June 23, 1998   
This Date's Issues: 2234• 2235 • 

Johnson's Russia List
#2235
23 June 1998
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Judith Ingram, Russia's Economic Crisis `Alarming.'
2. Interfax: Russia's Economic Priorities Must Be Radically Changed - 
Yavlinsky.
3. Laura Belin: "do-or-die option" for the Duma.
4. Moscow Tribune: John Helmer, CARDBOARD BOX LIBERALS.
5. The Independent (UK): Helen Womack, Street Life - Russia's old country 
ways are dying out.
6. RIA NOVOSTI: ACCORDING TO DATA OF THE MINISTRY OF THE INTERIOR, 
GROWTH IN CRIME IN RUSSIA THIS YEAR REGISTERED IN PRACTICALLY 
EVERY RESPECT.
7. RFE/RL: Paul Goble, East: Analysis From Washington -- Avoiding The 
Apocalypse.
8. Moscow Times: Andrei Zolotov Jr., Duma Deputy Asks If Yeltsin Has
Double. 
9. Reuter: Timothy Heritage, Russia Frustrated with West over Kosovo.
10. S&P comments on Russia financial industrial groups.
11. Interfax: Communist Leader Says Yeltsin Should Be Consistent.
12. Interfax: Moscow Sees NATO's Planned Expansion As Threat, General Says.
13. Beth Knobel: No problem. PLUS: Sovershenno Sekretno, "Kinder Surprise."
(Kiriyenko expose).
14. Anne Williamson: Re #2233 Knobel Criticism of Gailey #2231.]

********

#1
Russia's Economic Crisis `Alarming' 
By Judith Ingram
June 23, 1998

MOSCOW (AP) -- Russia's financial situation ``remains alarming,'' and
radical measures and national consensus are needed to restore order,
President Boris Yeltsin told his Cabinet today. 
``The price of foot-dragging and delays, squabbling and discord, is too
high,'' Yeltsin said as he opened a special session prompted by the
economic crisis and this week's negotiations with the International
Monetary Fund. 
The meeting came three months to the day since Yeltsin jettisoned the
government of Premier Viktor Chernomyrdin, saying it had failed to improve
the economy. 
Yeltsin blamed Russia's latest woes on the financial crisis in Asia and
the slide in world oil prices, but he added that ``a significant share of
the blame lies with ourselves.'' 
``Indecisiveness and slowness in implementing decisions cannot be
tolerated any longer,'' he said. ``The government program must become a
program of action.'' 
Yeltsin told legislators that laws needed to set the government's
emergency economic program in motion should be passed before parliament
breaks for the summer. 
``We don't have more time left, there is no other way,'' he said,
hinting that if parliament fails to act, he will push through the reforms
by decree. 
``You know, I don't believe in dramatizing the situation, but the
extreme tension in Russian society is obvious,'' Yeltsin said. 
In an address detailing the state of Russia's economy, Premier Sergei
Kiriyenko said high interest rates must be brought down because they cause
tremendous problems for companies and add to the budget deficit. 
The Central Bank's key rates are now at 60 percent, and one-year
government bonds are yielding nearly as much. 
Kiriyenko noted that over the past nine years, the portion of Russia's
gross national product going to service the national debt has grown to 44
percent. 
Kiriyenko's plan comprises $6.8 billion in spending cuts and $3.2
billion in tax collection increases this year. The government also intends
to raise land tax rates and tighten customs controls. 

The plan also includes government support for Russian exports, debt
rescheduling for industry, and the creation of a state company to oversee
production and tax collection from the liquor industry. 
``The idea of the present period of transition is to pass from
decreasing state interference in the economy to raising the efficiency of
such interference,'' Kiriyenko said. 
In all, about 20 draft laws accompanying the program set out the steps
the government hopes will quell the crisis. 
An IMF team arrived in Moscow on Monday night to negotiate terms for the
release of the long-delayed $670 million installment of an existing loan to
Russia, and conditions for the $10 billion to $15 billion bailout Russia is
seeking. 
Finance Minister Mikhail Zadornov said that the negotiations should be
completed soon. 
``We don't have that much time,'' he said. ``I think it must be done in
two to three weeks.'' 
The head of the Central Bank, Sergei Dubinin, told the Cabinet that
foreign credit cannot solve Russia's financial crisis. At the same time,
however, such credit ``would certainly strengthen the position of the
Russian ruble,'' he said. 

********

#2
Russia's Economic Priorities Must Be Radically Changed - Yavlinsky 

MOSCOW, June 23 (Interfax) - *Grigory Yavlinsky*, leader of the political
movement Yabloko, has said that Russia "must sharply change economic
priorities" in his article "Asian Flu and Russian Pneumonia" published by
the newspaper Izvestia on Tuesday. 
Even if the Russian government does manage to secure a $10-billion or
$15-billion loan from international financial organizations, "this will
have a very short-term effect similar to that of analgin for toothache, if
the present-day economic-policy concept is preserved," Yavlinsky said. 
Yavlinsky also argued that "issuing more state bonds, given the current
level of yields standing at 65% annually and an expected annual inflation
rate of 5%-7%, is suicidal for the budget." 
Instead, Yavlinsky proposed that "all of the resources attracted be used
first of all for repaying the government's debts to enterprises and
citizens." 
Concurrently, "state and administrative measures should be taken to find
a comprehensive solution to the problem of mutual non-payments," after
which the government should clamp down on dishonest businesses, and spheres
of responsibility of different branch and levels of authority should be
determined, he wrote. 

"We should go back to the policy of selective access of individual
enterprises and businesses to large financial resources," he said. 
"The export and import policy should also be made selective and
effective," Yavlinsky wrote. Systemic risks should be lowered for creditors
through a forced introduction of rigorous standards of openness and
financial accounting rules, and of criminal proceedings for the failure to
present complete and accurate financial information. 
"The legal owners of enterprises should be legally responsible for these
enterprises' solvency," he wrote. 
"A fast, radical and realistic tax reform should also be implemented,"
Yavlinsky said. 

********

#3
Date: 23 Jun 1998 08:56:58 U
From: "Laura Belin" <belinl@rferl.org>
Subject: "do-or-die option" for the Duma

Reuters writes on 23 May (JRL 2234):

"Kiriyenko said he was relying on the opposition-dominated State Duma lower
house of parliament to support those parts of the plan needing approval. This
could delay things. 

But the sources said the president could again give the Duma a do-or-die
option
of approving the programme or facing a dissolution. The Duma
reluctantly approved Kiriyenko, nominated by Yeltsin, in April after Yeltsin
made clear he would not give in and would disband the parliament."

Whatever sources are being cited here (it's not clear from the article) are
either mistaken or are purposely trying to give a false impression of
Yeltsin's
powers in order to reassure the markets.

JRL has been over this ground before, but I think it's worth repeating: 

The constitution allows Yeltsin to dissolve the Duma only if the lower house
refuses three times to confirm his prime ministerial nominee or votes no
confidence in the government (twice within three months on their own
initiative,
once if the government itself requests the confidence vote). Not passing
government-backed legislation (even very important laws like a budget or a tax
code) is NOT grounds for dissolution. 

So unless Yeltsin decides to throw the constitution out the window, he cannot
credibly give the Duma a "do-or-die option" concerning the government's
anti-crisis plan.

Best,
Laura
Radio Free Europe/Radio Liberty, Prague

********

#4
Date: Tue, 23 Jun 1998
From: helmer@glas.apc.org (John Helmer)
>From The Moscow Tribune, June 23, 1998
CARDBOARD BOX LIBERALS
John Helmer

There are no liberals in Russia. Just people so incompetent at commerce or
corruption, they trade their principles instead.

This is why so few of those calling themselves democrats and liberals
in 1990 still support the political movements that claim
to represent them. In fact, according to a recent poll, 60% of the
Yeltsin-Gaidar supporters of that year say they are now worse off than
they were then, in income as well as in status and influence, before the era 
of reform had even begun. 

That is also why, when American and German organizations come to town looking 
for ways to help the people they call Russian democrats move gainfully
into the next round of parliamentary and presidential elections, what they 
see is mostly upturned palms. 

Justifying another round of foreign election spending in Russia requires
a hard sell by Russian liberals. One of them treated a recent visitor
from Washington to fanciful claims that, because of the rail blockades,
Russia is on the edge of another October revolution; and at the same time, 
that if the government doesn't collapse, a political coalition of Anatoly 
Chubais and Yegor Gaidar is bound to forge a winning vote-getting strategy 
in 1999 and 2000. 
How will the two most detested has-beens in Russian democratic politics
manage this comeback? The cunning Russian advised the skeptical American
that this would be done, first of all by giving Chubais the multi-billion
dollar bailout package he's been appointed to ask for. That's to provide

enough roubles to yank the revolutionaries off the railroad tracks. 

Once that's done, and the banks who depend on rouble stability
have been secured for the next two years, election financing can be
managed through their accounts. Funnelling that by hiding Chubais 
and Gaidar behind a bunch of new names running in Russia's regions, is the 
plan. Far from the scrutiny of the national party lists, these "new names" 
are to be the political avant-garde, the bankers' front-men, the Chubais-
Gaidar clones. That, runs today's liberal strategem, is where
Washington should be starting to deposit its vote-winning cash from now on.
Where, and to whom exactly, are questions to which, naturally, there is no
shortage of answers, if only Washington would start early by paying 
the consulting fees.

For all his waffle about "the logic in unfolding events," this is the scheme 
Gaidar has in mind when he appeals publicly to "rally small and medium 
businessmen in opposition to communist governors."

That these businessmen lack the cash to back Chubais and Gaidar won't be
a stumbling block, not if the bailout money they are entrusted with is
carefully spent. That these are also the businessmen whose interests have been
severely hurt by the Chubais-Gaidar policies is something they believe a 
little cash can now fix. What our plucky monetarists are really offering is 
Keynesian stimulus for their supporters. Let the opposition eat Adam Smith 
and Paul Samuelson.

And so we come to the first decisive test of the election campaigns ahead.
This 
isn't about the fundamentals of the Russian economy. It isn't about
President Yeltsin, communists, or a third force. The question today is
whether Chubais can convince the foreign lending community that he, and he 
alone, holds the only cardboard box into which they can securely
deposit their money.

If Russia's creditors decide they've lost confidence in cardboard-box 
liberalism, Chubais's failure will be permanent, and the elections of
1999 and 2000 will have to be paid for without him. 

********

#5
The Independent (UK)
23 June 1998
[for personal use only]
Street Life - Russia's old country ways are dying out
Samotechny Lane, Moscow 
By Helen Womack

An eerie silence has settled over Samotechny Lane. In the absence of the 
usual noise from the neighbours, birdsong can be heard in the inner-city 
street. The sun is scorching but the pavement is carpeted with what 
looks like a layer of snow. It's nothing out of the ordinary: just high 
summer in Moscow. 

The "snow" is pukh, a cotton wool-like substance released by the poplar 
trees in the parks. Old Communist bosses had them planted with the 
intention of beautifying the city, but failed to realise that the trees 
reproduce in a way that gives half of Muscovites an allergy. The fluff 
is also a fire hazard. Last week, 100 cars in tin garages were burnt out 
after a boy put a match to pukh. 

When the heat and the fluff become unbearable, there is a mass exodus 
and Moscow is abandoned to mad dogs and foreigners. The Russians go, as 
they have since Chekhov captured the delight and ennui of rural life, to 
a dacha, or cottage, in the country. The old elite have long had elegant 

wooden mansions. "New Russian" businessmen have brick ranches with 
swimming pools. But most Russians have a dacha - a wooden hut on an 
allotment, rather like the place where my grandad grew rhubarb in the 
1950s. 

I am saved again from Moscow by my best friend, Vitaly Matveyev, who for 
the past three years has taken me to the village of Druzhba (meaning 
friendship), 200km south-east of Moscow. 

Here, his father, Mikhail Alexeyevich, a retired factory worker, has a 
small house and garden among the allotments of fellow workers. The 
village is set in a glorious landscape of sunflower fields, birch woods 
and froggy ponds. Vitaly has access to this idyll, but I have the wheels 
to get us there. 

The dacha, which old Mr Matveyev built himself, has two rooms - one up 
one down. On the wall of the sitting room is a fresco of an Alpine 
scene, copied from a calendar. But the house has no running water - it 
is really a gardener's shelter. 

Vitaly may come here for holidays but his father has spent his summers 
toiling on the land to grow crops, without which the family would not 
have survived the long Russian winters. Old Mikhail, born in the same 
year as Mikhail Gorbachov, has kept a diary with entries such as: 
"Weather hot, watered the cucumbers, that cretin in the Kremlin is 
wrecking the country." 

Last summer, I was there when Mr Matveyev had a bumper crop of cherries. 
The old man spent hours picking the fruit. Had I not offered him a lift, 
he would have carried the cherries in a basket on his back 20km to 
Koloma, where he lives with Natasha, his daughter, and her family. I 
helped Natasha to make cherry jam, a ritual of the Russian summer. 

These memories flood back as Vitaly and I arrive at the dacha. But the 
garden is overgrown. The old man is not there. He is dying of cancer at 
the age of 65 because, as he admits, he has "smoked and drunk like a 
real Russian" all his life. There is no hospital bed for him. He is 
dying at home, with Natasha caring for him and only vodka to kill the 
pain. 

The dacha was allotted by the Communist state but is now the private 
property of the Matveyev family. It will be passed on to his children. 
But Vitaly lives far away in Moscow and Natasha, who has a successful 
sewing business, does not see herself spending her leisure time digging 
a vegetable patch and endlessly pickling and bottling the crop. 
For now, weeds are rampant in the garden and with the old man a whole 
Russian way of life is dying. A strange quiet has descended on the 
dacha, broken only by birdsong and the buzzing of insects. Nature is 
taking its course. 

********

#6
ACCORDING TO DATA OF THE MINISTRY OF THE INTERIOR, GROWTH IN 
CRIME IN RUSSIA THIS YEAR REGISTERED IN PRACTICALLY EVERY RESPECT
MOSCOW, JUNE 22, 1998 /FROM RIA NOVOSTI CORRESPONDENT
VLADIMIR GONDUSOV/ -- Growth in crime in Russia this year has
been registered in practically every respect. This is evidenced
by data of the Russian Interior Ministry's Chief Information
Centre (GITs) received by RIA Novosti today. From January
through May, 1,250,000 crimes were committed in the country, a

nearly 4-percent increase on last year's indicator.
Approximately the same growth was registered in major crimes.
Against the background of an insignificant fall in rape, robbery
and swindle, gangsterism increased 55%.
The number of crimes connected with commercial bribery
trebled; illegal entrepreneurship grew 75%; consumer cheating,
60%; evasion of paying customs duties, 50%. Drug trafficking
grew 20%, and the stealing of arms, munitions and explosives,
60%.
The GITs' data also show that crimes are ever more
frequently committed by minors and people having previous
convictions, as well as by citizens from the republics of the
former USSR. The number of crimes perpetrated in a state of
narcotic or alcoholic intoxication increased by one-third. 

********

#7
East: Analysis From Washington -- Avoiding The Apocalypse
By Paul Goble

Washington, 22 June 1998 (RFE/RL) -- One transition most post-communist 
countries have so far failed to make is away from the apocalyptic view 
that they must achieve a particular goal or else fall into the abyss of 
disaster.
In the past, communist leaders told their populations that they must 
build socialism or else suffer fascism, occupation and decay at the very 
least.

Now, the leaders of these countries -- not to mention their supporters 
and opponents abroad -- insist that their citizenries must rapidly build 
democracies and free markets or face some other but equally horrible 
alternative.

At one level, of course, this continuity in style of argument is both 
understandable and defensible. It is understandable because it is the 
only line of argument that many people in this region have any 
experience with. And it is defensible at least in the short run because 
it appears likely to work both at home and abroad. At home, this vision 
of an apocalyptic choice can energize governments and populations to 
take the difficult steps they must make toward a free society.

Abroad, such apocalyptic visions often can help these societies in 
transition extract assistance from Western countries that are now faced 
with a variety of competing demands for assistance.

Obviously, the more convinced Western leaders are that a particular 
post-communist country is on the brink of success or failure and that 
failure would be bad for the West itself, the more likely these leaders 
will be to provide it with the aid it seeks.
But if the use of such rhetoric about post-communist countries is 
understandable, it nonetheless entails three significant dangers for 
both these societies and those who would help them.

•First, such apocalypticism contributes to an either/or quality of 
analysis both by the peoples going through post-communist development 
and by those outsiders who are watching them do so. 

For example, many in both groups appear ready to decide that one country 
is democratic because it has had elections but that another country is 
not because communists play a major role in its government.

Likewise, they appear ready to believe that one country has a free 
market because it has undergone privatization but that another country 
with less privatization is not.


And groups both at home and abroad appear ready to assume that one 
country that is quiescent is somehow stable while another country 
equally quiescent is on the road to disaster.

Not only does this trivialize the meaning of all these terms and reduce 
the question of their achievement to a single measure, but it has the 
effect of driving everyone involved to apply one set of standards to 
some countries and quite another to others. 

Thus, many may overlook the most egregious violations of human rights in 
countries deemed to be democratic while the same people will focus on 
similar violations elsewhere as convincing evidence of retrograde 
behavior.

And that pattern in turn leads many countries whose regimes are anything 
but democratic and free market oriented to seek certification as both 
from the West so as to avoid such criticism. 

•Second, this approach inevitably distracts attention from both what has 
been achieved and what remains to be done in these countries as they 
move away from the communist path.
Instead, it contributes to an all-or-nothing understanding of what is 
going on. Across the former communist world, all the countries, their 
governments and peoples have changed significantly over the past decade.

But in no case can it be said that their world is now "a new heaven and 
a new earth," totally without the marks of the past. In some cases, 
these marks are very obvious; in others, less so; but in all, these 
marks continue to cast a shadow on the present. 

The apocalyptic vision obscures both the changes and the continuities 
and thus erects a barrier to a full understanding of just what is taking 
place.

•And third, such apocalypticism undercuts the possibility for shifting 
from crisis-driven political systems likely to choose authoritarian 
solutions to less agitated societies in which democracy can take root 
and thrive.

Democracy and free market economics, as their founders regularly 
reminded the world, are things that can be introduced mechanically or by 
fiat, however desirable that might be. Instead, these complicated social 
systems can grow only out of a culture that promotes tolerance and 
understanding, a culture that evolves organically over a long period of 
time.

That is not something apocalyptic thinking allows for. And consequently, 
escaping apocalypticism is just one more transition the former communist 
states must make if they are to advance along the path to a freer 
future. 

*********

#8
Moscow Times
June 23, 1998 
Duma Deputy Asks If Yeltsin Has Double 
By Andrei Zolotov Jr.
Staff Writer

Is Russia ruled by a legally elected president or by Boris Yeltsin's 
double? 

In all seriousness, a Communist deputy in the State Duma, parliament's 
lower house, recently sent an official request to the General 
Prosecutor's Office requesting an inquiry into whether Yeltsin was 
replaced by a double in June 1996. 

Deputy Alexander Saly based his request on a full-page article last 
month in the esoteric nationalist newspaper Zavtra, which said published 
photographs and conflicting reports about Yeltsin's heart surgery in 
November 1996 gave cause to question the president's identity. 


The conspiracy theory goes like this: Yeltsin's health was so bad that 
his inner circle decided to remove him from power and replace him with a 
double for public appearances. 

"I am not asserting this [that the real Yeltsin is out of the picture], 
but this is an attempt to inquire," Saly, a military psychologist who 
served as a political officer in the Soviet army, said in an interview 
last Friday. 

"Since everything is illogical in the state and Yeltsin's circle is 
carrying out not simply an anti-national policy but a policy of state 
treason, doubt can be cast on everything," Saly said. 

The General Prosecutor's Office is required by law to respond to a 
deputy's official request in 30 days. 

Alexander Zvyagintsev, a spokesman for the prosecutor's office, said his 
agency does not have to consider appeals showing "evident signs of 
schizophrenia," but would most likely have to consider the deputy's 
signed request. 
The presidential press service had a clearer reaction to Saly's request. 

"Reasonable people don't usually react to such things," said an officer 
who would not give his name. "A normal reaction to that is to call a 
psychiatric ambulance. Medical treatment is needed." 

In his June 10 letter to General Prosecutor Yury Skuratov, Saly asked 
for an analysis of Yeltsin's photographs before and after his heart 
surgery to determine whether they show the same person. 

********

#9
Russia Frustrated with West over Kosovo
By Timothy Heritage 

MOSCOW, June 22 (Reuters) - Frustration is mounting in Russia over the West's
cool response to its efforts to broker a peace deal in the Yugoslav province
of Kosovo and what it regards as the Western powers' failure to listen to it. 

Moscow's discontent came ringing through in weekend comments by Foreign
Minister Yevgeny Primakov and in remarks by a general who said last week NATO
would start a new Cold War if it used force to end the crisis without United
Nations approval. 

The talk of a new Cold War is widely dismissed as hyperbole, but independent
political analysts say the differences over Kosovo are putting new strains on
Russian-U.S. relations and the risk of long-term damage is growing. 

``The Russians see the West as very impatient, arrogant, showing Russia little
respect and paying little attention to Russian security needs,'' Dmitry
Trenin, an analyst in Moscow for the Carnegie Endowment for International

Peace, told Reuters. 

``Russia has staked its prestige on Yugoslavia after its talks with (Yugoslav
President Slobodan) Milosevic. President (Boris) Yeltsin has committed himself
and is getting uneasy, and Primakov's remarks reflect this.'' 

Milosevic promised at last week's talks in Moscow to meet most of the world
powers' demands for ending the bloodshed in Kosovo, but defied them over the
key demand for an immediate withdrawal of Serbian security force to base. 

Moscow's prestige, and its efforts to regain influence on the world stage,
depend largely on whether Milosevic carries out his promises to end the
Serbian police crackdown in Kosovo and whether the West takes them seriously. 

There is little sign so far of either happening. 

Primakov showed his frustration in a television interview on Sunday in which
he said the Western demands for a complete withdrawal of Serbian forces from
Kosovo were dangerous. 

He also said the West should give Milosevic more time to carry out a promise
to start negotiations with the Kosovo Albanians and charged that some U.S.
diplomats based in Albania had taken a one-sided approach towards the
conflict. 

Moscow hoped for more praise and gratitude for using its traditional ties with
its fellow Slavs and Orthodox Christians in Belgrade to seek a deal and avert
the possibility of NATO military intervention to end the crisis. 

It believes the Western powers, mistrustful of Milosevic after the Bosnian war
from 1992-95, should now put more pressure on the Kosovo Albanians to accept
Milosevic's offer of talks. They are refusing to negotiate until the police
crackdown ends. 

``It would be reasonable for the West, which has influence over the Kosovo
Albanians, to put pressure on them, but they are putting pressure on
Milosevic,'' said Pavel Kandel, a political analyst at the Institute of Europe
think-tank. 

He said the United States was seen as the main driver of Western policy over
Kosovo and relations with Russia were inevitably suffering because of this. 

``Relations are deteriorating, especially in the Russia-NATO area and partly
because the Russians feel they are not listened to. This was seen with the
NATO air exercises,'' Kandel said. 

Russia complained that it was not informed when the NATO air exercises began
last Monday and said it was withdrawing its top military official at NATO in
protest. 

Leonid Ivashov, a senior general, later said NATO would start a new Cold War
if it intervened militarily over Kosovo without first winning U.N. approval.
That prompted a quick rebuff by U.S. State Department spokesman James Rubin. 

Other signs of strains in ties were evident when Russian Defence Ministry
officials, at talks with a senior U.S. general in Moscow last Tuesday,
expressed concern that Washington was breaking provisions in the START-1
strategic arms accord. 

That was another setback to hopes that the Russian lower house of parliament
might quickly ratify the 1993 START-2 treaty which sets out deeper cuts than
START-1. 

Arrangements for the first full summit between Yeltsin and U.S. President Bill
Clinton in more than a year are already on ice, largely because of the Duma's
failure to ratify START-2. 

Relations would take a further nosedive over any NATO military intervention to
end the problems in Kosovo. 

Russia could veto such a move if the approval of the U.N. Security Council is
sought, risking Washington's wrath. But sending troops without consulting
Moscow would anger and humiliate Russia and also increase mistrust. 
``The Russians are very worried that NATO will set a precedent of using force
in Europe without Russia's consent. It fears that a few miles down the road,
it could itself be the target of NATO action,'' Trenin said. 

That is a measure of the mistrust that lingers in Russia's relations with NATO
and the United States. 


Moscow and Washington now have policy differences over Iraq, the Baltic
states, former Yugoslavia, international arms sales and nuclear technology
sales to Iran. 

It pushed ahead with plans on Sunday to revive a pact to build two
1,000-megawatt nuclear reactors in southern India which broke Delhi's
perceived isolation after its nuclear experiments last month and is unlikely
to please Washington. 

**********

#10
S&P comments on Russia financial industrial groups

NEW YORK, June 22 - Understanding the complexities that financial-industrial
groups (FIGs) present in the credit analysis and rating of individual FIG
companies is increasingly important as these concentrations of economic power
become more pervasive in Russia and international capital markets, Standard &
Poor's reports this week. 

In this week's edition of Standard & Poor's CreditWeek, analysts for the
global ratings service explore the intricacies of Russia's bank-led and
industry-led financial-industrial groups, as well as their role in Russia's
economic transition. 

This week's edition of CreditWeek also contains a detailed summary of
Standard & Poor's analytical approach to rating FIGs. 

While inancial-industrial groups have just emerged in the Russian economy in
the last few years, as a replacement for governmental industrial structures
under the communist regime. Tthey already represent a significant economic and
political power base in the country. 

FIGs have become important issuers of Eurobonds and syndicated loans and are
likely to tap international capital markets as conditions permit. 

Therefore, Standard & Poor's believes it is important to identify and
appreciate the complexities that FIGs present in the credit analysis and
rating of individual FIG companies. 

"Broadly speaking, these complexities derive from the interconnectedness of
companies within FIG structures, and from the poor level of disclosure and
transparency about how risks are transferred within FIGs," the report says. 

Analysts identify several key credit risk factors relating to the assessment
of individual FIG banks and industrial companies and the impact of FIGs in
Russia more generally, including: 

The inability to characterize FIGs as positive agents for industrial
restructuring and corporate governance in Russia, which has credit
implications for FIG companies as individual borrowers; 

Poor standards of transparency and disclosure within FIGs; 

Interrelatedness of banks and their industrial groups creating high
concentrations of client business at the banks and rendering it difficult to
assessDifficulty assessing the credit standing of individual FIG banks or
industrial enterprises from on a stand-alone basis; assessment of the
company's operating and financial risand, 

Insufficient information to allow for proper analytical understanding of the
relationship between an individual FIG company and the broader FIG structure,
making full rating often not tenable. 

Finally, while the financial leverage of Russian FIGs does not create
substantial contingent liabilities for the federal or regional governments,
the failure of a leading FIG bank or FIG corporation could seriously impair


investor confidence in the Russian economy and could result in liquidity
problems, analysts say. 

"The extent to which FIGs do, or do not, progressively embrace enterprise
restructuring will play an important role in the development of Russia's real
economy and its ability to generate economic value. 

This can have important micro-and macro-economic implications, which in turn
can impact credit quality in both the public and private sectors," the report
says. 

In particular, analysts cite the lack of transparency in FIGs as a challenge
for investors interested in taking either equity of credit positions. 

"Longer term, as economies become stronger, the disadvantages of these
affiliations can begin to outweigh the benefits," the report adds. 

The nature and role of FIGs in the transition of Russia's economy is still
evolving. Despite existing structural problems, positive changes are
occurring and, in some cases, FIGs have promoted or are involved with market
reforms. 

As the economy stabilizes, there is potential for FIGs to evolve from merely
providing a relatively stable base for Russian enterprises to promoting needed
market restructuring. "It is the bank-led FIGs rather than the industry-led
FIGs that show the greater potential for leadership in this direction," the
report says. 

*********

#11
Communist Leader Says Yeltsin Should Be Consistent 

MOSCOW, June 22 (Interfax) - President Boris Yeltsin "must cease, at 
last, making numerous public inconsistent and contradictory statements" 
on whether he will run for president in the 2000 elections, Communist 
Party leader *Gennady Zyuganov* has told Interfax. 

Zyuganov was commenting on Yeltsin's remark in Kostroma June 19 that he 
will not run for a third term as president because this is banned by the 
Constitution. 

It is hard to believe a man who continuously changes his story, Zyuganov 
said. 

Yeltsin "must make it clear that he will not violate the Constitution 
and run for a third term, but he makes contradictory statements 
instead," he said. 

"There is no question of Yeltsin being president for a third term. 
Rather, the issue is how to make him resign in a legal way to enable the 
country to recover," Zyuganov said. 

Yeltsin is under the influence of his retinue when he makes 
contradictory statements, he said. 

His retinue includes not only the presidential administration, whose 
personnel "are aware of the fact that they can hold on to their 
positions only as long as he is in power and so whisper into Mr. 
Yeltsin's ear that he is in good health and can run the country for 
another term," Zyuganov said. 

It also includes quite a few people, starting with former Russian Prime 
Minister and now leader of the Our Home Is Russia movement Viktor 
Chernomyrdin and ending with Alexander Rutskoi, the Kursk region 
governor who led a rebellion against Yeltsin in 1993, he said. 

"Mr. Yeltsin has kicked each of them out but they are still subservient 
to him because they are involved in the same system of unprecedented 
illegal activities and arbitrary rule," he said. 


********

#12
Moscow Sees NATO's Planned Expansion As Threat, General Says 

MOSCOW, June 22 (Interfax) - Moscow sees NATO's planned eastward 
expansion, and especially the possible admission of former Soviet 
republics to the North Atlantic alliance, as a "serious threat to 
Russia," a senior military officer said. 

Russia's concern had become more serious after recent NATO air force 
exercises in Macedonia and Albania, the head of the Defense Ministry's 
international cooperation department, Col. Gen. Leonid Ivashov, told 
reporters. 

"Fifty percent of the information which we were given before the 
exercises turned out to be incorrect, to put it mildly," he said. 

"NATO is persistently moving toward Russia's borders, and they are 
trying to convince us that the Polish-Danish-German corps moving its 
battle formations and control posts to the border that we share with 
fraternal Belarus is a factor of stability and security," Ivashov said. 
"But what would they think at NATO if Russia and Belarus took similar 
measures and moved their joint military structures in the opposite 
direction, also for a friendly purpose, in particular that of 
strengthening stability in Europe? 

"If the Baltic countries are drawn into the alliance with the aim of 
strengthening peace and stability, as NATO declares, we will not remain 
indifferent. 
"In this way, step by step, we can come back to the Cold War times," 
Ivashov said. 

The general complained that there are people "who today nostalgically 
recall the Cold War times," adding that "There are more forces in NATO 
that seek to bring us back into the past than there are in Russia." 

********

#13
Date: Tue, 23 Jun 1998
From: Beth Knobel <drbeth@glasnet.ru>
Subject: No problem

Dear David:

THIS IS IS IS IS FOR PUBLICATION

Whoops! Hey, these things happen. Thank you for putting an apology out on
the list. Now that my criticism is out there, let me again repeat that
nothing personal is intended. But then again, JRL has been and I hope will
continue to be a place where intellectual debate can run free. 

Having lived in Russia for six years, I am indebted to many colleagues who
have made my time here exciting and rewarding. BUT at the same time,
because I have been here for so long, I feel my patience wearing thin for
reporting that perpetuates various falsehoods about Russia--for example that
there is no social class between the poorest of the poor and the New
Russians sporting around Moscow in their Mercedes 600s. We should all be
working to break down the many stereotypes that for some reason still exist
about Russia, not to reinforce them.

To be fair, I promise to offer CBS stories to JRL to add our voices to the
intellectual debate on Russia--and to gladly accept all feedback. 

More immediately, here is a translation of an article in that muckraking
monthly, Sovershenno Sekretno (Top Secret). My husband was one of the
journalists who co-wrote it. I've added on to the translation that appeared
in Izvestia Press Review. 

Printed along with the article in the paper was a copy of Kiryenko's patent
for the "Stop In Time" scratch-off instant lottery. I've seen it, and it

definitely has Kiriyenko's name on it. Could there possibly be more than
one Sergei Vladilenovich Kiriyenko in Russia? And if the new prime minister
really HAS or HAD been running a private instant lottery, I wonder if he's
paid taxes on the income? Somehow, I doubt it.

All best, Beth Knobel, CBS Moscow


"Kinder Surprise"
Translation for personal use only

Sovershenno Sekretno, No 6, pp. 3-10, 6/19/98

In its June issue, Sovershenno Sekretno discusses some interesting unknown
facts from Russia's new Prime Minister Sergei Kiriyenko's biography.
The advent of the new cabinet in Russia, the monthly says, compelled the
Kremlin to "launder" the biographies of many new ministers, including the
head of the government. Kiriyenko was immediately nicknamed "Kinder
Surprise" in honor of the brand of German chocolate egg which comes with a
toy inside--that is, you always find something interesting inside its shell.
To this end, the personal records of many new cabinet members were hurriedly
withdrawn from local Komsomol archives and documents about the banks and
companies they had founded were locked up in safes.

But even the "laundered" official biographies of some new cabinet members
reveal that they were most actively involved in private business prior to
their government appointments. Kiriyenko is one of them. The future prime
minister's original surname was Israitel (his father was Jewish) but he
changed it to his mother's Ukrainian name of Kiriyenko. He graduated from
the Nizhny Novgorod Institute of Water Transport Engineers, but his work in
this industry (at the Krasnoye Sormovo nuclear submarine shipyard) did not
last long - very soon, he headed the plant's Komsomol organization and was
then promoted to Second Secretary of the regional Komsomol organization.
His job was to supervise budding Komsolmol commercial activities.

And that period of Kiriyenko's life is most interesting, the monthly notes.
When a team of Sovershenno Sekretno journalists went to Nizhny Novgorod to
dig for facts about Kiriyenko's activities as a regional Komsomol leader,
local archivists refused to produce any documents, threatening a court
action for the attempt to intrude into the private life of the former
Komsolmol leader. So the journalists retreated, and had to resort to other
means to collect information.

It is widely believed in Nizhny Novgorod that Kiriyenko's commercial success
was based entirely on the fact that, being an official Komsomol businessman,
he got hold of a big chunk of the notorious "party gold," - the Communist
Pary's money which had never been found. Kiriyenko's first company, called
AMK (a Russian abbreviation for Youth Joint-Stock Concern) engaged in
selling cornflakes, footwear and other such goods. But no documents could
be found about the company's commercial operations or revenue. 

People in Nizhny Novgorod refrain from talking about Kiriyenko's managerial
talents for the simple reason that they cannot remember anything
outstanding. His ill-wishers, however, are more talkative. They say, for
instance, that the successful work of the local Garantia Bank, headed at one
time by Kiriyenko, was explained by the fact that Nizhny Novgorod Deputy


Governor Yuri Lebedev's wife was the bank's vice president. Kiriyenko also
failed to settle the debt problem of the Norsi Oil company he used to head -
its current debt to the budget still amounts to four billion new rubles. 

Unable to cope with that problem economically, Kiriyenko turned to
extraterrestrial forces - he invited a team of individuals claiming to
possess extrasensory preception abilities to help him solve economic
problems. A group of psychics waved their hands over blueprints of the
company's oil refinery concentrated cosmic rays on it. They claimed the
amount of light oil products increased by three percent after this. Norsi
Oil's vice president Stepan Glinchak confirmed the psychic act. "To raise
the efficiency of the production," he told Sovershenno Sekretno, "the
company is working out methods for the use of extrasensory potential."
According to Glinchak, this somewhat extravagant project is still being
developed "scientifically," though so far it has produced no practical
results. 

Soversehnno Sekretno's journalists found another interesting document -
Kiriyenko's patent for the invention of a mechanism for an instant scratch
lottery called "Vovremya Ostanovis!" or "Stop in Time!". The Russian patent
was granted in 1988 to Sergei Leonidovich Ivanov and Sergei Vladilenovich
Kiriyenko. It is unclear who the first person is, but the second is the new
prime minister. The monthly has verified this. This is one of hundreds of
these kind of scratch lotteries which were popular starting in the 1970s

Almost without exception, according to the Moscow Tax Police, these kinds of
scratch lotteries have no winners. It is easy to remove the winning tickets
at the place where they are printed. Although by law half of the money
collected is supposed to go towards prizes, to monitor these lotteries'
prize funds is almost impossible. There is no way to check whether the
lottery issued 100,000 tickets or 200. So if anyone bought and actually won
a big prize in this lottery, Sovshenno Sekretno asks the winners to write or
call the paper. And if Sovshenno Sekrento actually finds a winner, the
paper says it will thank Kiriyenko publically in its pages.

Given the fact that Russia's new Prime Minister is involved in large-scale
gambling and the paranormal, the monthly concludes that one can only guess
what will happen to Russia now.

********

#14
Date: Tue, 23 Jun 1998
From: Anne Williamson <awilliamson@mcione.com>
Subject: #2233 Knobel Criticism of Gailey #2231

Having read Ms. Knobel's note suggesting that JRL would have been the
better for having not included Philip Gailey's op-ed in the Journal of
Commerce, I am left truly puzzled.
What are Ms. Knobel's objections? She doesn't state them, citing only
unspecified "cliches and mistaken analysis".
Reviewing Gailey’s piece, I thought he offered the reader a cogent, rather
general but accurate snapshot of Russia's dysfunctional economy - wage
arrears, crushing foreign debt, excessive short-term dollar debt, inability
to collect taxes, barter in the face of cash starvation - while making the
point that economic dislocations this widespread bring any hope of positive
political developments into question. Further, Mr. Gailey cites the
difficulties a ruble devaluation - a key question at this time - would
represent for the Russian peoples' ability to cope and the ensuing
consequences of such for the political health of the Russian polity overall.
Certainly the phrase "breathing the fresh air of freedom" is rather tired,
but hardly objectionable. Mr. Gailey was simply conceding in shorthand to
the average, ill-informed American, a product of managed news, that the
Russians are experiencing a respite from state-organized,
tightly-controlled propaganda but that it may prove only temporary, adding
that the Russians instead are delivered their news by a new,
tycoon-controlled media.

Mr. Gailey, whose article Ms. Knobel finds particularly wanting for the
very fact of his being an ex-pat living in Russia, clarifies his essential
question - can the Kiriyenko govt cope? - by quoting one of Russia's more
significant politicial personalities - Grigory Yavlinsky - while
simultaneously alerting the reader that Mr. Yavlinsky's most recent
thinking about Russia can be found in the current issue of Foreign Affairs.
I assume that Ms. Knobel would grant that Grigory Yavlinsky at least knows
something about his own country that might be useful for foreign readers to
know.
Besides, it was wonderfully kind of Mr. Gailey to spare us any comment
from Yegor Gaidar, Anders Aslund or Charles Blitzer. (Those suspects have
been rounded up so many times, they oughta be indicted.)
Finally, Mr. Gailey underlines what common sense says is the most
accessible weapon available to terrorists - biological weapons - again by
quoting Grigory Yavlinsky. This is a real service since the Western media
have concentrated on sensationalizing the fear of Russian nuclear material
going astray. Since the delivery of nukes requires missiles which in turn
require sophisticated technology and materials, production centers,
concrete silos, extensive and highly-trained staff and such, clearly the
greater threat is microscopic viruses whose destructive abilities can be
tapped in a myriad of simple ways. Perfect for even an illiterate pirate’s
arsenal.
Of all the lazy pap put out about Russia over the last six years, Mr.
Gailey's hardly controversial piece stands as a serviceable, informed and
professional report.
I’m at a loss as to what anyone might find so objectionable in Mr.
Gailey’s effort as to wish it excised from the JRL.

Best,
Anne
PS Like Ms. Knobel, I am not acquainted with Mr. Gailey and have never
spoken with him. And I too give him the benefit of the doubt, and credit
him a "nice" man.

********