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CDI Library > Johnson's Russia List

Johnson's Russia List
 

 

June 9, 1998   
This Date's Issues: 2211 2212



Johnson's Russia List
#2212
9 June 1998
davidjohnson@erols.com

[Note from David Johnson;
1. Toronto Sun: Matthew Fisher, Russia's broken:10 ways to fix it.
2. AP: Russian Official Arrested.
3. Rossiiskaya Gazeta: DON'T BE OVERCAUTIOUS WITH RUSSIA.
(Yeltsin interview with Der Spiegel).

4. N.M. Switucha: Re. Norman Levine's "Dismantling Russia."
5. New book: Andrei Kokoshin, Soviet Strategic Thought, 1917-91.
6. Moscow Times: Bill Fick, WEB WATCH: Russian Net Fights Regulation.
7. New York Times letter: Stabilizing the Ruble.
8. St. Petersburg Times: Matthew Murray, A Western Take on Fraud.
9. The Electronic Telegraph (UK): Alan Philps, Yeltsin tells bankers to back
rouble.

10. New York Post: John Dizard, RUSSIAN BONDS CLEAN UP BUT SCENE 
IS STILL A MESS.

11. Washington Times: Bill Gertz, Russian bombers train to strike U.S.
12. Finansovye Izvestia: Leo Makarevich, RUSSIA TO FACE ANOTHER CRISIS 
THIS SUMMER. (Teaser excerpt).]


*******

#1
Toronto Sun
June 8, 1998 
[for personal use only]
Russia's broken:10 ways to fix it
By MATTHEW FISHER ( 74511.357@CompuServe.com) 
Sun's Columnist at Large

MOSCOW -- Well-meaning lads from the International Monetary Fund and from
western finance ministries are nervously arranging another multi-billion
dollar bailout for Russia. 
Here is a list of non-financial terms that should, but never will, be
demanded of Russia before more good money is thrown away. 
1) All Mercedes-Benzes, BMWs, Cherokee Chiefs, Land Cruisers, Yukons and
Range Rovers so beloved of Russia's crooks and kleptocrats must be
confiscated, as few of their owners have done anything to deserve such
ostentatious perquisites. 
2) Every traffic policeman must be locked up as virtually everything the
"GAI" does is blatantly corrupt and illegal as well as a hindrance to the
orderly flow of cars and trucks. 
3) Customs officers must be locked up en masse, too, until and unless
they understand their first duty isn't to delay imports and exports in
order to take their cut. 
4) Illegal Soviet-style document checks must stop now and forever as
they are one of the primary means by which the supremely useless "militsia"
line their pockets and by which dark-skinned people are singled out for
exploitation and humiliation. 
5) Flashing blue lights which allow limousines to race past other
traffic at ridiculous speeds must henceforth be reserved only for
presidential and prime ministerial motorcades rather than for thousands of
faceless government flunkies and hoodlums. 
6) Russia's colossal army of under-employed limo drivers must be
transferred to meaningful traditional work such as helping with the potato
harvest while those they chauffeur reacquaint themselves with the vagaries
of Russian public transport. 
7) Senior government officials must no longer be allowed to distribute
land for dachas to cronies from the disgraced communist "elite." A ruthless
watch must also be kept on the cabal of "biznizmen," senior soldiers, cops,
apparatchiks and pols who own ever grander summer homes that are completely
out of whack with their reported earnings. 
8) Moscow's Shermetyevo Airport charges some of the highest landing fees
anywhere. Authorities there must therefore be compelled to occasionally
provide toilet paper for the washrooms. Western experts forever coming to
Russia to sing its praises as a democracy and market economy deserve better. 

9) Immigration checks which follow the ancient, unsmiling, uselessly
persnickety and time-consuming Soviet formula must end so that travellers
working in the loan and debt industry can get more quickly to their
five-star hotels and to ultra-expensive restaurant confabs where they
gravely puzzle over how such a huge country with so many resources could
get so messed up. 
10) Still, alas, at dowdy Shermetyevo, gangs of surly, unkempt thugs who
demand $100 and more to transport passengers to the city in rickety Ladas
and Volgas must be forcibly educated as to minimum standards of civil,
capitalist behavior. 

RESPONSIBILITIES SPELLED OUT 
The West has certain responsibilities vis-a-vis Russia, too, and they
should be spelled out before the geniuses in the Kremlin and their pals in
what passes for a business community are permitted to feast on any more
western lucre. 
1) Obscene profits by European and American banks arranging emergency
loans to Russia must immediately cease. The bandits who run these firms
must make abject apologies for bad, old loans that Russia's
"steal-what-you-can" ruling classes have spent on themselves rather than on
their wretched compatriots. 
2) Western financial institutions and governments must rigorously trace
loans that Russian insiders have scooped up and stashed overseas and devise
ways to steal the money back. 
3) Western correspondents, editors, professors, diplomats and political
leaders must forthwith stop the absurd practice of referring to Russia's
top mobsters and oligarchs as "industrialists" and "bankers" as this
confers upon them a status they have not earned. There is virtually no
industrial activity in Russia today and little banking is conducted
according to any normal understanding of the process. 
4) Foreign bagmen whose fanciful, misbegotten notions about the former
Workers' Paradise have been shaped during visits to the island of
loan-generated artificial prosperity found within Moscow's Garden Ring,
must experience how little good western money has achieved by sampling
quotidian life in at least five of the following: a mining town; one of the
country's 70,000 idle factories; a hospital; a military base; a collective
farm; a prison; a pensioner's communal flat; any Elektrichka commuter train. 

********

#2
Russian Official Arrested 
By Vladimir Isachenkov
June 9, 1998

MOSCOW (AP) -- The head of Russia's government statistics service has been
arrested on charges of helping big companies evade taxes, officials said
today. Investigators said they found over $1 million in cash at his
apartment. 
Yuri Yurkov, head of the State Statistics Committee, was arrested late
Monday along with several other senior employees, government spokesman
Alexei Volin said. 
The arrests could have far-reaching economic implications for Russia if
it turns out that data government officials rely on to make policy and
collect taxes was manipulated. The government loses billions of dollars in
potential revenues every year due to tax evasion by big companies and their
executives. 
Those arrested Monday were charged with ``systematic distortion of
statistical data on big companies, which allowed them to evade taxes,''
Volin said. Those arrested also were alleged to have sold classified
information about rival companies' performance. 


Investigators seized more than $1.5 million in cash -- $1 million of it
during a search at Yurkov's apartment -- and a large amount of jewelry from
those charged, he said. 
The Russian Prosecutor's General office said that Yurkov's deputy,
Valery Dalin, and the head of the agency's data processing center, Boris
Saakyan, were among those arrested. 
Yurkov and Saakyan made statements in which they pleaded guilty to the
charges, a government statement said. 
Altogether, more than 20 people were involved in the scheme, the
prosecutor's office said. 
Russia's new tax enforcement chief, Boris Fyodorov, said he had no
information about Yurkov's arrest. At a news conference, Fyodorov pledged
once again to enforce the law equally against all tax dodgers. 
Fyodorov said his first targets will be rich Russians and foreigners.
Noting that Western bankers in Russia have advised the government on how to
establish a tax system, he said, ``Our good friends who help us collect
taxes don't always pay themselves.'' 
Yurkov and his alleged accomplices were accused of manipulating economic
data to hide the real output of companies and reduce their tax liability. 
Yurkov, chief of the statistics agency since 1993, is one of the
highest-ranking Russian officials to be arrested in recent years. 

*******

#3
>From RIA Novosti
Rossiiskaya Gazeta
June 9, 1998
DON'T BE OVERCAUTIOUS WITH RUSSIA
On the eve of his visit to Germany, 
President Boris Yeltsin was interviewed
by the magazine Der Spiegel. This is an
abridged translation of the interview.

Question: Has Russia overcome the financial crisis?
Answer: You have formulated your question precisely: not
only Russia but also the world's entire financial system has
been hit by crisis. It could not fail to affect Russia, even
slightly. That is why we had to exert enormous effort: all last
week we worked practically round the clock.
I could not just issue a resolution, "Sort out as soon as
possible". Russia needed support. It was important to show that
this country had vast reserves and considerable financial
resources and that the Russian financial market was not going
to tumble. In any case, we have passed through this stage of
the crisis with the support of America, Britain and France.

Question: And Germany?
Answer: And with the support of Helmut Kohl. But now we
are not asking for money as we used to do. We are not asking
for alms. That period has ended for Russia. 

Question: Do you mean to say that you haven't asked for
money?
Answer: We needed political support. I called my friend
Bill Clinton and said: "Make a statement that you support the
new Russian Government and the President. For the Russian
reform to continue, American investors should not flee from the
Russian financial markets".

Question: What was his reaction?
Answer: Thirty minutes after our conversation Clinton made
his statement. Germany, France and Britain followed suit. When
mighty Russia receives such aid, no one will put us on our

knees.

Question: What did you do inside the country?
Answer: The other day I summoned the leading bankers and
told them: "Don't you forget where you work. You work in Russia
and you must work for Russia. True, you are members of the
international financial community, but if anyone forgets just
for a minute that he works in Russia, I guarantee that there
will be one head fewer. 
Thanks to the measures taken in this country and support
from other countries, especially the seven great powers, we
believe that we have passed the peak of the crisis. Foreign
investors have no reason to panic".

Question: What will Russia look like by the end of the
century, that is next year already? Will it be a prospering
country with well-to-do citizens, a booming economy and
security in the streets and on the borders?
Answer: The beginning of the third millennium is near. It
would be unrealistic to expect Russia by that time match the
level of the leading industrialised nations in terms of living
standards. No country ever became prosperous overnight. This is
impossible.
The more so since we have too many economic and social
problems today. Unfortunately, external conditions have
deteriorated too, largely owing to the financial crisis in Asia
and the falling price of oil.

Question: What is to be done to increase budget revenues
without encouraging inflation?
Answer: Taxes are the main source of finances for any
state. Russia is no exception. However, since our industry is
not working to its full capacity yet and tax collection is low,
we have to offset the shortage of funds by borrowing abroad.
We are not taking this situation lying down. The new
Government considers the recovery of industrial production one
of its main tasks. We shall make more vigorous efforts to
improve the taxation system and allay the tax burden.

Question: You have not met any of your foreign colleagues
as often as the German Chancellor. Nevertheless, there is
disappointment in Russia: Germany holds sixth place in
investments in Russia.
Answer: As for general state of our economic ties with
Germany, they are doing well. Your country is indisputably
Russia's main trading and economic partner in the world,
leaving other countries, including the United States far
behind.
However, German business people are too cautious in
exploring the Russian market. This is not always justified. I
hope their sentiments will change. 
This process may be accelerated by the Co-operation
Council, which is closely tackling the entire range of
Russian-German economic issues. It is an authoritative
structure, headed by the economics ministers and having among
its members leading representatives of the business communities
of the two countries.
Mr. Kohl and I are closely watching the work of the
Co-operation Council. Specifically, we have agreed to discuss
its projects and new ideas at our forthcoming meeting in Bonn.

********

#4
Date: Mon, 8 Jun 1998
From: "N.M. Switucha" <mykola@travel-net.com>
Subject: JRL 2208, 5 June 1998


I wish to comment briefly on Norman Levine's article " Dismantling Russia"
published by the Journal of Commerce 5 June 1998 (JRL 2208)
Like many scholars influenced by predominantly Russophile history
textbooks,
Norman Levine interprets the Brest Litovsk treaty of February 9, 1918
from the perspective of the Russian empire. In reality, that empire ceased
to exist
with the Bolshevik "October" revolution, which was followed by a series of
declarations of independence by the non-Russian subjugated nations, including
Ukraine and the Baltic states. The declaration of Ukraine's full
independence from Russia 
on January 22, 1918 in Kyiv provided a legal basis for the delegation of the
Ukrainian National Republic (UNR) to sign at Brest Litovsk a "Treaty of
Peace" with the Governments of Germany, Austria-Hungary, Bulgaria
and Turkey ending the state of war, confirming the international frontiers
and establishing bilateral diplomatic and consular relations.
With strong elements of the Red army attacking Kyiv, the UNR Government
was forced to
evacuate the capital before the treaty was signed. Anticipating victory, 
the Soviet government
in Petrograd initially opposed the Brest Litovsk treaty, but in March 1918
Lenin himself
accepted its provisions thus recognizing Ukraine's independence and
committing the Soviet
government to conclude at once a peace with the Ukrainian National Republic. 
Clearly, the Russian empire no longer existed and was not a party to the
Brest-Litovsk Treaty.
Lenin's never intended to keep his commitment. Failure of the Red army to
withdraw from
the Ukrainian territory prompted the UNR government to request German
assistance. By March 1, 1918 Ukrainian forces again took over Kyiv, but
fighting
continued and eventually led to a German-inspired coup against the
legitimate Ukrainian
government. 

********

#5
From: Cameron_Half/FS/KSG@ksg.harvard.edu
Date: Tue, 9 Jun 1998 10:17:40 -0400
Subject: Book by Andrei Kokoshin

Announcing a new BCSIA Study in International Security
Soviet Strategic Thought, 1917-91
By Andrei A. Kokoshin

Dr. Andrei Kokoshin is Secretary of Russia?s Security Council and Russia's
Chief Military Inspector. These two positions make him President Boris
Yeltsin's most important civilian adviser on national security matters. He
is widely regarded as the "man to watch" in the making of Moscow's military
policy. President Yeltsin has given Dr. Kokoshin unprecedented authority
to coordinate and restructure Russia's armed services and intelligence
agencies and to ensure that Russia pursues a coherent and unified defense
and security policy. Dr. Kokoshin's previous experience includes five
years as Russia?s First Deputy Minister of Defense (1992-97) and two
decades at the Institute of the USA and Canada of the Soviet Academy of
Sciences. He has published a dozen books and many more articles on
international and defense issues.

Soviet Strategic Thought, 1917-91 offers unique insights into the thinking
of one of Russia's top defense officials. In this book, Dr. Kokoshin
presents a detailed, insightful analysis of past trends in Soviet and

Russian military thinking and what they mean for Russia's future. In the
historical sections of the book, he analyzes how Soviet strategic experts
thought about the relationship between policy and strategy, the threats to
the Soviet Union, and the relationship between offense and defense in war.
Dr. Kokoshin argues that the Soviet Union?s communist ideology frequently
distorted its strategic thinking and undermined the pursuit of national
interests. Ideology contributed to the erroneous belief that future wars
would be class-based revolutionary conflicts. It produced excessive faith
in offensive forms of war and plans to fight an ?uncompromising and
decisive war until the adversary was totally defeated.? It also led to the
purges in the 1930s of Soviet generals who were familiar with German
military strategy and tactics, preventing the Soviet Union from recognizing
and responding to the Nazi threat. Until the 1980s, communist ideology
prevented Soviet military thinkers from understanding the implications of
the nuclear revolution. And the ideologically-driven attempt to build
empires in the ?socialist commonwealth? and the Third World undermined the
Soviet economy and contributed to the USSR?s collapse.

Dr. Kokoshin finds ample evidence of careful strategic analysis during the
Soviet period?especially in the writings of Aleksandr Svechin during the
1920s?but much of this analysis was disregarded by the Kremlin and many of
the best military analysts were purged.

Looking at Russia?s contemporary strategic situation and guided by his
assessment of the mistakes of past, Dr. Kokoshin offers the following
prescriptions for the future:
Nuclear weapons remain the cornerstone of Russia?s status as a
military superpower and the ?backbone of Russian deterrence.? Strategic
and tactical nuclear forces should be retained to deter aggression against
Russian and its allies. Russia should maintain its nuclear arsenal and
oppose attempts to build strategic defenses against ballistic missiles.
Russia must develop a strong sense of national self, based on a
unifying Russian idea, in order to pursue an effective national security
policy. Strengthening Russia?s culture, society, and self-confidence are
as important as maintaining a strong military.
Russia should draw on its defense-industrial complex to maintain its
international competitiveness in advanced technologies. Enterprises in
this sector may need to be supported by an industrial policy so that they
can serve as ?locomotives? to pull Russia?s economy forward.
Instead of concentrating solely on its relations with the United
States, Russia should develop partnerships with many other nations,
including China, India, France, and Germany.
Russia?s conventional armed forces continue to be crucial safeguards
of national security, but they need to be reformed. The entire Russian
military needs better recruitment, education, and management. In the past,
Russia and the Soviet Union have often made the mistake of militarizing
foreign policy; now the pendulum is swinging too far in the opposite
direction.


For further information, contact:
Beth Jannery, Communications Officer, BCSIA, 617-495-9858
E-mail: Beth_Jannery@Harvard.edu
Soviet Strategic Thought, 1917-91 is published by The MIT Press.
To order call 1-800-356-0343 or 1-617-625-8569
ISBN 0-262-61138-4 Paperback $20.00

********
#6
Moscow Times
June 9, 1998 
WEB WATCH: Russian Net Fights Regulation 
By Bill Fick
Special to The Moscow Times

Just when the Russian Internet community started to breathe easier as 
the threat of onerous regulatory legislation in the State Duma faded, 
blood pressure jumped again May 26 when the Federal Television and Radio 
Broadcast Service held hearings to discuss license requirements for 
posting audio and video materials on the net. 
Back in February, a series of amendments to the proposed new mass media 
law specified that "computerized information" and "messages and 
materials distributed via computer networks" shall be included in the 
definition of "mass media," thus making websites potentially subject to 
the same complex and expensive registration as a TV station. Good sense 
appeared to prevail, however, when amendments were introduced exempting 
the Internet. 
The broadcast service hearings in May carried the threat of equally 
pernicious rules by administrative fiat based on the existing mass media 
law and established licensing procedures. As early as November 1997, a 
document signed by the head of the registration and licensing department 
of the broadcast service, Igor Ivanov, stated that the "existing law for 
radio and television programming applies to periodic distribution of 
mass information via systems of teletext, videotext and other 
telecommunications networks." Thus, "radio, TV and video programs 
transmitted on cable and computer networks (including the Internet) 
should be conducted only by those in possession of the relevant 
license." 
Apparently because of the Internet's global nature, the memo also 
stipulated that "licenses for Internet broadcasts can be issued only 
subject to agreement with the Ministry of Foreign Affairs." While these 
rules would only affect online broadcast of actual audio and video 
material, the prospect they might be enforced without a clear 
requirement to do so could have become a frightening precedent. 
In the end, much to the relief of the net community, the broadcast 
commission declined to institute the proposed registration requirements 
and expressed unanimous support for the free distribution of information 
over the Internet. The commission also decided that any mass media 
organization that broadcasts exclusively on the net can register as an 
official mass medi a organ with the broadcast service. Internet 
broadcasters enjoy a choice, not a burden. 
This fortuitous decision came thanks in no small part to Sergei Kamarov, 
the technical director of the "Ekho Moskvy" radio station, who argued 
against the new rules. Kamarov has created a web site devoted to these 
events containing related documents and a discussion forum at 

http://www.slovo.rinet.ru. Kamarov's statement to the commission was 
rooted in references to the Global Convention on Human Rights and an 
eloquent defense of online self-expression. He could have bolstered his 
position even further with practical arguments: By placing obstacles to 
Internet publishing in Russia, the government would simply drive web 
sites offshore and hinder Russia's ability to use emerging communication 
technologies for economic gain. Precisely these practical arguments may 
prove most effective against critics who fear the Internet and have 
never seen a regulation they don't like. Kamarov posted one such 
critic's testimony on the website. The line of reasoning is interesting: 
The Internet is a phenomenon that cannot and should not be stopped, but 
since the rest of the world is considering regulations, Russia should be 
at the forefront of rulemaking as well. The irony of holding up China 
and Singapore as examples of wisdom is lost on such individuals. 
If anybody still had doubts, this series of episodes shows convincingly 
that the net has crossed a threshold of "visibility" and will be subject 
to increasing government scrutiny here in Russia. Inevitably, this 
attention will foster both regulatory legislation and bureaucratic 
initiatives not necessarily grounded in actual law. 
There is nothing inherently evil in this. Clarification of the extent to 
which existing rules of the world apply to the Internet, such as 
criminalizing online credit-card fraud, could help facilitate the growth 
of electronic commerce. 
However, in Russia, historical reflexes often threaten to prohibit much 
more than necessary. It is no longer enough for Russian netizens to play 
ostrich and hide their heads in the virtual sand so that the real world 
won't notice them. Hoping to avoid any regulation is no longer 
realistic. Instead, the net community here will need to unite in the 
common cause to shape the regulatory environment and seek explicitly to 
exempt web sites from onerous licensing and other threats to free 
expression and information exchange. 
Bill Fick s co-founder of Samovar Internet Consulting, LLC. Web: 


http://www.samovar.ru; e-mail: bill@samovar.ru. 

*******

#7
New York Times
June 9, 1998
Letter
Stabilizing the Ruble

To the Editor: 
It is puzzling to see Jeffrey D. Sachs (Op-Ed, June 4) take issue with
Russia's efforts at exchange-rate stabilization, especially as he admits
that a steep devaluation could cause a "severe" crisis. Exchange-rate
stability is needed to protect the viability of well-run Russian domestic
financial institutions and industrial enterprises, avoid serious contagion
effects on neighboring economies, and preserve hard-won gains in the reform
effort. 

And high interest rates, which Mr. Sachs claims will cripple the
economy, will fall as confidence returns. These remedies are not an
invention of the International Monetary Fund but the results of experience
shared by the international financial community. 
The $670 million Mr. Sachs says the monetary fund has promised to
"speed" to Russia is an amount that Russia has been entitled to under a
1996 three-year loan agreement, provided Russia carries out -- as it is
doing -- fiscal and other re-forms.
JOHN ODLING -SMEE
Director, European II Dept. International Monetary Fund
Washington, June 5, 1998 

********

#8
St. Petersburg Times
June 9, 1998
A Western Take on Fraud 
By Matthew H. Murray
Matthew H. Murray is president of Sovereign Ventures Inc./Bronze Lion ZAO,
a management consulting group specializing in direct investment and small
business development in Russia. 

A SIGNIFICANT risk involved in doing business in Russia is the
unexpected. Russia is host to an array of ambiguous laws, arbitrary
government officials, uninvited partners, non-tariff barriers and
logistical traps. Any one of these can spring a nasty surprise on business,
for which there is only one thing worse than bad news - bad news delivered
too late.
Perhaps because it is least expected, however, the most unmanageable
type of risk often emanates from Western quarters in Russia - from a
fraudulent partner or client. Due to Russia's overall legal chaos and
difficulties encountered in enforcing contracts, the Russian business
environment attracts all variety of charlatans from the West - some of whom
meet their fate, others of whom flee with the goods.

As the Russian market becomes more efficient, it becomes increasingly
critical to discern whether Western parties actually have the financial or
managerial capacity to fulfill their stated objectives. The most obvious
types of fraud can be screened by common sense and due diligence, including
company reports and reference checks.
The highest risk stems from Western parties who would pass standard due
diligence because they have a significant corporate name, professional
association, franchise or even charitable mission behind them. Such parties
can cause irreparable damage by misrepresenting their intentions in a way
that leads local companies materially rely upon them.
The fact that an individual represents a well-known Western corporation
or institution does not necessarily mean he or she conducts business in the
spirit of good faith and fair dealing. Many such parties adopt the attitude
that in Russia anything goes, and make whatever representations suit their
immediate purposes. They often promise local partners or advisors future
benefits from being associated with a substantial Western enterprise in
Russia, and then appropriate know-how or resources without providing
compensation or sharing profits.
Given the high casualty rate for foreign business, discerning where
failure ends and fraud begins can be difficult. Many Westerners who commit
fraud in Russia do not start out with this intention. But when their
notions of making quick money encounter the stubborn forces that defeat
foreign investors - red tape, inefficiency, and delay - they become
desperate. In order to elicit support from local advisors and partners,
they make promises they cannot keep. When their resources begin to
dissipate, they abandon their allies in search of protective ground.
Failure, of course, does not excuse fraud. Indeed, many types of fraud
adroitly use Russia's complexity as the ideal setting for their tales. One
sign you may be a victim of fraud is the constant refrain that were it not
for this obstacle or that delay, you would certainly be paid.
A particularly insidious type of fraud is perpetrated by those
Westerners who believe Russia can be conquered single-handedly if only they
possess the right insider information. While making grand representations
to ingratiate themselves as partners or employees of an established
business, they ply their Russian counterparts for information. Once they
acquire the know-how they deem necessary for success, they create a pretext
and leave to find a new partner. That such parties are deluded in the
belief they can proffer information, does not alter the damage they do by
trying.

There are ways to detect and ferret out Western parties who would
perpetrate fraud. One clear sign is the desire to make money quickly
without first creating value. Another is unwillingness to operate legally
in Russia by registering and paying taxes. While waiting to commence
official operations is sometimes warranted, in many cases, the parties
simply are not willing to engage or share the risk of building a durable
foundation.
Most important, if you doubt its representations, do not assume a
well-known corporation or institution would not engage in fraudulent acts.
Similarly, do not rationalize dubious actions on the grounds that the party
would be foolish to think he could get away with it. Each successful fraud
has one skill in common - he can act in manner that makes others act upon
their foolish thoughts.

********

#9
The Electronic Telegraph (UK)
9 June 1998
[for personal use only]
Yeltsin tells bankers to back rouble
By Alan Philps in Moscow 

RUSSIAN bankers may "lose their heads" if they are caught speculating
against the ailing rouble, President Yeltsin has said.
Mr Yeltsin's threat was disclosed just before his arrival yesterday in
Bonn where he is relying on Chancellor Kohl to back his government as it
tries to cope with the financial crisis that saw interest rates hit 150pc
last month.
In an interview with the magazine Der Spiegel, Mr Yeltsin was asked
about Russian's reliance on "hot money", or speculative finance, to plug
its budget deficit. He said he had told Russian bankers: "If you forget for
one moment that you are working in Russia, then I guarantee that in
response someone will lose his head."
After his warning, 10 leading Russian bankers and magnates issued a
statement on Friday endorsing the government's anti-crisis programme.
The President made clear that his threat was not directed at the
international banking community, only at Russian institutions. But it
highlights the Kremlin's concern at the ruthlessness of modern financial
markets in exploiting economic weakness.
Mr Yeltsin said he would not be "begging" in Bonn, but market analysts
expect Mr Kohl to issue a strong statement of support for the stability of
the Russian economy.

********

#10
New York Post
June 7, 1998
[for personal use only'
RUSSIAN BONDS CLEAN UP BUT SCENE IS STILL A MESS
By JOHN DIZARD (dizard@nypost.com) 

THERE'S a fine old Wall Street expression, "painting the tape." 
It refers to traders who buy or sell relatively small lots of securities 
at strategic moments to give naive investors a false sense of the 
direction prices are taking. 
The painter then generally sells larger lots into their buying or buys 
into their selling. 
It's a practice that is usually associated with sleazy bucket shops or 
habitual recipients of criminal referral letters from U.S. attorneys. 
You don't think of people such as, say, Goldman, Sachs as engaging in 
such artistry. 
And yet a fine, painterly hand was shown by the world's greatest 
securities house just last week, in a $1.25 billion, 5-year bond 
offering that Goldman did for the government of the Russian Federation. 

"The deal demonstrates significant global support for Russia," Al 
Sinsheimer, the managing director of emerging markets for Goldman, Sachs 
International told Dow Jones, with the masterly assurance of a 
Caravaggio. 
"It should have a positive effect on the Russian debt market and the 
ruble market as well." 
Indeed, those journalists and market commentators who believe in walking 
on the sunny side of the street could only wonder at how fast the issue 
sold out - it was oversubscribed in less than an hour. 
How could even Goldman have done that for a government that is battling 
with Nigeria for last place in the world markets' ethical rankings? 
With mirrors, that's how. 
The Goldman Russia bond was sold to what are known as "relative value 
accounts," or arbitrageurs. They bought it because the interest rate, at 
some 6 percent above comparable U.S. Treasury issues, provided an extra 
1 percent of yield over other Russia issues. 
So the arbs just sold other Russia paper short, bought the Goldman deal, 
and sat back to collect their extra point - all the while incurring no 
new Russia exposure. 
They don't have to care if Russia's overall finances collapse. 
The short sales took a couple of days to reverberate through back to 
Russia, and on Friday Russian one-year treasury bills sold off back to a 
47 percent yield. 
All this is sort of entertaining if you're an arb or a misanthrope, but 
none of this put a kopek into the pockets of angry, unpaid, 
violence-prone Siberian miners sitting across the country's main 
railroad line. 
Remember, they can't be sentenced to Siberia for their impudence - 
they're already there. 
I think we ought to send Strobe Talbott, the Administration's top 
Russian policy type, to lecture them in person on their lack of patience 
and vision. 
Prime Minister Sergei Kiriyenko cited the bond as evidence that his 
government will rely on private funding sources to meet its needs. 
As the world's first known Scientology acolyte-turned prime minister he 
may have insights that most of us are denied, but he seems to be hedging 
his bets by appealing behind closed doors to France and Germany for more 
money. 
He sent Anatoly Chubais, a former finance minister, to importune 
Treasury Secretary Robert Rubin. I believe the Russian government will 
get one more multi-billion dollar fix from the United States and other 
Western taxpayers. 
That ought to last until a little after the German elections in 
September. Not that Goldman's arbs care - they've hedged their bets. 

********

#11
Washington Times
9 June 1998
[for personal use only]
Russian bombers train to strike U.S.
By Bill Gertz

Rissia's strategic bomber forces recently carried out simulated nuclear
bombing raids against the United States in exercises that included test
firings of long-range cruise missiles, The Washington Times has learned.
According to a Defense Intelligence Agency (DIA) assessment of the
exercises, the bomber activity "demonstrated that the heavy bomber force is
still an important factor in Russia's strategic planning, despite a number
of problems," said Pentagon officials familiar with the assessment.
"The April exercises indicate that the primary mission of the heavy
bomber force remains strikes on North America," the DIA stated.

A defense official familiar with the report said Russia's continued
targeting of the United States raises questions about Moscow's view of the
United States. "Why aren't they practicing against Chinese targets?" this
official said.
A second official said the strategic bomber exercise aimed at the
United States was not unusual. He said U.S. strategic bombers also practice
raids against Russian targets.
Most of Russia's strategic bombers took part in the Long-Range
Aviation exercises, which were held April 20-27 in Central Asia as part of
a nationwide spring military training cycle. Small units of bomber groups
conducted the simulated raids.
The large-scale exercise involved most of the Russian Air Force's
long-range bombers, including Tu-95 Bear and Tu-160 Blackjack bombers,
which both carry long-range nuclear cruise missiles.
The maneuvers were the first major training exercises this year by the
Long-Range Aviation forces, which are in the process of being consolidated
with Russia's air defense forces.
Like other parts of the Russian military, the bomber forces have been
hit hard by budget shortfalls, and training has fallen so sharply that
their reliability is in question, the officials said.
The DIA believes Russian bomber forces are trying to catch up on lost
training due to fuel and spare parts shortages, or may be trying to
reinvigorate heavy bomber training.
The CIA disagreed with that evaluation and stated as part of the DIA
assessment that Russian strategic bomber pilots are receiving only 30
flight hours a year, compared with 18 hours per month for U.S. strategic
bomber pilots.
According to the officials, the CIA gauges Russia's capability to
conduct long-range bombing missions to be "marginal" because of the lack of
training.
A Pentagon spokesman had no immediate comment.
In addition to the continued threat from Russia's bombers, a recent
CIA report said China is aiming 13 of its 18 long-range strategic missiles
with nuclear warheads at U.S. cities.
Russia's Long-Range Aviation headquarters is located near Moscow, and
bomber units are based at Mozdok, Ryazan and Soltsy. Russia also maintains
strategic bomber bases in Ukraine and Belarus.
The bombers flew simulated raids into northern polar regions --the
flight path used for attacking the United States, the officials said.
The cruise missile launches involved bomber sorties against a test
range in Kazakhstan, where Russia has a firing range, and the launching of
AS-15 cruise missiles. The bombers carried out aerial refueling for both
the inbound and return flights, the officials said.
Thomas Moore, a defense analyst with the Heritage Foundation, said the
targeting of the United States and the cruise missile test are a cause for
concern. "The underlying cause for concern is that the Russian military
still regards us as a potential enemy," Mr. Moore said in an interview.
The simulated bomber attacks against the United States were not the
first time Russian nuclear units targeted U.S. or allied forces.
During a command post exercise held in March and April of last year,
Russian military commanders called in nuclear strikes on a simulated attack
by NATO ground forces and Lithuanian and Polish troops along the
Poland-Belarus border.

Russia, when it was part of the Soviet Union, produced more than 300
Tu-95s and Tu-160s. But according to the International Institute of
Strategic Studies in London, only about 66 long-range bombers are
operational today. They include 60 AS-15-equipped Bear bombers and six
Blackjacks equipped with AS-15s. The Blackjack can carry up to 12 cruise
missiles and the Bears each can be fitted with six AS-15s.
The U.S. strategic bomber force is expected to number around 187 by
2000 and will include B-2s, B-1Bs and B-52s, which are also outfitted with
long-range cruise missiles.
The strategic exercise was not reported in the Russian press. An
earlier exercise involving shorter-range Tu-22 strategic bombers fired
cruise missiles in Kazakhstan on April 17.
Russia reportedly is developing a new radar-evading stealth bomber to
replace its Tu-95s.
A recent CIA report on Moscow's control over its nuclear forces stated
that Russian military officials "still portray Western policies as hostile
and ... Moscow's exercises have simulated short-warning nuclear attacks
against Russian strategic forces and their supporting command structure."
"As recently as August 1996, the scenario of a (Strategic Rocket
Forces) nuclear forces exercise still depicted the United States as the
enemy," the CIA report said.
The CIA report said Russia's air-delivered nuclear weapons contain
special electronic blocking devices. In the early 1970s, naval strike
aircraft were accidentally loaded with nuclear bombs that did not have the
electronic safety locks, it said.
Air Force Gen. Eugene Habiger, commander of U.S. strategic forces,
said in Moscow on Sunday that he believes Russian nuclear forces remain
under safe central government control.
"My observations are that the Russians are indeed very serious about
security," said the general, who toured Russian strategic facilities last
week.
The four-star general visited strategic bases throughout Russia where
nuclear-armed missiles, bombers and naval forces are deployed. He also
visited storage sites and silos.
Gen. Habiger told the Associated Press he believes the chance of an
unauthorized nuclear launch by Russian strategic forces is remote. Gen.
Habiger is retiring this summer and will be replaced by Vice Adm. Richard
Mies, who traveled with him during the tour in Russia.

*******

#12
[Beginning of article only; teaser]
>From RIA Novosti
Finansovye Izvestia
June 9, 1998
RUSSIA TO FACE ANOTHER CRISIS THIS SUMMER
(http://www.ria-novosti.com/products/dr/1998/06/09-002-2.htm)
By Leo MAKAREVICH, expert, Russian banking association, 
analyzes the financial-market situation

A new Russian stock-market crash and yet another onslaught
on the Russian rouble seem distinctly possible already in the
near future. Germany, which ranks among the main "builders" of
the European currency union, is going to elect a new parliament
already this September. The Euro has all chances of becoming
yet another reserve global currency (with the help of all-out
Russian fuel, energy and raw-materials deliveries). Russia, as

well as China, converts part of its foreign-currency reserves
into the Euro. This doesn't suit other global power centers,
which are struggling to redivide various spheres of influence,
developing markets included.
Western countries made it clear during the Birmingham
summit (and after it) that they resolutely oppose deferred
debt-servicing payments (as regards the external Russian debt).
$10 billion (or up to 32 percent of all state spending) will
have to be used up in order to repay such a debt and in order
to make the relevant debt-servicing payments throughout 1998.
Besides, the Kremlin and the "White House" need money for
financing the federal-budget deficit (26 percent). In other
words, more than 50 percent of all federal spending will have
to be financed from unspecified sources.
French, German and some US loan agencies closed their
Russian-bank ceilings May 26. Earlier, the international agency
Standard & Poor's confirmed its negative forecast with regard
to Russia. For its part, Moody's agency lowered the long-term
rating (as regards Russia's state-backed hard-currency
debentures) from Ba-3 to B-1. The ratings of mid-term rouble
bonds were brought down to B-2, with those of GKO-s hitting
"Not Prime" levels. The ratings of Russian regions, banks and
companies have also been lowered. Fitch IBKA agency made a
similar move, lowering the ratings of 14 biggest Russian banks.
Besides, influential IMF executives noted that Russia should
receive a $670-million tranche, rather than an overall
stabilization credit.
All this directly affects the domestic Russian situation
and the pace of the crisis. The state-securities market hit an
all-time low (in the last two years) early this June. Prices
are highly likely to plunge still further during the next few
months because of the persisting all-out instability and
uncertainty. The profitability of short-term GKO-s used to
fluctuate at around 90 percent; that of 180-day GKO-s, at 70-75
percent; that of annual GKO-s, at 55 percent. OFZ-s sold for
60-70 percent, what with OGSZ (special state-loan bonds)
selling for 38-40 percent.
The Central Bank of Russia raised refunding rates
(pawn-shop credit rates included) to 150 percent annual
interest, thereby creating an extremely critical situation (as
regards current liquidity) inside loan agencies, many of which
have closed their respective credit lines, eventually
paralyzing the inter-bank credit market. In a bid to restore
and maintain such current liquidity, Russian banks were forced
to actively sell away their state-backed securities and hard
currency. Overnight securities' prices were hurled upwards by
150 percent (from 120-150 percent to an impressive 270-380
percent). As a result, the dollar's rate was first "bent down"
to the middle and then lower boundaries of the so-called rouble
corridor (from 6,170/6,185 roubles per dollar to 6,140/6,155
roubles per dollar). Exporters were hit real hard as a result.
The Central Bank of Russia began to quickly purchase hard
currency, as well as short-term GKO-s in order to scale down
the public debt (after taking advantage of the situation). The

profitability of such short-term GKO-s was reduced with the
help of money-printing machines (as local banks claim). A
steady increment in state-securities prices would induce the
Russian Ministry of Finance to actively float additional bonds,
shorter-term bonds included (even seven-day bonds) for the sake
of compensating losses incurred during the issue of expensive
May 1998 loans.
State-backed securities are likely to cost more already
this June. The concerned authorities will have to "defrost" 
stock and foreign-currency markets, reducing the refunding rate
of pawn-shop credits (the 60-percent ceiling that was
established June 5 is not the limit - Ed.). This has to be done
in order to float new state-sponsored bonds just because market
players keep wielding loans. All those players, who have
previously acquired cheaper GKO-s (short-term treasury notes)
and OFZ-s (federal-loan bonds), will try to compensate losses
by selling more expensive state securities, which fill their
portfolios to overflowing. All they have to do is take
advantage of those specific positive expectations stemming from
the projected actions (to mobilize resources) that were
announced by the Kremlin and the "White House".....

********




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