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11 July 1998
[Note from David Johnson:
1. AP: Russia Premier Issues Gloomy Report
2. Lucy Komisar: request for info on Russian money-laundering
in the U.S.
3. Dmitri Gusev: Will the IMF Bailout Loan Agreement Require the
4. Moscow Times: Boris Kagarlitsky, Enemies of the Internet.
5. Michael Bernstam: Polish and Russian economic policies.
6. Journal of Commerce: James Meek, Arrogant, and proud of it.
(Belarus' Alexander Lukashenko).
7. Financial Times (UK): First came power, then wealth. Victor
Chernomyrdin, from peasant boy to prime minister, overturns
Chrystia Freeland's view of Russia.
8. Interfax: Berezovskiy: Situation in Russia Should Not be
9. AP: Clinton Russian Affairs Aide. (Carlos Pascual)]
Russia Premier Issues Gloomy Report
July 10, 1998
By MITCHELL LANDSBERG
MOSCOW (AP) - In a blunt and gloomy report, the prime minister warned
Parliament on Friday that social tension was rising in Russia and financial
markets have ``practically ceased to exist.''
Since Russia's economy began spiraling downward this year, volume on the stock
market has declined from about $110 million a day to as little as $10 million
In his address to the Federation Council, the upper house of parliament,
Sergei Kiriyenko also said the government's proposed new economic program to
overhaul tax laws and cut spending represented a wholesale change in economic
Still, the program - demanded by Western lending agencies - received only a
lukewarm response from the legislators.
Kiriyenko delivered his speech as President Boris Yeltsin was beseeching
Western leaders for support and a senior official of the International
Monetary Fund was en route to Moscow, presumably to put the finishing touches
on an agreement for an IMF bailout.
Yeltsin spoke by telephone with German Chancellor Helmut Kohl, British Prime
Minister Tony Blair and French President Jacques Chirac, all of whom voiced
support for Russia's anti-crisis economic program, the Kremlin said. He also
was expected to speak to President Clinton.
The Russian government's chief negotiator with Western lending agencies,
Anatoly Chubais, prepared to meet with John Odling-Smee of the IMF, who was
expected to arrive sometime Friday night.
Russia is seeking $10 billion to $15 billion in loans from the agency. Any
agreement would likely be contingent on passage of the government's economic
plan in Parliament - no small hurdle.
The Russian economy was just beginning to show signs of growth when it sharply
retrenched this year in response to a variety of pressures, including the
Asian financial crisis, a drop in world oil prices and growing signs of
impatience and unrest among Russia's long-suffering work force.
The past week alone saw striking miners shut down the Trans-Siberian Railway
for the second time this year and unpaid defense workers picket in several
``Social tension is growing in society, which naturally is not helpful to
stabilization,'' Kiriyenko said in his speech.
His harshest words Friday came in his assessment of the shrunken financial
``The financial market has practically ceased to exist,'' Kiriyenko said.
``There is, in fact, no financial market in Russia now.''
The prime minister - a former banker - dug in his heels, however, when asked
if the ruble would be devalued. ``Never,'' he said.
Kiriyenko leaves Monday for an official visit to Japan. News reports have said
the Japanese government may extend substantial loans to Russia.
Kiriyenko had gone to the Federation Council to ask its approval of the
government's economic stabilization program.
He said it would fundamentally change the economy, in part by shifting the tax
burden from producers to consumers, and would allow the government to pump an
immediate $33 billion into industry.
The Federation Council overwhelmingly passed a resolution that partly praised
the government's approach, but sharply criticized important aspects of the
``The program does not contain measures to revive industrial production, raise
investment activity, increase the competitiveness of national industrial
output, strengthen currency controls, ensure the ruble's stability or provide
social protection for the population,'' the resolution said, according to the
Interfax news agency.
Date: Fri, 10 Jul 1998
From: Lucy Komisar <email@example.com>
Subject: request for info from readers
For a story I'm researching on Russian money-laundering in the U.S., I'd
be interested in knowing of written materials and sources in the U.S.,
Russia or elsewhere. (I speak English, French, Spanish, Italian, German,
but alas, not Russian, though I could get translation for written
materials in Russian).
Date: Fri, 10 Jul 1998
From: dmitri gusev <firstname.lastname@example.org>
Subject: Will the IMF Bailout Loan Agreement Require the Duma Ratification?
Article 31 of the Law on the 1998 budget of the Russian
Federation (http://www.minfin.ru/budjet98.htm) signed
by President Yeltsin on March 4, 1998,
states that, in 1998, the loan agreements on the international
loans received by Russia are fulfilled only if these
loans are listed in the program of the state external
borrowings of the Russian Federation and state credits
provided by the Russian Federation. The article
required that the government submits the program
for the Duma approval within one month since
the day when the law is signed, i.e., before April 4.
I don't know if that was done, or not.
And, according to the 1994 law "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" signed into law by President
Yeltsin on December 26, 1994, each international loan agreement
on a loan above $100 million requires ratification
by the Duma unless it is listed in the aforementioned
program approved by the Duma. The Duma has been
approving these programs each year by its resolutions lately.
It seems to me that the proposed $10 billion IMF bailout package
should be treated somewhat like the START-2 agreement,
i.e., it should not begin being fulfilled, and, in
particular, no money should be received under the
agreement and no interest should be paid back on
the borrowed money, until the agreement is properly
ratified by the State Duma.
Considering that the Duma recently tried to limit this
year's external borrowing to a sum BELOW $10 billion
and lower the limit from the 1994 law from $100 million
to $10 million (the President vetoed the bill), what are
the chances of timely ratification?
Someone kindly referred me to Article 3 of the 1998
budget, which allows the government to change the
volumes of internal and external borrowings. However,
the government is only allowed to do that under the
following conditions explicitly listed in that same
- provided the cost of servicing the debt is lowered, and
- provided that the overall federal debt is lowered, and also
- to repay earlier loans received by the Russian Federation
with subsequent changes in the the program of the state external
borrowings of the Russian Federation and state credits
provided by the Russian Federation; these changes have to
be approved by a State Duma resolution.
Someone also pointed out, correctly or not, that the IMF
itself regards borrowing from it as domestic, not foreign.
However, I examined the draft of the 1997 program of the
state borrowings of the Russian Federation
and state credits provided by the Russian Federation, and
there were IMF credits listed in it! The 1994 law regulates
borrowing from international financial organizations along
with borrowing from other states, except the CIS states.
I.e., what the IMF thinks of its credits is somewhat beyond
the point, IMO.
I also learned that, in 1997, the government apparently borrowed
more from abroad than the budget allowed, so the Duma
had to consider an amendment to the law on the 1997
federal budget in order to push the limit upwards
postfactum. I traced this amendment all the way to
its being passed in the second reading.
It appears to me that one of the loopholes in the 1994 law
used by the government was that the law did not specifically
state that the loan agreements could not be fulfilled until
they were ratified, and it is my understanding that
Article 31 of the law on the 1998 federal budget was
designed to plug the hole.
My interpretation is, the government official(s) properly
authorized (by a government decision) can sign the agreement
on the IMF bailout package, no problem there. But the agreement
should not be honored by the Russian side until it is
ratified by the Duma, and I do not see why the other side
should start honoring the agreement until then.
Now, I am no lawyer, so my interpretation may very well
be faulty. For one thing, there is an outer chance that the
loan in question IS listed in the 1998 program of external
borrowings. I don't know if the program's been approved
Where, where are the tough Western investigative journalists?
I am not in a position to study this matter thoroughly
July 10, 1998
Enemies of the Internet
By Boris Kagarlitsky
Boris Kagarlitsky is an analyst at the Russian Academy of Sciences
Institute for Comparative Politics. He contributed this comment to The
It is not that foreigners use the network counter to Russia's interests,
but that statesmen here do not know how to use it to their advantage.
It may seem strange for people who spend hours on line, but the Internet
has not only ardent fans, but sworn enemies. All you have to do is open
a few national-patriotic publications in order to understand that every
time we connect to the network, we are betraying the Motherland a
They say ill-intentioned foreigners will be groping about our networks,
looking for government secrets and sending viruses to disable our
computer control system. Strictly speaking, all this is entirely
possible, but then again, we could do the same if we wished.
Western organizations engaged in developing the Internet in Russia in
most cases are not doing so disinterestedly. They are trying to get
access to Russian informational resources. But this is the advantage of
the Internet. It is a road that goes in both directions. The problem is
not that "pernicious foreigners" are using the network counter to the
interests of Russia, but that statesmen here do not know how to use the
Internet to their own advantage.
Opponents of the Internet are demanding that the legislature adopt laws
restricting or forbidding parts of the network. They also want to
maintain a government monopoly over Russia's participation in the
international system of telecommunications and exchange of information.
What would come of all this can be judged by the experience in Ukraine,
where a similar philosophy has already triumphed. President Leonid
Kuchma issued a decree on defending the state's interests in the
informational sphere. Now access to outside data transmission channels
will be granted only through two state operators, Ukrtelekom and
Ukrkosmos, together with the company Infkom, of which Ukrtelekom has a
The decree has yet to be approved by the Supreme Rada, but panic has
already spread among users. It is clear that such monopolizing of access
to the Internet will make costs rise sharply. What is not clear is
whether the decree can be carried out in general. All the existing
channels would have to be turned off, and a system of total control
would have to be established, for which the Ukrainian government
obviously does not have the means.
Preventing information from leaking into the system is in principle not
possible; the state would have to control the network every second. And
the three official providers simply do not have enough power for
high-quality transmission of the huge volume of information that they
would have to cope with.
Optimists say that such measures would bring chaos to the network.
Pessimists believe that all three channels would simply die on the first
day. Ukrainian hackers are already threatening the government with acts
of reprisal. While the Ukrainian government is preparing to ward off
"informational threats," the country is in danger of a network "civil
Russian patriots and Ukrainian "separatists" are hostile to one another,
but, alas, they think almost alike. Xenophobia is also widespread among
Russian legislators and officials. If throughout the entire world the
left has greeted the Internet enthusiastically as a means of fighting
the information monopoly of big business and a new means of free
expression, then in Russia the reverse is true. The oppositionists in
the State Duma, the lower house of parliament, dream only of increasing
state control over information, minimizing the development of computer
networks and establishing censorship.
Because of their great-power sentiments, they do not realize that if
they give the state the right to decide who has access to information
and who doesn't, then it will not be the pernicious foreigners who will
be deprived access to the computer network but the "red patriots"
While Duma deputies make speeches against the informational threat of
the Internet, the Federal Security Service, the successor to the KGB, is
working out its own plans. In essence, according to FSB documents,
Internet providers, together with the intelligence services, would have
to "supply a record of all the information (incoming and outgoing) that
belongs to concrete subscribers of the given network." No prosecutor is
required, or at least one is not mentioned in the documents. All this,
including expensive interceptive apparatuses, is supposed to be paid by
the providers, which in the end would mean Internet users. Not even the
old Soviet KGB came up with such a remarkable approach.
The providers would have to supply the FSB with the addresses and
passwords of Internet users. A specialist on the network compared this
to giving the key to your apartment to the local police department.
But what is behind this project is not so much a new totalitarian threat
as hopeless dilettantism. The promised wide-ranging measures are as
impracticable as other threats of the current authorities. However
paradoxical it may seem, the very people who speak about the need to
counter threats from the West are deeply convinced of its immutable
superiority, and therefore cannot even think about competing honestly
and openly as equals. This also shows deep contempt and hostility on the
part of the authorities for their own citizens, who if they are let out
of sight for a moment will betray the national interests of the country
For real informational protection the county needs not prohibitive
measures, but literate professionals who feel at home over the Internet.
But in order to become true defenders of the "national cyberspace,"
these people must be able to feel that the state is not an alien and
hostile force. Then it will become clear that these people are no less
patriotic than the old men who become enraged at the sight of foreign
labels. It is a pity that both the authorities and the opposition today
are hostile to those on whom a dash into the future depends.
Date: Thu, 09 Jul 1998
From: Michael Bernstam <email@example.com>
Subject: Polish and Russian economic policies
Many thanks for carrying on your pages an important debate on Polish and
Russian economic policies between Prof. Grzegorz W. Kolodko and Dr. Ben
Slay. The issues both gentlemen raised are crucial for today's Russia. It
seems to me that Prof. Kolodko is generally right in his assessment, while
Dr. Slay makes several specific valuable points, particularly on the role of
the special Polish banking policy in reducing the cross-enterprise debt. May
I contribute to this important debate by calling in a most knowledgeable and
impartial witness and an astute observer, namely Prof. Kolodko's
predecessor, Finance Minister Jerzy Osiatynski. It so happens that I was
privileged to serve as one of the discussants to his papers at the Polish
conference at Stanford University in November 1996. Professor Osiatynski's
analysis generally confirms the theory and facts presented by Professor
Kolodko. Professor Osiatynski's papers are too long to be attached here, but
I would venture to attach my brief discussant comments at that conference
which both summarize his papers and add a few points of my own. I hope this
debate initiated by Prof. Kolodko would help to discuss new policies for
Russia, and even if not, it still has a historical significance. Herewith my
comments as read in 1996:
Comments on Jerzy Osiatynski's Papers "Ideas and Reality in Polish Economic
Transformation, 1989-1995" and "Polish Economic Transformation 1989-1995:
Achievements and New Challenges"
Polish Conference, Stanford University, November 2, 1996
Michael S. Bernstam, Discussant
Szanowna Pani Premier,
Ladies and Gentlemen:
Minister Osiatynski wrote a paper as brilliant as it is heretical. He
knocked down many prevailing myths and told many unpleasant truths. He laid
out many ignored facts. He told the story of a non-standard economic
transition that has been more successful than standard ones. He showed the
value of non-standard approaches employed in Poland and the failure of many
standard policies. His methodology is most welcome: He treats actual
policies as scientific hypotheses and treats reality as their test.
Too many intellectuals involved in market transitions try to reduce the
facts to fit the theory. Professor Osiatynski calls us to expand the theory
to fit the facts.
Let me reiterate some facts laid out by Jerzy Osiatynski but start with the
one he does not mention, may be because it is well-known but is still worth
0. Poland is the only transition economy that has fully and speedily
recovered from an earlier contraction. Other countries either did not
experience a depression (China, Vietnam, etc.) or only partially recovered
(all Eastern European countries and Mongolia) or seem to undergo an endless
contraction (Russia and most other newly independent states). Let me venture
to submit that countries which adopted non-standard or heretical policies
described by Professor Osiatynski either never contracted or did recover
while countries that followed standard policies by the book have never
1. There was no abrupt stabilization and liberalization policy, sometimes
known as the shock therapy, in Czechoslovakia and Hungary. Their path was
different from that of Poland while the results are roughly comparable, that
is, contraction and recovery, without overcoming a moderately high
inflation. (One can surmise that it was not a price overshooting after price
decontrol that was responsible for the contraction). There was a less
initial fiscal imbalance in Hungary and Czechoslovakia. Price decontrol did
not justify such a high inflation that was actually observed. Other forces
were at work, I would add, primarily the expansion of the quasi-fiscal
deficit via the cross-enterprise debt after price decontrol.
2. Poland employed a major policy not recommended by international financial
organizations. This was a tax-based wage control, the Popiwek tax on excess
wages. This was a measure whose roots were in the old central planning, and
it was reinstituted. I would add that Czechoslovakia and other Eastern
European countries did the same, unlike Russia and other former Soviet
states. Countries that used this measure have recovered from a plunge while
others did not. I would also add that Poland, the Czech Republic, and others
used bank-specific credit ceilings to control enterprise finances -- the
same policy that China employed. Professor Osiatynski describes in
marvellous detail an innovative, non-standard Polish policy of dealing with
the banks' non-performing debt portfolios and enterprise indebtedness -- a
policy that rejected a standard approach recommended by international
financial organizations as dangerous as it creates a recursive moral hazard.
The credit ceiling policy was, in my view, a primary contributor to setting
aside the cross-enterprise debt. This, and not the otherwise powerless
standard fiscal and monetary tools, helped to eventually reduce quasi-fiscal
deficits, monetary expansion and/or tax arrears, and inflation, stop
contraction, and move unto a robust growth path.
3. Collusion among enterprises to raise prices became widespread
(especially, I would add, via the cross-debt buildup). The reliance on tight
monetary policy to curb inflation proved to a large extent ineffective. The
governments had to be much more accommodative than they wanted or expected.
Thus the first years of transition unleashed inflation and contraction.
4. The governments were forced to quickly reintroduce soft financing of
industrial enterprises and agriculture. Hard budget constraints turned out
to be impossible to impose. Not only central government but also local
governments were responsible for the resilience of soft budget constraints.
5. Professor Osiatynski calls to pay more attention to the deep roots of the
old central planning which were not easy to eradicate and which influenced
the lack of financial discipline and rendered the policies impotent to one
or another extent.
6. Tax arrears were unanticipated and became a major source of fiscal
imbalances. Balanced budgets were short-lived. I would add that tax arrears
represent a form of forced subsidy -- a subsidy that enterprises take by
themselves even when the government does not want to give it. Subsidies are
not given, they are taken. They are endogenous.
7. Radical reduction of subsidies and government expenditures was a part of
the program, but, as far as I can judge from the official data, this did not
materialize. Government expenditures as a share of GDP actually increased in
Visegrad countries from 47% to 55% during transition. They have been reduced
from 40% to 20% of GDP in China.
8. Due to the soft budget constraints, there was little supply adjustment of
state enterprises. I would add that this means that relative prices were
rendered ineffective. Price decontrol thus removed shortages but did not
improve the efficiency of production.
9. Bankruptcy laws and policies were ineffective. The government engaged in
what Professor Osiatynski calls accommodative abuses. Financial discipline
did not prevail.
10. Mass privatization in the Czech Republic, Russia, and elsewhere was
separate from enterprise restructuring and the latter did not occur and is
needed afterwards. This is a crucial point. One can surmise that
privatization did not increase efficiency. Indeed, the evidence suggests
that privatization of large state enterprises did not lead to growth in most
countries where it took place. There is no evidence that privatized
enterprises perform better than privatized while the newly created private
sector preforms much better than old enterprises, privatized or not, and
represents the sole source of growth. Professor Osiatynski's table shows
that only 25% of Polish enterprises of all sizes have been privatized and
only a handful of large state enterprises. Yet, as I mentioned before,
Poland is the only previously depressed country that has fully recovered. An
examination of the Polish official data shows that the growth is due to the
newly created private sector as well as the previously existed private
sector initially unrelated to the government and financial disconnected from
it (that is, the sector with the hard budget constraints).
11. One of the most important observations in Professor Osiatynski's paper
is that the new private sector development has succeeded in Poland and, to a
lesser extent, in other Eastern Europe but was blocked in Russia and other
former Soviet states. I would submit that this has made the difference
between recovery and an endless contraction.
12. The banking sector is underdeveloped, bad-debt ridden, and does not lend
to new businesses (which are the source of growth). One can add that the
banking sector is not only heavily subsidized but serves as a channel of
indirect subsidies to enterprises.
13. Professor Osiatynski explicitly names what I consider the most
important, untouched legacy of central planning and the most important
source of policy failures and contractions: the interlocked non-market
relationship between the government, the enterprise sector, and the banking
sector. Professor Osiatynski provides a key insight: This relationship
remains even when banks and enterprises are privatized. Clientelism and
cronyism of the Russian type does not lead to restructuring but rather leads
to more subsidies than before. I would suggest that this is because
privatization has been asymmetric: assets were privatized but not
liabilities, profits but not losses. I call this relationship the common
budget or the common purse. It has not been destroyed, the wall of
separation between the private interests and the public purse has not been
built. This is the source of the soft budget constraints, which, in turn,
exacerbated under more discretionary subsidy policies after price decontrol
14. As a core policy method, Professor Osiatynski recommends financial
separation of enterprises and the banks, and of newly privatized or
commercialized enterprises and the government. Second, he calls for the
development of credit markets for the newly emerged businesses which could
then generate even more economic growth. I have also advocated financial
separation for the last six years as a key to successful transition and
other non-standard methods and have been called all kinds of names for this
heretical approach. It is not too bad to be as heretical as a Polish fellow.
I hope, Professor Osiatynski will not get into trouble with the Western
intellectual and financial community. As a solace to him and me, science
generally exists. This means that the minority may sometimes be right but
the majority never is. Non-standard ideas may sometimes be right. Standard
ideas never are.
Journal of Commerce
July 13, 1998
[for personal use only]
Arrogant, and proud of it
BY JAMES MEEK
Back in 1918, when Russia's new Bolshevik rulers still had the mud of
the street on their boots and the knock-it-all-down, build-it-again
attitude common to all true revolutionaries, they decided to do away
with the czar's old-style diplomatic service.
Out went the frock coats, the top hats, the sashes, the hollow
courtesies and intricate ritual of missions abroad dominated by
aristocrats. The old diplomatic ranks were abolished. In came a new
class of blunt, mistrustful, self-consciously anti-capitalist
A few years later, when the USSR won international recognition, these
people's representatives found that it hurt to be snubbed. The rest of
the world still followed diplomatic conventions established in the 19th
century and, as a result, the proud, fiery Soviet diplomats kept being
treated like diplomats of a lesser sort.
Instead of shrugging their shoulders and laughing off the folly of
bourgeois protocol, the Soviets gave in. They restored the old ranks. In
this, at least, they wanted to be like everyone else. They wanted
As long as the Soviet Union existed, international diplomatic norms --
lately, those laid down by the 1961 Vienna Convention -- were, with
occasional lapses, scrupulously observed. Bouts of spy fever, when one
side or another expelled diplomats on suspicion of espionage, and
endless attempts to bug and eavesdrop, did not harm Moscow's image as a
stickler for the formal, superficial niceties of diplomatic behavior.
And so it has been, on the whole, with most undemocratic regimes. North
Korea, China, Syria -- even the blatant exceptions to the rule have been
just that, exceptions, like the U.S. embassy seizure in Iran or the use
of the Libyan embassy in London as a sniper's nest.
Enter Alexander Lukashenko, president of the former Soviet state of
Belarus. Unlike all other 14 former Soviet countries, Mr. Lukashenko has
inherited nothing of the USSR's delicacy in diplomatic matters. Indeed,
while he appears to have all of the bluntness of the Bolshevik
revolutionaries of old, he has none of their intellectual inspiration.
He is the opposite of "diplomatic" with a small "d": he is rude. And a
rude head of state is an exceptionally rare creature, one with whom
diplomats were never designed to deal.
Mr. Lukashenko was not very popular outside Belarus before the latest
diplomatic row, but his abrupt demand that 22 foreign ambassadors
evacuate their residences in a countryside complex of buildings called
Drozdy, just outside Minsk, on the dubious grounds that the plumbing
needed to be repaired, brought all the old western irritations to the
boil as the diplomats stormed out.
"Dictator" is a word that has often been used of Mr. Lukashenko in
recent days. And he is a dictator, in the sense that he wields absolute
power in Belarus, unhindered by his puppet parliament, tame courts and
self-repressing people, and aided by a loyal police force and
unquestioning cronies. But that word may give those who do not know his
history a false impression of what he is really worth.
Because of Hitler, Mussolini, Stalin and Saddam Hussein, we think of a
dictator not only as a totalitarian ruler but as a man with an
ideological vision, a set of intellectual obsessions, usually involving
different races and war. Mr. Lukashenko, in many ways a sad, forlorn
figure whose coterie encourages his delusion that the world cares about
Belarus, or could even find it on the map, is not in this league of
The clue to his personality lies in the reason he wanted to get the
foreigners out of Drozdy in the first place. The problem from his point
of view is that he lives there, too. It offended his vanity that he had
to share it with the representatives of overseas powers who have
consistently looked down their noses at him and his country.
Sharing a compound with the ambassadors also inflamed his paranoia. He
is convinced that Minsk is the nexus of a web of foreign plots against
Belarus in general and him in particular. Having to live next door to
foreigners must have driven him close to madness.
Finally, the incident provoked the bully in him. It has been
characteristic of his reign that, being unable to lash out at those who
offend him beyond his borders, he engages in petty acts of unpleasant
revenge in the small ways he can at home. Shooting down two American
sporting balloonists was one. Putting journalists from a Russian TV
station on show trial on absurd charges was another. Humiliating the
ambassadors was the latest.
It is a cliche to say that Mr. Lukashenko runs Belarus as if he was
still running his old collective farm, but it is absolutely true. He's a
swaggering, loud-mouthed young patriarch who doesn't expect his citizens
-- whom he treats like his employees -- to answer back. He sees the
wider world as a frightening, untrustworthy place that doesn't know him
as well as it should and always blames the farmyard problems on someone
The bonus for the rest of the world is that he isn't going to advance
beyond the farm gate. The sad reality for Belarus, though, is that he is
only 42 -- and he's going to be ruling the farm for a long time yet.
James Meek writes for The London Observer Service. This article was
distributed by Scripps Howard News Service.
Financial Times (UK)
11 July 1998
[for personal use only]
RUSSIA: First came power, then wealth
Victor Chernomyrdin, from peasant boy to prime minister, overturns
Chrystia Freeland's view of Russia
As Victor Chernomyrdin, Russia's former prime minister and now a
candidate for the presidency, settles himself into a chair next to mine,
my heart sinks.
It's not that he's an hour late: I have come five minutes late and am
relieved not to have kept such an august person waiting. What horrifies
me is that, as he rests his elbows on the bare boardroom-style table,
laid out only with plastic flowers and a few bottles of mineral water,
Chernomyrdin clearly has no intention of eating lunch.
I was afraid of this. Breaking bread with a mere journalist is an
unusual concept for a Russian leader of Chernomyrdin's vintage.
Moreover, his handlers had warned me that the ex-premier would be unable
to select a favourite restaurant for our meeting - "after a lifetime in
the nomenklatura he hardly knows what a public restaurant is" - and so
we had settled on dining at his office.
But some nervous functionary has obviously failed to pass on this weird
western request and so, taking a deep breath, I launch into a panicked
explanation of my mission. At last, understanding, of a sort, dawns.
"Ah, you're hungry? No problem, I haven't eaten lunch either and this
will save me time. Let's go."
With that, Chernomyrdin whisks me into the modest, windowless
cubby-hole, which serves as his private dining room. I had expected
something grander. Until he was abruptly dropped from the cabinet in
March, Chernomyrdin was the second most powerful person in Russia and a
man with the rather autocratic tastes of his political caste. He caused
a scandal a few years ago when the media uncovered his fondness for
winter bear-hunting, complete with a small army of courtiers to rouse
the beasts from hibernation.
Chernomyrdin himself is the second surprise. Deeply tanned, smiling and
voluble, he looks younger than his 60 years and almost unrelated to the
wooden prime minister known chiefly for his dullness and tortured,
barely comprehensible syntax.
As we are served our first course - a homey Russian salad of sliced
cucumbers, a few lettuce leaves and a dollop of smetana, a heavy,
slightly sour cream - I comment on his vigour. It is clearly not an
"Everyone says that, they all ask me - What's happened to you?" he
replies. "I haven't taken a holiday, I was up at 4.30 this morning and
I'm constantly travelling . . . But it's not the burden I once had [in
government]. It's a huge country. Floods, fires, accidents. You worry,
you make phone calls, you sort things out ...I can't say I really
His previous job as fuel and energy minister had offered more personal
satisfaction. It was here that he had his greatest accomplishment,
transforming the Soviet natural gas industry into Gazprom, a partially
privatised behemoth which is Russia's biggest company,
"I was the head of the sector; it was interesting. I created it, built
it up, trained everyone. For me, that job was like a song," Chernomyrdin
says, happily waving his knife around for emphasis.
His affection for Gazprom has earned him the censure of Russian liberals
and western economists, who accused Chernomyrdin of offering unfair
perks to his comrades in the gas sector and argued that the very
existence of such a huge company - Gazprom controls more than a third of
the world's natural gas reserves - distorted Russia's nascent market
But Chernomyrdin sees Gazprom, and his role as its founder, in a
different light. Indeed, you can almost hear the presidential campaign
speech that will be delivered in 2000, as he insists that Gazprom was a
pioneering experiment in market reform and he was the visionary behind
"I am the man who did that [first moved to the market]," he says.
"Already in 1988, I transformed the government industry into a company
and I myself left the cabinet. I was the first to do this in the
[Soviet] Union, the first. I understood even then that we had reached a
dead end. A dead end."
In fact, Chernomyrdin argues that it was he, the weathered, hands-on
industrialist, who spearheaded Russia's market transformation and not
the radical young academics brought in by Russian president Boris
Yeltsin in 1992 to apply "shock therapy" to the ailing centrally planned
Warming to his theme as we move on to okoroshka, a chilled, tangy meat
and vegetable soup which is a Russian summertime favourite, he insists:
"I had already begun to work in the market when he [Yegor Gaidar, the
arch-liberal who headed Russia's first, post-communist cabinet] was
still sitting in Kommunist [a theoretical journal Gaidar edited in the
late 1980s] and writing party articles.
"But Chernomyrdin, at that same time, was saving Gazprom, preparing it
for market conditions. That's the difference between us. History will
Nor is the former premier immune to feelings of schadenfreude, as he
watches his successors struggle to defend the rouble and the Russian
financial system against a rumbling crisis which has halved the value of
equities since the beginning of the year.
To rescue the economy, the new government is trying to win an emergency
bail-out loan of $10bn-$15bn from the International Monetary Fund and
other western creditors. The IMF has been decidedly chilly about
Moscow's request, but Chernomyrdin implies that, last year, the money
was his for the asking.
"When the first wave of the Asian crisis came we insured ourselves with
the IMF, and, under various conditions and guarantees, we agreed all the
details of a $10bn loan," he says.
"We needed the right to borrow this money. So we made this deal, it was
at the end of November or the beginning of December."
Just four months ago, this story of such a private deal would have
caused a sensation. Today, it is only a historical footnote from the
last months of Chernomyrdin's five-year tenure as head of the cabinet.
Losing that post must have been difficult. The loss was com pounded by
the particularly brutal way in which Yeltsin dispensed with his
long-serving ally, abruptly summoning him to his dacha on a Saturday
afternoon and telling him that on Monday, March 23, he would be sacked.
How did it feel?
Chernomyrdin claims to have taken his fall from grace stoically. "I've
worked as a leader for many years and I always trained myself to be
prepared for the worst. So all those who thought I would fall into a
deep depression or begin beating my breast in hysterics - they were
Now, though, he hopes to turn the tables on those nay-sayers, and
perhaps enjoy a little bit of historical revenge against Yeltsin, by
conquering the Kremlin himself.
Although his bid is backed by much of Russia's corporate establishment -
including, of course, his beloved creation, Gazprom - many observers are
sceptical of Chernomyrdin's ability to make it at the ballot box.
He seems to lack the flesh-pressing zeal of an instinctive politician
and the fire in the belly which drives a man like Yeltsin to overcome
his own physical frailty in order to reassert, time after time, his
Worse yet, at least in the popular imagination, Chernomyrdin is the
quintessential representative of the old regime, a talented apparatchik
whose skill at operating in the Soviet system raised him up from an
obscure Siberian village to the Central Committee of the CPSU.
But, perhaps in an early effort to reshape his image for the hustings,
Chernomyrdin tells a rather different story about his personal evolution
- a Horatio Alger tale of a hard-working farm boy for whom the
principles of capitalism are a happy return to the values of his
"I'm an ordinary peasant boy, from an ordinary peasant school, in an
ordinary village without any relatives in high places ...I did
everything myself, I achieved everything myself," he says, as we move on
to mashed potatoes and boiled tongue, the main course of a meal which
confirms that - at least gastronomically - the ex-premier is faithful to
the humble tastes of his childhood.
"A boy from the village and suddenly I became the prime minister . . .
We had a cow, pigs, chickens. We were five children and each had his
chores . . . It taught me an important thing: How you work will be how
This peasant commonsense, he believes, should become the basis of
Russia's fledgling market economy. "If you work, you prosper. If you
don't, you don't. This is the chief principle of our current market
It is clearly a favourite theme, and he carries on in this vein for
several minutes, eventually drifting into a denunciation of the evils of
communism. "They destroyed everything, they destroyed the best people,
they destroyed the peasants."
I happen to agree. But wasn't Chernomyrdin himself a communist and one
of the builders of the now reviled system?
For just a moment, the question seems to be enough to re-evoke the
tongue-tied Chernomyrdin of old. "We were all like that. And how. We
were all the same. We are all children of one time. But we were all
But then he clambers back to the safety of describing his own
industriousness, and his confidence is restored.
"I understood [the problems with communism] earlier than others. It was
humiliating to me that I worked incredibly hard, but that I lived like
the man who did nothing. Is that right? Is that fair to Chernomyrdin?"
I am finding it a bit hard to feel sorry for this man who prospered in
both communist and capitalist times, when, suddenly, the real
significance of his complaint dawns on me.
One of the clichés of Russia's market transformation has been to portray
it as a revolution waged by zealous young ideologues against the
entrenched red directors of the Soviet system. Looking at the
tran-sition through Chernomyrdin's eyes, I see that it was quite the
Russia's capitalist revolution is, in fact, the victory of the smartest
of the red directors, men like Chernomyrdin, who had the sense to pull
the prosperous gas sector out of the clutches of the decaying communist
state. They may have had political power in the Soviet Union, but they
did not have wealth, at least by western standards. Now they have both.
Our meal is almost over, so I decide to make one last bid to provoke
Chernomyrdin into some insulting indiscretion about the president who
has caused him so much grief this year.
It seems likely enough. Other aggrieved Kremlin courtiers have regaled
Russia with so many lurid details about Yeltsin's drinking habits and
lackadaisical style of governance, they have spawned a whole new
But Chernomyrdin doesn't bite and he responds with such dignity I feel
almost guilty for asking the question.
"I cannot say bad things about my president. I voted for him, I was at
his side in these past difficult years. No matter what he says about me,
I know what is permissible for me and what is not."
And then he must go. The president of Ingushetiya, a region in the north
Caucasus, has been waiting for 20 minutes for an audience. Chernomyrdin
may be yesterday's man, but smart Russian leaders are still paying
court, because he might also be tomorrow's.
Berezovskiy: Situation in Russia Should Not be Dramatized
MOSCOW, July 9 (Interfax) -- Executive Secretary of the Commonwealth
of Independent States Boris Berezovskiy told Interfax Thursday that the
situation in Russia should not be overly dramatized.
"The economic and political situation in Russia is not that desperate,
and there is a peaceful way out of the current problems," he said.
He also warned that "it's very dangerous to make decisions in haste"
and said that the devaluation of the ruble could be avoided.
Regarding the statement by president of the Interros holding company
Vladimir Potanin to the effect that dictatorship may be established in
Russia in 2000, Berezovskiy said: "I know Potanin only as a banker."
Clinton Russian Affairs Aide
July 10, 1998
WASHINGTON (AP) - Carlos Pascual, a Cuba-born foreign service officer who
specialized in African issues, is returning to the White House to serve as
President Clinton's special assistant on Russia.
He will work for Sandy Berger, the president's assistant for national
security, a White House statement said Friday.
Pascual had joined the National Security Council staff three years ago to work
on Russian issues and then transferred to the U.S. Agency for International
Earlier in his career he served in Sudan, South Africa and Mozambique.
Khristenko: Budget Revenue for June 'Did Not Decrease'
MOSCOW, July 9 (Interfax) -- Russia's monthly federal budget revenues
did not decrease in June and totalled about 22 billion rubles, Deputy Prime
Minister Viktor Khristenko told a news conference Thursday after a meeting
of the government commission for budget revenue.
Tax revenues for June were 11.2 billion rubles, 600 million rubles up
on May levels, he said.
Proceeds from customs duties last month totalled 7.44 billion rubles
against 7.2 billion rubles for May, Khristenko said.
The State Tax Service and the State Customs Committee are the main
sources of budget revenue, he said.
The majority of the measures in the government's stabilization program
are being implemented already, Khristenko said. These measures have been
included in presidential decrees, governmental resolutions and the package
of draft laws submitted to the State Duma, he said.
These measures may bring the first results in July or August,
The Cabinet will prepare another two documents within the bounds of
its stabilization program, he said. The first one concerns liability of
companies for their subsidiaries, and the second one deals with measures
against corporate tax delinquents, Khristenko said.