov, the president of
Lukoil, one of Russia's richest oil companies, and Anatoly Chubais, the
former deputy prime minister who now heads UES, the Russian electricity
group, may need to explain why their companies have failed to pay
Following one of Russia's worst financial crises yet, which sent the
country's markets tumbling, Yeltsin declared war on tax evasion last
week in a desperate attempt to save the name of market reform.
He sacked Alexander Pochinok, the head of the state taxation service,
whom he blamed for failing to collect enough revenues, and replaced him
with Boris Fyodorov, a tough former finance minister. Other powerful
heads are expected to roll.
"This time Yeltsin seems serious," said Mikhail Berger, editor of
Sevodnya, the Russian daily. "He has often gone on about tax dodgers,
but the psychological pressure is too great this time. There are a lot
of people with big cars, private planes and luxury flats out there who
need to worry."
The failure to collect enough tax is at the heart of Russia's financial
woes. Last year the government brought in only 50% of the money it was
due. Punitive and complex, the tax codes have been widely ignored in a
country where cheating the state became a national tradition during the
Under Viktor Chernomyrdin, the former prime minister sacked by Yeltsin
last March after five years at the helm, the Kremlin often turned a
blind eye to powerful financial oligarchs who used their political
connections to avoid paying tax. Chernomyrdin himself had been head of
Gazprom. Boris Berezovsky, the tycoon whose oil, media and car empire is
estimated at $3 billion, last year claimed his assets were worth less
The resultant loss of revenue has punched massive holes in the state
budget, making it impossible for the government to pay state workers,
especially doctors, teachers and miners, who have not received their
salaries for months. When angry miners came out in force to protest two
weeks ago, blocking the Trans-Siberian and other railways, they placed
the economy under further strain.
A decree signed by Yeltsin gives the tax police extra powers, including
the right to seize and sell assets of companies unable or unwilling to
pay their taxes. In an apparent first move, officers raided the offices
of at least two foreign banks. Russian show business stars and prominent
sports personalities are also expected to be among the early targets.
Sergei Yastrzhembsky, Yeltsin's spokesman, said the government intended
to squeeze at least five billion roubles - $800m - from about 20
corporate tax debtors by the end of next month. "The tax police have now
received an effective mechanism for dealing with them," he said.
Yeltsin's measures, coupled with a public commitment not to devalue the
rouble, which would inevitably provoke massive price rises, brought some
relief: the International Monetary Fund agreed to release a much-needed
$670m tranche of a $9.2 billion loan, which had been withheld because of
concern at Russia's faltering efforts to collect more revenue through
Last week the government raised interest rates to 150%. Facing his first
real test since his surprise appointment by Yeltsin in March, Sergei
Kiriyenko, 35, the prime minister, announced a plan to cut spending by
8% and to slash the bureaucracy. But Russia's troubles are far from
over. Its privatisation programme, an important source of funds, ran
into serious problems when the planned auction of Rosneft, the
state-owned oil company, failed after nobody bid at a price of $2.1
billion. A new date and a lower starting price of $1.75 billion are
The economy's structural problems also remain acute: productivity is
extremely low by western standards and much equipment is hopelessly
The stakes could not be higher for Yeltsin, who could yet stand for a
third term in 2000, but is said to be increasingly preoccupied with his
legacy - and whether he will go down in history as the father of
Russia's market economy. Last week's crisis threatened to destroy what
analysts say are his only economic achievements: low inflation and a
The Sunday Times (UK)
May 31, 1998
[for personal use only]
The General against the Kremlin
by Harold Elletson
Little, Brown £17.50 pp352
By Mark Franchetti
Alexander Lebed, the gruff general and former paratrooper who wants to
be Russia's next president, was on his first tour in Afghanistan when he
was appointed commander of an ill-disciplined, demoralised Soviet
airborne battalion. The troops were bored and lived in appalling
conditions; "dedovshina", the brutal treatment of recruits, was
Until, that is, Lebed, a former boxer, heard that 11 senior officers had
severely mistreated a soldier who was having difficulties with his
physical exercises. The punishment was vintage Lebed: he lined up all 11
and punched them one by one in the face. The ringleader was unconscious
before he hit the ground. From then on, Lebed's men looked to him with
admiration and doglike loyalty. Within two weeks, his battalion was
deemed fit for combat.
As Harold Elletson writes: "He is deeply concerned about the welfare of
his men, is held in great respect by them and can restore order in a
crisis, but he is also insubordinate, quick to take offence and quite
prepared to use violence to get his way."
As his title indicates, Elletson sets out to portray Lebed as an
independent-minded outsider. Even as a child, we are told, he was
impatient, restless, prone to fighting and afraid of nobody. Sent to
Baku in Azerbaijan, during the days of Mikhail Gorbachev's glasnost, to
quell ethnic unrest, Lebed refused to obey a general's order to attack a
crowd of peaceful demonstrators. In Moldova, he became a local hero and
the most popular man in the army when he used force to prevent a local
conflict between Russians and ethnic Romanians from escalating into war.
Elletson reinforces Lebed's self-image as a man who, valuing his honour
above all else, is locked in conflict with the Kremlin: a man of basic
integrity with an old-fashioned officer's honour, struggling against
corrupt Kremlin intrigues. This is the image that won Lebed nearly 15%
of the vote in the last Russian presidential elections, turning him into
a worldwide celebrity and the Kremlin's kingmaker.
To his credit, Lebed publicly called for the resignation of Pavel
Grachev, the Russian defence minister until 1996, and widely seen as a
symbol of the massive corruption that has plagued the Russian armed
forces. In addition, as secretary of the Security Council, he ended
Russia's disastrous war against Chechnya, earning enormous respect
amongst Russians and Chechens alike.
On the debit side, it is now widely known that Lebed accepted money,
staff, television airtime and much-needed advice from Yeltsin's campaign
team during the elections in a successful strategy to take votes away
from the communists. In addition, Lebed has not shied away from
nurturing close relations with two of the most sinister masters of
Kremlin intrigue: Alexander Korzhakov, Yeltsin's former best friend and
bodyguard, and Boris Berezovsky, a controversial media and oil tycoon.
Despite Lebed's outsider image, the reality of Russian politics is that,
without such financial backers, a presidential candidate can not
Elletson's book comes at just such a time for Lebed who, two weeks ago,
made an impressive comeback from the political wilderness to become
governor of Krasnoyarsk, Russia's second largest region. He is now
well-placed to mount a serious bid for the presidency.
That prospect fills many in the West with a horror that, according to
Elletson, is not justified. The author rightly denounces the western
image of Boris Yeltsin the democrat as a myth. Modern Russia is not a
democracy and the western labels "liberal" vs "autocrat" are often
tragically misplaced. But the jury is still out on Lebed. To the
disappointment of many supporters, after the first round of elections
Lebed handed his share of the votes on a silver plate to Yeltsin in
return for a Kremlin job. There is enough evidence to cast serious doubt
on the image of Lebed as the general against the Kremlin. The title
lacks a question mark.
•Mark Franchetti is the Moscow correspondent of The Sunday Times
May 30, 1998
No Growth's High Cost
By Yelena Bragina
Yelena Bragina is a leading scholar at the Institute of World Economy of
the Russian Academy of Sciences. She contributed this comment to The
The normally fine month of May has turned out to be unusually difficult
for Russia this year. The new government did not receive the 100 days of
breathing space that it might have expected, and political and economic
fires broke out almost simultaneously -- the miners' strike with demands
to settle huge wage arrears and the resulting paralysis of the country's
railroads; the armed uprising in Dagestan; the defeat of the party of
power in recent regional gubernatorial elections; and the motion in the
State Duma to impeach President Boris Yeltsin. In short, these events
testify to a weakening of the federal authorities and their declining
capacity for managing the levers of government.
The drop in the stock market on May 18 was thus just a matter of time.
In economics, everything is closely linked. The stock and treasury-bill
markets are only a part of the economy. If the economy is weak, then the
stock market becomes more vulnerable. The instability of the market
became clear last October when share quotations fell by 25 percent to 30
percent, which many experts considered to be the result of the Asian
financial crisis. The markets did not recover from their unhealthy
state, which was shown by the slumps in November and January. Stock
prices bounced back, but the market remained slack. The collapse in May
was the most deep. The prices of Russia's most stable companies, the
so-called blue chips, fell by 15 percent to 20 percent, as did state
T-bills soon after.
A good many factors are involved in the stock market's recent collapse.
Foremost among them are the country's internal economic problems,
including nonpayments, the growing budget arrears, the increase in
government debt -- which is about 50 percent of gross domestic product
-- and the drawn-out government crisis. The fall in world oil prices and
other raw materials that Russia exports also contributed to the crash.
Against this background, what really set off the crisis was the decision
in May by both houses of parliament to override the president's veto of
a bill that limited the share foreigners could own in energy companies
to 25 percent -- even though 30 percent of Unified Energy Systems, for
example, belonged to foreigners on a legal basis. Once again, active and
perhaps future foreign investors were given to understand that their
position was unstable. They responded by selling stocks. Head of the
Federal Securities Commission, Dmitry Vasilyev, expressed the view that
70 percent of the Russian stock-market crisis was caused by this law.
The increased unpredictability and uncertainty spurred foreign investors
to transfer some $14 billion to safer harbors. This also had an
immediate effect on the behavior of stock brokers, who played on the
bear market.In order to withstand the blow and prevent a sharp fall in
the ruble rate, the Russian Central Bank had spent about $500 million in
May out of its reserves, which are now at $14.5 billion. On May 27, with
the further drop in quotations, the Central Bank took the unprecedented
step of increasing the refinancing rate to 150 percent, trying to
prevent the devaluation of the national currency.
The measures were necessary given the difficult situation in the
financial sector, but they have lowered the possibility for economic
growth. In 1997, when the rate was at its lowest, credits of commercial
banks to the real sector grew. The current refinancing rate makes the
cost of investing in production prohibitive. This means that short-term
speculative operations will prevail on the stock market. The sad
experience of Indonesia and other Asian countries should be mentioned.
There, short-term borrowing of the private sector, which reached more
than $60 billion, caused bank failures and led to a crisis of the whole
In Russia, the government is the main borrower of short-term credits.
The stock-market crisis was also influenced by a drop in interest in
government treasury bills. The Finance Ministry in May could not fully
float another series of government savings bonds. Moreover, ordinary
Russians continue to have a more than cool attitude toward stocks and
bonds. Instead, they maintain their interest in the dollar.
What are the prospects for the Russian stock market? The heads of the
Central Bankand Finance Ministry say the situation is under control.
Their joint emergency measures have achieved their aims and somewhat
calmed the situation. Most experts believe that the threat of
devaluation of the ruble has receded, giving the government a little
time for maneuver. Central Bank chief Sergei Dubinin has even advised
that when you hear someone talk about devaluing the ruble, spit in his
eye. You can spit of course, but there is a sad precedent in which one
of Dubinin's predecessors, Viktor Gerashchenko, at the start of the
'90s, swore that there would be no changes with the ruble and offered to
give up his hand as a security. Gerashchenko kept his hand, but the
money was soon changed at a panicked pace. I would hope that this time
the ruble remains intact and that I won't have to spit.
But the root causes that are sapping the health of Russia's stock market
have not been removed. The main one is the lack of economic growth,
which cannot be accomplished given the extreme measures that the
government has been obliged to carry out in order to extinguish the most
dangerous seats of conflict in the country's economy. The government has
taken steps against the crisis, but it will take time for them to be
carried out. In a weak economy, every consecutive collapse, especially
of the stock market, has more and more dangerous long-term consequences.
Foreign investment become all the more cautious and costly, and
extraordinary measures become less and less effective.
St. Petersburg Times
29 May 1998
For Creating Russia's Crisis, Yeltsin Must Go
RUSSIA desperately needs a large injection of foreign cash to save what
is left of its economy. The massive rise in interest rates that has
stemmed the tide cannot be anything other than a stop gap measure. It
has already helped set the scene for an economic contraction for 1998,
the year when Russia was meant to experience real growth for the first
time since the collapse of the Soviet Union.
The World Bank and/or the International Monetary Fund should give Russia
the cash it needs, but there must be a heavy price tag attached.
President Boris Yeltsin - who has brought this country to the brink of
economic disaster - must resign.
Yeltsin - with his haphazard leadership of a regime dependent on crony
capitalists - has appallingly mismanaged a nation with huge natural
wealth and a highly skilled, well-educated population - many of whom,
from kiosk owners to media moguls, have discovered a surprising flair
for entrepreneurial activity.
What Russia needs, like any other nation, is sustainable economic
growth. But while a stable currency and low inflation - touted as the
Yeltsin regime's two great achievements - are perhaps necessary
conditions for the creation of prosperity, they alone are clearly not
sufficient to do the job. Yeltsin's other "achievements" have caused the
crisis of confidence that was behind this week's financial meltdown.
Ordinary citizens across Russia are owed more than $10 billion in back
wages by the state and by private companies - many of which are owed
large amounts of money by the state, especially by the Defense Ministry.
The tax code remains an unrestructured mess. The government, starved of
funds, has responded time and again by turning the tax police into a
tool of terror, a tactic that has had no significant impact on
collection rates but has exacerbated the "Wild East" flavor of a Russian
business environment that is one of the world's most corrupt.
While the official economy is bogged down by layer upon layer of
bureaucracy, a thriving black economy sucks cash out of the country. As
infrastructure crumbles daily - residents are killed by falling
balconies or pavements that turn into boiling sinkholes - Mercedes and
mobile phones multiply and hundreds of billions of dollars leave the
country or are stuffed under mattresses.
The Economist last Friday estimated that $200 billion had left Russia in
the past decade, while a report commissioned by the Central Bank found
that as of October 1996, Russian citizens held about $150 billion worth
of savings - $53.5 billion of which was held in U.S. dollars.
If a relatively small fraction of these hoarded billions was invested in
real, productive activity, Russia would have no need for a continual
inflow of international alms. But as long as Yeltsin stays in office,
any sane Russian will be doing his or her best to get their hands on
part of those billions being pumped in from abroad and pump them
straight back out again.
The time when Yeltsin was a credible guarantor of stability and
development is long gone. If Indonesia's admittedly imperfect
constitution could provide a stable transition to a credible democratic
regime, then Russia's slightly less imperfect system can surely do the
Russia can only move ahead under a credible, new leader. The old,
discredited autocrat must go.
IMPORTANT DATES OF RUSSIA'S ECONOMIC AND SOCIAL LIFE
IN JUNE, 1998
//MAY 29, 1998 /RIA NOVOSTI/ --
##June 1 -- 65 years ago in 1933 the Chelyabinsk tractor
factory was put into commission;
June 1 -- 70 years ago in 1928 the First All-Union
Congress of Collective farms was held;
June 18 -- 5 years ago in 1993 the Customs Code of the
Russian Federation was approved;
June 20 -- 65 years ago in 1933 the channel connecting
the Baltic and Whiet Seas was opened;
June 20 -- 80 years ago in 1918 the Council of People's
Commissars passed the decree on nationalisation of the oil
sector, introducing the state monopoly over trade of oil and
June 27 -- A year ago Russia, Ukraine and Byelorussia
established the Union of Agrarians, known in Russia as
June 28 -- 80 years ago in 1918 the Council of People's
Commissars passed the decree on nationalisation of major
industrial sectors railroad companies of the country.
New York Times
May 31, 1998
[for personal use only]
Yeltsin Clashes With Network News
By CELESTINE BOHLEN
MOSCOW -- With a crash on financial markets, floods in Siberia and a
miners' protest that blocked the country's main railroad, Russia has had
a lot of bad news lately. Too much, according to President Boris
Yeltsin, who called in the directors of three national television
channels last week to complain about negative coverage.
Armed with reports documenting the impact of news broadcasts on the
miners' weeklong sit-in on the Trans-Siberian railroad, Yeltsin said he
was not trying to dictate how Russia's media should cover events.
"We have the right to -- I don't want to use the word 'demand' -- we
have the right to ask you to carry out state policy on television," he
said. "That's all we want, no more."
The president's comments came at a sensitive moment. This month the
Russian government has started putting together a state company that
will coordinate the operations of state-owned television and radio
stations, regional as well as national, and also manage the sites that
transmit private channels' broadcasts.
The new holding company was quickly seen by Russia's powerful private
media groups as the Kremlin's attempt to regain its old pride of place
on the country's media markets. Even its name -- the All State
Television and Radio Company -- smacks of the Soviet Union's
all-smothering media organization, Gosteleradio.
Oleg Dobrodeyev is general director of NTV, the only wholly private
television station represented at the meeting. As he put it, "Given that
we are dependent on a great number of technical factors -- from access
to airwaves to office space we rent from the state television center --
then the creation of such a state stronghold can't help but disturb
people who work in television."
Yeltsin's meeting Thursday with the television officials -- held before
television cameras -- was supposed to reassure them that this was not
the case. "We don't want to take television into our own hands," he said
at one point.
But his listeners were well aware of the strategic importance of
television in Russian elections during the next two years. They focused
on comments that sounded ever so much like a Soviet boss of old, looking
for ways to control bad news.
Dobrodeyev said of Yeltsin, "He is convinced, as are others in
authority, that the miners' actions were exaggerated by the mass media,
television in particular." He also said the president's briefing papers
resembled KGB reports of old. "I said that in a situation when the
country has been cut in half by the miners' actions, to pretend that
nothing is happening would be like pouring oil on flames."
The debate over control of Russian television burst into the open last
week all across Moscow. Taking opportunity of the audience provided by
the International Press Institute's annual congress, held here for the
first time, Russian journalists and politicians lined up by the podium
to complain, with each side accusing the other of manipulating
Xenia Ponomaryova heads ORT, a channel half-owned by the government but
effectively controlled by Boris Berezovsky, a minority shareholder and
one of Russia's powerful business tycoons. She called the station's
relations with the government absurd.
"I have said to the people in power, 'Gentlemen, if this channel is a
political instrument for you, then you should take care of it, nurture
it, give it money,"' she said. "'If you are not going to help, then
At a time when Russia's political and business interests have divided up
television stations and newspapers among themselves, the debate quickly
"Television in Russia today is more than television," said Dob-rodeyev,
reminding his audience how the media had sacrificed objectivity in 1996
when they supported Yeltsin in his contest against a Communist
candidate. "Then it was not just an election of a president. It was a
more serious choice, involving the fate of the country."
It has been seven years since the old Soviet system of control and
censorship began to be dismantled, with the appearance in 1991 of a news
program, Vesti. It provided viewers with fresh faces and real
information, and for the first time it provided the government's stodgy,
tight-lipped nightly news show, Vremya, with competition.
But old habits linger, even after the collapse of Communism, as NTV
learned after its unvarnished version of the Kremlin's brutal efforts to
suppress separatists in Chechnya.
"In 1994 and 1995," said Vladimir Gusinsky, "NTV spoke the truth about
the war in Chechnya, and journalists on our channel were faced with
criminal charges." Gusinsky's business empire controls NTV and other
media outlets. He spoke this week at a different forum, a panel on press
freedom held at Moscow State University. "Today, they are blaming
journalists for striking miners. Always, whenever the authorities are in
trouble, they blame those who talk about it."
Some Russian analysts take a benign view of the government's new
company, which they say will provide balance to private media empires
that have not been shy about promoting their own interests.
"The state was not the first to create an information empire," noted
Nikolai Petrov, an analyst at the Carnegie Endowment for International
Peace in Moscow. "In this sense, the government's move is an attempt not
to cede control to the oligarchs."
Nor does anybody believe -- for all of Yeltsin's nostalgia for the kind
of good news that was Soviet nightly fare -- that there is any danger of
turning back the clock.
But skepticism about television -- whether influenced by the government
or by private interests -- has become ingrained in the minds of Russian
viewers. At a television awards ceremony last weekend, Russia's favorite
stand-up comedian, Mikhail Zhanetsky, poked fun at television's top
opinion makers who, he said, "tell us every week what we think is going
to happen to us.
"Just because ratings are high doesn't mean we like what we see," he
added. "It just means we are watching. If my apartment had only one
window, then it too would have a high rating, higher than the stove, the
door or the toilet. I will only look at the window, but then again, what
will I see?"
Voice of America
INTRO: RUSSIA IS BEGINNING THIS FINANCIAL WEEK ON A CAUTIOUS,
BUT OPTIMISTIC NOTE. AFTER DAYS IN WHICH PANIC GRIPPED THE
MARKETS, THE MOOD SEEMS TO BE CHANGING. VOA MOSCOW CORRESPONDENT
PETER HEINLEIN REPORTS MANY ANALYSTS ARE CALLING RUSSIA'S LATEST
ECONOMIC DOWNTURN "THE CRISIS THAT WASN'T."
TEXT: ON THE FACE OF IT, THE FINANCIAL HEADLINES COMING FROM
MOSCOW OVER THE PAST WEEK WERE FRIGHTENING. THE STOCK MARKET HAD
LOST 30-PERCENT OF ITS VALUE SINCE THE BEGINNING OF MAY.
THE BATTERED RUSSIAN RUBLE ALSO WEAKENED IN THE FACE OF SEVERE
PRESSURE FROM SPECULATORS, FORCING THE GOVERNMENT TO TRIPLE ITS
MAIN INTEREST RATE FROM 50-PERCENT TO 150-PERCENT.
IT SEEMED THERE WAS NOTHING THE GOVERNMENT COULD DO TO STOP THE
MASS EXODUS OF PANICKY INVESTORS.
FINALLY, TOWARD THE END OF THE WEEK, THE MOOD BEGAN TO CHANGE, AS
PRESIDENT CLINTON, GERMAN CHANCELLOR HELMUT KOHL AND THE
INTERNATIONAL MONETARY FUND ALL RALLIED BEHIND THE GOVERNMENT,
PRAISING THE EMERGENCY AUSTERITY PLANS IT DRAFTED.
LOOKING BACK ON THE WEEK, IT IS EASY TO UNDERSTAND HOW FEARS
SPIRALED OUT OF CONTROL. RUSSIA'S MARKET ECONOMY IS, AFTER ALL,
STILL IN AN EARLY -- AND FRAGILE -- STAGE OF DEVELOPMENT.
BUT AS EUROPEAN UNION ECONOMIST RORY MC FARQUHAR POINTS OUT, THE
FUNDAMENTALS ARE IMPROVING.
///MC FARQUHAR ACT///
RUSSIA'S ECONOMY IS NOT IN TROUBLE. RUSSIA IS FACING A
FINANCIAL PANIC. BUT IT IS VERY DISCONNECTED FROM THE UNDERLYING
ECONOMIC SITUATION, WHICH IN FACT IS LOOKING BETTER THAN IT HAS
BEEN FOR SOME TIME.
MR. MC FARQUHAR IS AMONG MANY ANALYSTS WHO SAY THE RUBLE IS STILL
VULNERABLE TO ANOTHER DEVALUATION LIKE THE ONES EARLIER THIS
DECADE THAT WIPED OUT THE SAVINGS OF MILLIONS OF ORDINARY
ANOTHER RUSSIA-WATCHER, MOSCOW-BASED ATTORNEY BRUCE BEAN, SAYS IT
WILL TAKE AT LEAST A GENERATION BEFORE RUSSIA CAN ACHIEVE
WESTERN-STYLE PROSPERITY, EVEN IF ALL GOES WELL. BUT MR. BEAN,
PRESIDENT OF THE AMERICAN CHAMBER OF COMMERCE IN MOSCOW, SAYS THE
WEST HAS TOO BIG A STAKE IN RUSSIA TO ALLOW IT TO FAIL.
RUSSIA WAS A SUPERPOWER, IT WILL BE A SUPERPOWER. IT'LL BE AN
ECONOMIC SUPERPOWER. BUT IT TOOK US 200 YEARS TO GET OUR ECONOMY
WHERE IT IS, THESE GUYS HAVE HAD MAYBE SIX YEARS.
MANY ANALYSTS SAY STEADY BACKING FROM THE INTERNATIONAL COMMUNITY
IS THE KEY TO RUSSIA'S SUCCESS AS IT BECOMES MORE TIGHTLY
INTEGRATED INTO THE WORLD ECONOMY.
THE LATEST BOUT OF UNCERTAINTY WAS TRIGGERED AT LEAST IN PART BY
THE I-M-F'S HESITATION IN APPROVING ITS NEXT LOAN INSTALLMENT.
IN THE SHORT TERM, RUSSIA NEEDS A BOOST IN ITS HARD CURRENCY
RESERVES, WHICH AT THE END OF LAST WEEK DIPPED TO A WORRISOME
LEVEL OF AROUND 14-BILLION DOLLARS.
APPARENTLY WITH THIS IN MIND, PRESIDENT BORIS YELTSIN DISPATCHED
FORMER ECONOMIC REFORM CHIEF ANATOLY CHUBAIS TO WASHINGTON FOR
TALKS WITH SENIOR OFFICIALS OF THE I-M-F, THE WORLD BANK, AND THE
CLINTON ADMINISTRATION. MR. CHUBAIS, CONSIDERED THE ARCHITECT OF
RUSSIA'S REFORMS, IS KNOWN FOR HIS STRONG TIES TO THE
INTERNATIONAL FINANCIAL COMMUNITY.
IN RETROSPECT, ANALYSTS SAY EVENTS OF THE PAST WEEK -- OR MONTH
-- DO NOT CONSTITUTE A CRISIS. THE ECONOMY APPEARS NO WORSE
THAN IT WAS SIX WEEKS, OR SIX MONTHS AGO. BUT AS WITH ANY
ECONOMY IN TRANSITION, IT IS FRAGILE, AND THERE IS ALWAYS A RISK
THAT A TEMPORARY DOWNTURN CAN TRIGGER PANIC, AND A FULL-FLEDGED
Economist Unit reaffirms Russia's high risk rating
LONDON, May 29 (Reuters) - Russia's vulnerability to
downswings in emerging market sentiment has yet again been
exposed, the Economist Intelligence Unit (EIU) said in a
statement on Friday.
"The spillover from Asian instability was the occasion for a
Russian crisis; the cause was the deep seated problems of
Russia's economy and polity," the EIU said.
The EIU said the latest round of financial turmoil in May --
the third and most serious affecting Russia since October 1997
-- had underlined the reasons for the high risk score the
London-based unit has assigned to Russia.
In its latest country risk report the EIU reaffirmed
Russia's risk rating at D (on a scale of A to E), with its
overall risk score deteriorating from 66 to 68 (on a scale of 0
"Even if the rouble survives the latest round of pressures,
Russia's reliance on primary exports and its dependence on
foreign funding of its budget imbalance will make it highly
vulnerable to external shocks for the foreseeable future," said
Laza Kekic, the EIU's director for Transition Economies.
The EIU said its rating of Russia had been "considerably and
consistently below the ratings awarded by others," adding that
Russia's fiscal and financial fragility had been exacerbated by
the oil price slump and increased political uncertainty.
The current account is forecast to swing into a deficit of
$5.5 billion in 1998, and foreign reserves are unlikely to be
restored to comfortable levels until 1999 at the earliest, the
The placing of Tokobank, one of the country's 20 largest
banks, under central bank administration confirmed signs of
stress in the exposed banking sector, it added.
"(Tokobank) has bought billions of dollars worth of Russian
government securities with money borrowed abroad and it is
uncertain whether Western banks will refinance these loans," the
ECONOMIC FORECAST SUMMARY 1997 1998
REAL GDP (% CHANGE) 0.4 0.5
CONSUMER PRICES (%CHANGE; AVE) 14.6 8.8
CURRENT ACCOUNT ($ BLN)
GOODS EXPORTS FOB 88.7 80.8
GOODS IMPORTS FOB -71.4 -72.4
TRADE BALANCE 17.3 8.4
CURRENT ACCOUNT 3.3 -5.5
EXTERNAL DEBT 131.7 139.8
DEBT SERVICE RATIO (%) 8.9 11.7
Business Week: June 8, 1998
International Outlook: GLOBAL WRAPUP
RUSSIA'S MESS GETS MESSIER
Russia plunged deeper into economic crisis on May 27 as a series of financial
blows rocked markets. The Central Bank tripled interest rates, to 150%, in a
bid to reassure investors and head off a run on the ruble. President Boris N.
Yeltsin's increasingly desperate administration ordered oil companies to cough
up millions of dollars in back taxes. But as analysts called for an
international rescue package to stop the rot, the International Monetary Fund
was holding up a $670 million payment due to Russia under a $9.4 billion loan.
Near panic reigned in Moscow financial markets as the government's funding
woes worsened. In one shock, the auction of a 75% stake in state-owned oil
company Rosneft failed to draw a single bid at the $2.1 billion minimum.
Moscow set a 25% premium over the $1.6 billion to $1.7 billion valuation made
by Dresdner Kleinwort Benson. Later, it said it would be ready to accept a
lower price at another auction to close in mid-July.
But the government is struggling to raise cash and service domestic debt on
a regular basis. For the third straight week, its Treasury-bill auction failed
to raise enough to roll over about $750 million of maturing debt. The Finance
Ministry said it had to buy two-thirds of the $500 million of bills sold.
Russia's public finances are now in a vicious downward circle. The
government can't collect enough taxes or cut spending fast enough to meet
conditions on its existing IMF package. That holds up loan installments that
could steady the situation and creates an even wider financing gulf to bridge.
EDITED BY JOHN TEMPLEMAN