Center for Defense Information
Research Topics
CDI Library
What's New
CDI Library > Johnson's Russia List

Johnson's Russia List


June 8, 1998   
This Date's Issues: 2209 2210

Johnson's Russia List
8 June 1998

[Note from David Johnson:
1. AP: US General: Russia Nukes in Safe Hands.
2. Reuters: Solvent Russia vital to Western stability.
3. Toronto Sun: Matthew Fisher, Russian roulette. Former Soviet 
Union sinks deeper into economic quagmire.

4. Ray Finch: Reflections on Russia.
5. The Economist: Russia in crisis, cont'd.
6. Dale Herspring: Lebed.
7. Tom Adshead: Comment on David Daly's hypothesis on the stock
market collapse.

8. Journal of Commerce: James Meek, Russia must help itself.
9. Obshchaya Gazeta: Yevgeny Ikhlov, CAN THE "FATHER OF PRIVATISATION"

10. Moscow Times: Igor Zakharov, BOOKWORM: A Russian Tradition: 
Officials Who Steal.]


US Gen.: Russia Nukes in Safe Hands
June 7, 1998

MOSCOW (AP) - Russia keeps its deadly nuclear arsenal in safe hands,
monitoring it with as much vigilance as the United States safeguards its own
missiles, the commander of America's nuclear forces said Sunday.

Gen. Eugene Habiger, head of the U.S. Strategic Command, toured weapons sites
across Russia over the past week to learn more about how the world's other
major nuclear power controls its most lethal weapons.

``I want to put to bed this concern that there are loose nukes in Russia,''
Habiger said in an interview with The Associated Press before flying back to
the United States. ``My observations are that the Russians are indeed very
serious about security.''

Habiger's tour, his second to Russia in the past year, included visits to
bases for strategic missiles, bombers and naval forces, as well as storage
sites and silos.

He traveled to Siberia, the Far North, and the base of the Russian space
program in Baikonur, Kazakstan, viewing operational sites never before open to
an American.

Habiger said that on the whole he was impressed by the professionalism and
dedication of Russian officers manning the missile sites, and praised the
rigorous physical and psychological tests they take every few days.

``In some areas the Russians are a lot more conservative than we are,'' he

Habiger's visit is part of a series of exchanges between the two countries'
nuclear commands designed to build trust and reduce the possibility of
mishaps. His Russian counterpart, Gen. Col. Vladimir Yakovlev, made a similar
tour of U.S. nuclear weapons sites in March.

Yakovlev, who accompanied Habiger to the airport, said he did not find it
uncomfortable to open such highly classified sites to his former Cold War

``We can't go farther along the road to disarmament without deepening our
mutual understanding,'' Yakovlev said.

Habiger, who became commander of U.S. nuclear forces in February 1996, said he
considers the danger of an unauthorized launch of a Russian missile extremely
remote, in part because there are more layers in the Russian chain of command.
For instance, three people must approve the movement of any warhead, instead
of two in the United States, and the Russians require the orders to be in

He said that there are some philosophical differences between the two
countries, but suggested that it was more of an operational than a security

``We tend to rely on technology a lot more than they do,'' he said. For
example, while the Americans rely primarily on sensors and other technical
surveillance to guard their silos, Russians use armed guards.

The U.S. Strategic Command, based in Omaha, Neb., controls all American
nuclear bombs and missiles, whether based on land or at sea.

Habiger, who piloted his own plane back to the United States, plans to retire
this summer after 39 years of military service. His successor, Vice Adm.
Richard Mies, accompanied him on the tour.


ANALYSIS-Solvent Russia vital to Western stability
By Paul Taylor, Diplomatic Editor 

LONDON, June 7 (Reuters) - Russia appears to have weathered the latest bout of
financial turmoil for now, but the speed with which Western governments
reacted shows just how vital its solvency is to international stability. 

``The worst thing for us would be a financial crisis in Russia that produced
instability internally and on its borders. That would lead to a dangerous
vacuum,'' a senior NATO official said. 

He hastened to add that new Russian Prime Minister Sergei Kiriyenko had kept
his nerve and shown skill in responding to a stampede out of Russian stocks
and bonds without devaluing the rouble. 

President Bill Clinton was quick to pledge U.S. readiness to lead an
international financial rescue if necessary and the European Union signalled
it would be prepared to back additional aid through the IMF and World Bank. 

``Russia's economic stability is vitally important to all our interests,''
British Chancellor of the Exchequer Gordon Brown proclaimed. 

The consequences of a financial collapse of a country long referred to by
commentators as ``Upper Volta with nukes'' are too awful to contemplate,
Western officials say. 

It may now be an emerging market with nukes, but its political stability is by
no means taken as guaranteed. 

Stabilising Russia has been a high priority for the West throughout the 1990s,
partly because the semblance of world order that emerged from the end of the
Cold War was based on partnership with Moscow. 

Although they are reassured by President Boris Yeltsin's pursuit of reform,
Western officials still fear an implosion that could bring to power a ``red-
brown'' coalition of communists and extreme nationalists or lead to a
disintegration of the huge Russian armed forces. 

That would increase the danger of former Soviet nuclear or chemical weapons
scientists and missile engineers selling their services to what the United
States calls ``rogue states,'' and of uncontrolled conventional arms sales. 

``You don't want Weimar in Moscow,'' said William Hopkinson, head of the
international security programme at Britain's Royal Institute of International

He was referring to the risk of a chain of events akin to the economic
collapse under Germany's Weimar republic that led to the rise of the Nazis in

Hopkinson said there was a danger of a ``break-up into warlordism'' with rival
military chiefs controlling different regions, which could destabilise
Russia's neighbours. 

The Russian central government's ability to tell provincial leaders what to do
was already limited and a financial collapse that deprived Moscow of funds to
spend in the regions would exacerbate that problem. 

Western diplomats said Russian goodwill, when it was forthcoming, remained
vital to solving problems from the Balkans to the Baltic and from the Gulf to
the Ganges. 

While Russian Foreign Minister Yevgeny Primakov, a former Soviet spymaster,
could be awkward, he was a reliable and predictable partner, they said. 

``If you think dealing with Primakov is difficult, just imagine dealing with a
communist Russian foreign minister again, or with (ultra-nationalist Vladimir)
Zhirinovsky,'' one diplomat said. 

Recent tension with Latvia, residual Russian hostility to NATO enlargement and
the dangers lurking in relations with former Soviet republics in Central Asia
could all be easily exacerbated by a financial crisis. 

But the NATO official said Russia's wobbles appeared to be largely a knock-on
effect of the Asian financial crisis rather than a home-grown crisis. 

He said Western governments were impressed by Kiriyenko's commitment to reform
and his apparent determination to make big corporate interests pay tax and
respect the rule of law. 

Once his team have overcome the financial jitters, the prospects for building
on Russia's partnership with NATO, which has been held up by the political
uncertainty surrounding Kiriyenko's confirmation by parliament, were good, the
official added. 

There is also growing confidence in the West that whoever succeeds Yeltsin as
president will not go back on market reforms and security partnership with the

``That has to be worth a few billion dollars in IMF standby credits,'' a
Western official said. 


Toronto Sun
June 7, 1998 
Russian roulette
Former Soviet Union sinks deeper into economic quagmire 
Sun's Columnist at Large
 MOSCOW -- It was a typical street scene in front of the finance 
ministry offices last Wednesday afternoon. 
 Several dozen earnest men and women from 40 to perhaps 70 years of age 
wearing Soviet-era polyesters milled about for several hours demanding 
what they said was rightly theirs. 
 The protesters were emissaries for Russia's 130,000 research 
scientists. They could as easily have been miners, teachers or soldiers. 
 Scientists were once a cosseted elite. Now, except for those recruited 
by companies in Europe, the U.S. or Canada because they possess specific 
skills, scientists, like so many others in Russia today, are ignored 
when not entirely forgotten by the Yeltsin administration. 
 The researchers say they are owed $55 million in back wages. An 
unsympathetic government flak said on television the other night that 
the scientific community was actually rather well off. His twisted 
reasoning was that the Kremlin owes more in back wages to millions of 
 Aside from a couple of journalists and two cops, no one paid any 
attention to Wednesday's protest, with its brave, little home-made 
placards demanding justice for scientists in Karelia, Dagestan and 
 Nothing slowed the stream of bureaucrats in fine Western threads 
arriving and departing in chauffeur-driven German luxury sedans. Nothing 
interfered with a squad of machine-gun-toting goons in flak jackets who 
backed through the middle of the protest in an enormous armored car to 
deliver bags of rubles to the ministry so it could pay its own 
 "They won't talk to us or acknowledge our presence, but we know how 
they got those cars and money. They have stolen everything they could 
get their hands on," said Sergei Akomov, who represented a scientists' 
collective in St. Petersburg. "About 80% of Russia's wealth has been 
concentrated in Moscow, where the state apparatus has doubled in size, 
leaving almost nothing for anyone else." 
 If there is a "crisis," a word the government officially uttered for 
the first time last week as part of its begging strategy to secure 
another $10-billion US, IMF-sponsored loan, Anatoli Mironov, who works 
at a lab near Moscow, said: "This should not affect science because if 
they destroy science, they ruin Russia's future potential." 
 The 51-year-old radio-physicist said his salary of $130 a month was not 
nearly enough for him and his family. And even that meagre sum had not 
been paid in months. 
 "Despite the impression that we were well off in communist times, it 
was bad for us then and it is much worse now," Mironov said. "If it 
wasn't for my garden, we would starve. But the growing season is too 
short for many of my colleagues who live in the north and are not 
allowed to move. I don't understand how they survive." 
 Mironov's words are echoed all over Russia today. A garden plot is 
often all that now stands between a family and destitution. 
 The West hasn't taken much interest in the nightmare the Russian health 
care system has become or that the average age of Russian men has 
dropped to Third World levels. But Russia still has nukes, so the West 
briefly got excited about the bleak economic situation here again in 
late May, when there was wild talk of an Asian-style meltdown if another 
emergency aid package wasn't quickly organized. 
 The current anxiety over Russia is obviously connected with what has 
transpired recently in Indonesia and the looming reckoning in Japan. But 
Russia's problems have been slowly building for years and have nothing 
to do with Asia. 
 Crime-ridden capitalism 
 Despite a long run of ill-considered or wishful tall stories from 
Western correspondents, diplomats and politicians about how well the 
country has been doing, almost every economic indicator in Russia is 
 Russia's GDP has plummeted 83% and real wages have dropped 78% since 
communism gave way seven years ago to Boris Yeltsin's distinctive, 
criminal-ridden form of capitalism. 
 Yet, with heart problems and all, the Russian president was once again 
sending out strong signals last week that he intends to try to inflict 
himself on Russia for at least six more years. 
 "How is it that when Russia is producing nothing to sell and cannot pay 
its debts, the men around our president appear so much richer than 
politicians in the West?" Mironov asked before catching a bus home to 
his wife and children. 


Subject: Submission
Date: Fri, 5 Jun 1998 

For the past two and a half years I have worked as military analyst
for the Department of Defense, where I have followed developments in the
militaries in the countries of Eastern Europe and the former Soviet Union.
A considerable portion of my effort was spent trying to figure out what was
occurring within Russia and her military, and the reporting gleaned from Mr.
Johnson's list has been invaluable in this endeavor. As I'm now on the
verge of hanging up the uniform, I thought I might share some of my
impressions and a few of the unclassified fruits of this research:
Have you ever watched a glass of milk fall from the counter, and yet
were unable to halt its downward crash? Though the analogy is imperfect,
Russia in 1998 bears many uncanny resemblances and shares the same sense of
unpredictability and doom which was observed in Weimar Germany of the late
1920's. Given the near inevitability of a collapsed Russian economy, watch
for continued internal instability and the growth of an extreme and
aggressive Russian nationalism.
It's both curious and depressing that this collapse into instability
and aggressive Russian nationalism will have 10,000 witnesses and heralds.
Many of the intelligence assets dedicated to studying the "evil empire"
during the Cold War remain in place and most remain focused on yesterday's
threats. For instance, last month, while many analysts were studying the
soldiers forming in Red Square for the Victory Day celebrations, other young
Russian men were prowling the streets unobserved looking for foreigners to
beat. I suspect that the latter portray a more accurate image of the future
Even more depressing is the realization that the Vodka Hall Putsch
and Moya Borba (aka' Mein Kampf) will be observed and duly reported on by
the intelligence community and all of the major news sources. But like
Rwanda, Bosnia, and now, Kosovo, this information will hardly prompt
effective action. Despite the advances in information technology, human
nature has not changed. More information does not necessarily equate to
greater virtue, wisdom or even more resolute action.
Though perhaps difficult to prove, I suspect that many within the
DoD and the Washington-beltway community have vested interests, or are at
least, benignly negligent toward the future collapse of Russia. Not only
will the collapse justify the enlargement of NATO to the east, but it will
also keep much of the Cold War work force gainfully employed.
Alas, NATO and the post-Cold War infrastructure will be largely
ineffective in stopping the real dangers that will result from collapse in
Russia. Enlarging this alliance reminds me of the Polish cavalry in 1939
who marched out proudly to meet the German enemy: right tools, wrong threat.
Even a "digitized" tank division, however, will be no match for the
Chernobyl-like clouds, crime and millions of refugees which will "attack" as
Russia continues to falter.
Regarding the Russian military, in spite of the continued reports
describing the catastrophic conditions within their armed forces, little, if
anything positive has been accomplished during the past five years. Every
six months or so, the Russian Ministry of Defense (MOD) has announced some
new reform plan or strategic concept, only to be superseded six months later
by an equally unrealistic (and unfulfilled) plan. The driving force today
is not any coherent reform plan, but rather the fact that the larder is
bare. For the past five years, the Russian military has been largely
subsisting on their ample Soviet wartime reserves. With little left to
barter and saddled with a cash-strapped government, the MOD has no choice
but to shrink and consolidate its forces (and then call it reform).
A military will reflect the values, ideals and philosophy of the
society it purports to defend. The crime, corruption, arbitrariness,
poverty, cruelty and confusion which are the hallmarks of today's Russian
military are found in spades within most sectors of Russian society.
Indeed, a growing number of Russians look upon the military as a savior from
final collapse. This sentiment will continue to grow among the 75% of the
Russian populace who have seen their standard of living deteriorate, and
likely become global should Russia continue its slide into a corrupt and
vicious oligarchy. 
Finally, without input from those who study and care about this
region, there is a danger that forums like Mr. Johnson's list will become
the propriety of the "experts." It's amazing how often these experts have
gotten it wrong. I'm afraid that the same skepticism toward the development
of policy and the political process observed in Russia has also reached
epidemic proportions in the US. The question of the next decade will not be
"who lost Russia," but rather, "why did so many remain silent?" Hopefully,
visionaries like Mr. Johnson will induce the info-age constituent to move
from intellectual passivity to active involvement.


The Economist
June 6, 1998
[for personal use only]
Russia in crisis, cont'd

Should the West rush to Boris Yeltsin's aid--and if so how?
THE dilemma posed by the continuing economic turmoil in Russia is all
too familiar. For no clear reason, the markets decide to ditch the country's
financial liabilities (its money, its bonds, its equities). Capital takes
flight, and the currency threatens to collapse. Domestic resources prove
inadequate to defend it. The "international community" is forced to choose.
Stand aside, and see the government fall, with damaging and possibly
disastrous consequences at home and abroad; or offer help, allowing the
government to avoid needed reforms, and telling private investors they will
henceforth be protected from their mistakes.
In these basic respects, Russia is just one more emerging-market economy
indistress. In other ways, it is different--but each difference only
worsens the
dilemma. On a narrow calculation, for instance, the pressure on the rouble is
hard to explain. The currency isn't overvalued. The economy had an external
surplus last year (a deficit is expected in 1998, because of lower oil prices,
but a modest one). The budget deficit has been shrinking and inflation is in
single figures. Boris Yeltsin's new cabinet looks better than its predecessor;
Mr Yeltsin has now announced new measures and has put a zealous reformer,
Boris Fedorov, back in a key job.
This suggests, as many observers insist, that the markets are in a blind
panic. If only western governments pat them on the head and tell them
everythingwill be all right, everything will be all right. Let the West
pledge its help,
offering to underwrite the rouble at its present rate, and there will be no
needto spend a cent: the mere promise will suffice. And the alternative to
renderingthis assistance that will cost so little? As one American official
put it, "Indonesia with 10,000 nuclear warheads". Put this way, the case for
bold western help--for a currency-stabilisation fund big enough to calm the
markets--seems clear. Not so fast. It is wrong to call Russia's latest
crisis a mere invention of neurotic financial markets. Little may have
changed inside Russia within the
past few months to account for the near-halving of the stockmarket's value
this year--but then little changed in the previous two years to justify the
rise in
share prices that preceded the crash. It's true that before the current
turmoil the government had achieved a kind of financial stability, but much
has been
taken on trust. Mr Yeltsin, an erratic leader at best, has grown used to being
given the benefit of the doubt. He and his ministers keep promising
far-reaching fiscal reform, the necessary condition for lasting financial
stability, but
still haven't delivered. This week, supposedly to reassure the markets, Mr
Yeltsin organised a summit of business oligarchs accused by Russia's critics
of running the country for their personal enrichment. In doing that, Mr
Yeltsin himself raised the question: who is in charge?
In light of this, the IMF's apparent reluctance to spring big new money
for Russia seems justified. The Fund has been criticised, with some
justice, for
bailing out reckless private lenders in Asia. It has only one (inadequate) way
to strike a rough balance between promoting global economic stability on
the onehand and reducing moral hazard on the other, and that is to insist
on sound
economic policies in return for its help. In pressing that demand on
governments which run to it for help, it deserves to be supported not
undermined. Convenientas it may be for rich countries to let the IMF take
the blame for financial distress in Asia and now Russia, the Fund is not in
fact the cause and can
hope at best to be no more than a small part of the cure.
Very well, you may say, but the fact remains that Russia is too big, and
too scary, to fail. Maybe so, but that is a foreign-policy question for
western leaders, not a financial one for the IMF. If governments in America
and Europe
think that generous aid without strings is needed to keep Mr Yeltsin and his
team in place, they should say so, and tell their taxpayers why. Next week's
meeting of G7 ministers in Paris is a good opportunity. Delegating
foreign-policy calculations of this kind to the hapless technicians at the IMF
is a bad habit that should be stopped.


Date: Fri, 5 Jun 1998 
From: Dale R Herspring <>
Subject: Lebed

Ref: Hough, Comments

As is normally the case, Jerry Hough raises some very interesting comments
in his discussion of what is happening in Russia at present. I would like
to say that I have an answer for the questions he raises, but alas I
don't. Having said that, I think it is worthwhile for us to discuss some
of these issues in greater detail.

I am struck by the number of Russian politicians I have met who always
tell me that Lebed has no chance to become president and that I should not
waste my time watching him. His recent election win, however, suggests
that my Russian colleagues may be engaging in wishful thinking. 

This raises the question -- what if? Jerry is certainly justified in
expressing concern about a possible Lebed presidency and what happens in
Krasnoyarsk in coming months will be important. Having said that, a
President Lebed looks a lot more probable now than it did two or three
months ago.

Having read Lebed's bio and almost all of his interviews, I don't claim to
be an expert on him, but I do think I have what the Germans call
"Fingerspitzengefuehl," when it comes to Lebed. Permit me to put down
some possible statements regarding Lebed for the sake of discussion. Some
will be obvious, others controversial.

1. Lebed is used to a direct chain of command and will try to impose one
whether he is in Krasnoyarsk or Moscow. This has both advantages and
disadvantages. On the one hand, he will ensure that he has as much
control of matters as possible. On the other hand, he may try to control
some things that are better left alone. For the present, I suspect his
efforts in this area will be appreciated by the Russian public.

2. Lebed shoots from the hip. Whether we are talking about Mormons or
Pinochet, we all know about his tendency to say what he thinks. Having
said that, it is important to remember that does not always follow up on
what he says. He is far from a polished politician. Sometimes I think
that those of us who consider ourselves analysts put too much emphasis on
what someone like Lebed says -- especially when we are talking about a
tough talking general. This does not mean that he will not follow up,
only that a sense of caution is in order.

3. Lebed is prepared to take chances. This is evident from his time in
Afghanistan as well as what he did in Trans-Dniester region. Indeed, one
of his sources of strength seems to be his willingness to avoid

4. Lebed is prepared to take on the system -- as he did with regard to
Chechnya and in Krasnoyarsk. He does not appear to be the careful,
calculating politican who measures his chances and like some American
politicians does whatever he thinks will win him political benefits. I
would not be surprised to see him take on Moscow if he thinks that will
help the situation in Krasnoyarsk.

5. Lebed seems to be learning, albeit not as fast as some of us in the
West would like to see. Compared with what he was saying ten years ago,
he is much more rational. There is still a question of just how flexible
he will be, however.

6. Lebed is a Russian. One of the major debates that has been going on
for some time among political scientists is over what is called the
"rational actor model." In its most simplistic fashion, this raises the
question of how important culture, language and history are. When it
comes to Lebed they are very important. All of Jeffery Sach's models may
have little or no relevance if President Lebed were to appear on the scene
-- that is unless they are placed within a Russian cultural context. 

7. Lebed believes in order. I know a lot of people are concerned about
how Lebed will bring order -- and the possible costs involved -- but I
find it difficult to believe that he will not impose what amounts to some
sort of autocratic regime: one which will be welcomed by many Russians.

8. Finally Lebed is a product of the Russian/Soviet military system and
must be viewed within that context. Unfortunately, there is considerable
ignorance on the part of most observers (both American and Russian) about
this semi-closed world which is falling apart on a daily basis. 
I have argued in the past that Lebed is more complex than most of his
critics have admitted. There is a very simplistic view of how generals
should or will act. What Lebed may be teaching us is that the world of
Russian/Soviet generals is more nuanced that many have been willing to
admit. While anyone who spent this many years in the military will have
been influenced by it, it does not follow that they are all alike or paid 

In short, I think we need to become a bit more sophisticated in our
understanding of this man who has been repeatedly dismissed, but who could
well be Russia's next President. Dale Herspring


From: Tom Adshead <>
Subject: Comment on David Daly's hypothesis on the stock market collapse.
Date: Fri, 5 Jun 1998 

With respect to David Daly's suggestion that the Russian equity market
collapsed because the State imposed dividend payouts on the companies that
it holds. I think that this is incorrect, because in practice, very few
investors look that hard at dividend payouts as a way to value companies.
This is especially the case in Russia, where companies are so opaque, it is
very hard to get a good idea of what their future dividends will be.
Certainly very few of our clients worry about dividends as a basis for
valuing companies. They do get very upset if dividends are announced and not
paid, however.

Abstracting from general fallout from Asia, and the macroeconomic situation,
there are probably two major factors that have driven the market down in the
last two months. First, the Duma vote that foreigners could only own 25% of
RAO EES gave rise to fears that part of the 30% foreign shareholding in the
company would be forcibly repurchased. Since the oil price fell, and the oil
companies fell out of favour, RAO EES has been the major traded stock in
Moscow and New York, and so when it falls, it takes the market with it.

Second, the government, if it was not actually broke, certainly had
liquidity problems. This led to falls in GKO prices, which means that
Russian banks needed to sell equities, or were unlikely to start buying
them, given the attractiveness of GKO yields, and a general feeling that the
rouble would not fall as much as implied by the cost of forwards.

Tom Adshead
Co-head of Research, United Financial Group.


Journal of Commerce
June 8, 1998
[for personal use only]
Guest Opinion
Russia must help itself
James Meek writes for the London Observer Service. This article was 
distributed by Scripps Howard News Service. 

MOSCOW -- Anatoly Chubais, the architect of Russian privatization who 
has just been given chairmanship of the country's electricity monopoly, 
UES, gave an interesting illustration this week of the problems facing 
business people here.

UES, he admitted, owes the government about $800 million. But 
government-financed organizations owe UES about $1.8 billion. Most 
illuminating, a mere 16% of UES's customers pay their bills in money. 
The rest use IOUs or barter goods.

There are many reasons for this, but one of the prime obstacles to 
getting money circulating in Russia is its banking system.

Whether or not the ruble falls (it probably won't, yet), whether the 
rich countries come up with the anticipated emergency loan package (they 
probably will), and whether the government cuts spending to what it can 
afford (it's halfway there), the root problem to address remains the 
freakish way money is kept and how it changes hands between individuals 
and organizations.

The Russian and Asian crises were both caused by investor fear, which 
prompted a flight of capital out of stock markets and currencies. But 
confidence was shaken for different reasons in each case. In Asia, local 
banks had lent too much money to badly run private companies. In Russia, 
it is exceptionally difficult to get a bank loan and rare for any 
business to have what in the West would be considered a normal client 
relationship with its bank.

The panic in Moscow was a reaction to the events in Asia -- because one 
group of emerging markets went down, investors decided it was time to 
stampede out of all of them, including Russia.

Also, the Asian crisis caused the world price of oil and metals, Russia
's main hard currency-earning exports, to fall, forcing the government 
to rely more than usual on borrowing on the bond market from foreigners 
who in turn demanded higher and higher interest rates.

To try to halt the bond madness, Prime Minister Sergei Kiriyenko's new 
government announced it would cut spending instead of borrowing to cover 
it, and would start converting the bonds from ruble-denominated paper, 
with sky-high interest rates, to dollar-denominated. Unfortunately, he 
presented the program badly, and two things turned nervousness into 

One was the failure of the government to attract any bids for the sale 
of what was once considered a jewel of privatization, the state oil 
company, Rosneft. This blasted a $2 billion hole in the state's 
precarious finances. The other was Parliament's passing a law that 
banned foreigners from holding a cumulative stake of more than 25% in 
any Russian energy company. This would have been fine, except that 
foreigners already owned 30% of the electricity monopoly, UES.

The end result is that Russia finds itself with interest rates of 150%, 
precariously low reserves, a collapsed economy that is now frozen just 
as it was beginning to grow again, and a government about to impose 
severe public spending cuts on a public that thought it had already 
experienced the worst.

But the situation is not hopeless. What is most important is not how big 
a package of loans Washington and Bonn can come up with to save Boris 
Yeltsin, but how far the Russians themselves can change their attitudes 
and ways of working.

It is striking how much agreement there is among economists across the 
left-right spectrum on what is wrong with Russia. First and foremost, 
there simply isn't enough money in the economy. The millions of people 
who are owed wages and the prevalence of barter as a means of trade 
between companies is not just because of strict government control or 
poor tax collection.

Nor is it just because of companies that should have been declared 
bankrupt years ago. It's also because commercial banks don't have the 
sheer mass of liquid money corresponding to the size of that 
considerable part of the Russian economy that is working and has a 

Partly it's the banks' fault. They're greedy, unreliable and think 
short-term. People prefer to keep their savings under mattresses rather 
than in the bank because the banks don't pay good interest, aren't 
secure, make it hard to withdraw money and don't provide the most 
elementary services, like checkbooks.

Partly it's because the owners of companies -- many of the richest of 
which are simply run-down old state raw materials producers -- smuggle 
vast amounts of their income abroad and keep it there. Indeed, many 
commercial banks are simply conduits for a single big company.

The Group of 7 industrialized countries may choose to bail Russia out 
with extra money this time; they may not. Either way, it's futile to 
ascribe to the West an all-important role in the country's future 
prosperity. The secret of a happy outcome is in Russia itself. Russia's 
prosperity depends on the Russians. 


>From RIA Novosti
Obshchaya Gazeta, No. 22
Jun 1998
By Yevgeny IKHLOV

With the dismissal of Anatoly Borisovich Chubais, who has
been nicknamed ABCh, from the government our radical reformers
for the first time since 1992 have no representation in the
upper circles of government (Chubais's present post in the RAO
Unified Energy System of Russia, or RAO YES, cannot be
qualified as a top-level position). Chubais was the last of
Yegor Gaidar's team of trail-blazers and the last who
symbolised the genetic links between the present regime and
the liberal revolution of the early 90s. No matter how
strongly Boris Nemtsov, Sergey Kiriyenko or Viktor Khristenko
might feel to be "the young reformers," it is not their names
that the public associates with Russia's desperate
breakthrough into the market. That is why neither they
together nor anyone of them personally can replace Chubais who
has won the title of "Russia's main capitaliser."
What are the prospects for Chubais and the team of
liberals of which he is the indisputable leader? What is more
important, how, with whom and whereto is the part of public
activists, of whom there may be rather few but who have
considerable resources of influence and for whom "liberalism"
and "Gaidarism" are not four-letter words but the banner, to
go now?

Options for ABCh

What are the options for Chubais's political career?
Option One: he may follow suit with Sergei Shakhrai and
become the "all-time handler of sensitive knots" and, often
fulfilling Boris Yeltsin's unpredictable will, stop all kinds
of gun-ports up (for instance, RAO YES), run increasingly
small errands until he finds himself pushed into the dirtiest
corner of Russian politics and probably save Yeltsin for the
last time.
Option Two is the way of an iron chancellor of the bronze
monarch. This option depends completely on the President: if
he dares to adopt the purely absolutist variant of government
and use his omnipotent power for a breakthrough into the
kingdom of unrestricted capitalism, then ABCh will be again
called up and given carte blanche. Chubais as a public servant
needs the authoritarian leader because he himself is no
leader. If he would have such extremely reliable cover for a
few coming years he would pursue his course to the end and
make a name in Russia's history.
Option Three is the role of the "main liberal guru" which
Gavriil Popov, Gennadi Burbulis and Yegor Gaidar have already
played before him. It is to provide tacit assistance to the
new team of rabid pro-capitalist politicians and economists,
prepare programs and call press conferences attended by the
decreasing number of journalists.
Option Four is the way of an independent and active
politician who, at the head of his own party, would personally
(or in cooperation with some other familiar political
personality of similar orientation) try to get his share of
influence and his own seat in parliament and in that capacity,
that is as the leader of right-wing liberal forces, would
uphold his own ideas and the interests of his group.

Options for His Party

What can be undertaken by those right-wing liberal
reformers--pro-market officials, businessmen, managers,
intellectuals, representatives of liberal professions and
private-sector employees--who regard Chubais as their
political representative? Being natural pragmatists, they may
try to find for themselves a new ideological leader possessing
enough real power for the implementation of the needed policy.
It is quite likely that the President's new favourite,
Kiriyenko, may become such a leader. But Kiriyenko is a 100%
technocrat; he is no ideologist. And it is unclear whether he
is capable to become the ideologist of the conservative course
of reforms.
They may adjust themselves to the new realities in the
hope that things will take their natural course, anyway, and
all the roads are open for them because they are so vigorous
and successful. In that case their cause, "the Gaidar-Chubais
cause", will at best be postponed for many years or will go to
rack and ruin, as was the fate of Stolypin's cause.
If, however, they want jointly and in an organised manner
to protect their positions, they will have to create a party
of their own. In that case the first question which they will
have to answer will be about the basis on which it should be
built. It is impossible to turn Russia's Democratic Choice, or
DVR, led by Gaidar into an efficient organisation. It is a
small and very "tired" structure which has lost its prestige
in society and belief in its own political future. Even if a
number of its "little brothers and sisters" from the
right-of-centre bloc joined it, it would all the same be an
inviable branch of political evolution. If a new party
comprising not only intellectuals is to be created, on whom
can they pin their hopes?
There are two socially leading groups in the country--the
'bourgeois bureaucracy' and the free petty bourgeois medium
which our propaganda workers wistfully call the 'middle
class'. Both strata are pro-market and their alliance was the
earnest of Yeltsin's victory in July 1996. 
Their more advanced representatives readily support the
Chubais course, which is Right-Liberal. But their realistic
class interests are gradually, and increasingly, diverging:
the bourgeois administration is becoming stronger to exert
increasingly greater pressure on the independent businesses,
while the business community rarely views Yeltsin's state as
the defender of its interests these days. 
It is quite possible that the demise of the 'Yeltsin
alliance' will be formalised--on the eve of the next
presidential election--and the OHR will fall apart into a
'party of the Governors' and a 'party of the bourgeoisie.' 
In the coming decade, the struggle of the two 'parties'
is likely to become the main political intrigue, which will
open great vistas for Chubais. 
Clearly, Chubais is the only one who can undertake to
form the Right-Liberal 'bourgeois' party. The task is likely
to prove to be rather complex even for Chubais. The reality is
that the more Liberal representatives of the administration
and the private sector can ensure a tiny electoral base of the
'Chubais-ism' (which will look rather prominent in the beau
monde circles and the media). 
Any attempt to enlist the support of the market-oriented
and pro-West bureaucracy can give but little to a person who
is not in power, if only formally. 
The free bourgeois medium is not organised or emancipated
politically, and is pining to get rid of the 'merchant' image
and get the proud name of the 'bourgeois class.' The medium
seems to provide good prospects for Chubais the party builder.
But our small and medium business people are too close to the
'people' and shares many of the 'popular' apprehensions of
To enlist support in the medium, Chubais will have to
become a loud-mouthed conductor of the essentially tough
petty-bourgeois mentality which rejects the Left-Liberal ideas
of an expensive state, inflated social programmes and human
Suppose the 'Chubais men' have managed to build a united
and efficient political organisation. What is in store for
them? They will hardly be able to become the 'party of power'
in the next two or three years. The logic of reality will
force them to form a union with the OHR or the 'party of the
Governors' which has replaced it. Rubbing shoulders with the
nomenklatura gurus and the young power-hungry opportunists,
they will find it hard to push through their highly un-popular
and rather radical programme which infringes on the interests
of the traditional elites and the bureaucracy who live,
breathe, eat and drink the legislative chaos. 
So what is there to be done?
One alternative is to support the 'popular' capitalist
Nemtsov, build a 'broad democratic alliance' for him, be
elected to the new Duma and start forming a faction of their
own. But in this case they will be far removed from the
realistic power. 
The wisest thing they can do is to be disciplined enough
to back up a 'single candidate of the reformist forces', i.e.
a creature of the nomenklatura, in the very first round of the
presidential election. 
On the other hand, once they obtain a parliamentary party
of their own, the Right Liberals would have a uniquely large
room for manoeuvre in the conditions of a fatal split between
the 'fathers' and the 'children.' They could become junior,
but highly influential, partners of the neo-nomenklatura boss
- be it Chernomyrdin or somebody else. 
Of course, the above is very hard to do. To meet all
above conditions, Chubais will have to spin like a top, as the
saying goes. Being a political leader is something he has no
knack of. Unlike Gaidar, Shakhrai, Shumeiko and other 'party
builders', Chubais has proven his knack of building strong,
united teams and viable, efficient structures, which is
probably the only earnest of his eventual success. 


Moscow Times
June 6, 1998 
BOOKWORM: A Russian Tradition: Officials Who Steal 
By Igor Zakharov
Special to The Moscow Times

When asked to give the shortest possible description of Russia's 
administrative system, Nikolai Karamzin, the great Russian historian and 
courtier to Emperor Alexander I, said: "They steal." 

These words are still valid today, nearly two centuries later. 

When KGB Colonel Valery Streletsky was appointed in late 1993 to head 
the anti-corruption department inside the government, his new bosses, 
generals Alexander Korzhakov and Mikhail Barsukov, greeted him with the 
following words: "Your job will be a difficult one; a heavy burden ... 
Bureaucrats have become truly brazen. They don't hesitate to take 
bribes, they lobby the interests of commercial structures. Your job is 
to establish order in the government machinery. But you have to move 
carefully. Thereare some decent people in the government, too." 

Scenes such as this, as well as details of Streletsky's investigative 
work in the White House from 1994 to 1996, are presented in his new book 
Mrakobesiye. The title is formally translated as "obscurantism," but the 
Russian word conveys the image of devils and darkness, which conforms 
more closely to the spirit of the book. 

Streletsky's most famous act was probably his arrest of two presidential 
campaign workers who were leaving the White House with a box full of 
money in June 1996. In so doing he inadvertently caused the dismissal of 
Korzhakov and Barsukov. 

The book hit the market earlier last week, and street vendors are 
selling it for the comparatively hefty price of 50 to 65 rubles 
($8-$11). The initial print run of the book, which has 300 pages of 
text, as well as many color photos and black-and-white reproductions of 
incriminating documents, is also rather high -- 25,000 copies. 

It is rumored that many publishers refused to work with the book. A new 
publishing house, Detective-Club, was established for the task. I 
personally do not see what all the fuss is all about. 

However gloomy the contents, there is nothing new here. Practically all 
of the book's revelations have been previously published in newspapers, 
particularly Moskovsky Komsomolets. 

But it is a very convincing text that will be widely read by the general 
public and by foreign correspondents, as it is much easier to use than 
dozens of clippings from different periodicals. 

The book will never attain the fame of Korzhakov's best seller "From 
Dawn to Dusk." It has no similar literary merits and is, in fact, simply 
dull. But when I took the trouble to write down the names of the 
high-ranking bureaucrats accused by Streletsky of corruption, the index 
was a virtual Who's Who of government officials: Boris Berezovsky, 
Sergei Filatov, Alexei Ilyushenko, Viktor Ilyushin, Sergei Shakrai, 
Vladimir Shumeiko, and many other Russian officials of the highest rank. 


Return to CDI's Home Page  I  Return to CDI's Library