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

Johnson's Russia List
 

 

June 22, 1998   
This Date's Issues: 2232 2233  


Johnson's Russia List
#2233
22 June 1998
davidjohnson@erols.com

[Note from David Johnson:
1. Interfax: Yeltsin To Decide On Another Term Only After Court Decision.
2. Interfax: Deputy: Duma To Ratify Start-2 For Sure.
3. Dale Herspring: Lebed; Again.
4. Dmitri Gusev : Illegal Borrowing on Behalf of Russia? (cont'd)
5. Robin Copeland: Kennan Institute Piece re Environment.
6. Beth Knobel: Philip Gailey in Journal of Commerce JRL #2231.
7. AP: Mitchelll Landsberg, Russians Believe in New Tax Chief.
8. Stephen Blank: Chubais.
9. New York Post: John Dizard, THE RIPOFF THAT COULD MAKE THE RUSSIANS
REVOLT.

10. Nezavisimaya Gazeta: Georgy Arbatov, COLD WAR MAY BECOME A REALITY 
YET AGAIN. Russian-American Relations At a Low.

11. Ekonomika i Zhizn: Yuri Tartanov, RUSSIAN "MIDDLE CLASS" AT A
CROSSROADS 
OF REFORM.

12. The Economist: Russia’s regions. Naughty little tsars.] 

********

#1
Yeltsin To Decide On Another Term Only After Court Decision 

MOSCOW, June 21 (Interfax) - President *Boris Yeltsin* will make the final
decision on his possible re-election campaign only after the Constitutional
Court speaks up on this score, a high-placed presidential administration
source told Interfax Saturday evening. 
The source expressed dismay over too categorical media interpretations
of the remarks Yeltsin made, visiting the central Russian town of Kostroma
Friday, voicing reluctance to seek re-election in the year 2000. 
The president is the guarantor of constitutional standards, so, his
reply to the direct question put by a Kostroma resident only stands to
reason, the source said. 
However, it is up for the Constitutional Court rather than anyone else,
even the president himself, to decide whether the current Constitution
allows him yet another re-election. 

*********

#2
Deputy: Duma To Ratify Start-2 For Sure 

MOSCOW, June 21 (Interfax) - The START-2 Treaty will be endorsed by the
State Duma in any event, Chairman of the parliamentary Defense Committee
Roman Popkovich has predicted in an interview with the Interfax AiF weekly. 
The lawmakers, he argues, cherish the national interests more than those
of their parties or factions and, for this reason, will ratify the Treaty
for sure. 
At the same time, according to him, nuclear sufficiency and strategic
parity maintenance is becoming a key problem for Russia today. The country
can drop to nuclear "zero" by the year 2008 when the service span of
Russia's missiles expires. For this reason, "the restoration of nuclear
balance will only depend on the economic situation" in Russia and on its
"ability to put new Topol-M missiles on operational duty, the committee
chief said. 

********

#3
Date: Mon, 22 Jun 1998
From: Dale R Herspring <falka@ksu.edu>
Subject: Lebed; Again

Jerry Hough is right in suggesting that I should put my money
where my mouth is and say what Lebed would be like. Unfortunately, my
background as a policy maker has made me very cautious. I can't count the
number of times when off the cuff prognosis have ended up looking silly.
My point in my earlier interventions was not to speak ex cathedra, but


merely to point out that as Jerry notes in his essay, Russian generals may
well tend to act very different from the kind of civilians we have been
used to -- and this will probably be especially true of Lebed.
Jerry is right to say that "the question of what it would mean to
have a general in power is open." That is exactly my point. We must be
careful how we approach this issue. Historically, Akhromeyev and Ogarkov
were very different from their civilian counterparts for a lot of reasons.
They were admittedly from the World War II generation as Jerry points out.
And he is right that Afghanistan is the key event in the lives of people
like Lebed, Gromov, Rutskoi, and the like. As far as Lebed is concerned,
this is clear from his memoirs.
I don't claim to be confident about Lebed's policy actions;
internal or external. What I was trying to do was to lay out some trend
lines, and based on some of the reactions I have received, a number of
individuals who are closer to Lebed than I am tend to agree. Having had
to provide policy advice to senior policy makers on a daily basis for far
too many years, I would be hesitant to claim that Lebed will follow any
line of action. The most I think we (or INR, or the CIA or DIA) can do is
to point out trend lines. I guess what I was reacting to was not Jerry's
openness to a wide variety of possible actions, but the tendency in some
parts of the intelligence community and the media to assume that since he
wears a uniform he will act just like all generals act. My point was that
he is a Russian general and this will inevitably impact on how he
responds. 
Will Lebed's foreign policy be hardline because he is a general?
Here I agree with Jerry. The jury is far from in. He is impulsive as I
have argued, but this conflicts with his reasonablness on other occasions.
Jerry is also correct to signal the importance of ecnomics and
agriculture; neither or which are Lebed's strong points. I have been told
(by some commenting to me in response to my earlier pieces on Lebed), that
like a good Russian military officer he has begun to staff out problems.
(This is a typical Russian military response, where staff plays a bigger 
role than in the US -- ask the staff to tackle a problem and report back
with solutions -- then adopt the best one). Let us hope he listens to the
more rational voices -- assuming they are advising him.
If I gave the impression that Lebed's future policy options are
predetermined because of his military background, then either I did a poor
job of articulating or someone did not read what I said carefully. I
don't know what Lebed will do in detail. On the other hand, if asked for
a policy paper tomorrow in my prior form of existence, I would cite the
trend lines I noted previously, pointing out that Lebed remains a wild
card and that we should not assume that he will act in this way or that
just because he is a general. He is more complex than that. If this
means I am waffling, then that is right. Too often we make absolute
judgements only to have to eat turkey later. Dale Herspring



********

#4
Date: Mon, 22 Jun 1998
From: dmitri gusev <dmiguse@cs.indiana.edu>
Subject: Illegal Borrowing on Behalf of Russia? (cont'd)

Grigory Belonuchkin <diogen@glasnet.ru> of 
the Panorama Information Expert Group,


http://www.panorama.ru/ , provided me with answers to
some of my questions regarding the possibility of
illegal borrowing conducted by Russian government
officials on behalf of Russia. I thought the JRL
subscribers might want to know.
There exists a Federal Law of the Russian Federation
No. 76-FZ "On the State External Borrowings of
the Russian Federation and the State Credits
Provided by the Russian Federation to the
Foreign States, Their Legal Entities, and
International Organizations." This document
was officially signed into law by President
Yeltsin on December 26, 1994, and this is when
the law officially began working (Chapter 7).
The Russian text of the law can be found at


http://www.ist.ru/VP/Lib22/z04323.htm
According to the law, the limit on the state external
borrowings must be approved each year in the form
of a federal law. Whenever the federal government
submits the budget proposal to the Duma, it must
also submit a (separate?) proposal on this limit and
the limit on credits provided by Russia to other
countries. This proposal excludes the credits to
and from the CIS countries, since those are dealt with
in the federal budget itself. As part of the proposal,
a government program of foreign credits must be
included, and all foreign credits above $100 mln. U.S. dollars
that the government is planning to obtain or provide on 
behalf of Russia must be listed in it.

Two cases are explicitly listed, in which the additional Duma
ratification of a loan agreement is required.

(a) The loan is above $100 mln., but is not listed
in the government program of foreign credits;
(b) The fulfillment of the loan agreement requires
increase of the limit on the overall amount that can
be borrowed/lent that year.

Obviously, this is the law that was referred to by
Chikin and Prokhanov.

The ratification procedure that should be followed 
if the ratification of a loan agreement is needed
does not appear to be well-specified in the law. However, the
Duma is likely to have a common ratification procedure.

The 1994 limit on external borrowing was set
at $4.7 billion dollars (Federal Law No. 6-FZ),
and this was before the current federal law was enacted.
Since 1995, these limits were set in
the Laws on the Federal Budget. This does not look
quite right to me, but the law merely states
that the credits to and from the CIS states are
part of the federal budget, not that the other
external credits are NOT part of it. 

The 1995 limit on external borrowing was $12.3 billion.
The 1996 limit was $9.2 billion, and the 1997 limit
was $9.8 billion. The corresponding limits on the
foreign debt by the end of the year were $129.9 billion (1995), 
$124.1 billion (1996), and $136,8 billion (1997), so,
given that the external debt currently stands at
$123.5 billion, it is quite believable that case (b)
simply never occurred.



However, according to Grigory Belonuchkin, the first
year when the government program of external borrowings
was approved by a resolution of the State Duma was 1997.
If this is correct, then something may be a little bit fishy here, 
cause I believe that a resolution is easier to pass than
a federal law. Mr. Belonuchkin did not specify
if such a program was ever approved by the Duma
in any other manner. 

Also, federal government resolutions are needed to authorize
those who sign loan agreements on behalf of the Russian
Federation, but this should not be a problem.

As you can see, we have no proof that any Russian government
officials illegally borrowed money abroad on behalf
of Russia, or that any illegal payments disguised
as interest on such loans were ever made
from Russia's public coffers to other countries
or international financial organizations. 

If this proof exists at all, it is hidden in the books
of Russia's Ministry of Finance, which are hard to get to,
in the records of those who provided the loans,
and in the Duma records.

One who feels like investigating this matter any further
should try to find answers to the following questions. 

1. Did the 1995 and 1996 programs of external borrowing 
exist at all?
2. If the 1997 program was, indeed, approved by a mere
resolution of the Duma, why wasn't it a federal law?
3. Does the 1998 program exist?
4. Were any external credits above $100 mln. obtained
on behalf of the Russian Federation in 1995--1998, 
yet not listed in the corresponding government 
programs of external credits? (Some of the programs 
may not exist, and for those years, none of such
credits is listed.)
5. If one or more loan agreements needed additional
ratification, were they all ratified by the Duma?
6. Do any of Russia's international agreements impose
obligations that take precedence over the law, thus
removing the need for additional ratification?
I would not exclude this possibility entirely, even though
I do not find it very likely.

(Checking if the government records contain all
the resolutions needed to properly authorize those
who signed the loan agreements on behalf of Russia
is likely to be next to impossible, so I doubt
that any journalist would try to perform the verification.)

The task turns out to be quite formidable. As far as
the information on the loan agreements goes, I think,
chances to obtain it from the creditors are much
better than from Russia's Ministry of Finance.
After all, the creditors just might want to know
if they were defrauded. They may not care all that
much right now, since the interest is being paid,
legally or not. But they may care more once the decisions 
will have to be made as to which loans to default on. 
Needless to say, the illegal ones, if any, will have to go first. 

Note that, if everything is legal, it should be easy
for the Ministry of Finance to prove it. Which means,
if it is withholding information, keep looking.

(In a related old news, on March 4, 1998, the Duma voted to 
lower the limit from $100 mln to $10 mln, and the Federation
Council approved that, but the President vetoed


this decision on April 15, for all the good reasons
published in his letter, "Rossiyskaya gazeta", May 6, 1998.)

********

#5
Date: Mon, 22 Jun 1998 
From: Robin Copeland <doemoscow@glas.apc.org>
Subject: Kennan Institute Piece

David:
Thanks as usual for the weekly update. I wanted to add a note on the Kennan
Institute piece by Jode Koehn, which I thought was very good, that they do a
good job of problem identification
and noting the policy issues, however, I would argue that this is the easy
part.
What is lacking from most think pieces and policy discussions these days is
solution
ideas and most of the issues come back to the same question - where is
Russia going
to get the massive amounts of funding needed for things like radwaste
cleanup, spent fuel
storage, plutonium disposition, basic infrastructure development - the list
goes on and on.
As long as the Russian government continues to stay in fire-fighting mode,
and the Duma continues to stands still or
retrograde, the more medium to long term strategic problems continue to be
pushed down the ladder of priorities.
There are no quick or easy solutions and I think this is a fascinating area
to be watching over the next decade.
Food for thought,
Robin Copeland
Department of Energy - Moscow

********

#6
Date: Mon, 22 Jun 1998
From: Beth Knobel <drbeth@glasnet.ru>
Subject: feedback

I am writing to respond to Philip Gailey's submission from the Journal of
Commerce in JRL #2231.

I do not known Mr. Gailey, and am sure he is a very nice person. I do not
mean anything personal, BUT his commentary in JRL #2231 is THE MOST
cliched, oversimplified piece of writing I have seen in several months of
reading JRL. Such phrases as "Russians are breathing the fresh air of
freedom" are not only embarrasingly condescending, but are about 10 years
out of date. The article was so filled with cliches and mistaken analysis,
I find it hard to believe that this article was written by someone who
actually lives here in Russia. 

Readers count of JRL for fresh reporting and useful information -- such as
the excellent list of holdings of the presidential administration in #2232.
I hope that next time you see an article like this one -- you will NOT
include it on the list. Including it assumes that it is a piece of work
worthy of attention, which to my mind this clear is NOT.

As I do not like publically criticizing my colleagues, I would appreciate it
if you would NOT put this message on the list. But this piece so angered me
that I had to say something.

all best, beth knobel
cbs news moscow

*******

#7
Russians Believe in New Tax Chief 
By Mitchell Landsberg
June 22, 1998

MOSCOW (AP) -- Until now, Russia has been a great exception to the old
adage about the certainties of life. Russians couldn't cheat death, but
taxes were another matter. 
That was before the latest economic crisis and the appointment of Boris
Fyodorov as the country's tax chief. 
Like his predecessors, Fyodorov, a former finance minister and
investment banker, has pledged to make life difficult for tax dodgers, who
vastly outnumber Russia's few taxpayers. 
What sets him apart is that many people believe him. 


``He's an enormously strong person,'' economist Anders Aslund says. ``If
you appoint Boris Fyodorov the head of the tax authority, then you are
serious.'' 
The consensus is that President Boris Yeltsin was quite serious -- and
perhaps desperate -- when he appointed Fyodorov. Western economists and
bankers have been telling Yeltsin for years that he couldn't rebuild the
economy without collecting taxes, but it took a scary market crash and the
threat of serious social unrest to prod the president into action. 
The man he picked has long held a reputation in Russia as a tough,
brilliant and arrogant advocate of liberal market reforms, whose resume
includes a stint at the European Bank for Reconstruction and Development. 
Now, if Fyodorov can deliver, he could transform Russia's economy -- and
with it, perhaps, Russian society. 
To succeed, Fyodorov must instill respect for the law and prove no one
is above it. That would be a huge accomplishment in a country where the law
has always been applied flexibly, depending on one's status. 
Already, Fyodorov has begun weeding out corrupt members of his staff.
Russian television has shown black-hooded tax commandos raiding shops,
confiscating goods and leading away frightened merchants in handcuffs. 
Fyodorov caused a buzz when he was quoted as saying he was preparing a
list of the 1,000 richest Russians and intended to begin his efforts with
them. Later, he backed off somewhat, saying he wasn't preparing a list --
but added he still planned to go after the rich. 
``The principle is quite simple,'' he said. ``We will start with the
prominent people. First, it will be 1,000. Then, it will be 1 million.
Then, it will be everyone.'' 
Simple, perhaps, but in a society where the new rich wield substantial
power, where many rich people got their money through dubious means and
business executives are still periodically rubbed out by rivals, it's a
bold and potentially dangerous approach. 
That doesn't seem to bother Fyodorov, a stocky 40-year-old who exudes
brash confidence. 
``He's a man who's not afraid of anything,'' says Aslund, a senior
associate at the Carnegie Endowment for International Peace who says he
knows Fyodorov well. 
The notion of filing tax returns is new to most Russians. Since all
salaries were paid by the state in the Soviet era, tax returns were
unnecessary. Taxes were, in a sense, an unspoken part of every salary. 
Now that most Russians are paid by private or quasi-private enterprises,
the government is trying to collect taxes, both from individuals and
businesses. But last year, only about 5 million of the country's 147
million citizens paid income taxes. 
Worse, many of the nation's largest corporations are tax delinquents,
including its biggest company, the natural gas monopoly Gazprom. 
The reasons for Russians' noncompliance are pretty simple. 
To begin with, there is ``this sort of total nihilism, this idea of,
`Why should I pay the government anything -- they're just a bunch of
crooks,''' observes Chris Granville, head of strategy for Moscow's
Fleming-UCB investment bank. 
There's nothing uniquely Russian about that. What is different is how
easy it has been for Russian tax delinquents to get away with it. 


``We are a country where, for years, the authorities pretended that they
were collecting taxes and the people pretended they were paying,'' Fyodorov
joked at a recent news conference. 
Many economists, here and in the West, believe tax collection is the key
to Russia's economic growth. 
Others contend the government has plenty of money already -- it just
needs to spend it better. Total government revenues last year amounted to
32 percent of the country's gross domestic product. 
``Compared to Western Europe, that's quite low,'' notes Granville. But
it is high for a ``transitional'' economy, and almost exactly the same as
the ratio in the United States. 
Fyodorov's goals, at the outset, seem modest enough: He wants to raise
the number of taxpayers from 5 million to 8 million next year. 
In a country where huge chunks of the economy have scurried underground,
the obstacles are enormous. 
``Everybody knows that in our country, in companies, nobody gets paid a
salary,'' Fyodorov says. ``Some presidents of banks make an official salary
of $300 a month.'' 
He smiles a bit. ``I have sent telegrams to all the banks saying I am
not going to be friends with those who pay their salaries in such a way.'' 
Of course, if he does his job well, Fyodorov may find friendship isn't
among his perks. 
He may have to settle for respect. 

*********

#8
From: "Blank, Stephen J. Dr." <BlankS@awc.carlisle.army.mil>
Subject: chubais
Date: Mon, 22 Jun 1998 

For all those who see the new government as an embodiment of reform we
should consider Chubais' reappointment. It may well be that he
possesses the near-legendary ability ascribed to him and that he has the
Western reputation that is also so ascribed. However, a fundamental
aspect of whatever policy of reform that must occur is to decriminalize
the administration. And Chubais is not the man to do so. Instead we
will get more of the same policies as before, forced deflation, Western
loans, hot money, and massive corruption. One need only ask why is it
that an ostensible reformer in today's climate is still the director of
UES and a deputy premier at the same time when such commingling of
private and public interest lie at the heart of the massive
privatization and criminalization of the state? Are our elites still so
benighted that they believe that there is no other alternative policy
but Zyuganov's or worse? Or is it the all too human proclivity for
persisting in error. Exactly how is a talented bureaucrat who, more
than any one man is responsible for the perversities of the current
economy, going to rescue it except by soaking Western speculators and in
the short-term and Russian afterward to pay off those debts? If you
have an answer I'd be very happy to learn it.

*********

#9
New York Post
June 21, 1998
[for personal use only]
THE RIPOFF THAT COULD MAKE THE RUSSIANS REVOLT
By JOHN DIZARD (dizard@nypost.com) 

AS my appalling generation ages, we've obviously decided to trade
self-indulgence for self-righteousness. 
The latter requires a healthy base of hypocrisy, but it's clear after
listening to this week's lectures to the Japanese that we have that going
for us as well. 
Deputy Treasury Secretary Larry Summers is over there telling them that
they're ignoring reality, condoning corruption and bad banking, throwing
good money after bad, and just waiting for some miracle to save an
untenable set of policies that puts the world's finances at risk. 


So what does he call our own policy towards Russia? The only difference
is that Summers, Strobe Talbott (the Russian supremo at the State Dept.)
and Al Gore shouldn't have to offer a belated apology for the rape of
Nanking. 
Maybe that's a little unfair to Summers. He's actually aware that the
continued flow of loans/payoffs to the unregenerate criminals who are our
friends in the Russian government isn't buying economic reform or the
gratitude of the Russian people. 
The only counter the economically ignorant in the foreign policy
"community" have to offer is the threat that if we don't bail the oligarchy
out of its short position in the dollar, the Russian strategic rocket
forces will attack. 
As if, Al. In other words, the Russian people and armed forces will
accept nuclear death to defend the honor of prime minister-Scientologist
Sergei Kiriyenko or deputy prime minister Anatoly Chubais. Don't think so,
Strobe. 
That still leaves the question of who is going to be stuck with the
check for the Russian disaster. 
Actually, the answer is already obvious - the Russian people, just like
always. The Russian government will try not to default on its foreign debt
this year, and it won't take back the billions offshored by the oligarchy,
so who's left? 
Russia's savers. Of the total ruble denominated debt of around $65
billion, $20 billion is held by foreigners and $45 billion by Russians. 
So thanks to some lockups, reschedulings and convertibility
restrictions, the Russians don't get their money back, and the immediate
debt service problem is kind of solved. There's always the chance that this
might be the ripoff that finally sends the Russian people into revolt, but
that's why God made getaway jets fully fueled and ready to go. 

********

#10
>From RIA Novosti
Nezavisimaya Gazeta
June 17, 1998
COLD WAR MAY BECOME A REALITY YET AGAIN
Russian-American Relations At a Low
By Georgy ARBATOV

Georgy Arbatov is the honorary director of the
Institute of the US and Canadian Studies.
The article is based on the report he delivered
to a session of the Learned Council convened to mark
Arbatov's 75th birthday.

Today's state of and prospects for the Russian-American
interrelationship are the cause for serious concern, however
cloudless they may look.
The cold war over, the prospects of improving the
bilateral and international relations were unique, indeed. But
one can conclude today that neither side proved ready for the
decisive changes which have now become possible. To borrow the
American phrase, the cold war's end caught us with our pants
down. 
Many years have passed since then, but we are effectively
back there at the stage of good words and pronouncements of
the 'buddy Bill, buddy Boris' type. This is bad, because for
want of politics the vacuum is apt to be filled with an
undesirable content, and its very presence cannot but bring
about negative results. 
Instead of becoming a well-considered programme of
action, politics are doomed to be re-active. Examples: the


events in Bosnia and Kosovo, the race for nuclear arms in the
Indian subcontinent, etc. 
It becomes clear that the interests of the two powers do
not always tally, and that there are, therefore,
contradictions and mistrust - which is the earnest of a
deterioration of relations. 
In short, it would not take somebody's ill-will or
special effort to spoil the Russian-American relations these
days. The mechanisms have been started up, and drifting in
their wake is all that is needed to see the problems of the
above type generate difficulties and problems, and renewed
hostility - with time. 
Plus there are political actions, staged either
maliciously or for want of foresight, which are hard to view
other than an aftertaste of the cold war. I mean the return to
the mentality and politics of the cold war epoch, in
particular the enlargement of NATO to the East. 
It is quite another matter that we are not blemish-free
where the NATO matter is concerned, which has to be admitted
for fairness' sake. I remember the time when we were aspiring
for NATO's membership ourselves, and when our president was
acourtin' Lech Walesa, the then Polish leader, and telling
him, apply for membership if you want. 
But what is more important than that is that we have not
thought up a constructive alternative to NATO in good time, or
a new concept of European security for the period after the
end of the cold war. Which is only natural: in the past few
years we have been surprisingly incapable of political,
conceptual reasoning or have been slighting it. 
The Russian-American relations have deteriorated and will
continue to deteriorate unless something it done about it. 
One and the more noticeable and possibly long-term
negative developments is the change of public opinion. In the
late 1991, there were practically no anti-American sentiments
in the Soviet Union, Russia included. On the contrary, there
was the feeling that all problems had been settled, an
excessive euphoria of sorts. 
Soon enough, the bright expectations were replaced by
doubts, disillusionment and suspicions. Today, these can be
found both in the general public and an appreciable part of
the political elite, to say nothing of the irreconcilable
opposition which have either rejected anything but the cold
war policy as a matter of principle, or have felt the changed
sentiments of the bulk of the population and changed their
colours accordingly for the sake of their political
objectives. 
So what was it that has made the public change its mind -
oh so radically - about America and the West per se, plus many
other matters?
The main factor is the worsening economic situation and
the deteriorating quality of life. The main reason behind the
deep crisis this country is living through is, I believe, the
shock therapy advocated by Gaidar and his associates -
Chubais, Nechayev, Fedorov, and others. 
But then, Gaidar did not invent this variant of reforms
(or pseudo-reforms). It was borrowed from Western economists
which were 'in' at that time, although their reform model had
been successful in practically none of the venues. 


There may be a rationale behind the choice of the reform
model, but I think that, apart from other things, we had the
bad luck of finding ourselves in the midst of an adverse
political situation in the world. 
This country's leaders appreciated the need of radical
reform at a rather difficult period when the political
pendulum had swung to the Right and conservatives had come to
power in the largest countries of the West. I would even
venture to describe them as extreme conservatives from the
viewpoints of their economic beliefs - Reagan, Thatcher. 
That was the time of the Social Democracy's decline in
the key countries of Europe. Thatcher may have been an
attractive woman who was not afraid of crossing swords with
our people of the press, but her economic beliefs were
cave-age reactionary. This is probably why she had had to
leave prematurely.
Such were the people who had come to power in the West,
while our young economists, who had been studying Karl Marx
only, could not suggest anything different to the nation, even
if they wanted to. They read works by Milton Friedman and
Friedrich von Hayek, who had become fashionable after the
pendulum had swung to the Right, adopted their views not as
the latest in economic fashion, but rather as the latest
achievement of economic science and trusted in them with no
reservation. 
It was easy to convince the then 'grey eminence' Gennady
Burbulis, who found it easy to convince somebody else. This is
how the economic fate of the huge nation was handed in to the
young and ambitious, but not very knowledgeable and absolutely
inexperienced people - no sweat. Their suggestions were
adopted without question and without comparison against
alternative views. 
The result is well known. Several years of the 'shock
therapy' have done more harm to this country than the fifty
years of the arms race did.
We will be feeling the consequences of this for a long time
yet, the more so that the authorities still do not want to admit
the defeat of their economic policy. I don't think that Sergei
Kiriyenko, who pledged to lead the country out of the serious
crisis, will succeed. The way out may prove to be full of
surprises and unpleasant things. History shows that this is
exactly what happens. Gaidar and his allies created a situation
which the West had at the end of the 18th and the beginning of
the 19th century, the time described so well by Dickens. 
This means that, according to the classical model of the
development of capitalism, we are at its initial, the most
dare-devil, criminal and inhuman stage and are entering a period
where a new Marx will appear together with "the spectre of
communism," to be followed by another Lenin, a new Bolshevik
revolution, in this form or another, and the history will repeat
itself. 
It turns out that we undertook an impossible task - to push
the country back to the early, murderous capitalism which
inevitably engenders crises and revolutions, and we did not stop
to think what we would do next. 
The authors of the reform "failed to notice" that capitalism
of the Adam Smith period developed gradually; otherwise it would


not have survived. And the Soviet Union and communists, with all
their drawbacks and mistakes, had a great role to play in this.
For example, Roosevelt would have never had his new policy
approved if the threat of Bolshevism did not complement the
crisis and the Great Depression. These two forces broke down
resistance to his new policy and forced the USA to reform its
capitalism.
The same concerns Western Europe, especially the period
after the Second World War. The grave economic crisis and the
threat of Bolshevism (the situation was becoming increasingly
revolutionary in Italy and France) forced Europe to abandon many
classical norms of capitalism and accept reforms. In a word, what
they have now is a reformed capitalism. 
Nobody seriously tried to reform socialism. We will not
discuss now if this as possible or not, although I tend to think
that it was. Take Sweden and other countries. But we jumped from
real socialism (it is another question how socialist, or how real
it was) back into the long deceased pre-historic capitalism. And
we will have to pay for this. 
The Russian public could fail to notice these niceties, the
link between the shock treatment, the movement to the right in
the Western countries and, as I see it, the temporary fall in the
influence of social democrats. But the people see that the West
not just recommends, but is forcing on us an economic reform
which is undermining the country, leading to economic slump,
reducing the living standards of the bulk of population,
resulting in the impoverishment of a considerable part of
society, the degradation of culture, education, health care and
science. At the same time, this reform is polarising society,
creating conditions for the incredible enrichment of a tiny part
of society, and engendering unbridled corruption and the growth
of crime. In fact, the West is using the IMF to force on Russia
an economic policy which is bound to engender all these negative
phenomena, and which the West itself would have never accepted. 
A part of the population believes, and this version has been
taken up and fanned by extremists, that this is a collusion of
our foreign enemies, who linked up with those who betray the
interests of the people in this country, or profit from the
suffering of the people at the very least. This is the source of
the growing anti-Western, and above all anti-American sentiments
in society. 
I don't accept the idea of a plot against Russia, above all
because I know for sure that the bulk of Western politicians
understand that continued destabilisation in Russia can bring to
power those forces which will be dangerous also to the West. On
the other hand, I don't understand why the West supports the
policy and politicians who have doomed our country to crises and
shocks. 
The economic crisis, and possibly the forthcoming economic
catastrophe in Russia are not the only reason for the growing
doubts and suspicions of the Western, above all US intentions. It
has become clear in the past few years (although we should have
seen it from the start) that the political interests of our


countries do not always coincide. One clear proof of this was the
developments in Yugoslavia and Iraq. The attitude of the Russian
public to the West deteriorated especially considerably when NATO
decided to expand in the East. Quite a few tensions are
engendered by the arms trade and the struggle for the arms
markets. 
The people's attitude to the former "enemy number one"
changed both in Russia and in the USA, although for different
reasons. The Americans changed their attitude to relations with
Russia, became even more conceited, coming to sincerely believe
in their mission of "the only superpower." And we helped them
with our passivity and the absence of a clear-cut stand on many
major issues. 
But the greatest trouble is that neither country has a
substantiated long-term policy, including in the sphere of mutual
relations. 
Consequently, we are losing time and unique possibilities,
which we might not have again. Our foreign policy is losing its
intellectual weight, although Yevgeny Primakov is trying to stop
this process. This loss of intellectual weight is seen fairly
well in the loss of our leaders' interest for science and the
opinion of scientists, and not just in the spheres related to
foreign policy. Major questions are often handled hastily and
worse than ever, as far as I remember.
All this makes us seriously worry about the future of our
policy in general, and policy with regard to the USA in
particular.
Of course, Russia is a large country with a giant potential,
natural and intellectual resources. That is why I still believe
that we will overcome the crisis. The only question is the time
and the price. I hope that our fundamental sciences, despite
their dramatic position, and our press will help us to reduce the
time and the costs. 

*********

#11
>From RIA Novosti
Ekonomika i Zhizn, No. 24
June 1998
RUSSIAN "MIDDLE CLASS" AT A CROSSROADS OF REFORM
By Yuri TARTANOV, first deputy to the Ekonomika i Zhizn chief editor

Such people are called the middle class in the
West - albeit with a degree of conventionality. They
are snug as a bug in a rug in between the elite and
the toiling class, and are the earnest of social
stability and prosperity and an unending source of
budgetary revenues. They also help alleviate
tensions in literally all spheres of activity.

Our un-balanced society has lately been hearing
increasingly insistent calls for the formation of a 'middle
class' of our own. Hot and, if you please, interested heads
have even managed to find it in this vast country. Somebody is
being swept by wishful thinking.
The reason is simple: since there is a 'middle layer'
which is well-off, especially materially, the reforms have not
been a total failure, and the upper crusts have not laboured
in vain - life has become better and more cheerful. 
Hence the additional votes to be counted on in the
forthcoming election battles. The middle class simply must
vote for the efficient reforms of today and the promising
transformations of tomorrow. 


The main task is to convince such people that they are
the real 'middle class'. But life is not to be trifled with. 
The task of forming a middle class is crucial for this
restless society which is balancing on the brink of a
precipice - the Number Two task, if not Number One. But
replacing a practical effort to form it for the idle
allegation that our people en masse are joining the ranks of
the affluent and law-abiding citizens is unethical at best,
and criminal at worst.
Indeed, the revenues of the population have become
fantastically stratified in the eight years of the radically
liberal reforms. 
At the start of the reform, the incomes of the more
affluent 10% of the population were four times those of the
indigent 10%. In January through April 1998, the gap grew to
13.3 times over. 
The former get 33% of all incomes, and the latter, a
meagre 2.4%. Thirty-one million people - effectively every
fifth - live below the line of poverty. They are the ones
whose revenues do not exceed the subsistence level which was
432 roubles a month in April. 
Importantly, the gap in revenues is growing at the
expense of the redistribution of the social 'pie' while the
size of the 'pie' is practically unchanged.
It seems that an elementary analysis of the structure of
revenues may become a cold shower for the euphoric bureaucrats
in the upper echelon of power. 
Rockbottom wages is the sole means of subsistence of the
ever growing stratum of the least privileged. They have
practically no entrepreneurial incomes. On the other hand, for
those at the top rungs of the social ladder they are the main
source of funds, while their wages are so small that they do
not count. 
Fantastic incomes are derived from currency deals, trade
and mediation, commercial loans, etc. but not the real
production. In these conditions, can the fast returns from
pure commerce compare with investments into production?
As a result, people are assessed by the capitals they
possess, rather than by their work, while the 'middle class',
which is the cementing element of a healthy society, is doomed
to die out. 
Wherever the government policy is aimed at dovetailing
the capital onto production, entrepreneurship is oriented to
the production of material values. Hence the need of
knowledgeable staffs, high-qualification workers, researchers
and people of the arts. That is to say, the dormant potential
of the 'middle class' is put to use. But not in this country.
It is believed - and this is possibly true theoretically -
that small and medium businessmen are the main reserve for the
development of the middle class, which they are invigorating.
Numerous reports provide a lulling figure, which sums up the
results of entrepreneurial activity in this sphere. We have
successes, but no middle class. Why?
Some reasons are obvious, and the largest of them is the
inadequate support given to small businesses by the bodies of
state authority and self-governments. Instead of creating a
favourable regime for them, they are weighed down by a heavy
bureaucratic and tax burden, which forces them to evade the


control of state agencies, poisons their psychology and turns the
potential middle class from law-abiding citizens into their
direct opposite. A wide range of market instruments is used,
including the artificial rise of prices, machinations with the
quality of commodities, "failure" to repay credits, racketeering,
direct deceit, embezzlement, and unjustified business risks which
take the most daring ones to the criminal highway. 
The class of so-called new Russians is keeping to itself. A
part of them, though not all, used general chaos to snatch real
estate, access to elite education, recreation, and other material
and spiritual values. The rest small group of "middle Russians"
is nothing more than a socially heterogeneous mass of people who
are moving in time and space without aim, morals, common
interests or loyalties. They are as far away from a class or even
a civilised section, as from God. At the very least, it will take
them dozens of years to develop into a class. 
Besides, a considerable number of them - researchers,
engineers, doctors, teachers, and servicemen - regularly move
down to the jobless section. The average age of our jobless now
is 34-35, which is the most active period in human life.
Surviving on chance earnings and having no possibility to improve
their skills, this group of rejected people are losing any hope
of ever becoming even the lower middle class. At the same time,
quite a few of them, especially servicemen, find their way to the
criminal world. 
And yet there are prerequisites for a normal operation of
our civic society. Associations, unions, groups of politically
active people and parties are accumulating experience. The people
are getting used to market conditions. We badly need a group of
people who would serve as the guarantor of social welfare and
impossibility of another redistribution of property. The world
experience proves that the middle class is exactly such a group.
And the point at issue is not so much the size of income or
profession, although they are important too. It is important to
develop a stable system of attitude to human values, but this
takes years. 

The structure of the use of monetary incomes in 1998, %
------------------------------------------------------------
Jan. Feb. March April
------------------------------------------------------------
Spent on:
* commodities and services 81.8 73.5 75.6 72.0
* obligatory payments 6.2 6.4 6.5 6.4 
* accumulation of money in the 4.8 4.7 4.6 4.2
form of deposits and securities
* the purchase of hard currency 16.5 12.9 13.9 12.7 
------------------------------------------------------------
Increment (decrease - ) of -9.3 2.5 -0.6 4.7
money held by the people
------------------------------------------------------------

*********

#12
The Economist
June 20, 1998
[for personal use only]
EUROPE 
Russia’s regions 
Naughty little tsars 
M O S C O W 


Devolution is not always good for democracy 

THE president of the Russian autonomous republic of Bashkortostan in the 
Urals managed to have himself re-elected last week after refusing to put 
on the ballot two opposition candidates who had been declared legitimate 
by the Supreme Court in Moscow. Meanwhile in Kalmykia, by the Caspian 
Sea, another island of autonomy, the president casually dismissed any 
suggestion that he had anything to gain from the murder of his main 
critic, a local editor. 
The two presidents concerned, Murtaza Rakhimov and Kirsan Ilyumzhinov 
(who is also, by the by, president of the world chess federation, FIDE), 
are local tsars who openly flout not only the their citizens’ human 
rights but also Russia’s constitution. Is there any limit to their 
arrogance, ask outraged metropolitan commentators? 
In these two instances, the Kremlin may yet take action. The barred 
candidates in Bashkortostan may be encouraged to contest their 
exclusion. And Russia’s federal president, Boris Yeltsin, has ordered an 
urgent investigation into the death of the journalist in Kalmykia, 
Larisa Yudina. But the omens are not good: Russia’s local tsars all too 
often turn a deaf ear to the Kremlin with impunity. 
But not all regional bosses are untouchable. Many of them, both allies 
and opponents of Mr Yeltsin, have been ousted at the ballot box. 
Incumbents have recently lost in Krasnoyarsk in Siberia, Penza in 
Russia’s heartland, Karelia on the Finnish border and North Ossetia in 
the Caucasus. 
A handful, however, have managed to entrench themselves—particularly in 
some of Russia’s ethnically labelled republics. President Mintimer 
Shaimiev, for instance, has turned Tatarstan into a kind of mini-state, 
complete with its own economic policy. Neighbouring Bashkortostan, whose 
oil refineries are overseen by the ruthless Mr Rakhimov, is also 
fiercely autonomous. The presidential election there was a farce: Mr 
Rakhimov bullied what was left of the independent media, then won a 
two-man fight against a straw candidate who happened to be his own 
minister of forestry. 
Kalmykia’s Mr Ilyumzhinov wins the prize for being Russia’s most 
eccentric leader, which is saying something. A Buddhist entrepreneur and 
chess fanatic, he stamps on anything that hints of opposition. When a 
newspaper, Sovietskaya Kalmykia, proved a damaging critic of Mr 
Ilyumzhinov’s regime, its staff were evicted in an attempt to shut the 
paper down. Doggedly, Mrs Yudina continued printing it in Volgograd 
(formerly Stalingrad), 320 kilometres (200 miles) away, and copies of 
the newspaper were brought into Kalmykia by car. On June 7th, two 
Bashkortostan officials were formally charged with the outspoken 
editor’s murder. 
In these instances, anxious tut-tutting from the Kremlin may not be 
entirely sincere. For both Mr Rakhimov and Mr Ilyumzhinov have been good 
at providing what Mr Yeltsin and his friends have valued most highly: 
votes. In the 1996 presidential elections in Bashkortostan, for example, 
Mr Yeltsin trailed his Communist opponent badly in the first round. Mr 
Rakhimov, however, saw to it that the man in the Kremlin forged well 


ahead in the second. 
It may be proving harder, these days, for Moscow to control the outlying 
regions and republics. Sometimes rivals within the federal 
administration back opposing sides in the same dispute. In the recent 
election for the governorship of Krasnoyarsk, some Kremlinites backed 
the populist ex-general, Alexander Lebed, though for others (including 
Mr Yeltsin) he remains enemy number one—and a front-runner to win the 
federal presidency in two years’ time. 
What if the regional bosses were to co-operate against the centre? That, 
certainly, is what the Tatar leader, Mr Shaimiev, has proposed. 
“Russia’s next president should be one of us,” he says. So far, however, 
he has not explained exactly how he intends to bring that about. Local 
leaders still tend to negotiate with Moscow one-to-one, often down red, 
Soviet-era, telephonic hotlines. 
Moreover, big careers still tend to be built in Moscow. “In contrast to 
the United States, a regional leader will never become a national leader 
in Russia, unless he first transplants himself into the Moscow federal 
elite,” says Nikolai Petrov, a Moscow-based specialist on the regions. 
Most local bosses are likely to go on backing the big man in the 
Kremlin, so long as he does not interfere too much with them. Bad news 
for Russian democracy beyond the capital. 

*********

 

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