June 4, 1998   
This Date's Issues: 2206  •2207

Johnson's Russia List
#2207
4 June 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Yeltsin May Seek 3rd Term.
2. Interfax: Yeltsin's Reelection In 2000 Remains Open Question - Aide.
3. Washington Post: letter from Dmitri Glinski Vassiliev, Russian
'Reform' Is 
a Joke. (Response to Michael McFaul).
4. Paul Amery: Re: Georgy Viren - “Russia to become a confederation."
5. David Daly A financial explanation of the recent Russian Stock Market
Collapse.
6. Moscow Times editorial: Solzhenitsyn Loses Way in New Russia.
7. RIA Novosti: REAL ECONOMIC SECTOR'S ACCUMULATED FOREIGN 
CAPITAL REACHES $21.8 BILLION OVER 7 YEARS.
8. The Times (UK): Anatole Kaletsky, My Moscow retreat. Revisiting
post-Soviet Russia prompts the question: crisis - what crisis?
9. New York Times: Jeffrey Sachs, Rule of the Ruble.
10. Argumenty i Fakty: LEBED AND YAVLINSKY BREAKING AWAY FROM THE 
PACK. (Poll).
11. Reuters: New Tax Chief Gets Tough with Tax Dodgers.
12. IntellectualCapital.com: Sergey Markov, Is a Russian Storm on the
Horizon?
13. Interfax: Nemtsov Says Budget Deficit Caused Russian Financial Crisis ] 

*********

#1
Yeltsin May Seek 3rd Term in 2000
June 4, 1998

MOSCOW (AP) -- Testing public reaction, President Boris Yeltsin's spokesman
said on a late night television program that the president may seek a third
term in 2000. 
While Yeltsin himself has repeatedly said he intends to step down after
his current term ends, spokesman Sergei Yastrzhembsky and other Kremlin
spin doctors have long been hinting that the 67-year-old leader may run
again. 
The issue of Yeltsin's participation in the election ``remains open,''
Yastrzhembsky said on the Vremechko talk show Wednesday on Russia's
TV-Center channel. 
Yeltsin's statements on the issue ``make it evident that he has not made
a final decision'' on whether to take part in the next presidential race,
Yastrzhembsky said. 
However, Yeltsin's own remarks have been consistently against a run. For
example, he said in March that he would be ``dropping out of the elections.'' 
The conflicting statements appear aimed at testing voters' response,
which has so far been mixed. Many say the constitution's limit on two terms
and the president's questionable health should rule out another run. 
Yastrzhembsky tackled both arguments, insisting that Yeltsin is fit and
``very active'' and reiterating the Kremlin claim that the president's
first term doesn't count since it began back in the Soviet times. 
Russia's constitutional court is expected to rule on the issue later
this year. Earlier this week, Yeltsin met with the court's chairman Marat
Baglai, but the Kremlin kept mum on whether they discussed the subject. 
Other potential candidates include former Prime Minister Viktor
Chernomyrdin, Moscow Mayor Yuri Luzhkov, Communist Party leader Gennady
Zyuganov, and former national security chief Alexander Lebed. 

********

#2
Yeltsin's Reelection In 2000 Remains Open Question - Aide 

MOSCOW, June 4 (Interfax) - The question of President Boris Yeltsin running
in the 2000 elections "remains open," Yeltsin's press secretary *Sergei
Yastrzhembsky* stated on a Wednesday evening television program. 
The answer to this question should be sought primarily from the
president himself and also from the Constitutional Court, Yastrzhembsky
said on the program Vremechko (TV-Tsentr). It is not yet evident from
Yeltsin's public statements that he has made a final decision on the 2000
presidential campaign, the spokesman added. 

Yastrzhembsky said there are different opinions in the public about
Yeltsin's participation. "I think Yeltsin has the right to participate in
the future elections because he did not get his first mandate under the
current constitution," he said. 
Asked about Yeltsin's health, Yastrzhembsky said he is "very active." 
"The coming days and weeks will prove that the president is fit," he said. 
Yeltsin has a daily routine which includes walks outdoors. "I suppose
there are also certain medicines which the president should be taking at
the recommendation of doctors," Yastrzhembsky said. 
The best therapy for Yeltsin, Yastrzhembsky said, are contact with his
family and especially with his grandchildren, whom he sees every day. 

*******

#3
Washington Post
4 June 1998
Letter to the Editor from DMITRI GLINSKI VASSILIEV
Russian 'Reform' Is a Joke

In his May 19 op-ed article, "Russia: The Sky Has Not Fallen," Michael
McFaul argues in defense of what he sees as "Russian democracy" --
apparently equating it with the Yeltsin regime. Most of Mr. McFaul's
assertions strike me as almost identical to the propaganda of the Moscow
media, which are controlled by the government and by government-affiliated
financial tycoons.
A case in point is Mr. McFaul's thrice-repeated reference to "Russian
politicians" who allegedly have "decided to change their government" and
"selected" the new prime minister, Sergei Kiriyenko. In reality, the
confirmation of Mr. Kiriyenko, until recently an obscure oil salesman and a
student of Ron Hubbard's Scientology, was imposed by Mr. Yeltsin and his
family on the powerless Russian Duma by threats of its dissolution and by
outright bribery.
True, this hand-wringing "followed well-defined constitutional rules" --
the rules forced upon the country in 1993 following the demolition of the
democratically elected parliament that had brought Boris Yeltsin to power
in the first place. Mr. McFaul admits, in a bashful understatement, that
this constitution "gives too much power to the president." The two
parliamentary elections held in 1993 and 1995 gave the majority of seats to
those parties -- from every part of the ideological spectrum -- that had
opposed this constitution and would have rewritten it were not the process
of amending the constitution blocked by Mr. Yeltsin.
In light of all this, Mr. McFaul's comparison of the Russian political
system to Chinese and Uzbek "democracies" ironically places it in an
appropriate category -- one substantial difference being that while Chinese
authoritarian rulers have steered their nation toward economic prosperity,
Mr. Yeltsin's economic legacy is a quagmire of depression, internal and
foreign debts, and fiscal impotence.
Another comparison Mr. Faul advanced was to "the early years of American
democracy." This does not withstand even the most superficial historical
scrutiny.
Mr. McFaul's advocacy is symptomatic of a grave problem that besets both
the Russian nomenklatura establishment and the supporters of Russian
"reforms" in Western academia and IMF circles: Almost all of the comments
about "reforms" coming from inside Russia are negative. As these lines are
being written, thousands of unpaid workers, teachers and students across
Russia demand the resignation of Boris Yeltsin and his government.
The explanation is simple: So far, the Yeltsin "reforms" have benefited
few Russians and have brought much suffering to the rest, as Mr. McFaul
admits. Those who have benefited are almost exclusively the offspring of
the Soviet nomenklatura and the Russian mafia.

DMITRI GLINSKI VASSILIEV (DGlinskiva@aol.com)
Washington
The writer is a research scholar at George Washington University. 

********

#4
Date: Thu, 4 Jun 1998 12:35:33 +0100
From: Paul.Amery@ing-barings.com (Paul Amery)
Subject: Re: Georgy Viren - “Russia to become a confederation (JRL 3 June)

Re: Georgy Viren - “Russia to become a confederation”
Georgy Viren (“Russia to become a confederation?”) omits to mention,
amongst the losers from a break-up of the Russian federation, Russia’s
Western creditors (the IMF, Western governments and the Western banking
system), who will lose their money if such a break-up occurs.
This doesn’t mean it won’t happen, but one can expect major
repercussions for the global financial system if people start to take this
seriously.

*********

#5
From: "David J. Daly" <daly@ix.netcom.com> 
Subject: A financial explanation of the recent Russian Stock Market Collapse 
Date: Thu, 4 Jun 1998

There have been several explanations for the recent collapse of Russian
stock prices posted on your list. However, little attention has been paid
to the ramifications of President Yeltsin's decree of 16 April 1998
ordering partly state-owned companies to pay dividends to the state in line
with dividend payments made to private shareholders. While this is a
positive development for the government's budget it is a very negative
development for private investors in companies in which the state has an
equity stake. 
Stock prices are, in the long run, nothing more than the discounted
present value placed on expected future cash flows (received in the form of
dividends). If we presume that managers of privatised but partially
state-owned enterprises are operating with a fixed pool of funds for
payment of dividends to shareholders, then the new obligation to pay
dividends to the state will reduce the amount of money available to pay
dividends to private shareholders (now and in the future) by a percentage
equal to the amount of state ownership in the enterprise. In many cases
(e.g. Gazprom & EES) the government's equity stake is large and the drop in
stock prices has accordingly been steep. 

David J. Daly
Graduate Student
London School of Economics

********

#6
Moscow Times
June 4, 1998 
EDITORIAL: Solzhenitsyn Loses Way in New Russia 

It seems ridiculous. A biography of aging pop idol Alla Pugachyova had a 
print run of 150,000 copies. Tell-all memoirs of Kremlin insiders sell 
tens of thousands of copies. But a new book by one of the acknowledged 
geniuses of 20th-century literature, a Nobel Prize laureate and national 
figure, will have a print run of only 5,000. 
It may seem that Alexander Solzhenitsyn, whose new book, "Russia in the 
Abyss," hits the streets Thursday, deserves better. In fact, for all his 
undoubted past achievements, Solzhenitsyn himself is largely to blame. 
He has painted himself into a corner of obscurity and irrelevance. 
Solzhenitsyn's reputation will rest on his classic works exposing the 
horror of the Communist Party's gulag. When they were first published in 
the '60s and '70s, they fundamentally shook the moral authority of a 

regime that at that time many still believed to be a workers' paradise. 
After "A Day in the Life of Ivan Denisovich" and "The Gulag 
Archipelago," this was no longer possible. 
But after his expulsion and decades of exile in France and the United 
States, Solzhenitsyn apparently lost touch with Russia. He sacrificed 
much moral authority by dismissing the changes begun by Mikhail 
Gorbachev and Boris Yeltsin. When he eventually returned to Russia in 
1994, the crucial moment had passed and the new Russia had other heroes 
and concerns. 
Solzhenitsyn has tried to maintain his position as a voice in the 
wilderness, but since his return he has failed to adopt any clear public 
stance on any issue. Most crucially, his position on the war in Chechnya 
was weak. Unlike such brave human rights campaigners as Sergei Kovalyov, 
he did not speak out against the war even though his voice would have 
been heard in the West with more force than any other. 
Judging by the excerpts from "Russia in Collapse" published in the 
Russian press, Solzhenitsyn sees his role not as a commentator on any 
particular moral issue but as a Jeremiah haranguing every level of the 
current regime. 
He speaks out against everything from the low birth rate to crime and 
corruption to bad Western soap operas. His outrage on these subjects and 
his advocacy of the underclass of Russian society in the remote 
provinces are perhaps morally sound but they are hardly original, 
echoing concerns that are the stuff of most nationalist and left-leaning 
newspapers. Little surprise that Russians ignore Solzhenitsyn's 
unremitting and frankly boring litany of present-day ills. 
For all his greatness, Solzhenitsyn offers no solutions and lacks the 
moral courage to name names or take a political position on concrete 
issues. 

*********

#7
REAL ECONOMIC SECTOR'S ACCUMULATED FOREIGN 
CAPITAL REACHES $21.8 BILLION OVER 7 YEARS
//JUNE 3, 1998 /RIA-NOVOSTI/ --
The accumulated foreign capital in the real sector of the
Russian economy has reached $21.8 billion over the past 7 years,
reports the government's Economic Situation Centre (ESC). The
cited figure is made of foreign investment into Russia over
1991-1997 and the re-invested revenue minus the investment
carried out of this country over the same period.
The basic foreign capital has been accumulated in the
financial-credit and insurance spheres, commercial activity and
the fuels and food industries. A considerable share of
accumulated foreign investment in industries is explained by a
high level of loans received from international financial
organisations. At the same time, the inflow of money into the
financial sphere and commercial activity was almost totally on
the account of private capital, experts say.
In 1997, foreign currency injections into the Russian
economy stood at $10.5 billion, having grown 1.6 times in
comparison with 1996. At this, direct foreign currency
investment went up 1.9 times, its share in the total volume
having hit 37 percent, or $3.9 billion. Its expansion was
particularly spectacular in non-production spheres (6.6 times).

In this, the USA and Switzerland were responsible chiefly for
investment into monetary activity, insurance and pension
security while Great Britain for general commercial
activity.

*******

#8
The Times (UK)
June 4, 1998 
My Moscow retreat 
Revisiting post-Soviet Russia prompts the question: crisis - what 
crisis? 
By Anatole Kaletsky

This week I have been in Russia to visit a friend and investigate the 
possibly catastrophic economic crisis. It was my first trip to Russia 
for seven years. When I last went to Russia, in the waning days of the 
Gorbachev period, I found a country completely transformed from the 
Communist prison where I had been born 40 years before. How much more, I 
wondered, had Russia changed after President Gorbachev? 
Instead of rounding up the usual suspects - ministers and central 
bankers, foreign businessmen and academic experts, or even the standard 
robber barons of "new Russian" capitalism - I did something much more 
agreeable. I strolled the sunny streets of Moscow, looked around the 
shops, chatted to people in bus queues, got myself invited to parties 
and went to the opera. This pleasant but unorthodox form of research is 
not, of course, guaranteed to deliver accurate results. But then neither 
is the conventional economic analysis, which was last week predicting an 
Indonesian-style economic and political meltdown in Russia - a global 
geopolitical catastrophe that could be pre-empted only by another 
gargantuan Western loan to bail out Russia's greedy international 
bankers. 
So, making due allowances for the random nature of my investigations, 
let me present three conclusions, backed not by the usual official 
comments and statistics, but by some personal vignettes. 
My first conclusion is that, financially, Russia is far from an 
Asian-style collapse. With or without extra Western money, the Russian 
Government will stave off a devaluation that would undermine its one 
unquestionable economic achievement - the creation of a solid currency 
that could one day form the basis for a genuine market economy. One 
reason is that prices, even in the best shops of Moscow, are still quite 
low, as long as one avoids goods specifically imported for expatriates 
and the ostentatious plutocracy known as "new Russians". Goods made in 
Russia (which, of course, are rarely bought by the Western analysts who 
complain that the rouble is "overvalued") are still dirt cheap. In one 
shop I saw excellent local strawberries selling for 20 roubles (roughly 
£2) a kilogram, while next to them strawberries from America were 
displayed at R112. Another reason for confidence may sound more 
perverse. Currency crises rarely get out of control unless a nation 
loses confidence in its own money. The Russians, however, never had much 
confidence to lose. 
When I talked to the prosperous middle-class Russians at a dinner party 
in the flat of Andrei Gromyko, the last true Soviet-era President 
(appropriately enough, now occupied by the Moscow representative of the 
International Monetary Fund), it became clear that Russians will not 
cause a crisis by selling their own currency. They do not have enough 

roubles to sell. Russians keep almost all their savings in dollars 
already. I asked how anyone could resist the temptation of interest 
rates of 50 per cent or more on rouble savings, but all the guests said 
they would not put their hard-earned money in Russia's dodgy private 
banks at any price. This lack of public confidence in the rouble means 
the defences of the central bank are unlikely to be breached by a tidal 
wave of people selling the currency. When the only significant 
speculators against a currency are banks and foreign investors, the 
Government can usually keep control. Russia has more in common with Hong 
Kong and Argentina, which have successfully defended their exchange 
links, than Thailand or Mexico. 
My second conclusion is less cheerful: President Yeltsin has achieved 
amazingly little in seven years. Most of the things that were wrong 
about economic management in the Gorbachev period are almost as bad 
today. Politically, the country has actually moved backwards. 
The shops may be full of goods, but few Russians can afford them. 
Property may have been privatised, but it is in the hands of an 
oligarchy as narrow, as lawless and as corrupt as the Communist 
nomenclature it replaced. Moscow may be overrun with Mercedes and the 
luxury shops may be packed with Rolex-clad "New Russians", but the 
miners in Siberia still work in the gulag-like conditions of the Soviet 
era. The peasants remain indentured to their unreformed collective 
farms. Barter remains the main form of commerce in much of the country. 
And most industries are almost as far from genuine market principles as 
they were a decade ago. 
Above all, corruption and bureaucracy remain as stifling and arbitrary 
today as they were in the Soviet days. Mr Yeltsin's attempt to disband 
the Communist Party in 1991 succeeded mainly in destroying the civil 
authority of the Russian State (which was in effect the same thing as 
the party). His erratic personality, cronyism and constitutional 
manipulations have fomented corruption and anarchy. Worse still, they 
have subverted the historic effort begun under Gorbachev to change 
Russia from a personal fiefdom into a law-governed State. There is a 
close connection between the Government's inability to collect taxes, 
which everyone considers to be the greatest economic problem in Russia 
today, and Mr Yeltsin's own indifference to the rule of law. Suppose 
that, instead of reshuffling his ministers and playing games with his 
courtiers, Mr Yeltsin had used all his energies and constitutional 
powers to force through tax legislation or to privatise agricultural 
land. Russia might be making the kind of progress visible in Central 
Europe and the Baltic states. 
Let me illustrate with another vignette. I am sitting in an expensive 
restaurant in Zhukovka, the smartest holiday village outside Moscow - a 
Russian version of Palm Springs. The Western businessman with whom I am 
lunching points discreetly to a burly figure tucking into his shashlik.
"That man," my companion says, "is Yeltsin's debt-collector." What does 
this mean, I ask. Is he a sort of political whip, who enforces promises 

among the President's entourage? Not at all, laughs my friend. When a 
company goes bankrupt, the debt-collector turns up, armed with a 
presidential decree, to seize anything he wants - stocks of unsold goods 
or raw materials. He keeps what he wants, sells what he wants and gives 
what he wants to the Government. In less than a year he had become a 
multimillionaire. "Last week," my companion said, "he told me he was 
chartering a cargo jet to a Siberian company town and invited me to join 
him. Actually what he said was 'I can take whatever I want from that 
city. Come and help with the plunder.' ". 
Nevertheless, Russian culture is slowly re-emerging from its decades of 
darkness. If this cultural renaissance continues, the country will 
gradually rejoin the mainstream of European civilisation. It will find 
better political leadership and eventually enjoy an economic revival 
too. 
On Friday night I went to an opera in an 18th-century Baroque mansion (a 
small part of which my family occupied in the first five years of my 
life). There were just 300 seats, no orchestra pit and a stage no bigger 
than a school auditorium, with no theatrical machinery. I saw perhaps 
the best staged, most beautifully sung and most spectacular opera 
performance in my life. The work was a grandiose production of Verdi's 
Aida staged, complete with triumphal marches, pyramids and evil Egyptian 
priests, in a room no bigger than the crush bar at Covent Garden. 
I felt that the Helicon Opera production alone had justified my Moscow 
trip. Afterwards, I managed to meet the producer and learnt that the 
Helicon was just one of five new full-time opera companies performing in 
Moscow, while London wonders whether it can support two. I mused that 
something more important than bread prices had been liberated when Mr 
Gorbachev set the Russians free. 
The creativity and enthusiasm that is finally palpable in Moscow culture 
has not yet reached the Kremlin but, sooner or later, the energy could 
spill over into politics and wash away the apathy that is preserving the 
corrupt industrial and government elites. If that ever happened, Russia 
would finally become a great power in business and economics, as well as 
in art, culture and science. The Renaissance and the Enlightenment took 
more than seven years to complete. But the world is right to be 
impatient about Russia's lack of progress. 

*********
#9
New York Times
June 4, 1998
[for personal use only]
Rule of the Ruble
By JEFFREY D. SACHS

CAMBRIDGE, Mass. -- Here we go again. In its seventh straight year of
ministering to the Russian economy, the International Monetary Fund is
about to begin another "emergency bailout." Just five months ago, the
I.M.F. pronounced the Russian economy on its way to recovery, declaring
that "Russian economic reform is entering a less dramatic phase." 
Now the Russian stock market is collapsing and the currency is under
attack, despite a temporary lull in trading on Tuesday and Wednesday. The
I.M.F. has promised to speed another $670 million in loans and is being
called on by the Clinton Administration and the markets to provide much
more. The Administration has also renewed its call to Congress to allocate
more money for the I.M.F. itself. 
The fund continues to fail in its economic advice. The bailout loans are
unfair and ineffective. If we need a new global financial architecture, as
Treasury Secretary Robert Rubin has urged, then we need a new architect as
well, a thoroughly revamped I.M.F. 

Understand the logic of the bailouts first. In the past three years,
under I.M.F. auspices, Russia has been borrowing short-term funds from
abroad to keep a corrupt and mismanaged Government afloat. The fund stood
by as the Government squandered tens of billions of dollars by transferring
state-owned oil and gas companies to cronies at cut-rate prices. 
At the same time, the Russian Government borrowed from foreign
speculators at interest rates of 20 percent or more, and often much higher.
The sky-high interest rates compensated the investors for the risk that the
ruble might lose value against the dollar or that the Government might
default. 
Suddenly, foreign investors have called in these loans. They are spooked
by several things, including the Asian crisis, the fall in the price of oil
(a principal Russian export) and labor unrest. 
Suddenly, the ruble is about to lose value. In short, the risk that was
long implicit in Russia's high interest rates is about to be realized. 
The financial community in Moscow is understandably in a panic. The
I.M.F. and the United States have been called in to save the ruble. This
would insure that the earlier loans are repaid and that the ruble keeps its
value long enough for speculators to get their money out without large
losses. 
Therefore, the name of the game is to defend the exchange rate at any
cost. Predictably, the I.M.F. has cheered as Russia raised short-term
interest rates to a crippling 150 percent a year to try to keep the
investors from running. 
But the ruble probably can't be saved at this point -- too much
short-term money is fleeing the scene. True, the crisis that could follow a
steep ruble devaluation might indeed be severe. But an I.M.F.-led bailout
will likely do Russia more harm than good. 
The problem is that the I.M.F. has become the Typhoid Mary of emerging
markets, spreading recessions in country after country. 
The I.M.F. lends its client governments money to repay foreign
investors, with the condition that the government also jack up interest
rates, cut the flow of credits to the banking system and close weak banks.
The measures are intended to restore investors' confidence. Instead, they
kill the economies and further undermine confidence. 
It would be much more sensible to keep interest rates moderate and let
the economies continue to grow. True, currencies would lose value and
speculators would lose their bets. But both borrowers and lenders would be
more cautious in the future. The rare case for exceptional monetary
tightness occurs when economies are suffering from exceedingly high
inflation. 
The I.M.F. orthodoxy has been put to the test in Asia in the past nine
months. The fund gave us specific predictions about what would happen when
it attempted its Asian rescue. It told us in its August 1997 rescue plan
for Thailand that the economy would grow by 3.5 percent in 1998. It told us
in October that Indonesia would grow by 3 percent. In December, it
predicted Korean 1998 growth of 2.5 percent. 
The I.M.F.'s own bad advice destroyed its own forecasts. Every few weeks
it has had to renegotiate its Asian programs, sharply downgrading the
growth forecasts. It now predicts that Korea will shrink by 1 percent or
more, Thailand by 5.5 percent or more and Indonesia by a staggering 10
percent or more. 
In emerging markets all over the world, the drama is repeated. Investors
who chased high short-term interest rates with short-term loans in recent
years are calling in their loans. In just about every case, the I.M.F. is
urging a heroic defense of the currency through draconian interest rate
increases, sometimes backed by bailouts, sometimes not. The monetary
medicine is now being applied with I.M.F. moral support in Brazil and South
Africa, and with I.M.F. financial support in other parts of Africa, in
Russia and throughout Asia. 

The Administration and other financial observers should ask why the
I.M.F. can't come close to its own targets. They should ask why many
economies under its care continue to stagnate or collapse for years. And
they should insist that the I.M.F.'s free run of the international
financial system be brought to an end.
Jeffrey D. Sachs is the director of the Harvard Institute for
International Development. From December 1991 to January 1994, he was an
economic adviser to the Russian Government. 

**********

#10
>From RIA Novosti
Argumenty i Fakty, No. 23
May 1998
LEBED AND YAVLINSKY BREAKING AWAY FROM THE PACK

Nugzar Betaneli's Institute of Sociology of Parliamentarism
has conducted a nationwide public opinion poll (on a
representative sample of 6,000 respondents in sixty-two subjects
of the Russian Federation).
As was to be expected, only a part of the Russians have made
up their minds as to their political sympathies: only 28% name
those whom they would like to put forward as candidates for the
presidency of Russia in 2000, 34% so far "see no worthy
candidacies," and another 38% "found difficulty in determining."
But the dynamics of the political sympathies are intriguing. The
number of active supporters of Alexander Lebed and Grigory
Yavlinsky has increased. There has been some reduction in the
public support for Gennady Zyuganov, Yuri Luzhkov, Vladimir
Zhirinovsky and Aman Tuleyev. The degree of support for Viktor
Chernomyrdin and Boris Yeltsin has remained practically
unchanged. A symptom of political catastrophe for Boris Nemtsov
is the sharp reduction in the number of his active supporters.
Anatoly Chubais is no longer among the main bunch of aspirants.
One can regard as sensational the appearance in Russian society
of political supporters of Sergei Kiriyenko, who view him as
their candidate for President.
It should be noted that public opinion is quite benevolent
towards the new prime minister. For example, 4% of the Russian
electors see precisely Kiriyenko as the most intelligent
statesman of contemporary Russia.
At first glance, the present level of public confidence in
the Government led by Sergei Kiriyenko is not high - 10% (for
comparison: in December 1997, only 9% had confidence in Viktor
Chernomyrdin's government). But much lower is the level of
"public distrust": 64% had no confidence in the previous
government, only 42% have no confidence in the new government.
Moreover, 48% find difficulty in determining their opinion, among
other reasons, because so far they "know nothing about the
activity of the Kiriyenko government." In other words, the new
government has inherited social problems, but has not inherited
social negativism.
Among the potential candidates for the presidency of 2000
put forward by respondents, the votes broke down as follows (see
table, the percentages are given of the total number of all the
candidates named).
Another 34 candidates put forward by respondents have
gained, in sum, 14.5% of the total number of those named. Each of
them was mentioned between 1 and 10 times. Among them are Aushev,
Baburin, Berezovsky, Gromov, Gorbachev, Kulikov, Lukashenko,

Nikolayev, Rokhlin, Rybkin, Seleznyov, Starovoitova, Stroyev and
others.
-----------------------------------------------------------
July 1997 February 1998 May 28,1998
-----------------------------------------------------------
Zyuganov 23.8% 27.2% 25.2%
Lebed 15.8% 12.2% 20.0%
Yavlinsky 10.7% 14.8% 15.9%
Luzhkov 5.2% 13.0% 8.2%
Zhirinovsky 4.4% 4.2% 3.6%
Chernomyrdin 1.4% 3.7% 3.4%
Tuleyev 2.0% 4.8% 2.9%
Nemtsov 21.8% 10.5% 2.6%
Yeltsin 3.4% 2.4% 2.2%
Kiriyenko - - 1.5%
Chubais 1.6% 1.3% -

*********

#11
New Tax Chief Gets Tough with Tax Dodgers 
June 4, 1998

MOSCOW -- (Reuters) A thousand prominent Russians will have their incomes
and spending put under the spotlight by the tax inspectorate under a tough
revenue-raising plan by the service's radical new chief. 
A Tax Service statement issued on Thursday said controlling taxpaying by
people with high revenues should help "spread the culture of paying taxes
in Russia." 
It also recommended that all Russians review and, if necessary, correct
their tax declarations for the last few years, or submit declarations if
they have not done so. 
"The service recommends (this)...because very drastic sanctions are
going to be implemented under the law against tax evaders," the statement
said. 
Struggling to fight off an economic crisis caused partly by a big
shortfall in budget revenues, the government has decided to tackle one of
its biggest problems -- tax evasion -- head-on. 
"A database including detailed information on revenues, to be joined
later by information on expenditures, of about 1,000 taxpayers -- the most
famous figures of the Russian state --- is being created," the Tax Service
statement said. 
It gave no hint of who might be on the list. 
Last year a group of Russian pop stars openly attacked the inspectorate
for its attempts to make them pay taxes. 
The limousine-driven and haute couture-clad stars said they were too
poor to pay taxes and urged the state to introduce tax breaks for "culture
service workers." 
New tax chief Boris Fyodorov is set to change this. 
President Boris Yeltsin appointed the former finance minister, known as
an iron-handed monetarist, last week, to bolster tax collection amid an
ongoing crisis on local financial markets. 
Tax dodging, both by enterprises and private individuals, is rampant in
Russia, where laws are regularly flouted and the state is viewed with deep
mistrust. 
The government, which needs funds urgently to patch up its leaky budget,
announced an ambitious plan last week to cut expenditure and raise more
revenues, including plans to squeeze billions of rubles from about major
corporate tax debtors. 
Poor tax collection largely accounts for chronic wage arrears suffered
by public sector workers including teachers and doctors. 

Yeltsin said earlier this year the government expected about five
million people to declare their taxes this year, which is four times more
than in 1995. Russia's total population is nearly 150 million, but people
with one permanent job in the state sector are included in their employer's
declaration. 
While individual taxpayers account for up to 80 percent of money in the
state coffers of developed countries, in Russia the figure is just 6 percent. 
The main tax burden lies on industry, driving many enterprises to the
edge of bankruptcy. 
Fyodorov has promised to shift the emphasis to private individuals to
make life easier for industry. 

*********

#12
>From IntellectualCapital.com


http://www.intellectualcapital.com
Is a Russian Storm on the Horizon? 
by Sergey Markov
June 4, 1998 
Sergey Markov is director of the Institute for Political Studies. 

The skies of Russian political life are covered with clouds. Quite
recently, observers were talking not just about political stability but
even about progression, and investors were preparing for an economic boom.
But very soon cautious optimism was replaced by deep reservations. 
It all started with the deep, month-long government crisis that nearly
led to dissolution of the Parliament. Then the worst social conflict in
recent years occurred -- "the railway war" of miners blocking tracks
throughout the country. In mid-May a stock market crisis hit. 
Also in May, "the party of power" suffered a monumental defeat in three
regional gubernatorial elections, and the apotheosis of this defeat was the
rapid rise of Alexander Lebed, who came to power in the biggest Russian
region, Krasnoyarsk. At the end of May in Dagestan, which is unquestionably
the area of the hottest ethnic conflict in today's Russia, an attempted
coup occurred, and a real threat of a new armed conflict in the North
Caucasus appeared. 
As a result of this sequence of shake-ups, more and more political
observers have a "pre-thunder" feeling. 

Crises without a connection 

To what extent are these varied crises interconnected? Not much, I would
suggest. However intellectually tempting it may be to combine these
phenomena in one scheme and make apocalyptic predictions, feelings can be
deceiving, and rational analysis should reveal that all these crises are
local and have individual causes not connected to each other. Let us
consider each of them individually. 
First, the government crisis, which could have been foreseen. Victor
Chernomyrdin was removed from office because he was becoming an
increasingly strong potential contender from the "party of power" in 2000
presidential elections. As such, he was becoming a competitor to President
Boris Yeltsin, who appears to have decided to run for another term. 
Chernomyrdin's ousting was quite logical. It was predictable, although I
thought it would have been more logical closer to the end of 1998. 
The nature of the new government also is in line with Yeltsin's decision
to run for a third term. He needs economic growth, so the new government
incorporated a team of energetic reformers. He needs political and
financial resources for his campaign, so the core of the new government
supports state supremacy over the interests of the biggest oligarchy
groups. He needs to soften his image as being too old, so now he is
surrounded by young faces. He does not need a competitor, so the new prime
minister has been chosen out of the third line, someone who supposedly has
no personal political ambitions. 
The change of the government thus is explained by preparation for the
2000 election. We are unlikely to have another government crisis until
2000, when there might be a need to find a few scapegoats. 

"The railway war," of course, has nothing to do with 2000 elections.
Its roots are not in a conspiracy of unknown political forces but in the
fact that the amount of unpaid wages came close to the critical point of
social explosion. Why and how that happened is another question. 
The main reason should be stressed: The former government had neither
strategic policy nor the courage and professionalism necessary to solve
those problems. But now the government is changed, and the new members
already have demonstrated their professionalism and mobility. So it seems
unlikely that the social conflict will deepen, or even would happen again
with the same intensity. 
Ideas of most of the government members inclined them toward a Margaret
Thatcher-style solution of the conflict: no submission to miners. But
without the political resources and the amount of time Thatcher had, the
government found its own way to deal with the problem, including a number
of concessions to miners. And it has been done quite smoothly and
professionally, too. 
So the reason for the social conflict lies in six months of passive
policy of the former government. 

The stock market and Alexander Lebed 

The stock market crisis, meanwhile, has its own independent
explanations. They range from the strong dependency of the stock market on
non-residents and the large volume of short-term borrowing to the
continuing crisis among Asian stock markets and investors' panic because of
unrest in Indonesia. 
The decision by the Duma to limit the participation of non-residents in
the capital stock holdings of the Unified Energy Systems of Russia Inc.
also bears some responsibility for the crisis because those "non-residents"
reacted to it negatively. 
All these concrete reasons are just individual symptoms of more
fundamental and longer-term reasons already mentioned: low general
capitalization of the Russian stock market; its over-dependency on
non-residents; a share of short-term obligations that is too high. But all
these are but old aches and pains of Russian economy, well known to the
Central Bank and the Ministry of Finance, and these institutions are
learning to deal with them better and better. 
The victory of Lebed, too, was quite predictable, and its reason lies
not in the events of the last six months but in all his preceding political
activities. Lebed had made himself a political star of the first order, and
his victory over a little-known and not-quite-successful Valery Zubov was
practically predetermined. 
Lebed's actions during the next five years will not lead to political
instability because it is important to him to appear as a calm and balanced
politician capable of dealing with the day-to-day problems of his region. 

No surprises in Dagestan 

Finally, the worsening of the situation in Dagestan can be explained by
the weather. The climate makes spring and summer the best seasons for
guerilla activities against federal forces. As early as winter, our
Institute for Political Studies scheduled a series of workshops, seminars
and business games on the expected summer crisis in Dagestan. 
The other reasons are equally obvious: expansion of spontaneous armed
activity; Islamic fundamentalism; and anti-Russian separatism from the
territory of the "Pirate Republic of Ichkeria." After the capitulation of
the federal forces in Grozny, all experts agreed that the conflict would
move to Dagestan. Why? Because it is the most painful point in the
Russian-controlled North Caucasus. 

First, there is the most difficult ethnic situation in the whole
region. Second, more than other regions, Dagestan is vulnerable to raids by
bandit groups from Chechen territory. Third, the center from which
militarized Islamic fundamentalism spreads out is in Dagestan. And finally,
the leaders of the Chechen separatists never made it a secret that the
first object in their attempts to incite all of the North Caucasus against
Russia would be Dagestan. 
The worsening of the situation in Dagestan in May or in June could be
expected also because of the election of the chairman of the State Council
of Dagestan, scheduled for the end of June. Given even minimal stability,
re-election of the current pro-Moscow chairman, Magomedali Magomedov, would
have been practically predetermined. His rivals badly needed a dire
political crisis to force the events out of the framework of the scenario
developed in Makhachkala and supported by Moscow. 
Political crises of any kind would bare the three weak points of
Magomedov. First, he is of the Dargin ethnic group, not Avar, which is
predominant in Dagestan. Second, his re-election actually would have
constituted a breach of the Dagestan Constitution, which establishes that a
representative of one ethnic group cannot hold the office for two
consecutive terms. So amendments to the Constitution have been passed. 
Given any kind of political stability, however minimal, these
considerations would constitute only potential obstacles to the re-election
of Magomedov. But given a political explosion, these obstacles become real
and can lead to a discussion of who should head Dagestan -- a discussion
the current Dagestan leadership, as well as Moscow, are doing their best to
prevent. 
If such a discussion begins, one of the main arguments would be armed
force, and this would lead to a long-term destabilization of the Dagestan
situation. So for those who try to unleash a war in Dagestan, it is
crucially important to prevent the re-election of Magomedov. 
It is equally obvious that the Dagestan crisis will continue because of
the inability of the state to perform its functions and the loss of
monopoly for using armed forces. This is a long-term illness of modern
Russia that periodically becomes more acute or gets slightly better. 

The sun will come out ... tomorrow 

The above analysis shows that all five crisis knots have their own
causes. And the trends in development of those crisis situations do not
come to one point. So we face not an explosive development, but a
continuation of slow-burning crises. 
Lightning will not strike. Instead, we can expect the same rotten
inter-season weather: wet snow, wind and slush. But we believe we will see
the sun yet. 

********

#13
Nemtsov Says Budget Deficit Caused Russian Financial Crisis 

MOSCOW, June 4 (Interfax) - Russian First Deputy Prime Minister *Boris
Nemtsov* said that the latest financial crisis "was prompted by the budget
deficit, covered by borrowings," which reached "a dangerous line." 
The steps currently implemented by the government, notably "a drastic
reduction of expenditure and everything possible to boost revenues," should
have been taken two years ago, Nemtsov told the business newspaper
Kommersant. 
Nemtsov ruled out a variant where the government might have borrowed
from Russia's powerful oligarchs instead of taking foreign loans. "They do
not have so much money; they just act like they do." 

Chief executive of power utility Unified Energy Systems of Russia (UES)
Anatoly Chubais, who formerly worked with Nemtsov as one of two first
deputy prime ministers in the previous Cabinet, did not go to Washington to
ask for money for the government. "His trip was information-related," he
said. Nemtsov reaffirmed that the two maintained friendly relations. 
A radical tax reform should be implemented, he said. The system of
taxation must "be as primitive as possible. We might learn a lesson from
Russian history, where a merchant paid every tenth ruble to the treasury,"
he said. 
Nemtsov said he had initiated a government resolution envisaging equal
broadcasting rates for state and non-state television companies. "For
private companies it means lower rates, for state ones - higher," he said,
adding that the new rates may go into effect by the end of the year. 
Regarding the new Cabinet of Ministers, Nemtsov said the nature of its
work and tempo have changed. "Projects which were drafted for six, seven,
sometimes eight months by the White House [House of Russian Government],
can be passed within a few hours by the new Cabinet," he said. The pace is
set by Prime Minister Sergei Kiriyenko, he said. 
Nemtsov said he respected the statement by Gazprom chief executive Rem
Vyakhirev to support former Prime Minister Viktor Chernomyrdin for
president in the year 2000. They "have been in touch for 30 years. It would
be strange if Vyakhirev said he would not support Viktor Stepanovich in a
difficult moment," he said. 
However, if Vyakhirev's financial support "steps outside the law, he
will be prosecuted," he said. 

********